EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
XXXXXXXX TECHNOLOGIES INC.
AND
E-OIR TECHNOLOGIES, INC.
AND
THE SELLERS LISTED ON
THE SIGNATURE PAGE
ATTACHED
DATED AS OF JUNE 30, 2004
TABLE OF CONTENTS
ARTICLE 1 Sale and Purchase....................................................1
1.1 Agreement to Sell and Purchase...........................................1
1.2 Purchase Price...........................................................1
1.3 Closing..................................................................1
1.4 Payment of Purchase Price................................................1
1.5 Distribution of Working Capital..........................................1
1.6 7 Representative.........................................................2
ARTICLE 2 Representations and Warranties of the Sellers........................3
2.1 Organization, Good Standing and Subsidiaries.............................3
2.2 Capitalization and Ownership of Capital Stock............................3
2.3 Charter, Bylaws and Minutes..............................................4
2.4 Enforceability...........................................................4
2.5 No Breach................................................................4
2.6 Properties and Assets....................................................5
2.7 Financial Statements.....................................................5
2.8 Absence of Certain Changes...............................................6
2.9 Debt and Bank Accounts...................................................8
2.10 Accounts Receivable......................................................8
2.11 No Undisclosed Liabilities...............................................8
2.12 Taxes....................................................................8
2.13 Employee Compensation and Benefits......................................12
2.14 Litigation..............................................................13
2.15 Intellectual Property...................................................13
2.16 Insurance...............................................................14
2.17 Material Contracts......................................................14
2.18 Consents and Approvals..................................................15
2.19 Governmental Permits and Licenses.......................................15
2.20 Compliance with Law.....................................................16
2.21 Environmental Laws and Regulations......................................16
2.22 Transactions with Affiliates............................................16
2.23 Customers and Suppliers.................................................17
2.24 Impairment of Relationships.............................................17
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2.25 Certain Payments........................................................17
2.26 Contract Backlog........................................................17
2.27 Service Liabilities.....................................................17
2.28 Brokers or Finders......................................................18
2.29 Totality of Assets......................................................18
2.30 Joint Ventures..........................................................18
2.31 Survival................................................................18
ARTICLE 3 Representations and Warranties of the Buyer.........................18
3.1 Organization and Good Standing..........................................18
3.2 Authority...............................................................19
3.3 Consents and Approvals of Governmental Authorities......................19
3.4 No Breach...............................................................19
3.5 Brokers or Finders......................................................19
ARTICLE 4 certain Tax Matters.................................................19
4.1 Tax Covenants...........................................................19
4.2 Tax Indemnification.....................................................24
ARTICLE 5 Closing Deliveries..................................................24
5.1 Deliveries and Other Conditions to Obligations of Each Party............24
5.2 Deliveries of the Sellers...............................................25
5.3 Deliveries Of the Buyer.................................................26
5.4 Agreement of Sellers to Terminate the Buy-Sell Agreement................26
ARTICLE 6 Certain Post-Closing Covenants......................................26
6.1 Proprietary Information.................................................26
6.2 Sharing of Data.........................................................27
6.3 Cooperation in Litigation...............................................27
6.4 Publicity...............................................................27
6.5 Post-Closing Litigation matters.........................................27
ARTICLE 7 Indemnification.....................................................28
7.1 Indemnification by the Sellers..........................................28
7.2 Indemnification by the Buyer............................................28
7.3 Claims for Indemnification..............................................28
7.4 Defense by the Indemnifying Party.......................................29
7.5 Payment of Indemnification Obligation...................................30
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7.6 Treatment of Indemnity Payments.........................................30
7.7 Limitation..............................................................30
7.8 Exclusivity.............................................................30
ARTICLE 8 Miscellaneous.......................................................31
8.1 Defined Terms...........................................................31
8.2 Other Definitional And Interpretive Provisions..........................35
8.3 Amendment and Modification..............................................35
8.4 Waiver of Compliance; Consents..........................................35
8.5 Notices.................................................................35
8.6 Assignment..............................................................36
8.7 Governing Law...........................................................36
8.8 Submission to Jurisdiction..............................................36
8.9 Transaction Fees, Costs and Expenses....................................37
8.10 Costs of Enforcement....................................................37
8.11 Severability............................................................37
8.12 Construction............................................................37
8.13 Entire Agreement........................................................37
8.14 Counterparts; Facsimile Executions......................................37
8.15 Further Assurances......................................................38
SCHEDULE I Stockholder List...................................................S-I 1
SCHEDULE II Disclosure Schedule...............................................S-II 1
EXHIBIT A Form of Buyer Note ................................................A - 1
EXHIBIT B Power of Attorney .................................................B - 1
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made effective as
of June 29, 2004 by and among E-OIR TECHNOLOGIES, INC., a Virginia corporation
("EOIR"), each of the stockholders of EOIR set forth on the Stockholder List
attached hereto as SCHEDULE I (the "SELLERS"); and XXXXXXXX TECHNOLOGIES INC., a
Florida corporation (the "BUYER").
A. EOIR is a Virginia corporation with 12,000 authorized and
outstanding shares of common stock with a par value of one dollar ($1.00) per
share (the "EOIR COMMON STOCK").
B. The Buyer desires to purchase all of the EOIR Common Stock, and is
willing to purchase less than all, but in any event a majority of the EOIR
Common Stock on the terms and conditions set forth in this Agreement.
C. The Sellers wish to sell to Buyer any and all of the interests in
EOIR Common Stock that they hold.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
SALE AND PURCHASE
1.1 AGREEMENT TO SELL AND PURCHASE.
On and subject to the terms of this Agreement, and in consideration of
the mutual representations, warranties, covenants and agreements herein
contained, at the date and time of the closing of the transactions contemplated
herein and more fully defined in SECTION 1.3(A) below (the "CLOSING"), the Buyer
shall acquire any and all shares of the EOIR Common Stock tendered for sale by
Sellers (the "SELLERS' SHARES").
Capitalized terms not defined in context shall have the meanings
provided therefor in ARTICLE 8 hereof.
1.2 PURCHASE PRICE.
Subject to any applicable adjustments as provided in SECTION 1.3, the
aggregate consideration (the "PURCHASE PRICE") to be paid to the Sellers for all
of the EOIR Common Stock is nineteen million dollars ($19,000,000), payable in
accordance with SECTION 1.4 below.
1.3 CLOSING.
(a) The Closing will take place at the offices of Xxxxx Xxxx LLP, 1875
K Street, N.W., Washington, D.C. on a mutually agreed date on or about June 30,
2004 (the "CLOSING"). At the Closing, Xxxxxx X. Xxxxxxx ("XXXXXXX Sr.") in his
individual capacity and as the Representative (as defined in SECTION 1.5), on
behalf of the other Sellers, shall deliver to the Buyer or its designees stock
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certificates, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Sellers' Shares, and the Buyer shall pay to the
Sellers the Purchase Price, payable in accordance with SECTION 1.4.
(b) In the event Sellers holding a minority of the EOIR Common Stock
determine not to sell their EOIR Common Stock at the time the majority sells to
the Buyer, the Purchase Price will be reduced by the amount of proceeds
attributable to such minority shareholders.
1.4 PAYMENT OF PURCHASE PRICE.
(a) The aggregate Purchase Price shall be paid to the Sellers in the
form of (i) cash in the amount of the product of (1) eight million dollars
($8,000,000) and (2) a fraction, the numerator of which is the number of shares
of EOIR Common Stock owned by all Sellers as of the Closing, and the denominator
of which is the number of shares of EOIR Common Stock issued and outstanding as
of the Closing, and (ii) redemption of Seller's Stock by EOIR with payment by
EOIR promissory notes substantially in the form attached hereto as EXHIBIT A (a
"BUYER Note," and, together with all other such notes, the "BUYER NOTES") in
original principal amount equal to the product of (1) eleven million dollars
($11,000,000) and (2) a fraction, the numerator of which is the number of shares
of EOIR Common Stock owned by all Sellers as of the Closing, and the denominator
of which is the number of shares of EOIR Common Stock issued and outstanding as
of the Closing. Buyer Notes will include notes having a substantial risk of
forfeiture and notes without such risk of forfeiture. The allocation of the
Purchase Price to each of the Sellers, by cash, or by Buyers Notes (with and
without risk of forfeiture), is set forth on EXHIBIT B. The Buyer Notes shall
bear interest at six percent annually, compounded quarterly; will be payable in
quarterly installments over 60 months beginning on the first day of the first
full month after the Closing; and may be prepaid in whole or in part at any
time, including, without limitation, by offset as set forth in SECTION 7.6(C).
The Buyer Notes shall be secured by first priority perfected security interests
in the Sellers' Common Stock and in all of the assets of EOIR, including all
real and personal property, to be reflected in a Security Agreement and a Pledge
and Security Agreement of even date herewith made by Buyer for the benefit of
Sellers. The Buyer hereby authorizes the Representative to file financing
statements, mortgages or deeds of trust as applicable evidencing such first
priority security interests on the Buyer's behalf and agrees to take all other
actions reasonably requested by Xxxxxxx Sr. and the Representative necessary to
create, maintain, attach or perfect such security interests and liens. For so
long as Xxxxxxx Sr. shall be the Representative, any action requiring notice to,
consent of, or any action by Xxxxxxx Sr. and the Representative shall be deemed
accomplished by a single action by Xxxxxxx Sr. or, as applicable, by a single
delivery or notice to Xxxxxxx Sr. who shall be deemed to be acting in both
capacities.
(b) TRANSACTION EXPENSES. Buyer agrees to bear its own and all
reasonable expenses of Sellers (including, without limitation, the costs of
Xxxxx & Company which acted as broker) with respect to the transactions
contemplated in the Transaction Documents. SCHEDULE 1.4(B) (the "TRANSACTION FEE
SCHEDULE") sets forth all fees incurred by the Sellers, which will be paid by
Buyer immediately following the Closing out of EOIR funds. In addition to the
Purchase Price, Buyer shall pay to the Persons specified in the Transaction Fee
Schedule, the costs, fees and expenses reflected in such Transaction Fee
Schedule with Buyer to make such payments by wire transfer of immediately
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available funds or by check delivered at Closing, whichever may be applicable as
specified in the Transaction Fee Schedule.
1.5 SELLERS' REPRESENTATIVE.
Each of the Sellers other than Xxxxxxx Sr. hereby appoints Xxxxxxx Sr.
as their "REPRESENTATIVE" and agrees that the Representative shall have the
authority arising under this Agreement or other Transaction Documents to which
Sellers are party, on behalf of each of the Sellers other than Xxxxxxx Sr. (the
"NON-XXXXXXX SELLERS"), to:
(a) Enter into amendments designed to clarify the terms of this
Agreement or the Transaction Documents;
(b) Undertake such actions on behalf of the Non-Xxxxxxx Sellers that
specifically require action by them under this Agreement or the Transaction
Documents;
(c) Grant extensions or waivers with respect to Buyer's performance of
its obligations hereunder or under the Transaction Documents or the Buyer Notes,
including but not limited to, waivers or subordination of liens to facilitate
financing of EOIR and its affiliates post-Closing;
(d) Execute and deliver any documents or agreements contemplated by
this Agreement or the Transaction Documents, or necessary or desirable in
connection with the transactions contemplated by this Agreement or the
Transaction Documents, and enter into amendments to clarify the terms of such
documents and agreements;
(e) Give and receive notices, instructions and other communications
under this Agreement or the Transaction Documents and any other documents or
agreements contemplated hereunder or thereunder;
(f) Negotiate, document and settle all post closing matters between
Buyer and such Non-Xxxxxxx Sellers related to this Agreement or the Transaction
Documents;
(g) Take such actions with respect to this Agreement, the Transaction
Documents and the other documents and agreements contemplated by this Agreement
as the Representative may deem necessary or appropriate on behalf of such
Non-Xxxxxxx Sellers;
(h) Receive service of process in connection with any claims under this
Agreement or the Transaction Documents; and
(i) To make the election under Section 338(h)(10) pursuant to Section
4.2.
The appointment of the Representative shall be deemed coupled with an
interest and shall be irrevocable, and the Buyer and EOIR may conclusively and
absolutely rely, without inquiry, upon any action of the Representative in all
matters referred to herein.
If Representative resigns, dies or is otherwise unable to serve as the
Representative, the successor Representative shall be designated in writing by
the Non-Xxxxxxx Sellers who held a majority of the EOIR Common Stock immediately
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prior to the Closing (exclusive of EOIR Common Stock held by Xxxxxxx Sr.), and
such designation shall be binding upon all of the Non-Xxxxxxx Sellers.
If any Non-Xxxxxxx Seller should die or become incapacitated, if any
trust or estate should terminate or if any other such event should occur, any
action taken by the Representative pursuant to this Section 1.6 shall be as
valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not the Representative, the Buyer or EOIR
shall have received notice of such death, incapacity, termination or other
event.
All notices and other deliveries required to be made or delivered by
the Buyer or EOIR to the Non-Xxxxxxx Sellers shall be made to the Representative
for the benefit of the Non-Xxxxxxx Sellers and shall discharge in full all
notice requirements of the Buyer or EOIR to the Non-Xxxxxxx Sellers with respect
thereto. The Non-Xxxxxxx Sellers hereby confirm all that the Representative
shall do or cause to be done by virtue of his appointment as the Representative
of the Non-Xxxxxxx Sellers.
The Representative shall act for the Non-Xxxxxxx Sellers on all of the
matters set forth in this Agreement in the manner the Representative believes to
be in the best interest of the Non-Xxxxxxx Sellers and consistent with his and
their obligations under this Agreement, but the Representative shall not be
responsible to the Non-Xxxxxxx Sellers for any loss or damages the Non-Xxxxxxx
Sellers may suffer by the performance by the Representative of his duties under
this Agreement, other than loss or damage arising from his willful violation of
the law or his duties hereunder. The Representative and his heirs and personal
or legal representatives shall be held harmless by the Non-Xxxxxxx Sellers from,
and indemnified against, any loss or damages arising out of or in connection
with the performance of his obligations in accordance with the provisions of
this Agreement, except for any of the foregoing arising out of his willful
violation of the law. The foregoing indemnity shall survive the resignation or
substitution of the Representative.
