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AGREEMENT AND PLAN OF MERGER
by and among
NEXUS TECHNOLOGIES GROUP, INC.,
a Delaware corporation,
CSS ACQUISITION, INC.,
a Pennsylvanian corporation,
CORPORATE SECURITY SOLUTIONS, INC.,
a Pennsylvania corporation,
AND
Persons Listed on the Signature Pages Herein
Dated: February 8, 2006
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made this 8th day
of February, 2006, by and among Nexus Technologies Group, Inc., a Delaware
corporation ("Purchaser"), CSS Acquisition, Inc., a Pennsylvania corporation
("Merger Sub"), Corporate Security Solutions, Inc., a Pennsylvania corporation
(the "Company"), the shareholders of the Company listed on the signature pages
hereto (the "Sellers") and certain other individuals listed on the signature
pages hereto.
RECITALS
WHEREAS, the Company is principally engaged in the business of providing
security consulting services to individuals and corporations (the "Business");
and
WHEREAS, the Sellers are the record and beneficial owners of 1,056.046814
shares of common stock, $1.00 par value per share, of the Company (the "Company
Stock"), which shares represent all of the issued and outstanding capital stock
of the Company;
WHEREAS, the respective Boards of Directors of Purchaser, Merger Sub and
the Company have determined that it is advisable and in the best interests of
their respective stockholders to effect the acquisition of the Company pursuant
to the terms and subject to the conditions set forth herein and
WHEREAS, it is the intention of the parties to this Agreement that the
transactions contemplated by this Agreement for federal income tax purposes
shall qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
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1. Terms of Acquisition
1.1 Merger.
Upon the terms and subject to the conditions set forth herein, and in
accordance with the Pennsylvania Business Corporation Law (the "PBCL"), at the
Effective Time (as defined below), the Company shall be merged with and into the
Merger Sub. At the Effective Time, the separate corporate existence of Company
shall cease and the Merger Sub shall continue as the surviving corporation of
the Merger (the "Surviving Corporation").
1.2 Effective Time.
Upon the terms and subject to the conditions set forth in this Agreement,
, the parties hereto shall (i) file articles of merger (the "Articles of
Merger") in such form as is required by, and executed and acknowledged in
accordance with, the relevant provisions of the PBCL and (ii) make all other
filings or recordings required under the PBCL to effect the Merger. The Merger
shall become effective at such date and time as the Articles of Merger is duly
filed with the Department of State of the Commonwealth of Pennsylvania or at
such subsequent date and time as Parties shall agree and specify in the Articles
of Merger. The date and time at which the Merger becomes effective is referred
to in this Agreement as the "Effective Time".
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1.3 Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in
Section 1929 of the PBCL.
1.4 Articles of Incorporation; Bylaws.
At the Effective Time, the Articles of Incorporation of the Merger Sub as
in effect immediately prior to the Effective Time, shall remain in effect. At
the Effective Time, the Bylaws of the Merger Sub, as in effect immediately prior
to the Effective Time, shall remain in effect.
1.5 Directors and Officers.
The directors of the Company immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified or
until the earlier of their death, resignation or removal.
1.6 Conversion of Securities.
At the Effective Time, (i) by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any of the Company
Stock, each share of Company Stock issued and outstanding immediately prior to
the Effective Time shall be converted into common stock, par value $0.01 per
share of the Purchaser ("Purchaser Common Stock") in accordance with Schedule
1.6. The Purchaser Common Stock received pursuant to this Section 1.6 and all
Purchase Options received pursuant to Section 4.6 to purchase Purchaser Common
Stock shall collectively be referred to as the "Merger Consideration." All
restricted Purchaser Common Stock issued as Merger Consideration shall be issued
pursuant to a Restricted Stock Agreement. Upon surrender of a Company Stock
certificate representing shares of Company Stock to the Purchaser, the holder of
such Company Stock shall be entitled to receive in exchange therefor shares of
Purchaser Common Stock in accordance with Schedule 1.6 and the Company Stock
certificate so surrendered shall be cancelled. Until surrendered as contemplated
by this Section 1.6, from and after the Effective Time, each Company Stock
certificate shall be deemed to represent only the right to receive the above
described consideration for each share of Company Stock formerly represented by
such Company Stock certificate, and shall not evidence any interest in Merger
Sub or the Purchaser. 1.7 Closing.
(a) Closing Date
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Purchaser's counsel, Xxxxxxxxxxx &
Xxxxxxxx Xxxxxxxxx Xxxxxx, LLP, located at Miami Center, 20th Floor, 000 X.
Xxxxxxxx Xxxx., Xxxxx, XX 00000, on a mutually agreeable date on or prior to
February 8, 2006 (the "Closing Date"). At the Closing, the Sellers shall deliver
the Company Stock to Purchaser pursuant to Section 1.6 hereof and Purchaser
shall deliver the Merger Consideration to the CSS Parties pursuant to Section
1.6 hereof.
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(b) Purchaser's Deliveries At Closing.
Subject to the terms and conditions of this Agreement, at Closing,
Purchaser shall deliver the following duly executed documents:
(i) Stock certificates evidencing the Merger Consideration in
accordance with the amounts as set forth in Schedule 1.6;
(ii) A stock certificate evidencing 489,600 shares of
Purchaser Common Stock in the name of Xxxxxx Xxxxxxxx and an additional stock
certificate evidencing 54,400 shares of Purchaser Common Stock being issued in
the name of Xxxxxx Xxxxxxxx with possession of such certificate being maintained
by the Purchaser pursuant to Section 7.9;
(iii) A stock certificate evidencing 381,600 shares of
Purchaser Common Stock in the name of Xxxxx X. Xxxxxx and an additional stock
certificate evidencing 42,400 shares of Purchaser Common Stock being issued in
the name of Xxxxx X. Xxxxxx with possession of such certificate being maintained
by the Purchaser pursuant to Section 7.9;
(iv) Shareholders Agreement in the form attached as Exhibit A
hereto (the "Shareholders Agreement");
(v) Services Agreement in the form attached as Exhibit B
hereto (the "Services Agreement");
(vi) Employment Agreements between the Surviving Corporation
and each of Xxxxxxx Xxxxxxxx, Xxx Xxxxxxxxxx, Xxxxxxxxxxx Xxxxxx, Xxx Xxxxxx,
Xxxxxx Xxxxxxxx and Xxxxx X. Xxxxxx in the form attached as Exhibit C hereto
(the "Employment Agreements");
(vii) Series A Preferred Stock Purchase Agreement in the form
attached as Exhibit D hereto (the "Series A Purchase Agreement");
(viii) The consulting agreement between Xxxx Xxxxxxxx and the
Company in the form attached as Exhibit F hereto (the "Consulting Agreement");
(ix) The Restricted Stock Agreements between Purchaser and
each of Xxx Xxxxxxxxxx, Xxxxxxxxxxx Xxxxxx, Xxxxxxx Xxxxxxxx and Xxxxxxx
Xxxxxxxx and Xxx Xxxxxx in the form attached as Exhibit H hereto (the
"Restricted Stock Agreements");
(x) Evidence that all amounts outstanding under all loans of
the Company with Commerce Bank /Pennsylvania, N.A., have been paid in full;
(xi) The indemnification agreements with Xxxx Xxxxxxxx and
Xxxxxxx and Xxxxxxx X. Xxxxxxxx in the form attached as Exhibit G hereto (the
"Indemnification Agreements");
(xii) The Stock Option Agreements between the Purchaser and
each of Xxxxx Xxxxxx and Xxxxxx Xxxxxxxx in the form attached as Exhibit I
hereto (the "Stock Option Agreements");
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(xiii) Evidence of the termination of the Shareholders
Agreements between the Company and each of (i) Xxx Xxxxxxxxxx, (ii) Xxxxxxxxxxx
Xxxxxx, (iii) Xxx Xxxxxx and (iv) Xxxxxxx and Xxxxxxx Xxxxxxxx JTEN and Xxxx
Xxxxxxxx (collectively, the "CSS Agreement"); and
(xii) The Articles of Merger.
The documents referred to in clauses (ii), (iii), (iv), (v), (vi), (vii),
(ix), (x) and (xii) above are hereinafter collectively referred to as the
"Ancillary Agreements" and together with this Agreement are referred to herein
as the "Transaction Documents."
(c) The Company's and CSS Parties' Deliveries At Closing
Subject to the terms and conditions of this Agreement, at Closing, the
Company and the CSS Parties shall deliver the following duly executed documents:
(i) Original stock certificates evidencing all of the shares
of outstanding Company Stock;
(ii) Shareholders Agreement;
(iii) Employment Agreements;
(iv) evidence satisfactory to Purchaser that the Liens
identified on Schedule 3.1(u)(iii) have been satisfied or shall be satisfied at
Closing;
(v) the Articles of Merger;
(vi) the Secretary' Certificate certificate, dated the Closing
Date and executed by the Secretary of the Company, certifying the incumbency and
signatures of the officers of the Company authorized to act on behalf of the
Company in connection with the transactions contemplated hereby and attaching
and certifying as true and complete copies of (i) the resolutions duly adopted
by the Board of Directors and stockholders of the Company authorizing and
approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and (ii) the Charter and By-Laws of the
Company, each as may have been amended up through the Closing Date.; and
(vii) the Consulting Agreement;
(viii) certificates of status of the Company or other evidence
verifying the Company's good standing in the Commonwealth of Pennsylvania
(ix) the Stock Option Agreements; and
(x) the Restricted Stock Agreements.
1.8 Purchase Price Adjustment
After the Closing, the independent auditors of the Company, which shall be
HJ & Associates LLC, shall prepare a Final 2005 Income Statement and Final 2005
Balance Sheet in connection with their preparation of the 2005 Financial
Statements and provide it to the CSS Parties on or before February 28, 2006. The
Merger Consideration shall be adjusted in the event the EBITDA for the Fiscal
Year 2005 as reflected on the Final 2005 Income Statement shall be less than
Four Hundred Thousand Dollars ($400,000) (excluding any payroll and expense
amounts paid to Xxxx Xxxxxxxx during the Fiscal Year 2005 in an amount not
exceeding Two Hundred Twenty-Five Thousand Dollars ($225,000)) ("2005 EBITDA").
