STOCK PURCHASE AGREEMENT
AMONG
SCB COMPUTER TECHNOLOGY, INC.
AND
NATIONAL SYSTEMS & RESEARCH CO.,
XXXXXXXXX X. XXXXXXXXX, XXXXXXXX X. XXXXXXXXX,
XXXXXXX X. XXXXXXXXX, XXXXX X. XXXXXXXXX,
and XXXXXX XXXXXXX
May 23, 2003
TABLE OF CONTENTS
1.
DEFINITIONS....................................................................1
2. PURCHASE AND SALE OF THE
STOCK..........................................................................8
2.1 SALE OF THE STOCK.....................................................8
2.2 PURCHASE PRICE........................................................8
2.3 ALLOCATION AND PAYMENT OF PURCHASE PRICE..............................8
2.4 DETERMINATION OF THE ADJUSTMENT AMOUNT................................8
2.5 CLOSING...............................................................9
2.6 EXECUTION AND DELIVERY OF CLOSING DOCUMENTS...........................9
2.7 CLOSING DATE INCOME STATEMENT........................................12
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS..................12
3.1 VALIDITY.............................................................13
3.2 AUTHORIZATION OF AGREEMENT...........................................13
3.3 ORGANIZATION AND STANDING OF THE COMPANY.............................13
3.4 CAPITALIZATION.......................................................13
3.5 SUBSIDIARIES.........................................................14
3.6 NO DEFAULT...........................................................14
3.7 BROKER'S FEES........................................................14
3.8 [INTENTIONALLY OMITTED]..............................................15
3.9 COMPLIANCE WITH OTHER INSTRUMENTS....................................14
3.10 CONSENTS............................................................15
3.11 TITLE TO PROPERTY AND ASSETS........................................15
3.12 REAL PROPERTY.......................................................15
3.13 GOVERNMENT CONTRACTS................................................16
3.14 OTHER CONTRACTUAL OBLIGATIONS.......................................17
3.15 FINANCIAL STATEMENTS................................................18
3.16 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END....................19
3.17 LEGAL COMPLIANCE....................................................20
3.18 EMPLOYEES...........................................................21
3.19 EMPLOYEE BENEFITS...................................................21
3.20 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS............................23
3.21 PRESERVATION OF BUSINESS............................................24
3.22 NO CONFLICT OF INTEREST.............................................25
3.23 CONTRACT XXXXXXXX; NOTES AND ACCOUNTS RECEIVABLE....................25
3.24 TAX MATTERS.........................................................25
3.25 COMPLIANCE WITH LAWS................................................27
3.26 POWERS OF ATTORNEY..................................................27
3.27 UNDISCLOSED LIABILITIES.............................................27
3.28 INSURANCE...........................................................27
3.29 INTELLECTUAL PROPERTY...............................................28
3.30 LITIGATION..........................................................28
3.31 GUARANTIES..........................................................28
3.32 INVENTORY...........................................................28
3.33 PRODUCT WARRANTY....................................................29
3.34 PRODUCT LIABILITY...................................................29
3.35 BUSINESS CONTINUITY.................................................29
3.36 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY.....................30
3.37 DISCLOSURE..........................................................30
3.38 OWNERSHIP OF STOCK..................................................30
3.39 SURVIVAL............................................................30
3.40 SELLERS' REPRESENTATIONS AND WARRANTIES.............................30
4. REPRESENTATIONS AND WARRANTIES OF
BUYER.........................................................................32
4.1 ORGANIZATION OF BUYER................................................32
4.2 AUTHORIZATION........................................................32
4.3 FINANCING............................................................33
4.4 NO CONFLICT..........................................................32
4.5 COMPLETION AND SATISFACTION OF DUE DILIGENCE.........................33
4.6 CONSENTS.............................................................33
4.7 SEC REPORTS..........................................................33
4.8 INVESTMENT...........................................................33
4.9 SURVIVAL...........................................................34
5. PRE-CLOSING
COVENANTS.....................................................................34
5.1 GENERAL..............................................................34
5.2 NOTICES AND CONSENTS.................................................34
5.3 OPERATION OF BUSINESS................................................35
5.4 PRESERVATION OF BUSINESS.............................................35
5.5 FULL ACCESS..........................................................35
5.6 NOTICE OF DEVELOPMENTS...............................................35
5.7 EXCLUSIVITY..........................................................35
5.8 MAINTENANCE OF REAL PROPERTY.........................................35
5.9 LEASES...............................................................35
5.10 TAX MATTERS.........................................................36
5.11 SPLIT-DOLLAR LIFE INSURANCE POLICIES................................36
6. Post-Closing
Covenants.....................................................................36
6.1 GENERAL..............................................................36
6.2 LITIGATION SUPPORT...................................................36
6.3 TRANSITION...........................................................36
6.4 CONFIDENTIALITY......................................................37
6.5 COVENANT NOT TO COMPETE..............................................37
6.6 LIMITATIONS ON RESALE................................................37
6.7 BUYER STOCK..........................................................37
6.8 REGISTRATION RIGHTS..................................................38
6.9 SERIES I NOTES.......................................................38
6.10 SERIES II NOTES......................................................38
6.11 STOCK OPTIONS.......................................................39
7. CONDITIONS TO CLOSING OF
BUYER.........................................................................39
7.1 REPRESENTATIONS AND WARRANTIES CORRECT...............................39
7.2 PERFORMANCE..........................................................39
7.3 DELIVERY OF BUSINESS PLAN............................................39
7.4 FINANCING............................................................39
7.5 PROCEEDINGS AND DOCUMENTS............................................40
7.6 NO ADVERSE DEVELOPMENTS..............................................40
7.7 REGULATORY APPROVALS.................................................40
7.8 CONSENTS.............................................................40
7.9 LEGAL PROCEEDINGS....................................................40
7.10 DELIVERY OF EXHIBITS................................................40
7.11 OFFICE LEASE........................................................40
7.12 CONSULTING AGREEMENT................................................40
7.13 EMPLOYMENT AGREEMENTS...............................................40
7.14 OPINION OF COUNSEL..................................................40
7.15 DELIVERY OF CONTRACTS...............................................41
7.16 DELIVERY OF CONSENTS................................................41
7.17 BROKERS' FEES.......................................................41
7.18 DELIVERY OF OTHER DOCUMENTS.........................................41
7.19 ADJUSTMENT OF PURCHASE PRICE........................................41
7.20 PAYMENT OF NOTE RECEIVABLE..........................................41
7.21 AUTOMOBILES.........................................................41
7.22 OFFICE FURNITURE....................................................41
7.23 DISPOSITION OF NSRGT................................................41
7.24 BPA CONTRACT........................................................41
8. CONDITIONS TO CLOSING OF
SELLERS.......................................................................42
8.1 REPRESENTATIONS AND WARRANTIES CORRECT...............................42
8.2 PROCEEDINGS AND DOCUMENTS............................................42
8.3 DELIVERY OF CASH, BUYER STOCK NOTES AND STOCK OPTIONS................42
8.4 DELIVERY OF CONSULTING AGREEMENTS....................................42
8.5 DELIVERY OF LEASE EXTENSION..........................................42
8.6 DELIVERY OF OTHER DOCUMENTS..........................................42
9. INDEMNIFICATION............................................................42
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...........................42
9.2 INDEMNIFICATION PROVISIONS FOR BUYER'S BENEFIT......................42
9.3 INDEMNIFICATION PROVISIONS FOR SELLERS' BENEFIT......................43
9.4 MATTERS INVOLVING THIRD PARTIES......................................43
9.5 DETERMINATION OF ADVERSE CONSEQUENCES................................44
9.6 RECOUPMENT UNDER BUYER NOTES........................................44
9.7 OTHER INDEMNIFICATION PROVISIONS.....................................45
9.8 LIMITATIONS..........................................................45
9.9 TAX MATTERS..........................................................46
10.
TERMINATION...................................................................49
10.1 TERMINATION EVENTS..................................................49
10.2 EFFECT OF TERMINATION...............................................50
11.
MISCELLANEOUS.................................................................50
11.1 GOVERNING LAW......................................................50
11.2 ASSIGNMENT.........................................................50
11.3 SUCCESSORS AND ASSIGNS.............................................50
11.4 ENTIRE AGREEMENT; AMENDMENT........................................50
11.5 NOTICES, ETC.......................................................50
11.6 TAX CONSEQUENCES...................................................51
11.7 EXPENSES...........................................................51
11.8 TITLES AND SUBTITLES...............................................51
11.9 COUNTERPARTS.......................................................51
11.10 TIMELY PERFORMANCE..................................................52
11.11 WAIVER..............................................................52
11.12 INVALID PROVISIONS TO AFFECT NO OTHERS..............................52
11.13 LITIGATION COSTS....................................................52
11.14 FURTHER ASSURANCES..................................................52
11.15 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.............................52
11.16 BUYER'S ACCESS TO INFORMATION.......................................52
28
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made this 23rd day of May,
2003, by and among SCB COMPUTER TECHNOLOGY, INC., a Tennessee corporation
("Buyer"), NATIONAL SYSTEMS & RESEARCH CO., a Colorado corporation (the
"Company"), and the individuals listed on Exhibit A attached hereto (such
individuals are sometimes referred to herein collectively as the "Sellers" and
individually as a "Seller"). Buyer, the Company and Sellers are referred to
individually herein as a "Party" and collectively herein as the "Parties."
RECITALS
WHEREAS, the Company primarily is engaged in the business of providing
information technology ("IT") services and related professional and engineering
services in a broad range of IT and related systems engineering disciplines and
applications;
WHEREAS, the Sellers own all of the outstanding capital stock of the
Company;
WHEREAS, Buyer has offered to purchase and Sellers have agreed to sell all
of the issued and outstanding stock of the Company, now owned by the Sellers as
listed on Exhibit A attached hereto in the amounts set forth opposite their
respective names, consisting in the aggregate of 468,000 shares of common stock,
no par value (the "Stock"). This Agreement contemplates that Buyer will purchase
all of the stock of the Company from Sellers for cash, Buyer's stock and Buyer
Notes;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime rate of interest published in The
Wall Street Journal plus two percent (2%).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BPA" means The Bonneville Power Administration, an agency of the
United States Government.
"BPA Contract" means BPA Contract No. 00003127 entered into between BPA
and the Company.
"BPA Executive" means an executive of BPA with authority to administer
and/or interpret policy or regulations for the procurement of contract services
specifically relating to the BPA Contract.
"Buyer" has the meaning set forth in the preface above.
"Buyer Notes" means the Series I and Series II Notes described in
Section 2.2 below.
"Closing" has the meaning set forth in Section 2.5 below.
"Closing Date" means the date after (a) the satisfaction of all
conditions to Closing contained herein and (b) the earlier to occur of (i) the
tenth business day following the date on which all conditions under Section 7.24
have been met, or (ii) August 31, 2003. However, if the ten day period after the
satisfaction of the condition to Closing under Section 7.24 ends on a date other
than the first or last day of a month, the Buyer may extend the time for Closing
to a date being the close of business on the last day of such month.
"Closing Purchase Price" has the meaning set forth in Section 2.2
below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code ss.4980B and of any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means National Systems & Research Co., a Colorado
corporation, and unless otherwise specifically referred to herein, the meaning
shall include Subsidiary I and Subsidiary II.
"Company Share" means any share of the common stock, no par value per
share, of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not already generally available to
the public.
"Controlled Group" has the meaning set forth in Code ss.1563.
"EBIT" means the Company's net revenue and earnings before interest and
taxes as shown on the Company's financial statements with respect to any
12-month period described herein.
"EBITDA" means the Company's net revenue and earnings before interest,
taxes, depreciation and amortization as shown on the Company's financial
statements with respect to any 12-month period described herein.
"Effective Date" shall be the Closing Date.
"Employee Benefit Plan" means any "employee benefit plan" (as such term
is defined in ERISA ss.3(3)) and any other material employee benefit plan,
program or arrangement of any kind.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local, and foreign statutes, regulations, ordinances, and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations, and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with the Company for purposes of Code ss.414.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Final Disposition" means the earliest to occur of the following
events:
(i) the voluntary withdrawal or dismissal of the Protest by
GCS whereby GCS has no further right to make any claim to GAO or HCA
related to the Protest (other than a voluntary withdrawal to allow HCA
to resolve the Protest); or
(ii) GAO or HCA denial or dismissal of the Protest resulting in the
Company's continued performance of the BPA Contract, with such denial
or dismissal being nonappealable to GAO or HCA under their respective
regulations addressing a protester's right to appeal.
"Financial Statements" has the meaning set forth in Section 3.15 below.
"Force Majeure Event" has the meaning set forth in Section 3.35 below.
