AGREEMENT AND PLAN OF REORGANIZATION AMONG LOUNSBERRY HOLDINGS I, INC. CNS ACQUISITION CORP. COMPUTER NETWORKS & SOFTWARE, INC. AND CHRIS DHAS, CHRIS A. WARGO, AND JAMES G. DRAMBY
EXHIBIT
2.1
AMONG
XXXXXXXXXX
HOLDINGS I, INC.
CNS
ACQUISITION CORP.
COMPUTER
NETWORKS & SOFTWARE, INC.
AND
XXXXX
XXXX, XXXXX X. XXXXX, AND XXXXX X. XXXXXX
This
Agreement and Plan of Reorganization (the “Agreement”) dated as of the day of
January, 2006, by and among Xxxxxxxxxx Holdings I, Inc., a Delaware corporation
(“Parent”), CNS Acquisition Corp., a Virginia corporation and wholly-owned
subsidiary of Parent (“Acquisition Company”), and Computer Networks &
Software, Inc., a Virginia corporation (“CNS”), and Xxxxx Xxxx, Xxxxx X. Xxxxx,
and Xxxxx X. Xxxxxx, the sole stockholders of CNS (collectively, “Stockholders,”
and each, individually, a “Stockholder”), Parent, Acquisition Company, CNS and
Stockholders being referred to collectively as the “Parties” and each,
individually, as a “Party.”
RECITALS:
WHEREAS,
Stockholders own all of the issued and outstanding capital stock of CNS,
consisting of 100 shares of common stock, par value $.01 per share (“CNS
Stock”); and
WHEREAS,
pursuant to an agreement dated the date of this Agreement between Parent and
the
stockholders of Acquisition Company, Parent acquired all of the issued and
outstanding capital stock of Acquisition Company, as a result of which Parent
became the sole stockholder of Acquisition Company, owning 1,000 shares of
common stock, par value $.0001 per share, of Acquisition Company (“Acquisition
Company Stock”); and
WHEREAS,
Acquisition Company desires to merge with and into CNS, with the result that
CNS
will become a wholly-owned subsidiary of Parent, and Stockholders, as the
holders of all of the issued and outstanding capital stock of CNS, will receive
shares of common stock, par value $.0001 per share, of Parent (“Parent Stock”),
cash and contingent payments as hereinafter provided, such merger being referred
to as the “Merger”; and
WHEREAS,
Parent has agreed to issue the shares of Parent Stock contemplated by this
Agreement, on and subject to the terms of this Agreement; and
WHEREAS,
the boards of directors of Parent, Acquisition Company and CNS and the
stockholders of Acquisition Company and CNS deem it advisable and in the best
interests of such corporations and their respective stockholders that
Acquisition Company merge with and into CNS pursuant to this
Agreement;
NOW,
THEREFORE, for the mutual consideration set out herein, and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. The
Merger.
(a) At
the
Effective Time, as hereinafter defined, and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the Virginia
Stock
Corporation Act (the “Virginia Law”), Acquisition Company shall be merged with
and into CNS, the separate existence of Acquisition Company shall cease, and
CNS
shall continue as the surviving corporation of the Merger. CNS and Acquisition
Company are sometimes referred to as the “Constituent Corporations” and CNS as
the “Surviving Corporation.”
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(b) Unless
this Agreement is earlier terminated pursuant to Section 9 of this Agreement,
the closing and consummation of the Merger (the “Closing”) will take place as
promptly as practicable following satisfaction or waiver of the conditions
set
forth in Sections 6 and 7 of this Agreement, at the offices of Katsky Xxxxxx
LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 or such other place or time
is
agreed to by the Parties. The date upon which the Closing occurs is herein
referred to as the “Closing Date.”
(c) On
the
Closing Date, the Constituent Corporations shall cause the Merger to be
consummated by filing articles of merger in substantially the form attached
hereto as Exhibit A (the “Articles of Merger”) with the State Corporation
Commission of Virginia (the “Corporation Commission”), in accordance with the
relevant provisions of the Virginia Law. The Articles of Merger shall provide
that the Merger shall become effective upon issuance by the Corporation
Commission of a certificate of merger evidencing its approval of the Articles
of
Merger. The time at which the Merger becomes effective pursuant to this Section
1(c) is referred to as the “Effective Time” and the date on which the Effective
Time occurs is the “Effective Date.”
(d) At
the
Effective Time, the separate existence of Acquisition Company shall terminate
and the Surviving Corporation shall continue its corporate existence as a
Virginia corporation and (i) it shall thereupon and thereafter possess all
rights, privileges, powers, franchises and property (real, personal and mixed)
of each of the Constituent Corporations; (ii) all debts due to either of the
Constituent Corporations, on whatever account, all causes in action and all
other things belonging to either of the Constituent Corporations shall be taken
and deemed to be transferred to and shall be vested in the Surviving Corporation
by virtue of the Merger without further act or deed; and (iii) all rights of
creditors and all liens upon any property of any of the Constituent Corporations
shall be preserved unimpaired, limited in lien to the property affected by
such
liens immediately prior to the Effective Time, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to the Surviving
Corporation.
(e) At
the
Effective Time, the Articles of Incorporation and the By-laws of the Surviving
Corporation, as existing immediately prior to the Effective Time, shall be
and
remain the Articles of Incorporation and By-Laws of the Surviving
Corporation.
(f) At
the
Effective Time, the board of directors of the Surviving Corporation shall
consist of the individuals named as directors on Exhibit B to this Agreement,
such individuals to serve as directors until the next annual meeting of
stockholders and until their successors shall be elected and qualified, and
the
officers of the Surviving Corporation shall be the individuals named as officers
on said Exhibit B, to serve in such capacities at the discretion of the board
of
directors, subject to any rights they may have pursuant to employment agreements
with the Surviving Corporation.
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2. Consideration
to be Issued; Effect on Outstanding Stock of the Constituent
Corporations.
(a) Consideration
to be Issued.
Pursuant to the Merger, as of the Effective Time and without any action on
the
part of any Party:
(i) All
of the
outstanding shares of CNS capital stock outstanding immediately prior to the
Effective Time, all of which are and shall be owned by Stockholders, shall
be
canceled
and extinguished and will become and be automatically converted into the Initial
Payment, the Deferred Payment, Parent Securities and the Contingent Payment,
all
as hereinafter defined.
(ii) Cash
consideration (the “Cash Consideration”) of one million dollars ($1,000,000),
consisting of the Initial Payment and the Deferred Payment.
(iii) The
Initial
Payment shall be determined as follows:
(A) At
Closing, Parent shall deposit or cause to be deposited the sum of one million
dollars ($1,000,000), which escrow is referred to as the “Escrow Fund,” into an
escrow account maintained by Katsky Xxxxxx LLP, as escrow agent (the “Escrow
Agent”), to be held by the Escrow Agent pursuant to an escrow agreement (the
“Escrow Agreement”) in substantially the form of Exhibit C of this Agreement.
(B) The
Escrow Fund shall be disbursed as follows:
(I) First
to
pay United Bank the amount by which the total indebtedness and other obligations
of CNS to United Bank exceed the amount which CNS may borrow under its borrowing
formula, as shown on the Closing Schedule;
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(II) Second
to
pay Parent’s closing costs, as reflected on the Closing Schedule;
(III) The
balance (the “Initial Payment”), as reflected on the Closing Schedule, to the
Stockholders based on the percentages set forth in Exhibit E to this Agreement.
The Escrow Agreement shall provide that the Escrow Agent shall pay the Initial
Payment to the Stockholders within two business days after the Escrow Agent
shall have received the Certificate of Merger, certified by the Corporation
Commission, or other written evidence acceptable to the Escrow Agent that the
Merger has been approved by the Corporation Commission.
(C) The
Deferred Payment shall be the amount by which one million dollars ($1,000,000)
exceeds the Initial Payment, and shall be paid as follows:
(I) CNS
and
Stockholders shall provide Parent with a schedule of so-called unbilled
receivables, which represent bona fide services rendered to agencies of the
United States Government in anticipation of contracts which had not been
executed or delivered to CNS as of the Closing Date. All such unbilled
receivables reflect services that were rendered and for which compensation
had
been paid by CNS to the employees or consultants performing such
services.
(II) CNS
will
pay Stockholders, in the percentages set forth in Exhibit E, the collection
from
the unbilled receivables as follows:
a) An
initial payment equal to the amount of such collections received by CNS during
the thirty (30) days following the Closing Date (the “Initial Period”) shall be
paid forty five (45) days after the Effective Date.
b) A
second
payment equal to the amount of such collection received by CNS during the forty
five (45) day period immediately following completion of the Initial Period
shall be payable ninety (90) days after the Effective Date.
c) The
balance of the Deferred Payment shall be paid in twelve (12) equal payments
on
the fifteenth (15th)
day of
each month from May 15, 2006 until April 15, 2007.
(iv) At
the
Closing, Parent shall deliver to the Escrow Agent one million seventy five
thousand (1,075,000) shares (the “Parent Shares”) of Parent Stock and warrants
(the “Warrants,” and, together with the Parent Shares, the “Parent Securities”)
to purchase ten million (10,000,000) shares of Parent Stock at an exercise
price
of twenty cents ($.20) per share, and the Escrow Agent shall deliver the Parent
Securities to counsel for Stockholders as provided in Section 2(e)(ii) of this
Agreement.
(v) The
Contingent Payment shall be payable by CNS as provided in Section 2(b) of this
Agreement.
(vi) Pursuant
to
the “imputed interest” rules of Section 1274 of the Internal Revenue Code of
1986 (the “Code”), to the extent required thereby, a portion of the Deferred
Payment and each Contingent Payment shall be treated for all federal and state
income tax purposes as additional consideration for the CNS Stock exchanged
in
the Merger by the Stockholders and the remainder shall be treated as
interest.
(vii) All
of the
outstanding shares of Acquisition Company Stock issued and outstanding
immediately prior to the Effective Time, all of which are and shall be owned
by
Parent, shall be canceled and extinguished and will become and be converted
into
an aggregate of one thousand (1,000) shares (the “New CNS Shares”) of common
stock of CNS, representing all of the issued and outstanding shares of capital
stock of CNS.
(viii) Any
shares of
capital stock of CNS which are held as treasury shares shall be canceled and
extinguished.
(b) Contingent
Payment.
CNS
shall pay to Stockholders the Contingent Payment on and subject to the following
terms and conditions.
(i) The
earnings
of CNS before interest, taxes, depreciation and amortization (“EBITDA”) shall be
determined for each of the years ended December 31, 2006, 2007, 2008, 2009
and
2010 (the “Covered Years”) in accordance with generally accepted accounting
principles as reflected in Parent’s financial statements as filed with the
Securities and Exchange Commission (the “Commission”), except as
follows:
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(A) Any
expenses incurred by CNS solely as a result of Parent being a public corporation
shall not be treated as expenses of CNS for purposes of determining EBITDA.
Audit and other accounting expenses that relate to CNS’ financial statements and
the determination of EBITDA shall be treated as normal operating expenses of
CNS.
(B) Any
management or corporate overhead charges of Parent or its Affiliates (other
than
CNS) which are allocated to CNS shall not be treated as expenses in determining
EBITDA except to the extent that such charges relate directly to actual services
relating to CNS’ business.
(C) Any
payment of Contingent Payment shall not be deemed an expense and, to the extent
that it is deducted in determining CNS’ earnings, such payment shall be added
back in calculating EBITDA.
(ii) If
CNS’
EBITDA for a Covered Year is greater than the Target Amount, the Contingent
Payment for such year shall be equal to thirty five percent (35%) of the amount
by which CNS’ EBITDA for the Covered Year exceeds the Target Amount; provided,
however, that in no event shall the Contingent Payment exceed one million
dollars ($1,000,000) in the aggregate. The Target Amount shall be nine hundred
thousand dollars ($900,000). At such time as the total Contingent Payment shall
reach one million dollars ($1,000,000), no further Contingent Payment shall
be
made.
(iii) During
the
Covered Years, the business of CNS shall be operated in the normal course of
business as determined by CNS’ board of directors. Notwithstanding the
foregoing, without the consent of a majority of Stockholders, except as provided
in Section 2(b)(iv) of this Agreement, CNS shall not:
(A) merge
or
consolidate with or into any other corporation or other entity;
(B) incur
extraordinary expenses, liabilities or indebtedness which are of a kind that
are
not customary for companies in CNS’ business except to the extent that the board
of directors determines that such expenses, liabilities or indebtedness is
necessary or desirable in connection with the development or expansion of the
CNS’ business;
(C) dismiss
or change the duties of any Stockholder for any reason which is not permitted
under such Stockholder’s employment agreement; or
(D) sell,
lease, exchange or otherwise transfer or dispose of assets of CNS required
for
CNS’ business other than in the ordinary course of business.
(iv) Notwithstanding
the
provisions of Section 2(b)(iii) of this Agreement:
(A) Parent
may implement such policies or practices, including effecting a merger involving
CNS, if such policies or practices are determined in Parent’s reasonable
business judgment to be necessary to implement Parent’s business plan covering
Parent’s business as a whole.
