STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of February 5, 2003
(the "Effective Date"), by EDO Professional Services Inc., a Delaware
corporation ("Buyer"), and the individuals named on Exhibit A to this Agreement
(collectively, the "Sellers" and each, individually, a "Seller").
RECITALS
Advanced Engineering & Research Associates, Inc., a Virginia corporation
(the "Company"), is a business engaging in providing engineering, management and
information technology services to government and commercial clients, all of the
capital stock of which is, or by the date of the Closing (as defined below)
shall be, owned by Sellers. Sellers desire to sell, and Buyer desires to
purchase, all of the issued and outstanding shares (the "Shares") of capital
stock of the Company for the consideration and on the terms set forth in this
Agreement, and, in connection with the sale of the Shares, and subject to the
provisions of Section 6.6 hereof, certain of the Sellers shall enter into
employment or consulting agreements and the Noncompetition Agreements (as
defined below).
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
ADJUSTMENT AMOUNT - as defined in Section 2.5.
ADVERSE CONSEQUENCES - means all actions, suits, proceedings, hearings,
investigations, charges, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
BALANCE SHEET - as defined in Section 3.4.
BEST EFFORTS - the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the
Person subject to that obligation to incur any material expense, to
commence litigation, or to take actions that would result in a materially
adverse change in the benefits to such Person of this Agreement and the
transactions contemplated hereby.
BREACH - a "Breach" of a representation, warranty, covenant, obligation,
or other provision of this Agreement or any instrument delivered pursuant
to this Agreement will
be deemed to have occurred if there is or has been (a) any inaccuracy in
or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b)
any claim (by any Person) or other occurrence or circumstance that is or
was materially inconsistent with such representation, warranty, covenant,
obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
BUYER - as defined in the first paragraph of this Agreement.
CLOSING - as defined in Section 2.3.
CLOSING FINANCIAL STATEMENTS - as defined in Section 2.6(a).
COBRA - means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
COMPANY - as defined in the Recitals of this Agreement.
COMPANY CONTRACT - any Contract (a) under which the Company has or may
acquire any rights, including, but not limited to, teaming and cooperation
agreements, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound.
CONFIDENTIAL INFORMATION - any and all confidential business information
and any and all information, however documented, that is a trade secret
within the meaning of applicable statutory or case law concerning the
business and affairs of the Company or the Buyer, whether or not marked as
"secret" or "confidential," including (i) product specifications; data;
know-how; formulas; compositions; processes; designs; sketches;
photographs; graphs; drawings; samples; inventions and ideas; past,
current and planned research and development; current and planned
manufacturing and distribution methods and processes; customer lists;
current and anticipated customer requirements; price lists; market
studies; business plans; computer software and programs; database
technologies; concepts, ideas and methods; (ii) to the extent such
information is not publicly disclosed by the Company or the Buyer in
filings with Governmental Bodies, in press releases or otherwise, all
financial statements; financial projections and budgets; historical and
projected sales; capital spending budgets and plans; the names and
backgrounds of key personnel, personnel training techniques and personnel
materials; and (iii) any and all notes, analysis, compilations, studies,
summaries and other material prepared by or for the Company or the Buyer
containing or based, in whole or in part, on any of the foregoing
information.
CONSENT - any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
CONSULTING AGREEMENT - as defined in Section 2.4(a)(iii).
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CONTRACT - any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
CONVERTIBLE SECURITIES - any options, warrants, rights, convertible debt
or equity securities or other agreement upon the exercise or conversion of
which or pursuant to the terms of which additional shares of common stock
of the Company may be issued.
DAMAGES - as defined in Section 6.2.
DISCLOSURE LETTER - the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement as provided
in Section 7.8.
DOD - the United States Department of Defense or any branch or agency
thereof.
EFFECTIVE DATE - as defined in the first paragraph of this Agreement.
EMPLOYMENT AGREEMENT - as defined in Section 2.4(a)(iii).
EMPLOYMENT RELATED AGREEMENTS - means, collectively, the Employment
Agreement, the Consulting Agreement and the Noncompetition Agreements.
ENCUMBRANCE - any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of
first refusal, preemptive right, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
ENVIRONMENT - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES - any cost, damages,
expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law including
fines, penalties, judgments, awards, settlements, investigative or
inspection costs and financial responsibility for cleanup costs,
corrective action, and other remedial or response action.
ENVIRONMENTAL LAW - any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and
of the commencements of activities, such as resource extraction or
construction, that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
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(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or
the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
ERISA - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or
any successor law.
ESCROW AGENT - as defined in the Escrow Agreement.
ESCROW AGREEMENT - as defined in Section 2.4(a)(v).
FACILITIES - any real property, leaseholds, or other interests currently
or formerly owned or operated by the Company and any buildings, plants,
structures, or equipment (including motor vehicles) currently or formerly
owned, occupied or operated by the Company.
FORMER SHAREHOLDERS - as defined in Section 3.30.
FORMER SHAREHOLDERS' RELEASES - as defined in Section 2.4(a)(ii).
GAAP - generally accepted United States accounting principles, applied on
a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(a) and (b) were prepared.
GOVERNMENTAL AUTHORIZATION - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement.
GOVERNMENTAL BODY - any federal, state, local, municipal, foreign, or
other governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or any federal, state, local,
municipal, or foreign body exercising, or entitled to exercise, any
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administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature (including any court or
administrative tribunal).
GOVERNMENT CONTRACT - a Contract, bid or proposal between the Company and
the DOD or any other Governmental Body, including any facilities contract
for the use of government-owned facilities.
GOVERNMENT SUBCONTRACT - a Contract, bid or proposal that is a subcontract
between the Company and any third party relating to a prime contract with
the DOD or any other Governmental Body.
HAZARDOUS ACTIVITY - the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on,
under, about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that
increases the danger, or risk of danger, or poses an unreasonable risk of
harm to persons or property on or off the Facilities, or that may affect
the value of the Facilities or the Company.
HAZARDOUS MATERIALS - any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof
or synthetic substitutes therefore and asbestos or asbestos-containing
materials.
INTELLECTUAL PROPERTY ASSETS - as defined in Section 3.22(a).
IRC - the Internal Revenue Code of 1986, as amended, or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
IRS - the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
KEY PERSONNEL - means all officers and directors of the Company as of the
date of this Agreement and all other individuals listed on Schedule 1
hereto.
KNOWLEDGE - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent person having the information, position and
responsibilities of such individual should be aware of such fact or
other matter.
A Seller shall be deemed to have "Knowledge" of a particular fact or other
matter with respect to the Company and its business, financial condition
and operations, if (i) any of
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the Key Personnel, or any other Person who is serving as a director,
officer, partner, executor, or trustee of the Company (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter;
or (ii) any individual who has at any time served in any such capacity had
Knowledge of such fact or other matter at the time he or she was serving.
LEGAL REQUIREMENT - any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution,
law, ordinance, principle of common law, regulation, statute, or treaty.
MATERIAL ADVERSE CHANGE - with respect to any Person, any change, effect
or condition individually or in the aggregate with other changes, effects
or conditions, which has caused, or is reasonably likely to cause a
Material Adverse Effect on the business, operations, assets (including
levels of working capital and components thereof), condition (financial or
otherwise), operating results, liabilities, obligations, employee
relations or prospects of such Person or any material casualty loss or
damage to the assets of such Person, whether or not covered by insurance.
MATERIAL ADVERSE EFFECT - with respect to any Person, a material adverse
effect on the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise),
operating results, liabilities, obligations, employee relations, sales or
prospects of the Company or which have a material adverse effect upon the
ability of the Person to perform its obligations pursuant to this
Agreement.
NET BOOK VALUE - (i) total assets of the Company less good will and any
other intangible assets, minus (ii) total liabilities of the Company
exclusive of liabilities between or among the Company, Sellers and Related
Persons of Seller which are to be cancelled at the Closing, all as
determined in accordance with GAAP.
NONCOMPETITION AGREEMENTS - as defined in Section 2.4(a)(iv).
NOTICES - as defined in Section 3.2(b).
OCCUPATIONAL SAFETY AND HEALTH LAW - any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry associations
and insurance companies), designed to provide safe and healthful working
conditions.
ORDER - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
ORDINARY COURSE OF BUSINESS - an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
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(a) such action is consistent with the past practices of such Person and
is taken in the ordinary course of the normal day-to-day operations
of such Person; and
(b) such action is not required to be expressly authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority).
ORGANIZATIONAL DOCUMENTS - the articles or certificate of incorporation
and the bylaws of a corporation, and any amendment to either of the
foregoing.
PERSON -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.
PROCEEDING - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
RELATED PERSON - with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or any one or more members of
such individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in whom such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
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For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual
or the individual's spouse within the second degree, and (iv) any other
natural person who resides with such individual, and (b) "Material
Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities
or other voting interests representing at least ten percent (10%) of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least ten percent (10%) of the outstanding
equity securities or equity interests in a Person.
RELEASE - any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether intentional or unintentional.
REPRESENTATIVE - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of
such Person, including legal counsel, accountants, and financial advisors.
SEC - means the United States Securities and Exchange Commission.
SECTION 338(H)(10) ELECTION - as defined in Section 5.3.
SECURITIES ACT - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
SELLERS - as defined in the first paragraph of this Agreement.
SELLERS' RELEASE - as defined in Section 2.4(a)(ii).
SELLERS' REPRESENTATIVE - as defined in Section 7.7.
SHARES - as defined in the Recitals of this Agreement.
TAX - any tax (including, without limitation, any income tax, capital
gains tax, value-added tax, sales tax, use tax, gift tax, franchise tax,
transfer tax, ad valorem tax, excise tax, or estate tax), levy, duty,
assessment, deficiency or other fee and any related charge or amount
(including any fine, penalty, interest or addition to tax) imposed,
assessed or collected by or under the authority of any Governmental Body
or payable pursuant to any tax- sharing agreement or other Contract
relating thereto.
TAX RETURN - any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any
Legal Requirement relating to any Tax.
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THREAT OF RELEASE - a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may
result from such Release.
THREATENED - a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances
exist, that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
2002 AUDITED FINANCIAL STATEMENTS - as defined in Section 2.6(a).
2. SALE AND TRANSFER OF SHARES; CLOSING.
2.1 SHARES. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer free and clear of
all Encumbrances, and Buyer will purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Shares is Thirty Eight Million Dollars ($38,000,000) reduced or increased by the
Adjustment Amount as set forth in Sections 2.5 and 2.6. Notwithstanding any
other provisions hereof, the Purchase Price is deemed to be inclusive of any
incremental tax obligations that may accrue as a result of a Section 338(h)(10)
Election.
2.3 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place simultaneously with the execution and delivery of this
Agreement at the New York City offices of Day, Xxxxx & Xxxxxx LLP.
2.4 CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) for transfer to Buyer with signatures
medallion guaranteed for transfer, in form and substance satisfactory to Buyer;
(ii) release in the form of Exhibit 2.4(a)(ii)(1) executed by
each of the Sellers (collectively, "Sellers' Release") and releases in the form
of Exhibit 2.4(a)(ii)(2) executed by each of the Former Shareholders
(collectively, "Former Shareholders' Releases");
(iii) an employment agreement in form satisfactory to Buyer
and Xxxxxxx X. Xxxxxx, executed by Xxxxxxx X. Xxxxxx (the "Employment
Agreement") and a consulting agreement in form satisfactory to Buyer and Xxxxxx
X. Xxxxxx, executed by Xxxxxx X. Xxxxxx (the "Consulting Agreement");
(iv) noncompetition agreements executed by Xxxxxx X. Xxxxxx
and Xxxxxxx X. Xxxxxx in the form of Exhibits 2.4(a)(iv)(1) and (ii)
(collectively, the "Noncompetition Agreements");
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(v) the Escrow Agreement in the form of Exhibit 2.4(a)(v),
executed by each Seller and the Escrow Agent;
(vi) an opinion of Galland, Kharasch, Xxxxxxxxx, Xxxxxxx &
Xxxxxxx, P.C., dated the Effective Date, in the form of Exhibit 2.4(a)(vi);
(vii) executed resignations, effective as of Closing, of each
director of the Company and those officers of the Company listed on Schedule 2
hereto;
(viii) the Disclosure Letter executed by Sellers;
(ix) copies of Company's Organizational Documents, certified
by a Secretary or Assistant Secretary of the Company to be true, correct,
complete and in full force and effect and unmodified as of the Effective Date; a
complete list of the officers and directors of the Company, certified by a
Secretary or Assistant Secretary of the Company to be true and correct as of the
Effective Date; a long form certificate of good standing from the Clerk of the
State Corporation Commission of the Commonwealth of Virginia showing all
documents filed in such office with regard to the Company; and a copy, certified
by the office of the Clerk of the State Corporation Commission of the
Commonwealth of Virginia, of all documents filed in such office with respect to
the Company; copies of resolutions adopted by the Board of Directors of the
Company in connection with the transactions contemplated by this Agreement,
certified by a Secretary or Assistant Secretary of the Company to be true,
correct, complete and in full force and effect and unmodified as of the
Effective Date.