"Fraud" means the false representation of a matter of fact by a Party,
known by such Party to be false, which through words, conduct, false or
misleading allegations, or concealment of that which should have been disclosed
in order to make the facts or circumstances not misleading, deceives and is
intended by such Party to deceive another Party.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied.
"GAO" means The United States General Accounting Office.
---
"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"HCA" means Head of Contracting Authority for BPA.
"Indemnified Party" has the meaning set forth in Section 9.4 below.
"Indemnifying Party" has the meaning set forth in Section 9.4 below.
"Intellectual Property" means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all advertising and promotional
materials, (h) all other proprietary rights, and (i) all copies and tangible
embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation. In
making each representation or warranty set forth in this Agreement which is
qualified by any such expression as to the Knowledge of Company, Managing
Sellers hereby represent and warrant that they have inquired of all relevant
officers of the Company as to the accuracy and completeness of such
representation or warranty.
"Lease Consents" has the meaning set forth in Section 5.2 below.
"Leased Real Property" means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by the Company.
"Leases" means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties, and other agreements with respect thereto, pursuant to which the
Company holds any Leased Real Property, including the right to all security
deposits and other amounts and instruments deposited by or on behalf of the
Company thereunder.
"Liability" means any liability or obligation of whatever kind or
nature (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
"Lien" means any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (b) purchase money liens and liens securing rental payments under
capital lease arrangements, and (c) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
"Managing Sellers" means Xxxxxxxxx X. Xxxxxxxxx and Xxxxxx Xxxxxxx.
"Material Adverse Effect" or "Material Adverse Change" means any effect
or change that would be materially adverse to the business, assets, condition
(financial or otherwise), operating results, operations, or business prospects
of the Company, taken as a whole, or on the ability of Sellers to consummate
timely the transactions contemplated hereby (regardless of whether or not such
adverse effect or change can be or has been cured at any time or whether Buyer
has knowledge of such effect or change on the date hereof), including any
adverse change, event, development, or effect arising from or relating to (a)
general business or economic conditions, including such conditions related to
the business of the Company, (b) national or international political or social
conditions, including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon the United States, or
any of its territories, possessions, or diplomatic or consular offices or upon
any military installation, equipment or personnel of the United States, (c)
financial, banking, or securities markets (including any suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
American Stock Exchange, or NASDAQ National Market for a period in excess of
three hours or any decline of either the Dow Xxxxx Industrial Average or the
Standard & Poor's Index of 500 Industrial Companies by an amount in excess of
15% measured from the close of business on the date hereof) and (d) changes in
United States generally accepted accounting principles.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3.15 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
3.15 below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3.15
below.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"Necessary Items" has the meaning set forth in Section 3.35 below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" and "Parties" have the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means with respect to each parcel of Real
Property: (a) real estate taxes, assessments and other governmental levies,
fees, or charges imposed with respect to such Real Property that are (i) not due
and payable as of the Closing Date or (ii) that are being contested in good
faith and for which appropriate reserves have been established in accordance
with GAAP; (b) mechanics' liens and similar liens for labor, materials, or
supplies provided with respect to such Real Property incurred in the Ordinary
Course of Business for amounts that are (i) not due and payable as of the
Closing Date or (ii) being contested in good faith and for which appropriate
reserves have been established in accordance with GAAP; (c) zoning, building
codes and other land use laws regulating the use or occupancy of such Real
Property or the activities conducted thereon which are imposed by any
governmental authority having jurisdiction over such Real Property and are not
violated by the current use or occupancy of such Real Property or the operation
of the Company's business as currently conducted thereon; and (d) easements,
covenants, conditions, restrictions, and other similar matters of record
affecting title to such Real Property which do not or would not impair the use
or occupancy of such Real Property in the operation of the Company's business as
currently conducted thereon.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity, or a
governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Protest" means Protest No. B-291642.002 filed by Xxxxxxxx Consulting
Services ("GCS") with the GAO.
"Purchase Price" has the meaning set forth in Section 2.2 below.
"Real Property" means any land, buildings, structures, improvements,
fixtures or other interest in real property owned by the Company.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Schedule" has the meaning set forth in Sections 3 and 4 below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller" has the meaning set forth in the preface above.
"Stock" has the meaning set forth in the recitals above.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association, or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity's gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term "Subsidiary" shall include all Subsidiaries
of such Subsidiary.
"Subsidiary I" means Automated Government Systems, Inc., a California
corporation.
"Subsidiary II" means NSR Information, Inc., a Colorado corporation.
"Systems" has the meaning set forth in Section 3.35 below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 9.4 below.
2. PURCHASE AND SALE OF THE STOCK.
2.1 Sale of the Stock. On and subject to the terms and conditions of
this Agreement hereof, Buyers agree to purchase and accept from each Seller, and
each Seller agrees to sell, convey and assign to Buyer, all right, title and
interest of each Seller in and to his Stock.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
Stock shall be the sum of Fifteen Million Six Hundred Fifty Thousand and No/100
Dollars ($15,650,000.00), payable as set forth below:
(a) Series I Notes. Buyer's subordinated and secured, subject
to approval by Buyer's financial institution to allow Sellers to have a second
secured position, promissory notes in the form of Exhibit B attached hereto
("Series I Notes") in the aggregate principal amount of Four Million Four
Hundred Thousand and No/100 Dollars ($4,400,000.00), which principal amount may
be increased or decreased by the Adjustment Amount (as defined and described in
Section 2.4 hereof).
(b) Series II Notes. Buyer's subordinated and secured, subject to approval by
Buyer's financial institution to allow Sellers to have a second secured
position, promissory notes in the form of Exhibit C attached hereto ("Series II
Notes") in the aggregate principal amount of Seven Hundred Thousand Dollars
($700,000.00).
(c) Buyer's Shares. Shares of Buyer's common stock in total value of no less
than One Million Seven Hundred Thousand and No/100s Dollars
($1,700,000.00)("Buyer Stock"), based on the average closing price of the
Buyer's common stock as reported on the OTC Bulletin Board for the 10 trading
days immediately preceding the Closing; provided, however, those Sellers
receiving Buyer Stock pursuant to Section 2.3 may elect on or before the Closing
to increase the value of the Series I Notes by One Million Seven Hundred
Thousand and No/100s Dollars ($1,700,000.00), or some lesser portion thereof, in
lieu of receiving only such shares.
(d) Cash. Cash in the amount of Eight Million Eight Hundred Fifty Thousand and
No/100 Dollars ($8,850,000.00), payable by wire transfer or delivery of other
immediately available funds.
2.3 Allocation and Payment of Purchase Price. The Purchase Price shall
be allocated among Sellers in proportion to their respective holdings of the
Stock and paid to them in such combination of Buyer Notes, Buyer Stock and cash
as set forth on Exhibit D.
2.4 Determination of the Adjustment Amount. Within thirty (30) business
days following the Closing, Sellers shall deliver to Buyer an unaudited income
statement of the Company for the 12-month period immediately preceding and
ending as of the close of business on the Closing Date (determined on a pro
forma basis as though the Parties had not consummated the transactions
contemplated by this Agreement), which shall be prepared in the manner described
in Section 2.7 below (the "Closing Date Income Statement").
Unless Buyer gives Sellers written notice of its objection to the
Closing Date Income Statement before the close of business on the one hundred
twentieth (120th) day after Closing, the Closing Date Income Statement shall be
the "Final Income Statement" to which is hereinafter referred. However, if Buyer
objects to any aspect of the Closing Date Income Statement, and Buyer and
Sellers are unable to reach agreement as to the disputed item(s) within thirty
(30) days after Buyer gives notice of such objection, then the matter(s)
objected to shall be submitted to a nationally known independent accounting firm
(the "Neutral CPAs") other than BDO Xxxxxxx LLP and Xxxxxxxx Xxxx Xxxx & Co., or
any other accounting firm which shall have previously performed or been engaged
to perform accounting services for any of the Buyer, the Sellers or the Company
or any Affiliate thereof, who shall resolve the dispute and submit a written
statement of such resolution, which statement when delivered to Buyer and
Sellers shall become binding on Buyer and Sellers and (together with the
undisputed portion of the Closing Date Income Statement) shall be the "Final
Income Statement" and the date on which the Neutral CPAs submit such statement
to Buyer and Sellers shall be the "Final Report Date." The fees and expenses of
the Neutral CPAs will be borne one-half (1/2) by Buyer and one-half (1/2) by
Sellers (in proportion to their respective holdings of the Stock as set forth on
Exhibit A).
If the amount shown as EBIT on the Final Income Statement exceeds Two
Million Thirty Thousand and No/100s Dollars ($2,030,000.00) (the "Base EBIT"),
the aggregate principal amount of the Series I Notes above shall be increased by
4.5 times such excess. If the EBIT on the Final Income Statement is less than
the Base EBIT, the amount of the Series I Notes above shall be decreased by 4.5
times such deficit.
2.5 Closing. The closing of the purchase and sale of the Stock
hereunder (the "Closing") shall be held at the offices of Xxxxx, Xxxxxx &
Xxxxxxx, PLLC, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxx 00000, on the Closing
Date; or conducted via facsimile on the Closing Date; or conducted at such other
place and time as may be mutually agreed upon between Buyer and Seller.
2.6 Execution and Delivery of Closing Documents.
(a) Deliveries at Closing by Sellers. At the Closing, Sellers
will take such actions and will execute and deliver to Buyer, or cause to be
executed and delivered to Buyer, such certificates, instruments and documents,
as are required by this Agreement or are required to give full effect to the
transactions provided for herein. Such actions and materials shall include, but
not be limited to, the following:
(i) certificates representing the Stock, duly
endorsed (or accompanied by duly executed stock powers) for
transfer to Buyer;
(ii) unconditional, general releases in the form of
Exhibit E executed by Sellers releasing any and all claims or
causes of action by Sellers against the Company (collectively,
"Sellers' Releases");
(iii) Employment Agreements in the form of Exhibit F,
executed by Xxxxxx Xxxxxxx and Xxxxxx Xxxxxx;
(iv) Consulting Agreement in the form of Exhibit G,
executed by Xxxxxxxxx X. Xxxxxxxxx;
(v) lease extension agreement as described in Section
7.11;
(vi) a certificate executed by Sellers representing
and warranting to Buyer and Buyer's financial institution that
with respect to itself only each of the Seller's
representations and warranties in this Agreement was accurate
in all material respects as of the date of this Agreement and
is accurate in all material respects as of the Closing Date as
if made on the Closing Date;
(vii) a certificate executed by the Company
representing and warranting to Buyer and Buyer's financial
institution that each of the Company's representations and
warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the
Closing Date;
(viii) (A) certified copies of the Articles of
Incorporation, as amended, and By-laws of the Company, (B)
Certificates of Good Standing or equivalent from the
respective government office of each state in which the
Company is qualified to conduct business, (C) any consents
required to be delivered in order to satisfy the condition set
forth in Section 7.8 hereof, (D) the resignations of all
directors of the Company and (E) the books of account, minute
books, stock record books and other records of the Company,
and (F) certified copies of resolutions of the Board of
Directors of the Company (and any other corporate approvals)
made in connection with this Agreement and the transactions
contemplated hereby;
(ix) an opinion of counsel to Sellers, Xxxxx XxXxxxx
Xxxxxx & Karsh, LLC, addressed to Buyer and Buyer's financial
institution, dated the Closing Date, and opining favorably in
respect to those matters identified in Exhibit H attached
hereto;
(x) a certificate executed by Managing Sellers
certifying to Buyer and Buyer's financial institution with
respect to the contracts referred to in Sections 3.13(a) and
3.14(a) that to their Knowledge, such Knowledge standard, or
any other knowledge standard that may be agreed to by Managing
Sellers, Buyer and Buyer's financial institution, being
subject to approval by Buyer's financial institution, (A)
attached are copies of the material contracts of the Company ,
(B) each such contract remains in full force and effect and
(C) the Company has not breached or defaulted in any of its
obligations under such contracts;
(xi) Subscription Agreements for the Buyer Stock
executed by each Seller receiving stock as set forth on
Exhibit D;
(xii) Registration Rights Agreements executed by each
Seller receiving stock as set forth on Exhibit D;
(xiii) any documents required by Buyer's financial
institution, including but not limited to the financial
institution's form subordination agreement; and
(xiv) such other appropriate and customary documents
as any other parties or its counsel reasonably may request for
the purpose of consummating the transactions contemplated by
the Agreement, and to vest in Buyer good and valid title to
the Stock, free and clear of all claims, liens, security
interests, mortgages, deeds of trust, restrictions and/or
other encumbrances.