If 2005 EBITDA is less than $400,000, then the Merger Consideration shall be
decreased by the amount of $2.00 for each $1.00 of EBITDA less than $400,000
(the "EBITDA Adjustment"). If the Shareholders' Equity as reflected on the Final
2005 Balance Sheet is less than $600,000, then the Merger Consideration shall be
decreased by the amount of $1.00 for each $1.00 for which the Shareholders'
Equity is less than $600,000 (the "Balance Sheet Adjustment"). The EBITDA
Adjustment and the Balance Sheet Adjustment are collectively referred to herein
as the "Purchase Price Adjustment." The number of shares of Purchaser Common
Stock received as Merger Consideration shall be reduced pro rata by 1.15 shares
for each dollar of the Purchase Price Adjustment. The Final 2005 Balance Sheet
and Final 2005 Income Statement delivered to the CSS Parties shall be conclusive
and binding on the Parties for purposes of determining any EBITDA Adjustment and
the Balance Sheet Adjustment. Any Purchase Price Adjustment shall first be
applied against the Held Back Shares. After cancellation of the Held Back
Shares, any additional Purchase Price Adjustment shall be achieved through the
cancellation pro rata of any additional Restricted Shares, then through any
additional Merger Consideration, and finally through cash payments.
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2. Additional Agreements.
2.1 Audits
The Company hereby agrees that its financial statements shall be subject
to an independent audit (the "Audit") for the period of Fiscal Year 2005 (each
an "Audited Period"). The Audit shall be delivered to the Company on or before
February 28, 2006. Purchaser shall utilize an independent certified public
accountant qualified to practice before the Securities and Exchange Commission
to complete the Audit, and shall bear the costs for such Audit.
2.2 Securities Law Compliance
The issuance of the Merger Consideration shall not be registered under the
Securities Act of 1933, as amended, by reason of the exemption provided by
Section 4(2) thereof, and such shares may not be further transferred unless such
transfer is registered under applicable securities laws or, in the opinion of
counsel, such transfer complies with an exemption from such registration. In
addition, the Purchaser Common Stock may be subject to additional restrictions
pursuant to the Shareholders Agreement. All certificates evidencing the Merger
Consideration to be issued to the Sellers shall be legended to reflect the
foregoing restrictions.
2.3 Best Efforts
Subject to the terms and conditions provided in this Agreement, each of
the parties shall use its best efforts in good faith to take or cause to be
taken as promptly as practicable all reasonable actions that are within its
power to cause to be fulfilled those conditions precedent to its obligations or
the obligations of the other parties to consummate the transactions contemplated
by this Agreement that are dependent upon its actions.
2.4 Further Assurances
The parties shall deliver any and all other instruments or documents
required to be delivered pursuant to, or necessary or proper in order to give
effect to, the provisions of this Agreement, including, without limitation, all
necessary stock powers and such other instruments of transfer as may be
necessary or desirable to consummate the transactions contemplated by this
Agreement.
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3. Representations and Warranties.
3.1 Representations and Warranties as to the Company
The Company and CSS Parties hereby, jointly and severally, represent and
warrant to Purchaser as follows:
(a) Capitalization
The authorized capital stock of the Company consists solely of 100,000
shares of common stock, $1.00 par value per share, of which 1,056.046814 shares
are issued and outstanding. All issued and outstanding shares of the Company
Stock are owned, of record and beneficially, solely by the Sellers. All shares
of Company Stock have been duly authorized and validly issued and are fully paid
and non-assessable. All prior offerings and issuances of Company Stock have been
made in accordance with applicable federal and state securities Laws. Except as
disclosed in Schedule 3.1(a), (i) no shares of the Company's capital stock are
subject to rights of first refusal, preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company, (iv) there are no outstanding securities or instruments of
the Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to redeem a security of the Company, (v) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the sale of the common shares of Company Stock as described
in this Agreement and (vi) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement.
(b) Organization; Good Standing; Power
The Company is a corporation duly organized, validly existing and in good
standing under the Laws of the Commonwealth of Pennsylvania, and has full
corporate power and authority to own, lease and operate its assets and
properties and to carry on its Business as presently conducted by it. Schedule
3.1(b) hereto sets forth a true and complete list of all states and other
jurisdictions in which the Company is duly qualified and in good standing to
transact business as a foreign corporation. Except for those states and
jurisdictions set forth on Schedule 3.1(b), there are no other states or
jurisdictions in which the character and location of the properties owned or
leased by the Company and the conduct of its Business make any such
qualification necessary, except any where the failure to be so qualified would
not have a Material Adverse Effect. The Company's minute books contain true and
complete records of all meetings and other material actions, including, without
limitation, actions by vote or written consent of the stockholders and the board
of directors of the Company.
(c) Authority; Validity; No Conflicts
The execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations hereunder, and the consummation of
the transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of the Company, and the Company has all necessary
corporate power with respect thereto. This Agreement is the valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except to the extent that enforceability thereof may be limited by general
equitable principles or the operation of bankruptcy, insolvency, reorganization,
moratorium or similar Laws. Except as set forth in Schedule 3.1(c), neither the
execution and delivery by the Company of this Agreement, nor the consummation of
the transactions contemplated hereby, nor the performance by the Company of its
obligations hereunder, shall (or, with the giving of notice or the lapse of time
or both, would) (i) conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company, as amended; (ii) give rise to a
conflict, breach or default, or any right of termination, cancellation or
acceleration of remedies or rights, or otherwise result in a loss of benefits to
the Company, under the provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Company is a
party or by which it or any of its properties or assets is otherwise bound;
(iii) violate any Law applicable to the Company or any of its properties or
assets; (iv) result in the creation or imposition of any Lien upon any of the
properties or assets of the Company; (v) interfere with or otherwise adversely
affect the ability of Purchaser to carry on the business of the Company as
presently conducted; or (vi) contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give rise to any right to revoke,
suspend, terminate or modify any Permit.
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(d) Governmental Authorizations; Third-Party Consents
Except as set forth on Schedule 3.1(d) hereto, no approval, consent,
waiver, exemption, order, authorization or other action by, or notice to or
filing with, any governmental authority or any Person, and no lapse of a waiting
period, is required to be obtained by the Company or any CSS Party in connection
with (or in order to permit) the execution, delivery or performance by any of
them of this Agreement or any of the Ancillary Agreements or the consummation of
the transactions contemplated hereby or thereby (collectively, "Consents").
(e) Financial Statements
The Company has delivered to Purchaser true and complete copies of its (i)
audited balance sheet as of December 31, 2003 and the related audited statements
of income (loss), retained earnings and cash flow for the fiscal year then ended
(the "2003 Financial Statements"), (ii) audited balance sheet as of December 31,
2004 and the related audited statements of income (loss), retained earnings and
cash flow for the fiscal year then ended (the "2004 Financial Statements") and
(iii) unaudited balance sheet as of December 31, 2005 and the related unaudited
statements of income (loss), retained earnings and cash flow for the fiscal year
then ended (the "2005 Financial Statements") and the Estimated 2005 Balance
Sheet. The Financial Statements are attached hereto as Schedule 3.1(e). Except
as set forth on Schedule 3.1(e), the Financial Statements, including any notes
thereto, were prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except, in the case of the 2005 Financial
Statements, the absence of footnotes) and fairly present the financial position
of the Company as of the dates indicated and the results of its operations for
the periods covered thereby. The books and records of the Company are, in all
material respects, true and complete, have been maintained in accordance with
good business practices, and accurately reflect the basis for the financial
condition and results of operations of the Company as set forth in its financial
statements. Except as set forth on Schedule 3.1(e), the Company has employed the
accrual method of accounting for at least the past two (2) years and the
Financial Statements reflect such method of accounting.
(f) Interests in Other Entities
The Company does not, directly or indirectly, (i) own, of record or
beneficially, any shares of voting stock or any other equity securities of any
Person; (ii) have any other ownership or equity or debt interest, of record or
beneficially, in any Person; or (iii) have any obligation or right, fixed or
contingent, to purchase or subscribe for any interest in, advance or loan monies
to, or in any way make an investment in, any Person or to share any profits or
capital investments in any other Person.
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(g) Title to Properties; Leases
Except as set forth on Schedule 3.1(g), the Company has good and
marketable title to all of its properties and assets, real and personal,
including, but not limited to, those reflected in the audited balance sheet
contained in the 2004 Financial Statements (the "2004 Balance Sheet") (except as
sold or otherwise disposed of in the ordinary course of business since December
31, 2004, or as expressly provided for in this Agreement), free and clear of all
encumbrances, liens or charges of any kind or character except: (a) those
securing liabilities of the Company incurred in the ordinary course (with
respect to which no default exists); (b) property leased pursuant to leases
disclosed on any Schedule hereto; (c) liens of real estate and personal property
Taxes; and (d) imperfections of title and encumbrances, if any, which, in the
aggregate do not have a Material Adverse Effect on the business, properties or
assets of the Company.
(h) Accounts Receivable; Fixed Assets; Inventory
(i) Schedule 3.1(h)(i) hereto sets forth a true and complete
list of the Accounts Receivable as of December 31, 2005 and as of the last
business day immediately preceding the Closing Date and the individual aging
with respect thereto. All of the Accounts Receivable reflected on Schedule
3.1(h)(i) are good and collectible in the ordinary course of business at the
recorded amounts thereof, less the amount of the reserves for bad accounts
reflected thereon (which reserves have been established in accordance with GAAP
on a basis consistent with past practice), and are not subject to any
counterclaims or offsets.
(ii) Schedule 3.1(h)(ii) hereto sets forth a true and complete
list of the Inventory. The Inventory is of such quality and quantity as to be
usable and saleable by the Company in the ordinary course of business, has been
priced at the lower of cost or market value using the ["first-in, first-out"
method, and is free of any defect or deficiency, subject only to the reserve for
Inventory writedown set forth on the face of the Estimated 2005 Balance Sheet as
adjusted for operations and transactions through the Closing Date. The level of
Inventory reflected on Schedule 3.1(h)(ii) and the Estimated 2005 Balance Sheet
are not excessive in light of the Company's normal operations of the Business
and are adequate to conduct the Company's operations in the ordinary course of
business.