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(B) If
Parent
takes actions, such as a merger, consolidation, transfer of assets to another
division where it cannot operate as a distinct profit center with at least
two
of the Stockholders having the management positions contemplated by their
employment agreements, CNS will agree that the Contingent Payments will be
paid
based on the assumption that the EBITDA for CNS will be such percentage of
the
EBITDA of the merged or combined entity that the revenue from the CNS clients
bears to the revenue of the combined entity. The CNS clients shall be those
clients who were clients of CNS at the time of the merger, consolidation or
transfer of assets and any additional clients generated from the efforts of
the
Stockholders and other employees of CNS at such time.
(C) If
Parent
sells CNS to a third party (including any sale or exchange of all or
substantially all of the capital stock or assets of CNS), the revenue from
such
sale allocable to such year (determined as if the sale took place on January
1
of such year), using a five-year straight-line amortization, shall be included
in income for the year of sale in determining EBITDA and the Contingent Payment
for such year, and no further Contingent Payment shall be made pursuant to
this
Agreement; provided, however, that the annual limitation on the amount of the
Contingent Payment shall not be applicable to such year.
(D) CNS’
EBITDA shall be determined in connection with the audit of Parent’s audited
financial statements. Within ten (10) business days after the results of the
audit of Parent’s consolidated financial statements for any Covered Year are
completed and accepted by Parent’s audit committee, Parent shall deliver to
Stockholders a statement signed by Parent’s independent accountant as to the
amount of the Contingent Payment for the Covered Year (the “Contingent Payment
Statement”), which statement shall provide, in reasonable detail, the basis for
the determination of the Contingent Payment together with such supporting
documentation as at least two Stockholders may reasonably request. The
Contingent Payment Statement shall be final, binding and conclusive on all
Parties, subject to the provisions of Section 2(b)(vi). The Contingent Payment
shall be paid within ten (10) days after the later to occur of (x) the date
that
at least two of the Stockholders accept the Contingent Payment Statement or
(y)
the date the Contingent Payment is determined pursuant to Section 2(c) of this
Agreement.
(v) Parent
acknowledges that Stockholders’ guarantee of CNS’ obligations to United Bank
will continue after the Effective Date. In the event that the Stockholders
are
required to make payment to United Bank on account of their guarantees, Parent
will guarantee CNS’ obligations to pay the Stockholders for any payments made by
Stockholders on their guarantees, including reasonable fees and expenses of
counsel. This obligation will terminate upon the discharge and release by United
Bank of the Stockholders’ obligations under their guarantee.
(vi) The
obligation of CNS to pay the Deferred Payments and the Contingent Payment to
Stockholders will be unconditionally guaranteed by Parent.
(vii) At
the
Closing Parent will execute and deliver its guarantee agreement in form and
content attached hereto as Exhibit D (the “Parent Payment Guarantee”) covering
Parent’s obligations pursuant to Section 2(b)(v) and Section 2(b)(vi) of this
Agreement.
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(c) Dispute
Resolution Procedure.
If at
least two of the Stockholders dispute the calculation of EBITDA for any Covered
Year, then the Stockholders disputing such calculation (a “Disputing
Stockholder”) shall notify CNS or Parent in writing of such dispute, setting
forth, in reasonable detail, the basis for such dispute (“Dispute Notice”)
within 30 days following delivery of the Contingent Payment Statement. If no
Dispute Notice is received prior to the expiration of such 30-day period, the
Contingent Payment Statement shall be final, conclusive and binding on the
parties hereto. During
the period of review of the Contingent Payment Statement and the period of
any
dispute under this Section 2(b)(vi), Parent and its independent public
accountants (the “Parent’s Auditors”) shall give the Stockholders and the
Stockholders’ accountants (the “Stockholder’s Accountants”) such access during
normal business hours to the books and records of CNS, including the working
papers of the Parent’s Auditors, as the Stockholders and the Stockholder’s
Accountants shall reasonably request in order to investigate or assert the
basis
for any such dispute. The
parties will have 30 days following the date of the Dispute Notice, or such
longer period as they may mutually agree upon, to resolve the dispute between
themselves. If the parties have not resolved such dispute within such period,
then the dispute shall be settled by binding arbitration by an accounting firm
mutually acceptable to the Stockholders and CNS; provided, that if the
Stockholders shall be unable to agree upon an accounting firm, the matter shall
be resolved by arbitration in New York City under the rules then obtaining
of
the American Arbitration Association; provided, however, that the arbitrator(s)
shall be an accountant familiar with accounting for companies reporting under
federal securities law and who shall be a member, partner, principal of or
hold
a similar position with, a firm which is a member of the PCAOB. The arbitrator
shall consider only matters of accounting and matters that are in dispute with
respect to the calculation of EBITDA for the Covered Year in question. The
fees
and expenses of Parent’s Auditors shall be paid by Parent, and the fees and
expenses of Stockholder’s Accountants shall be paid by the Disputing
Stockholders.
(d) Deliveries
into Escrow.
At or
prior to the Closing:
(i) Stockholders
shall deliver to the Escrow Agent, the stock certificates for all of the issued
and outstanding shares of CNS Stock (the “Outstanding CNS Stock”).
(ii) Parent
shall
deliver the Initial Payment to the Escrow Agent by wire transfer.
(iii) Parent
shall
deliver the Parent Securities to the Escrow Agent. The Parent Securities shall
be issued in the names of Stockholders as set forth in Exhibit E to this
Agreement.
(iv) Parent
shall
deliver to the Escrow Agent the certificates for the Acquisition Company
Stock.
(v) CNS
shall
deliver to the Escrow Agent a certificate for 1,000 New CNS Shares.
(vi) Parent
shall
deliver to the Escrow Agent the Parent Payment Guarantee.
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(vii) CNS
and the
Stockholders shall deliver to the Escrow Agent the executed Employment
Agreements, as hereinafter defined.
(viii) The
parties
shall delivery to the Escrow Agreement all of the Other Agreements, as
hereinafter defined.
(e) Deliveries
from Escrow.
Promptly after the Effective Time, upon receipt of the Certificate of Merger,
certified by the Corporation Commission or other written evidence acceptable
to
the Escrow Agent that the Merger has been approved by the Corporation
Commission, and written instructions from CNS and Parent (which written
instructions CNS and Parent agree to provide promptly after the Effective Time),
the Escrow Agent shall:
(i) Deliver
the
certificate for the New CNS Shares to Parent;
(ii) Deliver
to
CNS for cancellation the shares of Acquisition Company Stock and the shares
of
Outstanding CNS Stock.
(iii) Deliver
the
Initial Payment as provided in Section 2(a)(iii)(B) of this Agreement to (or
in
accordance with written instructions from) Stockholders in percentages set
forth
in Exhibit E to this Agreement.
(iv) Deliver
to
counsel for the Stockholders, on behalf of the Stockholders, the Parent Payment
Guarantee.
(v) Deliver
to
CNS and the Stockholders the executed Employment Agreements.
(vi) Deliver
the
certificates for the Parent Shares and the Warrants to counsel for the
Stockholders on behalf of the Stockholders.
(vii) the
Other
Agreements which are to delivered to such party in accordance with this
Agreement.
(f) Cancellation
of Shares.
CNS
shall cancel the shares of Acquisition Company Stock and the shares of
Outstanding CNS Stock.
(g) Allocation
Among Stockholders.
Exhibit
E to this Agreement sets forth with respect to each Stockholder:
(i) The
number of
shares of CNS Stock owned by such Stockholder.
(ii) The
percentage of Initial Payment, Deferred Payment and Contingent Payment payable
to such Stockholder;
(iii) The
number of
Parent Shares to be issued to such Stockholder.
(h) Allocation
of Consideration.
The
consideration issuable for all of the CNS Stock shall be allocated as follows:
Five percent (5%) of the Initial Payment and each Deferred Payment, as and
when
made, shall be allocated to the covenants set forth in Sections 5(c), 5(d)
and
5(e) (the “Covenants”) and the balance of the consideration, including the
Parent Securities and the Contingent Payments shall be allocated to the shares
of CNS Stock. Each Stockholder acknowledges that he has received significant
and
valuable consideration for agreeing to the Covenants, that the Covenants are
a
significant inducement to Parent to enter into this Agreement and consummate
the
Merger and that Parent would not have entered into this Agreement without the
Covenants.
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3. Representations
and Warranties of CNS and Stockholders.
CNS and
Stockholders, jointly and severally, hereby represent and warrant as follows
that, except as set forth in the schedules to this Agreement (the
“Schedules”):
(a) General.
(i) CNS
is a
corporation duly organized, validly existing and in good standing under the
laws
of the Commonwealth of Virginia, and is qualified to conduct business as a
foreign corporation in each state in which the nature of its business or the
properties owned or leased by it requires qualification, except where the
failure to qualify will not have a Material Adverse Effect. For purposes of
this
Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect (x) on the financial condition, results of
operations, properties, business or prospects of CNS or (y) on the ability
of
CNS to perform its obligations under this Agreement. CNS has no subsidiaries
and
it does not have any equity investment or other interest, direct or indirect,
in, or any outstanding loans, advances or guarantees to or on behalf of, any
domestic or foreign corporation, limited liability company, association,
partnership, joint venture or other entity.
(ii) CNS
has full
corporate power and authority to carry on its business and to own or lease
all
of its properties and assets as and in the places such business is now
conducted. The Schedule 3(a) identifies each state or other jurisdiction in
which CNS conducts business or owns or leases real property.
(iii) Complete
and
correct copies of the articles of incorporation of CNS, certified by the
Corporation Commission, and the by-laws of CNS, certified by the secretary
of
CNS (collectively, the “Organizational Documents”), and a list of the present
officers and directors of CNS, certified by the secretary of CNS, have been
delivered to Parent.
(iv) CNS
has only
one class of capital stock authorized and outstanding, namely the CNS Stock.,
and Stockholders are the sole holders of the CNS Stock.
(v) CNS
and each
Stockholder have full power and authority to carry out the transactions provided
for in this Agreement and the other agreements being executed by Stockholders
and CNS in connection with this Agreement (collectively, “Other Agreements”),
and this Agreement constitutes, and the Other Agreements, when executed and
delivered by Stockholders, will constitute. the legal, valid and binding
obligations of the CNS and Stockholders, as the case may be, enforceable in
accordance with their respective terms. All director and stockholder action
necessary for the execution by CNS of this Agreement and the consummation of
the
terms of this Agreement have been taken.
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(vi) Except
for
the approval of the Articles of Merger by the Corporation Commission and as
otherwise set forth in Schedule 3(a)(vi) to this Agreement, no consent, approval
or agreement of any Person, party, court, governmental authority, or entity
is
required to be obtained by Stockholders or CNS in connection with the execution
and performance by CNS and Stockholders of this Agreement or the execution
and
performance by Stockholders of any agreements, instruments or other obligations
entered into in connection with this Agreement. For purpose of this Agreement,
the term “Person” shall mean any individual, corporation, partnership, limited
liability company, trust, government or government agency or any other entity.
(vii) Except
as a
stockholder and executive officer of CNS, no Stockholder is engaged, directly
or
indirectly, in any business presently conducted or proposed to be conducted
by
CNS as of the date of this Agreement (the “Business”), whether conducted by such
Stockholder or otherwise.
(viii) Each
Stockholder owns the shares of CNS Stock set forth after his name on Exhibit
E
to this Agreement outright and free and clear of to any Claim. As used in this
Agreement, the term “Claim” shall mean any
security interests, liens, pledges, claims, charges, escrows, encumbrances,
options, rights of first refusal, mortgages, indentures, security agreements
or
other agreements, arrangements, contracts, commitments, understandings or
obligations, whether or not relating in any way to credit or the borrowing
of
money, and claim or right under community property or similar laws or any other
claim or right arising out of any marital relationship and whether or not in
writing.
(ix) The
outstanding shares of CNS Stock are duly and validly authorized and issued,
fully-paid and non-assessable. The outstanding shares of CNS Stock have not
been
issued in violation of so-called “preemptive rights” provisions, if any,
contained in the Virginia Law or in CNS’ Organizational Documents or any right
of first refusal held by any Person.
(b) Options;
Convertible Securities.
Neither
CNS nor any Stockholder is a party to any agreement or understanding pursuant
to
which any securities of any class are to be issued or created or transferred.
CNS has not acquired any shares of CNS Stock, and has no formal or informal
agreements or understandings pursuant to which it can or will acquire any shares
of CNS Stock. Neither CNS nor any Stockholder has any agreements, plans,
understandings or proposals, whether formal or informal or whether oral or
in
writing, pursuant to which it or he granted or may have issued or granted any
Person any Convertible Security or any interest in CNS or in CNS’ earnings or
profits, however defined. As used in this Agreement, the term “Convertible
Securities” shall mean any options, rights, warrants, convertible debt, equity
securities or other instrument or agreement upon the exercise or conversion
of
which or upon the exchange of which or pursuant to the terms of which additional
shares of any class of capital stock of CNS may be issued.