(b) Deliveries at Closing by Buyer. At the Closing, Buyer will
take such actions and execute and deliver, or cause to be executed and
delivered, to Sellers, such certificates, instruments and documents as are
required by this Agreement or as are required to give full effect to the
transactions provided for herein. Such actions and deliveries shall include, but
not be limited to, the following:
(i) payment of the cash portion of the Purchase Price
by wire transfer of immediately available U.S. funds to the
account or accounts specified by Xxxxxxxxx X. Xxxxxxxxx, as
principal and as agent acting on behalf of himself and the
other Sellers pursuant to the power of attorney attached
hereto as Exhibit I, to be allocated among them as set forth
on Exhibit D;
(ii) delivery of the Buyer Notes portion of the
Purchase Price by issuance of Buyer Notes payable to Sellers,
in the respective principal amounts as set forth on Exhibit D;
(iii) Subscription Agreements for the Buyer Stock
executed by the Company for each Seller receiving stock as set
forth on Exhibit D;
(iv) Registration Rights Agreements executed by the
Company for each Seller receiving stock as set forth on
Exhibit D;
(v) delivery of the Buyer Stock as part of the
Purchase Price issued to Sellers, in the respective amounts as
set forth on Exhibit D;
(vi) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement were
accurate in all material respects as of the date of this
Agreement and are accurate in all material respects as of the
Closing Date as if made on the Closing Date; and
(vii) Employment Agreements in the form of Exhibit F
executed by the Buyer;
(viii) Consulting Agreement in the form of Exhibit G
executed by the Buyer;
(ix) lease extension agreement as described in
Section 7.11; and
(x) bills of sale and/or other documentation required
to transfer title to the assets in the manner referred to in
sections 7.21 and 7.22.
(c) After the Closing or to comply with any requirements of
Buyer's financial institution, the Parties to this Agreement shall execute and
deliver such additional documents and take such additional actions as any party
or its counsel may reasonably deem to be practicable and necessary or advisable
in order to consummate the transactions contemplated by this Agreement.
2.7 Closing Date Income Statement.
(a) The Closing Date Income Statement shall be an unaudited
Income Statement of the Company for the 12-month period immediately preceding
and ending on the close of business on the Closing Date (determined on a pro
forma basis as though the Parties had not consummated the transactions
contemplated by this Agreement) and shall be compiled by Company's Certified
Public Accountant in accordance with GAAP and pursuant to the provisions of
Section 2.7(b).
(b) The basis of presentation of the Closing Date Income
Statement shall be prepared in accordance with the Company's historic financial
statements but, in all events, in accordance with GAAP applied on a basis
consistent with past practice and the following requirements:
(i) All nonrecurring expenses shall be added back to
EBIT, including but not limited to: (x) research, development
and other investment costs as described in 2.7(c) below; (y)
the salaries, benefits, expenses and other amounts payable to
or associated with the office of the Company's Chief Executive
Officer, including his executive assistant and other support
personnel; and, (z) expenses related to the Closing; and
(ii) All expenses of the Company consistent with its
business, custom and practice as in place at the Closing Date
shall be included in the EBIT calculation.
(c) The research and development and investment costs shall be
the sum of: (x) the cost of upgrading the Company's "Court Management System"
and (y) the costs attributable to losses incurred by the NSRgt business.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.
The Company represents and warrants to Buyer that the statements contained in
Sections 3.1 through 3.39 are correct and complete as of the date of this
Agreement with respect to itself, except as set forth in the disclosure
schedules attached hereto and delivered by the Company to Buyer on the date
hereof and initialed by the Buyer and the Company (the "Schedules"). Each Seller
represents and warrants to Buyer that the statements contained in Section 3.40
are correct and complete as of the date of this Agreement with respect to
himself, except as set forth in the Schedules. Nothing in the Schedules shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Schedules identify the exception with reasonable
particularity and describe the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
The Schedules will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
3.1 Validity. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally and by legal and equitable limitations on the
availability of specific performance and other equitable relief (collectively,
"Bankruptcy Laws and Equitable Principles").
3.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and effectively authorized by
all requisite (including full corporate or other entity) power and action on the
part of the Company. All resolutions and other requisite approval documents
required to be delivered pursuant to Section 2.6(a) are true and correct and are
attached to the Closing Certificate.
3.3 Organization and Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a Material Adverse Effect on the Company. Schedule
3.3(i) lists all of the states where the Company (i) is qualified to do business
and (ii) is in good standing under the laws of the respective jurisdiction. The
Company has the full corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
minute books of the Company are complete and correct and contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which the minutes have not been prepared and are not
contained in such minute books. Schedule 3.3(ii) lists the officers and
directors of the Company.
3.4 Capitalization.
(a) Company. The entire authorized capital stock of the
Company consists solely of 1,000,000 shares of no par value Common Stock, of
which 468,000 shares are issued and outstanding. There are no other securities
authorized or issued by the Company. All such issued and outstanding shares have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned beneficially and of record by the Sellers in the quantities as set
forth on Exhibit A attached hereto. There are no outstanding subscriptions,
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from, sale to, or issuance by the Company of any shares of its
capital stock or securities convertible into or exchangeable for any shares of
its capital stock, other than rights created by this Agreement. At Closing, all
options granted under that certain NSR Stock Option Plan 2000 and any other such
plans or agreements shall have been terminated and all optionees under any such
plans shall have been notified of the termination. At Closing, none of the
Sellers will have any obligation (contingent or otherwise), other than
obligations created by this Agreement, to issue, sell, purchase, redeem or
otherwise transfer, acquire, or reclassify any shares of the capital stock of
the Company or any interest therein or any warrants or options with respect
thereto, or to pay any dividend or make any other distribution with respect
thereto.
(b) Subsidiary I. Subsidiary I's authorized stock consists of
1,000,000 shares of common stock, no par value, of which 2,000 shares are
validly issued, fully paid, and nonassessable. All of the shares are owned by
the Company free and clear of any liens or encumbrances. There are no
outstanding obligations, options, warrants, or other rights or any kind to
acquire shares of stock of any class of Subsidiary I.
(c) Subsidiary II. Subsidiary II's authorized stock consists
of 50,000 shares of common stock, $.01 par value, of which 5,000 shares are
validly issued, fully paid, and nonassessable. All of the shares are owned by
the Company free and clear of any liens or encumbrances. There are no
outstanding obligations, options, warrants, or other rights or any kind to
acquire shares of stock of any class of Subsidiary II.
3.5 Subsidiaries. The Company is not a party to any joint venture or
partnership agreement, and except for Subsidiary I and Subsidiary II, does not
own or control any interest or investment, whether direct or indirect, in any
corporation, partnership, association or other business entity.
3.6 No Default. The execution, delivery and performance of and
compliance with this Agreement by Sellers and the sale and delivery of the Stock
contemplated hereby do not and will not violate any provision of law, any order
of any court or other agency of government, the Articles of Incorporation or
Bylaws of the Company, or any provision of any indenture, mortgage, agreement or
other instrument to which the Company or Sellers are a party or by which they or
any of their properties or assets are bound or may be affected, or conflict
with, result in a breach of or constitute a default (nor does there exist any
condition or event which, after notice or lapse of time or both, would
constitute a default by any party) under any such indenture, mortgage, agreement
or other instrument, or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
any Seller or the Company. The Company's organizational documents, including
applicable Charter or Articles of Incorporation, and all amendments filed
subsequent to incorporation, and the Company's current Bylaws attached to the
certificate delivered pursuant to Section 2.6(a)(viii) are true, complete and
correct copies of the Company's organizational documents and By-laws, as
currently in force.
3.7 Broker's Fees. Except as set forth on Schedule 3.7, neither Sellers
nor the Company has any liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
3.8 [INTENTIONALLY OMITTED.]
3.9 Compliance with Other Instruments. The Company is not in violation
of or breach of any term of its Articles of Incorporation or Bylaws, or any term
of any mortgage, indenture, contract, commitment, obligation, agreement or
instrument to which the Company is a party or by which it or its property is
bound to the extent that any such violation or breach would have a Material
Adverse Effect on the Company, or any judgment, decree or order binding upon the
Company or its property, or any statute, rule or regulation applicable to the
Company or its property. To the Company's Knowledge, no event has occurred which
either entitles or would on notice or lapse of time or both, entitle the holder
of any indebtedness affecting the Company to accelerate or which does accelerate
the maturity of any indebtedness affecting the Company.
3.10 Consents. No consent, approval or authorization of, or
registration, qualification or filing with, any person, court, administrative
agency or other governmental authority is required in connection with the valid
execution and delivery by Sellers of this Agreement, the sale or delivery of the
Stock, or the consummation of the transactions contemplated hereby.
3.11 Title to Property and Assets. The Company owns or leases all
machinery, equipment and other personal assets necessary for the conduct of its
business as presently conducted. Schedule 3.11(a) lists all the personal
property assets owned by the Company the original cost of which was $1,500 or
more, and Schedule 3.11(b) lists all of the personal property assets leased by
the Company. The Company has good and marketable title to all of the properties
and assets, personal, tangible and intangible it owns; holds the assets it owns
free and clear of any imperfection of title, mortgage, pledge, security
interest, lien, encumbrance, charge, equity, claim or restriction of any kind
other than the lien of property taxes not yet due and payable; and the Company
shall have the full and unrestricted use of same from and after the Closing
Date. None of the Company's assets or equipment is subject to any commitment or
other arrangement for their use by a third party. No financing statement or
similar instrument under the Uniform Commercial Code which names the Company as
debtor is currently in effect in any state or other jurisdiction and the Company
has not signed any such financing statement or similar instrument or any
security agreement which is currently in effect. The Company is not currently in
default under any lease agreement for its leased personal property. All tangible
properties and assets owned or leased by the Company are in good operating
condition except for normal wear and tear.
3.12 Real Property.
(a) The Company does not own any Real Property.
(b) Schedule 3.12(b) sets forth the address of each parcel of
Leased Real Property, and is a true and complete list of all Leases for each
such Leased Real Property (including the date and name of the parties to such
Lease document). The Company has delivered to Buyer a true and complete copy of
each such Lease document, and in the case of any oral Lease, a written summary
of the material terms of such Lease.
(c) With respect to each of the Leases:
(i) such Lease is legal, valid, binding, enforceable
and in full force and effect;
(ii) the transaction contemplated by this Agreement
does not require the consent of any other party to such Lease
(except for those Leases for which Lease Consents (as
hereinafter defined) are obtained), will not result in a
breach of or default under such Lease, and will not otherwise
cause such Lease to cease to be legal, valid, binding,
enforceable and in full force and effect on identical terms
following the Closing;
(iii) to the Company's Knowledge, the Company's
possession and quiet enjoyment of the Leased Real Property
under such Lease has not been disturbed and there are no
disputes with respect to such Lease;
(iv) the Company is not nor to the Company's
Knowledge is any other party to the Lease in breach or default
under such Lease, and to the Company's Knowledge no event has
occurred or circumstance exists which, with the delivery of
notice, the passage of time or both, would constitute such a
breach or default, or permit the termination, modification or
acceleration of rent under such Lease;
(v) to the Company's Knowledge, no security deposit
or portion thereof deposited with respect to such Lease has
been applied in respect of a breach or default under such
Lease which has not been redeposited in full;
(vi) the Company does not owe, or will not owe in the
future, any brokerage commissions or finder's fees with
respect to such Lease;
(vii) except for the lease referred to in Section
7.11, the other party to such Lease is not an Affiliate of,
and otherwise does not have any economic interest in the
Company;
(viii) the Company has not subleased, licensed or
otherwise granted any Person the right to use or occupy such
Leased Real Property or any portion thereof;
(ix) the Company has not collaterally assigned or
granted any other Lien in such Lease or any interest therein;
and
(x) there are no Liens on the estate or interest
created by such Lease.
3.13 Government Contracts.
(a) The Company has, prior to the date of this Agreement,
furnished to Buyer true, correct and complete copies of all active and material
contracts, agreements and other instruments between the Company and the units of
the federal, state and local governments, including without limitation BPA
and/or other civilian government agencies as described in Schedule 3.13(a)(i)
attached, which constitute all contracts, licenses, agreements and other
instruments to which the Company is a party or by which it is bound related to
services provided to the federal, state and local governments (the "Government
Contracts"). The Company has not breached any representation, warranty or
covenant contained in any such contract, agreement or instrument and the Company
is not in default with respect thereto. To the Company's Knowledge, no other
party to any such contract, agreement or instrument is in default or is claimed
to be in default in complying with any provision thereof or has committed or
permitted any event which, with notice or the passage of time or both, would
constitute such a default. Each such contract, agreement or instrument is in
full force and effect and is valid and binding upon the Company and upon the
other party thereto, in accordance with its terms. To the Company's Knowledge,
no other party to any such contract, agreement or instrument intends to cancel
or terminate any such contract, agreement or instrument. The Company has not
received notice of any such cancellation or termination. Schedule 3.13(a)(iii)
lists any government contracts currently in negotiation or proposed by the
Company.