(x) copies of all Notices required pursuant to Section 3.2(b)
of the Agreement;
(xi) all books of account, minute books, stock record books,
and other records of the Company then in the possession of Sellers or their
Representatives; and
(xii) such other certificates, agreements and other documents
as are listed in the schedule of closing documents.
(b) Buyer will deliver:
(i) to Sellers, the sum of Thirty Three Million Dollars
($33,000,000) by wire transfer to the Sellers' (or their designee's) account as
separately specified at the Closing.
(ii) to the Escrow Agent, subject to the requirements of the
Escrow Agreement, the sum of Five Million Dollars ($5,000,000), by wire transfer
to the Escrow Agent's account as separately specified at the Closing.
(iii) the Employment Agreement and Consulting Agreement, each
executed by Company;
(iv) the Escrow Agreement, executed by Buyer; and
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(v) opinion of Day, Xxxxx & Xxxxxx LLP, dated as of the
Effective Date, addressing the due authorization of the Agreement by, and the
enforceability of the Agreement against, Buyer.
(c) All of the transactions to be concluded at the Closing of this
Agreement shall be deemed concluded simultaneously. Unless waived, no
transaction or delivery shall be deemed finally concluded unless and until all
such transactions are concluded.
(d) Each Seller agrees that Sellers shall be solely responsible for
distributing among themselves the amounts delivered jointly to Sellers by wire
transfer to the account specified in Section 2.4(b)(i), and that amounts so
delivered shall be deemed appropriately distributed to each Seller in accordance
with this Agreement. Sellers hereby direct that such amounts be delivered to the
account of Xxxxxx X. Xxxxxx as nominee and agent for all Sellers, and each
Seller agrees to look solely to Xxxxxx X. Xxxxxx with regard to amounts
delivered to such account and to bear any and all risk of loss associated with
the use of such account. Buyer's delivery of funds via wire transfer in the
amounts and to the accounts specified in Section 2.4(b) shall, to the extent of
the funds so delivered and subject to the terms of the Escrow Agreement, fully
and finally discharge the obligation of Buyer with regard to the payment to
Sellers of the Purchase Price.
(e) Buyer and Sellers shall have delivered the completed and signed
Form 8023 pursuant to the requirements of Section 5.3.
2.5 ADJUSTMENT AMOUNT
The Adjustment Amount (which may be a positive or negative number) will be
equal to (a) the Net Book Value as of the Effective Date determined in
accordance with Section 2.6 and GAAP, minus (b) Net Book Value as shown on the
June 30, 2002 Balance Sheet.
2.6 ADJUSTMENT PROCEDURE
(a) Sellers will prepare or cause to be prepared consolidated
financial statements ("Closing Financial Statements") of the Company as of the
Effective Date in accordance with GAAP for the period beginning January 1, 2003
through the close of business on the day before the Effective Date, including a
computation of Net Book Value as of the Effective Date. The fees and expenses of
Sellers (including the fees and expenses of Sellers' counsel, accountants,
brokers, representatives and other agents), to the extent paid or to be paid by
Company as permitted hereunder, shall be reflected either as a reduction in cash
or as a liability in the Closing Financial Statements, and no fees or expenses
of Sellers shall be paid by the Company after the Closing that are not reflected
as liabilities on the Closing Financial Statements. Sellers will deliver to
Buyer within 35 days after the Effective Date (i) consolidated financial
statements for the most recently completed fiscal year ending December 31, 2002
in an SEC reporting format together with an unqualified audit opinion of the
Sellers' accountants that the statements present fairly the financial condition
and the results of operations, changes in stockholders' equity and cash flows of
the Company for the period and have been prepared in accordance with GAAP
applied on a consistent basis (the "2002 Audited Financial Statements"), and
(ii) the Closing Financial Statements, which financial statements will fairly
present and reflect the financial
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condition and the results of operations, changes in stockholders' equity, and
cash flows of the Company for the period then ended, prepared in accordance with
GAAP applied on a consistent basis. If within 30 days following Buyer's receipt
of the Closing Financial Statements, Buyer has not given the Sellers'
Representative notice of its objection to the Closing Financial Statements (such
notice must contain a statement of the basis of Buyer's objection), then the Net
Book Value reflected in the Closing Financial Statements shall be deemed
complete and accurate, solely for purposes of the adjustment procedure set forth
herein and for no other purpose, and will be used in computing the Adjustment
Amount. If Buyer gives such notice of objection and Buyer and the Seller's
Representative cannot agree with regard to such objection within 14 days
thereafter, then the issues in dispute will be submitted to nationally
recognized certified public accountants mutually agreed upon by the parties
(which have not been engaged by either party or their respective subsidiaries or
affiliates for at least two years prior to the date of delivery to Buyer of the
Closing Financial Statements) (the "Independent Accountants"), for resolution.
If issues in dispute are submitted to the Independent Accountants for
resolution, (i) within 15 business days after request, each party will furnish
to the Independent Accountants such work papers and other documents and
information relating to the disputed issues as the Independent Accountants may
request and are available to that party (or its independent public accountants),
and will be afforded the opportunity to present to and discuss with the
Independent Accountants any material relating to the dispute prior to the
Independent Accountants' determination; (ii) the determination by the
Independent Accountants, as set forth in a notice delivered to Buyer and the
Seller's Representative by the Independent Accountants, will be binding and
conclusive on Buyer and all Sellers in the absence of manifest error; and (iii)
the fees and disbursements of the Independent Accountants shall be allocated
between Buyer and Sellers so that Buyer's share of such fees and disbursements
shall be in the same proportion that the aggregate amount of the Adjustment
Amount based on the disputed Closing Financial Statements that is unsuccessfully
disputed by Buyer (as finally determined by the Independent Accountants) bears
to the total amount of such Adjustment Amount.
(b) By the tenth business day following the final determination of
the Adjustment Amount, if the Purchase Price (after consideration of the
Adjustment Amount) is greater than the payment made pursuant to Section
2.4(b)(i) and 2.4(b)(ii), Buyer will pay the difference to Sellers, and if the
Purchase Price (after consideration of the Adjustment Amount) is less than such
amount, Sellers will pay the difference to Buyer. All payments will be made
together with interest at a rate equal to the rate on U.S. Treasury Bills with a
maturity of three months, as reported in the Wall Street Journal for the
Effective Date, beginning on the Effective Date and ending on the date of
payment. Payments must be made in immediately available funds. The Purchase
Price shall be the Purchase Price as adjusted by the Adjustment Amount. Payments
to Sellers must be made in the manner set forth in Section 2.4(b)(i). Payments
to Buyer must be made by wire transfer to such bank account as Buyer will
specify. Any good faith dispute in the calculation of the Adjustment Amount will
not constitute a breach of any of the representations or warranties of either
Buyer or Sellers hereunder and will not give either party any right to
indemnification hereunder. Within thirty (30) days of Buyer's receipt from
Sellers of an invoice of the Company's accountants, Buyer shall pay an
additional amount to Sellers equal to the incremental cost required by the
Company's accountants to prepare the 2002 Audited Financial Statements in
accordance with SEC requirements; provided, that, in any event such payment
shall not exceed Twenty Thousand Dollars ($20,000.00).
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2.7 CERTAIN INDEBTEDNESS AND PAYMENTS.
(a) As of the date of the Closing Financial Statements, with the exception
of the payments due to Xxxxxxx Xxxxxx in connection with his noncompetition
agreement, all indebtedness of employees to the Company or of the Company to any
employees shall have been paid in full or forgiven and such payment or
forgiveness shall be reflected in the Closing Financial Statements.
(b) The Closing Financial Statements shall reflect the capitalization of
fifty percent (50%) of the total of all remaining payment obligations (including
escalation amounts and not discounted for present value) of the Company due
Xxxxxxx Xxxxxx under that certain Consulting Agreement, dated as of August 30,
2000, by and between Xxxxxxx Xxxxxx and the Company. Sellers represent and
warrant that such remaining payment obligations equal no more than Three Hundred
Fifty Nine Thousand Six Hundred Forty Two Dollars ($359,642.00). Such
capitalization shall be recorded as a credit to the Company's liabilities with a
corresponding debit to the Company's shareholders' equity and shall result in an
adjustment against the Purchase Price. The other fifty percent (50%) of such
remaining payments obligations shall remain as a liability of the Company but
shall not be adjusted against the Purchase Price.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Sellers jointly and severally represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING; SUBSIDIARIES. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Virginia, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Company Contracts. The Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of California (under
the DBA name "Virginia AERA, Inc."), Florida, Georgia (under the DBA name "AERA
Incorporated"), Indiana, Maryland, New Jersey, North Carolina (under the DBA
name "AERA, Inc."), Oklahoma (under the DBA name "AERA, Inc."), Pennsylvania,
Texas (under the DBA name "AERA Incorporated") and Vermont. The Company has
applied to do business as a foreign corporation in the District of Columbia, New
Mexico and South Carolina. There is no other state or other jurisdiction in
which either the ownership or use of the properties owned or used by the
Company, or the nature of the activities conducted by it, requires such
qualification, except for those jurisdictions in which the failure to qualify
will not have a Material Adverse Effect. The Company has no subsidiaries. The
Company has not held more than five percent (5%) of the outstanding shares of
Castle Worldwide, Inc. or any other corporation. Xxxxxx X. Xxxxxx is the sole
incorporator of a California corporation named "Advanced Engineering & Research
Associates, Inc." incorporated on February 19, 1998, but no shares of capital
stock of such corporation were ever issued and Sellers will dissolve such
corporation as promptly as possible following the Closing.
3.2 AUTHORITY; NO CONFLICT.
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(a) The Employment Agreement (if executed by such Seller), the
Consulting Agreement (if executed by such Seller), such Seller's Release, the
Noncompetition Agreement (if executed by such Seller), such Seller's endorsement
of the certificates evidencing the Shares (or the executed stock power
accompanying such certificates) and the Escrow Agreement (if executed by such
Seller), and each other agreement, certificate or document executed by or on
behalf of such Seller and delivered to Buyer pursuant to this Agreement
(collectively, the "Seller's Closing Documents") and this Agreement constitute
the legal, valid and binding obligations of such Seller, enforceable against
such Seller in accordance with their respective terms. The Seller has the
absolute and unrestricted right, power, authority and capacity to execute and
deliver this Agreement and the Seller's Closing Documents and to perform the
Seller's obligations under this Agreement and the Seller's Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the transactions contemplated hereby will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the Board of Directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of,
or give any Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company, or any of the
assets owned or used by the Company, or any Seller, may be subject;
(iii) contravene, conflict with, or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company, except to the
extent that the same results from (A) any conflict of interest between Buyer and
any Governmental Body, or (ii) Buyer's lack of any necessary security
clearances;
(iv) cause the Company to become subject to, or to become
liable for the payment of, any Tax;
(v) to Sellers' Knowledge, cause any of the assets owned by
the Company to be reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) to Sellers' Knowledge, contravene, conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Company
Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by the Company.
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Except as set forth in Part 3.2 of the Disclosure Letter, neither Sellers nor
the Company is or will be required to give any notice to or obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the transactions contemplated
hereby. Notwithstanding any other provision of this Agreement, after
consultation with the Buyer, the Company agrees to give written notice before
Closing to all Persons set forth in Part 3.2 of the Disclosure Letter, excluding
any Persons that require notification under Part 3.2(b)(iii) of the Disclosure
Letter (the "Notices").