(i) Intellectual Property
Schedule 3.1(i) hereto sets forth a true and complete list of all
licenses, patents, patents pending, registered copyrights, trade names,
trademarks and service marks comprising Intellectual Property. None of CSS
Parties nor any officer, director or employee of the Company, or any of their
respective Affiliates or Associates, has any ownership, royalty or other
interest in any of the Intellectual Property. The Company has either all right,
title and interest in and to, or valid and enforceable rights under contract to
use, all items of Intellectual Property material to, or necessary to conduct,
the Business of the Company as it is presently conducted or contemplated to be
conducted, free and clear of all Liens other than Permitted Liens. There are no
material restrictions on the direct or indirect transfer of any contract or
other agreement, or any interest therein, held by the Company in respect of any
item of Intellectual Property. The Company is not in default (or, with the
giving of notice or lapse of time or both, would be in default) under any
contract or other agreement to use any item of Intellectual Property required to
be set forth on Schedule 3.1(i). To the knowledge of the Company and CSS
Parties, none of the Intellectual Property infringes or conflicts with, and
neither the Company nor any of CSS Parties has received any notice of
infringement of or conflict with, any license, patent, copyright, trademark,
service xxxx or other intellectual property right of any other Person and, to
the knowledge of the Company and CSS Parties, there is no material infringement
or material unauthorized use by any Person of any of the Intellectual Property
owned by the Company. Except as set forth on Schedule 3.1(i), the validity or
enforceability of any of the Intellectual Property or the title of the Company
thereto has not been questioned in any litigation, governmental inquiry or
proceeding to which the Company is party and to the knowledge of the Company or
any of CSS Parties, no such litigation, governmental inquiry or proceeding is
threatened. The Company has taken all actions necessary and appropriate to
preserve the confidentiality of all trade secrets, proprietary and other
confidential information material to the business and operations of the Company.
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(j) Bank Accounts; Credit Cards; Corporate Accounts; and
Powers of Attorney
Schedule 3.1(j) hereto sets forth a true and complete list showing (i) the
names of all banks in which the Company has an account or safe deposit box, the
account numbers for each account at such banks and the names of all Persons
authorized to draw thereon and who have access thereto; (ii) the names of all
credit card issuers with whom the Company has an account and the names of all
Persons authorized to use such accounts or who have access thereto; (iii) the
names of all cellular telephone, phone card or other corporate accounts with
whom the Company has an account and the names of all Persons authorized to use
such accounts or who have access thereto; and (iv) the names of all Persons, if
any, holding powers of attorney from the Company. There are no automatic,
periodic or scheduled withdrawals or debits with respect to the bank or
corporate accounts required to be set forth on Schedule 3.1(j) hereto.
(k) Absence of Undisclosed Liabilities
The Company does not have any Liabilities, including guarantees and
indemnities by the Company of Liabilities of any other Person, except (i)
Liabilities as and to the extent reflected on the Estimated 2005 Balance Sheet;
(ii) Liabilities incurred by it in the ordinary course of business and
consistent with past practice since the date of the 2004 Balance Sheet (none of
which is a material Liability for breach of contract, breach of warranty, tort,
infringement, claim, lawsuit or other proceeding) and adequately reflected on
the books and records of the Company; (iii) obligations not in default under
contracts entered into by it in the ordinary course of business; and (iv) the
Liabilities set forth on Schedule 3.1(k) hereto.
(l) Litigation
Except as set forth on Schedule 3.1(l) hereto, there are no claims, suits
or actions, administrative, arbitration or other proceedings, or governmental
investigations pending or, to the knowledge of the Company or any CSS Parties,
threatened against or affecting, or reasonably likely to adversely affect, the
Company or any of its properties, assets or business or the transactions
contemplated hereby. There are no outstanding judgments, orders, stipulations,
injunctions, decrees or awards against the Company that have not been fully
satisfied.
For purposes of clarity, this Section 3.1(l) does not apply, and Section
3.1(q) contains the sole representation of the Company and the Sellers related
to, Tax matters.
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(m) Material Contracts
Schedule 3.1(m) hereto sets forth a true and complete list, and brief
description, of each Material Contract. True and complete copies of all Material
Contracts required to be set forth on Schedule 3.1(m) have been furnished to
Purchaser and, except as set forth on Schedule 3.1(m), each of them is in full
force and effect. Except as set forth on Schedule 3.1(m), neither the Company
nor, to the knowledge of the Company or any CSS Parties, any other Person that
is a party to a Material Contract or is otherwise bound thereby is in default
thereunder, and no event, occurrence, condition or act exists that, with the
giving of notice or the lapse of time or both, would give rise to any default or
right of cancellation thereunder. To the knowledge of the Company or any CSS
Parties, there have been no threatened cancellations of any of the Material
Contracts and there are no outstanding disputes thereunder. There are no
agreements, understandings or arrangements with any other Person in respect of
the Material Contracts that (i) give any Person the right to renegotiate or
require a reduction in the price paid to the Company or the repayment of any
amount previously paid, (ii) provide for the sharing of any revenues or profits
by or with the Company or (iii) provide for discounts, allowances or extended
payment terms.
(n) Insurance . Schedule 3.1(n) hereto sets forth a true and
complete list of all policies of insurance under which the Company or any of its
officers or directors (in such capacity) is an insured party, beneficiary or
loss payable payee, and the expiration date of each such policy. The Company is
current in all of its premiums for its insurance policies. True and complete
copies of all such policies have been provided to Purchaser. Such policies are
in full force and effect and they will remain in full force and effect and will
not terminate or lapse or otherwise be affected in any way by reason of the
transactions contemplated hereby. The Company is not in default with respect to
any provision contained in any such policy, the Company has not received or
given a notice of cancellation or non-renewal with respect to any such policy
and the Company has not received a reservation of rights letter with respect to
any such policy. Except as set forth on Schedule 3.1(n), no claims have been
made by the Company under any such policy, and no event has occurred and no
state of facts exists in respect of which the Company is entitled to make a
claim under any such policy.
(o) Employees.
(i) Schedule 3.1(o) hereto sets forth a true and correct
summary of the following information for each current employee of the Company,
including each employee on leave of absence, disability or layoff status: name;
job title; employment status; current compensation rate and any change(s) in
compensation since December 31, 2004; vacation time accrued; and service years
credited for purposes of vesting or eligibility to participate in any Benefit
Plan. Except as set forth on Schedule 3.1(0), the Company has no written or oral
union, collective bargaining, employment, management, severance or consulting
agreements or arrangements to which the Company is a party or by which it is
otherwise bound. No union or other labor organization is seeking to organize, or
to be recognized as, a collective bargaining unit of any group of employees that
includes any employees of the Company. There is no pending or, to the knowledge
of the Company or any CSS Parties, threatened representation proceeding or
petition, strike, work stoppage, work slowdown, unfair labor practice charge or
complaint or other material labor dispute affecting any employee of the Company.
(ii) None of the CSS Parties, nor any officer nor employee of
the Company are, parties to or are otherwise bound by any oral or written
agreement or arrangement, including any confidentiality, non-competition or
proprietary rights agreement, with any Person (other than the Company) that in
any way limits or adversely affects or will limit or affect (A) the performance
of his/her duties as an employee, officer or director of the Company after the
Closing or (B) the ability of the Company to conduct its business as it
currently exists or as currently contemplated.
10
(p) Employee Arrangements; ERISA
(i) Schedule 3.1(p) hereto sets forth a true and complete list
of all Benefit Plans. The Company has delivered to Purchaser true and complete
copies of each Benefit Plan (including any related trust agreement), the most
recent summary plan descriptions and all other material employee communications
embodying or relating to any Benefit Plan, the most recent Internal Revenue
Service determination letter (if the plan is intended to be qualified under
Section 401(a) of the Code, and the annual reports filed on Form 5500 (including
all schedules and accountants' opinions) for the two most recent completed plan
years, if such reports were required to be filed. Except as set forth on
Schedule 3.1(p), the Company has not announced or otherwise made a commitment to
create any bonus, option, deferred compensation, pension, profit sharing or
retirement plan or arrangement, severance arrangement or other fringe benefit
plan.
(ii) Each of the Benefit Plans required to be set forth on
Schedule 3.1(p) is and has at all times been in compliance with all applicable
provisions of ERISA, the Code and other applicable Laws.
(iii) Except as set forth on Schedule 3.1(p), the execution
and delivery of, and the performance of the transactions contemplated by, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent event) constitute an event under any Benefit Plan or individual
agreement that will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits with respect to any
employee, former employee, consultant, agent or director of the Company.
(iv) Each Benefit Plan that is a "group health plan" (within
the meaning of Code Section 4980B) has been administered in compliance with the
coverage continuation requirements of COBRA, and as provided under Code Section
4980 and any regulations promulgated or proposed under the Code. The Company and
each Benefit Plan are in compliance with the requirements of the Health
Insurance Portability and Accountability Act.
(v) At no time has the Company contributed to, been required
to contribute to or incurred any Liability to any Benefit Plan that: is a
multi-employer plan, as defined in Section 3(37) of ERISA; is a multiple
employer welfare arrangement, as defined in Section 3(40) of ERISA; is a
multiple employer plan, as described in Section 210 of ERISA, subject to Title
IV of ERISA; or provides health (other than as required under COBRA), life or
other welfare benefits to former employees, directors or consultants.
(vi) No event has occurred or is threatened that would
constitute a reportable event (for which any applicable notice requirement has
not been waived) within the meaning of Section 4043(b) of ERISA with respect to
any Pension Plan.
(vii) Each Pension Plan that is intended to meet the
requirements of Code Section 401(a) meets, and since its inception has met, the
requirements for qualification under Code Section 401(a) and nothing has
occurred that would adversely affect the qualified status of any such Pension
Plan. The IRS has issued a favorable determination letter with respect to the
qualification under the Code of each Pension Plan and the IRS has not taken any
action to revoke or suspend any such letter.
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(viii) Those sections of all annual reports heretofore filed
with the IRS or the Department of Labor by or on behalf of every Benefit Plan
that were required to be so certified were certified without qualification by
the accountants or actuaries of such Benefit Plan.
(ix) The Company has made all contributions required to be
made by it to each Benefit Plan under the terms of the Benefit Plan and
applicable Law. No prohibited transaction (as defined in Code Section 4975 or
Section 406 of ERISA) has occurred with respect to any Benefit Plan that could
subject any Benefit Plan or any related trust, the Company, any Affiliate,
Purchaser or any director, officer or employee of any of them to any Tax or
penalty imposed under Code Section 4975 or Sections 502(i) or 502(1) of ERISA,
directly or indirectly, and whether by way of indemnity or otherwise.
(q) Tax Matters
Except as set forth on Schedule 3.1(q) hereto:
(i) the Company has filed (on a timely basis, including
applicable extensions) with the appropriate governmental agencies any federal,
state, local and foreign Tax Returns required to be filed by it and has paid in
full all Taxes due. All such Tax Returns were true and complete in all material
respects.