(b) Transfer of the Stock to Buyer will not cause any breach
or default on the part of the Company with respect to any such contract,
agreement or instrument and each of them will remain in full force and effect
after the Closing, without diminution in the rights or benefits of the Company
thereunder as a result of transfer of the Stock to the Company.
(c) The Company has delivered to Buyer a correct and complete
copy of each written agreement (as amended to date) listed on Schedule
3.13(a)(i) and a written summary setting forth the terms and conditions of each
verbal agreement referred to on Schedule 3.13(a)(i), except for verbal
agreements relating to pending written agreements which may not have been
reduced to writing and reflected on Schedule 3.13(a)(i) because of time
limitations. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) to the Company's Knowledge, no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) to the Company's Knowledge, no party
has repudiated any provision of the agreement.
(d) The Company represents that (i) the Company and its
employees are in full compliance with all of the performance obligations under
the various Government Contracts and related workplans and other specification
documents; (ii) the payments the Company has applied for under the Government
Contracts have been fully earned by the Company and are accurately based on the
actual percentage of the Government Contract which has been completed and the
related expenses to the same portion of the contract; and (iii) all requisite
documentation of the payments, reimbursements of fees and expenses or requests
for payments and reimbursements are true, correct and appropriate under the
provisions of the respective Government Contract.
(e) The Company specifically represents that execution of this
Agreement and the consummation of the transactions contemplated hereby will not
have an adverse effect on the BPA Contract and that the BPA Contract will
continue in full force and effect immediately after the Closing subject to the
Company's continued performance of its obligations in accordance with the BPA
Contract.
3.14 Other Contractual Obligations.
(a) The Company has, prior to the date of this Agreement,
furnished to Buyer true, correct and complete copies of all nongovernment
contracts, agreements and other instruments (other than the Government Contracts
defined in Section 3.13) described in Schedule 3.14(a)(i) attached, which
constitute all nongovernment contracts, licenses, agreements and other
instruments (including without limitation contracts relating to employment) to
which the Company is a party or by which it is bound. The Company has not
breached any representation, warranty or covenant contained in any such
contract, agreement or instrument and the Company is not in default with respect
thereto. To the Company's Knowledge, no other party to any such contract,
agreement or instrument is in default or is claimed to be in default in
complying with any provision thereof or has committed or permitted any event
which, with notice or the passage of time or both, would constitute such a
default. Each such contract, agreement or instrument is in full force and effect
and is valid and binding upon the Company and upon the other party thereto, in
accordance with its terms. To the Company's Knowledge, no other party to any
such contract, agreement or instrument intends to cancel or terminate any such
contract, agreement or instrument. The Company has not received notice of any
such cancellation or termination.
(b) Transfer of the Stock to Buyer will not cause any breach
or default on the part of the Company with respect to any such contract,
agreement or instrument and each of them will remain in full force and effect
after the Closing, without diminution in the rights or benefits of the Company
thereunder as a result of transfer of the Stock to the Company.
(c) As listed on Schedule 3.14(c), the Company shall obtain
any necessary third-party consents required in connection with the transaction.
(d) The Company has delivered to Buyer a correct and complete
copy of each written agreement (as amended to date) listed on Schedule
3.14(a)(i) and a written summary setting forth the terms and conditions of each
oral agreement referred to on Schedule 3.14(a)(i). With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable, and in full
force and effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) to the Company's
Knowledge, no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) to the
Company's Knowledge, no party has repudiated any provision of the agreement.
3.15 Financial Statements. Attached hereto as Exhibit J are the
following financial statements (collectively the "Financial Statements"): (i)
audited consolidated and unaudited consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended September 30, 1998; September 30, 1999; September 30, 2000;
September 30, 2001; and September 30, 2002 (the "Most Recent Fiscal Year End")
for the Company; and (ii) unaudited consolidated and consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash flow
(the "Most Recent Financial Statements") as of and for the seven (7) month
period ended April 25, 2003 (the "Most Recent Fiscal Month End") for the
Company. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
3.16 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Change. Without
limiting the generality of the foregoing, since that date:
(a) except for the transactions described in this Agreement,
the Company has not sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for a fair consideration in the Ordinary
Course of Business;
(b) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the Ordinary Course of
Business;
(c) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $10,000 to which the Company is a party or by which any of them is bound;
(d) the Company has not imposed any Liens upon any of its
assets, tangible or intangible;
(e) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(f) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $10,000 or outside the Ordinary Course of Business;
(g) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than $1,000
singly or $10,000 in the aggregate;
(h) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(i) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course of Business;
(j) the Company has not transferred, assigned, or granted any
license or sublicense of any rights under or with respect to any Intellectual
Property;
(k) there has been no change made or authorized in the
Articles of Incorporation or Bylaws of the Company;
(l) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
(m) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(n) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
(o) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;
(p) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(q) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(r) the Company has not adopted, amended, modified, or
terminated any bonus, profit sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(s) the Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(t) the Company has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business;
(u) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company;
(v) the Company has not discharged a material Liability or
Lien outside the Ordinary Course of Business;
(w) the Company has not made any loans or advances of money;
(x) the Company has not disclosed any Confidential
Information; and
(y) the Company has not committed to any of the foregoing.
3.17 Legal Compliance. The Company and its respective predecessors and
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder including, without limitation, the Foreign Corrupt Practices Act, 15
U.S.C. 78dd-1 et seq.) of federal, state, local, and foreign governments (and
all agencies thereof), and no audit, action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply or investigating
any matter.
3.18 Employees. To the Knowledge of any of Sellers and the directors
and officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
Neither of the Managing Sellers (and employees with responsibility for
employment matters) of the Company has any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company. Schedule 3.18 attached lists (i) all
employment contracts and other contracts with any employee to which the Company
is a party; (ii) all profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consultant, retirement, welfare, incentive
plans or contracts (other than those Employee Benefit Plans referenced in
Section 3.19); and (iii) all plans or agreements which constitute "fringe
benefits" to the employees of the Company to which the Company is a party or by
which it is bound. The Company is not in default with respect to any of such
agreements. As of the Most Recent Fiscal Month End (and as of the Closing), the
Company has no (and will not have any) past due obligations under any of the
plans or agreements disclosed in Schedule 3.18. All accrued vacation liabilities
to which the Company is obligated to grant are accurately reflected on the
Financial Statements.
3.19 Employee Benefits.
(a) Schedule 3.19 lists each Employee Benefit Plan that the
Company maintains, to which the Company contributes or has any obligation to
contribute, or with respect to which the Company has any material Liability or
potential Liability.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) has been maintained,
funded and administered in accordance with the terms of such
Employee Benefit Plan and the terms of any applicable
collective bargaining agreement and complies in form and has
been operated in compliance with the applicable requirements
of ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions (including
annual reports (IRS Form 5500), summary annual reports, and
summary plan descriptions) have been timely filed and/or
distributed in accordance with the applicable requirements of
ERISA and the Code with respect to each such Employee Benefit
Plan. The requirements of COBRA, HIPPA, FMLA and other federal
laws have been met with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan subject to such
laws.
(iii) Schedule 3.19(a)(iii) identifies all persons
receiving COBRA coverage including their address, type of
coverage and remaining duration of coverage.
(iv) All contributions (including all employer
contributions and employee salary reduction contributions)
that are due have been made within the time periods prescribed
by ERISA and the Code to each such Employee Benefit Plan that
is an Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not
yet due have been made to each such Employee Pension Benefit
Plan or accrued in accordance with GAAP on the Company's
Financial Statement (or on the Company's general ledger for
contributions accrued after December 31, 2002). All premiums
or other payments for all periods ending on or before the
Closing Date have been paid when due with respect to each such
Employee Benefit Plan that is an Employee Welfare Benefit
Plan.
(vi) Each such Employee Benefit Plan which is
intended to meet the requirements of a "qualified plan" under
Code ss.401(a) has received a determination from the Internal
Revenue Service that such Employee Benefit Plan is so
qualified, and to the Company's Knowledge nothing has occurred
since the date of such determination that could adversely
affect the qualified status of any such Employee Benefit Plan.
(vi) The market value of assets under each such
Employee Benefit Plan that is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(vii) The Company has delivered to Buyer correct and
complete copies of the current plan documents, summary plan
descriptions and summary of material modifications for the
past three fiscal years, the most recent determination letter
received from the Internal Revenue Service, the three most
recent annual report (IRS Form 5500, with all applicable
attachments), and all related trust agreements, insurance
contracts, and other funding arrangements which implement or
relate to each such Employee Benefit Plan, including past
arrangements which still have any liabilities.
(b) With respect to each Employee Benefit Plan that the
Company and any ERISA Affiliate maintains, to which any of them contributes or
has any obligation to contribute, or with respect to which any of them has any
material Liability or potential Liability:
(i) No such Employee Benefit Plan that is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of
a Reportable Event. No proceeding by the PBGC to terminate any
such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No claim, action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine
non-disputed claims for benefits) is pending or threatened.
Neither of the Managing Sellers (and employees with
responsibility for employee benefits matters) of the Company
has any Knowledge of any Basis for any such claim, action,
suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred, and Neither of
the Managing Sellers (and employees with responsibility for
employee benefits matters) of the Company has any reason to
expect that the Company will incur, any Liability to the PBGC
(other than with respect to PBGC premium payments not yet due)
or otherwise under Title IV of ERISA (including any withdrawal
liability as defined in ERISA ss.4201) or under the Code with
respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan, or under COBRA with respect to any such
Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(c) Neither the Company nor and any ERISA Affiliate is a party
to, contributes to, has any obligation to contribute to, or has any Liability
(including withdrawal liability as defined in ERISA ss.4201) under or with
respect to any past or present Multiemployer Plan.
(d) The Company does not maintain, contribute to or have an
obligation to contribute to, or have any material Liability or potential
Liability with respect to, any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or future
retired or terminated directors, officers or employees of the Company (or any
spouse or other dependent thereof) other than in accordance with COBRA as shown
on Schedule 3.19(a)(iii).
(e) The Company has met and is in compliance with all
nondiscrimination tests and rules applicable to the Code Section 401(k) plans
sponsored by the Company and any other plan where nondiscrimination requirements
apply.
(f) At Closing, there will be no outstanding payments or other
deferred amounts under the Key Employee Incentive Plan, ITEAM Sales Incentive
Plan or any other similar plans, agreements or arrangements, except as reflected
on the Financial Statements or as otherwise disclosed to Buyer as an operating
expense under the budgets submitted to Buyer for the Government Contracts under
Section 3.13.
3.20 Environmental, Health and Safety Matters.
(a) The Company has complied and is in compliance with all
Environmental, Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is in compliance with, all permits,
licenses and other authorizations that are required pursuant to Environmental,
Health, and Safety Requirements for the occupation of its facilities, the
operation of its business and the performance of the relevant federal government
contracts; a list of all such permits, licenses and other authorizations is set
forth on Schedule 3.20(b).
(c) None of the Company or its respective predecessors or
Affiliates has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any Liabilities or potential Liabilities, including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.
(d) To the Company's Knowledge, none of the following exists
at any property or facility owned or operated by the Company: (1) underground
storage tanks, (2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4) landfills,
surface impoundments, or disposal areas.
(e) None of the Company or its respective predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to Liabilities,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any obligations
for site investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(g) None of the Company or any of their respective
predecessors or Affiliates has, either expressly or by operation of law, assumed
or undertaken any Liability, including without limitation any obligation for
corrective or remedial action, of any other Person relating to Environmental,
Health, and Safety Requirements.
(h) No facts, events or conditions of which the Company has
Knowledge relating to the past or present facilities, properties or operations
of the Company or any of their respective predecessors or Affiliates will
prevent, hinder or limit continued compliance with Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements, or give
rise to any other Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
3.21 Preservation of Business. From the date of this Agreement, and
through the Closing, Company shall use its best efforts to preserve intact the
business organization of the Company and its relationships with customers and
others having business relations with it, and to retain in its employ all of its
key employees.
3.22 No Conflict of Interest. Except for the property set forth on
Schedule 3.22, none of the Sellers own, directly or indirectly, in whole or in
part, any real or personal property, tangible or intangible, which the Company
is presently using or the use of which is necessary for the business of the
Company as presently conducted. The Company is not indebted to any of the
Sellers, any of the officers or directors of the Company or any of their
respective spouses, children or other family members, and none of such officers
or directors of the Company has any claim of any nature against the Company. No
officer or director of the Company, or any person in the family of or who is a
partner of any officer or director of the Company, (a) is indebted to the
Company, or (b) has any direct or indirect ownership interest in (i) any firm or
corporation which sells to the Company, (ii) or any other firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or (iii) in any firm or corporation which competes with the
Company.