3.3 CAPITALIZATION. The authorized equity securities of the Company
consist of 600,000 shares of Class A Common Stock, with a par value of $.01 per
share ("Class A Common Stock"), and 200,000 shares of Class B Common Stock, with
a par value of $.01 per share ("Class B Common Stock"), of which a total of
379,253 shares of said Class A and 93,132 shares of said Class B are issued and
outstanding and constitute the Shares. Sellers are the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances, the Shares
constitute all of the issued and outstanding equity securities of the Company
and each Seller is the sole record and beneficial owner of that portion of the
Shares set forth after his name on Part 3.3 to the Disclosure Letter as
evidenced by the share certificates identified by number as set forth in said
Part 3.3. No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of the Company other than an
investment legend pursuant to the Securities Act. All of the outstanding equity
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Neither the issue nor sale of any equity
securities of the Company violated the pre-emptive rights of any Person. Sellers
are not party to any voting trust, proxy or other agreements or understandings
with respect to the voting of any of the Shares. Part 3.3 of the Disclosure
Letter contains a complete and accurate list, and the Seller has heretofore
delivered or made available to Buyer a true and complete copy of, each power of
attorney that is currently effective and outstanding granted by the Seller with
respect to any of the Shares. All of the Shares heretofore owned by Sellers have
been, or shall be at the Closing, duly endorsed for transfer to Buyer or are, or
shall be at the Closing, accompanied by duly executed stock powers. Immediately
prior to Closing there were nontransferable, unexercised options for the
purchase of 54,232 shares of Class B Common Stock, all of which options have
been terminated by the Company and the price paid to the holders of such options
in exchange for the termination of such options was based on the fair market
value of an outstanding share of Class B Common Stock sold pursuant to this
Agreement. There are no options, warrants, Convertible Securities or other
Contracts upon the exercise or conversion of which or pursuant to the terms of
which any equity securities or other securities of the Company may be issued or
transferred by the Company or any Seller. None of the outstanding equity
securities or other securities of the Company was issued in violation of the
Securities Act or any other Legal Requirement. The Company neither owns, nor has
any Contract to acquire, any equity securities or other securities of any Person
(other than the Company) or any direct or indirect equity or ownership interest
in any other business. No shares of the Company's stock are held in treasury.
All dividends and distributions by the Company have been made in compliance with
the Organizational Documents of the Company and all Legal Requirements.
3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) audited
balance sheets of the Company as at December 31 in each of the years 2000 and
2001, and the
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related audited statements of income, changes in stockholders' equity, and cash
flows for each of the fiscal years then ended, together with the related notes
and the unqualified report thereon of Argy, Xxxxxx & Xxxxxxxx, P.C., independent
certified public accountants, and (b) an unaudited balance sheet of the Company
as at September 30, 2002 (including the notes thereto, the "Balance Sheet"), and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the nine (9) months then ended, together with the related
notes and the unqualified report thereon of Argy, Xxxxxx & Xxxxxxxx, P.C.,
independent certified public accountants. Such financial statements fairly
present and reflect the financial condition and the results of operations,
changes in stockholders' equity, and cash flows of the Company as at the
respective balance sheet dates and for the periods then ended, all in accordance
with GAAP applied on a consistent basis. The audited and unaudited financial
statements described in this Section 3.4 are collectively referred to as the
Financial Statements. The unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial condition at September 30, 2002 and the
results of its operations for the nine (9) months then ended. The unaudited
financial statements dated June 30, 2002, fairly present and reflect the
financial condition and the results of operations, changes in stockholders'
equity, and cash flows of the Company as at such date and for the period then
ended, all in accordance with GAAP applied on a consistent basis, and reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial condition at such date and the results of
its operations for the six (6) months then ended. No financial statements of any
Person other than the Company are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. The minute books of the
Company contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Board of Directors, and
committees of the Board of Directors of the Company, including any actions taken
by written consent in lieu of any such meetings and, no meeting of any such
stockholders, Board of Directors, or committee of the Board of Directors has
been held for which minutes have not been prepared and are not contained in such
minute books. All of those books and records are now in the possession of the
Company. Sellers have delivered to Buyer copies of the Organizational Documents
of the Company as currently in effect.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) The Company owns all of the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) as reflected as owned in
the books and records of the Company (including all of the properties and assets
reflected in the Financial Statements and all of the properties and assets
purchased or otherwise acquired by the Company since the date of the Balance
Sheet) except for (i) assets held under leases disclosed in Part 3.6 of the
Disclosure Letter, which information identifies those leases which are operating
leases and capital leases, and (ii) inventory and obsolete equipment sold since
the date of the Balance Sheet in the Ordinary Course of Business and consistent
with past practice. All such material properties and assets are free and clear
of all Encumbrances except mortgages or security interests disclosed in
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the Financial Statements as securing specified liabilities or obligations with
respect to which no default (or event that, with notice or lapse of time, or
both, would constitute a default) exists, and liens for current taxes not yet
due.
(b) Part 3.6 of the Disclosure Letter sets forth a complete and
correct description of all material property (personal, real or mixed) leased by
the Company and a list of the leases covering such property. With respect to
each real property lease so listed, Part 3.6 of the Disclosure Letter sets forth
(i) the location of the premises covered by the lease; (ii) the date of and
parties to each lease amendment or modification; (iii) the current lease
termination date; (iv) the annual fixed rental for the current lease year; and
(v) the number and period of any renewal options. The Company has a valid
leasehold interest in all property so listed, which leasehold interest is
binding on Company and, to Sellers' Knowledge, on the lessor of such property,
free and clear of all Encumbrances. The Company enjoys peaceful and undisturbed
possession under all of the leases covering such property, and all such leases
are valid and subsisting, with no default by the Company thereunder and to
Sellers' Knowledge, by and other party thereto. The Company owns good and
marketable title to, or has a valid leasehold interest in, all of the real
property used by the Company in its business as now conducted.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. To Sellers' Knowledge, the
buildings, offices, structures, and equipment of the Company are sufficient for
the continued conduct of the Company's business after the Closing in
substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that are
reflected on the Financial Statements, on Part 3.8 of the Disclosure Letter, or
on the accounting records of the Company as of the Effective Date (collectively,
the "Accounts Receivable") represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
The Accounts Receivable are current and collectible net of the respective
reserves shown on the Financial Statements. Subject to such reserves, each of
the Accounts Receivable either has been or will be collected in full, without
any set-off, within 150 days after the invoice date (not including any amounts
not yet due under fixed price contracts and retainages not yet due for payment
under Government Contracts). There is no contest, claim, or right of set-off,
other than returns in the Ordinary Course of Business which are reflected in the
reserves, under any Contract with any obligor of an Accounts Receivable relating
to the amount or validity of such Accounts Receivable. Part 3.8 of the
Disclosure Letter contains a complete and accurate list of all Accounts
Receivable as of a date not earlier than ten (10) days prior to the Effective
Date, which list sets forth the aging of such Accounts Receivable.
3.9 INVENTORY. Except as set forth in Part 3.9 of the Disclosure Letter,
the Company has no inventory.
3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in the Financial
Statements and Part 3.10 of the Disclosure Letter, the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date thereof.
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3.11 TAXES.
(a) The Company has filed or caused to be filed (on a timely basis
since its inception) all Tax Returns that are or were required to be filed by or
with respect to it, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements. Sellers have delivered to Buyer
copies of, and Part 3.11 of the Disclosure Letter contains a complete and
accurate list of, all such Tax Returns relating to income or franchise taxes
filed since the Company's inception. The Company has paid all Taxes that have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Sellers or the Company, except such Taxes, if any, as are
listed in Part 3.11 of the Disclosure Letter and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Financial Statements. No notice has been received by
the Company and, to Sellers' Knowledge, no claim has ever been made by a
Governmental Authority in a jurisdiction where the Company does not file Tax
Returns that it may be subject to Taxes in that jurisdiction. The Company has
not requested or received any written legal or accounting opinions relating to
the Company's position on any Tax Return. The Company has not requested or
received a revenue ruling, private letter ruling, or similar or related
correspondence from the IRS.
(b) Part 3.11 of the Disclosure Letter contains a complete and
accurate list of all audits of all Tax Returns of the Company, including a
reasonably detailed description of the nature and outcome of each audit and a
schedule of all pending audits and contests of liability for Taxes. All
deficiencies proposed, assessed, or determined as a result of such audits have
been paid, reserved against or settled. Part 3.11 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by the Company or any group of corporations including the Company for all
taxable years since its inception, and the resulting deficiencies proposed by
the IRS. None of Sellers nor the Company has given or been requested to give
waivers or extensions (or, to Sellers' Knowledge, is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or for which the Company may be
liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
books of the Company are adequate (determined in accordance with GAAP) and are
at least equal to the Company's liability for Taxes. To Sellers' Knowledge,
there exists no proposed tax assessment against the Company except as disclosed
in the Financial Statements or in Part 3.11 of the Disclosure Letter. No consent
to the application of IRC Section 34l(f)(2) has been filed with respect to any
property or assets held, acquired, or to be acquired by the Company.
(d) All Taxes that the Company is or was required by Legal
Requirements to withhold or collect have been duly withheld and collected, and,
to the extent required, have been paid to the proper Governmental Body or other
Person, including, but not limited to, amounts paid to any employee or any
foreign person or entity, and any back-up withholding required under IRC Section
3406.
(e) All Tax Returns filed by (or that include on a consolidated
basis) the Company are true, correct, and complete. Except as set forth in Part
3.11 of the Disclosure Letter, there is no tax sharing agreement, including any
agreement for indemnification, that will
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require any payment by the Company after the date of this Agreement. The Company
has been a validly electing S corporation within the meaning of IRC Sections
1361 and 1362 at all times since January 1, 1990 and the Company will be an S
corporation up to and including the Closing. The Company has conducted business
pursuant to the rules and regulations promulgated by the IRS with respect to S
corporations, including, but not limited to, maintaining a single class of stock
(except for different voting rights), issuing debt that would not be deemed a
second class of stock, issuing options, warrants or convertible notes that would
not be deemed a second class of stock, allocating income and distributions based
on a pro rata ownership basis, and maintaining only eligible shareholders.
(f) Part 3.11 of the Disclosure Letter lists those states in which
the Company has made valid state tax elections to be treated as an S corporation
or comparable pass-through entity and lists those states in which the Company is
not treated as a pass-through entity for state tax purposes.
(g) The Company shall not be liable for any Tax under IRC Section
1374 in connection with the deemed sale of the Company's assets caused by a
Section 338(h)(10) Election. The Company has not in the past 10 years (i)
acquired assets from another corporation in a transaction in which the Company's
Tax basis for the acquired assets was determined, in whole or in part, by
reference to the Tax basis of the acquired assets (or any other property) in the
hands of the transferor or (ii) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
(h) The Company is not party to any agreement, contract or
arrangement that has resulted or would result in the payment of any "excess
parachute payment" within the meaning of IRC Section 280G.
(i) To Sellers' Knowledge, the Company has not participated,
directly or indirectly, in any transaction that would constitute a reportable
transaction or listed transaction both as defined in Temp. Reg. 1.6011-4T, or in
any transaction that is a tax shelter within the meaning of IRC Section
6662(d)(2)(C)(iii).
3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet,
there has not been any Material Adverse Change affecting the Company, and no
event has occurred or circumstance exists that may result in such a Material
Adverse Change.
3.13 EMPLOYEE BENEFITS.
(a) With respect to the Company and all employees heretofore
employed by the Company:
(i) Except as disclosed in Part 3.13 of the Disclosure Letter,
the Company has not maintained, participated in, contributed to, or been
required to contribute to any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), including any multi-employer plan.
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(ii) Except as disclosed in Part 3.13 of the Disclosure
Letter, the Company has not maintained, participated in, contributed to, or been
required to contribute to any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), including any multi-employer plan.
(iii) Part 3.13 of the Disclosure Letter lists each deferred
compensation plan, pension plan, profit-sharing plan, bonus plan, stock option
plan, employee stock purchase plan, incentive plan, insurance plan, medical plan
and any other employee benefit plan, agreement, arrangement or commitment
(whether funded or unfunded, written or oral, qualified or nonqualified) which
the Company has sponsored, established or maintained, in which the Company has
otherwise participated or to which the Company has contributed (or to which the
Company is or was required to contribute under any Legal Requirement) for the
benefit of or in which any employee, terminated employee, director, or
independent contractor participates. The plans, agreements, arrangements and
commitments listed or required to be listed in Part 3.13 of the Disclosure
Letter are referred to collectively as the "Company Plans." Part 3.13 of the
Disclosure Letter lists (and Sellers have heretofore delivered to Buyer true and
correct copies of) all employee manuals currently utilized by the Company with
respect to the Company's employees.