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(c) Financial
Statements.
(i) CNS
has
delivered to Parent
its audited financial statements for the years ended December 31, 2004 and
2003
(collectively, the “Audited Financial Statements”), and its unaudited financial
statements for the nine months ended September 30, 2005 and 2004 (the “Unaudited
Financial Statements,” and, together with the Audited Financial Statements, the
“Financial Statements”), including, in each case, a balance sheet and the
related statements of income, stockholders’ equity and cash flows for the period
then ended, together with the related notes. The Audited Financial Statements
have been certified by Xxxxxxx Xxxxxxx, CPA (the “Accountant”) and the Unaudited
Financial Statements have been reviewed by the Accountant. The Financial
Statements are in accordance with all books, records and accounts of CNS, are
true, correct and complete and have been prepared in accordance with generally
accepted accounting principles, consistently applied. The Accountant is
independent as to CNS under the rules of the Commission pursuant to the
Securities Act of 1933, as amended (the “Securities Act”). The Financial
Statements present fairly the financial position of CNS at the respective
balance sheet dates, and fairly present the results of CNS’ operations, changes
in stockholders’ equity and cash flows for the periods covered. The Unaudited
Financial Statements include all adjustments (which include only normal
recurring adjustments) necessary to present fairly the information for such
period.
(ii) At
the close
of business on December 31, 2004, CNS did not have any material liabilities,
absolute or contingent, of the type required to be reflected on balance sheets
prepared in accordance with generally accepted accounting principles which
are
not fully reflected, reserved against or disclosed on the December 31, 2004
Balance Sheet. Except as set forth in the Financial Statements and except for
any indebtedness to be paid and discharged at or prior to Closing as set forth
in Schedule 3(c)(ii) to this Agreement, CNS has not guaranteed or assumed or
incurred any obligation with respect to any debt or obligations of any Person,
except endorsements made in the ordinary course of business in connection with
the deposit of items for collection. Except set forth or noted in the Financial
Statements, and except for outstanding indebtedness to United Bank identified
in
Schedule 5(h), and except for matters disclosed in Schedule 3(d) and Schedule
3(q), CNS has no debts, contracts, guaranty, standby, indemnity or hold harmless
commitments, liabilities or obligations of any kind, character or description,
whether accrued, absolute, contingent or otherwise, or due or to become due
and
not heretofore paid or discharged or to be paid or discharged at
Closing.
(iii) Schedule
3(c)(iii) to this Agreement sets forth a true, correct and complete schedule
of
accounts receivables of CNS on an aging basis as of the business day prior
to
the date of this Agreement, together with a reserve for doubtful accounts with
respect to such accounts receivable. All of the accounts receivable on the
date
of this Agreement are, and all accounts receivable outstanding on the Closing
Date will be, valid and enforceable rights against the account debtor arising
from the bona fide performance of services in the normal course of business
and
are at standard rates and terms; provided, however shat said Schedule 3(c)(iii)
sets forth any accounts receivables that are not at standard rates and terms.
None of the accounts receivable are subject to any claim or right of offset
or
set-off. The reserve established by CNS for doubtful accounts receivable is
reasonable and consistent with past practice. Except as set forth in said
Schedule 3(c)(iii), (A) no account debtor has refused or threatened to refuse
to
pay any or all of its obligations to CNS for any reason, (B) to the Best
Knowledge of CNS or any Stockholder, no account debtor is insolvent or bankrupt,
and (C) no account receivable has been pledged to any third party. As used
in
this Agreement, the “Best Knowledge” of
any
Person shall mean and include (i) actual knowledge and (ii) that knowledge
which
a prudent businessperson would reasonably have obtained in the management of
such Person’s business affairs after making due inquiry and exercising the due
diligence which a prudent businessperson should have made or exercised, as
applicable, with respect thereto. Knowledge of any Stockholder, whether actual
or deemed, shall be treated as knowledge of CNS.
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(iv) CNS
does not
maintain any significant inventory, and CNS’ business does not consist, to any
significant extent, of the sale of products from inventory.
(d) Absence
of Changes.
Since
December 31, 2004, except as set forth in the Financial Statements or on
Schedule 3(d), Schedule 3(h)(ii), Schedule 3(i) and/or Schedule 3(p)(i) to
this
Agreement, there have not been:
(i) any
change in
the assets, liabilities, financial condition or operating results of CNS, except
changes in the ordinary course of business which do not and will not have a
Material Adverse Effect.
(ii) any
damage,
destruction, or loss, whether or not covered by insurance, materially and
adversely affecting the assets, financial condition, properties, operating
results or business of CNS (as conducted and as proposed to be
conducted);
(iii) any
change or
amendment to a material contract, charter document or arrangement by which
CNS
or any of its assets or properties is bound or subject;
(iv) any
loans
made by CNS to any of its Affiliates, employees, officers, directors,
stockholders or any affiliates of any of the foregoing, the term “Affiliate”
meaning, for purpose of this Agreement, any Person with respect to any entity,
any other Person that controls, is controlled by or is under common control
with
the specified Person or entity, but only so long as such control exists, and
the
term control meaning the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of an entity,
whether through ownership of voting securities, by contract or otherwise, and
a
director, general partner, manager or senior executive officer of a person
shall
be an Affiliate of such Person;
(v) any
declaration or payment of any dividend or other distribution or any redemption
of any capital stock of CNS;
(vi) any
sale,
transfer, or lease of any of CNS’ assets other than in the ordinary course of
business, including, but not limited to, any sale, assignment or transfer of
any
patents, trademarks, copyrights, trade secrets or other intangible
assets;
(vii) any
material
change in any compensation arrangement or agreement with any employee or
director;
(viii) any
other
event or condition of any character which might have a Material Adverse
Effect;
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(ix) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by CNS except in the ordinary course of business and that is not
material to the assets, properties, financial condition, operating results
of
business of CNS (as such business is presently conducted and as it is proposed
to be conducted); or
(x) any
agreement
or commitment by CNS to do any of the things described in this Section
3(d).
(e) Property.
(i) CNS
does not
own, and did not at any time since its organization own, any real property.
CNS
does not lease any real property except as disclosed on Schedule 3(e) to this
Agreement. All rental and other payments due under the leases have been duly
made, all acts required to be performed by CNS have been duly performed, and
CNS
enjoys the unrestricted quiet possession of the properties leased by CNS. To
Best Knowledge of CNS or any Stockholder, no improvement, fixture or equipment
in the properties, leased, used or occupied by CNS nor the leasehold or
occupation with respect thereto, is in violation of any Environmental, Health
and Safety Requirements or any zoning, building or other similar Laws, and
all
such premises and properties are zoned for the operation of the Business. As
used in this Agreement, the term “Environmental, Health and Safety Requirements”
shall mean shall
mean all federal, state, local and foreign statutes, regulations, ordinances
and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law obligations concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including without
limitation all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, medical waste,
noise or radiation, each as amended and as now or thereafter in effect.
References in this Agreement to Laws shall refer to any laws, rules or
regulations of any federal, state or local government or any governmental or
quasi-governmental agency, bureau, commission, instrumentality or judicial
body
(including, without limitation, any federal or state securities law, regulation,
rule or administrative order).
(ii) CNS
has good
and marketable title to all machinery, equipment, items of personal property
and
other tangible and intangible assets used by it in its business, free and clear
of any Claims of any nature whatsoever except as set forth in the Financial
Statements and except for leased or licensed assets set forth on Schedule
3(e)(ii) to this Agreement and Permitted Encumbrances. All of the assets
reflected as assets on the Financial Statements are owned by CNS, except to
the
extent any such assets are leased or licensed assets. All such leased or
licensed assets are leased by CNS pursuant to valid lease agreements which
are
listed in Schedule 3(e)(ii) to this Agreement. To the Best Knowledge of any
Stockholder or CNS, no event has occurred which, with the passage of time or
the
giving of notice by a third party would result in a default by CNS under any
such lease. Said Schedule 3(e)(ii) sets forth the term of each such lease,
the
rental payments, additional rentals and impositions due, renewal or purchase
options and other pertinent data.
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(iii) CNS’
leases,
contracts and licenses were made at arms’ length with Persons who are not
Affiliates of CNS, except as set forth in Schedule 3(e)(iii) to this Agreement.
All leases, contracts and licenses with affiliated Persons are identified on
said Schedule 3(e)(iii) are on terms which are no less favorable to CNS that
CNS
could obtain from a non-affiliated third party.
(iv) No
consent of
any lessor of real or personal property is required for the execution and
performance by CNS of its obligations pursuant to this Agreement, except as
may
be disclosed in Schedule 3(a)(vi) to this Agreement.
(v) CNS
has
delivered to Parent a true and correct lien search of CNS in all states and
counties in which any of CNS’ assets are located, as of a date not earlier than
September 30, 2005. None of CNS’ assets are subject to any encumbrances or other
Claims, except as disclosed in the Financial Statements or as set forth in
Schedule 3(e)(ii) or Schedule 3(e)(v) to this Agreement and except for Permitted
Encumbrances.
(vi) To
the Best
Knowledge of any Stockholder or CNS, CNS and each of its predecessors and
Affiliates have complied and are in compliance with all Environmental, Health
and Safety Requirements and neither CNS nor any of its predecessors and
Affiliates has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, released or dealt in any manner with any
hazardous materials, and never owned or leased any real property on which any
of
such activities were conducted. Neither CNS nor any of its predecessors or
Affiliates has, either expressly or by operation of law, assumed or undertaken
any liability, including, without limitation, any obligation with respect to
corrective or remedial action, on its own behalf or on behalf of any other
Person, relating to Environmental, Health and Safety Requirements. No facts,
events or conditions relating to the past or present facilities, properties
or
operations of CNS or any of its predecessors and Affiliates will prevent, hinder
or limit continued compliance with Environmental, Health and Safety
Requirements, give rise to any investigatory, remedial or corrective obligations
pursuant to Environmental, Health and Safety Requirements or give rise to other
Liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
pursuant to Environmental, Health and Safety Requirements.
(f) Litigation.
CNS is
not a party to any pending litigation or any governmental investigation or
proceeding, not reflected in the Financial Statements, and to the Best Knowledge
of CNS or any Stockholder, no litigation, claims, assessments or any
governmental actions or proceedings are threatened against CNS nor is there
any
basis therefor.
(g) Taxes.
Except
as set forth in Schedule 3(g) to this Agreement, CNS has filed all federal,
state, county and local income, excise, profits, franchise, property, sales,
use, occupancy, value-added and other tax returns, reports and forms required
by
law to be filed by it, such returns, reports and forms are true and correct,
all
taxes have been paid in a timely manner, and CNS has incurred no penalties
with
respect to any taxes. No delinquency exists with respect to payment of any
tax,
assessment or other governmental charge owing by CNS. There are no material
unresolved questions or claims concerning any tax liability of CNS. CNS has
not
waived or agreed to waive the statute of limitation with respect to any tax
matter. CNS has not received any notice that any of its tax returns or reports
are subject to audit by any taxing authority.
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(h) Contracts
and Commitments.
(i) Except
for
contracts set forth in Schedule 3(e)(ii), Schedule 3(e)(iii), Schedule 3(h)(i),
Schedule 3(h)(v), Schedule 3(h)(vii), Schedule 3(h)(x) and Schedule 3(p)(i)
to
this Agreement, there are no other contracts or agreements, whether written
or
oral and whether formal or informal to which CNS is a party. CNS has provided
to
Parent a complete copy of each contract to which CNS is a party and a complete
description of any oral contract, including any amendment or modification to
an
existing contract.
(ii) Schedule
3(h)(ii) to this Agreement sets forth a list of each client who, together with
its Affiliates, accounted for at least three percent (3%) of CNS’ revenues for
any of the years ended December 31, 2004 or 2003 or the nine months ended
September 30, 2005.
(iii) Except
as set
forth in Schedule 3(h)(i) of this Agreement, CNS has no outstanding contracts,
agreements or commitments (A) with its officers, employees, agents, consultants,
advisors, salesmen, sales representatives, distributors or dealers that are
not
cancelable by CNS on notice of not longer than thirty (30) days and without
liability, penalty or premium, or (B) relating to the borrowing or lending
of
money.