(ii) the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return;
(iii) the Company has provided Purchaser with true and
complete copies of all income Tax Returns filed by it since the inception of the
Business;
(iv) there are no Tax Liens upon any properties or assets of
the Company other than any statutory Liens for Taxes not yet due and payable or
which are being contested in good faith;
(v) the Company has not waived any statute of limitations in
respect of Taxes or executed or filed with any governmental authority any
agreement extending the period for the assessment or collection of any Taxes,
and it is not a party to any pending or, to the knowledge of the Company or any
CSS Parties, threatened suit, action or proceeding by any governmental authority
for the assessment or collection of Taxes;
(vi) there is no unresolved written claim by a governmental
authority in any jurisdiction where the Company does not file Tax Returns that
the Company is subject to taxation by such jurisdiction;
(vii) there has been no examination or audit or court
proceeding with respect to Taxes with respect to any year since the Company's
inception;
(viii) the Company has timely withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, Sellers or other
Person;
(ix) the unpaid Taxes of the Company (A) did not, as of the
date of the Estimated 2005 Balance Sheet, exceed the reserve for Tax Liabilities
(other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Estimated
2005 Balance Sheet and (B) will not exceed that reserve, as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company;
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(x) the Company has not filed a consent under Code Section
341(f) concerning collapsible corporations;
(xi) the Company has not been a United States real property
holding corporation (within the meaning of Code Section 897(c)(2)) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). The Company is not
a party to or otherwise bound by any Tax indemnification, allocation or sharing
agreement;
(xii) the Company will not be required to include any item of
income in, or exclude any item of deduction from, its taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
any: (A) change in method of accounting for a taxable period ending on or prior
to the Closing Date, (B) "closing agreement," as described in Code Section 7121
(or any corresponding provision of state, local or foreign Tax Law), (C)
installment sale or open transaction disposition made on or prior to the Closing
Date or (D) prepaid amount received on or prior to the Closing Date;
(xiii) no power of attorney has been granted by the Company
with respect to any matters relating to Taxes that is currently in effect; and
(xiv) since the date of its incorporation, the Company has
always been an S Corporation within the meaning of Code Section 1361(a)(1).
(r) Compliance with Applicable Laws
The Company is and has been in compliance with all Laws applicable to the
Company or to the conduct of its business or operations or to the use of its
properties or assets, including, without limitation, all privacy, employment and
human rights Laws. The Company has not received written notice of any violation
or alleged violation of any Law by the Company. To the knowledge of the Company
or any of CSS Parties, there is no pending or proposed legislation applicable to
the Company or to the conduct of its business or operations that, if enacted,
could reasonably be expected to have a Material Adverse Effect. No event has
occurred and no circumstance exists that could reasonably be expected to
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with (i) a material requirement of any Law by
the Company or (ii) an order of any court with respect to which the Company or
any of its assets or properties is subject. For purposes of clarity, this
Section 3.1(r) does not apply, and Section 3.1(q) contains the sole
representations of the Company and CSS Parties related to, Tax matters.
(s) Regulatory Permits
The Company possesses all material certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and Company has
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(t) Domain Names
Schedule 3.1(t) hereto sets forth a true and complete list of all domain
names owned or used by the Company in the conduct of its business. None of CSS
Parties and no officer, director or employee of the Company or any of their
respective Affiliates or Associates has any ownership or other interest in the
domain names. None of the domain names infringes or conflicts with any
trademarks, trademark rights, trade names, trade name rights, service marks or
other rights of any Person. The Company has not obtained rights to any domain
name in violation of any Law, including, without limitation, the
Anticybersquatting Consumer Protection Act.
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(u) Absence of Certain Changes
Except as and to the extent set forth on Schedule 3.1(u) hereto, since
December 31, 2005 the Company has not:
(i) incurred any indebtedness for borrowed money or any other
material Liabilities or obligations, except those which are less than $5,000
individually and $10,000 in the aggregate and incurred in the ordinary course of
business and consistent with past practice, or experienced any increase in, or
change in any underlying assumption or method used in calculating, any bad debt,
contingency or other reserve;
(ii) except for regularly scheduled payments of principal and
interest on indebtedness for borrowed money that were required in accordance
with the express terms thereof, paid, discharged or satisfied any claim,
Liability or obligation (absolute, accrued, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
Liabilities and obligations (x) reflected or reserved against on the Estimated
2005 Balance Sheet or (y) incurred since the date thereof in the ordinary course
of business and consistent with past practice;
(iii) caused, permitted or allowed any of its property or
assets (real, personal or mixed, tangible or intangible) to be subjected to any
Lien other than (A) Liens for Taxes not yet due and payable or being contested
in good faith, (B) Liens of materialmen, mechanics, carriers, landlords and like
Persons that are not yet due and payable and (C) those Liens set forth on
Schedule 3.1(u)(iii) hereto, all of which Liens shall be released on or prior to
the Closing (collectively, "Permitted Liens").
(iv) written off as uncollectible any notes or Accounts
Receivable, except for write-offs in the ordinary course of business and
consistent with past practice, none of which is material and all of which
together do not exceed $10,000 in the aggregate;
(v) canceled any debts or waived or suffered to lapse any
claims or rights of material value, or sold, transferred or otherwise disposed
of any of its tangible properties or assets, except in the ordinary course of
business and consistent with past practice;
(vi) made any single capital expenditure or commitment in
excess of Ten Thousand Dollars ($10,000) for additions to property, equipment or
intangible assets or made aggregate capital expenditures or commitments in
excess of Twenty-Five Thousand Dollars ($25,000) for additions to property,
equipment or intangible assets;
(vii) issued, granted, redeemed or repurchased any shares of
its capital stock or any options, warrants or other rights to acquire its
capital stock, or declared, paid or set aside for payment any dividend or other
distribution in respect of any of its capital stock;
(viii) made any change in any of its methods of accounting or
accounting practices or principles;
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(ix) paid, loaned or advanced any amount, or sold, transferred
or leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any Affiliate
or Associate;
(x) disposed of or suffered to lapse any right to use any
domain name, web address or item of Intellectual Property, or disposed of or
disclosed to any Person any trade secret, formula, process or know-how or any
other confidential information relating to the Company;
(xi) acquired any assets or properties other than in the
ordinary course of its business;
(xii) suffered any material adverse change in its Business,
operations, assets, prospects or condition (financial or otherwise);
(xiii) granted any increase in the compensation (including any
increase pursuant to any bonus, pension, profit-sharing or other plan) payable
or to become payable to any officer or employee, and no such increase is
customary or required by any agreement or understanding; or
(xiv) agreed, in writing or otherwise, to take any action
described in this Section 3.1(u).
(v) Brokers
Except as set forth on Schedule 3.1(v) hereto, no agent, broker, firm or
other Person acting on behalf of the Company or CSS Parties, or under the
authority of any of the foregoing, is or shall be entitled to a brokerage
commission, finder's fee or similar payment in connection with any of the
transactions contemplated hereby from the Company, any CSS Parties or Purchaser.
CSS Parties shall have the sole obligation and responsibility to pay any Person
identified on Schedule 3.1(v).
(w) Disclosure
No representation or warranty made by the Company or CSS Parties herein or
in any of the Ancillary Agreements contains any untrue statement of a material
fact or omits a material fact necessary in order to make the statements herein
or therein not misleading.
(x) Affiliated Transactions
Except as set forth on Schedule 3.1(x) hereto, none of CSS Parties nor any
director or officer of the Company (or any of their respective Affiliates or
Associates) (i) is a party to or otherwise a beneficiary of any agreement,
transaction or arrangement (oral or written) with or involving the Company or
(ii) has any claim, monetary or otherwise, against the Company.
(y) Disclosure Schedules
The Schedules are integral parts of this Agreement. Nothing in a Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, unless the Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail,
including by explicit cross-reference to another Schedule to this Agreement.
Without limiting the generality of the foregoing, the mere listing, or inclusion
of a copy, of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein, unless the
representation or warranty is being made as to the existence of the document or
other item itself. The Company and CSS Parties are responsible for preparing and
arranging the Schedules corresponding to the lettered and numbered sections
contained herein. Disclosure made in a specific Schedule shall be deemed not to
have been disclosed with respect to any other Schedule unless an explicit
cross-reference is appropriately made.
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3.2 Representations and Warranties of the Sellers
Each Seller hereby, for him or herself and for no other Seller, represents
and warrants as follows:
(a) Capacity; Validity; No Conflicts
Such Seller has the legal capacity to execute and deliver this Agreement
and the Ancillary Agreements to which he or she is a party and to consummate the
transactions contemplated hereby and thereby. This Agreement and the Ancillary
Agreements to which such Seller is a party have been duly and validly executed
by such Seller and constitute the valid and binding obligations of such Seller,
enforceable against him or her in accordance with his or her respective terms,
except to the extent that enforceability thereof may be limited by general
equitable principles or the operation of bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or similar Laws. Neither the execution and
delivery by such Seller of this Agreement and the Ancillary Agreements (to the
extent that he or she is a party thereto), nor the consummation of the
transactions contemplated hereby or thereby, nor the performance by such Seller
(to the extent that he or she is a party thereto) of his or her obligations
hereunder or thereunder, shall (or, with the giving of notice or the lapse of
time or both, would) (i) give rise to a conflict or default, or any right of
termination or cancellation, under the provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which such
Seller is a party or by which such Seller is otherwise bound; (ii) violate any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
such Seller; or (iii) result in the creation or imposition of any Lien upon any
of the properties or assets of such Seller.
(b) Stock Ownership
Except as set forth in Schedule 3.2(b), such Seller is the sole record
holder and beneficial owner of the Company Stock, and such Company Stock is free
and clear of all restrictions on transfer (other than restrictions of general
applicability under the Securities Act and state securities Laws), Liens, except
for such liens held by Commerce Bank, and Taxes. Except as set forth on Schedule
3.2(b), such Seller is not a party to any option, warrant, right, contract,
call, put, or other agreement or commitment providing for the disposition or
acquisition of any Company Stock (other than this Agreement). Such Seller is not
a party to any voting trust, proxy or other agreement or understanding with
respect to the transfer or voting of the Company Stock. The transfer of the
Company Stock by such Seller as provided herein shall, upon the Closing, vest
Purchaser with good and marketable title to such Shares, free and clear of all
Liens.
(c) Investment Intent
Such Seller is acquiring the Purchaser Common Stock as principal for its
own account for investment purposes only and not with a view to or for
distributing or reselling such Purchaser Common Stock or any part thereof,
without prejudice, however, to such Seller's right at all times to sell or
otherwise dispose of all or any part of such Purchaser Common Stock in
compliance with applicable federal and state securities laws. Subject to the
immediately preceding sentence, nothing contained herein shall be deemed a
representation or warranty by such Seller to hold the Purchaser Common Stock for
any period of time. Such Seller does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Purchaser
Common Stock.