Notwithstanding the foregoing, nothing in this Agreement shall permit
nor authorize the Representative to take any action to modify, reduce or alter
the amount or timing of payments due under the Promissory Notes. Each of the
Sellers other than Xxxxxxx Sr. shall deliver to the Representative the stock
certificate(s) evidencing the EOIR Common Stock held by such Seller, together
with a duly executed blank stock power, and hereby authorizes the Representative
to deliver such certificates and stock power in connection with the Closing
under this Agreement. To further effect the foregoing, each of the Non-Xxxxxxx
Sellers shall execute a power of attorney in the form of EXHIBIT B designating
the Representative (including any replacement Representative) as his or her
attorney-in-fact for the purposes set forth in this Section.
The Representative may resign by written notice to the Sellers other
than Xxxxxxx Sr. and, in such event, or upon death or incapacity of the
Representative a replacement Representative shall be chosen by action of the
Sellers (voting pro rata based on principle balance of the Promissory Notes),
which new Representative shall be reasonably acceptable to Buyer.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS
The Sellers hereby jointly but not severally make the representations
and warranties to the Buyer as set forth below as of the Closing, except to the
extent that any representation or warranty contained in this ARTICLE 2 is
qualified by the disclosures in the Disclosure Schedules attached hereto as
SCHEDULE 2. Nothing contained in the Disclosure Schedules shall be deemed
adequate to disclose an exception to a representation or warranty made in this
Agreement unless the Agreement specifically identifies the Disclosure Schedule
as containing exceptions to a representation or warranty, or the Disclosure
Schedule identifies the exception with particularity and describes the relevant
facts in reasonable detail. Unless the context explicitly provides otherwise,
the representation or warranty of, or the existence or absence of any event or
circumstance with respect to, Sellers shall mean a representation or warranty
by, or the existence or absence of an event or circumstance with respect to,
EACH Seller, individually, and not Sellers collectively or in a group of two or
more.
2.1 ORGANIZATION, GOOD STANDING AND SUBSIDIARIES.
(a) EOIR. EOIR is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia, with all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. EOIR is duly qualified or licensed and in good
standing to do business in each jurisdiction, whether domestic or foreign, in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary.
(b) OTHER INTERESTS. EOIR does not have any subsidiaries and does not
directly or indirectly own, either of record or beneficially, or have any rights
to acquire any equity interest in any other entity. Except for Distributed RMS
Corporation and RMS Enterprises, LLC, and otherwise as set forth on SCHEDULE
2.1(B) EOIR has not sold, divested or liquidated any corporate entity in the
three (3) years prior to Closing.
2.2 CAPITALIZATION AND OWNERSHIP OF CAPITAL STOCK.
(a) EOIR COMMON STOCK. The authorized stock of EOIR consists of 12,000
shares of common stock, having a par value of $1.00 per share. SCHEDULE 2.2(A)
sets forth a true and complete list of all the issued and outstanding shares of
capital stock of EOIR. Each of the Sellers (together with Non-Selling
Shareholders) has good and valid title to, and sole record and beneficial
ownership of, all the EOIR Common Stock. No shares of EOIR Common Stock were
issued in violation of any U.S. federal, state or foreign securities law. At
Closing, all the Sellers' Shares shall be free and clear of any claims, liens,
pledges, options, security interests, trusts, encumbrances or other rights or
interests of any person or entity, and there is no security, option, warrant,
right (including preemptive rights), put, call, subscription agreement,
commitment, understanding or claim of any nature whatsoever, fixed or
contingent, to which either the Sellers or EOIR is a party or by which the
Sellers or EOIR is bound that directly or indirectly (i) calls for the issuance,
sale, pledge, delivery or other disposition of any securities of EOIR or any
securities convertible into, or other rights to acquire, any securities of EOIR,
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(ii) relates to the voting or control of any securities of EOIR, or (iii)
obligates the Sellers or EOIR or any of their respective Affiliates to grant,
offer or enter into any of the foregoing. All of the EOIR Common Stock has been
duly authorized and validly issued and, as of the Closing, will be fully paid
and non-assessable. There are no outstanding contractual obligations of EOIR to
repurchase, redeem or otherwise acquire any shares of its capital stock.
(b) NO THIRD PARTY INTERESTS. Except as set forth on SCHEDULE 2.2(B),
neither the Sellers nor EOIR has granted, issued, or agreed to grant or issue
any equity interests in EOIR and there are no outstanding options, warrants,
subscription rights, securities that are convertible into or exchangeable for,
or any other commitments of any character relating to, any equity interests in
EOIR that have not been fully released on or before the Closing.
2.3 CHARTER, BYLAWS AND MINUTES.
Complete and accurate copies of all charter, bylaws and minute books of
EOIR, together with all amendments thereto to the date hereof, have been
delivered to the Buyer or its representatives. The minute books of EOIR contain
accurate and complete records of all material corporate action taken by the
stockholders, members, board of directors and committees of the board of
directors of EOIR, and no material corporate action has been taken by any of
such stockholders, members, board of directors or committees for which records
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of EOIR.
2.4 ENFORCEABILITY.
EOIR has the corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby to the extent of its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, to the extent of EOIR's
obligations hereunder, have been duly and validly authorized by the board of
directors of EOIR and no other corporate proceedings on the part of EOIR are
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, to the extent of EOIR's
obligations hereunder. This Agreement and the other agreements contemplated
hereby to be signed by EOIR and Sellers have been duly executed and delivered by
EOIR and Sellers and constitute valid and binding obligations of EOIR and the
Sellers, enforceable against each of them in accordance with their terms,
subject to the qualifications that enforcement of the rights and remedies
created hereby and thereby is subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other laws of general
application affecting the rights and remedies of creditors and (b) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
2.5 NO BREACH.
Neither the execution of this Agreement by EOIR or any of the Sellers
nor the completion of the transactions contemplated hereby by EOIR or any of the
Sellers will (a) conflict with or result in a breach of any provision of the
charter or bylaws (or similar governing documents) of EOIR; (b) conflict with,
violate or result in a breach of the terms, conditions or provisions of, or
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constitute a default (or event which upon provision of notice or lapse of time
or both would become such a default) or result in the acceleration of any
obligation under, or result in the cancellation or modification of, or permit
termination of, any agreement, lease, license, note, contract or instrument to
which EOIR is a party or by which EOIR is bound; (c) accelerate, or constitute
an event entitling the holder of any indebtedness of EOIR to accelerate the
maturity of any such indebtedness or permit the subordination of any
indebtedness owing to EOIR to any other indebtedness to which such party was not
already subordinated; (d) conflict with or violate the provisions of any law or
any judgment, decree, order, arbitration award, regulation or rule of any
Governmental Entity or any covenant or restriction binding upon any of the
Sellers or EOIR; (e) violate or result in the modification, termination or loss
of any Permit; or (f) result in the creation of any lien, charge or encumbrance
upon any equity interest in or assets of EOIR under any agreement or instrument
to which EOIR is a party or by which EOIR is bound.
2.6 PROPERTIES AND ASSETS.
(a) SUFFICIENT RIGHTS TO USE. EOIR has beneficial ownership of, and
good and marketable title to or sufficient rights to use, all properties and
assets used in its operations or necessary for the continued conduct (both
before and after the Closing) of its business as currently conducted or proposed
to be conducted.
(b) OWNED PROPERTY. EOIR has good and marketable title to all of the
properties, equipment and assets owned by EOIR. None of the properties,
equipment or assets owned by EOIR is subject to any mortgages, liens, judgments,
pledges, loans, claims or encumbrances of any kind whatsoever, except for liens
for current Taxes not yet due and payable and those set forth on SCHEDULE
2.6(B). SCHEDULE 2.6(B) lists (i) all real property owned by EOIR; (ii) all
other property, equipment and assets owned by EOIR which are fixed assets (as
determined in accordance with GAAP) having a book value greater than $5,000; and
(iii) all other property, equipment and assets owned by EOIR of a tangible
nature whose book value exceeds $5,000. With respect to all real property, EOIR
possesses a valid certificate of occupancy to the extent required by law and
there is no pending or proposed special or other assessment for public
improvements or otherwise.
(c) LEASED PROPERTY. The properties, equipment and assets leased by
EOIR are held under a valid leasehold interest in such properties and assets.
SCHEDULE 2.6(C) sets forth a list of (i) all leases or rental contracts under
which EOIR is a lessee, lessor, sublessee or sublessor, and (ii) all leased
property or equipment used by EOIR in the operation of its business. EOIR has
made all payments under, and is in compliance with the terms of, each lease or
rental contract to which it is a party. All such leases are in full force and
effect and neither EOIR as tenant thereunder, nor the landlord under such
leases, is in default thereunder. Except as set forth on SCHEDULE 2.6(C) the
consent of any landlord for any such aforementioned leases (excluding leases for
equipment the loss of which would not be material to EOIR's operations) will not
be required as a result of the transaction contemplated by this Agreement.
(d) CONDITION OF PROPERTY. All real and tangible personal property,
including all equipment and fixtures currently used by EOIR in the operation of
its business, are, and at the Closing will be adequate and suitable for the
purposes for, and the manner in, which they are currently being used or are
currently intended to be used, subject to ordinary wear and tear taking into
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account the age and use of such asset. No proceeding is pending or, to the
knowledge of EOIR or any Seller, proposed which would preclude or impair the use
of any property or asset by EOIR for the purposes for, and the manner in, which
it is currently used or is currently intended to be used. EOIR, as lessee under
each lease or rental contract, is in peaceable and undisturbed possession of the
real property and improvements, buildings, machinery, equipment or other
tangible property or assets covered thereby. All improvements on leased property
used by EOIR in the operation of its business and the current use thereof are in
accordance with all applicable laws and the agreements under which such
improvements are leased.
2.7 FINANCIAL STATEMENTS.
(a) FINANCIAL STATEMENTS. SCHEDULE 2.7(A) contains (i) the consolidated
balance sheets of EOIR as of December 31, 2003, 2002 and 2001, together with the
related statements of income and changes in stockholder equity of EOIR for the
years then ended; and (ii) the consolidated balance sheet of EOIR as of May 31,
2004, together with the related unaudited statement of income for the period
then ended (clauses (i) and (ii), together, the "FINANCIAL STATEMENTS"). The
Financial Statements are accurate and complete and were prepared in accordance
with GAAP in a manner consistent with the historic accounting practices of EOIR
applied on a consistent basis, and present fairly the financial position and
results of operations of EOIR as of the dates and for the period covered
thereby. The internal books and records of EOIR from which the Financial
Statements were prepared do not contain any information which is false or
misleading and the reserves set forth in the Financial Statements are adequate
in light of the contingencies with respect to which they were established.
(b) FIXED ASSETS. The value of the fixed assets used by EOIR in the
operation of its business has not been written up or down, other than for
depreciation or amortization expenses in accordance with GAAP, applied on a
basis consistent with the historic accounting practices of EOIR.
2.8 ABSENCE OF CERTAIN CHANGES.
(a) Except as set forth on SCHEDULE 2.8(A), since April 30, 2004, EOIR
has diligently and substantially conducted its business consistent with past
practices and prudent business operations and there has not been:
(i) Any Material Adverse Effect with respect to EOIR;
(ii) Any material increase in the compensation paid or payable
by EOIR to any of its directors or officers; nor to any employee or consultant
other than in the ordinary course consistent with past practices and prudent
business operations;
(iii) Any recapitalization in respect of any equity interest
in EOIR or any direct or indirect redemption, purchase or other acquisition of
any such equity interest or any agreement to do any of the foregoing;
(iv) Any issuance, transfer, sale or pledge by EOIR of its
capital stock or any other equity interest or of any commitments, options,
warrants, rights or privileges under which EOIR is or may become obligated to
issue any shares of its capital stock or any other equity interest;
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(v) Any adoption, amendment or entering into by EOIR of any
bonus, profit sharing, stock option, pension, retirement, severance, deferred
compensation or other employee benefit plan or agreement
(vi) Any other liability, commitment or obligation incurred by
EOIR other than those consistent with past practices and prudent business
operations, and exceeding $75,000;
(vii) Any loan, capital contribution, advance made or agreed
to be made by EOIR other than those consistent with past practices and prudent
business operations, and exceeding $25,000, either individually or in the
aggregate, or the incurrence of any liability or the making of any guaranty by
EOIR with respect to any obligation of a third party other than those consistent
with past practices and prudent business operations, and exceeding $25,000,
either individually or in the aggregate;
(viii) Any discharge or, to Sellers' knowledge, waiver by EOIR
other than those consistent with past practices and prudent business operations,
of any right or rights exceeding $25,000, either individually or in the
aggregate, or any payment, direct or indirect, of any debt, liability or other
obligation exceeding $50,000, either individually or in the aggregate, before
the same became due in accordance with its terms;;
(ix) Any amendment to the charter or bylaws (or similar
governing documents) of EOIR;
(x) Any amendment, cancellation or termination of any written
or unwritten contract, agreement, commitment, license or other instrument or
arrangement which would have a Material Adverse Effect on EOIR;
(xi) Any failure to repay any material obligation of EOIR when
due other than when there is a good faith dispute over such obligation, as
specifically disclosed on SCHEDULE 2.8(A) of the Disclosure Schedule;
(xii) Any change in the accounting methods, practices or
policies followed by EOIR, whether for general financial or Tax purposes;
(xiii) Any change in any election in respect of Taxes,
adoption or change in any accounting method in respect of Taxes, the entering
into any Tax allocation agreement, Tax sharing agreement, Tax indemnity
agreement or closing agreement, any settlement or compromise of any claim or
assessment in respect of Taxes, or any consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes with
any taxing authority or otherwise
(xiv) Any transaction between EOIR and a Related Party having
a value individually or in aggregate exceeding $25,000, other than the
divestiture described in Section 5.2(f), the agreed distribution of EOIR net
profit balances as of the date of Closing (which distribution shall in no event
9
reduce the working capital balance to less than zero), and other transactions
consistent with past practices and prudent business operations;
(xv) Any purchase or other acquisition of, or any sale, lease,
disposition of, mortgage, pledge or subjection to any lien or encumbrance on
(except for liens for current Taxes not yet due and payable), any material
property or assets, whether tangible or intangible, of EOIR or any agreement to
do any of the foregoing, other than those consistent with past practices and
prudent business operations;
(xvi) Any payment or declaration of any dividend or other
distribution in respect of any shares of the capital stock of EOIR, or any
incurrence of any obligation to make any such dividend or distribution except
for distribution of EOIR's net profit balances as of the date of Closing (which
distribution shall in no event reduce the working capital balance to less than
zero) and the divestiture set forth in Section 5.2(f), or to the extent
specifically disclosed in writing to Buyer;
(xvii) Any release, termination or modification of the
existing noncompetition, confidentiality, invention agreements between EOIR and
fourteen (14) key employees as provided to Buyer;
(xviii) Any agreement or commitment to do any of the
foregoing; or
(xix) Any physical damage, destruction or loss of any assets
of EOIR in an amount exceeding $100,000 in the aggregate.