(iv) Schedule
3(h)(iv) to this Agreement identifies each employee benefit plan (a “Plan”), as
that term is defined in Section 3(3) of the
Employment Retirement Income Security Act of 1974, as amended (“ERISA”), bonus,
deferred compensation, profit sharing, stock purchase, stock option, or
retirement arrangement, whether legally binding or not, in which CNS
participates or to which or pursuant to which CNS has or may have financial
obligations. CNS and each of CNS’ ERISA Affiliates are in compliance in all
material respects with the terms of each Plan and each Plan complies in all
material respects with the applicable provisions of the Code and ERISA and
the
regulations and published interpretations thereunder. Within the times and
in
the manner prescribed by law, CNS has filed all returns (in-clud-ing, without
limitation, Forms 5500) required by law for all Plans maintained by CNS. No
Reportable Event, as defined in Section 4043(b) of ERISA or the regulations
thereunder for which the thirty (30) days’ notice requirement has not been
waived by the Pension Benefit Guaranty Corporation, has occurred with respect
to
any Plan administered by CNS or any administrator des-ig-nated by CNS or any
ERISA Affiliate. As of July 31, 2005, there is, and on the Closing Date there
will be, no unfunded liability under any Plan. Neither CNS nor any ERISA
Affiliate has engaged in any prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code, excluding any transactions
which are ex-empt under Section 408 of ERISA or Section 4975 of the Internal
Revenue Code) with respect to any Plan which CNS or any ERISA Affiliate
maintains, or to which CNS or any ERISA Affiliate contributes, which could
subject it or any such other Person to any material liability. There are no
material actions, suits or claims pending or, to the Best Knowledge of CNS
or
any Stockholder, any material actions, suits or claims which could reason-ably
be expected to be asserted, against any Plan maintained by CNS or any ERISA
Affiliate, the assets thereof, or against it in connection with any Plan. CNS
is
not a participant in or contributor to any multiemployer benefit plan, and
CNS
has no formal or informal agreement requiring contribution to, any multiemployer
benefit plan. CNS and each ERISA Affiliate have made all payments due with
respect to each Plan not later than the date such payments were due, and CNS
does not have any liability for any penalties or other assessments relating
to
the Plans or otherwise under ERISA. An ERISA Affiliate shall mean any
entity that is a member of a “controlled group of corporations” with, or is
under “common control” with, or is a member of the same “affiliated service
group” with CNS, as defined in Section 414(b), 414(c) or 414(m) of the
Code.
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(v) CNS
has made
no payments or commissions or provided any benefits to others in connection
with
any sales or proposed sales by CNS, except to employees of CNS or sales
representatives regularly engaged by CNS to promote the sale of its products
and
services. None of such employees or sales representatives is employed or engaged
as a consultant, advisor, purchasing representative, employee, officer, director
or otherwise, whether paid or unpaid, by any customer or client or proposed
customer or client or by any government or governmental agency or body of any
kind and description or by any other Person, firm or corporation or hold
political office or position (whether or not paid) with any government or
governmental agency or body or receive remuneration for services rendered from
any Person other than CNS.
(vi) Each
employee
of CNS has signed a non-disclosure in the form attached as Schedule 3(h)(vi)
to
this Agreement except as set forth in said Schedule 3(h)(vi).
(vii) CNS
has not
given any power of attorney to any Person for any purpose whatsoever nor has
CNS
designated any Person as an agent of CNS for any purpose
whatsoever.
(viii) CNS
is not
restricted by any agreement from carrying on its business anywhere in the
world.
(ix) Schedule
3(h)(ix) and, with respect to any Plan, Schedule 3(h)(iv), to this Agreement
set
forth a list of all insurance policies and bonds in force with respect to CNS
and CNS’ business, property, and assets, copies of which have previously been
delivered to Parent; and to the Best Knowledge of any Stockholder or CNS, such
policies and bonds are maintained in such amounts and against such risks, as,
in
the reasonable judgment of CNS, is necessary to protect CNS’ assets and
properties.
(x) Schedule
3(h)(x) to this Agreement sets forth all political and charitable contributions
made by CNS or by Stockholder (on behalf of CNS or in connection with the
Business) since January 1, 2000.
(i) Material
Customers.
Schedule 3(i) identifies each material customer or client and sets forth the
revenue generated from such customer and its affiliates for the year ended
December 31, 2004 and the nine months ended September 30, 2005. A material
customer, for purposes of this Agreement is a customer or client which
represented at least one percent (1%) of CNS’ consolidated revenue for either of
the years ended December 31, 2004 or 2003 or the nine months ended September
30,
2005. Except as may be disclosed in Schedule 3(i) to this Agreement, no material
customer of CNS has canceled or otherwise terminated the services or, to the
Best Knowledge of any Stockholder or CNS, advised CNS in writing of its
intention to reduce the scope of services provided by CNS. None of the
agreements to which CNS is a party provide that a transaction such as the
transaction provided by this Agreement would result in a termination of the
agreement, and CNS has not been advised by any client that the transactions
contemplated by this Agreement will affect any agreements or the relationship
between CNS and any of its material clients.
-16-
(j) Compliance
with Laws.
CNS is
in full compliance with all Laws applicable to its business (including, without
limitation, with respect to zoning, building, wages, hours, hiring, firing,
promotion, equal opportunity, pension and other benefit, immigration,
nondiscrimination, warranties, advertising or sale of products, trade
regulations, anti-trust or control and foreign exchange or, to the Best
Knowledge of any Stockholder of CNS, Environmental, Health and Safety
Requirements). There are no licenses, permits and other governmental
authorizations (collectively, “permits”) required by CNS for the operation of
its business except as set forth is Schedule 3(j) to this Agreement, all of
which have been obtained by CNS and are in full force and effect, and CNS is
in
all material respects complying therewith. To the Best Knowledge or any
Stockholder or CNS, CNS has filed with the proper authorities all statements,
reports, information and forms required by all applicable laws. CNS has not
received written notice or informal advice concerning any revocation or
limitation of any permit and no such proceeding is pending, or, to the Best
Knowledge of any Stockholder or CNS, threatened. In the event that, on the
Closing Date, CNS shall not be in compliance with such laws, Parent may
terminate the Agreement at any time prior to Closing.
(k) No
Defaults.
(i) CNS
has
performed, in accordance with the terms thereof, all material obligations
required to be performed by it, and CNS is not in default, in any material
respect, under any agreement to which it is a party, except as set forth in
Schedule 3(k) to this Agreement. Each such agreement is a legal, valid and
binding obligation of CNS and, to the Best Knowledge of any Stockholder or
CNS,
the other parties thereto, enforceable in accordance with its terms. There
are
no material breaches or material defaults of or liabilities arising from any
breach or default of any provision of any agreement by any party thereto, which
would, to the Best Knowledge of any Stockholder or CNS, have a Material Adverse
Effect. No event has occurred which, with or without the lapse of time or giving
of notice, or both, would constitute such a breach or default thereof by CNS
or,
to the Best Knowledge of any Stockholder or CNS, any other party thereto or
would cause acceleration of any material obligation of any party
thereto.
(ii) CNS
is not in
violation of its Organizational Documents or any Law, judgment, injunction,
decree or order, applicable to it. The execution and delivery of this Agreement
by Stockholders and the consummation of the transactions contemplated by this
Agreement will not result in any such violation or a violation of CNS’
Organizational Documents or any applicable Law or be in conflict with,
constitute a default under, or result in a violation of, or give rise to any
right of termination, cancellation or acceleration under, any agreement to
which
CNS is a party or any order or governmental regulation applicable to CNS or
the
business or operations of CNS, except as disclosed in Schedule 3(a)(vi) to
this
Agreement. CNS is not a party to or bound by any agreement the performance
of
which by CNS or the breach of which by CNS would have or is likely to have
a
Material Adverse Effect.
(l) Intellectual
Property Rights.
-17-
(i) Schedule
3(l) to this Agreement sets forth a true and complete list of any existing
patents and patent applications, trademark registrations and applications,
service xxxx registrations and applications, copyright registrations and
applications, material unregistered trademarks, service marks, and copyrights,
and Internet domain names used by CNS or held for use in connection with the
business of CNS, together with all licenses related to the foregoing, whether
CNS is the licensee or licensor thereunder. Said Schedule 3(l) also list each
license to which CNS is a party, whether as licensor or licensee. In the normal
course of its business, CNS uses readily available software. CNS has sufficient
use licenses relating to such software to enable CNS to continue to use the
software in its present manner.
(ii) CNS
is the
sole and exclusive owner or valid licensee of all such patents, trademarks,
service marks, trade names, trade secrets, software and other intellectual
property, free and clear of all liens or encumbrances other than the rights
of
licensors under license agreements and, with respect to licensed intellectual
property, liens and encumbrances incurred by Persons other than CNS or
Stockholder and Permitted Encumbrances, as hereinafter defined. CNS has
sufficient use licenses relating to all such software to enable CNS to continue
to use the software in its present manner.
(iii) CNS
owns or
has the valid right to use all of the intellectual property used by it or held
for use by it in connection with its business. To the Best Knowledge of CNS
or
any Stockholder, there are no conflicts with or infringements of any
intellectual property owned by CNS by any third party. To the Best Knowledge
of
Company or any Stockholder, the conduct of the businesses of CNS as currently
conducted does not conflict with or infringe in any way on any proprietary
right
of any third party. There is no claim, suit, action or proceeding pending or,
to
the Best Knowledge of CNS or any Stockholder, threatened against CNS (i)
alleging any such conflict or infringement with any third party’s proprietary
rights or (ii) challenging the ownership, use, validity or enforceability of
the
intellectual property.
(iv) CNS
is not,
nor will it be as a result of the execution and delivery of this Agreement
or
the performance of its obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to intellectual
property.
(v) CNS
is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant
to,
any intellectual property, with respect to the use thereof or in connection
with
the conduct of its business or otherwise. CNS has not granted any licenses
or
manufacturing rights with respect to its business.
(vi) CNS
owns and
has the unrestricted right to use all trade secrets, including know-how,
inventions, software, designs, processes, and technical data required for or
incident to the development, manufacture, operation and sale of all products
and
services sold or proposed to be sold by CNS free and clear of any rights, liens
or claims of others including without limitation, all current and former
employees, consultants, officers, directors and stockholders of
CNS.
(vii) All
software
and other intellectual property developed by CNS for its clients was developed
by or licensed to CNS in a manner which permits such use, and none of the work
performed by CNS for its clients violates or infringes upon the intellectual
property rights of any third party.
-18-
(viii) Except
as may
be disclosed in Schedule 3(l), none of the trademarks or trade names of CNS
is
registered as a trademark with the United States Patent and Trademark Office
or
as a trade name or fictitious name with any state governmental agency. Neither
CNS nor any Stockholder makes any representation or warranty as to CNS’
exclusive ownership or right to use any trademark, service xxxx or trade name
of
CNS.
(m) Employee
Relations.
Except
as set forth on the Schedule 3(m) to this Agreement:
(i) There
is no
labor strike, dispute, corporate campaign, slowdown, stoppage or lockout
actually pending, or to the Best Knowledge of CNS or any Stockholder, threatened
against or affecting CNS and during the past five years there has not been
any
such action.
(ii) CNS
is
not a party to or bound by any collective bargaining or similar agreement with
any labor organization or work rules or practices agreed to with any labor
organization or employee association applicable to employees of
CNS.
(iii) No
labor
union has been certified by the National Labor Relations Board as bargaining
agent for any of the employees of CNS; no notice has been received from any
labor union stating that it has been designated as the bargaining agent for
any
of said employees; and no petition has been filed by any labor union requesting
an election to determine whether or not it is the exclusive bargaining agent
for
any of said employees.
(iv) None
of
the employees of CNS is represented by any labor organization and, to the
Knowledge of CNS, there have been no union organizing activities among the
employees of CNS within the past five years, nor does any question concerning
representation exist concerning such employees.
(v) CNS
has never
experienced any work stoppage or other labor difficulty.
(vi) A
true
and complete copy of each written personnel policy, rule and procedure
applicable to employees of CNS is included in Schedule 3(m) to this
Agreement.
(vii) CNS
is, and
has at all times been, in compliance, in all material respects, with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and is not engaged in any unfair labor practices, as defined in the
National Labor Relations Act or other applicable laws.
(viii) There
is
no unfair labor practice charge or complaint against CNS pending or, to the
Knowledge of CNS, threatened before the National Labor Relations Board or any
similar state or foreign agency.
-19-
(ix) There
is no
presently pending grievance arising out of any grievance procedure.
(x) To
the
Best Knowledge of CNS or any Stockholder, no charge with respect to or relating
to CNS is pending before the Equal Employment Opportunity Commission or any
other agency responsible for the prevention of unlawful employment
practices.
(xi) CNS
has not
received notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to CNS, and no such investigation
is
in progress.
(xii) There
are
no complaints, lawsuits or other proceedings pending or, to the Best Knowledge
of CNS or any Stockholder, threatened in any forum by or on behalf of any
present or former employee of CNS, any applicant for employment or classes
of
the foregoing alleging breach of any express or implied contract of employment,
any laws governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship.
(xiii) Schedule
3(m)(xiii) to this Agreement sets forth a true and complete list of (i) the
names and current salaries of all directors and elected and appointed officers
of CNS, and the family relationships, if any, among such persons, and (ii)
the
wage rates for non-salaried and non-executive salaried employees whose current
compensation is at annual rate of at least $50,000. Schedule 3(h)(v) to this
Agreement sets forth a true and complete list of all group insurance programs
in
effect for employees of CNS.