16
(d) Experience of Such Seller
Such Seller, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective investment
in the Purchaser Common Stock, and has so evaluated the merits and risks of such
investment. Such Seller is able to bear the economic risk of an investment in
the Purchaser Common Stock and, at the present time, is able to afford a
complete loss of such investment.
(e) General Solicitation
Such Seller is not purchasing the Purchaser Common Stock as a result of
any advertisement, article, notice or other communication regarding the
Purchaser Common Stock published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f) Disclosure Schedules
Each Seller further acknowledges that it has had full and adequate
opportunity to request additional information from and to ask questions of the
Purchaser.
3.3 Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to the Company and CSS Parties as
follows:
(a) Organization and Power
Purchaser is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware, and has full corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as presently conducted by it.
(b) Authority; Validity; No Conflicts
The execution and delivery by Purchaser of this Agreement and of each of
the Ancillary Agreements to which it shall be a party, the performance by
Purchaser of its obligations under this Agreement and such Ancillary Agreements,
and the consummation of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of Purchaser,
and Purchaser has all necessary corporate power with respect thereto. This
Agreement and the Ancillary Agreements to which it shall be a party are, or when
executed and delivered by Purchaser shall be, the valid and binding obligations
of Purchaser, enforceable against it in accordance with their respective terms,
except to the extent that enforceability thereof may be limited by general
equitable principles or the operation of bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar Laws. Neither the execution and
delivery by Purchaser of this Agreement or the Ancillary Agreements to which it
shall be a party, nor the consummation of the transactions contemplated hereby
or thereby, nor the performance by Purchaser of its obligations hereunder or
thereunder, shall (or, with the giving of notice or the lapse of time or both,
would) (i) conflict with or violate any provision of the Certificate of
Incorporation or By-Laws of Purchaser; (ii) violate any Law applicable to
Purchaser or any of its properties or assets; or (iii) conflict with, cause a
default under, or require consent or approval of any party under any material
contract or agreement to which Purchaser is a party.
17
(c) Compliance with Law
Purchaser is in compliance with all applicable Laws
(d) Capitalization
The authorized capital stock of the Purchaser consists of (i) Forty
Million (40,000,000) shares of common stock, $0.01 par value per share, of which
One-Hundred (100) shares of common stock are issued and outstanding and (ii)
Twenty Million (20,000,000) shares of preferred stock, $1.00 par value per
share, of which no shares of Series A Preferred Stock are issued and
outstanding. All outstanding shares of Purchaser capital stock have been duly
authorized and validly issued and are fully paid and non-assessable. All prior
offerings and issuances of Purchaser capital stock have been made in accordance
with applicable federal and state securities Laws. There are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Purchaser, or contracts, commitments,
understandings or arrangements by which the Purchaser is or may become bound to
issue additional shares of capital stock of the Purchaser or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Purchaser. The Purchaser does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement.
(e) Restricted Shares
When issued in accordance with this Agreement, the Restricted Shares will
be validly issued, fully paid and non-assessable shares of Purchaser capital
stock with no personal liability attaching to the ownership thereof and will be
free and clear of any Liens.
(f) Tax Treatment
Purchaser does not know of any fact, that would prevent the transactions
contemplated by this Agreement from qualifying as a reorganization within the
meaning of Code Section 368(a). The parties hereto shall report the transactions
contemplated by this Agreement as a reorganization within the meaning of Section
368(a) of the Code for purposes of all Tax Returns and other filings.
4. Covenants
The CSS Parties, the Company and Purchaser hereby covenant and agree as:
4.1 Public Announcements
The CSS Parties, the Company and Purchaser agree that they will consult
with each other before issuing any press release or otherwise making any public
statement with respect to this Agreement or the transactions contemplated hereby
and any press release or any public statement shall be subject to the mutual
agreement of the parties, except as may be required by the disclosure
obligations of parties or parties under applicable securities laws.
4.2 Satisfaction of Certain Permitted Liens
At or prior to Closing, the Company shall satisfy and obtain the release
of all Liens required to be identified on Schedule 3.1(u). Such covenant may be
satisfied by the Sellers and the Company by obtaining and delivering to
Purchaser on or prior to the Closing Date, lender final payoff letters in
respect of such Liens, and documents releasing all such Liens (including UCC-3
termination statements), which letters and agreements shall be irrevocable
effective subject only to the payment of the third-party debt.
18
4.3 Relinquishing Ownership Rights; Termination of CSS Agreements.
(a) Prior to Closing, Xxxx Xxxxxxxx will relinquish to the Company for
consideration previously paid any and all rights and title to all Company Stock
owned or controlled by him. Prior to Closing, Xxxxxxx and Xxxxxxx X. Xxxxxxxx
will relinquish to the Company for consideration previously paid any and all
rights to 893.9531859 shares of Common Stock owned and controlled by them. Prior
to Closing, Xxxx Xxxxxxxx and Xxxxxxx and Xxxxxxx X. Xxxxxxxx shall have
executed the appropriate stock powers and any other required documentation to
accomplish such transaction and copies of executed stock powers and related
documents shall be provided to Purchaser at its request.
(b) Immediately prior to Closing, each of the CSS Agreements shall be
deemed to be terminated without any further action by the parties hereto.
4.4 Tax Treatment.
Purchaser shall not take any action, or agree to take, that would prevent
the transactions contemplated by this Agreement from qualifying as a
reorganization within the meaning of Code Section 368(a).
4.5 Bonding.
Purchaser shall obtain the release of Xxxxxxx and Xxxxxxx X. Xxxxxxxx and
Xxxx Xxxxxxxx from all bonding guarantees of the Company set forth on Schedule
4.5 hereof (the "Bonding Guarantees") within six months after the Closing Date.
4.6 Options. At Closing,
Purchaser will issue an option to Xxxxxx Xxxxxxxx to purchase 294,231
shares of Purchaser Common Stock pursuant to a Stock Option Agreement. Purchaser
agrees to issue an option to Xxxxx Xxxxxx to purchase 130,769 shares of
Purchaser Common Stock pursuant to a Stock Option Agreement. All option received
pursuant to this Section 4.6 are collectively referred to as the "Purchase
Options".
5. [Intentionally Omitted].
6. Certain Tax Matters
6.1 Tax Returns
Purchaser shall prepare or cause to be prepared and file or cause to be
filed all Tax Returns of the Company for (x) all taxable periods ending on or
prior to the Closing Date and (y) all taxable periods beginning before and
ending after the Closing Date. Each such Tax Return shall be prepared in a
manner consistent with prior practice of the Company and shall be delivered to
Sellers at least 15 days prior to filing. No such Tax Return shall be filed
without the written consent of Sellers.
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6.2 Amended Returns
Neither Purchaser nor any Affiliate or Associate of Purchaser may amend a
Tax Return of the Company with respect to a taxable period (or portion thereof)
ending on or before the Closing Date without the written consent of Sellers.
6.3 Closing Date Transactions
Neither Purchaser nor any of its Affiliates or Associates shall make or
cause to be made any extraordinary transaction or event on the Closing Date that
would result in any increased Tax Liability for which Sellers would be required
to provide indemnification pursuant to Article 7 or that would result in any
increased personal income Tax Liability of Sellers.
6.4 No Section 338 Election
Neither Purchaser nor any of its Affiliates or Associates shall make any
election under Code Section 338 with respect to the Company.
6.5 Cooperation on Tax Matters
(a) Purchaser, the Company and the Sellers shall cooperate fully, as and
to the extent reasonably requested by any other party, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information that are reasonably
relevant to any such audit, litigation or other proceeding and making employees
or representatives available on a mutually convenient basis to provide
additional information and explanation of any materials provided hereunder. The
Company (after the Closing) shall (i) retain all books and records with respect
to Tax matters pertinent to the Company relating to any taxable period beginning
before the Closing Date until the expiration of the applicable statute of
limitations for the respective taxable periods, and abide by all record
retention agreements entered into with any taxing authority and (ii) give the
Sellers reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the Sellers so direct in writing,
the Company shall allow the Sellers to take possession of such books and
records.
(b) Each of Purchaser and the Sellers shall, upon request from the other
party, use reasonable best efforts to obtain any certificate or other document
from any governmental authority or other Person as may be necessary to mitigate,
reduce, defer or eliminate any Tax that could be imposed with respect to a
taxable period (or portion thereof) ending only on or before the Closing Date
(including, but not limited to, with respect to the transactions contemplated
hereby).
6.6 Certain Taxes
All transfer (including real property), documentary, sales, stamp,
registration and other similar Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Purchaser when due, and the Purchaser will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, stamp, registration and other similar Taxes and fees. If
required by applicable Law, Sellers will, and will cause their Affiliates to,
join in the execution of any such Tax Returns and other documentation.
7. Survival; Indemnification.
7.1 Survival of Representations
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Notwithstanding any right of Purchaser to investigate the business and
condition of the Company, Purchaser shall be entitled to rely upon the
representations, warranties, covenants and agreements of the Company, the
Sellers and CSS Parties and the CSS Parties shall be entitled to rely upon the
representations, warranties, covenants and agreements of the Purchaser. All
representations, warranties and agreements contained in this Agreement
(including the Schedules hereto) and in all certificates required hereby to be
delivered with respect hereto shall be deemed to be representations, warranties
and agreements hereunder and shall survive the Closing Date (or, if there is no
Closing, the date hereof) for a period of eighteen (18) months; provided,
however, that (i) any such representations, warranties and agreements shall
survive the time(s) that they would otherwise terminate with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination; and (ii) such time limitation shall not apply to the
representations, warranties and agreements contained in (A) Sections 3.1(a), (p)
and (q) hereof, which shall survive until thirty (30) days following the
expiration of the applicable statute of limitations (including any extension(s)
thereof), and (B) Section 3.1(v) hereof, which shall survive indefinitely. Any
limitation or qualification set forth in any one representation and warranty
contained in Section 3 hereof shall not limit or qualify any other
representation and warranty contained in such Section. Each representation and
warranty included in Section 3 is independent and shall be interpreted without
regard to any other representation or warranty contained in Section 3 (including
any more inclusive representation or warranty). The waiver by any party of any
condition at the Closing or the breach or inaccuracy of any representation or
warranty, or the breach of or non-compliance with any covenant or obligation,
shall not affect the right of such party to the indemnification, payment or
reimbursement of Losses or any other remedy based on such breach, inaccuracy or
non-compliance.