2.9 DEBT, BANK ACCOUNTS, AND AVAILABLE LINES OF CREDIT.
(a) DEBT. SCHEDULE 2.9(A) sets forth a complete and accurate list of
all the debt (the "DEBT") of EOIR as of May 31, 2004, together with a
description of all security and collateral for each indebtedness listed thereon.
(b) BANK ACCOUNTS. SCHEDULE 2.9(B) sets forth a complete and accurate
list of (i) all bank, money market, savings and similar accounts and safe
deposit boxes of EOIR (the "ACCOUNTS") (ii) the names of all authorized
signatories and persons having access to such accounts and safe deposit boxes,
including, without limitation, any persons holding power of attorney with
respect thereto and (iii) the closing balance of each such Account as of May 31,
2004.
(c) LINES OF CREDIT. SCHEDULE 2.9(C) sets forth a complete and accurate
list of all lines of credit available from unaffiliated parties as of the
Closing.
2.10 ACCOUNTS RECEIVABLE.
All the Accounts Receivable of EOIR represent or will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Except as set forth on SCHEDULE 2.10, unless
paid on or prior to the Closing, the Accounts Receivable are or will be as of
the Closing collectible net of the respective reserves shown in the Financial
Statements (which reserves are adequate and calculated consistent with past
practice, without any set-off). Neither EOIR nor any Seller has received any
notice of contest, claim, or right of set-off, other than returns in the
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ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
SCHEDULE 2.10 contains a complete and accurate list of all the Accounts
Receivable of EOIR as of May 31, 2004.
2.11 NO UNDISCLOSED LIABILITIES.
EOIR does not have, or as of the Closing will not have, any
liabilities, obligations or commitments (whether absolute, accrued, or
contingent) that in accordance with GAAP should be included in the Financial
Statements except (a) liabilities which are adequately reflected or fully
reserved against in the Financial Statements or (b) liabilities which have been
incurred in the ordinary course of business and consistent with past practice,
which do not (and are not anticipated to) individually or in the aggregate have
a Material Adverse Effect with respect to EOIR.
2.12 TAXES.
(a) TAX RETURNS. EOIR has filed all Tax Returns that it was required to
file, and all such Tax Returns were correct and complete in all material
respects. EOIR has paid all Taxes required to be paid by EOIR on or before the
date hereof (whether or not such amounts are shown on any Tax Return).
(b) PAYMENT OF TAXES. Except as set forth in SCHEDULE 2.12(B), EOIR has
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) TAX DISPUTES AND AUDITS. There is no material dispute or claim
concerning any Tax liability of EOIR (i) claimed or raised by any taxing
authority orally or in writing or (ii) as to which any of the Sellers has
knowledge based upon personal contact with any agent of a taxing authority.
Neither EOIR nor any Seller expects any governmental authority to assess any
additional Taxes for any period for which Tax Returns have been filed. No
federal, state, local, or foreign Tax audit or administrative or judicial Tax
proceeding is pending or being conducted with respect to EOIR. No claim has ever
been made by a governmental authority in a jurisdiction where EOIR does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. EOIR
has not received from any federal, state, local, or foreign taxing authority
(including jurisdictions where EOIR has not filed Tax Returns) any (i) written
notice indicating an intent to open an audit or other review, (ii) request for
information related to Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing
authority against EOIR. SCHEDULE 2.12(C) lists all federal, state, local, and
foreign Income Tax Returns filed by EOIR for its taxable periods ended on or
after December 31, 1999, and indicates whether those Tax Returns have been
audited.
(d) LIENS. There are no liens for Taxes (other than for current Taxes
not yet due and payable) existing upon any of the stock or assets of EOIR.
(e) POST-CLOSING INCOME AND DEDUCTIONS. Except as set forth on SCHEDULE
2.12(E), EOIR will not be required to include any item of income in, or exclude
any item of deduction from, taxable income for any taxable period (or portion
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thereof) ending after the Closing as a result of any (i) change in method of
accounting for a taxable period ending on or prior to the Closing; (ii) "closing
agreement" as described in Code section 7121 (or any corresponding or similar
provision of state, local, or foreign Income Tax law) executed on or prior to
the Closing; (iii) installment sale or open transaction disposition made on or
prior to the Closing; or (iv) prepaid amount received on or prior to the
Closing.
(f) S CORPORATION. None of the Sellers is a nonresident alien for U.S.
income tax purposes. EOIR has been a validly electing S corporation within the
meaning of Code sections 1361 and 1362 at all times during its existence through
and including the day before the Closing (unless the Buyer and the Sellers make
a 338(h)(10) Election with respect to EOIR, in which event EOIR will be an S
corporation through and including the Closing).
(g) BUILT-IN GAIN. EOIR is not and will not be liable for any Tax under
section 1374 of the Code or otherwise in connection with (i) EOIR's contribution
of its membership interest in RMS to Distributing RMS Corporation, Inc. prior to
the Closing, (ii) EOIR's distribution of the stock of Distributing RMS
Corporation, Inc. prior to the Closing, or (iii) the deemed sale of EOIR's
assets, if the Buyer and the Sellers make a 338(h)(10) Election with respect to
EOIR. .
(h) TRANSACTIONS. EOIR has not (i) distributed stock of another
corporation, or had its stock distributed by another corporation, in a
transaction that was purported or intended to be governed in whole or in part by
Code section 355 or section 361; (ii) acquired assets from another corporation
in a transaction in which EOIR's Tax basis for the acquired assets was
determined, in whole or in part, by reference to the Tax basis of the acquired
assets (or any other property) in the hands of the transferor; or (iii) acquired
the stock of any corporation that was a S corporation or a "qualified subchapter
S subsidiary", as that term is defined in Code section 1361(b)(3)(B).
(i) MISCELLANEOUS. EOIR has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. EOIR currently is not the beneficiary of any extension
of time within which to file any Tax Return. EOIR is not a party to any Tax
allocation or Tax sharing agreement. EOIR has not been a member of an Affiliated
Group filing a consolidated federal Income Tax Return or has any liability for
the Taxes of any Person under Treas. Reg. ss. 1.1502-6 (or any similar provision
of state, local, or foreign law), or as a transferee or successor, by contract,
or otherwise. EOIR has not filed a consent under Code section 341(f) concerning
collapsible corporations. EOIR is not party to any agreement, contract,
arrangement, or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "EXCESS PARACHUTE PAYMENT" within the meaning
of Code section 280G (or any corresponding provision of state, local, or foreign
law) or any amount that will not be fully deductible as a result of Code section
162(m) (or any corresponding provision of state, local, or foreign law).
2.13 EMPLOYEE COMPENSATION AND BENEFITS.
(a) COMPENSATION. Prior to the date of the Closing, Sellers shall cause
to be delivered to Buyer a confidential memorandum setting forth or having
attached thereto, as applicable, the following: (i) a complete and accurate list
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of the part- and full-time employees, officers and consultants of EOIR,
including each individual's job title, current salary and bonus and any other
monetary or other benefits; (ii) copies of all written agreements with such
persons.
(b) CONFIDENTIALITY AGREEMENTS. To the knowledge of EOIR and each
Seller, no employee, consultant or agent of EOIR is in violation of any term of
any employment agreement, confidentiality or non-disclosure agreement or any
other contract, agreement, commitment or understanding relating to the
relationship of such person with EOIR except for minor violations which will not
result in a Material Adverse Effect. No stockholder, director, officer, employee
or agent of EOIR is obligated under any contract or agreement, or is subject to
any judgment, decree, or order of any court or administrative agency that would
interfere with such person's efforts to promote the interests of EOIR or that
would interfere with the business of EOIR. Neither the execution nor delivery of
this Agreement, nor the carrying on of the business of EOIR as presently
conducted or proposed to be conducted will conflict with or result in a breach
of the terms, conditions, or provisions of, or constitute a default under, any
contract or agreement under which any such person is now bound.
(c) BENEFIT PLANS. SCHEDULE 2.13(C) contains a listing of (i) each
employee benefit plan under which fringe benefits (including without limitation,
pensions, stock option, excess benefit, incentive, salary continuation, and
other compensation arrangements, vacation plans or programs, severance benefits,
sick leave plans or programs, and related or similar benefits) are provided to
employees of, or otherwise required to be provided by, EOIR and (ii) each
employment, consulting, and any other agreement, providing for compensation or
other benefits to employees (including officers) or independent contractors,
individually or as a group, to which EOIR is a party or by which EOIR is bound
(all plans, programs and arrangements described in clauses (i) and (ii),
collectively, the "EMPLOYEE BENEFIT PLANS").
(d) COMPLIANCE. EOIR has complied with all applicable laws, rules and
regulations relating to employment, including those relating to wages, hours,
collective bargaining and the payment and withholding of Taxes and other sums as
required by all appropriate Governmental Entities except for violations, which
are not reasonably expected to result in a Material Adverse Effect. All Employee
Benefit Plans in effect at any time since the inception of EOIR, as applicable,
are now, and have always been, established, maintained and operated in
accordance with all applicable laws and all regulations and interpretations
thereunder and in accordance with their plan documents. To the Sellers'
knowledge there are no investigations, proceedings, or lawsuits or other claims
(other than routine claims for benefits under the plan and qualified domestic
relations orders) pending against or involving any of the Employee Benefit
Plans, or any fiduciary of any such Plan brought on behalf of any participant,
beneficiary, or fiduciary thereunder; nor is there any reasonable basis for any
such claim.
(e) OTHER EMPLOYEE BENEFIT MATTERS. Except as set forth in the
confidential memorandum described in SECTION 2.13(A) or on SCHEDULE 2.13(C),
none of the Employee Benefit Plans or employment contracts of EOIR provides any
benefits that become payable solely as a result of the execution of this
Agreement or the completion of the transactions contemplated by this Agreement.
(f) LABOR MATTERS. EOIR is not involved in any labor discussion with
any unit or group seeking to become the bargaining unit for any of its employees
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and no such unit or group has notified the Sellers or EOIR of any intention to
commence any organizational activities among the employees of EOIR.
2.14 ERISA.
(a) None of EOIR or ERISA Affiliate of EOIR, has incurred any
"WITHDRAWAL LIABILITY" calculated under Section 4211 of ERISA and there has been
no event or circumstance which would cause any of them to incur any such
liability. No employee pension benefit plan previously maintained by EOIR, or
any ERISA Affiliate of EOIR, which was subject to ERISA has been terminated; no
proceedings to terminate any such plan have been instituted within the meaning
of Subtitle C of Title IV of ERISA; and no reportable event within the meaning
of Section 4043 of said Subtitle C of Title IV of ERISA with respect to which
the requirement to file a notice with the Pension Benefit Guaranty Corporation
has not been waived has occurred with respect to any Employee Benefit Plan, and
no liability to the Pension Benefit Guaranty Corporation has been incurred by
EOIR or any ERISA Affiliate of EOIR. Except as set forth on SCHEDULE 2.13(C),
all Employee Benefit Plans are in material compliance with all requirements
prescribed by all statutes, regulations, orders or rules currently in effect,
and EOIR and its ERISA Affiliates have in all material respects performed all
obligations required to be performed by them. All returns, reports and
disclosure statements required to be made under ERISA and the Code with respect
to Employee Benefit Plans have been timely filed or delivered. All fees required
to be paid in connection with the administration of any ERISA plan, and all fees
required to be paid as a result of the termination of any plan recordkeeping
agreements, have been disclosed to Parent and Acquisition Sub. None of EOIR, the
ERISA Affiliates of EOIR, any of their directors, officers, employees or agents,
or any trustee or administrator of any trust created under any Employee Benefit
Plan, has engaged in or been a party to any "PROHIBITED TRANSACTION" as defined
in Section 4975 of the Code or Section 406 of ERISA which could subject EOIR,
any Affiliate of EOIR, any director or employee of any Employee Benefit Plan or
any trust relating to any Employee Benefit Plan, or any party dealing with any
Employee Benefit Plan or trust relating thereto, to any tax or penalty on
"PROHIBITED TRANSACTIONS" imposed by Section 4975 of the Code. Except as set
forth on SCHEDULE 2.13(C), no Employee Benefit Plan and no trust created
thereunder has incurred any "ACCUMULATED FUNDING DEFICIENCY," as such term is
defined in Section 412 of the Code and regulations issued thereunder, whether or
not waived.
(b) PLAN DETERMINATIONS. Each Employee Benefit Plan intended to qualify
under Section 401(a) of the Code has been determined by the Internal Revenue
Service to so qualify, and the trusts created thereunder have been determined to
be exempt from tax under Section 501(a) of the Code; copies of all determination
letters have been delivered to Buyer, and, to the knowledge of EOIR and each
Seller, nothing has occurred since the date of such determination letters which
might cause the loss of such qualification or exemption, or result in the
imposition of any excise tax or income tax on unrelated business income under
the Code or ERISA with respect to any Employee Benefit Plan. With respect to
each Employee Benefit Plan which is a qualified profit sharing plan, all
employer contributions accrued for plan years ending prior to the Closing under
such Employee Benefit Plan's terms and applicable law have been made.
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(c) FUNDING.
(i) All contributions, premiums or other payments due or
required to be made to Employee Benefit Plans as of the date hereof have been
made as of the date hereof or are properly reflected on EOIR Balance Sheet;
(ii) there are no actions, liens, suits or claims (other than
routine claims for benefits) pending or, to the knowledge of EOIR or any Seller,
threatened, with respect to any Employee Benefit Plan, and no Employee Benefit
Plan is the subject of any pending (or to the knowledge of EOIR or any Seller,
any threatened) investigation or audit by the Internal Revenue Service,
Department of Labor or the Pension Benefit Guaranty Corporation;
(iii) no event has occurred, and there exists no condition or
set of circumstances, which presents a material risk of a partial termination
(within the meaning of Section 411(d)(3) of the Code) of any Employee Benefit
Plan; and
(iv) with respect to any Employee Benefit Plan that is
qualified under Section 401(k) of the Code, individually and in the aggregate,
no event has occurred, and there exists no condition or set of circumstances in
connection with which EOIR could be subject to any liability (except liability
for benefits claims and funding obligations payable in the ordinary course) that
is reasonably likely to have a Material Adverse Effect on EOIR under ERISA, the
Code or any other applicable law.
