STOCK PURCHASE AGREEMENT
AMONG
SCIENCE DYNAMICS CORPORATION
AND
SYSTEMS MANAGEMENT ENGINEERING, INC.
AND
THE SHAREHOLDERS OF SYSTEMS MANAGEMENT ENGINEERING, INC.
SET FORTH ON EXHIBIT A HERETO
Dated as of December 16, 2004
TABLE OF CONTENTS
Section Page
ARTICLE I SALE AND PURCHASE OF SHARES.............................................................................1
1.1 Sale and Purchase of Shares.............................................................................1
ARTICLE II PURCHASE PRICE AND PAYMENT.............................................................................1
2.1 Amount of Purchase Price; Payment of Purchase Price.....................................................1
ARTICLE III CLOSING AND TERMINATION...............................................................................3
3.1 Closing Date............................................................................................3
3.2 Termination of Agreement................................................................................3
3.3 Procedure Upon Termination..............................................................................3
3.4 Effect of Termination...................................................................................4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS..........................................................4
4.1 Organization and Good Standing..........................................................................4
4.2 Authorization of Agreement..............................................................................4
4.3 Capitalization..........................................................................................5
4.4 Subsidiaries............................................................................................5
4.5 Corporate Records.......................................................................................6
4.6 Conflicts; Consents of Third Parties....................................................................6
4.7 Ownership and Transfer of Shares........................................................................6
4.8 Financial Statements....................................................................................7
4.9 No Undisclosed Liabilities..............................................................................7
4.10 Absence of Certain Developments.........................................................................7
4.11 Taxes...................................................................................................9
4.12 Real Property..........................................................................................10
4.13 Tangible Personal Property.............................................................................10
4.14 Intangible Property....................................................................................11
4.15 Material Contracts.....................................................................................12
4.16 Employee Benefits......................................................................................12
4.17 Labor..................................................................................................13
4.18 Litigation.............................................................................................14
4.19 Compliance with Laws; Permits..........................................................................14
4.20 Environmental Matters..................................................................................14
4.21 Insurance..............................................................................................15
4.22 Inventories; Receivables; Payables.....................................................................15
4.23 Related Party Transactions.............................................................................15
4.24 Banks..................................................................................................16
4.25 No Misrepresentation...................................................................................16
4.26 Investment Intent......................................................................................16
4.27 Financial Advisors.....................................................................................16
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4.28 Accreditation..........................................................................................17
4.29 Investment Experience; Suitability.....................................................................17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER............................................................17
5.1 Organization and Good Standing.........................................................................17
5.2 Authorization of Agreement.............................................................................17
5.3 Conflicts; Consents of Third Parties...................................................................18
5.4 Litigation.............................................................................................18
5.5 Investment Intention...................................................................................18
5.6 Financial Advisors.....................................................................................18
5.7 Taxes..................................................................................................18
5.8 Compliance with Laws; Permits..........................................................................19
5.9 Environmental Matters..................................................................................20
5.10 No Misrepresentation...................................................................................20
ARTICLE VI COVENANTS.............................................................................................20
6.1 Access to Information..................................................................................20
6.2 Conduct of the Business Pending the Closing............................................................21
6.3 Consents...............................................................................................23
6.4 Other Actions..........................................................................................23
6.5 No Solicitation........................................................................................23
6.6 Preservation of Records................................................................................24
6.7 Publicity..............................................................................................24
6.8 Use of Name............................................................................................24
6.9 Employment Agreements; Options.........................................................................24
6.10 Board of Directors.....................................................................................25
6.11 Financial Statements...................................................................................25
6.12 Tax Election...........................................................................................25
6.13 Operation of Business of the Company After Closing.....................................................25
ARTICLE VII CONDITIONS TO CLOSING................................................................................25
7.1 Conditions Precedent to Obligations of Purchaser.......................................................25
7.2 Conditions Precedent to Obligations of the Sellers.....................................................27
ARTICLE VIII DOCUMENTS TO BE DELIVERED...........................................................................28
8.1 Documents to be Delivered by the Sellers...............................................................28
8.2 Documents to be Delivered by the Purchaser.............................................................28
ARTICLE IX INDEMNIFICATION.......................................................................................29
9.1 Indemnification........................................................................................29
9.2 Limitations on Indemnification for Breaches of Representations and Warranties..........................30
9.3 Indemnification Procedures.............................................................................30
9.4 Tax Treatment of Indemnity Payments....................................................................31
ARTICLE X MISCELLANEOUS..........................................................................................31
10.1 Payment of Sales, Use or Similar Taxes.................................................................31
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10.2 Survival of Representations and Warranties.............................................................31
10.3 Expenses...............................................................................................32
10.4 Specific Performance...................................................................................32
10.5 Further Assurances.....................................................................................32
10.6 Submission to Jurisdiction; Consent to Service of Process..............................................32
10.7 Entire Agreement; Amendment and Waivers................................................................32
10.8 Governing Law..........................................................................................33
10.9 Table of Contents and Headings.........................................................................33
10.10 Notices................................................................................................33
10.11 Severability...........................................................................................34
10.12 Binding Effect; Assignment.............................................................................34
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 16, 2004 (the "Agreement"), among
Science Dynamics Corporation, a corporation existing under the laws of Delaware
(the "Purchaser"), Systems Management Engineering, Inc., a corporation existing
under the laws of the Commonwealth of Virginia (the "Company"), and the
shareholders of the Company identified on Exhibit A, attached hereto
(collectively the "Sellers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Sellers own an aggregate of 3,612,500 shares of common
stock and 345,000 shares issuable upon the exercise of vested stock options
prior to the Closing Date, $.01 par value (the "Shares"), of the Company, which
Shares constitute approximately seventy-seven percent (77%) of the issued and
outstanding shares of capital stock of the Company on a fully diluted basis; and
WHEREAS, the Sellers desire to sell to Purchaser, the Purchaser
desires to purchase from the Sellers, the Shares for the purchase price and upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties hereby agree as
follows:
Article I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase of Shares.
Upon the terms and subject to the conditions contained herein, on the
Closing Date each Seller shall sell, assign, transfer, convey and deliver to the
Purchaser, and the Purchaser shall purchase from each Seller, the Shares of such
Seller set forth below such Seller's name on Exhibit A hereto. The purchase and
sale of the Shares pursuant to this Agreement shall be effective as of the close
of business on or before sixty (60) days after the date of this Agreement (the
"Effective Time").
Article II
PURCHASE PRICE AND PAYMENT
2.1 Amount of Purchase Price; Payment of Purchase Price.
(a) The aggregate initial purchase price for the Shares shall be an
amount equal to $3,080,000 (the "Initial Purchase Price"). $1,540,000 of the
Initial Purchase Price shall be paid in cash on the Closing Date to the Sellers
which shall be paid by the delivery to Sellers of certified or bank cashier's
checks, or at the Sellers' option, by wire transfer of immediately available
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funds into accounts designated by Sellers and allocated among the Sellers in
accordance with their pro rata ownership of the Shares as set forth in Exhibit A
hereto. The remaining $1,540,000 of the Initial Purchase Price shall be paid by
the issuance to the Sellers within fifteen (15) business days after the Closing
Date of such number of the Purchaser's common stock equal to $1,540,000 divided
by ten cents ($0.10). (the "Purchase Shares").
(b) Purchaser shall cause an audit to be completed on the Company's
financial statements for the twelve (12) month period ending December 31, 2005
no later than March 31, 2006. Purchaser shall pay Sellers up to an additional
$1,540,000 (the "Additional Purchase Price") upon the Company reaching the
following goals for the twelve (12) month period ending December 31, 2005, where
"EBITDA" represents earnings before interest, tax, depreciation and
amortization, and before any marketing and/or selling expenses which have been
incurred in connection with the Company's technology products and which
marketing and/or selling expenses have been incurred in accordance with the
budget mutually approved by Purchaser and the Sellers and attached hereto as
Schedule 2.1(b):
(i) If the Company's EBITDA is less than $500,000, then Purchaser
shall not be obligated to pay any Additional Purchase Price to Sellers;
(ii) If the Company's EBITDA is equal to or greater than $500,000
and less than $750,000, the Purchaser shall pay Sellers and Additional Purchase
Price equal to $192,500;
(iii) If the Company's EBITDA is equal to or greater than
$750,000 and less than $1,000,000, the Purchaser shall pay Sellers an Additional
Purchase Price equal to $385,000;
(iv) If the Company's EBITDA is equal to or greater than
$1,000,000 and less than $1,250,000, the Purchaser shall pay Sellers an
Additional Purchase Price equal to $577,500;
(v) If the Company's EBITDA is equal to or greater than
$1,250,000 and less than $1,500,000, the Purchaser shall pay Sellers an
Additional Purchase Price equal to $770,000; and
(vi) If the Company's EBITDA is equal to or greater than
$1,500,000, the Purchaser shall pay Sellers an Additional Purchase Price equal
to $1,540,000.
The Additional Purchase Price, if any, shall be paid to the Sellers in
cash no later than fifteen (15) business days after March 31, 2006, which shall
be paid by the delivery to Sellers of certified or bank cashier's checks, or at
the Sellers' option, by wire transfer of immediately available funds into
accounts designated by Sellers and allocated among the Sellers in accordance
with their pro rata ownership of the Shares as set forth in Exhibit A hereto. In
the event that any payments due under this Section 2.1(b) are not made, Sellers
may deliver written notice of such fact to Purchaser in accordance with Section
10.10 hereof and Purchaser shall have ten (10) calendar days from the date that
it receives such notice to cure the nonpayment. If Purchaser does not cure any
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nonpayment in accordance with this Section 2.1(b), then: (A) Purchaser shall
immediately issue to Sellers such number of shares of Purchaser's common stock
equal to the Additional Purchase Price divided by eighty-five percent (85%) of
the average daily weighted volume average price of Purchaser's common stock for
the fifteen (15) trading days prior to March 31, 2006; and (B) Sellers shall
have the right to appoint one natural person to Purchaser's board of directors
for a period of one year.