(b) Except as disclosed in Part 3.13 of the Disclosure Letter, (i)
each of the Company Plans complies and has complied in form and operation in all
material respects with the applicable requirements of ERISA, the IRC, and other
Legal Requirements applicable thereto; (ii) all required reports, returns and
descriptions (including Form 5500 Annual Reports) have been filed or distributed
appropriately with respect thereto; (iii) all required or discretionary (in
accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals which are due with respect thereto have been paid or,
if not due, have been properly accrued in accordance with GAAP on the Financial
Statements; (iv) no audits, proceedings, claims or demands with respect thereto
have been made by any Company Plan participant or any Governmental Authority,
including, without limitation, the IRS and the Department of Labor, other than
routine claims for benefits; (v) the Company does not maintain and has no
liability with respect to any plan subject to Title IV of ERISA or any plan that
provides welfare benefits, including without limitation, death or medical
benefits beyond termination of service or retirement other than coverage
mandated by COBRA; and (vi) with respect to each Company Plan intended to
qualify under IRC Sections 401(a) or 403(a), nothing has occurred which would
cause the loss of such qualification or exemption or the imposition of any
penalty or tax liability.
(c) With respect to each Company Plan, Sellers have delivered to
Buyer correct and complete copies of the plan documents and plan summary
descriptions, the most recent determination letter received from the IRS, the
most recent Form 5500 Annual Report, and all related agreements and contracts,
including insurance policies, contracts with third-party administrators or
consultants, and notifications to employees of their rights. In the case of any
unwritten Company Plan, a written description of such Plan has been included in
Part 3.13 of the Disclosure Letter. The Company has filed or caused to filed all
Form 5500 Annual Reports as required. The Company has obtained all required
determination letters for all plan changes as required.
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(d) Except as set forth in Part 3.13 of the Disclosure Letter, each
Company Plan can be terminated within sixty (60) days, without payment of any
additional contribution or amount and without the vesting or acceleration of any
benefits promised by such Plan.
(e) Except as set forth in Part 3.13 of the Disclosure Letter, (i)
no Company Plan obligates the Company to pay separation, severance, termination
or similar benefits as a result of any transaction contemplated by this
Agreement or solely as a result of a "change of control," and (ii) no individual
shall accrue or receive any additional benefits, service or accelerated rights
to payments of benefits under any Company Plan as a result of the transactions
contemplated hereby.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) The Company is, and at all times since March 30, 1987, has
been, in full compliance with each Legal Requirement that is or was applicable
to it or to the conduct or operation of its business or the ownership or use of
any of its assets except where noncompliance will not have a Material Adverse
Effect, and the Company is not subject to any liability or obligation as a
result of the failure of the Company to comply with any Legal Requirements prior
to March 30, 1987;
(ii) No event has occurred or circumstance exists that (with
or without notice or lapse of time) (A) may constitute or result in a violation
by the Company of, or a failure on the part of the Company to comply with, any
Legal Requirement, or (B) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature except where such violation, failure or obligation will not
have a Material Adverse Effect; and
(iii) The Company has not received, at any time since March
30, 1987, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation on
the part of the Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature and the Company is not subject to any
liability or obligation with respect to any remedial action resulting from an
event or notice which the Company received prior to March 30, 1987.
(b) Part 3.14 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, the Company. Each Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter is valid and in full force and effect.
Except as set forth in Part 3.14 of the Disclosure Letter:
(i) The Company is, and at all times since March 30, 1987 has
been, in full compliance with all of the terms and requirements of each
Governmental Authorization
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identified or required to be identified in Part 3.14 of the Disclosure Letter
except where noncompliance will not result in a Material Adverse Effect, and, to
Sellers' Knowledge the Company is not subject to any liability or obligation
with respect to any failure of compliance with any Governmental Authorization
prior to March 30, 1987;
(ii) Except where the consequences of such event or
circumstances do not result in a Material Adverse Effect, no event has occurred
or circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any Governmental Authorization listed
or required to be listed in Part 3.14 of the Disclosure Letter;
(iii) The Company has not received, at any time since March
30, 1987, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) All applications required to have been filed for the
renewal of the Governmental Authorizations listed or required to be listed in
Part 3.14 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies except where the failure
to file will not result in a Material Adverse Effect.
The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its businesses in the manner
in which it currently conducts and operates such businesses and to permit the
Company to own and use its assets in the manner in which it currently owns and
uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.15 of the
Disclosure Letter, there is no pending or, to Sellers' Knowledge, Threatened
Proceeding that has been commenced by or against the Company or that otherwise
relates to or may affect the business of, or the assets owned or used by, the
Company, or that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated hereby. There is no Order to which the Company, or any of the
assets owned or used by the Company, is subject, and there is no Order to which
any Seller is subject that relates to the business of, or any of the assets
owned or used by, the Company.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
3.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the Ordinary Course of Business and there has
not been any:
-22-
(a) change in the Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Company; grant of any phantom or similar rights which give any Person any
interest in any portion of the revenue or earnings of the Company; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by the Company of
any shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee (except in the Ordinary Course of Business and in
accordance with the policies set forth in Part 3.16 of the Disclosure Letter or
as provided below);
(d) retirement, resignation, or other termination of the
employment of any key employee nor any notice or notification regarding any
intended retirement, resignation, or other termination of the employment of any
key employee;
(e) adoption of, or increase in the payments to or benefits
under, any profit-sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
the Company or any announcements, whether formal or informal, as to any of the
foregoing;
(f) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, which has or may have a
Material Adverse Effect on the Company;
(g) entry into, termination of, or receipt of formal or
informal notice or advice of termination of (i) any license, distributorship,
dealer, sales representative, joint venture, credit, or similar agreement, or
(ii) any Contract or transaction involving a total remaining commitment by or to
the Company of at least $100,000;
(h) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(i) cancellation or waiver of any claims or rights with a
value to the Company in excess of $l00,000;
(j) material change in the accounting methods used by the
Company from that reflected on the Financial Statements; or
(k) agreement, whether oral or written and whether formal or
informal, by the Company to do any of the foregoing.
-23-
3.17 CONTRACTS; NO DEFAULTS.
(a) Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Sellers have heretofore delivered or made available to Buyer
true and complete copies, of:
(i) each Company Contract that involves performance of
services or delivery of goods or materials by the Company of an amount or value
in excess of $100,000;
(ii) each Company Contract that involves performance of
services or delivery of goods or materials to the Company of an amount or value
in excess of $100,000;
(iii) each Company Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of the
Company in excess of $50,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Company Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $50,000 and with terms of less than one year);
(v) each licensing agreement or other Company Contract with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the nondisclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement and other Company
Contract to or with any labor union or other employee representative of a group
of employees;
(vii) each joint venture, partnership, and other Company
Contract (however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(viii) each Company Contract containing covenants that in any
way purport to restrict the business activity of the Company or any Affiliate of
the Company or limit the freedom of the Company or any Affiliate of the Company
to engage in any line of business or to compete with any Person;
(ix) each Company Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(x) each power of attorney affecting the Company that is
currently effective and outstanding;
(xi) each Company Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express undertaking
by the Company to be responsible for consequential damages;
-24-
(xii) each Company Contract for capital expenditures in excess
of $50,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company;
(xiv) each Company Contract that involves a bank loan, line of
credit or other agreement regarding the borrowing of money; and
(xv) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth, where applicable, reasonably
complete details concerning such Contracts (including the parties to the
Contracts, the amount of the remaining commitment of the Company under the
Contracts) and any oral modifications of such Contracts.
(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:
(i) none of the Sellers (and no Related Person of any Seller)
has or may acquire any rights under or has or may become subject to any
obligation or liability under, any Contract that relates to the business of, or
any of the assets owned or used by, the Company; and
(ii) no Key Personnel, or to Sellers' Knowledge, no other
agent, employee, consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer, director, agent,
employee, consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of the Company, or (B) assign to
the Company or to any other Person any rights to any invention, improvement, or
discovery.
(c) To Sellers' Knowledge, except as set forth in Part 3.17(c) of
the Disclosure Letter, each Contract identified or required to be identified in
Part 3.17(a) of the Disclosure Letter is in full force and effect and is valid
and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:
(i) the Company is, and at all times since the date of the
respective Contracts (including any Contracts which have been superseded by the
present Contracts) (A) has been, in full compliance with all applicable material
terms and requirements of each Contract under which the Company has or had any
obligation or liability or by which the Company or any of the assets owned or
used by the Company is or was bound, (B) has complied in all respects with all
requirements for all Legal Requirements pertaining to each Contract, and (C) any
representations and certifications executed, acknowledged or set forth in or
pertaining to each Contract were complete and correct in all material respects
as of their effective date, except, in each case, where noncompliance will not
have a Material Adverse Effect;
(ii) to Sellers' Knowledge, each other Person that has or had
any obligation or liability under any Contract under which the Company has or
had any rights is, and
-25-
at all times since March 30, 1987, has been, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with
or without notice or lapse of time) may contravene, conflict with, or result in
a violation or breach of, or give the Company or any other Person the
contractual right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Company Contract except where the consequences of such event will not have a
Material Adverse Effect; and
(iv) the Company, since the date of the respective Contracts
(including any Contracts which have been superseded by the present Contracts),
has not given to nor received from any other Person any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, or outstanding rights to
renegotiate any, or to Seller's Knowledge attempts to renegotiate, material
amounts paid or payable to the Company under current or completed Contracts with
any Person and no such Person has made written demand for such renegotiations.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or to Sellers' Knowledge would be in violation of
any Legal Requirement. To Sellers' Knowledge, all such Contracts can be
completed at a profit, within the time specified therein, utilizing only
personnel now employed by and assets now owned by the Company.
(g) Except as set forth in Part 3.17(g) of the Disclosure Letter:
(i) (A) the Company has complied with all material terms and
conditions of each Government Contract or Government Subcontract, and (B) all
representations and certifications executed, acknowledged or set forth in or
pertaining to each Government Contract or Government Subcontract were complete
and correct in all respects as of their effective date or as subsequently
modified prior to the Effective Date and the Company has complied in all
material respects with all such representations and certifications;
(ii) (A) neither the U.S. Government nor any prime contractor,
subcontractor or other Person has notified the Company, either in writing or
orally, that the Company has breached or violated any Legal Requirement,
certification, representation, clause, provision or other requirement pertaining
to any Government Contract or Government Subcontract, (B) no termination for
convenience, termination for default, cure notice or show cause notice is
currently in effect pertaining to any Government Contract or Government
Subcontract, (C) no material cost incurred by the Company pertaining to any
Government Contract or Government Subcontract has been questioned or challenged
by representatives of the Administrative Contracting Officer or the Defense
Contract Audit Agency, has been disallowed
-26-
by the U.S. Government, or has been or, to Sellers' Knowledge, now is, the
subject of any investigation, and (D) no amount of money due to the Company,
pertaining to any Government Contract or Government Subcontract has been
withheld or set off nor to Sellers' Knowledge, has any claim been made to
withhold or set off money, and to Sellers' Knowledge, the Company is entitled to
all progress payments received with respect thereto;
(iii) (A) To Sellers' Knowledge, neither the Company nor any
of its directors, officers or employees or, to Sellers' Knowledge, its
consultants or agents is or during the past three years has been under
administrative, civil or criminal investigation, indictment or information by
any Governmental Body with respect to any alleged irregularity, misstatement or
omission arising under or relating to any Government Contract or Government
Subcontract, and (B) during the past five (5) years, the Company has not
conducted or initiated any internal investigation or made a voluntary disclosure
to any Governmental Body with respect to any alleged irregularity, misstatement
or omission arising under or relating to a Government Contract or Government
Subcontract;
(iv) to Sellers' Knowledge, there exist (A) no outstanding
claims against the Company, either by any Governmental Body or by any prime
contractor, subcontractor, vendor or other Person, arising under or relating to
any Government Contract or Government Subcontract and (B) no material disputes
between the Company and any Governmental Body under the Contract Disputes Act or
any other federal statute or regulation or between the Company and any prime
contractor, subcontractor or vendor arising under or relating to any Government
Contract or Government Subcontract;
(v) to Sellers' Knowledge, the Company has no interest in any
pending or potential claim against any Governmental Body or any prime
contractor, subcontractor or vendor arising under or relating to any Government
Contract or Government Subcontract, and Part 3.17(g) of the Disclosure Letter
lists each Government Contract or Government Subcontract which is currently
under audit by any Governmental Body or any other person that is a party to such
Government Contract or Government Subcontract;
(vi) the Company has not been debarred or suspended from
participation in the award of contracts with the DOD or any other Governmental
Body (excluding for this purpose ineligibility to bid on certain contracts due
to generally applicable bidding requirements), there exist no facts or
circumstances that would warrant suspension or debarment or the finding of
non-responsibility or ineligibility on the part of the Company, no payment has
been made by the Company or by any Person on behalf of the Company in connection
with any Governmental Contract or Governmental Subcontract in violation of
applicable procurement Legal Requirements or in violation of, or requiring
disclosure pursuant to, the Foreign Corrupt Practices Act, and the Company's
cost accounting and procurement systems and the associated entries reflected in
the Company's financial records with respect to the Government Contracts and
Government Subcontracts are in compliance in all material respects with all
Legal Requirements.