(d) CERTAIN OTHER MATTERS. Except as otherwise provided on the
May 31, 2004 financial statements, EOIR has no liability or potential liability
in any form whatsoever, and EOIR will not have liability or potential liability
in any form whatsoever, with regard to any Employee Benefit Plan, as a result of
any failure to perform non-discrimination testing on an Employee Benefit Plan or
any failure to amend an Employee Benefit Plan pursuant to the legislation
commonly known as "GUST" or the legislation commonly known as "EGTRRA." All
employee contributions, including elective deferrals, to EOIR's 401(k) plan(s)
have been segregated from EOIR's general assets and deposited into the trust(s)
established pursuant to such 401(k) plan(s) in a timely manner in accordance
with the "PLAN ASSET" regulations of the Department of Labor.
2.15 LITIGATION.
Except as set forth on SCHEDULE 2.15, there is no pending or, to the
knowledge of the Sellers, threatened, claim, suit, arbitration or other judicial
or regulatory proceeding of any character by or against (a) EOIR, (b) the
properties or assets of EOIR, or (c) the directors, officers, employees or
agents (in their capacities as such) of EOIR; and to the knowledge of the
Sellers, there are no facts in existence which would reasonably be expected to
form the basis for any such claim, suit, arbitration or proceeding. To the
knowledge of Sellers, there is no investigation or pending or threatened civil
false claims or qui-tam actions of any character against any of the foregoing
(a), (b) or (c). There are also no judgments, decrees, injunctions or orders of
any Governmental Entity against the foregoing (a), (b) or (c); and to the
knowledge of the Sellers, there are no facts in existence which would reasonably
be expected to form the basis for any such judgment, decree, injunction or
order.
15
2.16 INTELLECTUAL PROPERTY.
(a) RIGHT TO INTELLECTUAL PROPERTY. EOIR owns exclusively or has the
right to use, free and clear of all mortgages, liens, pledges, loans, claims,
encumbrances or restrictions of any kind whatsoever, all the Intellectual
Property that is material to the conduct of its businesses as currently
conducted or proposed to be conducted. To the knowledge of Sellers, EOIR is not
infringing upon or otherwise acting adversely to the right or claimed right of
any person under or with respect to any of the Intellectual Property. SCHEDULE
2.16(A) identifies each patent, trademark registration, service xxxx
registration and copyright registration and any and all applications therefor,
with respect to the Intellectual Property, or application for any of the
foregoing, which is owned or licensed by EOIR, has been issued to EOIR or has
been submitted by EOIR for issuance. To the knowledge of the Sellers, all
applications for registration of such Intellectual Property were true and
accurate at the time of filing and all fees to maintain such Intellectual
Property have been paid. The Intellectual Property constitutes all the
intellectual property used in and necessary to the conduct of the business of
EOIR, as such business is currently being conducted, and all intellectual
property required for products and services under development by EOIR as of the
date hereof.
(b) LICENSES OF INTELLECTUAL PROPERTY. There are no outstanding
licenses, options or agreements of any kind relating to the Intellectual
Property of EOIR held by the Sellers or their respective Affiliates or any other
third party. Except for publicly-available commercial software EOIR is not bound
by or a party to any licenses, options or agreements of any kind with respect to
the Intellectual Property of any other person or entity. SCHEDULE 2.16(B) sets
forth a listing of all licenses and other agreements that allow EOIR to use the
Intellectual Property of third parties and a copy of each such license agreement
has been delivered to Buyer. In each case, the licenses and agreements listed in
SCHEDULE 2.16(B) have been acquired and used by EOIR on the basis of and in
accordance with a valid license free and clear of any adverse or restrictive
claims or rights of any third parties. EOIR's use of third party licensed
products is subject to internal policies and/or procedures that prohibit breach
of licenses or copyrights by copying or other misuse. EOIR is not in breach of
any of the terms and conditions of any license; and EOIR has not received notice
that any third party claims that Intellectual Property licensed to EOIR is the
subject of an infringement claim between the third party and the licensor of
such Intellectual Property.
(c) INFRINGEMENT. To the knowledge of the Sellers, no person or entity
has interfered with, infringed upon, misappropriated or violated any of the
Intellectual Property of EOIR. No Intellectual Property or product, technology
or service of EOIR is subject to any order, action or proceeding that restricts,
or is reasonably expected to restrict in any manner, the use, transfer,
licensing or validity of any of such Intellectual Property, product, technology
or service.Except as set forth on SCHEDULE 2.16(C) EOIR has not entered into any
agreement under which it is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.17 INSURANCE.
SCHEDULE 2.17 sets forth a complete and accurate list of all material
insurance policies maintained by, or on behalf of, EOIR. EOIR maintains, with
responsible insurance carriers, fire, worker's compensation, property and
16
general liability insurance. Such policies are in full force and effect through
the Closing, all premiums with respect thereto have been paid to the extent due
and, except as otherwise set forth on SCHEDULE 2.17, such policies, or other
policies covering the same risks, have been in full force and effect, without
gaps, continuously since inception. Copies of all such policies have been made
available to the Buyer for its inspection. EOIR is not in default under any of
such policies nor has EOIR failed to give any notice or to present any claim
under any such policy in a due and timely fashion and no notice of cancellation
or termination has been received by EOIR with respect to such policy.
2.18 MATERIAL CONTRACTS.
(a) LIST OF MATERIAL CONTRACTS. SCHEDULE 2.18(A) sets forth, as of the
date hereof, whether written or oral, a complete and accurate list of:
(i) All contracts between EOIR and any party to whom EOIR
provides products or services involving more than $50,000 in consideration for
any twelve month period;
(ii) All contracts (except for employment or personnel-related
agreements) between EOIR and any party to whom EOIR is obligated to pay more
than $50,000 in consideration for any twelve month period.
(iii) All contracts, agreements and commitments, whether or
not fully performed, pursuant to which EOIR has acquired or disposed of a
material portion of its business or assets at any time since inception;
(iv) All contracts, agreements and commitments containing
covenants not to compete on the part of EOIR or otherwise restricting the
ability of EOIR to engage in its business as currently conducted or proposed to
be conducted and all confidentiality agreements to which EOIR is a party;
(v) All notes, mortgages, indentures, letters of credit,
guarantees, performance bonds, sale-leaseback agreements, operating leases and
all other agreements or instruments for or relating to any lending or borrowing
(including assumed debt) entered into by EOIR or pursuant to which any
properties or assets of EOIR are pledged or mortgaged as collateral; and
(vi) All other executory contracts and agreements that are
material to EOIR (except for employment or personnel-related agreements).
A complete and accurate copy of each Material Contract has either been
delivered to the Buyer.
(b) Validity of Material Contracts.
The following representations apply solely to Material Contracts that
are not Government Contracts. Section 2.21 provides representations regarding
Government Contracts:
17
(i) Each Material Contract is a valid, binding and enforceable
agreement of (A) EOIR, to the extent that it is a party thereto, and (B) to the
knowledge the Sellers, the other parties thereto;
(ii) As of the date hereof, EOIR and Seller have no reason to
believe that EOIR will be unable to fulfill any of EOIR's obligations under any
Material Contracts which remain to be performed after the date hereof;
(iii) There has not occurred any material breach or default
(or event which upon provision of notice or lapse of time or both would become
such a breach or default) under any of the Material Contracts on the part of
EOIR, nor to the knowledge of EOIR and each Seller, any other party to any of
the Material Contracts;
(iv) To the knowledge of EOIR and each of the Sellers, there
does not exist any event that, with the giving of notice or the lapse of time or
both, would constitute any breach or default under such Material Contract by any
party other than EOIR and neither EOIR nor any Seller has received or given
notice of any such event, breach or default;
(v) There are no set offs, counterclaims or disputes existing
or asserted with respect to any of the Material Contracts, and neither EOIR nor
any Seller has made any agreement with any other party thereto for any deduction
from, or increase to any amount payable thereunder; and
(vi) Except as set forth on SCHEDULE 2.18(B), there are no
facts, events or circumstances that would in any way impair the validity or
enforcement of any Material Contract or tend to reduce or increase the amounts
payable thereunder.
(c) THIRD PARTY CONSENTS. Except as set forth on SCHEDULE 2.18(C), no
consent, waiver or approval of any party to a Material Contract is necessary for
the execution and delivery of this Agreement by the Sellers or EOIR or the
consummation of the transactions contemplated hereby on the Closing.
2.19 CONSENTS AND APPROVALS.
Except as set forth on SCHEDULE 2.19, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or other third party is required to be made or obtained by the Sellers or
EOIR in connection with the execution and delivery of this Agreement by the
Sellers or the completion by the Sellers of the transactions contemplated
hereby.
2.20 GOVERNMENTAL PERMITS AND LICENSES.
EOIR has all material Permits required to operate the business of EOIR,
as such business is currently conducted. All of the Permits are, and as of the
Closing will be, valid and in full force and effect and the continuing validity
and effectiveness of the material Permits will not be affected by the
transactions contemplated by this Agreement. The Sellers have provided the Buyer
with complete and accurate copies of each material Permit. EOIR is and has been
in compliance in all material respects with all the material conditions or
18
requirements of each Permit and neither the Sellers nor EOIR has been notified
by any Governmental Entity or licensing authority that such Governmental Entity
or licensing authority intends to cancel, terminate or modify any of the Permits
of EOIR.
2.21 GOVERNMENT CONTRACTS AND GOVERNMENT BIDS.
(a) All Government Contracts to which EOIR is party and all pending
bids or proposals for award of a Government Contract to which EOIR is a party
(each a "Government Bid") are listed on Schedule 2.21(a).
(b) Except as set forth in Schedule 2.21(b), with respect to each
Government Contract and each Government Bid, (i) EOIR has complied in all
material respects with the terms and conditions of such Government Contract or
Government Bid; (ii) EOIR has complied with all requirements of all applicable
laws or regulations pertaining to such Government Contract or Government Bid;
(iii) all representations and certifications set forth in or pertaining to such
Government Contract or Government Bid were complete and correct as of their
effective date, and EOIR has complied in all material respects with all such
representations and certifications; (iv) neither the United States Government
nor any prime contractor, subcontractor or other Person has notified EOIR in
writing that EOIR has breached or violated any applicable law pertaining to such
Government Contract or Government Bid; (v) EOIR has received no notice, written
or oral, of performance or administrative deficiencies relating to or involving
any Government Contract or Government Bid which would have a Material Adverse
Effect; (vi) no termination for convenience, termination for default, cure
notice or show cause notice is currently in effect pertaining to such Government
Contract or Government Bid and no event, condition or omission has occurred or
exists that would constitute grounds for any such action; (vii) no cost incurred
by EOIR pertaining to such Government Contract or Government Bid is the subject
of an investigation or has been disallowed by the United States Government;
(viii) no money due to EOIR pertaining to such Government Contract or Government
Bid has been withheld or set off; (ix) EOIR has not made any assignment of any
Government Contract or Government Bid or of any interest in any Government
Contract or Government Bid, and has not entered into any financing arrangements
with respect to the performance of any outstanding Government Contract; (x)
there is no cost type Government Contract or Government Bid with a ceiling, cap
or share ratio which is or is likely to be exceeded the result of which would
have a Material Adverse Effect on EOIR's business; and (xi) each Government
Contract is valid and subsisting and EOIR has not waived any material term or
condition.
(c) Except as set forth in Schedule 2.21(c), (i) neither EOIR nor any
of its respective officers, employees, consultants or agents is (or during the
last five years has been) under administrative, civil or criminal investigation,
indictment or information by any Governmental Entity, or any audit or
investigation by any Governmental Entity or by EOIR with respect to any alleged
irregularity, misstatement or omission arising under or relating to any
Government Bid, or suspended or debarred or proposed for debarment from doing
business with the United States Government or has been the subject of a finding
of nonresponsibility or ineligibility for United States Government contracting;
(ii) EOIR is not (and during the last five years has not been) a party to any
administrative or civil litigation involving alleged false statements, false
claims or other misconduct relating to a Government Contract or Government Bid;
and (iii) during the last five years, EOIR has not conducted or initiated any
internal investigation or had reason to conduct, initiate or report any internal
investigation, or made a voluntary disclosure to the United States Government,
with respect to any alleged irregularity, misstatement or omission arising under
or relating to a Government Contract or Government Bid.
(d) Except as set forth in Schedule 2.21(d), there exist (i) no pending
protest proceedings against the award of a Government Contract to EOIR; (ii) no
outstanding claims against EOIR, either by the United States Government or by
any prime contractor, subcontractor, vendor or other third party, arising under
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or relating to any Government Contract or Government Bid and (iii) no disputes
between EOIR and the United States Government under the Contract Disputes Act or
any other Federal statute or between the EOIR and any prime contractor,
subcontractor or vendor arising under or relating to any Government Contract of
Government Bid. Except as disclosed in Schedule 2.21(d), no event, condition or
omission has occurred that would constitute grounds for a claim or a dispute
under clause (ii) or (iii) of the immediately preceding sentence. Except as set
forth in Schedule 2.21(d), EOIR has no interest in any pending or potential
claim under the Contract Disputes Act against the United States Government or
any prime contractor, subcontractor or vendor arising under or relating to any
Government Contract or Government Bid.
(e) Except as set forth in Schedule 2.21(e), all test and inspection
results EOIR has provided to the United States Government pursuant to any
Government Contract listed on Schedule 2.21 (e) or to any other Person pursuant
to any such Government Contract or as a part of the delivery to the United
States Government pursuant to any such Government Contract of any article
designed, engineered or manufactured by EOIR were complete and correct as of the
date so provided. Except as set forth in Schedule 2.21(e), EOIR has provided all
test and inspection results to the United States Government pursuant to any such
Government Contract as required by applicable law and the terms of the
applicable Government Contracts.
(f) Schedule 2.21(f) identifies, as of Closing, all personal property,
equipment and fixtures loaned, bailed or otherwise furnished to EOIR by or on
behalf of the United States Government that (i) are being used in the conduct of
EOIR's business and (ii) are or should be in the possession of EOIR for use in
its business ("Government?Furnished Items"). Schedule 2.21 (f) identifies each
Government Contract to which each such item of Government?Furnished Items
relates. EOIR has complied in all material respects with all of its obligations
relating to the Government?Furnished Items, and, upon the return thereof to the
United States Government in the condition thereof on the date hereof, would have
no liability to the United States Government with respect thereto.