Article III
CLOSING AND TERMINATION
3.1 Closing Date.
Subject to the satisfaction of the conditions set forth in Sections
7.1 and 7.2 hereof (or the waiver thereof by the party entitled to waive that
condition), the closing of the sale and purchase of the Shares provided for in
Section 1.1 hereof (the "Closing") shall take place at the offices of Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP located at 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (or at such other place as the parties may designate in writing) on
or before sixty (60) days after the date of this Agreement, or on such other
date as the Sellers and the Purchaser may designate in writing. The date on
which the Closing shall be held is referred to in this Agreement as the "Closing
Date."
3.2 Termination of Agreement.
This Agreement may be terminated prior to the Closing as
follows:
(a) At the election of the Sellers or the Purchaser on or after
November 30, 2004, if the Closing shall not have occurred by the close of
business on such date, provided that the terminating party is not in default of
any of its obligations hereunder;
(b) by mutual written consent of the Sellers and the Purchaser;
(c) by written notice of the Purchaser if the Company's balance sheet
as of the Closing Date, prepared in accordance with United States generally
accepted accounting principles does not reflect a shareholders' equity (assets
less liabilities) equal to or greater than $273,000; or
(d) by the Sellers or the Purchaser if there shall be in effect a
final nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal any adverse determination which is not nonappealable (and pursue
such appeal with reasonable diligence).
3.3 Procedure Upon Termination.
In the event of termination and abandonment by the Purchaser or the
Sellers, or both, pursuant to Section 3.2 hereof, written notice thereof shall
forthwith be given to the other party or parties, and this Agreement shall
terminate, and the purchase of the Shares hereunder shall be abandoned, without
further action by the Purchaser or the Sellers. If this Agreement is terminated
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as provided herein each party shall redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same.
3.4 Effect of Termination.
In the event that this Agreement is validly terminated as provided
herein, then each of the parties shall be relieved of their duties and
obligations arising under this Agreement after the date of such termination and
such termination shall be without liability to the Purchaser, the Company or any
Seller; provided, however, that the obligations of the parties set forth in
Section 10.4 hereof shall survive any such termination and shall be enforceable
hereunder; provided, further, however, that nothing in this Section 3.4 shall
relieve the Purchaser or any Seller of any liability for a breach of this
Agreement.
Article IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Sellers jointly and severally, represent and warrant to the
Purchaser that:
4.1 Organization and Good Standing.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation as set
forth above and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now conducted. The
Company is duly qualified or authorized to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which it owns or
leases real property and each other jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification or
authorization, except where the failure to be so qualified would not have a
material adverse effect on the business, assets or financial condition of
Company and any subsidiaries taken as a whole ("Material Adverse Effect").
4.2 Authorization of Agreement.
Sellers have all requisite power, authority and legal capacity to
execute and deliver this Agreement, and each other agreement, document, or
instrument or certificate contemplated by this Agreement or to be executed by
such Seller in connection with the consummation of the transactions contemplated
by this Agreement (together with this Agreement, the "Seller Documents"), and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been, and each of the Seller Documents will be at or prior to the Closing, duly
and validly executed and delivered by each Seller and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each of the Seller Documents when so executed
and delivered will constitute, legal, valid and binding obligations of each
Seller, enforceable against each Seller in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
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4.3 Capitalization.
(a) The authorized capital stock of the Company consists of 10,000,000
shares of common stock, $.01 par value per share (the "Common Stock"). As of the
date hereof, there are 4,570,000 shares of Common Stock issued and outstanding
and 5,430,000 shares of Common Stock are held by the Company as treasury stock.
All of the issued and outstanding shares of Common Stock were duly authorized
for issuance and are validly issued, fully paid and non-assessable.
(b) Except as set forth in the attached Schedule 4.3, there is no
existing option, warrant, call, right, commitment or other agreement of any
character to which any Seller or the Company is a party requiring, and there are
no securities of the Company outstanding which upon conversion or exchange would
require, the issuance, sale or transfer of any additional shares of capital
stock or other equity securities of the Company or other securities convertible
into, exchangeable for or evidencing the right to subscribe for or purchase
shares of capital stock or other equity securities of the Company. None of the
Sellers nor the Company is a party to any voting trust or other voting agreement
with respect to any of the shares of Common Stock or to any agreement relating
to the issuance, sale, redemption, transfer or other disposition of the capital
stock of the Company.
4.4 Subsidiaries.
Schedule 4.4 hereto sets forth the name of each subsidiary of the
Company (each a "Subsidiary"), and, with respect to each Subsidiary, the
jurisdiction in which it is incorporated or organized, the jurisdictions, if
any, in which it is qualified to do business, the number of shares of its
authorized capital stock, the number and class of shares thereof duly issued and
outstanding, the names of all stockholders or other equity owners and the number
of shares of stock owned by each stockholder or the amount of equity owned by
each equity owner. The outstanding shares of capital stock or equity interests
of each Subsidiary are validly issued, fully paid and non-assessable, and all
such shares or other equity interests represented as being owned by the Company
are owned by it free and clear of any and all liens, pledges, encumbrances,
charges, agreements or claims of any kind whatsoever, except as set forth in
Schedule 4.4 hereto. No shares of capital stock are held by any Subsidiary as
treasury stock. There is no existing option, warrant, call, commitment or
agreement to which any Subsidiary is a party requiring, and there are no
convertible securities of any Subsidiary outstanding which upon conversion would
require, the issuance of any additional shares of capital stock or other equity
interests of any Subsidiary or other securities convertible into shares of
capital stock or other equity interests of any Subsidiary or other equity
security of any Subsidiary. Each Subsidiary is a duly organized and validly
existing corporation or other entity in good standing under the laws of the
jurisdiction of its reorganization and is duly qualified to do business and is
in good standing under the laws of (i) each jurisdiction in which it owns or
leases real property and (ii) each other jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification, except
where a failure to be so qualified would not have a Material Adverse Effect on
the business, assets or financial condition of Company and its Subsidiaries
taken as a whole. Each Subsidiary has all requisite corporate power and
authority to own its properties and carry on its business as presently
conducted.
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4.5 Corporate Records.
(a) The Sellers have delivered to the Purchaser true, correct and
complete copies of the articles of incorporation (each certified by the
Secretary of State or other appropriate official of the applicable jurisdiction
of organization) and by-laws (each certified by the secretary, assistant
secretary or other appropriate officer) or comparable organizational documents
of the Company and each of its Subsidiaries.
(b) The minute books of the Company and each Subsidiary previously
made available to the Purchaser contain complete and accurate records of all
meetings and accurately reflect all other corporate action of the stockholders
and board of directors (including committees thereof) of the Company and its
Subsidiaries. The stock certificate books and stock transfer ledgers of the
Company and its Subsidiaries previously made available to the Purchaser are
true, correct and complete.
4.6 Conflicts; Consents of Third Parties.
(a) None of the execution and delivery by any Seller of this Agreement
and the Seller Documents, the consummation of the transactions contemplated
hereby or thereby, or compliance by any Seller with any of the provisions hereof
or thereof will (i) conflict with, or result in the breach of, any provision of
the articles of incorporation or by-laws or comparable organizational documents
of the Company or any Subsidiary; (ii) conflict with, violate, result in the
breach or termination of, or constitute a default under any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Company or any Subsidiary is a party or by which any of them or any of
their respective properties or assets is bound; (iii) violate any statute, rule,
regulation, order or decree of any governmental body or authority by which the
Company or any Subsidiary is bound; or (iv) result in the creation of any lien,
charge or encumbrance or any kind or nature ("Lien") upon the properties or
assets of the Company or any Subsidiary except, in case of clauses (ii), (iii)
and (iv), for such violations, breaches or defaults as would not, individually
or in the aggregate, have a Material Adverse Effect.
(b) No consent, waiver, approval, order, permit or authorization of,
or declaration or filing with, or notification to, any person, entity or
governmental body is required on the part of any Seller, the Company or any
Subsidiary in connection with the execution and delivery of this Agreement or
the Seller Documents, or the compliance by each Seller or the Company as the
case may be, with any of the provisions hereof or thereof.
4.7 Ownership and Transfer of Shares.
Each Seller is the record and beneficial owner of the Shares indicated
as being owned by such Seller on Exhibit A, free and clear of any and all Liens.
Each Seller has the power and authority to sell, transfer, assign and deliver
such Shares as provided in this Agreement, and such delivery will convey to the
Purchaser good and marketable title to such Shares, free and clear of any and
all Liens.
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4.8 Financial Statements.
The Sellers have delivered to the Purchaser copies of (i) the
unaudited balance sheets of the Company as at December 31, 2003 and 2002, and
the related statements of income and accumulated deficit and of cash flows of
the Company for the years then ended and (ii) the unaudited balance sheet of the
Company as at September 30, 2004, and the related statements of income and
accumulated deficit and of cash flows of the Company for the six month period
then ended (such statements, including the related notes and schedules thereto,
are referred to herein as the "Financial Statements"). Each of the Financial
Statements is complete and correct in all material respects, has been prepared
in accordance with generally accepted accounting principles ("GAAP") (subject to
normal year-end adjustments in the case of the unaudited statements) and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof and
presents fairly the financial position, results of operations and cash flows of
the Company and its Subsidiaries as at the dates and for the periods indicated.