(h) The EDS Contract referenced in Part 3.17(g)(i) of the Disclosure
Letter was not granted because of any characterization of the Company as a
"Small Disadvantaged Business," and such contract was not part of any set-aside
for Small Disadvantaged Businesses.
-27-
3.18 INSURANCE. The Sellers have heretofore delivered or made available to
Buyer true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is
covered at the Effective Date. All such policies are in full force and effect;
the Company has paid all premiums due thereon and otherwise performed all
obligations under such policies; to Sellers' Knowledge such policies, taken
together provide adequate insurance for all risks to which the Company is
normally exposed; and to Sellers' Knowledge such policies are sufficient for
compliance with all Legal Requirements and Contracts to which the Company is a
party or by which its assets are bound. The Company has given adequate notice of
all claims under such policies to the issuers of such policies so as to preserve
the Company's rights thereunder. Part 3.18 of the Disclosure Letter sets forth,
by year, for the current policy year and the three (3) preceding policy years
and excluding claims made by employees under heath insurance plans in the
Ordinary Course of Business: (i) a summary of loss under experience under each
policy, (ii) a statement describing each claim under an insurance policy for an
amount in excess of $50,000, and (iii) a statement describing the loss
experience for all claims that were self-insured, including the number and
aggregate cost of such claims.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.19 of the
disclosure letter:
(a) To Sellers' Knowledge, the Company is, and at all times has
been, in full compliance with, and has not been and is not in violation of or
liable under, any Environmental Law except where any such noncompliance,
violation or liability would not have a Material Adverse Effect. None of
Sellers, either individually or collectively, have any basis to suspect, nor has
any of them received any actual or Threatened Order, notice, citation, inquiry,
warning or other communication that relates to: (i) Hazardous Activity, (ii)
Hazardous Materials, (iii) any alleged, actual or potential violation or failure
to comply with any Environmental Law, or (iv) any alleged, actual or potential
obligation to undertake or bear the cost of any Environmental, Health, or Safety
Liabilities, with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Company has had an
interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used or
processed by the Company or any other Person for whose conduct it is or may be
held responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled or received. To Sellers' Knowledge, no other person for whose
conduct the Company is or may be held responsible has received any such actual
or Threatened Order, notice, citation, inquiry, warning or other communication.
(b) To Sellers' Knowledge, there are no pending or Threatened
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which the
Company has or had an interest.
(c) None of Sellers has any basis to expect, nor has any of them or
any other Person for whose conduct they are or may be held responsible, received
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication from (i) any Governmental Body, including those administering or
enforcing any Environmental Law, or (ii) the owner or
-28-
any real property or other facility, that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or potential violation or failure
to comply with any Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any of the Facilities or any other property or
assets (whether real, personal or mixed) in which the Company or any Seller had
an interest.
(d) To Sellers' Knowledge, none of Sellers, or any other Person for
whose conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or with respect to
any other properties and assets (whether real, personal, or mixed) in which the
Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets except liabilities which will not result in a Material
Adverse Effect.
(e) To Sellers' Knowledge, there are no Hazardous Materials present
on or in the Environment at the Facilities or at any geologically or
hydrologically connected property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon except such Hazardous Materials, if any, the presence of
which will not have a Material Adverse Effect. None of Sellers and the Company,
nor any other Person for whose conduct they are or may be held responsible, or
any other Person, has permitted or conducted, or is aware of, any Hazardous
Activity conducted with respect to the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Company has or had an
interest except in full compliance with all applicable Environmental Laws.
(f) To Sellers' Knowledge there has been no Release or Threat of
Release, of any Hazardous Materials at or from the Facilities or at any other
locations where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real, personal, or mixed)
in which the Company has or had an interest, or any geologically or
hydrologically connected property, whether by Sellers, the Company, or any other
Person.
(g) The Company has delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by Sellers, the Company, or any other Person for whose conduct they are or may
be held responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Company, including each employee on leave of absence or layoff status: name; job
title; date hired, current compensation paid or payable and any change in
compensation since January 1, 2000; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash
-29-
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
employee pension benefit plan or employee welfare benefit plan, or any other
employee benefit plan.
(b) No Key Personnel, and to Sellers' Knowledge, no other employee
of the Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Sellers' Knowledge, and with the exception of Xxxxxx X.
Xxxxxx, no director, officer, or other key employee of the Company intends to
terminate his employment with the Company.
(c) Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or director
of the Company, or their dependents, receiving benefits or scheduled to receive
benefits in the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other benefits.
(d) Except as set forth in Part 3.20(c) of the Disclosure Letter,
all current employees of the Company have executed written confidentiality and
noncompete Contracts with the Company. Except as set forth in Part 3.20(c) of
the Disclosure Letter, each such Contract is in full force and effect and is
valid and enforceable in accordance with its terms. The form or forms of such
Contracts are included in Part 3.20(c) of the Disclosure Letter.
3.21 LABOR RELATIONS; COMPLIANCE. The Company has not been and is not a
party to any collective bargaining or other labor Contract. There has not been,
there is not presently pending or existing, and, to Sellers' Knowledge, there is
not Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Company relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting the Company or its
premises, or (c) any application for certification of a collective bargaining
agent. To Sellers' Knowledge, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by the Company, and no such action is contemplated
by the Company. To Sellers' Knowledge, the Company has complied in all material
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing. To Sellers' Knowledge, the Company is not
liable for the payment of any compensation, damages, taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
-30-
3.22 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets - The term "Intellectual Property
Assets" includes:
(i) the Company's name, all fictional business names, trading
names, registered and unregistered trademarks, service marks, trade names and
applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights");
(iv) all web sites, web pages, internet addresses and internet
domain names used by the Company (collectively, the "Web Sites"); and
(v) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, designs, unpatentable inventions, drawings, and blue prints
(collectively, "Trade Secrets"), owned or licensed by the Company as licensee or
licensor or used by Company in the operation of Company's businesses as they are
currently conducted.
(b) Agreements - Part 3.22(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any royalties paid
or received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company is
bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value, in the
aggregate, of less than $50,000 under which the Company is the licensee. There
are no outstanding and, to Sellers' Knowledge, no Threatened disputes or
disagreements with respect to any such agreement. The Company has materially
complied with all license agreements or other Contracts relating to each
software program used by the Company in connection with its business as
currently conducted, and the Company has obtained the appropriate number of
licenses for all computers and workstations on which such software is loaded or
used.
(c) Know-How Necessary for the Business
(i) To Sellers' Knowledge, the Intellectual Property Assets
are all those necessary for the operation of the Company's businesses as they
are currently conducted. The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party all of
the Intellectual Property Assets.
(ii) No Key Personnel, nor to Sellers' Knowledge after due
inquiry, no other employee of the Company has entered into any Contract that
restricts or limits in any way
-31-
the scope or type of work in which the employee may be engaged or requires the
employee to transfer, assign, or disclose information concerning his work to
anyone other than the Company. Part 3.22(c) of the Disclosure Letter contains a
complete and accurate list of all current employees of the Company who have
executed written contracts with the Company that assign to the Company or
otherwise concern or are related to any inventions, improvements, discoveries,
or other information related to the business of the Company. The form or forms
of such Contracts are included in Part 3.22(c) of the Disclosure Letter.
(d) Patents. The Company owns no patents or patent applications.
Part 3.22(d) of the Disclosure Letter contains a complete and accurate list and
summary description of all inventions and discoveries of the Company that, to
Sellers' Knowledge, may be patentable. The Company is the owner of all right,
title, and interest in and to each of such inventions and discoveries, free and
clear of all liens, security interests, charges, encumbrances, equities and
other adverse claims. None of the products manufactured or sold, nor any process
or know-how used, nor any service rendered by the Company, infringes or, to
Sellers' Knowledge, is alleged to infringe any patent or the proprietary right
of any other person.
(e) Trademarks. Part 3.22(e) of the Disclosure Letter contains a
complete and accurate list and summary description of all Marks. None of the
Marks has been registered with the United States Patent and Trademark office.
The Company is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities and other adverse claims. None of the Marks used by the Company
infringes or, to Sellers' Knowledge, is alleged to infringe any trade name,
trademark or service xxxx of any third party, and to Sellers' Knowledge, no Xxxx
is infringed or has been challenged or threatened in any way.
(f) Copyrights.
(i) Part 3.22(f) of the Disclosure Letter contains a complete
and accurate list and summary description of all registered Copyrights. The
Company is the owner of all right, title, and interest in and to each of the
Copyrights, to Sellers' Knowledge, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims.
(ii) To Sellers' Knowledge, all registered Copyrights are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the date of Closing.
(iii) To Sellers' Knowledge, no Copyright is infringed or has
been challenged or threatened in any way. None of the subject matter of any of
the Copyrights infringes or, to Sellers' Knowledge, is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party.
(iv) All works encompassed by the registered Copyrights have
been marked with the proper copyright notice except in such cases where failure
to xxxx the work would not result in a Material Adverse Effect.
-32-
(g) Trade Secrets.
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
(ii) Sellers and the Company have taken reasonable precautions
to protect the secrecy, confidentiality, and value of their Trade Secrets.
(iii) The Company has good title and an absolute right to use
the Trade Secrets. The Trade Secrets are not part of the public knowledge or
literature, and have not been used, divulged, or, to Sellers' Knowledge,
appropriated either for the benefit of any Person (other than the Company) or to
the detriment of the Company. To Sellers' Knowledge, no Trade Secret is subject
to any adverse claim or has been challenged or, to Sellers' Knowledge,
Threatened in any way.
(h) Web Sites. Part 3.22(h) of the Disclosure Letter contains a
complete and accurate list and summary description of all of the Company's Web
Sites. The Company is the owner or registrant of all Web Sites, free and clear
of all liens, security interests, charges, claims encumbrances or other adverse
claims, and no challenge or Proceeding has been commenced or, to Sellers'
Knowledge, Threatened with respect to any of the Web Sites. The Company has
complied in all material respects with the terms and conditions of its legal
notices on its Web Sites, including without limitation its privacy policies. The
Company complies with its privacy policies both "on-line" and "off-line."
3.23 CERTAIN PAYMENTS. Neither the Company nor any director, officer,
agent, or employee of the Company, or, to Sellers' Knowledge, any other Person
associated with or acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any Affiliate of the Company, or
(iv) in violation of any Legal Requirement, (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
3.24 DISCLOSURE.
(a) No representation or warranty of Sellers in this Agreement, and
no statement in the Disclosure Letter, omit to state a material fact necessary
to make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) There is no fact known to Sellers that has specific application
to any Seller or the Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as Sellers can
reasonably foresee, materially threatens, the assets, business,
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prospects, financial condition, or results of operations of the Company, that
has not been set forth in this Agreement or the Disclosure Letter.
3.25 RELATIONSHIPS WITH RELATED PERSONS. No Seller or any Related Person
of any Seller or of the Company has, or since the first day of the next to last
completed fiscal year of the Company has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in
or pertaining to the Company's businesses. No Seller nor any Related Person of
any Seller has or may acquire any rights under, or has or may become subject to
any obligation or liability under, any Contract that relates to the business of,
or any of the assets owned or used by, the Company. Except as set forth in Part
3.25 of the Disclosure Letter, no Seller or any Related Person of any Seller or
of the Company is, or since the first day of the next to last completed fiscal
year of the Company has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with the
Company, or (ii) engaged in competition with the Company with respect to any
line of the products or services of the Company (a "Competing Business") in any
market presently served by the Company. Except as set forth in Part 3.25 of the
Disclosure Letter, no Seller or any Related Person of any Seller or of the
Company is a party to any Contract with, or has any claim or right against, the
Company.