(g) EOIR and its officers and employees hold such security clearances
as are required to perform the Government Contracts and Government Bids. There
are no facts or circumstances that could result in the suspension or termination
of such clearances, or that could render EOIR ineligible for a security
clearance in the future. To the best of EOIR's knowledge and information, EOIR
has implemented all security measures required by the Department of Defense
National Industrial Security Program. EOIR and Sellers, with the cooperation of
Buyer, have taken reasonable steps to ensure continuation of EOIR's facility
security clearance after the completion of the merger.
2.22 COMPLIANCE WITH LAW.
To the best knowledge of EOIR and each of the Sellers, the conduct by
EOIR of its business has not violated, and does not violate, any U.S. federal,
state, local or foreign laws, statutes, ordinances, rules, regulations, decrees,
orders, permits or other similar items in force on the date hereof including,
without limitation, U.S. federal, state, local and foreign laws and regulations
relating to (a) the protection of the health and safety of employees, (b) equal
employment opportunity, and (c) any other aspect of the business of EOIR. Except
as set forth on SCHEDULE 2.15, there are no unresolved notices of deficiency or
charges of violation brought or, to the knowledge of the Sellers, threatened
against EOIR, including under any U.S. federal, state, local or foreign
regulation or otherwise and there are no facts or circumstances known to the
Sellers that would constitute a reasonable basis on which any such notices,
proceedings or actions may be instituted, issued or brought hereafter.
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2.23 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) COMPLIANCE WITH ENVIRONMENTAL LAWS. All current and prior uses of
each property currently or formerly owned, leased or otherwise operated by EOIR,
and all operations, activities and conduct of EOIR related thereto, are and have
been in compliance with all Environmental Laws during EOIR's tenancy. EOIR is
not required to make any capital or other material expenditures to comply with
any Environmental Law nor is there any reasonable basis on which any
Governmental Entity could take action that would require such capital or other
expenditure. There are no circumstances that may prevent or interfere with
compliance in the future with any applicable Environmental Laws assuming
continuation of EOIR's current practices in the ordinary course of business. All
permits and other governmental authorizations currently held by EOIR pursuant to
Environmental Laws are in full force and effect, EOIR is in compliance with of
the terms of such permits and authorizations, and no other permits or
authorizations are required by EOIR for the conduct of its business on the date
hereof; and such Permits will not be terminated or impaired or become
terminable, in whole or in part, solely as a result of the transactions
contemplated hereby.
(b) RELEASE OF HAZARDOUS MATERIALS. There has been no disposal,
release, or threatened release of Hazardous Materials on, under, in, from or
about any property currently owned, leased or otherwise operated by EOIR, or to
the knowledge of EOIR or each Seller, any property formerly owned, leased or
otherwise operated by EOIR, or otherwise related to the operations, activities
or conduct of EOIR that has subjected or may subject EOIR to liability under any
Environmental Law. EOIR has not exposed any employee or third party to any
Hazardous Material or condition that has subjected or may subject EOIR to
liability under any Environmental Law. The management, handling, storage,
transportation, treatment and disposal by EOIR of Hazardous Materials has been
in compliance with applicable Environmental Laws.
(c) NO ENVIRONMENTAL CLAIMS. Neither the Sellers nor EOIR has received
any notice, demand, letter, claim, request for information or other
communication relating to any property currently or formerly owned, leased or
otherwise operated by EOIR, or to the operations, activities, or conduct of
EOIR, alleging violation of or liability under any Environmental Law and there
are no proceedings, actions, orders, decrees, injunctions, other claims or, to
the knowledge of EOIR and each of the Sellers, any threatened actions or claims,
relating to or otherwise alleging liability under any Environmental Law.
(d) ENVIRONMENTAL REPORTS. EOIR has made available to the Buyer copies
of all environmental assessments, audits, studies, and other environmental
reports in its possession or reasonably available to it relating to EOIR and
each of its current or former properties or operations.
2.24 TRANSACTIONS WITH AFFILIATES.
Except as set forth on SCHEDULE 2.24, no stockholder, director,
officer, employee or any other Affiliate of the Sellers or EOIR and no member of
any such person's immediate family or any entity in which any of the foregoing
has an interest (each, a "RELATED PARTY") is presently, or since inception has
been, a party to any transaction or arrangement with EOIR, including, without
limitation, any contract, lease or other agreement (a) providing for the
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furnishing of services (other than as a director, officer or employee) or assets
by, (b) providing for the rental of property from, or (c) otherwise requiring
payments to (other than for (i) dividends or distributions to any stockholder in
its capacity as such or (ii) compensation to any director, officer or employee
in his or her capacity as such), such Related Party.
2.25 CUSTOMERS AND SUPPLIERS.
SCHEDULE 2.25 sets forth, with respect to EOIR, a complete and accurate
listing of each customer of EOIR that accounts for more than five percent (5%)
of the consolidated revenues for EOIR during the fiscal year ended December 31,
2003 or the interim period ended March 31, 2004 and the amount of revenues
accounted for by such customer during such fiscal year or interim period; (b)
each supplier or distributor for EOIR that is the sole supplier or distributor
of any product or component or sole provider of any product related service, the
product, component or service provided thereby.
2.26 IMPAIRMENT OF RELATIONSHIPS.
None of the Sellers nor EOIR has received any notice that any customer,
distributor or supplier of EOIR (a) refuses to honor any of its commitments; (b)
is dissatisfied with the quality or price of EOIR's services or is otherwise
dissatisfied with its relationship with EOIR; (c) intends to cease retaining,
purchasing from, selling to or dealing with EOIR in the manner in which such
transactions have previously occurred; or (d) intends to alter in any
significant respect the amount of such retention, purchases or sales or the
extent of dealings with EOIR.
2.27 CERTAIN PAYMENTS.
Neither EOIR nor any Seller, director, officer, employee or agent of
EOIR, has directly or indirectly made any unlawful contribution, gift, bribe,
rebate, payoff, influence payment, kickback or other payment to any person,
public or private, regardless of form, whether in money, property or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment in securing business, (iii) to obtain special concessions,
or for special concessions already obtained, for or in respect of EOIR or any
Affiliate of EOIR, or (iv) in violation of any applicable U.S. federal, state,
local or foreign law.
2.28 CONTRACT BACKLOG.
SCHEDULE 2.28 sets forth, with respect to EOIR, a complete and accurate
list, on a contract by contract basis determined as of December 31, 2003, of the
revenues to be recognized from signed contracts not anticipated to be canceled
(the "CONTRACT BACKLOG"). The revenue amounts comprising the Contract Backlog,
individually and in the aggregate, constitute the best estimate of such amounts
as of such date, based upon presently existing facts and circumstances. There
has not been any adverse change to the total Contract Backlog since April 30,
2004.
2.29 SERVICE LIABILITIES.
(a) WORK RELATED LIABILITIES. EOIR has not incurred, and to the
knowledge of EOIR and each of the Sellers there is no event or activity which
forms the basis for alleging, any liability, damage, loss, cost or expense as a
result of any defect or other deficiency (collectively, "WORK RELATED
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LIABILITIES") with respect to the products and services rendered by EOIR,
whether any Work Related Liability is incurred by reason of any express or
implied warranty, any doctrine of common law (whether in tort, contract or
otherwise), any statutory provision or otherwise and irrespective of whether any
Work Related Liability is covered by insurance.
(b) WARRANTY OBLIGATIONS. SCHEDULE 2.29(B) of the Disclosure Schedules
sets forth, with respect to EOIR, a complete and accurate listing of (i) all
warranties, guarantees and warranty policies, whether written or unwritten (the
"WARRANTY OBLIGATIONS"), in respect of EOIR's products and services and the
duration of each Warranty Obligation; (ii) all pending and, to the knowledge of
the Sellers, threatened disputes or claims with respect to any Warranty
Obligation; and (iii) the experience history with respect to EOIR's Warranty
Obligations. There have been no material deviations from the Warranty
Obligations and no employee, salesperson or agent of EOIR is authorized to
undertake obligations with respect to any Person in excess of the Warranty
Obligations. The Financial Statements reflect adequate reserves for the Warranty
Obligations in light of the contingencies with respect to which they were
established.
2.30 BROKERS OR FINDERS.
Neither EOIR nor any Seller has retained any broker or finder or agreed
to become obligated to pay any fee or commission to any broker or finder. Fees
and expenses payable to Xxxxx & Company will be paid by EOIR at or after
Closing.
2.31 TOTALITY OF ASSETS.
The assets of EOIR that the Buyer will indirectly acquire at the
Closing by virtue of the transactions contemplated by this Agreement include all
of the assets or rights used in connection with the continued operation, in the
same manner as currently operated, of the business of EOIR; provided, however,
that the assets of EOIR that the Buyer will indirectly acquire hereunder will
not include the assets owned by RMS.
2.32 SURVIVAL.
Regardless of any investigation made by Buyer, the representations and
warranties of Sellers described in this ARTICLE 2 and otherwise in this
Agreement shall survive the execution and delivery of this Agreement and Buyer
may pursue remedies for any breach thereof or misrepresentation until the date
that is eighteen (18) months from the Closing. Notwithstanding the preceding
sentence, with respect to representations and warranties relating to Taxes, the
effective period shall extend to the date that any statute of limitations would
eliminate potential damages resulting from a breach thereof or a
misrepresentation therein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as set forth
below.
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3.1 ORGANIZATION AND GOOD STANDING.
The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida, with all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
3.2 AUTHORITY.
The Buyer has obtained, prior to the date hereof and in accordance with
applicable law and its Certificate of Incorporation and Bylaws, all necessary
corporate approvals of its directors and officers necessary for the
authorization, execution and delivery of this Agreement and the other
Transaction Documents, the performance of all of its obligations hereunder and
thereunder and the authorization and approval of the transactions contemplated
by this Agreement.
3.3 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state, local or foreign governmental or
regulatory authority is required to be made or obtained by the Buyer in
connection with the execution and delivery of this Agreement by the Buyer or the
completion by the Buyer of the transactions contemplated hereby, except for such
other consents, approvals, orders or authorizations which if not obtained, or
registrations, declarations or filings which if not made, would not have a
Material Adverse Effect on the Buyer.
3.4 NO BREACH.
The execution of this Agreement by the Buyer and the completion of the
transactions contemplated hereby by the Buyer will not (a) conflict with or
result in a breach of any provision of the Buyer's Certificate of Incorporation
or Bylaws; (b) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default (or event which upon
provision of notice or lapse of time or both would become such a default) or
result in the acceleration of any obligation under, or result in the
cancellation or modification of, or permit termination of, any agreement, lease,
license, note, contract or instrument to which the Buyer is a party or by which
the Buyer is bound; (c) accelerate, or constitute an event entitling the holder
of any indebtedness of the Buyer to accelerate the maturity of any such
indebtedness or permit the subordination of any indebtedness of the Buyer to any
other indebtedness of the Buyer to which the Buyer was not already subordinated;
(d) conflict with or violate the provisions of any law or any judgment, decree,
order, arbitration award, regulation or rule of any Governmental Entity or any
covenant or restriction binding upon the Buyer; (e) violate or result in the
modification, termination or loss of any Permit; or (f) result in the creation
of any lien, charge or encumbrance upon any equity interest in or assets of the
Buyer under any agreement or instrument to which the Buyer is a party or by
which the Buyer is bound.
3.5 BROKERS OR FINDERS.
Except as otherwise previously disclosed, the Buyer has not retained
any broker or finder or agreed to become obligated to pay any fee or commission
to any broker or finder for or on account of the transactions contemplated by
this Agreement.
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3.6 SURVIVAL.
Regardless of any investigation made by EOIR or any Seller, the
representations and warranties of Buyer described in this ARTICLE 3 and
otherwise in this Agreement shall survive the execution and delivery of this
Agreement and EOIR (in the event the within transactions are not consummated)
and Sellers may pursue remedies for any breach thereof or misrepresentation
until the date that is eighteen (18) months from the Closing. Notwithstanding
the preceding sentence, with respect to representations and warranties relating
to Taxes, the effective period shall extend to the date that any statute of
limitations would eliminate potential damages resulting from a breach thereof or
a misrepresentation therein.
ARTICLE 4
CERTAIN TAX MATTERS
4.1 TAX COVENANTS.
(a) RESPONSIBILITY FOR FILING INCOME TAX RETURNS. The Sellers shall
prepare or caused to be prepared and file or caused to be filed all Income Tax
Returns for EOIR for all taxable periods ending on or before the Closing,
whether EOIR files such Returns before or after the Closing. Such Tax Returns
shall be complete and accurate in all material respects, prepared in accordance
with the Code and the Treasury regulations issued thereunder, and prepared in a
manner consistent with prior practice. The Buyer shall have the opportunity to
review and comment upon the computation of EOIR's items of income, gain, loss,
deduction, and credit that it reports on final federal and state Income Tax
Returns as an S corporation prior to the filing of such Returns, and Sellers
shall make any revision to such Returns that Buyer reasonably requests in good
faith. To the extent permitted by applicable law, Sellers shall include any
income, gain, loss, deduction, or other tax items for such periods on their Tax
Returns in a manner consistent with the Schedule K-1s furnished by EOIR to the
Sellers for such period.
(b) REFUNDS AND TAX BENEFITS. Tax refunds that the Buyer or EOIR
receive and any amounts credited against a Tax to which the Buyer or EOIR become
entitled on or after the Closing that relate to Taxes for which the Sellers are
responsible or liable under this Agreement shall be for the account of the
Sellers, and the Buyer or EOIR, as the case may be, shall pay over to the
Sellers any such refund or the amount of any such credit within fifteen (15)
days after receipt or entitlement thereto.
(c) COOPERATION. The Buyer, EOIR, and the Sellers shall cooperate
fully, as and to the extent reasonably requested by any other such Party, in
connection with the filing of Tax Returns; any audit, litigation, or other
proceeding with respect to Taxes; and the determination whether to file a
338(h)(10) Election. Such cooperation may include, with respect to the Tax
Returns described in SECTION 4.1(A) the Buyer's consent to an election that does
not adversely affect the Buyer or EOIR after the Closing and that is reasonably
requested by the Sellers, and EOIR's signing of such Tax Returns. Such
cooperation also shall include the retention and (upon any Party's request) the
provision of records and information that are reasonably relevant to any audit,
litigation, or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. EOIR and the Sellers shall (i) retain all books and
records with respect to Tax matters pertinent to EOIR relating to any taxable
25
period beginning before the Closing until the expiration of the statute of
limitations (and, to the extent notified by the Buyer, any extensions thereof)
of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (ii) give the other Party
reasonable written notice prior to transferring, destroying, or discarding any
such books and records and, if the other Party so requests, EOIR or the Sellers,
as the case may be, shall allow the other Party to take possession of such books
and records. Buyer, EOIR, and the Sellers shall, upon request, use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce, or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated in this Agreement).