For the purposes hereof, the balance sheet of the Company as at
September 30, 2004 is referred to as the "Balance Sheet" and September 30, 2004
is referred to as the "Balance Sheet Date."
4.9 No Undisclosed Liabilities.
Neither the Company nor any Subsidiary has any indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described on the Balance Sheet or in
the notes thereto in accordance with GAAP which was not fully reflected in,
reserved against or otherwise described in the Balance Sheet or the notes
thereto or was not incurred in the ordinary course of business consistent with
past practice since the Balance Sheet Date.
4.10 Absence of Certain Developments. Except as expressly
contemplated by this Agreement or as set forth on Schedule
4.10, since the Balance Sheet Date:
(i) there has not been any Material Adverse Change nor has there
occurred any event which is reasonably likely to result in a Material Adverse
Change;
(ii) there has not been any damage, destruction or loss, whether
or not covered by insurance, with respect to the property and assets of the
Company or any Subsidiary having a replacement cost of more than $25,000 for any
single loss or $50,000 for all such losses;
(iii) there has not been any declaration, setting aside or
payment of any dividend or other distribution in respect of any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by any Seller or the Company or any Subsidiary of any outstanding shares of
capital stock or other securities of, or other ownership interest in, the
Company or any Subsidiary;
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(iv) neither the Company nor any Subsidiary has awarded or paid
any bonuses to employees of the Company or any Subsidiary with respect to the
fiscal year ended December 31, 2003, except to the extent accrued on the Balance
Sheet or entered into any employment, deferred compensation, severance or
similar agreement (nor amended any such agreement) or agreed to increase the
compensation payable or to become payable by it to any of the Company's or any
Subsidiary's directors, officers, employees, agents or representatives or agreed
to increase the coverage or benefits available under any severance pay,
termination pay, vacation pay, company awards, salary continuation for
disability, sick leave, deferred compensation, bonus or other incentive
compensation, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with such directors, officers, employees, agents or
representatives (other than normal increases in the ordinary course of business
consistent with past practice and that in the aggregate have not resulted in a
material increase in the benefits or compensation expense of the Company and its
Subsidiaries taken as a whole);
(v) there has not been any change by the Company or any
Subsidiary in accounting or tax reporting principles, methods or policies;
(vi) neither the Company nor any Subsidiary has entered into any
transaction or Contract or conducted its business other than in the ordinary
course consistent with past practice;
(vii) neither the Company nor any Subsidiary has failed to
promptly pay and discharge current liabilities except where disputed in good
faith by appropriate proceedings;
(viii) neither the Company nor any Subsidiary has made any loans,
advances or capital contributions to, or investments in, any person or entity or
paid any fees or expenses to any Seller or any affiliate of any Seller;
(ix) neither the Company nor any Subsidiary has mortgaged,
pledged or subjected to any Lien any of its assets, or acquired any assets or
sold, assigned, transferred, conveyed, leased or otherwise disposed of any
assets of the Company or any Subsidiary, except for assets acquired or sold,
assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary
course of business consistent with past practice;
(x) neither the Company nor any Subsidiary has discharged or
satisfied any Lien, or paid any obligation or liability (fixed or contingent),
except in the ordinary course of business consistent with past practice and
which, in the aggregate, would not be material to the Company and its
Subsidiaries taken as a whole;
(xi) neither the Company nor any Subsidiary has canceled or
compromised any debt or claim or amended, canceled, terminated, relinquished,
waived or released any Contract or right except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to the Company and its Subsidiaries taken as a whole;
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(xii) neither the Company nor any Subsidiary has made or
committed to make any capital expenditures or capital additions or betterments
in excess of $20,000 individually or $40,000 in the aggregate;
(xiii) neither the Company nor any Subsidiary has instituted or
settled any material legal proceeding; and
(xiv) none of the Sellers nor the Company has agreed to do
anything set forth in this Section 4.10.
4.11 Taxes.
(a) Except as set forth on Schedule 4.11, (A) all material tax returns
required to be filed by or on behalf of the Company have been properly prepared
and duly and timely filed with the appropriate taxing authorities in all
jurisdictions in which such tax returns are required to be filed (after giving
effect to any valid extensions of time in which to make such filings), and all
such tax returns were true, complete and correct in all material respects; (B)
all amounts shown on such tax returns (including interest and penalties) as due
from the Company have been fully and timely paid, and adequate reserves or
accruals for taxes have been provided in the Balance Sheet with respect to any
period for which tax returns have not yet been filed or for which taxes are not
yet due and owing; and (C) the Company has not executed or filed with the IRS or
any other taxing authority any agreement, waiver or other document or
arrangement extending or having the effect of extending the period for
assessment or collection of taxes (including, but not limited to, any applicable
statute of limitation), and no power of attorney with respect to any tax matter
is currently in force.
(b) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(c) Purchaser has received complete copies of (A) all material
federal, state, local and foreign income or franchise tax returns of the Company
relating to the taxable periods since January 1, 1996, and (B) any audit report
issued within the last three years relating to any material Taxes due from or
with respect to the Company its income, assets or operations. All income and
franchise tax returns filed by or on behalf of the Company for the taxable years
ended on the respective dates set forth on Schedule 4.11 have been examined by
the relevant taxing authority or the statute of limitations with respect to such
tax returns has expired.
(d) Schedule 4.11 lists all material types of taxes paid and material
types of tax returns filed by or on behalf of the Company. Except as set forth
on Schedule 4.11, no claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns such that it is or may be subject to
taxation by that jurisdiction.
(e) Except as set forth on Schedule 4.11, all deficiencies asserted or
assessments made as a result of any examinations by the IRS or any other taxing
9
authority of the tax returns of or covering or including the Company have been
fully paid, and there are no other audits or investigations by any taxing
authority in progress, nor have the Sellers or the Company received any notice
from any taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised by a federal, state, local or foreign
taxing authority in any current or prior examination which, by application of
the same or similar principles, could reasonably be expected to result in a
proposed deficiency for any subsequent taxable period.
(f) The Company is not subject to any private letter ruling of the IRS
or comparable rulings of other taxing authorities.
(g) There are no liens as a result of any unpaid taxes upon any of the
assets of the Company.
4.12 Real Property.
(a) Schedule 4.12(a) sets forth a complete list of all real property
and interests in real property leased by the Company and its Subsidiaries
(individually, a "Real Property Lease" and the real properties specified in such
leases being referred to herein individually as a "Company Property" and
collectively as the "Company Properties") as lessee or lessor. Company Property
constitutes all interests in real property currently used or currently held for
use in connection with the business of the Company and its Subsidiaries and
which are necessary for the continued operation of the business of the Company
and its Subsidiaries as the business is currently conducted. The Company and its
Subsidiaries have a valid and enforceable leasehold interest under each of the
Real Property Leases, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), and neither the Company nor any Subsidiary has received any written
notice of any default or event that with notice or lapse of time, or both, would
constitute a default by the Company or any Subsidiary under any of the Real
Property Leases. All of the Company Property, buildings, fixtures and
improvements thereon owned or leased by the Company and its Subsidiaries are in
good operating condition and repair (subject to normal wear and tear). The
Company has delivered or otherwise made available to the Purchaser true, correct
and complete copies of the Real Property Leases, together with all amendments,
modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all material certificates of
occupancy and permits of any governmental body necessary or useful for the
current use and operation of each Company Property, and the Company and its
Subsidiaries have fully complied with all material conditions of the permits
applicable to them. No default or violation, or event that with the lapse of
time or giving of notice or both would become a default or violation, has
occurred in the due observance of any permit.
4.13 Tangible Personal Property.
(a) Schedule 4.13(a) sets forth all leases of personal property
("Personal Property Leases") involving annual payments in excess of $25,000
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relating to personal property used in the business of the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party or by
which the properties or assets of the Company or any of its Subsidiaries is
bound. The Sellers have delivered or otherwise made available to the Purchaser
true, correct and complete copies of the Personal Property Leases, together with
all amendments, modifications or supplements thereto.
(b) The Company and each of its Subsidiaries have a valid leasehold
interest under each of the Personal Property Leases under which it is a lessee,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and there is no
default under any Personal Property Lease by the Company or any of its
Subsidiaries or, to the best knowledge of the Sellers, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder.
(c) The Company and its Subsidiaries have good and marketable title to
all of the items of tangible personal property reflected in the Balance Sheet
(except as sold or disposed of subsequent to the date thereof in the ordinary
course of business consistent with past practice), free and clear of any and all
Liens, other than as set forth on Schedule 4.13. All such items of tangible
personal property which, individually or in the aggregate, are material to the
operation of the business of the Company and its Subsidiaries are in good
condition and in a state of good maintenance and repair (ordinary wear and tear
excepted) and are suitable for the purposes used.
(d) All of the items of tangible personal property used by the Company
and its Subsidiaries under the Personal Property Leases are in good condition
and repair (ordinary wear and tear excepted) and are suitable for the purposes
used.
4.14 Intangible Property.
Schedule 4.14 contains a complete and correct list of each patent,
trademark, trade name, service xxxx and copyright owned or used by Company
and/or its Subsidiaries as well as all registrations thereof and pending
applications therefor, and each license or other agreement relating thereto.