7.2 Indemnities of the Company and the Sellers
The CSS Parties shall jointly and severally indemnify, defend and hold
harmless Purchaser, its Affiliates and Associates (including the Company) and
their respective directors, officers, stockholders, agents, successors and
permitted assigns (the "Purchaser Indemnitees") from and against, and shall pay
and reimburse the foregoing Persons for, any and all Losses relating to or
arising out of the breach (or alleged breach if asserted by a third party) of
any representation, warranty, covenant or agreement of the CSS Parties or the
Company contained in this Agreement; provided, however that only the Sellers
will severally, but not jointly, indemnify the Purchaser Indemnitees for
breaches of representation and warranties in Section 3.2. Any amount paid by
reason of indemnification contained in this Section 7 shall be treated as
reduction of the aggregate Merger Consideration. All indemnification amounts
paid by the CSS Parties shall be net of any recoveries of the Purchaser
Indemnitees under existing insurance policies or indemnity from third parties,
or net of any reduction in Taxes actually realized by the Purchaser Indemnitees
on account of the facts or circumstances giving rise to the indemnity, and
increased by any Taxes realized by the Purchaser Indemnitees on account of
receipt of the indemnity payments.
7.3 Indemnity of Purchaser
Purchaser shall indemnify, defend and hold harmless the CSS Parties and
their heirs, legal beneficiaries and permitted assigns from and against, and
shall pay and reimburse the foregoing Persons for, any and all Losses relating
to or arising out of the breach (or alleged breach if asserted by a third party)
of any representation, warranty, covenant or agreement of Purchaser contained in
this Agreement.
7.4 Procedures for Indemnification; Defense
If any party (the "Indemnitee") incurs Losses or receives notice of any
claim or the commencement of any action or proceeding with respect to which the
other party (or parties) is obligated to provide indemnification (the
"Indemnifying Party") pursuant to Sections 7.2 or 7.3 hereof, the Indemnitee
shall adhere to the following procedures:
21
(a) Direct Losses
If Indemnitee incurs direct Losses, other than as a result of a third
party claim, Indemnitee shall provide the Indemnifying Party written notice of
such direct Losses within the time limits of the indemnity set forth in Section
7.1 hereof. The notice shall describe the claim in reasonable detail, including
the amount of such Losses (estimated if appropriate) that have been or may be
sustained by the Indemnitee. The failure to provide such notice shall not affect
the Indemnifying Party's obligations hereunder, unless such party is materially
prejudiced as a result thereof. Within ten (10) days of receipt of the notice,
the Indemnifying Party shall pay the amount of such Losses to Indemnitee,
otherwise Indemnitee may proceed to seek to collect these amounts either
pursuant to Section 7.8 hereof or through legal action in accordance with
Section 9 of this Agreement.
(b) Defense of Third Party Claims
Indemnitee shall give the Indemnifying Party written notice thereof within
a reasonable period of time following the Indemnitee's incurring receipt of
notice of a third party claim. Such notice shall describe the claim in
reasonable detail and shall indicate the amount (estimated if appropriate) of
the Losses that have been or may be sustained by the Indemnitee. The failure to
provide such notice shall not affect the Indemnifying Party's obligations
hereunder, unless such party is materially prejudiced as a result thereof. The
Indemnifying Party may, subject to the other provisions of this Section 7.4,
compromise or defend, at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any such matter involving the asserted
Liability of the Indemnitee in respect of a third-party claim. If the
Indemnifying Party shall elect to compromise or defend such asserted Liability,
it shall, within thirty (30) days (or sooner, if the nature of the asserted
Liability so requires), notify the Indemnitee of its intention to do so and the
Indemnitee shall reasonably cooperate, at the request and reasonable expense of
the Indemnifying Party, in the compromise of, or defense against, such asserted
Liability. The Indemnifying Party shall not be released from any obligation to
indemnify the Indemnitee hereunder with respect to a claim without the prior
written consent of the Indemnitee, unless the Indemnifying Party shall deliver
to the Indemnitee a duly executed agreement settling or compromising such claim
with no monetary liability to or injunctive relief against the Indemnitee and a
complete release of the Indemnitee with respect thereto, which agreement shall
not limit or impair the Indemnitee's ability to conduct its business. The
Indemnifying Party shall have the right, except as provided below in this
Section 7.4, to conduct and control the defense of any third-party claim made
for which it has been provided notice hereunder. All costs and fees incurred
with respect to any such claim shall be borne by the Indemnifying Party. The
Indemnitee shall have the right to participate, but not control, at its own
expense, the defense or settlement of any such claim; provided, that if the
Indemnitee and the Indemnifying Party shall have conflicting or different claims
or defenses, the Indemnifying Party shall not have control of such conflicting
or different claims or defenses and the Indemnitee shall be entitled to appoint
a separate counsel for such claims and defenses at the cost and expense of the
Indemnifying Party; provided, further, that if the Indemnifying Party shall not
assume and pursue in a timely and diligent manner the defense of any third-party
claim, the Indemnifying Party shall cede control of such claim and the
Indemnitee shall be entitled to appoint a counsel of its choice for such
defense, at the cost and expense of the Indemnifying Party. If the Indemnifying
Party shall choose to defend any claim, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its control
that are reasonably required for such defense.
7.5 Limitations on Indemnification
22
Notwithstanding any provision contained in this Section 7 to the contrary,
no Indemnitee shall be entitled to assert any claim for indemnification in
respect of breach(es) of representations and warranties under Sections 6.1, 7.2
or 7.3 hereof until such time as all claims for indemnification by such Person
(and all related Indemnitees) hereunder shall exceed $35,000 (the "Basket"),
such Basket being deducted from any claim for indemnification; provided,
however, that the aggregate dollar amount of Purchaser's, the Sellers' and CSS
Parties' indemnification obligations hereunder may not exceed $3,000,000 (the
"Claims Limitation"), except (i) if the Indemnifying party shall have provided
information to Purchaser or to the Company or CSS Parties, as the case may be,
in connection herewith or made any representation or warranty contained herein
that, in either case, was fraudulent or made in bad faith or (ii) for breaches
of Section 8 hereof, in either of which event neither the Basket nor the Claims
Limitation shall apply. In addition, the Basket shall not apply to Section 1.4,
or any breach(es) of the representations, warranties and agreements contained in
Sections 3.1(a), 3.1(c), 3.1(p), 3.1(q), 3.1(v) and 3.2(b) hereof. For purposes
of this Section 7 only, the calculation of Losses arising out of a party's
breach of a representation or warranty in this Agreement shall be determined
without giving effect to any exception or qualification of such representation
or warranty as to the Material Adverse Effect of such breach or the Material
Adverse Effect on any Person of such breach. Notwithstanding the foregoing, the
parties acknowledge and agree that effect shall be given to any exception or
qualification of any representation or warranty in this Agreement of either
party that is based on use of the term "material" or the phrase "in all material
respects" and similar undefined terms and phrases.
7.6 Relationship with Purchase Price Adjustment
Notwithstanding any payment that may be due to Purchaser under the
Purchase Price Adjustment provision set forth in Section 1.4 hereof, the
indemnity provisions of this Section 7 (including Section 7.2 hereof) shall
remain in full force and effect, provided, however, that no indemnity shall be
provided pursuant to this Section 7 to the extent a Purchase Price Adjustment,
pursuant to Section 1.4, has been made with respect to the same item or issue.
7.7 Indemnification Waiver
Each CSS Party hereby irrevocably waive, subject to the Closing, any and
all rights to indemnification from the Company in his capacity as a director,
employee or officer of the Company to which such CSS Party would otherwise have
been entitled for all periods up through and including the Closing Date and
including in respect of the transactions contemplated hereby.
7.8 Method of Indemnification
The CSS Parties hereby agree and acknowledge that if any of them are
required to provide any indemnification payments pursuant to Section 7.2 hereof,
indemnifiable amounts shall be paid by such CSS Parties to Purchaser (and its
related Indemnitees), at the discretion of the Purchaser, in either (i)
immediately available funds or (ii) Held Back Shares pursuant to Section 7.9.
7.9 Limitation; Security for Indemnification Obligations
As security for the indemnification obligations contained in this Section
7, at the Closing, each of the Sellers, Xxxxxx Xxxxxxxx and Xxxxx Xxxxxx shall,
and hereby do, pledge and grant to Purchaser a security interest in ten percent
(10%) of the Restricted Shares of each of the Sellers, Xxxxxx Xxxxxxxx and Xxxxx
Xxxxxx (collectively the "Held Back Shares"). The Purchaser shall set aside and
hold certificates with respect to the Held Back Shares. The Purchaser may set
off against the Held Back Shares for any Purchase Price Adjustment, loss,
damage, cost or expense for which the CSS Parties may be responsible pursuant to
this Agreement (including without limitation, any indemnifiable amounts) whether
or not indemnified pursuant to this Section 7, subject, however, to the
following terms and conditions:
23
(a) The Purchaser shall give written notice to the CSS Parties
of any claim for indemnifiable amounts or any other damages hereunder, which
notice shall set forth (i) the amount of indemnifiable amounts or other loss,
damage, cost or expense which the Purchaser claims to have sustained by reason
thereof, and (ii) the basis of such claim;
(b) The set off for any amounts claimed by the Purchaser
hereunder shall be effected on the expiration of ten (10) days from the date of
such notice.
(c) For purposes of any set off against the Held Back Shares
pursuant to this Section 7, the Held Back Shares shall be valued at $1.00 per
share.
(d) Nothing contained in this Section 7.9 shall restrict or
limit the Purchasers' ability to cancel the Held Back Shares in order to satisfy
the Purchase Price Adjustment described in Section 1.4.
(e) All of the Held Back Shares shall be released to the CSS
Parties on the date eighteen months after the date of this Agreement provided no
claim for indemnification is pending pursuant to Section 7 and the security
interest in the Held Back Shares shall be immediately terminated.
8. Non-Competition; Confidentiality.
8.1 Non-Competition
Following the Closing Date and for a period of two (2) years thereafter
(the "Restricted Period"), none of the CSS Parties or their respective
Affiliates shall:
(a) directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed or retained by, render services to, provide financing (equity or
debt) or advice to, or otherwise be connected in any manner with any business
that at any time competes with any business of the Company, including the
Business, anywhere in North America; provided, however, that nothing contained
herein shall prevent the purchase or ownership by each of the CSS Parties of
less than 5% of the outstanding equity securities of any class of securities of
a company registered under Section 12 of the Exchange Act; or
(b) for any reason, (i) induce any customer or supplier of the
Company or any of its subsidiaries or affiliates to patronize or do business
with any business directly or indirectly in competition with the businesses
conducted by the Company or any of its subsidiaries or affiliates in any market
in which the Company or any of its subsidiaries or affiliates does business;
(ii) canvass, solicit or accept from any customer or supplier of the Company or
any of its subsidiaries or affiliates any such competitive business; or (iii)
request or advise any customer or vendor of the Company or any of its
subsidiaries or affiliates to withdraw, curtail or cancel any such customer's or
vendor's business with the Company or any of its subsidiaries or affiliates; or
(c) for any reason, employ, or knowingly permit any company or
business directly or indirectly controlled by any Seller, to employ, any person
who was employed by the Company or any of its subsidiaries or affiliates at or
within the prior one (1) year, or in any manner seek to induce any such person
to leave his or her employment.