(d) CONTROL. Except to the extent a Tax liability of the Buyer or EOIR
may be adversely affected thereby, the Sellers shall have complete control of
all audits and contests relating to any Income Taxes of EOIR with respect to
periods ending on or prior to the Closing, any Taxes of the Sellers attributable
to the status of EOIR as an S corporation, and for any other Taxes for which the
Sellers are responsible under this Agreement or under federal, state, local, or
foreign law for all EOIR Tax periods ending on or before the Closing. Except to
the extent the Tax liability of the Sellers or the Sellers' tax indemnification
obligation under Section 4.3 this Agreement may be adversely affected thereby,
the Buyer and EOIR shall have complete control over all audits and contests
relating to all other Taxes of EOIR. The Parties shall allocate responsibility
and control among themselves as may be necessary or appropriate for any joint
issues.
(e) CERTAIN TAXES AND FEES. All transfer, documentary, sales, use,
stamp, registration, and other such Taxes and fees (including any penalties and
interest) incurred in connection with the transactions contemplated by this
Agreement shall be paid by the Buyer when due, and the Buyer or EOIR shall, at
its own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration, and
other Taxes and fees and, if required by applicable law, the Sellers shall join
in the execution of any such Tax Returns and other documentation.
4.2 SECTION 338(H)(10) ELECTION.
(a) DETERMINATION OF BENEFITS. EOIR, the Buyer, and the Sellers shall
use their best efforts to determine before December 31, 2004, whether the
aggregate tax benefits to the Buyer and EOIR from an election under section
338(h)(10) of the Code (and any corresponding election under state, local, or
foreign Tax law) (collectively, a "338(H)(10) ELECTION") with respect to the
Buyer's purchase of the EOIR Common Stock exceed the aggregate tax cost to the
Sellers.
(b) INCREASE IN PURCHASE PRICE. If (i) the Representative and the Buyer
determine in good faith that a 338(h)(10) Election would create overall net tax
savings to EOIR, the Buyer, and the Sellers; (ii) the Buyer requests that a
338(h)(10) Election be made with respect to its acquisition of the EOIR Common
Stock; and (iii) the Representative, in his sole discretion, determines that
such election pursuant to the terms of this SECTION 4.2 would not create a
material financial risk to any Seller, then the Buyer and each of the Sellers
shall join together in making a 338(h)(10) Election under the terms and
conditions to which the Representative and the Buyer mutually agree.
Notwithstanding any such agreement between the Representative and the Buyer:
26
(i) the cash portion of the Purchase Price to each Seller
shall be increased by an amount that is not less than the excess of (A)
all Taxes that such Seller reasonably expects to incur by reason of the
338(h)(10) Election (including the Tax attributable to any increase in
the Purchase Price required by this SECTION 4.2(B), over (B) the Tax
that such Seller would have incurred on the sale of his or her EOIR
Common Stock in the absence of a 338(h)(10) Election;
(ii) the Buyer shall pay each Seller the increase in the
Purchase Price described in clause (i), in cash, no later than the date
on which the 338(h)(10) Election is filed with the Internal Revenue
Service; and
(iii) the Buyer shall indemnify each Seller for any Tax or
other cost or expense attributable to the 338(h)(10) Election or to the
receipt of additional Purchase Price pursuant to this SECTION 4.2 that
such Seller incurs in excess of the amount of increase in the Purchase
Price described in clause (i).
(c) EOIR SHAREHOLDER CONSENT. At Closing each Seller shall sign a
"SIGNATURE ATTACHMENT", which, if the Representative and the Buyer each decide
to file the 338(h)(10) Election, shall be attached to Form 8023, Elections Under
Section 338 for Corporations Making Qualified Stock Purchases, and filed with
the IRS jointly by the Buyer and the Representative on behalf of all the
Sellers. The SIGNATURE ATTACHMENT shall contain each Seller's name, address,
social security number, tax year ending, and the following statement under
penalties of perjury: "I state and declare that I am a shareholder of the S
corporation target or that I am authorized to make the section 338(h)(10)
election on line 6 on behalf of that shareholder." The Representative shall hold
the SIGNATURE ATTACHMENT(s) in escrow pending his decision whether or not to
consent to the 338(h)(10) Election.
4.3 TAX INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLERS. Notwithstanding anything to the
contrary in ARTICLE 7, the Sellers shall jointly but not severally indemnify
EOIR and the Buyer and hold them harmless from and against (i) all Taxes (or the
non-payment thereof) of EOIR for all taxable periods ending on or before the day
of the Closing; (ii) any and all Taxes of any member of an affiliated,
consolidated, combined, or unitary group of which EOIR is or was a member on or
prior to the Closing pursuant to Treasury Regulation ss.1.1502-6 or any
corresponding provision of state, local, or foreign law or regulation; (iii) any
and all Taxes of any Person (other than EOIR) imposed on EOIR as a transferee or
successor, by contract or pursuant to any law, rule, or regulation, which Taxes
relate to an event or transaction occurring before the Closing; (iv) any Tax
that relates to any breach of a representation or warranty made by Sellers in
SECTION 2.12 hereof; and (v) any Tax that is attributable to any failure of the
Sellers to perform any covenant, agreement, or obligation of such persons under
this Agreement; PROVIDED, HOWEVER, that, with respect to Taxes described in
clauses (i), (ii), or (iii) above, Sellers shall be liable only to the extent
that such Taxes are in excess of the amount, if any, reserved for such Taxes on
the Financial Statements as such reserve is adjusted for the passage of time
through the Closing in accordance with EOIR's past custom and practice in filing
its Tax Returns. Sellers' indemnification obligation under this SECTION 4.3(A)
shall be subject to the limitations set forth in SECTION 7.6.
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(b) INDEMNIFICATION BY BUYER. Notwithstanding anything to the contrary
in ARTICLE 7, the Buyer shall indemnify and hold harmless each of the Sellers
from and against (i) any and all Taxes that are attributable to any failure to
perform any covenant, agreement, or obligation of the Buyer or EOIR (but only
for EOIR failures that occur after Closing), and (ii) for any Tax, cost, or
expense that is attributable to the 338(h)(10) Election to the extent described
in SECTION 4.2(B).
(c) NOTICE OF TAX AUDIT. Buyer shall promptly notify the Representative
in writing of any notice or information received by Buyer that any taxing
authority intends to conduct an audit or examination of any Tax Return or to
adjust any Tax that may give rise to a claim for indemnification against the
Sellers under this Agreement; PROVIDED, HOWEVER, that no delay on the part of
the Buyer in notifying the Representative shall relieve the Sellers from any
obligation hereunder unless (and then solely to the extent that) the Sellers are
thereby prejudiced.
(d) PURCHASE PRICE ADJUSTMENT. The Parties shall treat any
indemnification payment made by the Buyer or a Seller pursuant to this SECTION
4.3 and any payment made by the Buyer pursuant to SECTION 4.2(B) as an
adjustment to the Purchase Price.
ARTICLE 5
CLOSING DELIVERIES
5.1 DELIVERIES AND OTHER CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The respective obligations of each party hereto to complete the
transactions contemplated by this Agreement at the Closing are subject to the
satisfaction of the following conditions on or prior to the Closing:
(a) NO INJUNCTION. At the Closing, neither the Sellers, EOIR nor the
Buyer are subject to any statute, rule or regulation or any final order, decree
or injunction of a court of competent jurisdiction that (i) renders any
transaction contemplated by this Agreement illegal; (ii) would impose any
limitation on the ability of the Buyer to effectively exercise full rights of
ownership of the EOIR Common Stock; or (iii) renders the Sellers, EOIR or the
Buyer incapable of completing the transactions contemplated by this Agreement.
(b) GOVERNMENTAL APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity necessary for the completion of the
transactions contemplated by this Agreement, including, without limitation,
those set forth on SCHEDULE 2.19, must have been filed, occurred and, if
necessary, been obtained.
(c) PAYING AGENT AGREEMENT. Each of the parties thereto shall have
entered into the Paying Agent Agreement substantially in the form of EXHIBIT B
attached hereto, dated effective as of the Closing.
(d) STOCK OPTION PLANS. At Closing, Buyer shall provide Seller with
evidence of the adoption of a Stock Option Plan, including copies of such Plan
and associated Option Agreements. The terms of the Plan and Options shall be as
previously represented by Buyer and otherwise acceptable to Sellers.
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(i) Buyer will present to its shareholders, recommend, and use
reasonable best efforts to pursue approval by the shareholders of the
Stock Option Plan to be qualified and treated as incentive stock
options as defined in Section 422(b) of the Internal Revenue Code;
(ii) Continuing EOIR employees (other than the Retained
Executives) will receive an immediate vesting in 1,000,000 million
shares in the Employee Option Plan, allocated among employees by
schedule to be agreed at or immediately after Closing
(iii) Promptly following Closing, Buyer shall proceed with and
use commercially reasonable best efforts to have the shares underlying
the Employee Option Plan registered with the Securities and Exchange
Commission for unrestricted public sale.
(iv) The total number of shares of common stock of Buyer that
potentially may vest in the pursuant to the Option Plan within
five (5) years following Closing shall not be less than ten
million (10,000,000) shares (subject to adjustment for stock
splits, reclassifications and similar changes), including the
one million (1,000,000) shares described in Section
5.1(d)(ii).
5.2 DELIVERIES OF THE SELLERS.
At the Closing, the Sellers or EOIR (as applicable) shall have
delivered or caused the delivery of the following items or shall have otherwise
satisfied the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties made by EOIR and each of the Sellers in ARTICLE 2
hereof must be true and correct in all respects at Closing. EOIR and the Sellers
must have performed and complied with all obligations, covenants and conditions
herein required to be performed or complied with by it on or prior to the
Closing.
(b) COMPLIANCE CERTIFICATE. EOIR and the Sellers must have delivered to
the Buyer a certificate executed by an officer of EOIR, dated as of the Closing,
certifying to the satisfaction of the conditions specified in SECTION 5.2(A).
(c) REQUIRED CONSENTS. Sellers shall have obtained and delivered all of
the waivers, Permits, consents, approvals or other authorizations from third
parties and Governmental Entities, and effected all such registrations, filings
and notices with or to third parties or Governmental Entities, as may be
necessary or desirable in connection with the transactions contemplated by this
Agreement and the other Transaction Documents, including, without limitation,
those listed on SCHEDULES 2.18(C) AND 2.19 in form and substance reasonably
satisfactory to the Buyer.
(d) TERMINATION AND RELEASE OF LIENS. Except as set forth on SCHEDULE
5.2(D), the Sellers shall have obtained and delivered to the Buyer the
termination and release of any and all mortgages, liens, pledges, loans, claims
or encumbrances of any kind whatsoever affecting any of the properties or assets
of EOIR.
(e) RESIGNATION AND APPOINTMENT OF DIRECTORS AND OFFICERS. The Sellers
shall have obtained and delivered to the Buyer duly executed resignations of
each director and officer of EOIR named on SCHEDULE 5.2(E), in form and
substance reasonably satisfactory to the Buyer, except for any officer that the
Buyer agrees will continue to serve as an officer of EOIR. Xxxxxx Xxxxxx shall
29
have been elected as Chairman of EOIR, and Xxxxxx Xxxxxx, Xxxxxxx Xxxxx, Xx. and
Xxxxxxx Sr. shall have been elected as the directors comprising the Board of
Directors of EOIR. Xxxxxx Xxxxxx will be appointed CEO of EOIR when he obtains
sufficient United States Government security clearance to hold such office.
(f) RMS ENTERPRISES. EOIR and the Sellers shall have taken all such
action as may be necessary to liquidate or, in the alternative, sell or
otherwise dispose of EOIR's interests in RMS Enterprises LLC, a Virginia limited
liability company ("RMS"), all to the reasonable satisfaction of Buyer. EOIR and
Sellers acknowledge that Buyer has no responsibility for and Sellers have and
shall retain complete responsibility for RMS.
(g) TENDER OF STOCK CERTIFICATES. Each of the Sellers shall tender on
the Closing Day share certificates representing all issued and outstanding EOIR
Common Stock held by them, duly endorsed for transfer.
(h) MINUTE BOOK/LEDGERS. At the Closing, EOIR and the Sellers shall
deliver all records of any actions taken by the board of directors or
shareholders of EOIR, and all ledgers of other records showing the issuance of
shares and the record holders thereof.
(i) ORGANIZATIONAL DOCUMENTS AND CONSENTS. Sellers shall cause EOIR to
deliver to Buyer certified copies of EOIR's articles of incorporation or other
formation documents together with all amendments thereto and a certificate of
good standing of EOIR dated no more than ten (10) days prior to the Closing.
EOIR's secretary shall also deliver to Buyer a certificate certifying that (i)
the bylaws (and other corporate governance documents) attached to the
certificate are true and complete; (ii) attached to the certificate are true
copies of the duly adopted resolutions of the board of directors of EOIR
authorizing the execution and performance of this Agreement and the transactions
contemplated hereby; and (iii) attached to the certificate is a true and
complete original copy of the incumbency and signatures of officers of EOIR
executing this Agreement and any Transaction Document.
(j) FIRPTA CERTIFICATE. Each Seller shall deliver to Buyer at or prior
to the Closing a FIRPTA certificate conforming to the requirements of Treas.
Reg. ss. 1.1445-2(b)(2).
(k) CODE SECTION 338(H)(10) CONSENTS. Each Seller shall deliver at or
prior to Closing a consent to a 338(h)(10) Election, to be held in escrow
pending determination by the Buyer and the Representative whether to make a
338(h)(10) Election in accordance with section 4.2 of this Agreement. .
(l) SELLER CONSENTS TO S ELECTION. Each Seller shall deliver to the
Representative a signed IRS Form 2553, Election by a Small Business Corporation,
or a signed schedule to be attached to such form, in which the Seller consents
to the election by Distributed RMS Corporation to be treated as an S corporation
pursuant to section 1361 of the Code for its taxable year period beginning on
the date of the creation of such corproration.