3.23 Contract Xxxxxxxx, Notes and Accounts Receivable. Except for any
"retentions" under federal or state governmental contracts, (i) all previously
billed contracts and contract close out amounts are collectible within 180 days
following Closing; and, (ii) all notes and accounts receivable of the Company
are reflected properly on its books and records, are valid receivables subject
to no setoffs or counterclaims, are current and collectible within 180 days
following Closing, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
3.24 Tax Matters.
(a) The Company has filed all Tax Returns that it was required
to file under applicable laws and regulations. All such Tax Returns were correct
and complete in all respects and have been prepared in substantial compliance
with all applicable laws and regulations. All Taxes due and owing by the Company
(whether or not shown on any Tax Return) have been paid. Except as set forth on
Schedule 3.24(c), the Company currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Liens for
Taxes (other than Taxes not yet due and payable) upon any of the assets of the
Company.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) No Seller or director or officer (or employee responsible
for Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. No foreign, federal,
state, or local tax audits or administrative or judicial Tax proceedings are
pending or being conducted with respect to the Company. The Company has not
received from any foreign, federal, state, or local taxing authority (including
jurisdictions where the Company has not filed Tax Returns) any (i) written
notice indicating an intent to open an audit or other review, (ii) request for
information related to Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing
authority against the Company. Schedule 3.24(c) lists all federal, state, local,
and foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1999, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Managing Sellers have delivered to Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Company
filed or received since December 31, 1998.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not filed a consent under Code ss.341(f)
concerning collapsible corporations. The Company is not a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of (i) any "excess parachute
payment" within the meaning of Code ss.280G (or any corresponding provision of
state, local or foreign Tax law) and (ii) any amount that will not be fully
deductible as a result of Code ss.162(m) (or any corresponding provision of
state, local or foreign Tax law). The Company has not been a United States real
property holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(1)(A)(ii). The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code ss.6662. The Company is not a party to or bound by any Tax
allocation or sharing agreement. The Company (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (B) does not have any
Liability for the Taxes of any Person (other than the Company) under Reg.
ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(f) Schedule 3.24(f) sets forth the following information with
respect to the Company (or, in the case of clause (B) below, with respect to
each of the Subsidiaries) as of the most recent practicable date (as well as on
an estimated pro forma basis as of the Closing giving effect to the consummation
of the transactions contemplated hereby): (A) the basis of the Company in its
assets; (B) the basis of the stockholder(s) of any subsidiary of the Company in
its stock (or the amount of any excess loss account); (C) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company; and (D)
the amount of any deferred gain or loss allocable to the Company arising out of
any intercompany transaction.
(g) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company in filing their Tax Returns. Since the
date of the Most Recent Balance Sheet, the Company has not incurred any
liability for Taxes arising from extraordinary gains or losses, as that term is
used in GAAP, outside the Ordinary Course of Business consistent with past
custom and practice.
(h) The Company will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:
(A) change in method of accounting for a taxable period ending on or prior to
the Closing Date; (B) "closing agreement" as described in Code ss.7121 (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) intercompany transactions or any
excess loss account described in Treasury Regulations under Code ss.1502 (or any
corresponding or similar provision of state, local or foreign income Tax law);
(D) installment sale or open transaction disposition made on or prior to the
Closing Date; or (E) prepaid amount received on or prior to the Closing Date.
3.25 Compliance with Laws. The Company has in effect all federal, state
and local permits and licenses required by any applicable regulatory authority
and all other permits and licenses necessary for it to own, lease or operate its
assets and to carry on its business as now conducted. There has occurred no
default under any such permit or license. The business of the Company as
currently conducted complies with all laws, orders, permits and licenses
applicable to its business. The Company has complied with all applicable laws
(including statutes, rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings and charges thereunder) of federal, state, local and
foreign governments (and all agencies thereof) the violation of which may
reasonably be expected to have or does have, a material adverse effect on the
assets, liabilities or business acquired by Buyer; and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced (except as to actions commenced but not served upon
Sellers, such representation is limited to those of which Sellers have
Knowledge), alleging any failure so to comply. The foregoing includes, but is
not limited to, all laws relating to the protection of the environment, laws
relating to discrimination in the work place, laws relating to the use of
proprietary computer software, and laws governing the reporting, withholding or
payment of payroll, income, franchise or excise taxes.
3.26 Powers of Attorney. Except as described on Schedule 3.26, there
are no outstanding powers of attorney executed on behalf of the Company.
3.27 Undisclosed Liabilities. The Company does not have any Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
3.28 Insurance. Schedule 3.28 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past 10 years:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor to the Company's Knowledge any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) to the
Company's Knowledge, no party to the policy has repudiated any provision
thereof. The Company has been covered during the past 10 years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. The basis on which the liability and
worker's compensation insurance policy premiums have been calculated were
correctly presented to each insurer, were not underestimated at the time of the
presentation and are currently valid. There are no self-insurance arrangements
affecting the Company.
3.29 Intellectual Property. The Company does not own, possess or have
the right to use pursuant to a valid and enforceable, written license,
sublicense, agreement or permission any Intellectual Property except as
disclosed on Schedule 3.29, and except for commercially available
"off-the-shelf" or "mass market" software.
3.30 Litigation. Schedule 3.30 sets forth each instance in which the
Company (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or to the Company's Knowledge is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
Schedule 3.30 could result in any Material Adverse Change. The Company has no
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company or that there is
any Basis for the foregoing.
3.31 Guaranties. The Company is not a guarantor or otherwise is not
liable for any Liability or obligation (including indebtedness) of any other
Person.
3.32 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory write-down set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
3.33 Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, the Company does not have
any Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company.
Schedule 3.33 includes copies of the standard terms and conditions of sale or
lease for the Company (containing applicable guaranty, warranty, and indemnity
provisions). No product manufactured, sold, leased, or delivered by the Company
is subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease set forth in Schedule 3.33.
3.34 Product Liability. The Company does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
3.35 Business Continuity.
(a) The Company does not maintain any formal plan with respect
to business continuity and disaster recovery activities. Instead, given the
nature of its business, the Company provides for off-site backup storage of
software and data which to its Knowledge is sufficient to enable it to continue
to conduct such business notwithstanding the occurrence of any disaster, act of
God, act of war, act of hostilities against the United States, any other force
majeure event, the achievement of any particular dates or any effects thereof
(each, a "Force Majeure Event").
(b) Without limiting the generality of the foregoing, none
of the computer software, computer hardware (whether general or special
purpose), telecommunications capabilities (including all voice, data and video
networks) and other similar or related items of automated, computerized, and/or
software systems and any other networks or systems and related services that are
used by or relied on by the Company in the conduct of its business
(collectively, the "Systems") have experienced bugs, failures, breakdowns, or
continued substandard performance in the past twelve (12) months that has caused
any substantial disruption or interruption in or to the use of any such Systems
by the Company.
(c) The Company is covered by business interruption insurance
in scope and amount customary and reasonable to ensure the ongoing business
operations of the Company's business.
3.36 Certain Business Relationships with the Company. Except for the
leased property referred to in Section 7.11, none of Sellers, their Affiliates,
Sellers' directors, officers, employees and shareholders and the Company's
directors, officers, employees, and shareholders have been involved in any
business arrangement or relationship with the Company within the past 12 months,
and none of Sellers, their Affiliates, Seller's directors, officers, employees
and shareholders and the Company's directors, officers, employees, and
shareholders own any asset, tangible or intangible, which is used in the
business of the Company.
3.37 Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this section three not misleading.
3.38 Ownership of Stock. The Sellers are the legal and beneficial
owners of the Stock in quantities set forth opposite each Seller's name on
Exhibit A attached hereto, free and clear of any liens, claims, pledges,
encumbrances, charges, options and contractual restrictions of any kind or
nature whatsoever. The Sellers have full, absolute and unrestricted right,
power, capacity and authority to sell, transfer, assign and deliver the Stock to
Buyer, and delivery of the Stock to Buyer will convey to Buyer valid, marketable
and indefeasible title to the Stock, free and clear of any liens, claims,
pledges, encumbrances, charges, options or contractual restrictions of any kind
or nature, except as provided in this Agreement.
3.39 Survival. All representations, warranties and covenants of the
Sellers shall be true and correct as of the date of this Agreement, shall be
true and correct at Closing, and shall survive Closing and remain in full force
and effect, and shall be fully enforceable at law or in equity by Buyer, its
successors and assigns but in no event to exceed the limitations set forth in
Section 9.
3.40 Sellers' Representations and Warranties. Each Seller
represents and warrants to Buyer, with respect to itself only, as follows:
(a) This Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as such enforceability may be limited by applicable Bankruptcy Laws and
Equitable Principles.
(b) The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and effectively authorized by all requisite
(including full corporate or other entity) action on the part of the other
Sellers.
(c) None of the Sellers has any obligation (contingent or
otherwise), other than obligations created by this Agreement, to issue, sell,
purchase, redeem or otherwise transfer, acquire, or reclassify any shares of the
capital stock of the Company or any interest therein or any warrants or options
with respect thereto.
(d) The execution, delivery and performance of and compliance
with this Agreement by the Seller and the sale and delivery of the Stock
contemplated hereby do not and will not (a) violate (i) any provision of law
applicable to the Seller, (ii) any order of any court or other agency of
government applicable to the Seller, or any provision of any indenture,
mortgage, agreement or other instrument to which Seller is a party or by which
it or any of its properties or assets are bound or may be affected, or (b)
conflict with, result in a breach of or constitute a default (nor does there
exist any condition or event which, after notice or lapse of time or both, would
constitute a default by any party) under any such indenture, mortgage, agreement
or other instrument, or (c) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of the Seller; except where such violation, conflict, breach, default,
creation or imposition could not reasonably be expected to have a Material
Adverse Effect on the ability of the Seller to sell and transfer its Stock to
the Buyer and consummate the transactions contemplated hereby.
(e) Each Seller is the legal and beneficial owner of the Stock
in quantity set forth opposite each Seller's name on Exhibit A attached hereto,
free and clear of any liens, claims, pledges, encumbrances, charges, options and
contractual restrictions of any kind or nature whatsoever (other than as arise
pursuant to this Agreement). Each Seller has full, absolute and unrestricted
right, and capacity to sell, transfer, assign and deliver the Stock to Buyer,
and delivery of the Stock to Buyer will convey to Buyer good title to the Stock,
free and clear of any liens, claims, pledges, encumbrances, charges, options or
contractual restrictions of any kind or nature, except for Buyer Liens, and
except as provided in this Agreement.
(f) Except as set forth on Schedule 3.7, the Sellers have no
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(g) Each Seller who is receiving the Buyer Notes as stated on
Exhibit D attached hereto (A) understands that the Buyer Notes have not been,
and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (B) is
acquiring the Buyer Notes solely for his, her or its own account for investment
purposes, and not with a view to the distribution thereof, (C) is a
sophisticated investor with knowledge and experience in business and financial
matters, (D) has received certain information concerning Buyer and has had the
opportunity to obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the Buyer Notes, (E) is able to bear
the economic risk and lack of liquidity inherent in holding the Buyer Notes, and
(F) is an Accredited Investor.
(h) Each Seller who is receiving the Buyer Stock as stated on
Exhibit D attached hereto (A) has not relied on any representative of Buyer in
connection with the acquisition of the Buyer Stock hereunder, (B) understands
that the Buyer Stock has not been, and will not be, registered under the
Securities Act, or under any state securities laws, and is being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (C) is acquiring the Buyer Stock solely for his,
her or its own account for investment purposes, and not with a view to the
distribution thereof, (D) is a sophisticated investor with knowledge and
experience in business and financial matters, (E) has received certain
information concerning Buyer and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the Buyer Stock, (F) is able to bear the economic risk and lack of
liquidity inherent in holding the Buyer Stock, and (G) is an Accredited
Investor.
(i) With respect to the Company representation and warranty
given under Section 3.30, the Managing Sellers have no reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company or that there is any Basis for the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 4) with respect to itself, except as set forth in the schedules attached
hereto as Schedule 4 and delivered by Buyer to Sellers on the date hereof and
initiated by the Parties (the "Schedule"). The Schedules will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
4.1 Organization of Buyer. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
4.2 Authorization. Buyer has full power and authority (including full
corporate power and authority) to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance by
Buyer of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Buyer and no
other action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitute the legal, valid and
binding obligations of Buyer, enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally and by legal and equitable limitations on the
availability of specific performance and other equitable relief.
4.3 Financing. Buyer's financial institution has verbally confirmed with
Buyer that at the Closing Date Buyer's financial institution will make available
funds necessary to pay the cash portion of the Purchase Price.