(xiv) CNS
is not in
default with respect to any of its obligations referred to in Section 3(m)(xiii)
of this Agreement. To the Best Knowledge of CNS and any Stockholder, no officer
or key employee has any plans to terminate employment with CNS as a result
of
the Merger or otherwise.
(n) Related
Party Transactions.
Except
as set forth in Schedule 3(e)(iii) and Schedule 3(n) to this Agreement, and
except for compensation to regular employees of CNS and the reimbursement of
expenses incurred on behalf of CNS in the ordinary course of business, no
current or former Affiliate of CNS is now, or has been since January 1, 2003,
(i) a party to a transaction or contract with CNS or (ii) the direct or indirect
owner of an interest in any Person which is a present or potential competitor,
supplier, customer or client of CNS (other than immaterial holdings in
publicly-traded entities), nor does any such Affiliate receive income from
any
source other than CNS which relates to the business of, and should properly
accrue to, CNS.
(o) Restricted
Nature of Parent Shares.
Each
Stockholder:
(i) is
an
accredited investor within the meaning of Rule 501 of the Commission pursuant
to
the Securities Act;
(ii) is
acquiring
the Parent Shares pursuant to this Agreement for investment and not with a
view
to the sale or distribution thereof;
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(iii) understands
that the Parent Shares constitute restricted securities within the meaning
of
Rule 144 of the Commission pursuant to the Securities Act and may not be sold
or
otherwise transferred except pursuant to an effective registration statement
or
an exemption from the registration requirements of the Securities
Act;
(iv) acknowledges
that Stockholders have no registration rights with respect to the Parent Shares
except as provided in Exhibit F to this Agreement;
(v) has
been
advised by counsel as to the meaning and implication of the acquisition of
restricted securities and the illiquid nature of the Parent Shares;
(vi) acknowledges
that the certificate or certificates for the Parent Shares will bear Parent’s
customary Securities Act restrictive legend; and
(vii) acknowledges
that he understands that an investment in the Parent Shares involves a high
degree of risk, that Parent is a shell company with no operations and no
substantial assets, and that there is no trading market for the Parent Stock
and
neither Parent nor Acquisition Company can give any assurance that there will
ever be any market for the Parent Shares.
(p) No
Broker.
(i) Neither
Stockholder nor CNS nor any of their respective agents or employees has employed
or engaged any broker or finder or incurred any liability for any brokerage
fees, commissions or finders’ fees in connection with the transactions
contemplated by this Agreement, except as set forth in Schedule 3(p)(i) to
this
Agreement. Said Schedule 3(p)(i) also sets forth the compensation payable to
such finder or broker. The broker identified in Schedule 3(p)(i) is referred
to
as “CNS’ Broker,” and all compensation payable to CNS’ Broker shall be paid by
Stockholders at the Closing or Stockholders shall have provided for payment
in a
manner which provides for a general release in favor of CNS, Acquisition Company
and Parent.
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(ii) Stockholders
shall jointly and severally indemnify and hold CNS, Parent, their respective
officers, directors and Affiliates harmless from and against any manner of
loss,
damage, liability or expense, including reasonable fees and expenses of counsel,
as a result of any fees or commissions due to any finder or broker for
compensation in connection with the transactions contemplated by this Agreement,
except for claims from brokers engaged by Parent, Acquisition Company and their
respective Affiliates.
(q) Potential
Conflict of Interest.
(i) No
Stockholder nor any officer or director of CNS owns or holds, directly or
indirectly, any interest in (excepting holdings solely for passive investment
purposes of securities of publicly held and traded entities constituting less
than 5% of the equity of any such entity), or is an officer, director, employee
or consultant of any Person that is, a competitor, lessor, lessee, customer
or
supplier of CNS or which conducts a business which develops or markets products
which are reasonably expected to compete with CNS’ business.
(ii) No
Stockholder nor any officer or director of CNS:
(A) owns
or
holds, directly or indirectly, in whole or in part, or has any interest in
any
intellectual property or other property and assets used by CNS or its
clients;
(B) has
any
claim, charge, action or cause of action against CNS, except for claims for
reasonable unreimbursed travel or entertainment expenses, accrued vacation
pay
or accrued benefits under any employee benefit plan existing on the date hereof,
and any claims for accrued compensation disclosed on Schedule 3(q) to this
Agreement;
(C) has
made,
on behalf of CNS, any payment or commitment to pay any commission, fee or other
amount to, or to purchase or obtain or otherwise contract to purchase or obtain
any goods or services from, any other Person of which any Stockholder or any
officer or director of CNS (or, to the Best Knowledge of CNS or any Stockholder,
a relative of any of the foregoing) is a partner or stockholder (except holdings
solely for passive investment purposes of securities of publicly held and traded
entities constituting less than 5% of the equity of any such entity);
or
(D) owes
any
money to CNS or
(E) has
any
material interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of CNS.
(r) Propriety
of Past Payments.
(i) No
unrecorded
fund or asset of CNS has been established for any purpose.
(ii) No
accumulation or use of corporate funds of CNS has been made without being
properly accounted for in the books and records of CNS.
(iii) No
payment
has been made by or on behalf of CNS with the understanding that any part of
such payment is to be used for any purpose other than that described in the
documents supporting such payment.
(iv) None
of CNS,
any director, officer, employee or agent of CNS or any other Person associated
with or acting for or on behalf of CNS has, directly or indirectly, made any
illegal 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:
(A) to
obtain
favorable treatment for Stockholder, CNS or any Affiliate of CNS in securing
business;
(B) to
pay
for favorable treatment for business secured for Stockholder, CNS or any
Affiliate of CNS;
-22-
(C) to
obtain
special concessions, or for special concessions already obtained, for or in
respect of Stockholder, CNS or any Affiliate of CNS, or
(D) otherwise
for the benefit of any Stockholder, CNS or any Affiliate of CNS in violation
of
any federal, state, local, municipal, foreign, international, multinational
or
other administra-tive order, constitution, law, ordinance, principle of common
law, regulation, statute, or treaty (including existing site plan approvals,
zoning or subdivision regulations or urban redevelopment plans relating to
real
property).
(v) Neither
CNS
nor any Stockholder, current director, officer, agent, employee or other Person
acting on behalf of CNS, has accepted or received any unlawful contribution,
payment, gift, kickback, expenditure or other item of value.
(s) Bank
Accounts.
Schedule 3(s) to this Agreement sets forth the names and locations of all banks,
trust companies, savings and loan associations, other financial institutions,
brokerage accounts, mutual funds or other institutions at which CNS maintains
safe deposit boxes, checking accounts, brokerage or mutual fund accounts or
other accounts of any nature and the names of all Persons authorized to draw
thereon, make withdrawals therefrom or have access thereto.
(t) Copies
of Documents.
The
copies of all insurance policies, agreements, other contracts and other
instruments listed in the Schedules and a summary of any of the foregoing which
are oral contracts have been delivered to, or made available for inspection
by,
Parent.
(u) No
Material Adverse Event.
There
is no fact which materially and adversely affects the business, operations
or
financial condition of CNS which has not been set forth in this Agreement or
in
the Schedules.
(v) Reliance
by Parent.
No
representation or warranty set forth in this Section 3 or in the Schedules
to
the Agreement contains or shall contain any untrue statement of a material
fact
or, when taken with all such representations, warranties, certificates and
other
materials so listed in the Schedules, omitted, omits or will omit to state
a
material fact necessary to make the statements contained herein and therein,
when taken together, not misleading, and Parent may rely on the representations
set forth in this Section 3 notwithstanding any investigation it may have made.
Notwithstanding the foregoing, Parent acknowledges that no representation or
warranty is made by Stockholders with respect to any projections made by CNS
or
Stockholders. The representations and warranties contained in this Section
3 are
the exclusive representations and warranties of Stockholders and CNS. Except
as
expressly provided in this Section 3, Parent and Acquisition Company acknowledge
and agree that Stockholders and CNS have not made, and Parent and Acquisition
Company have not relied upon, any representation or warranty.
4. Representations
and Warranties of Parent and Acquisition Company.
Parent
and Acquisition Company hereby, jointly and severally, represent and warrant
to
CNS and Stockholders as follows:
(a) Organization.
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(i) Each
of
Parent and Acquisition Company is a corporation, duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and has full power and authority to carry on its business as and where such
business is operated. Each of Parent and Acquisition Company has full power
to
carry out the transactions provided for in this Agreement. All necessary
corporate action required to be taken by Parent and Acquisition Company relating
to the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement has been duly and validly taken,
and
this Agreement constitutes the legal, valid and binding and enforceable
obligation of Parent or Acquisition Company.
(ii) The
execution
and performance of this Agreement will not constitute a breach of any agreement,
indenture, mortgage, license or other instrument or document to which Parent
or
Acquisition Company is a party or by which its assets and properties are bound,
and will not violate any judgment, decree, order, writ, rule, statute, or
regulation applicable to Parent, Acquisition Company or their respective
properties. The execution and performance of this Agreement will not violate
or
conflict with any provision of the Organizational Documents of Parent or
Acquisition Company. No approval or consent of, or notice to or filing with,
any
Person not a party to this Agreement or any governmental or quasi-governmental
agency, is necessary to authorize the execution or delivery of this Agreement
or
the consummation of any of the transactions contemplated herein by Parent or
Acquisition Company, as the case may be, other than filing required pursuant
to
the Securities Act or state securities laws and filings with the Corporation
Commission.
(iii) All
of the
Parent Shares have been authorized for issuance and, when issued pursuant to
this Agreement, will be duly issued, fully paid and non-assessable, and not
subject to any preemptive right or right of first refusal.
(iv) The
Warrants
have been authorized for issuance and constitute the valid, binding an
enforceable obligation of Parent, and the shares of Parent Stock, when issued
upon exercise of the Warrants, will be duly issued, fully paid and
non-assessable.
(v) The
authorized capital stock of Parent consists of 10,000,000 shares of preferred
stock, par value $.0001 per share, none of which have been issued or authorized
for issuance, and 90,000,000 shares of Parent Stock, of which 4,500,000 shares
will be outstanding upon completion of the Closing and 25,900,000 shares will
be
reserved for issuance as set forth on Schedule 4(a)(iv) to this Agreement.
Except as provided in or contemplated by this Agreement as set forth in said
Schedule 4(a)(iv), Parent has no outstanding or authorized warrants, options,
other rights to purchase or otherwise acquire capital stock or any other
securities of Parent, preemptive rights, rights of first refusal, registration
rights or related commitments of any nature.
(vi) The
authorized capital stock of Acquisition Company consists of 1,000 shares of
common stock, par value $.0001 per share, all of which are outstanding and
owned
by Parent. Acquisition Company was formed solely for the purpose of entering
into this Agreement and it has no significant assets, no liabilities and has
not
engaged in any business activities.
-24-
(vii) Copies
of
Parent’s and Acquisition Company’s respective certificate of incorporation and
by-laws, each as amended to date and certified by its Secretary or Assistant
Secretary within 30 days prior to the date hereof, are
attached hereto as Schedule 4(a)(vi) to this Agreement and are complete and
correct in all respects, are in full force and effect, and neither entity is
in
violation of any of the provisions of its Certificate of Incorporation or
By-laws.
(b) Parent
SEC Documents.
Parent
has previously made available to Stockholders all filings (collectively, the
“Parent SEC Documents”) made by Parent pursuant to the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). The Parent SEC Documents, as of their
respective dates, complied in all material respects with the requirements of
the
Exchange Act, and the rules and regulations of the Commission thereunder, are
available on the Commission’s XXXXX system and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements included in the Parent SEC Documents (the “Parent Financial
Statements”) present and reflect, in accordance with generally accepted
accounting principles, consistent applied, the financial condition of Parent
on
the balance sheet dates and the results of its operations, cash flows and
changes in stockholders’ equity for the periods then ended in accordance with
generally accepted accounting principles, consistently applied.
(c) No
Adverse Change.
Since
the date of Parent’s latest audited balance sheet included in the Parent SEC
Documents, there have not been any material adverse change in the financial
condition of Parent, although Stockholders recognize that Parent has continued
not to generate revenue and has continued to operate at a loss as a result
of
ongoing expenses, including expenses relating to this Agreement and the
consummation of the transactions contemplated hereby.
(d) No
Defaults.
Neither
Parent nor Acquisition Company is in violation of its Organizational Documents
or any judgment, decree, injunction or order, applicable to it. The execution
and delivery of this Agreement by Parent and Acquisition Company and the
consummation of the transactions contemplated by this Agreement and the Other
Agreements will not result in any such violation or a violation of Parent’s or
Acquisition Company’s Organizational Documents or any applicable
Law.
(e) Litigation.
There
are no material claims, actions, suits, proceedings, inquiries, labor disputes
or investigations (whether or not purportedly on behalf of Parent or Acquisition
Company) pending or, to Parent’s Best Knowledge, threatened against Parent or
Acquisition Company or any of its assets, at law or in equity or by or before
any governmental entity or in arbitration or mediation. No bankruptcy,
receivership or debtor relief proceedings are pending or, to the best of
Parent’s knowledge, threatened against Parent or Acquisition
Company.