Except as set forth on Schedule 4.14, each of the foregoing is owned by the
party shown on such Schedule as owning the same, free and clear of all
mortgages, claims, liens, security interests, charges and encumbrances and is in
good standing and not the subject of any challenge. There have been no claims
made and neither the Sellers, nor the Company nor any Subsidiary has received
any notice or otherwise knows or has reason to believe that any of the foregoing
is invalid or conflicts with the asserted rights of others. The Company and each
of its Subsidiaries possesses all patents, patent licenses, trade names,
trademarks, service marks, brand marks, brand names, copyrights, know-how,
formulate and other proprietary and trade rights necessary for the conduct of
its business as now conducted, not subject to any restrictions and without any
known conflict with the rights of others and neither the Company nor any of its
Subsidiaries has forfeited or otherwise relinquished any such patent, patent
license, trade name, trademark, service xxxx, brand xxxx, brand name, copyright,
know-how, formulate or other proprietary right necessary for the conduct of its
business as conducted on the date hereof. Neither the Company nor any of its
Subsidiaries is under any obligation to pay any royalties or similar payments in
connection with any license to any Seller or any affiliate thereof.
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4.15 Material Contracts.
Schedule 4.15 sets forth all of the following contracts, agreements,
commitments ("Contracts") to which the Company or any of its Subsidiaries is a
party or by which it is bound (collectively, the "Material Contracts"): (i)
Contracts with any the Seller or any current officer or director of the Company
or any of its Subsidiaries; (ii) Contracts with any labor union or association
representing any employee of the Company or any of its Subsidiaries; (iii)
Contracts pursuant to which any party is required to purchase or sell a stated
portion of its requirements or output from or to another party; (iv) Contracts
for the sale of any of the assets of the Company or any of its Subsidiaries
other than in the ordinary course of business or for the grant to any person or
entity of any preferential rights to purchase any of its assets; (v) joint
venture agreements; (vi) material Contracts containing covenants of the Company
or any of its Subsidiaries not to compete in any line of business or with any
person or entity in any geographical area or covenants of any other person or
entity not to compete with the Company or any of its Subsidiaries in any line of
business or in any geographical area; (vii) Contracts relating to the
acquisition by the Company or any of its Subsidiaries of any operating business
or the capital stock of any other person or entity ; (viii) Contracts relating
to the borrowing of money; or (ix) any other Contracts, other than Real Property
Leases, which involve the expenditure of more than $50,000 in the aggregate or
$25,000 annually or require performance by any party more than one year from the
date hereof. There have been made available to the Purchaser, its affiliates and
their representatives true and complete copies of all of the Material Contracts.
Except as set forth on Schedule 4.15, all of the Material Contracts and other
agreements are in full force and effect and are the legal, valid and binding
obligation of the Company and/or its Subsidiaries, enforceable against them in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Except as set forth on Schedule 4.15, neither the Company nor any
Subsidiary is in default in any material respect under any Material Contracts,
nor, to the knowledge of any Seller, is any other party to any Material Contract
in default thereunder in any material respect.
4.16 Employee Benefits.
(a) Schedule 4.16(a) sets forth a complete and correct list of (i) all
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and any other pension plans
or employee benefit arrangements, programs or payroll practices (including,
without limitation, severance pay, vacation pay, company awards, salary
continuation for disability, sick leave, retirement, deferred compensation,
bonus or other incentive compensation, stock purchase arrangements or policies,
hospitalization, medical insurance, life insurance and scholarship programs)
maintained by the Company or any of its Subsidiaries or to which the Company or
any of its Subsidiaries contributes or is obligated to contribute thereunder
with respect to employees of the Company ("Employee Benefit Plans") and (ii) all
"employee pension plans", as defined in Section 3(2) of ERISA, maintained by the
Company or any of its Subsidiaries or any trade or business (whether or not
incorporated) which are under control, or which are treated as a single
employer, with Company under Section 414(b), (c), (m) or (o) of ERISA ("ERISA
Affiliate") or to which the Company, any of its Subsidiaries or any ERISA
Affiliate contributed or is obligated to contribute thereunder ("Pension
Plans").
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(b) All contributions and premiums required by law or by the terms of
any Employee Benefit Plan or Pension Plan which are defined benefit plans or
money purchase plans or any agreement relating thereto have been timely made
(without regard to any waivers granted with respect thereto) to any funds or
trusts established thereunder or in connection therewith, and no accumulated
funding deficiencies exist in any of such plans subject to Section 412 of ERISA.
(c) There has been no violation of ERISA with respect to the filing of
applicable returns, reports, documents and notices regarding any of the Employee
Benefit Plans or Pension Plans with the Secretary of Labor or the Secretary of
the Treasury or the furnishing of such notices or documents to the participants
or beneficiaries of the Employee Benefit Plans or Pension Plans.
(d) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Pension Plans (as applicable),
have been delivered to the Purchaser: (A) any plans and related trust documents,
and all amendments thereto, (B) the most recent Forms 5500 for the past three
years and schedules thereto, (C) the most recent financial statements and
actuarial valuations for the past three years, (D) the most recent Internal
Revenue Service determination letter, (E) the most recent summary plan
descriptions (including letters or other documents updating such descriptions)
and (F) written descriptions of all non-written agreements relating to the
Employee Benefit Plans and Pension Plans.
4.17 Labor.
(a) Except as set forth on Schedule 4.17(a), neither the Company nor
any of its Subsidiaries is party to any labor or collective bargaining agreement
and there are no labor or collective bargaining agreements which pertain to
employees of the Company or any of its Subsidiaries. The Sellers have delivered
or otherwise made available to the Purchaser true, correct and complete copies
of the labor or collective bargaining agreements listed on Schedule 4.17(a),
together with all amendments, modifications or supplements thereto.
(b) Except as set forth on Schedule 4.17(b), no employees of the
Company or any of its Subsidiaries are represented by any labor organization. No
labor organization or group of employees of the Company or any of its
Subsidiaries has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the best knowledge of the Sellers, threatened to be
brought or filed, with the National Labor Relations Board or other labor
relations tribunal. There is no organizing activity involving the Company or any
of its Subsidiaries pending or, to the best knowledge of any Seller, threatened
by any labor organization or group of employees of the Company or any of its
Subsidiaries.
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(c) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the best knowledge of any Seller, threatened against or involving the Company or
any of its Subsidiaries. There are no unfair labor practice charges, grievances
or complaints pending or, to the best knowledge of any Seller, threatened by or
on behalf of any employee or group of employees of the Company.
4.18 Litigation.
Except as set forth in Schedule 4.18, there is no suit, action,
proceeding, investigation, claim or order pending or, to the knowledge of the
Sellers or the Company, overtly threatened against the Company or any of its
Subsidiaries (or to the knowledge of the Sellers or the Company, pending or
threatened, against any of the officers, directors or key employees of the
Company or any of its Subsidiaries with respect to their business activities on
behalf of the Company), or to which the Sellers or the Company or any of its
Subsidiaries is otherwise a party, which, if adversely determined, would have a
Material Adverse Effect, before any court, or before any governmental
department, commission, board, agency, or instrumentality; nor to the knowledge
of the Sellers nor the Company is there any reasonable basis for any such
action, proceeding, or investigation. Neither the Company nor any Subsidiary is
subject to any judgment, order or decree of any court or governmental agency
except to the extent the same are not reasonably likely to have a Material
Adverse Effect and neither the Company nor any Subsidiary is engaged in any
legal action to recover monies due it or for damages sustained by it.
4.19 Compliance with Laws; Permits.
The Company and each of its Subsidiaries is in compliance with all
Laws applicable to the Company and its Subsidiaries or to the conduct of the
business or operations of the Company and its Subsidiaries or the use of their
respective properties (including any leased properties) and assets, except for
such non-compliances as would not, individually or in the aggregate, have a
Material Adverse Effect. The Company and each of its Subsidiaries has all
governmental permits and approvals from state, federal or local authorities
which are required for the Company and each of its Subsidiaries to operate its
business, except for those the absence of which would not, individually or in
the aggregate, have a Material Adverse Effect.
4.20 Environmental Matters.
Except as set forth on Schedule 4.20 hereto:
(a) the operations of the Company and each of its Subsidiaries are in
compliance with all applicable laws, rules, regulations, orders, treaties,
statutes, and codes promulgated by any governmental entity which prohibit,
regulate or control any hazardous material or any hazardous material activity
("Environmental Laws") and all permits issued pursuant to Environmental Laws or
otherwise;
(b) the Company and each of its Subsidiaries has obtained all permits
required under all applicable Environmental Laws necessary to operate its
business;
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(c) neither the Company nor any of its Subsidiaries is the subject of
any outstanding written order or Contract with any governmental authority,
person or entity respecting Environmental Laws or any violation or potential
violations thereof;
(d) neither the Company nor any of its Subsidiaries has received any
written communication alleging either or both that the Company or any of its
Subsidiaries may be in violation of any Environmental Law, or any permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law;
4.21 Insurance.
Schedule 4.21 sets forth a complete and accurate list of all policies
of insurance of any kind or nature covering the Company or any of its
Subsidiaries or any of their respective employees, properties or assets,
including, without limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity and other casualty and liability
insurance. All such policies are in full force and effect, and, to the Sellers'
knowledge, neither the Company nor any of its Subsidiaries is in default of any
provision thereof, except for such defaults as would not, individually or in the
aggregate, have a Material Adverse Effect.
4.22 Inventories; Receivables; Payables.
(a) The inventories of the Company and its Subsidiaries are in good
and marketable condition, and are saleable in the ordinary course of business.
Adequate reserves have been reflected in the Balance Sheet for obsolete or
otherwise unusable inventory, which reserves were calculated in a manner
consistent with past practice and in accordance with GAAP consistently applied.
(b) All accounts receivable of the Company and its Subsidiaries have
arisen from bona fide transactions in the ordinary course of business consistent
with past practice. All accounts receivable of the Company and its Subsidiaries
reflected on the Balance Sheet are good and collectible at the aggregate
recorded amounts thereof, net of any applicable reserve for returns or doubtful
accounts reflected thereon, which reserves are adequate and were calculated in a
manner consistent with past practice and in accordance with GAAP consistently
applied. All accounts receivable arising after the Balance Sheet Date are good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserve for returns or doubtful accounts, which reserves are adequate and were
calculated in a manner consistent with past practice and in accordance with GAAP
consistently applied.