5.3 DELIVERIES OF THE BUYER.
At the Closing, the Buyer shall have delivered or caused the delivery
of the following items or shall have otherwise satisfied the following
conditions:
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(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties made by the Buyer in ARTICLE 3 hereof must be
true and correct in all respects on the Closing. The Buyer must have performed
and complied with all obligations, covenants and conditions herein required to
be performed or complied with by it on or prior to the Closing.
(b) COMPLIANCE CERTIFICATE. The Buyer must have delivered to the
Sellers a certificate executed by an officer of Buyer, dated as of the Closing,
certifying to the satisfaction of the conditions specified in SECTION 5.3(A).
(c) PURCHASE PRICE. The Buyer shall pay the Purchase Price pursuant to
the terms of SECTION 1.4 above.
ARTICLE 6
CERTAIN POST-CLOSING COVENANTS
6.1 PROPRIETARY INFORMATION.
From and after the Closing, the Sellers shall hold in confidence, and
shall cause their respective Affiliates, stockholders, members, directors,
officers, employees and agents to hold in confidence, all Proprietary
Information. The Sellers will not disclose or make use of, and each shall cause
their respective Affiliates, stockholders, members, directors, officers,
employees and agents not to disclose or make use of, Proprietary Information
without the prior written consent of the Buyer. Notwithstanding the foregoing,
nothing contained herein shall restrict a Seller's use of Proprietary
Information in the carrying out of such Seller's duties as an employee of EOIR.
6.2 DIRECTORS OF EOIR.
The Sellers, acting as a group, with authority distributed pro rata in
accordance with EOIR ownership prior to Closing, shall have the right to
nominate, designate, elect, remove and replace, as a class, not less than one
third of the directors of EOIR on and after the Closing.
6.3 SHARING OF DATA.
Following the Closing, the Sellers shall have the right to have
reasonable access to (i) those EOIR books, records and accounts, including
financial and Tax information, correspondence, production records, employment
records and other records that are retained by EOIR and (ii) the workpapers of
EOIR's accountants for the periods ending on or prior to the Closing, in each
case to the extent that any of the foregoing is needed by the Sellers for any
legitimate reason. Such EOIR records shall be maintained by Buyer in accordance
with Buyer's record retention policy.
6.4 COOPERATION IN LITIGATION.
From and after the Closing, each party shall fully cooperate with the
other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such other party
relating to or arising out of the conduct of the business of EOIR prior to or
after the Closing (other than litigation among the parties hereto or their
31
respective Affiliates arising out of the transactions contemplated by this
Agreement or the other Transaction Documents). The party requesting such
cooperation shall pay the reasonable out-of-pocket expenses incurred in
providing such cooperation (including legal fees and disbursements) by the party
providing such cooperation and by its directors, officers, employees and agents,
but shall not be responsible for reimbursing such party or its directors,
officers, employees and agents for their time spent in such cooperation.
6.5 PUBLICITY.
Except as otherwise required by law, any press release or other public
disclosure of information regarding the proposed transaction (including the
negotiations with respect to the Transaction and the terms and existence of this
Agreement) shall be developed by the Buyer, subject to EOIR's prior review and
reasonable approval. The foregoing will not restrict the Buyer's communications
with its employees or customers in the ordinary course of business.
6.6 NOVATION OF CONTRACTS.
Each party agrees to use commercially reasonable efforts to effect the
novation of each contract with a Governmental Entity that may require novation
under its terms or under applicable laws or regulations, and further agrees to
provide all documentation necessary to effect each such novation, including,
without limitation, all instruments, certifications, requests, legal opinions,
audited financial statements, and other documents required by Part 42 of the
Federal Acquisition Regulation to effect a novation of any contract with the
United States Government. In particular and without limiting the generality of
the foregoing, EOIR, and the Sellers shall each continue to communicate with
responsible officers of the United States Government from time to time as may be
appropriate and permissible, to request speedy action on any and all requests
for consent to novation
6.7 BENEFIT PLAN DISCLOSURES
EOIR and the Sellers shall furnish all resources necessary to complete
the returns, reports or disclosures relating to, but not yet required to be
filed for, any and all Employee Benefit Plans, with respect to current or prior
plan years. EOIR and the Sellers will ensure accurate and timely completion of
such returns, reports and disclosures.
6.8 SHAREHOLDER RELEASE
In consideration of certain benefits that each of the Sellers will
realize, directly or indirectly, as a result of this Agreement and the
transactions contemplated thereby, following Closing the Sellers each do hereby
release and forever discharge EOIR from all debts (except those arising under
the Buyer Notes), demands, actions, causes of action, suits, dues, royalties,
sums of money, accounts, reckonings, bonds, specialties, covenants, contracts,
and liabilities and any and all other claims of every kind, nature and
description whatsoever, at law, in equity or otherwise, which each of the
Sellers or their successors or legal representatives now has or ever had from
the beginning of the world to Closing. Each Seller also waives any right of
contribution or other recourse against the EOIR with respect to representations,
warranties or covenants made by EOIR pursuant to this Agreement.
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ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SELLERS.
Subject to the limits set forth in this ARTICLE 7, the Sellers and
their successors and assigns (collectively, the "SELLER INDEMNITORS") shall
jointly but not severally indemnify, defend, reimburse and hold harmless the
Buyer, EOIR and their respective Affiliates, directors, officers, employees,
agents, successors and assigns (collectively, the "SELLER INDEMNITEES"), from
and against any and all Losses suffered, incurred or paid by any Seller
Indemnitee, arising out of any of the following matters:
(a) the breach of any representation or warranty made by EOIR or any of
the Sellers contained in this Agreement or any other Transaction Document;
(b) the breach of any covenant, agreement, duty or obligation of the
Sellers or EOIR contained in this Agreement or any other Transaction Document;
or
(c) RMS including, without limitation, any and all financial or
operational matters of whatsoever nature in any way related to RMS regardless of
when they arise.
7.2 INDEMNIFICATION BY THE BUYER.
Subject to the limits set forth in this ARTICLE 7, the Buyer and its
successors and assigns (collectively, the "BUYER INDEMNITORS") shall indemnify,
defend, reimburse and hold harmless the Sellers and their respective Affiliates,
directors, officers, employees, agents, successors and assigns (collectively,
the "BUYER INDEMNITEES", and together with the Seller Indemnitees, the
"INDEMNITEE(S)"), from and against any and all Losses suffered, incurred or paid
by any Buyer Indemnitee, arising out of any of the following matters:
(a) the breach of any representation or warranty made by the Buyer
contained in this Agreement or any other Transaction Document; or (b) the breach
of any covenant, agreement or obligation of the Buyer contained in this
Agreement or any other Transaction Document.
7.3 CLAIMS FOR INDEMNIFICATION.
Whenever any claim (a "CLAIM") shall arise for indemnification under
this ARTICLE 7, the Indemnitee suffering a Loss shall promptly notify the Seller
Indemnitors or the Buyer Indemnitors (the "INDEMNIFYING PARTY") of the Claim
and, when known, the facts constituting the basis for the Claim; provided,
however, that no delay on the part of any Indemnitee in notifying the
Indemnifying Party will relieve any Indemnifying Party from any liability or
obligation hereunder except to the extent of any damage or liability caused by
or arising out of such delay. In the event of any Claim resulting from or in
connection with any claim or legal proceedings by a third party (a "THIRD PARTY
CLAIM"), the notice to an Indemnifying Party must specify, if known, the amount
or an estimate of the amount of the liability arising therefrom. No Indemnitee
may settle or compromise any claim by a third party for which it is seeking
33
indemnification hereunder without the prior written consent of an Indemnifying
Party (which shall not be unreasonably withheld), unless an Indemnifying Party
has not taken control of the defense of such claim as provided in SECTION 7.4,
after due notification thereof pursuant to this SECTION 7.3, in which case the
Indemnitee may settle or compromise such claim without an Indemnifying Party's
consent.
7.4 DEFENSE BY THE INDEMNIFYING PARTY.
(a) ASSUMPTION OF DEFENSE. Upon written notice to the Indemnitee given
within ten (10) days after the date of notice of the Third Party Claim by the
Indemnitee pursuant to SECTION 7.3, the Indemnifying Party may assume the
defense of such Third Party Claim, at the Indemnifying Party's sole cost and
expense, with counsel approved by the Indemnitee, such approval not to be
unreasonably withheld, if (i) the Indemnifying Party acknowledges to the
Indemnitee in writing of the Indemnifying Party's obligations to indemnify the
Indemnitee with respect to all elements of such claim, (ii) the Indemnifying
Party, in the good faith judgment of the Indemnitee, has no conflict of
interest, (iii) the third party seeks monetary damages only, (iv) an adverse
resolution of the Third Party Claim would not have a material adverse effect on
the goodwill or the reputation of any Indemnitee or the future conduct of any of
their respective businesses and (v) the maximum monetary liability under such
Third Party Claim is less than or equal to the amount available for
indemnification hereunder, after taking into account the amount of all other
claims for which the Indemnifying Party may be or may be claimed to be liable.
(b) PARTICIPATION BY THE INDEMNITEE; SETTLEMENT OF CLAIM. If the
Indemnifying Party so assumes the defense of a Third Party Claim, the Indemnitee
shall be entitled to participate in (but not control) such defense, with its own
counsel and at its own expense (except that the Indemnifying Party will be
responsible for the actual fees and expenses of separate co-counsel to the
extent the Indemnitee reasonably concludes that the counsel the Indemnifying
Party has selected has a conflict of interest). In addition, if the Indemnifying
Party so assumes the defense of a Third Party Claim, they shall take all steps
necessary in the defense or settlement thereof; provided, however, that the
Indemnifying Party shall not consent to any settlement or to the entry of any
judgment with respect to any Third Party Claim which does not include a complete
release of the Indemnitee from all liability with respect thereto or which
imposes any liability or obligation on the Indemnitee without the written
consent of the Indemnitee. No Indemnifying Party may admit any liability of any
Indemnitee or waive any Indemnitee's rights without the prior written consent of
the Indemnitee. If a Third Party Claim results in a judgment or settlement, the
Indemnifying Party shall promptly pay such judgment or settlement.
(c) DEFENSE BY THE INDEMNITEE. If the Indemnifying Party (i) fails to
(or is not permitted under the terms hereof to) assume the defense of a Third
Party Claim, or (ii) fails to diligently prosecute such defense, then the
Indemnitee may defend against the Third Party Claim, at the Indemnifying
Party's' sole cost, risk and expense, in such manner as the Indemnitee may deem
appropriate, including, without limitation, settling the Third Party Claim on
such terms as the Indemnitee may deem appropriate; provided that the
Indemnifying Party will be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnitee defends the Third Party Claim in accordance with this SECTION 7.4(C)
and the Indemnifying Party wishes to participate in such action the Indemnifying
Party shall, at the Indemnifying Party's sole cost, risk and expense, cooperate
34
with the Indemnitee and its counsel in all respects and deliver to the
Indemnitee and its counsel copies of all pleadings and other information within
the Indemnifying Party's' possession or control requested by the Indemnitee or
its counsel.
7.5 TREATMENT OF INDEMNITY PAYMENTS.
Any payment made to an Indemnitee pursuant to this ARTICLE 7 will be
treated and reported by the Sellers and the Buyer as a reduction in the Purchase
Price.
7.6 LIMITATION.
(a) Subject to the provisions of SECTION 7.6(B) below, the Seller
Indemnitors shall not have the obligation to indemnify the Seller Indemitees
unless and until the aggregate amount of all claims for indemnification by the
Seller Indemnitees exceeds fifty thousand dollars ($50,000), at which time the
Seller Indemnitees shall be entitled to full indemnification for all claims for
indemnification in excess of fifty thousand dollars ($50,000), provided,
however, the maximum liability of the Seller Indemnitors shall not exceed five
hundred thousand dollars ($500,000) in respect of any and all Indemnification
Claims delivered by the Seller Indemnitees under this ARTICLE 7.
(b) The Buyer Indemnitors shall not have the obligation to indemnify
the Buyer Indemitees unless and until the aggregate amount of all claims for
indemnification by the Buyer Indemnitees exceeds fifty thousand dollars
($50,000), at which time the Buyer Indemnitees shall be entitled to full
indemnification for all claims for indemnification in excess of fifty thousand
dollars ($50,000), provided, however, the maximum liability of the Buyer
Indemnitors shall not exceed five hundred thousand dollars ($500,000) in respect
of any and all Indemnification Claims delivered by the Buyer Indemnitees under
this ARTICLE 7.
(c) All amounts under this ARTICLE 7 owed by the Seller Indemnitors
shall be paid by a reduction of the amounts owed under the Buyer Notes held by
Seller Indemnitors who have consented, either affirmatively or by default, to
the provision of indemnification hereunder, pro rata with respect to the
relative amounts owed to such Seller Indemnitors under their respective notes
7.7 EXCLUSIVITY.
The parties hereto agree that the indemnification provisions of SECTION
4.3 and this ARTICLE 7 are intended to provide the exclusive remedy as to all
Losses they may incur arising from or related to the transactions contemplated
hereby that are intended to be indemnified hereunder, and each party hereby
waives, to the extent it may do so, any other rights or remedies that may arise
under applicable statute, rule or regulation; provided, however, that the
foregoing shall not be interpreted to limit the equitable remedies, including
specific performance, which may be sought by an Indemnitee in connection with
the breach of any covenant or agreement contained in this Agreement.
35
7.8 NO DOUBLE RECOVERY.
Notwithstanding anything herein to the contrary, no party shall be
entitled to indemnification or reimbursement under any provision of this
Agreement for any amount to the extent such party or its Affiliate has been
indemnified or reimbursed for such amount under any other provision of this
Agreement the Exhibits or Schedules attached hereto, or any document executed in
connection with this Agreement or otherwise.
ARTICLE 8
MISCELLANEOUS
8.1 DEFINED TERMS.
"338(h)(10) Election" has the meaning ascribed to it in SECTION 4.2(A).
"Accounts" has the meaning ascribed to it in SECTION 2.9(B).
"Accounts Receivable" means all trade and other accounts receivable and
notes and loans receivable and all unbilled amounts for contracts in progress
and binding purchase orders for the sale of inventory or the provision of
services by the seller of such inventory or the provider of such services as
shown on the Financial Statements.
"Affiliate" has the meaning ascribed to it in Rule 405 under the
Securities Act.
"Affiliated Group" means any affiliated group within the meaning of
ss.1504(a) of the Code or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" has the meaning ascribed to it in the preamble.
"Buyer" has the meaning ascribed to it in the preamble and SECTION
1.3(D).