8.2 No Competing Interests
24
Each of the CSS Parties hereby represents and warrants to Purchaser that
neither he, she nor any of his or her Affiliates, has any material ownership or
other material interest in any business or activity that competes or can
reasonably be expected to compete, directly or indirectly, with any business of
the Company, including the Business. Each of the CSS Parties hereby represent
and warrant to Purchaser that neither he or she nor any of his or her
Affiliates, has or shares with the Company any ownership or similar interest in
any asset or property (including any Intellectual Property) that is being (or
has been in the past 12-month period) used in connection with the operation of
the Business.
8.3 Confidentiality
From and after the Closing Date, the CSS Parties and their respective
Affiliates shall not at any time, directly or indirectly, use, exploit,
communicate, disclose or disseminate any Confidential Information (as defined
below) in any manner whatsoever (except disclosure to their personal financial
or legal advisors and as may be required under legal process by subpoena or
other court order; provided, that the CSS Parties will take reasonable steps to
provide Purchaser with sufficient prior written notice in order to contest such
requirement or order). Notwithstanding the foregoing, the CSS Parties (and each
representative or other agent of each CSS Party) may disclose to any and all
Persons the tax treatment and tax structure of the transaction contemplated
hereby; provided, however, that neither the CSS Parties nor any representative
or agent thereof may disclose any information that is not necessary to
understanding the tax treatment and tax structure of the transactions (including
the identity of the parties and any information that could lead another to
determine the identity of the parties) or any other information to the extent
that such disclosure could result in a violation of any federal or state
securities Law.
8.4 Remedies upon Breach
Each CSS Party acknowledges and agrees that: (i) Purchaser (and the
Company) would be irreparably injured in the event of a breach by any CSS Party
of any of the obligations under this Section 8; (ii) monetary damages would not
be an adequate remedy for such breach; (iii) Purchaser (and the Company) shall
be entitled to injunctive relief, without the necessity of the posting of a
bond, in addition to any other remedy that they may have, in the event of any
such breach; and (iv) the existence of any claims that the CSS Parties may have
against Purchaser (and the Company), whether under this Agreement or otherwise,
shall not be a defense to (or reason for the delay of) the enforcement by
Purchaser (and the Company) of any of their rights or remedies under this
Agreement.
8.5 Judicial Modifications
In the event that any court finally holds that the time or territory or
any other provision stated in this Section 8 constitutes an unreasonable
restriction, then the parties hereto hereby expressly agree that the provisions
of this Agreement shall not be rendered void, but shall apply as to time and
territory or to such other extent as such court may judicially determine or
indicate constitutes a reasonable restriction under the circumstances involved.
8.6 Tolling of Time Periods
In the event that the CSS Parties violates the provisions of Section 8.2,
8.3 or 8.4 of this Agreement, the Restricted Period shall toll during any period
of non-compliance, and shall not continue to elapse until the CSS Parties are in
full compliance with such Sections of this Agreement.
8.7 Confirmation as to Scope
25
The parties hereto acknowledge and confirm that: (i) the length of the
term of the restrictions and the geographical restrictions contained in this
Section 8 are fair and reasonable and are not the result of overreaching, duress
or coercion of any kind; (ii) the full, uninhibited and faithful observance of
each of the covenants contained in this Section 8 shall not cause any undue
hardship, financial or otherwise; and (iii) the CSS Parties' special knowledge
of the business of the Company, including the Business, is such as would cause
Purchaser serious injury and loss if the CSS Parties use such knowledge to
benefit a competitor of Purchaser or to compete with Purchaser. The parties
hereto acknowledge and agree that the provisions of this Section 8 are essential
to protect Purchaser's legitimate business interest as contemplated under
Delaware law and are in addition to any rights Purchaser may have to enforce its
rights with respect to the trade secrets of Purchaser pursuant to Delaware law.
9. Miscellaneous Provisions.
9.1 Counterparts; Interpretation
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument. This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and this
Agreement contains the sole and entire agreement among the parties with respect
to the matters covered hereby. This Agreement shall not be altered or amended
except by an instrument in writing signed by or on behalf of all of the parties
hereto. No ambiguity in any provision hereof shall be construed against parties
by reason of the fact it was drafted by such party or its counsel. References to
"including" means including without limiting the generality of any description
preceding such term. Nothing expressed or implied in this Agreement is intended,
or shall be construed, to confer upon or give any Person other than the parties
any rights or remedies under or by reason of this Agreement.
9.2 Governing Laws
The validity and effect of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws thereof. Any dispute,
controversy or question of interpretation arising under, out of, in connection
with or in relation to this Agreement or any amendments hereof, or any breach or
default hereunder, shall be litigated exclusively in the state or federal courts
of competent jurisdiction located in the State of Delaware. Each of the parties
hereby irrevocably submits to the jurisdiction of any court of competent
jurisdiction located in the State of Delaware. Each party hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action in the State of
Delaware.
9.3 Partial Invalidity and Severability
All rights and restrictions contained herein may be exercised and shall be
applicable and binding only to the extent that they do not violate any
applicable Laws and are intended to be limited to the extent necessary to render
this Agreement legal, valid and enforceable. If any terms of this Agreement not
essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining terms hereof shall constitute
their agreement with respect to the subject matter hereof and all such remaining
terms shall remain in full force and effect. To the extent legally permissible,
any illegal, invalid or unenforceable provision of this Agreement shall be
replaced by a valid provision which will implement the commercial purpose of the
illegal, invalid or unenforceable provision.
9.4 Waiver
26
Any term or condition of this Agreement may be waived at any time by the
party which is entitled to the benefit thereof, but only if such waiver is
evidenced by a writing signed by such party. No failure on the part of parties
to exercise, and no delay in exercising, any right, power or remedy created
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy by any such party preclude any other
future exercise thereof or the exercise of any other right, power or remedy. No
waiver by any party to any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
9.5 Acceptance by Fax
This Agreement shall be accepted, effective and binding, for all purposes,
when the parties shall have signed and transmitted to each other, by facsimile
or otherwise, copies of the signature pages hereto.
9.6 Fees and Disbursements
Purchaser and the CSS Parties (and not the Company) shall pay all costs
and expenses, including the fees and disbursements of any counsel and
accountants retained by them, incurred by them in connection with the
preparation, execution, delivery and performance of this Agreement and the
transactions contemplated hereby, whether or not the transactions contemplated
hereby are consummated; provided, however, that the Purchaser hereby agrees to
pay up to $50,000 of the legal fees of counsel to the Company.
9.7 Attorneys' Fees
In the event of any litigation arising under the terms of this Agreement,
the prevailing party shall be entitled to recover its or their reasonable
attorneys' fees and court costs from the other party, including trial and
appellate proceedings, as well as the costs of collecting any judgment;
provided, however, such attorneys' fees are not in excess of the limitation on
indemnity in Section 7.5.
9.8 Further Assurances
The parties shall from time to time do and perform such additional acts
and execute and deliver such additional documents and instruments as may be
required or reasonably requested by any party to establish, maintain or protect
its rights and remedies or to effect the purposes of this Agreement.
9.9 Notice
All notices and other communications hereunder shall be in writing and
shall be deemed to have been given: (i) when delivered by hand or by confirmed
facsimile transmission; (ii) one (1) day after delivery by internationally
recognized express courier (i.e., Federal Express, DHL); or (iii) three (3) days
after delivery by certified mail, postage prepaid, to the parties at the
following addresses (or at such other address for parties as shall be specified
by like notice):
27
If to Sellers: As set forth on Schedule 1.6, hereto
If to Company: Corporate Security Solutions, Inc.
000 Xxxxxx Xxxxxx Xxxx, Xxxxx 0000X
Xxxxxxx, XX 00000
Attn: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxxx LLP
3000 Two Xxxxx Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
Attn: Xxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Purchaser or Nexus Technologies Group, Inc.
Merger Sub: 0000 Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: C. Xxxxxx XxXxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxx.
Xxxxx 0000
Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
9.10 Assignment
This Agreement may not be assigned by the Company or the CSS Parties
without the prior written consent of Purchaser; provided, however, that (i)
Purchaser may assign or delegate any or all rights or obligations hereunder, to
an Affiliate prior to Closing if necessary in connection with its financing or
Tax planning and (ii) Purchaser may assign any and all of its rights hereunder
to any lenders that provide financing to it in connection with the transactions
contemplated hereby and in any related transactions; provided, further, that
Purchaser may assign or delegate any or all of its rights or obligations
hereunder, including its rights under Sections 7 and 8 hereof, to any subsequent
purchaser of the Business, the Company, Purchaser or all or substantially all of
Purchaser's or the Company's assets.
9.11 Binding Effect; Benefits
This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any Person other than the parties hereto, and their
respective heirs, legal representatives, successors and permitted assigns, any
rights, remedies, obligations or liabilities under, in connection with or by
reason of this Agreement.
28
9.12 Rules of Construction
Words used herein, regardless of the number and gender used, shall be
deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context requires; as used
herein, unless the context clearly requires otherwise, the words "hereof,"
"herein," "hereinafter" and "hereunder" and words of similar import shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
A reference to any statute or statutory provision shall be construed as a
reference to the same as it may have been, or as it may from time to time be,
amended, modified or re-enacted.
The terms "dollars" and "$" mean United States dollars.
All references to any Person shall mean and include the successors and
permitted assigns of such Person, and all references to "including" and
"include" shall be understood to mean "including, without limitation."
The table of contents, lists of annexes, schedules and exhibits and
Section headings used in this Agreement are for convenience of reference only
and shall not affect the interpretation of this Agreement.
This Agreement is between financially sophisticated and knowledgeable
parties and is entered into by such parties in reliance upon the economic and
legal bargains contained herein, the language used in this Agreement has been
negotiated by the parties hereto and shall be interpreted and construed in a
fair and impartial manner without regard to such factors as the party who
prepared, or caused the preparation of, this Agreement or the relative
bargaining power of the parties.