4.4 No Conflict. Neither the execution and delivery by Buyer of this
Agreement or any of the other documents contemplated herein nor the consummation
of the transactions contemplated hereby or thereby by Buyer will (i) conflict
with, result in a breach or violation of or constitute (or with notice or lapse
of time or both constitute) a default under, (A) Articles of Incorporation or
other organizational documents of Buyer, or (B) any law, statute, regulation,
order, judgment or decree or any instrument, contract or other agreement to
which Buyer is a party or by which it (or any of its properties or assets) is
subject or bound; (ii) terminate or modify, or give any third party the right to
terminate or modify, the provisions or terms of any agreement or commitment to
which Buyer is a party or by which it (or any of its properties or assets) is
subject or bound which would have a Material Adverse Effect on Buyer; or (iii)
require Buyer to obtain any authorization, consent, approval or waiver from, to
give notification to, or to make any filing (other than filing to qualify as a
foreign corporation where necessary) with, any governmental entity or to obtain
the approval or consent of any other Person.
4.5 Completion and Satisfaction of Due Diligence. Buyer is knowledgeable
about the industry in which the Company operates and is experienced in the
management of the Company's business. At Closing, Buyer will have completed to
its satisfaction its due diligence process undertaken in contemplation of this
Agreement. In addition, Buyer acknowledges that it has received from the Company
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company filed or received
since December 31, 1998.
4.6 Consents. Other than as set forth on Schedule 4.6, no consent,
approval or authorization of, or registration, qualification or filing with, any
person or governmental authority is required in connection with the execution
and delivery of this Agreement by Buyer, or the consummation by it of the
transactions contemplated hereby.
4.7 SEC Reports. Each form, report, schedule, registration statement and
definitive proxy statement filed by Buyer with the SEC on and after July 26,
2002 and prior to the date hereof (as such documents have been amended prior to
the date hereof, the "Buyer SEC Reports"), as of their respective dates,
complied in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act. None of the Buyer SEC Reports,
as of the date on which such Buyer SEC Report was declared effective pursuant to
the Securities Act or the date on which such Buyer SEC Report was filed pursuant
to the Exchange Act, as applicable, contained or contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Buyer and its subsidiaries included in such reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP, consistently
applied (except as set forth in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the SEC)
and fairly present in all material respects (subject, in the case of the
unaudited interim financial statements, to normal, year-end audit adjustments)
the consolidated financial position of Buyer and its subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Since July 26, 2002, Buyer has timely filed with the
SEC all forms, reports and other documents required to be filed prior to the
date hereof, and no subsidiary of Buyer has filed, or been required to file, any
form, report or other document with the SEC, in each case, pursuant to the
Securities Act or the Exchange Act.
4.8Investment. Buyer represents and warrants to the Company and the
Sellers that:
(a) The Stock to be purchased by Buyer hereunder is being
acquired for investment for Buyer's
own account, not as a nominee or agent or on behalf of any other persons or
entities, and not with a view to the public resale or distribution thereof
within the meaning of the Securities Act, and Buyer has no present intention of
selling, granting any participation or interest in, or otherwise distributing
the same.
(b) Buyer has received or has had full access to all the
information it considers necessary or
appropriate to make an informed investment decision with respect to the Stock.
Buyer further has had an opportunity to ask questions and receive answers from
the Company and the Sellers regarding the terms and conditions of the purchase
of the Stock and to obtain additional information (to the extent the Company or
the Sellers possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to Buyer or to
which Buyer had access.
(c) Buyer is an Accredited Investor.
(d) Buyer understands that the Stock is characterized as
"restricted securities" under the
Securities Act inasmuch as it is being acquired from the Sellers in a
transaction not involving a public offering and that, in addition to any
restrictions on transfer provided hereunder or pursuant to the Securities Act,
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
4.9 Survival. All representations, warranties and covenants of Buyer shall
be true and correct as of the date of this Agreement, shall be true and correct
at Closing, and shall survive Closing and remain in full force and effect and
shall be fully enforceable at law or in equity by Seller, its successors and
assigns for a period not to exceed the limitations set forth in Section 9.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.
5.1 General. Each of the Parties will use his, her, or its reasonable
best efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
Closing conditions set forth in Sections 7 and 8 below).
5.2 Notices and Consents. Managing Sellers will cause the Company to
give any notices to third parties, and will cause the Company to use its
reasonable best efforts to obtain any third party consents referred to in
Section 3.14 above, the Lease Consents, and the items set forth on Schedule
3.12. Each of the Parties will (and Managing Sellers will cause the Company to)
give any notices to, make any filings with, and use its reasonable best efforts
to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section 3.15
above. Without limiting the generality of the foregoing, each of the Parties
will file (and Managing Sellers will cause the Company to file) any Notification
and Report Forms and related material that he, she, or it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Xxxx-Xxxxx-Xxxxxx Act, will use his, her,
or its reasonable best efforts to obtain (and Managing Sellers will cause the
Company to use its reasonable best efforts to obtain) an early termination of
the applicable waiting period, and will make (and Managing Sellers will cause
the Company to make) any further filings pursuant thereto that may be necessary,
proper, or advisable in connection therewith.
5.3 Operation of Business. Managing Sellers will not cause or permit
the Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, Managing Sellers will not cause or permit the
Company to (i) declare, set aside, or pay any dividend or make any distribution
with respect to its capital stock or redeem, purchase, or otherwise acquire any
of its capital stock or (ii) otherwise engage in any practice, take any action,
or enter into any transaction of the sort described in Section 3.18 above.
5.4 Preservation of Business. Managing Sellers will cause the Company
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, insurance policies, and
relationships with lessors, licensors, suppliers, customers, and employees.
5.5 Full Access. Each of Sellers will permit, and Managing Sellers will
cause the Company to permit, representatives of Buyer (including legal counsel
and accountants) to have full access at all reasonable times, and in a manner so
as not to interfere with the normal business operations of the Company to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Company.
5.6 Notice of Developments. Sellers will give prompt written notice to
Buyer of any material adverse development causing a breach of any of their
representations and warranties made in Section 3 above. Each Party will give
prompt written notice to the others of any material adverse development causing
a breach of any of his or its own representations and warranties in Sections 3
and 4 above. No disclosure by any Party pursuant to this Section 5.6, however,
shall be deemed to amend or supplement the Exhibits or the Schedules or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
5.7 Exclusivity. None of Sellers will (and Sellers will not cause or
permit the Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets, of
the Company (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. None of Sellers will vote their shares of Stock in favor
of any such acquisition. Sellers will notify Buyer immediately if any Person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
5.8 Maintenance of Leased Real Property. Managing Sellers will cause
the Company to maintain the Leased Real Property, including all of the
improvements, in substantially the same condition as of the date of this
Agreement, ordinary wear and tear excepted, and shall not demolish or remove any
of the existing improvements, or erect new improvements on the Leased Real
Property or any portion thereof, without the prior written consent of Buyer.
5.9 Leases. Managing Sellers will not cause or permit any of the
Company's Leases to be amended, modified, extended, renewed or terminated, and
the Company shall not enter into any new lease, sublease, license or other
agreement for the use or occupancy of any real property, without the prior
written consent of Buyer.
5.10 Tax Matters. Without the prior written consent of Buyer, the
Company shall not make or change any election, change an annual accounting
period, adopt or change any accounting method, file any amended Tax Return,
enter into any closing agreement, settle any Tax claim or assessment relating to
the Company, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company, or take any other similar action relating to
the filing of any Tax Return or the payment of any Tax, if such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action would have the effect of increasing the Tax liability of the Company for
any period ending after the Closing Date or decreasing any Tax attribute of the
Company existing on the Closing Date.
5.11 Split-Dollar Life Insurance Policies. Xxxxxxxxx and Xxxxxxxx
Xxxxxxxxx shall purchase at its cash value immediately following the Closing via
immediately available funds, the certain split dollar life insurance policy held
by the Company with The Xxxxxxxxx Trust as its beneficiary.
6. Post-Closing Covenants.
The Parties agree as follows with respect to the period following the Closing.
6.1 General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefore under Section 9
below). Sellers acknowledge and agree that from and after the Closing, Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data which are material to the business and
operations of the Company.
6.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefore under
Section 9 below).
6.3 Transition. None of Sellers will take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. Each Seller will refer all customer inquiries
relating to the businesses of the Company to Buyer from and after the Closing.
6.4 Confidentiality. Each Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to Buyer or
destroy, at the request and option of Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in his, her, or its
possession. In the event that any Seller is requested or required pursuant to
written or oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process to disclose any Confidential Information, such Seller will notify Buyer
promptly of the request or requirement so that Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 6.4.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of Sellers is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, such
Seller may disclose the Confidential Information to the tribunal; provided,
however, that the disclosing Seller shall use his, her, or its reasonable best
efforts to obtain, at the reasonable request of Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as Buyer shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure
unless such Confidential Information is so available due to the actions of a
Seller.
6.5 Covenant Not to Compete. Sellers acknowledge and agree that the
proprietary information they have acquired regarding the Company's business will
enable Sellers to injure the Buyer and diminish the value of the investment in
the Company if any of them should compete with the Company. Therefore, each
Seller listed on Exhibit A who owns 10% or more of the Stock hereby agrees that
for a period of five years from and after the Closing Date, such Seller without
the written consent of the Buyer, will not engage directly or indirectly in any
business that the Company conducts as of the Closing Date; provided, however,
that no owner of less than 5% of the outstanding stock of any publicly-traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section 6.5 is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
6.6 Limitations on Resale. Each Seller agrees and acknowledges that
they will not offer, sell, assign, hypothecate, transfer or otherwise dispose of
the Buyer Stock, except after full compliance with this Agreement, the
Registration Rights Agreement, all of the applicable provisions of the
Securities Act or an exemption therefrom and the rules and regulations of the
Securities and Exchange Commission.
6.7 Buyer Stock. The Buyer Stock issued in connection with this
Agreement will be "restricted securities" under the Securities Act and Rule 144
promulgated thereunder and may only be sold or otherwise transferred pursuant to
an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act. Therefore, each stock
certificate for Buyer Stock will be imprinted with a legend substantially in the
following form:
The Securities represented by this Certificate have not been registered
under the Securities Act of 1933 or of any state and cannot be offered or sold
except pursuant to an effective registration statement under such act or an
exemption from registration under such act which, in the opinion of counsel for
the issuer is available.
6.8 Registration Rights. Holders of Buyer Stock issued to Sellers
pursuant to this Agreement shall have certain registration rights with respect
to such shares as provided in the Registration Rights Agreement between such
Sellers and the Buyer attached hereto as Exhibit K.
6.9 Series I Notes. Each Series I Note will be imprinted with a
legend substantially in the following form:
The payment of principal and interest on this Note is subject to certain
recoupment provisions set forth in a Stock Purchase Agreement dated as of May,
____ 2003 (the "Purchase Agreement") among the issuer of this Note, the person
to whom this Note originally was issued, and certain other persons.
The indebtedness evidenced by this instrument is subordinated to the prior
payment in full of the Senior Obligations (as defined in the Subordination
Agreement hereinafter referred to) pursuant to, and to the extent provided in,
the Subordination Agreement dated May ___, 2003, made by the Subordinated
Creditors and SCB Computer Technology, Inc., a Tennessee corporation (the
"Obligor"), in favor of [INSERT NAME OF LENDER], a __________ corporation, as
arranger and administrative agent, all as referred to in such Subordination
Agreement.
Each holder desiring to transfer a Series I Note first must furnish Buyer
with a written undertaking executed by the desired transferee reasonably
satisfactory to Buyer in form and substance agreeing to be bound by the
recoupment provisions and the restrictions on transfer contained herein.
6.10 Series II Notes. Each Series II Note will be imprinted with
a legend substantially in the following form:
The payment of principal and interest on this Note is subject to certain
recoupment provisions set forth in a Stock Purchase Agreement dated as of May,
____ 2003 (the "Purchase Agreement") among the issuer of this Note, the person
to whom this Note originally was issued, and certain other persons.
The indebtedness evidenced by this instrument is subordinated to the prior
payment in full of the Senior Obligations (as defined in the Subordination
Agreement hereinafter referred to) pursuant to, and to the extent provided in,
the Subordination Agreement dated May ___, 2003, made by the Subordinated
Creditors and SCB Computer Technology, Inc., a Tennessee corporation (the
"Obligor"), in favor of [INSERT NAME OF LENDER], a __________ corporation, as
arranger and administrative agent, all as referred to in such Subordination
Agreement.
Each holder desiring to transfer a Series II Note first must furnish Buyer
with a written undertaking executed by the desired transferee reasonably
satisfactory to Buyer in form and substance agreeing to be bound by the
recoupment provisions and the restrictions on transfer contained herein.