3.26 BROKERS OR FINDERS. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement other than professional fees of any nature paid to Galland, Kharasch,
Xxxxxxxxx, Xxxxxxx & Xxxxxxx, P.C. which shall be paid at or immediately prior
to Closing.
3.27 BUSINESS RELATIONSHIPS. Part 3.27 of the Disclosure Letter contains a
complete and accurate list of each customer of the Company that accounted for
more than three percent (3%) of the total revenues of the Company in each of the
last three (3) fiscal years of the Company and in the last fiscal period
included in the Financial Statements, and sets forth the total revenues derived
from each such customer during each of such fiscal periods. Since the date of
the Balance Sheet, the Company has not suffered any loss of full-time or
part-time employees (except as set forth in Part 3.27 of the Disclosure Letter)
or, to Seller's Knowledge, suffered loss of good will or an adverse change in
the relationship with any suppliers, customers, creditors, agents or others
having business relationships with the Company that materially and adversely
affects the business operations or prospects of the Company. Except as set forth
in Part 3.27 of the Disclosure Letter, the Company has not been involved in any
material controversy with any of its customers or suppliers. The Company has not
been advised by any of its customers or suppliers that such customer or supplier
was or is intending to terminate its relationship with the Company or would not
continue to purchase supplies or services for future periods on account of any
dissatisfaction with the Company's performance or due to the transactions
contemplated hereby. To Sellers' Knowledge, all business placed by all employees
or other agents of the Company has been placed in the name of the Company, and
all fees and compensation on such business have been paid to and are the
property of the Company.
3.28 INDEBTEDNESS BY RELATED PERSONS. All indebtedness heretofore owed to
the Company by any Seller or any Related Person of any Seller has been paid in
full. All
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indebtedness by the Company to any Seller or Former Shareholder or any Related
Person of any of them, (including any right to indemnification or reimbursement
from the Company, whether pursuant to the Company's Organizational Documents,
contract or otherwise and whether or not relating to claims pending on, or
asserted after, the Effective Date) will be released at the Closing and the
Company will not have any obligation with respect thereto. All such obligations
of the Company are listed on Part 3.28 of the Disclosure Letter.
3.29 CERTAIN PROCEEDINGS. To Seller's Knowledge, there is no Proceeding
that has been commenced against any Seller or the Company that challenges, or
may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby. To Sellers'
Knowledge, no such Proceeding has been Threatened.
3.30 SHAREHOLDER AGREEMENTS; FORMER SHAREHOLDERS. Immediately preceding
the Closing, 4,055 shares of the issued and outstanding Class A Common Stock,
86,432 shares of the issued and outstanding Class B Common Stock, and
nontransferable, unexercised options for the purchase of 54,232 shares of Class
B Common Stock were owned, beneficially and of record, by the individuals
(collectively, the "Former Shareholders" and each, a "Former Shareholder") and
in the amounts set forth on Part 3.30 of the Disclosure Letter. All payments
made to the Former Shareholders in consideration for their shares of stock and
termination of unexercised stock options were made immediately prior to Closing.
Since the date of the Balance Sheet, and except as set forth on Part 3.30 of the
Disclosure Letter, no Person has owned or held any equity securities of the
Company other than Sellers and the Former Shareholders. Pursuant to appropriate
purchase agreements (the "Cross Purchase Agreements") and concurrently with the
Closing, Sellers have acquired at their respective fair market value all of the
Shares and the Company has paid for the termination of all unexercised stock
options previously owned by the Former Shareholders and at Closing will convey
to Buyer all of the issued and outstanding Shares of the Company, as reflected
on Exhibit A hereto, free and clear of all Encumbrances, including any claim or
interest of the Former Shareholders. With the exception of the Cross Purchase
Agreements, as of the Closing, all Voting Stock Redemption Agreements,
Non-Statutory Stock Option Agreements, Stock Repurchase Agreements, or other
Contracts which relate to the securities of the Company and to which the
Company, the Sellers, and Former Shareholders or any one or more of them is a
party, have been fully and finally terminated and are no longer of any force or
effect. Each of the Former Shareholders, whether the holder of shares of stock
of the Company or stock options or both, has duly executed and delivered to
Buyer a Former Shareholder's Release, and the Former Shareholder's Release
executed by such Former Shareholder constitutes the legal, valid and binding
obligation of such Former Shareholder, enforceable against such Former
Shareholder in accordance with its terms. Except as set forth in Part 3.30 of
the Disclosure Letter, no Former Shareholder and no Related Person of any Former
Shareholder, is a party to any Contract with, or has any claim or right against,
the Company or any of the Company's securities.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
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4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
(b) Neither the execution and delivery of this Agreement by Buyer
nor the consummation or performance of any of the Transactions contemplated
hereby by Buyer will give any Person the right to prevent, delay, or otherwise
interfere with any of the Transactions contemplated hereby. Buyer is not and
will not be required to obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the Transactions contemplated hereby.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own account
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act.
4.4 CERTAIN PROCEEDINGS. To Buyer's knowledge, there is no pending
Proceeding that has been commenced against Buyer and that challenges, or may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Transactions contemplated hereby. To Buyer's
knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS. Buyer and its agents have incurred no obligation
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
5. COVENANTS.
5.1 PROTECTION OF RELATIONSHIPS. None of the Sellers will at any time
hereinafter take, and they and each of them will cause the Company not to take,
any action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier or other business associate of the Company
from establishing or maintaining business relationships with the Company.
5.2 FURTHER ASSURANCES. Sellers shall use Sellers' Best Efforts to
implement the provisions of this Agreement, and for such purpose Sellers, at the
request of Buyer and at no cost to Sellers, at or after the Closing, shall,
without further consideration, promptly execute and deliver, or cause to be
executed and delivered, to Buyer such documents and other instruments in
addition to those required by this Agreement, in form and substance satisfactory
to Buyer, and take all such other actions, as Buyer may reasonably deem
necessary or desirable to implement any provision of this Agreement and/or to
further the transactions contemplated by this Agreement and obtain the benefit
thereof for Buyer. Sellers will take no action to terminate or limit existing or
prior coverages as applicable to the pre-closing activities of the Company or
the Company's ability to make claims under those coverages. The Company and
Sellers shall not revoke the Company's election to be taxed as an S corporation
within the meaning of IRC Sections 1361 and 1362, nor shall the Company and
Sellers take or allow any action to be taken
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that would result in the termination of the Company's status as a validly
electing S corporation within the meaning of IRC Sections 1361 and 1362.
5.3 TAX ELECTION. The Company and each Seller shall join with Buyer in
making an election under IRC Section 338(h)(10) (and any applicable
corresponding election under state, local and foreign tax law) with respect to
the purchase and sale of the Shares hereunder (collectively, a "Section
338(h)(10) Election") and shall cooperate in filling-out and filing a Form 8023
pursuant to Section 2.4(e). Company and Sellers shall include any income, gain,
loss, deduction, or other tax item resulting from the Section 338(h)(10)
Election on their respective tax returns to the extent required by applicable
law. Sellers shall also pay any Tax imposed on the Company attributable to the
making of the Section 338(h)(10) Election, including (i) any Tax imposed under
IRC Section 1374, (ii) any Tax imposed under Regulation 1.338(h)(10)-1(d)(5), or
(iii) any state, local or foreign Tax imposed on the Company's gain, and Sellers
shall indemnify Buyer and the Company in accordance with the provisions of
Section 6.12 of this Agreement against any Adverse Consequences or Tax Loss (as
defined in Section 6.12) as a result of any failure on the part of Seller to
join in making a Section 338(h)(10) Election or to pay any such Taxes.
5.4 CONFIDENTIALITY AGREEMENT OF SELLERS. Each Seller acknowledges and
agrees that all Confidential Information known or obtained by the Seller,
whether before or after the date hereof, is the property, as appropriate, of the
Company or the Buyer. Therefore, each Seller agrees that he will not, at any
time, disclose or cause to be disclosed to any unauthorized Persons or use or
cause to be used for his own account or for the benefit of any third party any
Confidential Information, whether Seller has such information in Seller's memory
or embodied in writing or other physical form or any computer readable format,
without Buyer's written consent, unless and to the extent that the Confidential
Information (i) is or becomes generally known to and available for use by the
public other than as a result of Seller's fault or the fault of any other Person
known to Seller to be bound by a duty of confidentiality to Buyer or the Company
or, (ii) becomes available to Seller on a non-confidential basis, from a source
who is entitled, or that a Seller reasonably believes is entitled, to disclose
such information without breach of confidentiality to the Company, other than
the Company or any of its employees; or (iii) to the extent that disclosure is
required by law (in which event Seller shall give Buyer as much notice of such
disclosure as is practicable and permitted by law and shall cooperate with Buyer
at Buyer's expense to obtain appropriate protective orders). Each Seller agrees
to deliver to Buyer at the time of execution of this Agreement, and at any other
time Buyer may request, all documents, memoranda, notes, plans, records,
reports, summaries and other documentation, models, components, devices, or
computer software, whether embodied in a disk or in other form (and all copies
of all of the foregoing), relating to the businesses, operations, or affairs of
the Company and any other Confidential Information that Seller may then possess
or have under Seller's control. If Seller breaches the covenants set forth in
this Section 5.4, each of Buyer and the Company, in addition to the right to
recover Damages as provided in Section 6 and any other rights it may have, shall
have the right to obtain injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the provisions
of this Section 5.4, it being agreed that money damages alone would be
inadequate to compensate the Buyer and the Company and would be an inadequate
remedy for such breach.
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5.5 PURCHASE PRICE ALLOCATION. Buyer, the Company and Sellers agree that
the Purchase Price and the liabilities of the Company will be allocated to the
assets of the Company for all purposes (including Tax and financial accounting)
in a manner consistent with IRC Sections 338 and 1060 and the regulations
thereunder. Buyer, the Company and Sellers shall file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
5.6 TAX RETURNS. Buyer shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all periods ending on or
prior to the Effective Date that are filed after the Effective Date, except for
the Company's final S corporation Tax Return and any final state Tax Returns of
the Company, which shall be prepared by Sellers and approved by Buyer prior to
filing, which approval shall not be unreasonably withheld, conditioned or
delayed. Seller shall provide Buyer with a schedule of all Tax Returns of the
Company to be filed for periods ending on or prior to the Effective Date, and a
list of Tax Returns for which extensions have been filed.
5.7 COOPERATION ON TAX MATTERS.
(a) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with respect
to Taxes; provided, that Sellers shall not file, or cause to be filed, the final
S corporation Tax Return of the Company or any final state Tax Returns of the
Company, without Buyer's prior approval, which approval shall not be
unreasonably withheld, conditioned or delayed; provided, further, that Sellers
shall provide any of the aforementioned final Tax Returns to Buyer thirty (30)
days prior to the due date (including properly filed extensions) for filing such
Tax Returns. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information under the respective
parties' control and reasonably relevant to any such audit, litigation, or other
proceeding and making employees of the Company available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. As of the Closing, Sellers shall have delivered to
Buyer all tax documentation related to the Company that Sellers possess, and
Buyer, the Company and Sellers (if applicable) further agree (i) to retain all
books and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing until the expiration of the
statute of limitations (and, to the extent notified by Buyer or Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
the Company or Sellers, as the case may be, shall allow the other party to take
possession of such books and records, provided, that no such notice shall be
given or required with respect to transferring, destroying or discarding such
books and records that are relevant to time periods for which the applicable
statutes of limitations have lapsed.
(b) Buyer and Sellers further agree, upon request, to use their
respective Best Efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed
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(including with respect to the transactions contemplated hereby), provided that
any costs and expenses incurred in connection with such effort shall be paid by
the requesting party.