(c) All accounts payable of the Company and its Subsidiaries reflected
in the Balance Sheet or arising after the date thereof are the result of bona
fide transactions in the ordinary course of business and have been paid or are
not yet due and payable.
4.23 Related Party Transactions.
Except as set forth on Schedule 4.23, neither the Sellers nor any of
their respective affiliates has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company or and Subsidiary.
15
Except as set forth in Schedule 4.23, neither the Sellers, the Company, any
Subsidiary of the Company, any affiliate of the Company or the Sellers nor any
officer or employee of any of them (i) owns any direct or indirect interest of
any kind in, or controls or is a director, officer, employee or partner of, or
consultant to, or lender to or borrower from or has the right to participate in
the profits of, any person or entity which is (A) a competitor, supplier,
customer, landlord, tenant, creditor or debtor of the Company or any of its
Subsidiaries, (B) engaged in a business related to the business of the Company
or any of its Subsidiaries, or (C) a participant in any transaction to which the
Company or any of its Subsidiaries is a party or (ii) is a party to any Contract
with the Company or any of its Subsidiaries.
4.24 Banks.
Schedule 4.24 contains a complete and correct list of the names and
locations of all banks in which Company or any Subsidiary has accounts or safe
deposit boxes and the names of all persons authorized to draw thereon or to have
access thereto. Except as set forth on Schedule 4.25, no person holds a power of
attorney to act on behalf of the Company or any Subsidiary.
4.25 No Misrepresentation.
No representation or warranty of any Seller contained in this
Agreement or in any schedule hereto or in any certificate or other instrument
furnished by any Seller to the Purchaser pursuant to the terms hereof, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
4.26 Investment Intent.
The Purchase Shares are being acquired hereunder by the Sellers for
investment purposes only, for their own account, not as a nominee or agent and
not with a view to the distribution thereof. The Sellers have no present
intention to sell or otherwise dispose of the Purchase Shares and they will not
do so except in compliance with the provisions of the Securities Act of 1933, as
amended, and applicable law. The Sellers understand that the Purchase Shares
acquired hereunder must be held by them indefinitely unless a subsequent
disposition or transfer of any of said shares is registered under the Securities
Act of 1933, as amended, or is exempt from registration therefrom. The Sellers
further understand that the exemption from registration afforded by Rule 144
(the provisions of which are known to such Sellers) promulgated under the
Securities Act of 1933, as amended, depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may afford the basis for
sales only in limited amounts.
4.27 Financial Advisors.
Except as set forth on Schedule 4.27, no person or entity has acted,
directly or indirectly, as a broker, finder or financial advisor for the Sellers
or the Company in connection with the transactions contemplated by this
Agreement and no person or entity is entitled to any fee or commission or like
payment in respect thereof.
16
4.28 Accreditation.
Each Seller is an "accredited investor" within the meaning of Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.
The Sellers understand that the Purchase Shares are being offered to them in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and that the Purchaser is relying upon
the truth and accuracy of, and the Sellers' compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Sellers set forth herein in order to determine the availability of such
exemptions and the eligibility of the Sellers to acquire the Purchase Shares.
4.29 Investment Experience; Suitability.
Each Seller is familiar with the type of risks inherent in the
acquisition of securities such as the shares of the Purchaser and each Seller's
financial position is such that the Seller can afford to retain its Purchase
Shares for an indefinite period of time without realizing any direct or indirect
cash return on its investment.
Article V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Organization and Good Standing.
The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
5.2 Authorization of Agreement.
The Purchaser has full corporate power and authority to execute and
deliver this Agreement and each other agreement, document, instrument or
certificate contemplated by this Agreement or to be executed by the Purchaser in
connection with the consummation of the transactions contemplated hereby and
thereby (the "Purchaser Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Purchaser of this Agreement and each Purchaser Document have been duly
authorized by all necessary corporate action on behalf of the Purchaser. This
Agreement has been, and each Purchaser Document will be at or prior to the
Closing, duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each Purchaser Document when so executed and
delivered will constitute, legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
17
5.3 Conflicts; Consents of Third Parties.
(a) Neither of the execution and delivery by the Purchaser of this
Agreement and of the Purchaser Documents, nor the compliance by the Purchaser
with any of the provisions hereof or thereof will (i) conflict with, or result
in the breach of, any provision of the certificate of incorporation or by-laws
of the Purchaser, (ii) conflict with, violate, result in the breach of, or
constitute a default under any note, bond, mortgage, indenture, license,
agreement or other obligation to which the Purchaser is a party or by which the
Purchaser or its properties or assets are bound or (iii) violate any statute,
rule, regulation, order or decree of any governmental body or authority by which
the Purchaser is bound, except, in the case of clauses (ii) and (iii), for such
violations, breaches or defaults as would not, individually or in the aggregate,
have a material adverse effect on the business, properties, results of
operations, prospects, conditions (financial or otherwise) of the Purchaser and
its subsidiaries, taken as a whole.
(b) No consent, waiver, approval, Order, Permit or authorization of,
or declaration or filing with, or notification to, any Person or Governmental
Body is required on the part of the Purchaser in connection with the execution
and delivery of this Agreement or the Purchaser Documents or the compliance by
Purchaser with any of the provisions hereof or thereof.
5.4 Litigation.
There are no Legal Proceedings pending or, to the best knowledge of
the Purchaser, threatened that are reasonably likely to prohibit or restrain the
ability of the Purchaser to enter into this Agreement or consummate the
transactions contemplated hereby.
5.5 Investment Intention.
The Purchaser is acquiring the Shares for its own account, for
investment purposes only and not with a view to the distribution (as such term
is used in Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act") thereof. Purchaser understands that the Shares have not been
registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
5.6 Financial Advisors.
No Person has acted, directly or indirectly, as a broker, finder or
financial advisor for the Purchaser in connection with the transactions
contemplated by this Agreement and no person is entitled to any fee or
commission or like payment in respect thereof.
5.7 Taxes.
(a) Except as set forth on Schedule 5.7, (A) all material tax returns
required to be filed by or on behalf of the Purchaser have been properly
prepared and duly and timely filed with the appropriate taxing authorities in
all jurisdictions in which such tax returns are required to be filed (after
giving effect to any valid extensions of time in which to make such filings),
18
and all such tax returns were true, complete and correct in all material
respects; (B) all amounts shown on such tax returns (including interest and
penalties) as due from the Purchaser have been fully and timely paid, and
adequate reserves or accruals for taxes have been provided in Purchaser's
balance sheet with respect to any period for which tax returns have not yet been
filed or for which taxes are not yet due and owing; and (C) the Purchaser has
not executed or filed with the IRS or any other taxing authority any agreement,
waiver or other document or arrangement extending or having the effect of
extending the period for assessment or collection of taxes (including, but not
limited to, any applicable statute of limitation), and no power of attorney with
respect to any tax matter is currently in force.
(b) The Purchaser has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(c) Schedule 5.7 lists all material types of taxes paid and material
types of tax returns filed by or on behalf of the Purchaser. Except as set forth
on Schedule 5.7, no claim has been made by a taxing authority in a jurisdiction
where the Purchaser does not file tax returns such that it is or may be subject
to taxation by that jurisdiction.
(d) Except as set forth on Schedule 5.7, all deficiencies asserted or
assessments made as a result of any examinations by the IRS or any other taxing
authority of the tax returns of or covering or including the Purchaser have been
fully paid, and there are no other audits or investigations by any taxing
authority in progress, nor has the Purchaser received any notice from any taxing
authority that it intends to conduct such an audit or investigation. No issue
has been raised by a federal, state, local or foreign taxing authority in any
current or prior examination which, by application of the same or similar
principles, could reasonably be expected to result in a proposed deficiency for
any subsequent taxable period.
(e) The Purchaser is not subject to any private letter ruling of the
IRS or comparable rulings of other taxing authorities.
(f) There are no liens as a result of any unpaid taxes upon any of the
assets of the Purchaser.
5.8 Compliance with Laws; Permits.
The Purchaser and its Subsidiaries are in compliance with all Laws
applicable to the Purchaser and its Subsidiaries or to the conduct of the
business or operations of the Purchaser and its Subsidiaries or the use of their
respective properties (including any leased properties) and assets, except for
such non-compliances as would not, individually or in the aggregate, have a
Material Adverse Effect. The Purchaser and each of its Subsidiaries has all
governmental permits and approvals from state, federal or local authorities
which are required for the Purchaser and each of its Subsidiaries to operate its
business, except for those the absence of which would not, individually or in
the aggregate, have a Material Adverse Effect.
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5.9 Environmental Matters.