(f) Taxes.
Parent
has filed all federal, state, county and local income, excise, property and
other tax, governmental and/or related returns, forms, or reports, which are
due
or required to be filed by it prior to the date hereof, except where the failure
to do so would have no material adverse impact on Parent, and has paid or made
adequate provision in the Parent Financial Statements for the payment of all
taxes, fees, or assessments which have or may become due pursuant to such
returns or pursuant to any assessments received. Parent is not delinquent or
obligated for any tax, penalty, interest, delinquency or charge. Except as
may
be disclosed in the Parent SEC Documents, there have not been during the past
three (3) years nor are there currently in progress any examinations, audits,
proceedings, notices, waivers, asserted deficiencies or disputed valuations
or
other claims against the Parent relating to taxes for any period or periods,
and
no notice of any claim for taxes, whether pend-ing or threatened, has been
received.
-25-
(g) No
Broker.
(i) Neither
Parent nor Acquisition Company nor any of their respective agents, Affiliates
or
employees has employed or engaged any broker or finder or incurred any liability
for any brokerage fees, commissions or finders’ fees in connection with the
transactions contemplated by this Agreement.
(ii) Parent
shall
indemnify and hold Stockholders harmless against any loss, damage, liability
or
expense, including reasonable fees and expenses of counsel, as a result of
any
brokerage fees, commissions or finders’ fees which are due as a result of the
consummation of the transaction contemplated by this Agreement, except for
claims from brokers engaged by CNS or any Stockholder.
(h) Reliance
by CNS and Stockholders.
No
representation or warranty set forth in this Section 4 contains or shall contain
any untrue statement of a material fact or, when taken with all such
representations, warranties, certificates and other materials omitted, omits
or
will omit to state a material fact necessary to make the statements contained
herein, when taken together, not misleading, and there is no fact which
materially and adversely affects the business, operations or financial condition
of Parent or Acquisition Company which has not been set forth in this Agreement
or in the Parent Financial Statements. Stockholders and CNS may rely on the
representations set forth in this Section 4 notwithstanding any investigation
they may have made.
5. Covenants
of the Parties.
(a) Access
to Records; Properties.
(i) During
the
period between the date of this Agreement and the Closing Date, CNS shall,
and
Stockholders shall cause CNS to, give Parent and its representatives, including
its independent accountants, counsel and representatives of potential investors,
full and prompt access to all of CNS’ premises and all of CNS’ books and
records, including, without limitation, copies of all filings with the
Department of Labor, the Internal Revenue Service and any other taxing
authority, customs and immigration authorities, applicable building and zoning
authorities; provided that such investigation shall not unreasonably interfere
with CNS’ business. In furtherance of the foregoing, Stockholders and CNS shall
provide Parent with such information concerning CNS and its business as Parent
may reasonably request in connection with the performance by Parent and
potential investors of their due diligence.
(ii) During
the
period between the date of this Agreement and the Closing Date, Parent shall
provide Stockholders with such information concerning Parent and its business
as
Stockholders may reasonably request in connection with the performance of their
due diligence.
-26-
(b) Operation
of Business Prior to Closing.
(i) Stockholders
and CNS agree that from the date of this Agreement to the Closing Date, without
Parent’s prior written consent, CNS will operate its business substantially as
it is presently operated and only in the ordinary course of business. CNS will
duly comply with all applicable laws as may be required on its part to effect
the transactions contemplated by this Agreement and in the conduct by CNS of
its
business and the operation and use of its properties and assets. CNS shall
promptly correct any violations of any zoning ordinances, building, fire or
other codes or Environmental, Health and Safety Requirement and shall take
any
action requested by CNS’ insurance carrier as necessary to enable CNS to obtain
or maintain its insurance at standard or, if available, preferential rates.
CNS
shall also correct any conditions which would or could, if known to the lessor
of any real property leased by CNS, give such lessor the right to either
increase the rent for the leased premises or terminate the lease. CNS and
Stockholders shall take such action as may be necessary to insure that the
representations and warranties set forth in Paragraph 3 of this Agreement are
true on the Closing Date with the same force and effect as if made on and as
of
such date. Without limiting the generality of the foregoing, neither any
Stockholder nor CNS will, without the prior written approval of
Parent:
(A) enter
into any agreements, purchase or sell any capital assets or enter into
agreements or commitments with respect to the purchase or sale of capital
equipment;
(B) incur
any
encumbrances or other Claims (whether consensual or involuntary) with respect
to
CNS’ assets other than Permitted Encumbrances;
(C) subject
any of CNS’ property or assets to any Claims; fail to obtain the consent of any
lessors and governmental entities whose consent is required for the consummation
of the transactions contemplated by this Agreement, except as provided in
Schedule 3(e) to this Agreement;
(D) make
any
charitable or political contribution;
(E) waive
any
right of material value;
(F) enter
into or assume any contract or liability, except in the ordinary course of
business consistent with past practices;
(G) cancel
or
permit to lapse any insurance policy or surety bond presently carried by
CNS,
(H) do
any
act or omit to do any act, or permit any act or omission to act, which will
or
could cause a material breach of any material contract, commitment or obligation
of CNS.
-27-
(ii) CNS
shall
take all action necessary in order that the conditions set forth in Section
6 of
this Agreement are met.
(iii) Neither
Parent nor Acquisition Company shall engage in any business activities that
are
not related to the negotiation and execution of this Agreement and the
transactions contemplated by this Agreement.
(c) Non-competition.
Each
Stockholder hereby covenants and agrees that, from the date of this Agreement
until four (4) years from the Effective Date, such Stockholder will not directly
or indirectly, without the prior consent of Parent, (i) engage in the Business
in the United States and, to the extent that CNS, Parent or one or more of
their
Affiliates is operating in countries outside of the United States, during such
period, those countries in which CNS, Parent and their Affiliates operate
(whether for profit or not for profit), whether as an officer, director,
consultant, stockholder, guarantor, principal, agent, member, operator,
proprietor, employee, advisor or in any other manner in the United States,
or
(ii) solicit any present or proposed client or customer of CNS, Parent or any
Affiliate of Parent or (iii) employ or engage any employee of CNS or Parent
or
any Affiliate of Parent until six months after such person ceased to be an
employee, (iv) make any disparaging statements concerning Parent, CNS or their
respective officers, directors, or employees, that could injure, impair or
damage the relationships between Parent or CNS, on the one hand, and any of
the
employees, customers or suppliers or other Persons with whom they conduct
business, or (v) aid or assist others with respect to any of the foregoing
provided, however, that nothing herein shall be construed to prohibit any
Stockholder from giving factual information required to be given pursuant to
legal process, subject to the provisions of Section 5(d)(ii) of this Agreement.
The parties hereto acknowledge and agree that this non-competition covenant
is
an integral part of this Agreement for which each Stockholder is receiving
adequate compensation, that Parent would not enter in this Agreement without
the
inclusion of the this Section 5(c) and Sections 5(d) and 5(e) of this Agreement
and that if any court of competent jurisdiction shall hold that the scope or
duration of the covenant not to compete set forth in this Section 5(c) is not
reasonable or otherwise enforceable, then the parties agree that such court
shall enforce the covenant to the greatest extent permitted under applicable
law. As used in this Section 5(c), a present client or customer shall mean
a
customer of CNS who is or was a customer or client of CNS at any time during
the
term of Stockholder’s employment with CNS and a prospective client or customer
shall mean any client or customer actively solicited by CNS at any time during
the one (1) year period ending on the date of the termination of Stockholder’s
employment with CNS. The provisions of this Section 5(c) shall terminate
immediately, automatically and permanently as to any Stockholder if CNS
terminates such Stockholder’s employment with CNS prior to the expiration of the
Term thereof, other than for Cause or by reason of such Stockholder’s death or
Disability (for which purpose, the terms “Term,” “Cause” and “Disability” will
have the respective definitions set forth in such Stockholder’s Employment
Agreement).
(d) Non-Disclosure
and Non-Disturbance.
(i) Each
Stockholder agrees that he will not at any time use or disclose to any Person
any Confidential Information relating to CNS, Parent or any Affiliate of Parent
or any client of CNS or Parent which provided Confidential Information to such
Stockholder; provided, however, that nothing in this Section 5(d) shall be
construed to prohibit a Stockholder or CNS from using or disclosing such
information if they can demonstrate that such information became public
knowledge other than by or as a result of disclosure by a Person not having
a
right to make such disclosure. “Confidential
Information” shall mean all information of a proprietary or confidential nature
relating to any Person, including, but not limited to, such Person’s trade
secrets or proprietary information, confidential know-how, and products,
processes, inventions and discoveries, whether or not patentable, and
information concerning such Person’s services, business, customer or client
lists, proposed services, marketing strategy, pricing policies and the
requirements of its clients and relationships with its lenders, suppliers,
licensors, licensees and others with which a Person has a business relationship.
Confidential Information will not, however, include any information that the
Stockholder can demonstrate (a) has become publicly known or ascertainable
other
than as a result of disclosure by a person not having a legal right to make
such
disclosure; (b) has been lawfully and properly received unsolicited by a
Stockholder after the termination of Stockholder’s employment with CNS from a
third party who either is not under any non-disclosure obligation or who
received the information directly or indirectly from a third party who was
not
subject to a non-disclosure obligation; or (c) has been approved for public
release by written authorization of Parent or any of its
Affiliates.
-28-
(ii) In
the event
that any Confidential Information is required to be produced by any Stockholder
pursuant to legal process, such Stockholder shall give Parent and CNS notice
of
such legal process within a reasonable time, but not later than ten (10)
business days prior to the date such disclosure is to be made, unless the
Stockholder has received less notice, in which event Stockholder shall
immediately notify Parent and CNS. Parent and CNS shall have the right to object
to any such disclosure, and if Parent or CNS objects (at Parent’s or CNS’ cost
and expense) in a timely manner so that the Stockholder is not subject to
penalties for failure to make such disclosure, the Stockholder shall not make
any disclosure until there has been a court determination on Parent’s or CNS’
objections. If disclosure is required by a court order, final beyond right
of
review, or if Parent and CNS do not object to the disclosure, the Stockholder
shall make disclosure only to the extent that disclosure is required by the
court order, and, in compliance with express directions from Parent or CNS,
the
Stockholder will
exercise reasonable efforts at Parent’s or CNS’ expense, to obtain reliable
assurance that confidential treatment will be accorded the Confidential
Information.
(iii) Each
Stockholder further agrees that he will take no action to induce or cause any
of
CNS’ present or prospective clients to cease engaging CNS or Parent or any
Affiliate of Parent to which Parent may transfer CNS’ business, as the case may
be, for its requirements for the type of service being rendered by CNS, Parent
and their respective Affiliates or to reduce the scope of services performed
by
such Persons.
(iv) Each
Stockholder will not make any disparaging statements concerning CNS, Parent,
their businesses, officers, directors and employees that could injure, impair,
damage or otherwise affect the relationship between CNS or Parent, on the one
hand, and any of CNS’ or Parent’s employees, suppliers, customers, clients or
any other person with which CNS or Parent has or may conduct business or
otherwise have a business relationship of any kind and description provided,
however, that nothing herein shall be construed to prohibit any Stockholder
from
giving factual information required to be given pursuant to legal process,
subject to the provisions of Section 5(d)(ii) of this Agreement.
-29-
(e) Negotiation
with Others; Disposition of Securities.
During
the period (the “Transition Period”) between the date of this Agreement and the
first to occur of the Effective Date or January 15, 2006, Stockholders and
CNS
shall deal exclusively with Parent regarding the sale of CNS Stock and/or the
assets of CNS or any acquisition of CNS, whether by way of merger, purchase
of
capital stock, purchase of assets or otherwise (a “Potential Transaction”) and,
without the prior consent of Parent, neither any Stockholder nor CNS shall,
directly or indirectly, (i) solicit, initiate discussions with or engage in
negotiations with any Person, regardless of which party initiated any of the
foregoing, (ii) provide information or documentation relating to CNS or its
Business, or (iii) enter into any agreement with any Person other than Parent
and Acquisition Company which relates directly or indirectly to a Potential
Transaction. If any Stockholder or CNS shall receive any unsolicited inquiry
relating to any of the foregoing, such Stockholder or CNS shall immediately
notify Parent. In furtherance of the foregoing, during the Transition Period,
neither any Stockholder nor CNS shall, without the prior written approval of
Parent, conduct any discussions, negotiations or consultations with respect
to,
or engage or permit anyone acting on behalf of any of them, from entering into
or conducting, or enter into any agreement, letter of intent or memorandum
of
understanding, whether written or oral, that relate, directly or indirectly
to
(A) any merger or business combinations, (B) any sale or purchase of assets
other than transactions in the normal course of business consistent with past
practice, (C) any sale or other issuance of any shares of any class of capital
stock of CNS, including the issuance of any securities convertible into any
class of capital stock, (D) any grant or issuance of any right or option to
acquire any assets or stock of CNS, (E) any loans, financing or borrowings
by
CNS or the grant of any security interest in any of the assets of CNS or in
the
stock of CNS, except that CNS may continue to borrow under its existing credit
facility as disclosed in the Financial Statements.