(c) The Company, Buyer, and Sellers agree that should any
Governmental Body determine, find, hold, or propose to determine, find or hold
that the Company's status as an S corporation, as defined in Section 1361 of the
Code, has at any time been terminated as a result of an inadvertent invalid
election or inadvertent termination occurring prior to Closing, each as defined
in Section 1362(f) of the Code, then the Company, Buyer, and Sellers shall take
such steps as are necessary or advisable to obtain a waiver of the effects of
such a termination (a "Waiver"), including but not limited to the filing of a
ruling request with the IRS, and agreeing to such terms and conditions as the
IRS may impose as a condition of granting a Waiver. The Sellers shall bear all
costs associated with obtaining a Waiver, including but not limited to any fee
imposed by the IRS associated with the filing of a ruling request or the
obtaining of a ruling.
5.8 COMPANY CHECKS. Buyer shall honor all those Company checks written by
the Company in the Ordinary Course of Business prior to the Closing for amounts
currently due and payable in an amount not to exceed Two Million Two Hundred and
Fifty Thousand Dollars ($2,250,000.00) in the aggregate.
6. INDEMNIFICATION; REMEDIES.
6.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. Subject
to Section 6.5, below, all representations, warranties, covenants, and
obligations in this Agreement, and any other certificate or document delivered
pursuant to this Agreement, will survive the Closing. The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the Effective
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty will not affect the
right to indemnification, payment of Damages, or other remedy based on such
representations and warranties. Any payment made by a Seller to Buyer pursuant
to this Section 6 shall be deemed to be a reduction in the Purchase Price and
shall not be deemed to be an item of income or expense, and all parties hereto
agree to prepare their tax returns consistent therewith.
6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Sellers, jointly
and severally, will indemnify and hold harmless Buyer and the Company and their
respective successors and assigns (collectively, the "Indemnified Persons") for,
and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, penalty, assessment (including accrued interest and interest estimated to
accrue through the date of final disposition of any assessment of Taxes), damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
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(a) any Breach of any representation or warranty made by Sellers in
Section 3 of this Agreement;
(b) any product shipped or manufactured (if any) by, or any services
provided by, the Company prior to the Effective Date;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based on any agreement or understanding alleged
to have been made by any such Person with any Seller (or any Person acting on
any Seller's behalf) in connection with the transactions contemplated hereby;
(d) any Breach of any representation or warranty made by any Seller
in this Agreement or any certificate or document delivered by any Seller
pursuant to this Agreement (not including the Employment Related Agreements),
other than those contained in Section 3 or those referred to in Section 6.2(c);
(e) any Breach by any Seller of any covenant or obligation of such
Seller in this Agreement or any other agreement or document delivered by such
Seller pursuant to this Agreement (not including the Employment Related
Agreements);
(f) any claim or right of any Former Shareholder against the Company
or Buyer or any of its securities or otherwise arising in connection with or
related to the transactions or matters described in, or contemplated by, this
Agreement or the Former Shareholder Releases;
(g) any claim or right of any Person other than a Seller or Former
Shareholder with respect to the capital stock or other securities of the Company
arising from or related to a date and time prior to the Effective Date; or
(h) any claim that, at the time of the consummation of the
transactions contemplated by this Agreement, any Person other than Sellers or
Former Shareholders owns or holds, or has any right, title or interest in or to,
any equity securities of the Company.
The remedies provided in this Section 6.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS; ENVIRONMENTAL
MATTERS. Consistent with the provisions of Section 6.2, Sellers, jointly and
severally, will indemnify and hold harmless Buyer and the other Indemnified
Persons for, and will pay to Buyer, the Company, and the other Indemnified
Persons the amount of, any Damages (including costs of cleanup, containment, or
other remediation) arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of
or relating to: (i) (A) the ownership, operation, or condition at any time on or
prior to the Effective Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers or the Company has or had an interest, or (B) any Hazardous Materials or
other contaminants that were present on the Facilities or such other
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properties and assets at any time on or prior to the Effective Date; or (ii) (A)
any Hazardous Materials or other contaminants, wherever located, that were, or
were allegedly, generated, transported, stored, treated, Released, or otherwise
handled by Sellers or the Company or by any other Person for whose conduct they
are or may be held responsible at any time on or prior to the Effective Date, or
(B) any Hazardous Activities that were, or were allegedly, conducted by Sellers
or the Company or by any other Person for whose conduct they are or may be held
responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of Sellers or the
Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Company prior to the Effective Date, or from Hazardous Material
that was (i) present or suspected to be present on or before the Effective Date
on or at the Facilities (or present or suspected to be present on any other
property, if such Hazardous Material emanated or allegedly emanated from any of
the Facilities and was present or suspected to be present on any of the
Facilities on or prior to the Effective Date) or (ii) Released or allegedly
Released by Sellers or the Company or any other Person for whose conduct they
are or may be held responsible, at any time on or prior to the Effective Date.
Buyer will be entitled to control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect
to which indemnity may be sought under this Section 6.3, provided that Buyer
must first notify and consult with Sellers regarding any Cleanup and related
Proceedings. The procedure described in Section 6.8 will apply to any claim
solely for monetary damages relating to a matter covered by this Section 6.3.
6.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify
and hold harmless Sellers, and will pay to Sellers the amount of any Damages
arising, directly or indirectly, from or in connection with (a) any Breach of
any representation or warranty made by Buyer in this Agreement or in any
certificate delivered by Buyer pursuant to this Agreement, (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the transactions contemplated hereby.
6.5 TIME LIMITATIONS. Sellers will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with on or before the Effective Date,
other than those in Sections 3.3, 3.6, 3.11, 3.13, 3.23 and 3.30, unless within
18 months following the Effective Date Buyer notifies Sellers of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Sections 3.3, 3.6, 3.11, 3.13, 3.23
or 3.30 or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with on or before the Effective Date
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(including claims for indemnification under clauses (f) through (h) of Section
6.2 and including claims for indemnification under Section 6.12), may be made at
any time. Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied on or before the Effective Date, unless within 18 months
following the Effective Date Sellers notify Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Sellers.
6.6 BASKET LIMITATION AND CAP.
(a) Sellers will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a), clause (b),
clause (c), clause (d) or clause (e) of Section 6.2 until the total of all
Damages with respect to such matters exceeds Two Hundred and Fifty Thousand
Dollars ($250,000.00) (the "Basket"), and then only for the amount by which such
Damages exceed One Hundred Thousand Dollars ($100,000.00). Sellers will have
liability with respect to the matters described in clause (f), clause (g), and
clause (h) of Section 6.2 without benefit of the Basket or other threshold as to
the amount thereof.
(b) Each Seller shall have liability for his Breach of an Employment
Related Agreement, if any, executed by such Seller pursuant solely to the terms
of such Employment Related Agreements to which a Seller is a party, and no
Breach of any such Employment Related Agreements shall be deemed a Breach of
this Agreement. The liability of a Seller under the Employment Related
Agreements, if any, executed by such Seller, in each case as subject to the
provisions of Section 6.6(d), shall be several only and not joint and several.
(c) Except as provided below, the liability of each Seller with
respect to the matters described in Section 6.2 shall in no event exceed such
Seller's share of the Purchase Price, it being the intent of the parties that
the aggregate liability of all Sellers with regard to such matters shall not
exceed 74.5059% of the Purchase Price, or Twenty-Eight Million Three Hundred
Twelve Thousand Two Hundred Forty-Two Dollars ($28,312,242.00) based on the
Purchase Price as of the Closing, subject to adjustment based on adjustments to
the Purchase Price. Any payment made by Sellers to Buyer pursuant to this
Section 6 shall be deemed a reduction in the Purchase Price and shall not be
deemed to be an item of income or expense, and all parties hereto agree to
prepare their tax returns consistent therewith to the extent consistent with IRS
regulations and other applicable Legal Requirements effective at that time.
Notwithstanding anything contained in this Section 6.6 to the contrary, the
limitations on liability contained in this Section 6.6(c) (i) shall not be
effective with regard to any willful misrepresentation herein, and (ii) are for
purposes of this Agreement only, and do not apply to the Employment Related
Agreements (any limitations of liability with respect to the Employment Related
Agreements being addressed only in such agreements). Sellers' acknowledge that
Section 7 of the Employment Agreement contains a liquidated damages provision
and that such provision is reasonable in that (x) the services of the employee
pursuant to the terms of the Employment Agreement are necessary to the success
of the Company and constitute part of the inducement of Buyer to purchase the
Shares hereunder, (y) the Company would suffer significant and irreparable
damage in the event the employee terminated his employment in the circumstances
described in Section 7 of the Employment Agreement, and (z) to the extent such a
termination may give rise to injury to the Company that may not be adequately
compensated by damages, such damages are difficult or impossible to calculate,
and
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Sellers' agree that a voluntary termination in the circumstances described in
Section 7 of the Employment Agreement shall constitute a breach of this
Agreement, but solely with respect to such liquidated damages provision and for
no other purpose.
(d) Nothing in Sections 6.6(b) or 6.6(c) of this Agreement shall be
construed in any way to limit the right of Buyer to make a claim against, and
seek indemnity from, the Escrow Fund, as defined in the Escrow Agreement, for
the full amount of any Damages sustained by the Buyer and to which Buyer is
entitled pursuant to this Article 6 to the extent that the Escrow Fund is
sufficient to satisfy Buyer's claim. To the extent that Buyer has a claim for
Damages in excess of the Escrow Fund, the provisions of Section 6.6(b) and
Section 6.6(c) shall apply. In computing the maximum amount of Damages payable
by any Seller pursuant to Section 6.6(c), any payments from the Escrow Fund
shall be deemed to have been paid proportionately by Sellers, based on their
respective ownership of the Shares. Buyer shall be entitled to make a claim
against, and seek payment from, the Escrow Fund for the full amount of any
Damages sustained by Buyer in connection with any Breach of an Employment
Related Agreement to which a Seller is party up to the full amount of the Escrow
Fund.
6.7 BASKET LIMITATION FOR BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) (except for payment of the Purchase Price and the release of the
Escrow Funds) of Section 6.4 until the total of all Damages with respect to such
matters exceeds Two Hundred and Fifty Thousand Dollars ($250,000.00), and then
only for the amount by which such Damages exceed One Hundred Thousand Dollars
($100,000.00). Buyer will have liability with respect to matters described in
clause (c) of Section 6.4 without threshold as to the amount thereof.
6.8 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section
6.2, 6.4, or (to the extent provided in the last sentence of Section 6.3)
Section 6.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party pursuant to this Section 6.8, except to the extent that the indemnifying
party demonstrates that the defense of' such action is prejudiced by the
indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 6.8(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes, be entitled to participate in such Proceeding and, to the
extent that it wishes (unless (x) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (y) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
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liable to the indemnified party under this Section 6 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent, which consent shall not be
unreasonably withheld, conditioned or delayed, unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding for which the indemnifying party is responsible
to indemnify the indemnified party and the indemnifying party does not, within
ten days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party. If a court of
competent jurisdiction, Governmental Body, or other authorized mediators,
arbitrators or Persons, determines in favor of the indemnified party in any
Proceedings for which indemnification is sought by the indemnified party, the
indemnifying party shall be responsible for all costs and expenses, including
reasonable attorneys fees and costs of investigation, incurred by the
indemnified party in connection with such Proceeding. In such event, the
indemnifying party shall reimburse the indemnified party for such amounts
immediately upon the receipt of notification from the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right, at the indemnifying party's cost and expense, to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent, which may not be unreasonably
withheld. Subject to this Section 6.8(c), if a court of competent jurisdiction,
Governmental Body, or other authorized mediators, arbitrators or Persons,
determines in favor of the indemnified party in any Proceedings for which
indemnification is sought by the indemnified party, the indemnifying party shall
be responsible for all costs and expenses, including reasonable attorneys fees
and costs of investigation, incurred by the indemnified party in connection with
such Proceeding. In such event, the indemnifying party shall reimburse the
indemnified party for such amounts immediately upon the receipt of notification
from the indemnified party.
(d) Each Seller hereby consents to the non-exclusive jurisdiction of
any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the
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matters alleged therein, and agree that process may be served on Sellers with
respect to such a claim anywhere in the world.
6.9 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
6.10 NOTICE TO SELLERS. Any notice to all Sellers pursuant to this Section
6 shall be sent to the attention of the Sellers' Representative, and notice sent
to the Sellers' Representative shall be deemed sufficient notice to all Sellers
under this Section 6.