9.13 Waiver of Jury Trial
THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY
DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE
OF THIS AGREEMENT.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger the day and year first above written.
COMPANY:
CORPORATE SECURITY SOLUTIONS, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
SELLERS:
----------------------------
Name: Xxxxxxxxxxx Xxxxxx
----------------------------
Name: Xxxxxx Xxxxxx
----------------------------
Name: Xxx Xxxxxxxxxx
----------------------------
Name: Xxxxxxx Xxxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxxx
PURCHASER:
NEXUS TECHNOLOGIES GROUP, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
MERGER SUB:
CSS ACQUISITON, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
30
OTHER PARTIES:
----------------------------
Name: Xxxx Xxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxx
----------------------------
Name: Xxxxxx Xxxxxxxx
31
ANNEX X-0
XXXXX X-0
ANNEX A
TO STOCK PURCHASE AGREEMENT
DEFINITIONS
"Accounts Receivable" means all of the Company's accounts receivable due to the
Company, including but not limited to obligations owing to the Company arising
from the sale or lease of goods or the rendition of services by the Company.
"Affiliate" means, with respect to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under the common control with, the Person specified (as set forth in Rule 405
promulgated under the Securities Act of 1933).
"Agreement" has the meaning given to such term in the Preamble to this
Agreement.
"Ancillary Agreements" has the meaning given to such term in Section 1.7(b).
"Articles of Merger" has the meaning given to such term in Section 1.2.
"Associate" means, when used to indicate a relationship with any Person, (1) a
corporation or organization of which such Person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10 percent or more of any class
of equity securities, (2) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity, and (3) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of the Person or any of its parents or subsidiaries (as set
forth in Rule 405 promulgated under the Securities Act of 1933).
"Audit" has the meaning given to such term in Section 2.1.
"Audited Period" has the meaning given to such term in Section 2.1.
"Balance Sheet Adjustment" has the meaning given to such term in Section 1.8.
"Basket" has the meaning given to such term in Section 7.5.
"Benefit Plan" means each plan, program, policy, payroll practice, agreement or
other arrangement, whether or not written, providing for deferred or incentive
compensation, severance or termination pay, stock or stock-related awards and
each "employee benefit plan" within the meaning of Section 3(3) of ERISA that is
maintained, sponsored or contributed to by the Company or with respect to which
the Company may have any current or contingent obligation. For purposes of the
definition of Benefit Plans, references to the term "Company" shall be deemed
also to refer to any entity that is under common control or affiliated with the
Company, within the meaning of Section 4001 of ERISA and the rules and
regulations promulgated thereunder, or Sections 414(b), (c), (m) or (o) of the
Code.
"Bonding Guarantees" has the meaning given to such term in Section 4.5.
"Business" has the meaning given to such term in the Recitals to this Agreement.
"Claims Limitation" has the meaning given to such term in Section 7.5.
ANNEX A-1
"Closing Date" has the meaning given to such term in Section 1.7(a).
"Closing" has the meaning given to such term in Section 1.7(a).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
"Code" means the Internal Revenue Code of 1986, as amended (together with the
rules and regulations thereunder).
"Company Stock" has the meaning given to such term in the Recitals to this
Agreement.
"Company" has the meaning given to such term in the Preamble to this Agreement.
"Confidential Information" means any and all information (oral or written)
relating to the Company and/or Purchaser and its Affiliates or any of their
operations or activities, including, but not limited to, the terms of this
Agreement, information relating to trade secrets, plans, promotion and pricing
techniques, procurement and sales activities and procedures, proprietary
information, business methods and strategies (including acquisition strategies),
software, software codes, advertising, sales, marketing and other materials,
customers and supplier lists, data processing reports, customer sales analyses,
invoice, price lists or information, and information pertaining to any lawsuits
or governmental investigation, except such information that is in the public
domain (such information not being deemed to be in the public domain merely
because it is embraced by more general information that is in the public
domain), other than as a result of a breach of any of the provisions hereof.
"Consents" has the meaning given to such term in Section 3.1(d).
"Consulting Agreement" has the meaning given to such term in Section 1.7(b)(vi).
"CSS Agreement" the meaning given to such term in Section 1.7(b)(xii).
"CSS Parties" shall mean each of the Sellers, Xxxxx Xxxxxx, Xxxxxx Xxxxxxxx and
Xxxx Xxxxxxxx.
"Debt Payment" shall mean all amounts paid by the Company to release the
guarantees and bonding of the CSS Parties related to the Company.
"EBITDA" shall mean, for any period, revenues of the Company (and, with respect
to any period after Closing, consolidated with the Purchaser and its
Subsidiaries) minus its expenses, but before interest, income taxes,
depreciation and amortization, provided, however, the following items shall be
excluded: (i) the Company expenses related to the Services Agreement and (ii)
any liability related to the Purchaser's preferred stock as an expense.
"EBITDA Adjustment" has the meaning given to such term in Section 1.8.
"Effective Time" has the meaning given to such term in Section 1.2.
"Employment Agreement" means the employment agreement in the form attached
hereto as Exhibit C.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and all regulations promulgated thereunder.
"Estimated 2005 Balance Sheet" shall mean the unaudited 2005 balance sheet of
the Company's sole subsidiary, Corporate Security Solutions, Inc., previously
delivered to the Purchaser.
ANNEX A-2
"Final 2005 Balance Sheet" means the audited balance sheet of the Company as of
December 31, 2005.
"Final 2005 Income Statement" means the audited income statement of the Company
for the twelve months ended December 31, 2005.
"Financial Statements" means the 2003 Financial Statements, 2004 Financial
Statements, the 2005 Financial Statements, the Estimated 2005 Income Statement
and the Estimated 2005 Balance Sheet, collectively.
"Fiscal Year" shall mean the fiscal year of the Company ending on December 31.
"GAAP" means United States generally accepted accounting principles.
"Held Back Shares" has the meaning given to such term in Section 7.9.
"Indemnification Agreement" has the meaning given to such term in Section 1.7.
"Indemnifying Party" has the meaning given to such term in Section 7.4.
"Indemnitee" has the meaning given to such term in Section 7.4.
"Intellectual Property" means all patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
xxxx rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright rights, trade dress, business and
product names, logos, slogans, designs, trade secrets, industrial models,
proprietary data, methodologies, computer programs and software (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how, inventions, works of authorship,
management information systems, and all pending applications for and
registrations of patents, trademarks, service marks and copyrights owned by the
Company or used by the Company in the conduct of its Business, in each such
case, including all forms (e.g., electronic media, computer disks) in which such
items are recorded.
"Inventory" means each item of inventory of the Company (including raw
materials, work in progress and finished goods).
"IRS" means the Internal Revenue Service.
"Laws" mean material federal, state, local and foreign laws, statutes,
ordinances, rules or regulations, orders and administrative rulings promulgated
by any governmental or regulatory authority.
"Liabilities" mean debts, liabilities, commitments or obligations, whether
absolute or contingent, asserted or unasserted, known or unknown, liquidated or
unliquidated, due or to become due, or fixed or unfixed.
"Liens" mean all liens, mortgages, pledges, charges, claims, security interests
or encumbrances of any nature whatsoever.
"Losses" shall mean all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith,
and including reasonable attorneys' fees and disbursements.
ANNEX A-3
"Material Adverse Effect" means an effect that is more than a minor, de minimis
or minimal effect on the Business, operations, condition (financial or other) or
prospects of the Company or the value of its properties or assets.
"Material Contract" means any contract, purchase order, agreement, mortgage,
note, commitment, obligation and undertaking to which the Company is a party or
by which it is otherwise bound that involves in excess of Twenty Thousand
Dollars ($20,000).
"Merger Consideration" has the meaning given to such term in Section 1.6.
"Merger Sub" shall mean CSS Acquisition, Inc.
"Parent" shall mean Homeland Security Capital Corporation.
"PBCL" shall mean the Pennsylvania Business Corporation Law.
"Pension Plan" means any Benefit Plan that is an "employee pension benefit
plan," as defined in Section 3(2) of ERISA.
"Permits" means governmental permits, approvals, licenses, certificates,
franchises, authorizations, consents and orders necessary for the operation of
the Business in the manner that it is presently conducted.
"Permitted Liens" has the meaning given to such term in Section 3.1(u)(iii).
"Person" or "Persons" means any stockholder, officer, employee or director of
the Company, or any other natural person, corporation, partnership, limited
liability company or other entity.
"Purchase Price Adjustment" has the meaning given to such term in Section 1.8.
"Purchaser" has the meaning given to such term in the Preamble to this
Agreement.
"Purchaser Common Stock" has the meaning given to such term in Section 1.6.
"Purchaser Indemnitee" shall have the meaning given to such term in Section 7.2.
"Purchase Options" shall have the meaning given to such term in Section 4.6.
"Records" means all original agreements, documents, books, stock ledgers,
minutes, correspondence, and corporate and other records and files, including
records and files stored on computer disks or tapes or any other storage medium.
"Restricted Period" has the meaning given to such term in Section 8.1.
"Restricted Shares" means (i) certain shares of Purchaser Common Stock delivered
to Sellers as Merger Consideration in accordance with Schedule 1.6 , (ii) the
544,000 shares of Purchaser Common Stock issued in the name of Xxxxxx Xxxxxxxx
at Closing and (iii) the 424,000 shares of Purchaser Common Stock issued in the
name of Xxxxx Xxxxxx at Closing.
"Schedule" means all schedules to this Agreement.
"Sellers" has the meaning given to such term in the Preamble to this Stock
Purchase Agreement.
ANNEX A-4
"Series A Purchase Agreement" has the meaning given to such term in Section
1.7(b)(v).
"Services Agreement" has the meaning given to such term in Section 1.7(b)(iii).
"Shareholders Agreement" has the meaning given to such term in Section
1.7(b)(ii).
"Shareholders' Equity" shall mean the provision for shareholders' equity
contained in the Final 2005 Balance Sheet.
"Surviving Corporation" shall have the meaning given to such term in Section 1.1
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any Schedule or
attachment thereto, and any amendment(s) thereof.
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, 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.
"Transaction Documents" has the meaning given to such term in Section
1.7(b)(xii).
"2003 Financial Statements" has the meaning given to such term in Section
3.1(e).
"2004 Balance Sheet" has the meaning given to such term in Section 3.1(g)
"2004 Financial Statements" has the meaning given to such term in Section
3.1(e).
"2005 EBITDA" has the meaning given to such term in Section 1.8.
"2005 Financial Statements" has the meaning given to such term in Section
3.1(e).
ANNEX X-0
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