(f) Injunctive
Relief.
Each
Stockholder and CNS agrees that his or its violation or threatened violation
of
any of the provisions of Sections 5(c), (d) and (e) of this Agreement, shall
cause immediate and irreparable harm to Parent. In the event of any breach
or
threatened breach of said provisions, Stockholders and CNS consent to the entry
of preliminary and permanent injunctions by a court of competent jurisdiction
prohibiting such party from any violation or threatened violation of these
provisions and compelling Stockholders and CNS to comply with these provisions.
This Section 5(f) shall not affect or limit, and the injunctive relief provided
in this Section 5(f) shall be in addition to, any other remedies available
to
Parent at law or in equity.
(g) Obtain
Consents.
Stockholders and CNS shall obtain all necessary consents to the consummation
by
Stockholders and CNS of the transactions contemplated by this Agreement other
than consents that are not required by Acquisition Company, provided, however,
that Parent and Acquisition Company will be solely responsible, at their
expense, for any other filing or other requirements under applicable state
or
federal securities laws and regulations. CNS and Acquisition Company shall
jointly obtain the consent of the Corporation Commission to the
Merger.
(h) Payment
of Indebtedness to Bank.
Parent
shall pay or shall cause CNS to pay in full at Closing all outstanding principal
and accrued interest, if any, on the following indebtedness to United Bank,
all
at Parent’s sole cost and expense without any right of reimbursement,
contribution or setoff from the Stockholders or CNS, against a release by United
Bank of its liens and any other obligations of CNS to United Bank in form and
substance acceptable to the successor lender. The principal amount and accrued
interest on CNS’ obligations to United Bank under the line of credit, including
any overdraft, and term loan as of the date of this Agreement are set forth
on
Schedule 5(h) to this Agreement.
-30-
(i) Post-Closing
Funding.
Following the Closing, CNS and Parent shall develop a three-year forecast to
expand CNS’ baseline business based upon business plans and forecasts to be
developed by CNS and approved by Parent’s board of directors. Subject to the
review and approval of Parent’s board of directors, working capital up to
$750,000 will be allocated to support these business expansion
needs.
6. Conditions
to the Obligation of Parent and Acquisition Company to Close.
The
obligations of Parent and Acquisition Company to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions at or prior to Closing unless waived by Parent:
(a) Representations
and Warranties.
On the
Closing Date, the representations and warranties of CNS and Stockholders shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on such date, and Stockholders and CNS
shall have performed all of their respective obligations required to be
performed by them pursuant to this Agreement at or prior to the Closing Date,
and Parent shall have received the certificate of Stockholders and CNS to such
effect and as to matters set forth in Sections 6(b), 6(c) and 6(d) of this
Agreement.
(b) Consents.
CNS
shall have obtained the consent of every client, customer, client and other
Person whose consent is required for the consummation of the transactions
contemplated by this Agreement.
(c) No
Material Adverse Change.
No
Material Adverse Change in the business or financial condition of CNS shall
have
occurred or be threatened since the date of this Agreement, and no action,
suit
or proceedings shall be threatened or pending before any court or governmental
agency or authority or regulatory body seeking to restraint, prohibition or
the
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated by this Agreement or that, if
adversely decided, has or may have a material adverse effect on any of the
assets, properties, business, prospects, operations or condition (financial
or
otherwise) of CNS.
(d) Tax
and ERISA Payments.
All
federal, state and local withholding taxes due with respect to all payroll
periods ending prior to the Closing Date shall have been paid; all amounts
withheld from employees for contribution to any Plan shall have been paid to
the
trustees of such Plan, and evidence of such payments shall have been provided
to
Parent.
(e) Updated
Lien Searches.
Lien
searches on the assets of CNS shall have been conducted in the appropriate
jurisdictions no later than ten (10) days prior to the Closing Date, and such
searches shall reveal no liens or other Claims other than Permitted
Encumbrances. Permitted Encumbrances shall mean obligations under capital leases
listed on Schedule 6(e) of this Agreement, the security interest held by United
Bank and the rights of CNS’s landlord as disclosed on Schedule
3(e)(ii).
-31-
(f) Opinion
of Counsel.
Parent
and Acquisition Company shall have received the opinion of counsel to CNS and
Stockholders as to the matters set forth in Exhibit G to this
Agreement.
(g) Employment
Agreements.
CNS and
each Stockholder shall have entered into three-year employment agreements (the
“Employment Agreements”) in substantially the form of Exhibit H to this
Agreement.
(h) Articles
of Merger.
The
Articles of Merger shall have been executed by Acquisition Company and CNS
and
delivered for filing with the Corporation Commission.
(i) Escrow
Agreement and Deliveries.
Stockholders, Parent and the Escrow Agent shall have executed the Escrow
Agreement, and the Escrow Agent shall have made the deliveries contemplated
by
Section 2(d) of this Agreement.
(j) Board
of Directors and Officers of CNS.
The
board of directors of CNS shall be composed of the individuals named of Exhibit
B and the officers of CNS shall be the individuals named on said Exhibit B.
In
this connection, and Stockholders shall have delivered all resignations of
all
persons who are officers or directors CNS who are not listed in the positions
set forth on said Exhibit B.
(k) Key
Person Life Insurance.
CNS
shall have obtained key man life insurance on the lives of each of Xxxxx X.
Xxxxx and Xxxxx X. Xxxxxx for two hundred fifty thousand dollars ($250,000),
with CNS named as beneficiary and owner of the policies.
(l) Termination
of Stockholders’ Agreements.
All
stockholders and similar agreement to which CNS and any Stockholder is a party
shall have been terminated and no Stockholder shall have any rights or
obligations thereunder.
(m) Certified
Documents.
CNS
shall have delivered to Parent:
(i) The
articles
of incorporation of CNS, certified by the Corporation Commission.
(ii) A
certificate
issued by the Corporation Commission dated as of current date as to the good
standing of CNS in Virginia.
(iii) The
by-laws
of CNS, certified by the Secretary of CNS.
(iv) Resolutions
of the board of directors and stockholders of CNS approving this Agreement,
the
Merger and transactions contemplated by this Agreement.
(v) An
incumbency
certificate confirming the positions and signatures of the officers of
CNS.
-32-
(n) Other
Instruments.
CNS and
Stockholders shall have delivered such other documents as counsel for Parent
and
Acquisition Company may reasonably request.
7. Conditions
to the Obligation of Stockholders and CNS to Close.
The
obligations of Stockholder and CNS to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of the following conditions
at
or prior to the Closing, unless waived by Stockholders:
(a) Representations
and Warranties.
On the
Closing Date, the representations and warranties of Parent and Acquisition
Company shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if made on such date, and Parent
and Acquisition Company shall have performed all of their respective obligations
required to be performed by them pursuant to this Agreement at or prior to
the
Closing Date, and Stockholders and CNS shall have received the certificate
of
Parent to such effect and as to matters set forth in Sections 7(b) of this
Agreement.
(b) No
Material Adverse Change.
No
Material Adverse Change in the business or financial condition of Parent or
Acquisition Company shall have occurred or be threatened since the date of
this
Agreement, and no action, suit or proceedings shall be threatened or pending
before any court of governmental agency or authority or regulatory body seeking
to restraint, prohibition or the obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated by
this
Agreement or that, if adversely decided, has or may have a material adverse
effect on any of the assets, properties, business, prospects, operations or
condition (financial or otherwise) of Parent or Acquisition
Company.
(c) Escrow
Agreement and Deliveries.
Stockholders, Parent and the Escrow Agent shall have executed the Escrow
Agreement, and the Escrow Agent shall have made the deliveries contemplated
by
Section 2(e) of this Agreement.
(d) Completion
of Financings.
Parent
shall have completed the financings as set forth in Section 6(k) of this
Agreement.
(e) Opinion
of Counsel.
CNS and
Stockholders shall have received the opinion of counsel to Parent as to the
matters set forth in Exhibit I to this Agreement.
(f) Articles
of Merger.
The
Articles of Merger shall have been executed by Acquisition Company and CNS
and
delivered for filing with the Secretary of State of Virginia.
(g) Employment
Agreements.
CNS and
each Stockholder shall have entered into three-year employment agreements in
substantially the form of Exhibit H to this Agreement.
(h) Board
of Directors and Officers of CNS.
The
board of directors of CNS shall be composed of the individuals named of Exhibit
B and the officers of CNS shall be the individuals named on said Exhibit
B.
-33-
(i) Certified
Documents.
Parent
shall have delivered to CNS and Stockholders:
(i) The
certificate of incorporation of Parent, certified by the Secretary of State
of
Delaware.
(ii) The
articles
of incorporation of Acquisition Company, certified by the Corporation
Commission.
(iii) A
certificate
issued by the Secretary of State of Delaware dated as of current date as to
the
good standing of Parent in Delaware.
(iv) A
certificate
issued by the Corporation Commission dated as of current date as to the good
standing of Acquisition Company in Virginia.
(v) The
by-laws
of Parent and Acquisition Company, certified by the Secretary of Parent and
Acquisition Company, respectively.
(vi) Resolutions
of the board of directors of Parent approving this Agreement, the Merger and
transactions contemplated by this Agreement.
(vii) Resolutions
of the board of directors and stockholders of Acquisition Company approving
this
Agreement, the Merger and transactions contemplated by this
Agreement.
(viii) An
incumbency
certificate confirming the positions and signatures of the officers of Parent
and Acquisition Company.
(j) Other
Instruments.
Parent
shall have delivered such other documents as counsel for Stockholders and CNS
may reasonably request.
8. Indemnification.
(a) Indemnification
by Stockholders.
Stockholders shall jointly and severally indemnify, defend and hold harmless
Parent and its directors, officers, employees, Affiliates and their respective
heirs, executors, administrators, successors and assigns (collectively, the
“Parent Indemnified Parties”) from and against any manner of loss, liability,
damage or expense, including reasonable fees and expenses of counsel,
(collectively, “Indemnified Losses”) based upon, arising out of or otherwise in
respect of:
(i) Any
inaccuracy in or any breach of representation or warranty of CNS or Stockholders
contained in this Agreement or any certificates or schedules delivered by CNS
or
Stockholders pursuant hereto, except that the representation of Stockholders
that relate to themselves in Sections 3(a)(v), (vi) and (viii) shall be several
and not joint with each Stockholder representing as to himself; or
(ii) The
failure
by any Stockholder to comply with any covenant of such Stockholder set forth
in
this Agreement or any of the Other Agreements or in any instrument or
certificate delivered hereunder.
-34-
(b) Indemnification
by Parent.
Parent
shall indemnify, defend and hold harmless Stockholders from and against any
Indemnified Losses based upon, arising out of or otherwise in respect
of:
(i) Any
inaccuracy in or any breach of representation or warranty of Parent contained
in
this Agreement or any certificates or schedules delivered by Parent pursuant
hereto; or
(ii) The
failure
by Parent or Acquisition Company to comply with any covenant of Parent or
Acquisition Company set forth in this Agreement or any of the Other Agreements
or in any instrument or certificate delivered hereunder.
(c) Procedure
for Claims by Third Parties.
Promptly upon receipt by an indemnified party under Section 8(a) or 8(b) of
this
Agreement, of notice of the commencement of any action for which indemnification
is to be sought pursuant to said Section 8(a) or 8(b), such indemnified party
shall notify the indemnifying party in writing of the commencement thereof;
provided, that the failure to notify the indemnifying party shall relieve the
indemnifying party from liability under said Section 8(a) or 8(b) only to the
extent that the indemnifying party was prejudiced as a result thereof, but
will
not relieve it from any liability that it may have to any indemnified party
otherwise than under this Section 8. If any such action is brought against
any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and,
to
the extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof; provided, that if the defendants in any such
action include both the indemnified party and the indemnifying party and either
(i) the indemnifying party or parties agree, or (ii) representation of both
the
indemnifying party or parties and the indemnified party or parties by the same
counsel is, in the opinion of counsel to the indemnifying party, inappropriate
under applicable standards of professional conduct because of actual or
potential conflicting interests between them, then the indemnified party or
parties shall have the right to select separate counsel to assume such legal
defense and to otherwise participate in the defense of such action. The
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that the indemnifying party shall not
be
liable for the expenses of more than one separate counsel approved by all
indemnified parties in each jurisdiction), (ii) the indemnifying party shall
not
have employed counsel to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying
party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall an indemnifying party
be
liable under this Section 8 for any settlement, effected without its written
consent, which consent shall not be unreasonably withheld, of any claim or
action against an indemnified party.
(d) Procedure
for Other Claims.