6.11 ESCROW. Buyer may assert a claim for indemnification under the Escrow
Agreement by notice to Sellers' Representative and the Escrow Agent specifying
in reasonable detail the basis for such claim to the extent then known by Buyer
and the amount to which Buyer is entitled under this Section 6, all as more
fully provided in the Escrow Agreement. Except as provided in Section 6.6(d),
Buyer is authorized to recover from the funds in escrow the entire amount of, or
any portion of, any claim against any Seller without regard to the amount
contributed or deemed to be contributed by such Seller. Sellers will settle
among themselves any right to contribution or indemnity with regard to amounts
paid to Buyer from the escrowed funds. Subject to the provisions of Section
6.6(c), neither the giving of notice of a claim under the Escrow Agreement nor
the failure to give such notice will constitute an election of remedies or limit
Buyer in any manner in the enforcement of any other remedies that may be
available to it.
6.12 TAX INDEMNIFICATION; TAX BENEFIT.
(a) Indemnification for Direct Taxes. Notwithstanding any other
provision contained in the Agreement to the contrary and notwithstanding the
Basket applicable to breaches of representations and warranties under Section
6.2(a) pursuant to Section 6.6(a), and except with respect to the
representations and warranties in Section 3.11(c) and Section 3.11(g), which
representations and warranties shall be subject to the indemnification
obligations hereunder and shall be subject to the Basket, the Sellers, jointly
and severally, shall indemnify the EDO Group (as defined below), Buyer and the
Company (each an "Indemnified Person") for, and shall defend and hold each such
Indemnified Person harmless from, the full amount of any Taxes assessed against
or collected from each such Indemnified Person and any other Adverse
Consequences arising therefrom for all taxable periods ending on or before the
Closing Date, and the portion through the end of the Closing Date for any
taxable period that includes (but does not end on) the Closing Date including,
without limiting the generality of the foregoing:
(i) Taxes assessed or collected (1) as a result of Company's
failure to properly make a valid S corporation election or to maintain
eligibility for S corporation status within the meaning of IRC Sections 1361 and
1362, (2) as a result of Company's failure to properly make a valid election to
be treated as an S corporation or achieve comparable pass-through tax treatment
under any state or local tax statute, or to maintain eligibility for such S
corporation or comparable pass-through tax treatment, (3) as a result of any
failure on the part of Seller described in Section 5.3, pertaining to the making
of a Section 338(h)(10) Election, (4) as
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a result of the Company's failure to pay, collect or withhold Taxes (each of
(1), (2), (3), and (4) a "Defective Election Event"), or
(ii) any and all Taxes of any person (other than the Company)
imposed on the Company as a transferee or successor, by contract or pursuant to
any law, rule, or regulation, which Taxes relate to an event or transaction
occurring before the Closing.
(b) Indemnification for other Tax Loss. If for purposes of any
Taxes, any Indemnified Person shall lose the benefit of, or shall not have, or
shall lose the right to claim, or shall suffer a deferral, reduction or
disallowance of, or shall be required to apply or recapture all or any portion
of any amount (including the loss of an increase in basis of any asset of the
Company as a direct result of a failure to be able to make an effective Section
338(h)(10) Election, other than such failure resulting from the acts or
omissions of Buyer or its agents) that could otherwise give rise to a deduction
or other reduction of tax ("Tax Attribute") were the Indemnified Person to have
income sufficient to use such Tax benefit at any time (any such loss, deferral,
reduction, disallowance, application or recapture hereinafter called a "Tax
Loss"), and such Tax Loss is suffered as a result of a Defective Election Event,
the Sellers, jointly and severally, shall be obligated to pay to the Indemnified
Person an amount in respect of such Tax Loss (an "Indemnity Payment") equal to
an amount which, on an After-Tax Basis, shall provide the Indemnified Person
with an amount equal to the excess of (A) all interest, penalties and additions
to tax incurred for federal, state and local income tax purposes (provided that,
in the case of penalties, the Indemnified Person takes reasonable steps to have
such penalties abated, as evidenced by a statement provided by the Indemnified
Person's accountants), over (B) the amount of all interest, penalties and
additions to tax that would have been incurred for federal, state and local
income tax purposes but for the loss of such Tax Attribute (in the case of a
reduction, the loss of the Tax Attribute shall be measured using the amount of
the reduction rather than the entire Tax Attribute), in each case assuming the
Indemnified Person is subject to the actual marginal combined federal, state and
local income tax rate applicable to such Indemnified Person for the year in
which the payment is received (as determined by the Indemnified Person's
accountant (such accountants being a nationally recognized accounting firm, and
such determination being conclusive). In the case of a deferral or a future
reduction or future disallowance of a Tax Attribute, the amount of any Tax Loss
shall be determined by subtracting from the loss of the Tax Attribute the future
benefit of such Tax Attribute, discounted to present value using the Applicable
Federal Rate in accordance with IRC Section 1274 and the Treasury Regulations
promulgated thereunder.
(c) Calculation and Payment. The amount of any Indemnity Payments
under this Section 6.12 shall be calculated by the Indemnified Person's
independent certified public accountants, who shall be a nationally recognized
accounting firm, and whose determination shall be final, binding and conclusive
on all parties, and will not be subject to or included within the basket
limitations set forth in Section 6.6 or the cap set forth in Section 6.6.
(d) Definitions.
(i) For purposes of Section 6.12(b), "After-Tax Basis" means, with
respect to any payment to be made to an Indemnified Person (the "After Tax
Payment"), the amount, which, after deducting from the After Tax Payment the
excess of the amount of all Taxes (net of any
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actual current credits, deductions or other Tax benefits arising from the
payment by the Indemnified Person of any amount, including Taxes, for which the
After Tax Payment to be received is made) which would be imposed on such
Indemnified Person with respect to the After Tax Payment if the After Tax
Payment was subject to the Indemnified Person's actual marginal combined
federal, state and local income tax rate for the year in which the After Tax
Payment is received (as determined in writing by the Indemnified Person's
accountant (such determination being conclusive)), is equal to the original
amount of indemnification to be provided.
(ii) "EDO Group" means EDO Corporation, all members of the
affiliated group of corporations (within the meaning of IRC Section 1504) of
which EDO Corporation is the parent, and their respective successors and
assigns.
7. GENERAL PROVISIONS.
7.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
agents, representatives, counsel, and accountants.
7.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines, provided
that Buyer shall not disclose to any third party, other than its legal,
accounting and other professional advisors, the amounts received by any of the
Sellers in connection with the transactions contemplated by this Agreement and
the related agreements, except as may be required by law or regulations. Sellers
and Buyer will consult with each other concerning the means by which the
Company's employees, customers, and suppliers and others having dealings with
the Company will be informed of the transactions contemplated hereby, and Buyer
will have the right to be present for any such communication. Notwithstanding
the foregoing, Buyer shall have the right to make such disclosure as it deems
necessary or advisable under the Federal securities laws, in which event Buyer
shall provide Seller with a copy of such disclosure.
7.3 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given (a) when delivered by hand (with written confirmation of receipt), (b)
when sent by telecopier (upon written confirmation of receipt by the recipient),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee (or on the date on which delivery is refused
if the addressee refuses delivery, or on the first date on which delivery is
attempted if delivery is otherwise not possible at the address provided for
notice), if sent by Express Mail or a nationally recognized overnight delivery
service which provides evidence of delivery, in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties);
provided, that any notice which is being given to all of the Sellers shall also
be sent to the attention of the Sellers' Representative, and provided further
that any notice sent to the Sellers' Representative pursuant to Section 6.10
shall be deemed notice to all Sellers:
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BUYER: EDO Professional Services Inc.
Attn: Secretary
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No: 000-000-0000
with a copy to: Xxxxx X. Xxxxxxxxx, Esq.
Day, Xxxxx & Xxxxxx LLP
Xxx Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
SELLERS' REPRESENTATIVE:
Attn: Xxxxxx X. Xxxxxx
00000 Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Facsimile No.:
with a copy to: Xxxxx X. Xxxxxxx, Esq.
Galland, Kharasch, Xxxxxxxxx, Xxxxxxx & Xxxxxxx, P.C.
Canal Square
0000 Xxxxxx-Xxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
OTHER SELLERS: As provided in Exhibit A.
7.4 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
7.5 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
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7.6 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by all of the parties to this Agreement.
7.7 SELLERS' REPRESENTATIVE. Each Seller irrevocably appoints Xxxxxx X.
Xxxxxx (the "Sellers' Representative") as his, her or its agent, proxy and
attorney-in-fact for all purposes under this Agreement, and each Seller
authorizes the Sellers' Representative to do any and all of the following for
the Seller and in the Seller's name and stead: (i) to execute, acknowledge, as
appropriate, and deliver to Buyer any certificate, document or agreement
referred to herein or contemplated hereby, including this Agreement, the Shares,
and the Seller's Closing Documents; (ii) to accept, receipt for and deposit any
funds or other amounts owing to the Seller hereunder; (iii) to represent,
negotiate on behalf of and bind the Seller in connection with the determination
of the Adjustment Amount, any negotiations or agreements with Buyer with respect
to the Adjustment Amount, and any presentation to or discussions with the
Accountants with respect thereto; (iv) to execute, acknowledge, as appropriate,
and deliver such modifications and amendments to this Agreement or Sellers'
Closing Documents as the Sellers' Representative shall deem advisable in his
discretion; and (v) to do any and all other acts and things in connection with
this Agreement as Sellers' Representative shall deem advisable in his
discretion. The agency created hereby shall be deemed irrevocable and coupled
with an interest; Buyer shall be entitled to rely upon the powers granted herein
with respect to any matter relating to this Agreement; and any question which
may arise concerning the power or authority of the Sellers' Representative to
act for each Seller shall be interpreted and construed in favor of the authority
of the Sellers' Representative.
7.8 DISCLOSURE LETTER.
(a) The disclosures in the Disclosure Letter, and those in any
supplement or attachment thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
7.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties except that Buyer may assign any of its rights under this
Agreement to any Related Person of Buyer and further except that any of the
Sellers may sell or assign his rights to receive payment hereunder (but may not
delegate or assign any obligations or liabilities hereunder) to another Seller
or to any entity created and controlled by such Seller for tax planning and
estate planning purposes. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
heirs, personal and legal representatives,
-49-
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their heirs, successors and permitted assigns.
7.10 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.12 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by the
laws of the State of New York, without regard to conflicts of laws principals.
Buyer and each Seller submit to the jurisdiction of any state or federal court
sitting in the State of New York in any action or proceeding arising out of or
relating to this Agreement and agree that all claims in respect of the action or
proceeding may be heard or determined in any such court. Buyer and each Seller
also agree not to bring any action or proceeding arising out of or relating to
this Agreement in any other court. Buyer and each Seller waive any defense of
inconvenient forum to the maintenance of any action or proceeding so brought.
Each Seller appoints the Sellers' Representative as his or her agent to receive
on his or her behalf service or copies of any Summons and Complaint and any
other process that might be served in such action or proceeding.
7.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
BUYER:
EDO Professional Services Inc.
By:
----------------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Vice President
SELLERS:
---------------------------------------------------
Xxxxxx X. Xxxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxxx
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A Sellers
Exhibit 2.4(a)(ii)(1) Sellers' Release
Exhibit 2.4(a)(ii)(2) Former Shareholders' Release
Exhibit 2.4(a)(iv)(1)-(2) Noncompetition Agreements
Exhibit 2.4(a)(v) Escrow Agreement
Exhibit 2.4(a)(vi) Opinion of Counsel for Sellers
Schedule 1 Key Personnel
Schedule 2 Officer Resignations
-52-
EXHIBIT A
SELLER'S NAME AND ADDRESS NUMBER AND TYPE OF SHARES SOLD
------------------------- ------------------------------
Xxxxxx X. Xxxxxx 154,227 shares of Class A Common Stock
11543 Gunner Court 36,986 shares of Class X Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxx 112,509 shares of Class A Common Stock
0000 Xxxxx 00xx Xxxxxx 27,644 shares of Class X Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx 112,517 shares of Class A Common Stock
0000 Xxxxxxxx Xxxx 28,502 shares of Class X Xxxxxx Xxxxx
Xxxxxx, XX 00000
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SCHEDULE 1
KEY PERSONNEL
Xxxxxx Xxxxxxx
Xxxx Xxxx Xxxxxxx
Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Tuoy Phounsambath
Xxxxx Xxxxxxx
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SCHEDULE 2
OFFICER RESIGNATIONS
Xxxxxx X. Xxxxxx - President
Xxxxxxx X. Xxxxx - Secretary
Xxxxxxx X. Xxxxxx -- Treasurer
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