"Buyer Indemnitee" and "Buyer Indemnitor" has the meanings prescribed
to each term in SECTION 7.2 hereof.
"Buyer Notes" means those certain Buyer Notes, substantially in the
form attached hereto as EXHIBIT A, issued as part of the Purchase Price pursuant
to SECTION 1.4(A) hereof.
"Claim" has the meaning ascribed to it in SECTION 7.3 hereof.
"Closing" means the closing of the sale by the Sellers, and the
purchase by the Buyer, of the Sellers' Shares pursuant to SECTION 1.3 hereof.
"Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder.
"Contract Backlog" has the meaning ascribed to it in SECTION 2.28
hereof.
"Debt" means the debt described on SCHEDULE 2.9(A) hereof.
36
"Decision" means any judgment, order, ruling, or award granted with
respect to an Action.
"Disclosure Schedules" means the schedules of the Sellers and EOIR
attached hereto as SCHEDULE 2.
"Employee Benefit Plans" shall have the meaning ascribed in SECTION
2.13(C).
"Employee Option Plan" shall have the meaning ascribed in SECTION
6.3(A).
"Environmental Laws" means all U.S. federal, state, local or foreign
law, statute, ordinance, rule, regulation, or treaty; all judicial,
administrative, and regulatory orders, judgments, decrees, permits, and
authorizations; and common law relating to: (i) the protection, investigation,
remediation, or restoration of the environment or natural resources; (ii) the
handling, use, storage, treatment, disposal, release or threatened release of
any Hazardous Material; (iii) noise, odor, pollution, contamination, land use,
any injury or threat of injury to persons or property; or (iv) the protection of
the health and safety of employees or the public.
"EOIR" has the meaning ascribed to it in the preamble hereof.
"EOIR Common Stock" has the meaning ascribed to it in RECITAL A hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Option Plan" shall have the meaning ascribed in SECTION 6.2(B)(V).
"Financial Statements" has the meaning ascribed to it in SECTION 2.7(A)
hereof.
"GAAP" means U.S. generally accepted accounting principles.
"Government Bid" shall have the meaning ascribed in SECTION 2.21(A).
"Government Contracts" means any prime contract with the United States
Government and any contract with a prime contractor or lower tier subcontractor
under a prime contract with the United States Government.
"Government Furnished Items" shall have the meaning ascribed in SECTION
2.21(E).
"Governmental Entity" means any U.S. federal, state, local or foreign
governmental, regulatory or administrative authority or agency, court or
arbitrational tribunal.
"Hazardous Material" means any substance, material, or waste that is:
(i) listed, classified or regulated in any concentration pursuant to any
Environmental Law; (ii) any petroleum hydrocarbon, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, mold, radioactive
materials or radon; or (iii) any other substance, material, or waste which may
be the subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
37
"Income Tax" means any federal, state, local, or foreign tax measured
by or imposed on net income, including any interest, penalty, or addition
thereto, whether or not disputed.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnitee" has the meaning ascribed to it in SECTION 7.2 hereof.
"Indemnifying Party" has the meaning prescribed to it in SECTION 7.3
hereof.
"Intellectual Property" means all technology, software, software tools,
patents, trade secrets, trademarks, service marks, trade names, copyrights,
licenses, domain names and other intangible rights and proprietary information.
"IRS" means the Internal Revenue Service.
"Key Employees" means all shareholders of EOIR that are employees, all
members of senior management, and all persons earning in excess of $100,000 per
annum.
"Knowledge" or "known" means actual knowledge of the named
individual(s), except as otherwise set forth in ARTICLE 2 and except with
respect to EOIR, as to which "knowledge" or "known" shall mean the actual
knowledge of any officer or director of EOIR.
"Losses" means the amount of any actual damages, liabilities,
obligations, deficiencies, losses (including without limitation any actual
diminution in value), expenditures, costs or expenses (including without
limitation reasonable attorneys' fees and disbursements) reduced by any
insurance proceeds actually received in respect thereof (net of costs of
recovery) and determined without giving effect to any qualifications or
limitations as to materiality or knowledge set forth in any representation or
warranty.
"Material Adverse Effect" means, with respect to any party, any change,
effect, event, occurrence or state of facts (or any development that has had or
is reasonably likely to have any change or effect) that (i) is materially
adverse to the business, results of operations, condition (financial or
otherwise) or prospects of such party and its subsidiaries, either individually
or in the aggregate, or (ii) impairs the ability of such party to complete the
transactions contemplated hereby.
"Material Contracts" means all the contracts, agreements, commitments
and instruments that are required to be identified in SECTION 2.18(A).
"Xxxxxxx Sr." shall have the meaning ascribed in SECTION 1.3(A).
"Named Executives" shall mean those persons designated in SECTION 2.1
hereof.
"Non-Xxxxxxx Sellers" shall have the meaning ascribed in SECTION 1.5.
"Non-Selling Shareholder" shall have the meaning ascribed in SECTION
1.3(C).
38
"Party" and "Parties" mean, as the case may be, one or more of the
signatories to this Agreement.
"Permits" means all permits, licenses, sublicenses, registrations,
certificates, orders, approvals, franchises, variances and similar rights issued
by or obtained from any Governmental Entity.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity or a
governmental entity (or any department, agency, or political subdivision
thereof).
"Proprietary Information" means any information not in the public
domain, in any form, whether acquired prior to or after the Closing, relating to
the business and operations of the Buyer, EOIR or any of their respective
Affiliates, including, without limitation, information regarding vendors,
suppliers, trade secrets, training programs, technical information, contracts,
systems, procedures, know-how, trade names, improvements, price lists, financial
or other data, business plans, computer programs, software systems, internal
reports, personnel files, any other Intellectual Property, any other technical
information or data relating to materials, products, components or services, or
any other compilation of information, written or unwritten, which is or was used
in the business of the Buyer, EOIR or any of their respective Affiliates, except
for information (i) that was or becomes generally available to the public, other
than as a result of disclosure by the Sellers or any of their respective
Affiliates or (ii) that is received by the Sellers or any of their respective
Affiliates on a non-confidential basis from a third party that is not prohibited
from disclosing such information by any obligation to the Buyer, EOIR or any of
their respective Affiliates.
"Purchase Price" has the meaning ascribed to it in SECTION 1.2 hereof.
"Related Party" has the meaning ascribed to it in SECTION 2.24 hereof.
"Representative" shall mean the Person designated in SECTION 1.5
hereof.
"Retained Executives" shall mean Xxxxx X. Xxxxxxx, Xxxx X. Xxxxxxx,
Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxxx, Xxxxxxx X. Xxxxxxxx,
Xxxx X. Xxxxxxxx, Xxxxx X. Xxxxxxxxx, Xxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxx, Xx.,
Xxxxxx X. Xxxxxx, and Xxxxx X. Xxxxxxxx .
"RMS" shall have the meaning set forth in SECTION 5.2(F) hereof.
"Sellers" has the meaning ascribed to it in the preamble.
"Seller Indemnitee" and "Seller Indemnitors" shall have the meaning
ascribed in SECTION 7.1.
"Sellers' Shares" shall have the meaning set forth in SECTION 1.1
hereof.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp, net
worth, occupation, premium, prohibited transaction, windfall profits,
39
environmental (including taxes under Code ss.59A), customs duties, tariffs,
imposts, levies, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, recording, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means a return, declaration, report, statement and other
document required to be filed in respect of any Tax or any claim for a refund of
any Tax, including, without limitation, any amendment or supplement to any of
the foregoing.
"Third Party Claim" has the meaning ascribed to it in SECTION 7.3
hereof.
"Transaction Documents" means this Agreement, the Promissory Notes
referenced in Section 1.4, a Security Agreement and Pledge and Security
Agreement effecting the security interests referenced in Section 1.4, all
necessary stock powers, and all other documents and other matters or items
required to be delivered by the Sellers at Closing.
"Transaction Fee Schedule" shall have the meaning ascribed as SECTION
1.4(B).
"United States Government" means the government of the United States of
America, or any agency, department, division, subdivision, instrumentality of
office thereof.
"Warranty Obligations" shall have the meaning ascribed as SECTION
2.29(B).
"Work Related Liability" has the meaning prescribed to it in SECTION
2.29(A) hereof.
8.2 AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended, modified, or
supplemented only by written agreement of EOIR, the Sellers and the Buyer. This
Agreement may be amended only by an instrument in writing signed by each of the
parties hereto.
8.3 WAIVER OF COMPLIANCE; CONSENTS.
Any failure of the Sellers or the Buyer to comply with any obligation,
covenant, agreement, or condition herein may be waived by the Buyer, on the one
hand, or the Sellers, on the other hand, only by a written instrument signed by
an officer of the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing.
8.4 NOTICES.
All notices and other communications hereunder to any party shall be
contained in a written instrument addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the addressor listing all parties and shall be deemed given (a)
when delivered in person or duly sent by facsimile or electronic mail to a
facsimile number or electronic mail address furnished by the addressee for the
40
purpose of receiving notices and other communications, (b) three days after
being duly sent by first class mail, postage prepaid, or (c) two days after
being duly sent by Federal Express or other recognized express courier service::
If to Sellers, to: Xxxxxx X. Xxxxxxx, Xx.
0 Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
with a copy (which shall Xxxxx Xxxx & Xxxxxxxx LLP
not constitute notice) to: 0000 X Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
If to EOIR, to: EOIR, Inc.
0000 Xxxxx'x Xxxxx Xx.
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: President
Fax: (000) 000-0000
If to the Buyer, to: Xxxxxxxx Technologies Inc.
00 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Fax: (000)000-0000
with a copy (which shall not
constitute notice) to: Xxxxx Xxxx LLP
000 Xxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx
Fax: 000-000-0000
8.5 ASSIGNMENT.
This Agreement and all of the provisions hereof will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder may be assigned by any of the parties hereto
without the prior written consent of the other parties, nor is this Agreement
intended to confer upon any other person except the parties hereto any rights or
remedies hereunder.
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8.6 GOVERNING LAW.
This Agreement will be governed by, construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia.
8.7 COSTS OF ENFORCEMENT.
If any party to this Agreement brings any Action to enforce this
Agreement or the other Transaction Documents or to declare rights under this
Agreement or the other Transaction Documents, in addition to any damages and
costs which the prevailing party or parties otherwise would be entitled, the
losing party or parties in any such Action shall pay to the prevailing party or
parties all actual attorneys' fees and costs incurred in connection with such
Action and/or any Decision granted by a court, arbitrator or mediator.
8.8 SEVERABILITY.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
8.9 CONSTRUCTION.
The captions and titles of the articles, sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. This Agreement will be construed
without regard to any presumption or other rule requiring the resolution of any
ambiguity regarding the interpretation or construction hereof against the party
causing this Agreement to be drafted.
8.10 ENTIRE AGREEMENT.
This Agreement, including the exhibits and schedules hereto and
agreements referred to herein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter. No discussions regarding or exchange of
drafts or comments in connection with the transactions contemplated herein will
constitute an agreement among the parties hereto.
8.11 COUNTERPARTS; FACSIMILE EXECUTIONS.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
instrument. Signatures transmitted electronically or by facsimile will be deemed
original signatures, and for purposes of this Agreement, a document (or
signature page thereof) signed and transmitted by facsimile machine or
telecopier is to be treated as an original document. At the request of either
party, any facsimile or telecopy document shall be re-executed in original form
by the party who executed the same. No party hereto may raise the use of a
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facsimile or telecopier or the fact that any signature was transmitted through
the use of a facsimile telecopier as a defense to the enforcement of this
Agreement or any document related hereto.
8.12 SPECIFIC PERFORMANCE.
The parties hereto acknowledge that damages alone may not adequately
compensate a party for violation by another party of this Agreement.
Accordingly, in addition to all other remedies that may be available hereunder
or under applicable law, any party shall have the right to any equitable relief
that may be appropriate to remedy a breach or threatened breach by any other
party hereunder, including the right to enforce specifically the terms of this
Agreement by obtaining injunctive relief in respect of any violation or
non-performance hereof.
8.13 FURTHER ASSURANCES.
(a) GENERALLY. Subject to terms and conditions herein provided and to
the fiduciary duties of the board of directors and officers or representatives
of any party, each of the parties agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective this Agreement and the transactions
contemplated hereby. In case at any time any further action, including, without
limitation, the obtaining of waivers and consents under any agreements, material
contracts or leases and the execution and delivery of any licenses or
sublicenses for any software, is necessary, proper or advisable to carry out the
purposes of this Agreement, the proper officers and directors or representatives
of each party to this Agreement are hereby directed and authorized to use
commercially reasonable efforts to effectuate all required action.
(b) PERFECTION OF TRANSFER. If, at any time after the Closing Date, any
further action is necessary or desirable to vest, perfect or confirm in the
Buyer title to or ownership or possession of the EOIR Shares acquired pursuant
to this Agreement, the Sellers, as well as the officers and directors of EOIR
and the Buyer, are fully authorized in their name and in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action to so vest, perfect or confirm in the Buyer title to or
ownership of the EOIR Shares, so long as such action is consistent with this
Agreement.The parties hereto will execute and deliver such further agreement and
do such further act and things as may be required to carry out the intent of
this Agreement.
[SIGNATURE PAGE TO FOLLOW]
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SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
------------------------------------------
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement s of the date first written above.
THE BUYER:
XXXXXXXX TECHNOLOGIES INC.
By: _____________________________
Name:
Title:
EOIR:
E-OIR TECHNOLOGIES Inc.
By: _____________________________
Name:
Title:
SELLERS:
Xxxxxx X. Xxxxxxx, Xx. Xxxxx X. Xxxxxxx Xxxxx X. Xxxxxxxxx
------------------------- ------------------------- -------------------------
Xxxxx X. Xxxxxxx Xxxxxxx X. Xxxxxxxx Xxxxx X. Xxxxxxxxx
------------------------- ------------------------- -------------------------
Xxxx X. Xxxxxxx Xxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxx
------------------------- ------------------------- -------------------------
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------------------------- ------------------------- -------------------------
Xxxxxxx Xxxxxxxxxxx Xxxxx Xxxxxxxx Xxxxxxx X. Xxxxxxx
------------------------- ------------------------- -------------------------
Xxxxxx X. Xxxxxx Xxxxx X. Xxxxxxx
------------------------- -------------------------
REPRESENTATIVE:
-------------------------------------------------
Xxxxxx X. Xxxxxxx, Xx. in his capacity as
"Representative" hereunder, and to accept and
acknowledge the responsibilities of Representative
herein.
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