Except as set forth on Schedule 5.9 hereto:
(a) the operations of the Purchaser and each of its Subsidiaries are
in compliance with all applicable laws, rules, regulations, orders, treaties,
statutes, and codes promulgated by any governmental entity which prohibit,
regulate or control any hazardous material or any hazardous material activity
("Environmental Laws") and all permits issued pursuant to Environmental Laws or
otherwise;
(b) the Purchaser and each of its Subsidiaries has obtained all
permits required under all applicable Environmental Laws necessary to operate
its business;
(c) neither the Purchaser nor any of its Subsidiaries is the subject
of any outstanding written order or Contract with any governmental authority,
person or entity respecting Environmental Laws or any violation or potential
violations thereof;
(d) neither the Purchaser nor any of its Subsidiaries has received any
written communication alleging either or both that the Purchaser or any of its
Subsidiaries may be in violation of any Environmental Law, or any permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law;
5.10 No Misrepresentation.
No representation or warranty of the Purchaser contained in this
Agreement or in any schedule hereto or in any certificate or other instrument
furnished by the Purchaser to the Company or Sellers pursuant to the terms
hereof, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading
Article VI
COVENANTS
6.1 Access to Information.
The Sellers agree that, prior to the Closing Date, the Purchaser shall
be entitled, through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations of the Company and
its Subsidiaries and such examination of the books, records and financial
condition of the Company and its Subsidiaries as it reasonably requests and to
make extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Sellers shall cooperate, and shall cause the
Company and its Subsidiaries to cooperate, fully therein. No investigation by
the Purchaser prior to or after the date of this Agreement shall diminish or
obviate any of the representations, warranties, covenants or agreements of the
Sellers contained in this Agreement or the Seller Documents. In order that the
Purchaser may have full opportunity to make such physical, business, accounting
and legal review, examination or investigation as it may reasonably request of
the affairs of the Company and its Subsidiaries, the Sellers shall cause the
officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company and its Subsidiaries to cooperate fully with such
representatives in connection with such review and examination.
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6.2 Conduct of the Business Pending the Closing.
(a) Except as otherwise expressly contemplated by this Agreement or
with the prior written consent of the Purchaser, the Sellers shall, and shall
cause the Company and its Subsidiaries to:
(i) conduct the respective businesses of the Company and its
Subsidiaries only in the ordinary course consistent with past practice;
(ii) use its best efforts to (A) preserve its present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Company and its Subsidiaries and (B) preserve
its present relationship with persons and entities having business dealings with
the Company and its Subsidiaries;
(iii) maintain (A) all of the assets and properties of the
Company and its Subsidiaries in their current condition, ordinary wear and tear
excepted and (B) insurance upon all of the properties and assets of the Company
and its Subsidiaries in such amounts and of such kinds com-parable to that in
effect on the date of this Agreement;
(iv) (A) maintain the books, accounts and records of the Company
and its Subsidiaries in the ordinary course of business consistent with past
practices, (B) continue to collect accounts receivable and pay accounts payable
utilizing normal procedures and without discounting or accelerating payment of
such accounts, and (C) comply with all contractual and other obligations
applicable to the operation of the Company and its Subsidiaries; and
(v) comply in all material respects with applicable laws.
(b) Except as otherwise expressly contemplated by this Agreement or
with the prior written consent of the Purchaser, the Sellers shall not, and
shall cause the Company and its Subsidiaries not to:
(i) declare, set aside, make or pay any dividend or other
distribution in respect of the capital stock of the Company or repurchase,
redeem or otherwise acquire any outstanding shares of the capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(ii) transfer, issue, sell or dispose of any shares of capital
stock or other securities of the Company or any of its Subsidiaries or grant
options, warrants, calls or other rights to purchase or otherwise acquire shares
of the capital stock or other securities of the Company or any of its
Subsidiaries;
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(iii) effect any recapitalization, reclassification, stock split
or like change in the capitalization of the Company or any of its Subsidiaries;
(iv) amend the certificate of incorporation or by-laws of the
Company or any of its Subsidiaries;
(v) (A) materially increase the annual level of compensation of
any employee of the Company or any of its Subsidiaries, (B) increase the annual
level of compensation payable or to become payable by the Company or any of its
Subsidiaries to any of their respective executive officers, (C) grant any
unusual or extraordinary bonus, benefit or other direct or indirect compensation
to any employee, director or consultant, other than in the ordinary course
consistent with past practice and in such amounts as are fully reserved against
in the Financial Statements, (D) increase the coverage or benefits available
under any (or create any new) severance pay, termination pay, vacation pay,
company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan or arrangement made to, for, or with any of the directors,
officers, employees, agents or representatives of the Company or any of its
Subsidiaries or otherwise modify or amend or terminate any such plan or
arrangement or (E) enter into any employment, deferred compensation, severance,
consulting, non-competition or similar agreement (or amend any such agreement)
to which the Company or any of its Subsidiaries is a party or involving a
director, officer or employee of the Company or any of its Subsidiaries in his
or her capacity as a director, officer or employee of the Company or any of its
Subsidiaries;
(vi) except for trade payables and for indebtedness for borrowed
money incurred in the ordinary course of business and consistent with past
practice, borrow monies for any reason or draw down on any line of credit or
debt obligation, or become the guarantor, surety, endorser or otherwise liable
for any debt, obligation or liability (contingent or otherwise) of any other
person or entity;
(vii) subject to any Lien (except for leases that do not
materially impair the use of the property subject thereto in their respective
businesses as presently conducted), any of the properties or assets (whether
tangible or intangible) of the Company or any of its Subsidiaries;
(viii) acquire any material properties or assets or sell, assign,
transfer, convey, lease or otherwise dispose of any of the material properties
or assets (except for fair consideration in the ordinary course of business
consistent with past practice) of the Company and its Subsidiaries except, with
respect to the items listed on Schedule 6.2(b)(viii) hereto, as previously
consented to by the Purchaser;
(ix) cancel or compromise any debt or claim or waive or release
any material right of the Company or any of its Subsidiaries except in the
ordinary course of business consistent with past practice;
(x) enter into any commitment for capital expenditures out of the
ordinary course;
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(xi) permit the Company or any of its Subsidiaries to enter into
any transaction or to make or enter into any Contract which by reason of its
size or otherwise is not in the ordinary course of business consistent with past
practice;
(xii) permit the Company or any of its Subsidiaries to enter into
or agree to enter into any merger or consolidation with, any corporation or
other entity, and not engage in any new business or invest in, make a loan,
advance or capital contribution to, or otherwise acquire the securities of any
other person or entity;
(xiii) except for transfers of cash pursuant to normal cash
management practices, permit the Company or any of its Subsidiaries to make any
investments in or loans to, or pay any fees or expenses to, or enter into or
modify any Contract with, any Seller or any affiliate of any Seller; or
(xiv) agree to do anything prohibited by this Section 6.2 or
anything which would make any of the representations and warranties of the
Sellers in this Agreement or the Seller Documents untrue or incorrect in any
material respect as of any time through and including the Effective Time.
6.3 Consents.
The Sellers shall use their best efforts, and the Purchaser shall
cooperate with the Sellers, to obtain at the earliest practicable date all
consents and approvals required to consummate the transactions contemplated by
this Agreement; provided, however, that neither the Sellers nor the Purchaser
shall be obligated to pay any consideration therefor to any third party from
whom consent or approval is requested.
6.4 Other Actions.
Each of the Sellers and the Purchaser shall use its best efforts to
(i) take all actions necessary or appropriate to consummate the transactions
contemplated by this Agreement and (ii) cause the fulfillment at the earliest
practicable date of all of the conditions to their respective obligations to
consummate the transactions contemplated by this Agreement.
6.5 No Solicitation.
The Sellers will not, and will not cause or permit the Company or any
of the Company's directors, officers, employees, representatives or agents
(collectively, the "Representatives") to, directly or indirectly, (i) discuss,
negotiate, undertake, authorize, recommend, propose or enter into, either as the
proposed surviving, merged, acquiring or acquired corporation, any transaction
involving a merger, consolidation, business combination, purchase or disposition
of any amount of the assets or capital stock or other equity interest in the
Company or any of its Subsidiaries other than the transactions contemplated by
this Agreement (an "Acquisition Transaction"), (ii) facilitate, encourage,
solicit or initiate discussions, negotiations or submissions of proposals or
offers in respect of an Acquisition Transaction, (iii) furnish or cause to be
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furnished, to any person or entity, any information concerning the business,
operations, properties or assets of the Company or any of its Subsidiaries in
connection with an Acquisition Transaction, or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing. The
Sellers will inform the Purchaser in writing immediately following the receipt
by any Seller, the Company or any Representative of any proposal or inquiry in
respect of any Acquisition Transaction.
6.6 Preservation of Records.
Subject to Section 9.4(e) hereof (relating to the preservation of Tax
records), the Sellers and the Purchaser agree that each of them shall preserve
and keep the records held by it relating to the business of the Company and its
Subsidiaries for a period of three years from the Closing Date and shall make
such records and personnel available to the other as may be reasonably required
by such party in connection with, among other things, any insurance claims by,
legal proceedings against or governmental investigations of the Sellers or the
Purchaser or any of their affiliates or in order to enable the Sellers or the
Purchaser to comply with their respective obligations under this Agreement and
each other agreement, document or instrument contemplated hereby or thereby.
6.7 Publicity.
None of the Sellers nor the Purchaser shall issue any press release or
public announcement concerning this Agreement or the transactions contemplated
hereby without obtaining the prior written approval of the other party hereto,
which approval will not be unreasonably withheld or delayed, unless, in the sole
judgment of the Purchaser or the Sellers, disclosure is otherwise required by
applicable law or by the applicable rules of any stock exchange on which the
Purchaser lists securities, provided that, to the extent required by applicable
law, the party intending to make such release shall use its best efforts
consistent with such applicable law to consult with the other party with respect
to the text thereof.
6.8 Use of Name.
The Sellers hereby agree that upon the consummation of the
transactions contemplated hereby, the Purchaser and the Company shall have the
sole right to the use of the name "Services Management Engineering," and the
Sellers shall not, and shall not cause or permit any affiliate to, use such name
or any variation or simulation thereof.
6.9 Employment Agreements; Options.
On or prior to the Closing Date, certain employees of the Company
shall enter into employment or consulting agreements with the Company (the
"Employment Agreements") substantially in the form attached hereto as Schedule
6.9(a). The Purchaser shall also offer employment to a majority of the Company's
employees and the Company's current management shall use their reasonable best
efforts to assist the Purchaser in employing such individuals. Employees of the
Company, as determined by the mutual agreement of the Sellers and the Purchaser,
shall be entitled to participate in the Purchaser's employee stock option plan
or other equity incentive plan in consideration for canceling such employees'
currently outstanding options or other equity incentive instruments.