6.11 Stock Options. Promptly, but in no event more than sixty (60) days
after the Closing, Buyer shall grant to the individuals listed on Exhibit L
non-qualified stock options to purchase 120,000 shares of Buyer's common stock
under Buyer's 1997 Stock Incentive Plan in amounts set forth opposite each
individual's name on Exhibit L. The exercise price of the stock options will be
equal to the closing sale price of Buyer's common stock on the grant date as
reported on the OTC Bulletin Board. The stock options would vest and become
exercisable in four equal annual installments beginning one year after the grant
date. The stock options would be exercisable for a term of 10 years from the
grant date and will be issued under the Buyer's existing stock option plan.
7. CONDITIONS TO CLOSING OF BUYER.
Unless expressly waived in a writing executed on behalf of Buyer, the
obligations of Buyer to purchase and pay for the Stock at the Closing is subject
to the fulfillment before the Closing Date of the following conditions:
7.1 Representations and Warranties Correct. The representations and
warranties made by Sellers in this Agreement shall have been true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of the Closing Date, and Sellers
shall have certified to such effect to Buyer in writing.
7.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by Sellers on or prior to the
Closing Date shall have been performed or complied with in all respects, and
Sellers shall have certified to such effect to Buyer in writing.
7.3 Delivery of Business Plan. Sellers shall cause the Company to
prepare and deliver to Buyer reasonable, good-faith projections of the Company's
EBITDA for each of the 12-month periods ending March 31, 2003, March 31, 2004,
and March 31, 2005. Buyer expects that the Company's projected revenue and
EBITDA for each of such three years will be equal to or greater than $28,806,100
and $2,009,000, respectively.
7.4 Financing. Buyer shall obtain adequate financing for the
transaction, including (a) a term loan of approximately $3,000,000 and (b) an
increase of approximately $4,000,000 in the borrowing base under Buyer's
existing revolving loan as a result of the addition of the Company's eligible
accounts receivable to the borrowing base.
7.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to Buyer and its counsel.
7.6 No Adverse Developments. With regard to the Company, there shall
have been no Material Adverse Change since September 30, 2002 and there shall be
no order, decree or ruling by any court or governmental agency or threat thereof
or any other fact or circumstance which, in the opinion of Buyer, might cause a
Material Adverse Change.
7.7 Regulatory Approvals. All consents of, filings and registrations
with, and notifications to, all regulatory authorities required in connection
with the purchase and sale of the Stock shall have been obtained or made and
shall be in full force and effect and all waiting periods required by law shall
have expired. No consent obtained from any regulatory authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner, which in the reasonable judgment of the
Board of Directors of Buyer would so materially adversely impact the financial
or economic benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, either party would not, in its
reasonable judgment, have entered into this Agreement.
7.8 Consents. Except as otherwise consented to in writing by Buyer, all
necessary consents of any other party to the transactions contemplated by this
Agreement shall have been obtained, in writing in form and substance reasonably
satisfactory to Buyer.
7.9 Legal Proceedings. No court or government or regulatory authority
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law or order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, restricts or makes illegal consummation of the
transactions contemplated by this Agreement.
7.10 Delivery of Exhibits. All exhibits, schedules and other documents
required to be attached to this Agreement or delivered hereunder shall be
delivered or attached to this Agreement and updated sufficiently prior to the
Closing Date to allow review by Buyer and its counsel and shall be reasonably
satisfactory in form and substance to Buyer in its sole discretion.
7.11 Office Lease. At the Closing, the Company, Buyer and Second Wind
Enterprises, LLC shall have entered into a four-year lease extension, in the
form of Exhibit M, for the Company's office space located at 5385 Xxxx Xxxxxxx
Boulevard, Colorado Springs, Colorado.
7.12 Consulting Agreement. Buyer, the Company and Xxxxxxxxx X.
Xxxxxxxxx shall have entered into a consulting agreement in the form attached
hereto as Exhibit G.
7.13 Employment Agreements. Buyer, the Company, Xxxxxx Xxxxxxx and
Xxxxxx Xxxxxx shall have entered into an employment agreement in the form
attached hereto as Exhibit F.
7.14 Opinion of Counsel. Sellers shall deliver to Buyer an opinion from
counsel to Sellers, dated as of the closing, in form and content acceptable to
the Buyer and Buyer's financial institution.
7.15 Delivery of Contracts. Sellers shall deliver to Buyer all fully
executed copies of all contracts as described in Sections 3.15 and 3.16 above
and disclosed on Schedules 3.15 and 3.16. Upon review of the contracts, the
Buyer must find all terms and conditions of the contracts acceptable.
7.16 Delivery of Consents. Sellers shall deliver to Buyer all third
party consents as determined under Section 3.12.
7.17 Brokers' Fees. Sellers shall pay the fees and expenses of CFA
Technology Partners and all other accountant, attorney and related broker fees
and expenses they owe at Closing.
7.18 Delivery of Other Documents. Sellers shall deliver such other
documents as Buyer may reasonably request for the purpose of (i) enabling
Buyer's counsel to provide any opinion required by Buyer's financial institution
relating to the Company prior to Closing, (ii) evidencing the accuracy of any of
Sellers' representations and warranties, (iii) evidencing the performance by
either Seller of, or the compliance by either Seller with, any covenant or
obligation required to be performed or complied with by such Seller, (iv)
evidencing the satisfaction of any condition referred to in this Section 7, or
(v) otherwise facilitating the consummation or performance of this Agreement.
7.19 Adjustment of Purchase Price. Buyer shall retain the ability to
adjust the principal amount(s) of the Series I Notes in accordance with the
formula described in Section 2.4.
7.20 Payment of Note Receivable. Concurrent with the Closing, Second
Wind Enterprises, LLC, a Colorado limited liability company, shall have paid in
full its promissory note payable to the Company dated February 24, 1999.
7.21 Automobiles. For no consideration, the Company shall take all
necessary action to transfer free and clear title to Xxxxxxxxx X. Xxxxxxxxx at
the Closing of two automobiles, (VIN # XXXXX00X0XX000000 and VIN
#X0XX00X0XX0000000).
7.22 Office Furniture. For no consideration, Company shall, by
appropriate xxxx of sale, transfer free and clear title to Xxxxxxxxx X.
Xxxxxxxxx of the furnishings located in his Company office as more particularly
described in Schedule 7.22.
7.23 Disposition of NSRgt. Prior to Closing, Xxxxxxxxx X. Xxxxxxxxx, or
an Affiliate thereof, shall have purchased from the Company the NSRgt business,
intellectual property, inventory and related products.
7.24 BPA Contract. The BPA Contract shall have been executed and
delivered to the Company; there shall have been a Final Disposition of the
Protest; and, Buyer shall have received verbal or other assurance, from a BPA
Executive that the BPA Contract will not be cancelled or materially adversely
affected by Buyer's acquisition of the Stock; provided however, such assurance
notwithstanding, Buyer shall not be required to close if operating in good faith
it has grounds to believe that the BPA Contract will be cancelled or materially
adversely affected by such Stock acquisition. Buyer, in its sole discretion, may
waive this condition to Closing.
8. CONDITIONS TO CLOSING OF SELLERS.
Unless expressly waived in a writing executed on behalf of Sellers, Sellers'
obligations to sell the Stock at the Closing is subject to the fulfillment on or
prior to the Closing Date of the following conditions:
8.1 Representations and Warranties Correct. The representations and
warranties made by Buyer in this Agreement shall have been true and correct when
made, and shall be true and correct on the Closing Date with the same force and
effect as if made on and as of said date, and Buyer shall have certified to such
effect to Sellers in writing.
8.2 Proceedings and Documents. All proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be reasonably satisfactory in substance and form to
Sellers and its counsel.
8.3 Delivery of Cash, Buyer Stock, Notes and Stock Options. Buyer shall
deliver to Sellers the cash, Buyer Stock, and notes as specified in Section 2.3.
Buyer shall arrange for delivery after Closing of the stock options as specified
in Section 6.11.
8.4 Delivery of Consulting Agreements. Buyer shall deliver to Xxxxxxxxx
X. Xxxxxxxxx the Consulting Agreement in the form of Exhibit G, duly executed by
Company and approved by Buyer.
8.5 Delivery of Lease Extension. Buyer shall cause the Company to
deliver to Xxxxxxxxx X. Xxxxxxxxx the lease extension agreement described in
Section 7.11, duly executed by Company and approved by Buyer.
8.6 Delivery of Other Documents. Buyer shall deliver such other
documents as Sellers may reasonably request for the purpose of (i)evidencing the
accuracy of any representation or warranty of Buyer, (ii) evidencing the
performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (iii) evidencing
the satisfaction of any condition referred to in this Section 8, or (iv)
otherwise facilitating the consummation or performance of this Agreement.
9. SELLERS' LIABILITY/INDEMNIFICATION.
9.1 Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time of
Closing) and continue in full force and effect thereafter for a period not to
exceed two (2) years from the Closing Date, except for acts of Fraud by the
Parties and those representations and warranties of the Parties in Section 3.24
pertaining to Taxes, which shall survive the Closing hereunder until the
expiration of the applicable statute of limitations (the "Survival Period") .
9.2 Indemnification Provisions for Buyer's Benefit. (a) In the event
any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller has breached) any of his, her, or its
representations, warranties, and covenants contained herein and, provided that
Buyer delivers a written notice of claim for indemnification against any Seller
in the manner described in Section 11.5 below within the Survival Period, then,
subject to the limitations contained herein and in Section 9.8(b), each Seller
who has breached a representation, warranty or covenant shall be obligated to
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer
may suffer (including any Adverse Consequences Buyer may suffer after the end of
the Survival Period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach). The amount of each such
indemnifying Seller's liability shall be limited to that Seller's liability cap
as described in Section 9.8(b). If, in a given situation, there is more than one
indemnifying Seller, the liability of each such indemnifying Seller shall be pro
rata, based on the number of Shares each such Seller has sold to Buyer under the
terms of this Agreement. By way of example, if there are two indemnifying
Sellers and one sold 80,000 shares and the other sold 20,000 shares, the first
such Seller would bear 80% of the indemnification cost and the second such
Seller would bear 20% of the indemnification cost, in each case limited by that
Seller's overall liability limit set forth in Section 9.8(b).
(b) In the event the Company has breached (or in the event any third
party alleges facts that, if true, would mean the Company has breached) any of
its representations, warranties, and covenants contained herein and, provided
that Buyer delivers a written notice of claim for indemnification against the
Managing Sellers in the manner described in Section 11.5 below within the
Survival Period, then, subject to the limitations contained herein and in
Section 9.8(b), each Managing Seller shall be obligated to indemnify Buyer from
and against the entirety of any Adverse Consequences Buyer may suffer (including
any Adverse Consequences Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach). The amount of each such
indemnifying Managing Seller's liability shall be joint and several.
9.3 Indemnification Provisions for Sellers' Benefit. In the event Buyer
breaches (or in the event any third party alleges facts that, if true, would
mean Buyer has breached) any of its representations, warranties, and covenants
contained herein and, provided that any Seller delivers a written notice of
claim for indemnification against Buyer in the manner described in Section 11.5
below within the Survival Period, then Buyer shall indemnify each Seller from
and against the entirety of any Adverse Consequences suffered (including any
Adverse Consequences suffered after the end of the Survival Period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
9.4 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 9, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of his, her or its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party as called for in Section
9.2 or 9.3 above (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests or
the reputation of the Indemnified Party, and (E) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with this Section 9, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in this Section 9 above
is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses) up to the amount of any applicable
liability limit, and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Section 9.
9.5 Determination of Adverse Consequences. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 9. All
indemnification payments under this Section 9 shall be deemed adjustments to the
Purchase Price.