Claims
for indemnity pursuant to this Section 8, other than those covered by Section
8(c) of this Agreement, shall be submitted in writing. Such notice shall specify
in reasonable detail the basis for such claim. In the event that the other
party
disputes the validity of the indemnity claim, such party shall give notice
to
such effect within fifteen (15) business days after the date of the indemnity
claim, and if such notice is not given prior to the expiration of such fifteen
(15) business day period, the indemnity claim shall be deemed to be accepted
and
the indemnifying party shall promptly make such payment. If the parties are
not
able to resolve the dispute within thirty (30) days after the date of the notice
disputing the validity of the indemnity claim, or such longer period as they
may
agree upon, the matter shall be submitted to binding arbitration in New York
City under the rules then obtaining of the American Arbitration Association.
The
decision of the arbitrator(s) shall be final, binding and conclusive on all
parties and may be entered in any court having jurisdiction. The arbitrator(s)
shall have no power or authority to modify or amend any provisions of this
Agreement. If either party prevails on substantially all of the issues in
dispute, the arbitrator(s) shall award costs and fees.
-35-
(e) Survival.
(i) The
representations and warranties of the parties shall survive the Closing and
the
consummation of the transactions contemplated by this Agreement for a period
(the “Survival Period”) of three (3) years after the Closing Date, except that,
with respect to any liability which may arise under any tax laws, labor or
pension (including ERISA) laws or regulations or Environmental, Health and
Safety Requirements, the Survival Period shall continue until six months after
the expiration of the applicable statute of limitations. If any claim for
indemnification is made prior to the expiration of the Survival Period, the
Survival Period shall continue with respect to such pending claims until the
claims shall have been resolved either by agreement or by a court order which
is
final beyond right of review or appeal.
(ii) The
covenants
and other agreements contained in Section 5 and this Section 8, other than
those
which, by their terms, do not survive the Closing, and any other provisions
of
this Agreement which by their terms relate to events which follow the Closing
shall survive the Closing until they are otherwise terminated, whether by their
terms or as a matter of law.
(iii) Parent
may,
but shall not be required to, set off any obligations of any Stockholder to
CNS
or Parent pursuant to this Section 8, to be offset against the Cash
Consideration, the Contingent Payments and any other cash payments due to any
Stockholder pursuant to this Agreement.
(f) Election
of Remedies.
Neither
the exercise of, nor the failure to exercise, a right of set-off or to give
notice of a claim under this Agreement will constitute an election of remedies
or limit Parent, CNS or any of the indemnified Person in any manner in the
enforcement of any other remedies that may be available to any of them, whether
at law or in equity.
(g) Limitation
on Liability.
(i) Neither
the
Parent Indemnified Parties nor Stockholders shall be entitled to indemnification
from Stockholders or Parent, as the case may be, under the provisions of this
Section 8 until such time as the Indemnified Losses subject to such
indemnification exceed twenty five thousand dollars ($25,000) in the aggregate,
at which time the Indemnified Losses shall be effective as to all amounts,
including the initial twenty five thousand dollars ($25,000). In no event,
except as provided in Section 8(g)(ii) of this Agreement, shall the aggregate
Indemnified Losses payable by Stockholders, jointly and/or severally, or Parent,
as the case may be, pursuant to this Section 8 exceed one million dollars
($1,000,000).
-36-
(ii) The
provisions of Section 8(g)(i) of this Agreement shall not apply to any
obligation of any party as a result of a breach of any of the covenants and
obligations set forth in this Agreement or the representations and warranties
set forth in Sections 3(a)(viii), 3(a)(ix), 3(p), 4(a)(iii), or 4(g)
(collectively, the “Unlimited Representations”). The liability and
indemnification of the parties with respect to the Unlimited Representations
(x)
shall be unlimited, (y) shall relate to all amounts due as a result of a breach
of the Unlimited Representations, and (z) any liability with respect to the
Unlimited Representations shall not be treated as an Indemnified Loss for
purposes of determining whether the one million dollar ($1,000,000) limitation
set forth in said Section 8(g)(i) has been reached.
9. Termination.
(a) Basis
For Termination.
This
Agreement may be terminated prior to the Closing Date:
(i) By
either
party if the Closing Date shall not have occurred by the last day of the
Transition Period, provided, however, that no party may terminate this Agreement
if such party is in breach of the representation and warranties of such party
or
such party is otherwise in breach or violation of its obligations under this
Agreement.
(ii) By
the
written agreement of the parties.
(iii) By
Parent in
the event that CNS or any Stockholder shall have breached its representations,
warranties, covenants and agreements in any material respect or failed to comply
in any material respect with their respective obligations pursuant to this
Agreement in any material respect, and such failure shall have continued for
more than twenty (20) days after notice thereof, in reasonable detail, shall
have been given by the party seeking to terminate this Agreement.
(iv) By
Stockholders, acting jointly, in the event that Parent or Acquisition Company
shall have breached their representations, warranties, covenants and agreements
in any material respect or failed to comply in any material respect with their
respective obligations pursuant to this Agreement in any material respect,
and
such failure shall have continued for more than twenty (20) days after notice
thereof, in reasonable detail, shall have been given by the party seeking to
terminate this Agreement.
(b) Effect
of Termination.
In the
event of a termination of this Agreement pursuant to this Section 9, no party
shall have any obligation to any other party except that the provisions of
Section 10(e) shall apply.
10. Miscellaneous.
-37-
(a) Entire
Agreement.
This
Agreement, including any Exhibits and the Schedules, which constitute integral
parts of this Agreement, constitutes the entire agreement of the parties,
superseding and terminating any and all prior or contemporaneous oral and
written agreements, understandings or letters of intent between or among the
parties with respect to the subject matter of this Agreement. No part of this
Agreement may be modified or amended, nor may any right be waived, except by
a
written instrument which expressly refers to this Agreement, states that it
is a
modification or amendment of this Agreement and is signed by the parties to
this
Agreement, or, in the case of waiver, by the party granting the waiver. No
course of conduct or dealing or trade usage or custom and no course of
performance shall be relied on or referred to by any party to contradict,
explain or supplement any provision of this Agreement, it being acknowledged
by
the parties to this Agreement that this Agreement is intended to be, and is,
the
complete and exclusive statement of the agreement with respect to its subject
matter. Any waiver shall be limited to the express terms thereof and shall
not
be construed as a waiver of any other provisions or the same provisions at
any
other time or under any other circumstances.
(b) Severability.
If any
section, term or provision of this Agreement shall to any extent be held or
determined to be invalid or unenforceable, the remaining sections, terms and
provisions shall nevertheless continue in full force and effect.
(c) Notices.
All
notices provided for in this Agreement shall be in writing signed by the party
giving such notice, and delivered personally or sent by overnight courier,
mail
or messenger against receipt thereof or sent by registered or certified mail,
return receipt requested, or by facsimile transmission or similar means of
communication if receipt is confirmed or if transmission of such notice is
confirmed by mail as provided in this Section 10(c). Notices shall be deemed
to
have been received on the date of personal delivery or telecopy or attempted
delivery. Notice shall be delivered to the parties at the following
addresses:
If
to CNS
or Stockholders:
Xxxxx
Xxxx
0000
Xxxxx Xxxxxxx Xxxxx
Xxxxx
X-000
Xxxxxxxxxxx,
XX 00000-0000
Facsimile:
703/644-2309
Xxxxx
X.
Xxxxx
0000
Xxxxx
Xxxxxxx Xxxxx
Xxxxx
X-000
Xxxxxxxxxxx,
XX 00000-0000
Facsimile:
703/644-2309
Xxxxx
X.
Xxxxxx
0000
Xxxxx Xxxxxxx Xxxxx
Xxxxx
X-000
Xxxxxxxxxxx,
XX 00000-0000
Facsimile:
703/644-2309
With
a
copy to:
Xxxxxxx
X. Xxxxx, Esq.
Davis,
Agnor, Rapaport & Skalny, LLC
00000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx,
XX 00000
Facsimile:
410/309-6161
-38-
If
to
Parent or Acquisition Company to:
Xx.
Xxxx
X. Xxxxxxxxx, CEO
00000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx
00000
Facsimile:
With
a
copy to:
Xxxxx
X.
Xxxxxxxx P.C.
Katsky
Xxxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Facsimile:
212/716-3338
Any
party
may, by like notice, change the address, person or telecopier number to which
notice shall be sent.
(d) Governing
Law.
This
Agreement shall be governed and construed in accordance with the laws of the
State of New York applicable to agreements executed and to be performed wholly
within such State, without regard to any principles of conflicts of law. Each
of
the parties hereby irrevocably consents and agrees that any legal or equitable
action or proceeding arising under or in connection with this Agreement shall
be
brought in the Federal or state courts located in the County of New York in
the
State of New York, by execution and delivery of this Agreement, irrevocably
submits to and accepts the jurisdiction of said courts, (iii) waives any defense
that such court is not a convenient forum, and (iv) consent to any service
of
process made either (x) in the manner set forth in Section 10(c) of this
Agreement (other than by telecopier), or (y) any other method of service
permitted by law.
(e) Waiver
of Jury Trial.
EACH
PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF ANY SUIT, ACTION
OR PROCEEDING TO ENFORCE THIS AGREEMENT OR ANY OTHER ACTION OR PROCEEDING WHICH
MAY ARISE
OUT OF
OR IN ANY WAY BE CONNECTED WITH THIS AGREEMENT OR ANY OF THE OTHER
DOCUMENTS.
(f) Parties
to Pay Own Expenses.
Each of
the parties to this Agreement shall be responsible and liable for its own
expenses incurred in connection with the preparation of this Agreement, the
consummation of the transactions contemplated by this Agreement and related
expenses. Any expenses incurred by CNS and Stockholders in connection with
this
Agreement and the transactions contemplated by this Agreement shall be paid
by
Stockholders, provided, however, that the parties acknowledge and agree that
the
cost of preparing the Financial Statements is and shall remain the sole cost
of
CNS, without any setoff against amounts due Stockholders hereunder.
Notwithstanding the foregoing, any taxes which are payable as a result of the
Merger and CNS’ resulting loss of its S Corporation status shall be paid by
Stockholders at the Closing, to the extent that such amount can be estimated
at
Closing. To the extent that the actual taxes are different from the amount
estimated at Closing, an appropriate adjustment shall be made within ten days
after a final determination has been made by CNS and Parent.
-39-
(g) Tax
Consequences.
Each
party to this Agreement is relying on his or its own tax advisors as to the
tax
consequences of this Agreement and the transactions contemplated by this
Agreement, and no party is making any representations or warranties of any
kind
as to such tax consequences to any other party.
(h) Successors.
This
Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, legal representatives, successors and assigns;
provided, however, that no Stockholder may assign this Agreement or any of
his
rights under this Agreement without the prior written consent of
Parent.
(i) Further
Assurances.
Each
party to this Agreement agrees, without cost or expense to any other party,
to
deliver or cause to be delivered such other documents and instruments as may
be
reasonably requested by any other party to this Agreement in order to carry
out
more fully the provisions of, and to consummate the transaction contemplated
by,
this Agreement.
(j) Counterparts.
This
Agreement may be executed simultaneously in two or more counterparts, each
of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument.
(k) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties with the advice of counsel to express their mutual intent, and no rules
of strict construction will be applied against any party.
(l) Headings.
The
headings in the Sections of this Agreement are inserted for convenience only
and
shall not constitute a part of this Agreement.
(m) Exhibits;
Schedules.
One
complete set of the Exhibits and Sections has been marked for identification
and
delivered by each of the parties to the other on or before the execution and
delivery of this Agreement. References in the Schedules to “Pubco” shall relate
to Parent.
[Signatures
on following page]
-40-
IN
WITNESS WHEREOF, the parties have executed this Agreement the day and year
first
above written.
XXXXXXXXXX
HOLDINGS I, INC.
By:____________________________________
Xxxx
X.
Xxxxxxxxx, President
CNS
ACQUISITION CORP.
By:____________________________________
Xxxx
X.
Xxxxxxxxx, President
COMPUTER
NETWORKS & SOFTWARE, INC.
By:____________________________________
Xxxxx
Xxxx, CEO
_______________________________________
Xxxxx
Xxxx
_______________________________________
Xxxxx
X.
Xxxxx
_______________________________________
Xxxxx
X.
Xxxxxx
-41-
List
of Exhibits
|
Exhibit
|
Description
|
Section
Reference
|
|
A
|
Articles
of Merger
|
1(c)
|
|
B
|
Names
of Directors and Officers of CNS
|
1(f),
6(l), 7(h)
|
|
C
|
Escrow
Agreement
|
2(a)(i)(A)
|
|
D
|
Parent
Payment Guarantee
|
2(b)(vi)
|
|
E
|
Information
Concerning Stockholders
|
2(d)(iii),
2(e)(i)(C), 2(g), 3(a)(viii)
|
|
F
|
Registration
Rights Provisions
|
3(o)(iv)
|
|
G
|
Opinion
of counsel to CNS and Stockholders
|
6(f)
|
|
H
|
Form
of Employment Agreement
|
6(g),
7(g)
|
|
I
|
Opinion
of counsel to Parent and Acquisition Company
|
7(e)
|
-42-