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6.10 Board of Directors.
The Board of Directors of the Company from and after the Closing Date
shall consist of five (5) members, a majority of which shall be citizens of the
United States. Sellers shall have the right from and after the Closing Date to
appoint two (2) members to the Board of Directors of the Company, and such
members shall serve as Directors at least until all payments have been made
pursuant too Section 2.1(b), herein.
6.11 Financial Statements.
The Sellers shall cooperate with the Purchaser to provide all
information required for the completion of audited financial statements of the
Company to be prepared and delivered no later than 60 days from the Closing
Date.
6.12 Tax Election.
At the sole discretion of the Purchaser, the Sellers agree to make a
timely Internal Revenue Code Section 338(h)(10) election provided there is no
additional tax liability for the Sellers due to this election.
6.13 Operation of Business of the Company after Closing.
During the period beginning on the Closing Date and ending December
31, 2005 (the "Post-Closing Period"), Purchaser agrees to operate the Company as
a wholly owned subsidiary of the Purchaser, and Purchaser shall provide the
Company with $250,000 of operating capital. Purchaser further agrees that during
the Post-Closing Period Purchaser will not cause the Company to incur any
material additional operating expenses and capital expenses outside the ordinary
course of business. In the event any of the Sellers or the Company's employees
provide services to the Company during the Post-Closing Period, Purchaser and
the Sellers shall negotiate in good faith the terms for any such services and
such terms shall not be less favorable to Sellers or the Company's employees
than would be available to independent third parties negotiating an arm's length
transaction. The purpose and intent of this Section 6.13 is to ensure that
Purchaser does not cause any adverse effect on the Company's ability to reach
its EBITDA goals set forth in Section 2.1(b).
Article VII
CONDITIONS TO CLOSING
7.1 Conditions Precedent to Obligations of Purchaser.
The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the fulfillment, on or prior to the
Closing Date, of each of the following conditions (any or all of which may be
waived by the Purchaser in whole or in part to the extent permitted by
applicable law):
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(a) all representations and warranties of the Sellers contained herein
shall be true and correct as of the date hereof;
(b) all representations and warranties of the Sellers contained herein
qualified as to materiality shall be true and correct, and the representations
and warranties of the Sellers contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the Closing
Date with the same effect as though those representations and warranties had
been made again at and as of that time;
(c) the Sellers shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by them on or prior to the Closing Date;
(d) the Purchaser shall have been furnished with certificates (dated
the Closing Date and in form and substance reasonably satisfactory to the
Purchaser) executed by each Seller certifying as to the fulfillment of the
conditions specified in Sections 7.1(a), 7.1(b) and 7.1(c) hereof;
(e) Certificates representing 100% of the Shares shall have been, or
shall at the Closing be, validly delivered and transferred to the Purchaser,
free and clear of any and all Liens;
(f) there shall not have been or occurred any Material Adverse Change;
(g) the Sellers shall have obtained all consents and waivers referred
to in Section 4.6 hereof, in a form reasonably satisfactory to the Purchaser,
with respect to the transactions contemplated by this Agreement and the Seller
Documents;
(h) no Legal Proceedings shall have been instituted or threatened or
claim or demand made against the Sellers, the Company or any of its
Subsidiaries, or the Purchaser seeking to restrain or prohibit or to obtain
substantial damages with respect to the consummation of the transactions
contemplated hereby, and there shall not be in effect any Order by a
Governmental Body of competent jurisdiction restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby;
(i) the Employment Agreements shall have been executed by each Seller
and the Company;
(j) The Company's balance sheet as of the Closing Date shall reflect
shareholders' equity (assets less liabilities) equal to or greater than
$273,000. The Company's balance sheet as of the Closing Date must be determined
in accordance with GAAP consistent with the Company's historical procedures. If
the Company does not have shareholders' equity equal to or greater than $273,000
as of the Closing Date in accordance with this Section 7.1(j), the Initial
Purchase Price shall be reduced by an amount equal to $273,000 minus the actual
amount of the Company's shareholders' equity as of the Closing Date, determined
in accordance with this Section 7.1 (j).
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7.2 Conditions Precedent to Obligations of the Sellers.
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, prior to or on
the Closing Date, of each of the following conditions (any or all of which may
be waived by the Sellers in whole or in part to the extent permitted by
applicable law):
(a) all representations and warranties of the Purchaser contained
herein shall be true and correct as of the date hereof;
(b) all representations and warranties of the Purchaser contained
herein qualified as to materiality shall be true and correct, and all
representations and warranties of the Purchaser contained herein not qualified
as to materiality shall be true and correct in all material respects, at and as
of the Closing Date with the same effect as though those representations and
warranties had been made again at and as of that date;
(c) the Purchaser shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date;
(d) the Sellers shall have been furnished with certificates (dated the
Closing Date and in form and substance reasonably satisfactory to the Sellers)
executed by the Chief Executive Officer of the Purchaser certifying as to the
fulfillment of the conditions specified in Sections 7.2(a), 7.2(b) and 7.2(c);
(e) no Legal Proceedings shall have been instituted or threatened or
claim or demand made against the Sellers, the Company or any of its
Subsidiaries, or the Purchaser seeking to restrain or prohibit or to obtain
substantial damages with respect to the consummation of the transactions
contemplated hereby, and there shall not be in effect any Order by a
Governmental Body of competent jurisdiction restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby;
(f) the Employment Agreements shall have been executed by the Company
and each employee described in Section 6.9;
(g) appropriate actions shall have been taken to remove each Seller
from any personal guarantees provided on behalf of the Company or
indemnification shall have been provided for such guarantees which is acceptable
in the sole discretion of the Sellers;
(h) Sellers shall have appointed two members to Purchaser's Board of
Directors and any documentation with Purchaser and/or its shareholders to insure
the same will have been executed and delivered to Sellers; and
(i) any and all actions necessary to retain top secret United States
Government security clearance for the Company and/or its affiliates,
subsidiaries or parent will have been taken and documentation of the same
delivered to Sellers.
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(j) an executed term sheet or letter of intent evidencing the
necessary financing for the transactions contemplated in this Agreement and any
internal proformas related to post-transaction corporate performance, shall have
been provided to Sellers at least thirty (30) days prior to the Closing.
Article VIII
DOCUMENTS TO BE DELIVERED
8.1 Documents to be Delivered by the Sellers.
At the Closing, the Sellers shall deliver, or cause to be delivered,
to the Purchaser the following:
(a) stock certificates representing the Shares, duly endorsed in blank
or accompanied by stock transfer powers and with all requisite stock transfer
tax stamps attached;
(b) the certificates referred to in Section 7.1(d) hereof;
(c) copies of all consents and waivers referred to in Section 7.1(g)
hereof;
(d) Duly executed Employment Agreements referred to in Section 6.9
hereof;
(e) written resignations of each of the directors of the Company;
(f) certificates of good standing with respect to the Company and each
Subsidiary issued by the Secretary of State of the State of incorporation of
each, and for each state in which the Company or any Subsidiary is qualified to
do business as a foreign corporation; and
(g) such other documents as the Purchaser shall reasonably request.
8.2 Documents to be Delivered by the Purchaser.
At Closing (or within fifteen (15) business days after the Closing, as
noted below) the Purchaser shall deliver to the Sellers the following:
(a) The Initial Purchase Price;
(b) stock certificates representing the Purchase Shares (within 15
business days of Closing);
(c) the certificates and other documents referred to in Section 7.2
hereof; and
(d) such other documents as the Sellers shall reasonably request.
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Article IX
INDEMNIFICATION
9.1 Indemnification.
(a) Subject to Section 9.2 hereof, the Sellers hereby agree to jointly
and severally indemnify and hold the Purchaser, the Company, and their
respective directors, officers, employees, affiliates, agents, successors and
assigns (collectively, the "Purchaser Indemnified Parties") harmless, to the
limits set forth below, from and against:
(i) any and all liabilities of the Company or any of its
Subsidiaries of every kind, nature and description, absolute or contingent,
existing as against the Company or any of its Subsidiaries prior to and
including the Closing Date or thereafter coming into being or arising by reason
of any state of facts existing, or any transaction entered into, on or prior to
the Closing Date, except to the extent that the same have been fully provided
for in the Balance Sheet or disclosed in the notes thereto or were incurred in
the ordinary course of business between the Balance Sheet date and the Closing
Date;
(ii) subject to Section 10.3, any and all losses, liabilities,
obligations, damages, costs and expenses based upon, attributable to or
resulting from the failure of any representation or warranty of the Sellers set
forth in Section 4 hereof, or any representation or warranty contained in any
certificate delivered by or on behalf of the Sellers pursuant to this Agreement,
to be true and correct in all respects as of the date made;
(iii) any and all losses, liabilities, obligations, damages,
costs and expenses based upon, attributable to or resulting from the breach of
any covenant or other agreement on the part of the Sellers under this Agreement;
(iv) any and all notices, actions, suits, proceedings, claims,
demands, assessments, judgments, costs, penalties and expenses, including
attorneys' and other professionals' fees and disbursements (collectively,
"Expenses") incident to any and all losses, liabilities, obligations, damages,
costs and expenses with respect to which indemnification is provided hereunder
(collectively, "Losses").
(b) Subject to Section 9.2, Purchaser hereby agrees to indemnify and
hold the Sellers and their respective affiliates, agents, successors and assigns
(collectively, the "Seller Indemnified Parties") harmless from and against:
(i) subject to Section 10.3, any and all Losses based upon,
attributable to or resulting from the failure of any representation or warranty
of the Purchaser set forth in Section 5 hereof, or any representation or
warranty contained in any certificate delivered by or on behalf of the Purchaser
pursuant to this Agreement, to be true and correct as of the date made;
(ii) any and all Losses based upon, attributable to or resulting
from the breach of any covenant or other agreement on the part of the Purchaser
under this Agreement or arising from the ownership or operation of the Company
from and after the Closing Date; and
(iii) any and all Expenses incident to the foregoing.
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9.2 Limitations on Indemnification for Breaches of
Representations and Warranties.
An indemnifying party shall not have any liability under Section
9.1(a)(ii) or Section 9.1(b)(i) hereof unless the aggregate amount of Losses and
Expenses to the indemnified parties finally determined to arise thereunder based
upon, attributable to or resulting from the failure of any representation or
warranty to be true and correct exceeds $15,000 (the "Basket") and, in such
event, the indemnifying party shall be required to pay the entire amount of such
Losses and Expenses in excess of $15,000 (the "Deductible"). Further, each
Seller's liability under Section 9.1 shall be limited to the amount of and shall
be in the same form (i.e., cash and/or Purchase Shares) of the Initial Purchase
Price and the Additional Purchase Price received by that Seller. For purposes of
this Section 9, the per share value of the Purchase Shares shall equal the
average daily weighted volume average price of Purchaser's common stock for the
fifteen (15) trading days prior to the date that any liability under this
Section 9.1 arises. In the event that the amount of liability under Section 9.1
exceeds the value of the Initial Purchase Price and the Additional Purchase
Price as of the date that such liability arises, the Sellers shall fully satisfy
such liability by returning the cash and Purchase Shares representing the
Initial Purchase Price and Additional Purchase Price to Purchaser.
9.3 Indemnification Procedures.
(a) In the event that any Legal Proceedings shall be instituted or
that any claim or demand ("Claim") shall be asserted by any Person in respect of
which payment may be sought under Section 9.1 hereof (regardless of the Basket
or the Deductible referred to above), the indemnified party shall reasonably and
promptly cause written notice of the assertion of any Claim of which it has
knowledge which is covered by this indemnity to be forwarded to the indemnifying
party. The indemnifying party shall have the right, at its sole option and
expense, to be represented by counsel of its choice, which must be reasonably
satisfactory to the indemnified party, and to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder. If the indemnifying party elects to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder, it shall within five (5) days (or sooner, if the nature of the Claim
so requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder,
fails to notify the indemnified party of its election as herein provided or
contests its obligation to indemnify the indemnified party for such Losses under
this Agreement, the indemnified party may defend against, negotiate, settle or
otherwise deal with such Claim. If the indemnified party defends any Claim, then
the indemnifying party shall reimburse the indemnified party for the Expenses of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
however, that such indemnified party shall be entitled to participate in any
such defense with separate counsel at the expense of the indemnifying party if,
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party that
would make such separate representation advisable; and provided, further, that
the indemnifying party shall not be required to pay for more than one such
counsel for all indemnified parties in connection with any Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
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(b) After any final judgment or award shall have been rendered by a
court, arbitration board or administrative agency of competent jurisdiction and
the expiration of the time in which to appeal therefrom, or a settlement shall
have been consummated, or the indemnified party and the indemnifying party shall
have arrived at a mutually binding agreement with respect to a Claim hereunder,
the indemnified party shall forward to the indemnifying party notice of any sums
due and owing by the indemnifying party pursuant to this Agreement with respect
to such matter and the indemnifying party shall be required to pay all of the
sums so due and owing to the indemnified party by wire transfer of immediately
available funds within 10 business days after the date of such notice.
(c) The failure of the indemnified party to give reasonably prompt
notice of any Claim shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss and prejudice as a result of
such failure.
9.4 Tax Treatment of Indemnity Payments.
The Sellers and the Purchaser agree to treat any indemnity payment
made pursuant to this Article 9 as an adjustment to the Initial Purchase Price
for federal, state, local and foreign income tax purposes.
Article X
MISCELLANEOUS
10.1 Payment of Sales, Use or Similar Taxes.
All sales, use, transfer, intangible, recordation, documentary stamp
or similar Taxes or charges, of any nature whatsoever, applicable to, or
resulting from, the transactions contemplated by this Agreement shall be borne
by the Sellers.
10.2 Survival of Representations and Warranties.
The parties hereto hereby agree that the representations and
warranties contained in this Agreement or in any certificate, document or
instrument delivered in connection herewith, shall survive the execution and
delivery of this Agreement, and the Closing hereunder, regardless of any
investigation made by the parties hereto; provided, however, that any claims or
actions with respect thereto shall terminate unless within twenty-four (24)
months after the Closing Date written notice of such claims is given to the
Sellers or such actions are commenced.
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10.3 Expenses.
Except as otherwise provided in this Agreement, the Sellers and the
Purchaser shall each bear its own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby, it being understood that in no
event shall the Company bear any of such costs and expenses.
10.4 Specific Performance.
The Sellers acknowledge and agree that the breach of this Agreement
would cause irreparable damage to the Purchaser and that the Purchaser will not
have an adequate remedy at law. Therefore, the obligations of the Sellers under
this Agreement, including, without limitation, the Sellers' obligation to sell
the Shares to the Purchaser, shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement or
otherwise.
10.5 Further Assurances.
The Sellers and the Purchaser each agrees to execute and deliver such
other documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
10.6 Submission to Jurisdiction; Consent to Service of Process.
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the State of New
Jersey over any dispute arising out of or relating to this Agreement or any of
the transactions contemplated hereby and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action proceeding
related thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action or proceeding by the mailing
of a copy thereof in accordance with the provisions of Section 10.10.
10.7 Entire Agreement; Amendments and Waivers.
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This Agreement (including the schedules and exhibits hereto)
represents the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and can be amended, supplemented or
changed, and any provision hereof can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
No action taken pursuant to this Agreement, including without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a further or continuing waiver of such breach or as a waiver of any other or
subsequent breach. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New
Jersey.
10.9 Table of Contents and Headings.
The table of contents and section headings of this Agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
10.10 Notices.
All notices and other communications under this Agreement shall be in
writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
(a) Purchaser:
Science Dynamics Corporation
0000 X. Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxx X. Xxxxxxxxx
Phone: (000) 000-0000
Facsimile: (000) 000-0000
Copy to:
Xxxxxxx Xxxxxxxxx, Esq
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
33
(b) Sellers:
Xxxxxxx X. Xxxxx, Xx.
00000 Xxxxxx Xxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
[Addresses of other Sellers included in Exhibit A hereto]
Copy to:
Xxxxxx Xxxxxx, Esq.
0000 Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Phone: (000) 000-0000
10.11 Severability.
If any provision of this Agreement is invalid or unenforceable, the
balance of this Agreement shall remain in effect.
10.12 Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. Nothing in this
Agreement shall create or be deemed to create any third party beneficiary rights
in any person or entity not a party to this Agreement except as provided below.
No assignment of this Agreement or of any rights or obligations hereunder may be
made by either the Sellers or the Purchaser (by operation of law or otherwise)
without the prior written consent of the other parties hereto and any attempted
assignment without the required consents shall be void; provided, however, that
the Purchaser may assign this Agreement and any or all rights or obligations
hereunder (including, without limitation, the Purchaser's rights to purchase the
Shares and the Purchaser's rights to seek indemnification hereunder) to any
affiliate of the Purchaser. Upon any such permitted assignment, the references
in this Agreement to the Purchaser shall also apply to any such assignee unless
the context otherwise requires.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
SCIENCE DYNAMICS CORPORATION
By: /s/ Xxxx Xxxxxxxxx
------------------
Xxxx Xxxxxxxxx,
Chief Executive Officer
SYSTEMS MANAGEMENT ENGINEERING, INC.
By: /s/ Xxxxxxx X. Xxxxx, Xx.
------------------------
Xxxxxxx X. Xxxxx, Xx.
Chief Executive Officer
EXHIBIT A
SELLER SIGNATURE PAGES
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Signature of Seller: /s/ Xxxxxxx X. Xxxxx, Xx.
-------------------------
Print name: Xxxxxxx X. Xxxxx, Xx.
No. of Shares
(Including Shares issuable upon exercise of options): 1,682,500
Address for Notice: 0000 Xxxxx 00xx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
A-1
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Signature of Seller: /s/ Xxxx X. Xxxxxxxx
--------------------
Print name: Xxxx X. Xxxxxxxx
No. of Shares
(Including Shares issuable upon exercise of options): 1,575,000
Address for Notice: 00000 Xxxxxxxxx Xxxxx Xx.
Xxxxxxxx, XX 00000
A-2
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Signature of Seller: /s/ Xxxxxxxxx X. Xxxxx
----------------------
Print name: Xxxxxxxxx X. Xxxxx
No. of Shares
(Including Shares issuable upon exercise of options): 100,000
Address for Notice: 0000 Xxxxx 00xx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
A-3
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Signature of Seller: /s/ Xxxxxxx Xxxxxxxx
-------------------
Print name: Xxxxxxx Xxxxxxxx
No. of Shares
(Including Shares issuable upon exercise of options): 115,000
Address for Notice: 0000 Xxxxxxx Xxx
Xxxxxx, Xxxxxxxx 00000-0000
A-4
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Signature of Seller: /s/ Xxxxxxx X. Xxxx, Xx.
------------------------
Print name: Xxxxxxx X. Xxxx, Xx.
No. of Shares
(Including Shares issuable upon exercise of options): 350,000
Address for Notice: 00000 Xxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxx 00000
A-5