9.6 Recoupment Under Series I Notes. The indemnification provisions of
this Section 9 shall constitute the sole and exclusive remedy of the Buyer for
all claims arising from, relating to, or in connection with this Agreement and
the transactions contemplated hereby (other than claims finally determined by a
court of competent jurisdiction to arise from Fraud and Taxes, claims arising
under or relating to the Employment Agreements, the Consulting Agreement, or the
Buyer Notes, and other than any claims for specific performance or injunctive
relief). Except for indemnification claims finally determined by a court of
competent jurisdiction to arise from Fraud and Taxes, for any other
indemnification to which Buyer is entitled under this Agreement as a result of
any Adverse Consequences it may suffer (other than indemnification for claims
arising under or related to the Employment Agreements or the Consulting
Agreement), Buyer's sole and exclusive remedy for obtaining such indemnification
against Sellers who received Series I Notes shall be by setoff against principal
amounts then outstanding under the Series I Notes, which shall be effected after
the determination (by agreement between the Buyer and the affected Sellers or by
final, non-appealable judgment of a court of competent jurisdiction) that Buyer
is entitled to indemnity hereunder and by notifying the affected Sellers that
Buyer is reducing the principal amount outstanding under the Series I Notes. Any
such reduction in the principal amount of the Series I Notes (i) shall affect
the timing and amount of payments required under the Series I Note by being
allocated first to the last payment due under the Series I Notes, then to each
previous payment in turn until the setoff amount is satisfied in full (or the
amounts due under the Series I Notes are reduced to zero), and (ii) shall be
allocated among the Series I Notes pro rata in proportion to the principal
amount of each Series I Note then outstanding. As a condition precedent to a
principal reduction as herein described, Buyer shall give the affected Seller
not less than 30 calendar days notice of its intent to reduce principal and
during such 30-day period the parties shall negotiate in good faith with regard
to all issues associated with the Buyer's right to indemnification and/or
damages from a Seller. Buyer's right to reduce principal on Series I Notes is in
all cases subject to the liability limitation provisions of Section 9.8(b). In
the event that the outstanding principal amount of the Series I Note is less
than Two Million and No/100 Dollars ($2,000,000.00) and a claim for
indemnification filed by Buyer hereunder is pending resolution, then the
Sellers' holding the Series I Note shall place in escrow the difference between
Two Million and No/100 Dollars ($2,000,000.00) and the then-outstanding
principal amount of the Series I Note. Any such escrow arrangement shall be
approved by the Buyer. All indemnification claims against any Sellers other than
the Seller(s)' holding the Series I Note shall be brought against such Seller
directly.
9.7 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Company or the transactions contemplated by this Agreement.
Each Seller hereby agrees that he, she, or it will not make any claim for
indemnification against the Company by reason of the fact that he, she, or it
was a director, officer, employee, or agent of any such entity or was serving at
the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, by-law, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise). Sellers shall retain their
rights to indemnification from the Company in all other circumstances.
9.8 Limitations.
(a) No Party shall be entitled to any indemnification or
damages for Adverse Consequences under this Agreement unless and until the
aggregate amount of Adverse Consequences experienced by such party exceeds
$50,000, in which case such Party shall only be entitled to the amount of
Adverse Consequences in excess of $50,000; provided that claims for Adverse
Consequences based upon (i) Buyer's failure to pay the Closing Purchase Price,
(ii) Buyer's failure to pay any Adjustment Amount owed to Sellers, (iii)
Sellers' failure to pay any Adjustment Amount owed to Buyer, (iv) the Buyer
Notes, or (v) the Employment Agreements and the Consulting Agreement, shall not
be subject to the foregoing limitation.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (i) the aggregate liability of all Sellers for indemnification and/or
damages to Buyer under this Agreement shall not exceed Two Million and No/100
Dollars ($2,000,000.00), (ii) the aggregate liability of any individual Seller,
for indemnification and/or damages to Buyer under this Agreement shall not
exceed the lesser of an amount determined by multiplying the indemnifying
Seller's percentage of all Stock sold under this Agreement (as listed on Exhibit
A) by Two Million and No/100 Dollars ($2,000,000.00), or the portion of the
Purchase Price payable to the Seller under this Agreement, (iii) the aggregate
liability of the Managing Sellers for indemnification and/or damages to Buyer
under this Agreement shall be joint and several, and (iv) the liability of the
Sellers other than the Managing Sellers shall be several. The aggregate
liability of the Buyer for indemnification and/or damages to the Sellers under
this Agreement shall not exceed Two Million and No/100 Dollars ($2,000,000.00).
Any amounts paid with respect to (i) the Buyer Notes, (ii) the Employment
Agreements, the Consulting Agreement, (iii) any Adjustment Amounts, (iv) Fraud
or Taxes, and (v) the Company's representation under Section 3.13(e) regarding
the BPA Contract shall not be subject to, and shall not be counted towards the
indemnification limits of this Section 9.8(b).
(c) The amount of Adverse Consequences suffered by any
Indemnified Party shall be reduced by an amount equal to any insurance recovery
received by such Indemnified Party with respect to such Adverse Consequences and
shall be determined on an "After-Tax Basis." The term "After-Tax Basis" means
that the amount of the Adverse Consequences shall be determined with due regard
to the effect on amount or timing of the Indemnified Party's Tax liabilities of
both (i) the incurrence of such Adverse Consequences (such as the effect of an
income tax deduction allowable for such Adverse Consequences or a reduction in
taxable income in a different taxable period correlative to an increase in Tax
liability which gives rise to the Adverse Consequences) and (ii) the receipt by
the Indemnified Party of any payment against such Adverse Consequences (such as
the effect of inclusion of such payment in income of the Indemnified Party).
(d) No Seller shall be obligated to pay any amounts for
indemnification or damages hereunder for any Adverse Consequences incurred by
Buyer which relate to any Liabilities for which reserves exist on the Final
Balance Sheet until, and solely to the extent that, the amount of such Adverse
Consequences exceeds the amount of such reserves.
(e) Notwithstanding any provision contained herein to the
contrary, no Indemnified Party shall be entitled to indemnification hereunder
with respect to a breach by an Indemnifying Party of any representations or
warranties hereunder of which such Indemnified Party had Knowledge on the date
hereof.
9.9 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain tax
matters following the Closing Date:
(a) Tax Indemnification. Each Managing Seller shall jointly
and severally indemnify the Company, Buyer, and each Buyer Affiliate and hold
them harmless from and against without duplication, any loss, claim, liability,
expense, or other damage attributable to (i) all Taxes (or the non-payment
thereof) of the Company for all Taxable periods ending on or before the Closing
Date and the portion through the end of the Closing Date for any Taxable period
that includes (but does not end on) the Closing Date ("Pre-Closing Tax Period"),
(ii) all Taxes of any member of an affiliated, consolidated, combined or unitary
group of which the Company (or any predecessor of any of the foregoing) is or
was a member on or prior to the Closing Date, including pursuant to Treasury
Regulation ss.1.1502-6 or any analogous or similar state, local, or foreign law
or regulation, and (iii) any and all Taxes of any person (other than the
Company) imposed on the Company as a transferee or successor, by contract or
pursuant to any law, rule, or regulation, which Taxes relate to an event or
transaction occurring before the Closing; provided, however, that in the case of
clauses (i), (ii), and (iii) above, Managing Sellers shall be liable only to the
extent that such Taxes exceed the amount, if any, reserved for such Taxes
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) on the face of the Most Recent Balance
Sheet (rather than in any notes thereto), as such reserve is adjusted for the
passage of time through the Closing Date in accordance with past custom and
practice of the Company in filing its Tax Returns. The Managing Sellers shall
reimburse Buyer for any Taxes of the Company which are the responsibility of
Sellers pursuant to this Section 9.9(a) within fifteen (15) business days after
payment of such Taxes by Buyer or the Company.
(b) Straddle Period. In the case of any Taxable period that
includes (but does not end on) the Closing Date (a "Straddle Period"), the
amount of any Taxes based on or measured by income or receipts of the Company
for the Pre-Closing Tax Period shall be determined based on an interim closing
of the books as of the close of business on the Closing Date (and for such
purpose, the Taxable period of any partnership or other pass-through entity in
which the Company holds a beneficial interest shall be deemed to terminate at
such time) and the amount of other Taxes of the Company for a Straddle Period
which relate to the Pre-Closing Tax Period shall be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in such Straddle Period.
(c) Responsibility for Filing Tax Returns.
(i) Managing Sellers shall prepare or cause to be prepared and
file or cause to be filed all Tax Returns for periods ending
prior to the Closing Date and all final tax returns, including
any short period Tax Return(s), for the Company for the period
ending on Closing.
(ii) Buyer shall prepare or cause to be prepared and
file or cause to be filed all Tax Returns for the Company for
periods beginning on or before the Closing Date, that are
first required to be filed after the Closing Date. Such Tax
Returns (A) shall be prepared in a manner consistent with the
prior practice of the Company unless otherwise required by
applicable Tax laws, and (B) shall be provided to Managing
Sellers at least 30 days prior to the due date for filing such
return (or, if required to be filed within 30 days of the
Closing, as soon as possible following the Closing). Managing
Sellers shall have the right, prior to filing, to review and
approve such Tax Return and to direct the adoption of any
reasonable position thereon. For this purpose, a position
shall be deemed reasonable if it has a "reasonable basis", as
defined in Section 6662 of the Code.
(d) Cooperation on Tax Matters.
(i) Buyer, the Company, and Managing Sellers shall
cooperate fully, as and to the extent reasonably requested by
the other Party, in connection with the filing of Tax Returns
pursuant to this Section 9 and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other Party's request) the
provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to
provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to
retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period
beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer
or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the
other Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if
the other Party so requests, the Company or Sellers, as the
case may be, shall allow the other Party to take possession of
such books and records.
(ii) Buyer and Sellers further agree, upon request,
to use their best efforts to obtain any certificate or other
document from any governmental authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, taxes
associated with the transactions contemplated hereby).
(iii) Buyer and Managing Sellers further agree, upon
request, to provide the other party with all information that
either party may be required to report pursuant to Code
ss.6043 and all Treasury Regulations promulgated thereunder.
(e) Tax Sharing Agreements. All Tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
(f) Audits and Contests Regarding Taxes. Any party who
receives any notice of a pending or threatened Tax audit, assessment, or
adjustment against or with respect to the Company which may give rise to
liability of other parties hereto, shall promptly notify such other parties
within fifteen (15) days of the receipt of such notice. The parties each agree
to consult with and to keep the other parties hereto informed on a regular basis
regarding the status of any Tax audit or proceeding to the extent that such
audit or proceeding could affect a liability of such other parties (including
indemnity obligations hereunder). Managing Sellers shall have the right to
represent the Company's interests in any Tax audit or administrative or judicial
proceeding and to employ counsel of their choice, but reasonably satisfactory to
Buyer, at their expense, but only to the extent such audit or other proceeding
pertains to a Pre-Closing Tax Period. Buyer shall have the right to participate
in such proceeding at its own expense, and shall be entitled to control the
disposition of any issue involved in such proceeding which does not affect a
potential liability of Managing Sellers. Both Buyer and Managing Sellers shall
be entitled to represent their own interests in light of their responsibilities
(including indemnity obligations) for the related Taxes, at their own expense,
in any audit or administrative or judicial proceedings involving a Pre-Closing
Tax Period. Except as provided in this Section 9.9(f), the provisions of
Sections 9.4 including the provisions therein addressing settlement authority,
shall govern the manner in which Tax audit or administrative or judicial
proceedings are resolved.
(g) Tax Elections; Amended Returns. Except in connection with
an audit resolved pursuant to Section 9.9(f) of this Agreement, no Party may
amend a Tax Return of the Company, or file or amend any Tax election of the
Company, in each case, with respect to a Pre-Closing Tax Period without the
consent of the other Parties, which consent shall not be unreasonably withheld
or delayed.
(h) Certain Taxes and Fees. All transfer, documentary, sales,
use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by Sellers when due, and Sellers
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes, fees and charges, and, if required
by applicable law, Buyer will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. TERMINATION.
10.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 have
not been satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition on
or before the Closing Date; or (ii) by Sellers, if any of the conditions in
Section 8 have not been satisfied of the Closing Date or if satisfaction of such
a condition is or becomes impossible (other than through the failure of Sellers
to comply with their obligations under this Agreement) and Sellers have not
waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before August
31, 2003, or such later date as the parties may agree upon.
10.2 Effect of Termination. Each party's right of termination under
Section 10.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 10.1, all
further obligations of the parties under this Agreement will terminate;
provided, however, that if this Agreement is terminated by a party because of
the breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies, including but not limited to an action for specific performance,
will survive such termination unimpaired.
11. MISCELLANEOUS.
11.1 Governing Law. This Agreement shall be governed as to all matters
by, and construed in accordance with the laws of the State of Tennessee,
excluding any other laws that might apply pursuant to its conflict of laws
rules. This Agreement is performable in Memphis, Shelby County, Tennessee.
Exclusive venue for any dispute arising with respect to this Agreement shall be,
Memphis, Tennessee. The Sellers accepts the exclusive jurisdiction of any court
of competent jurisdiction in Memphis, Tennessee and irrevocably waive, to the
fullest extent permitted by law, any objection that they may have or hereafter
have to the laying of the venue of any suit, action or proceeding relating to
the terms of this Agreement brought in a court of competent jurisdiction in,
Memphis, Tennessee, and waive any claim that any such suit, action or proceeding
has been brought in an inconvenient forum.
11.2 Assignment. This Agreement shall not be assignable by any party
without the written consent of the other parties hereto; provided, however, that
this prohibition shall not apply to (i) any assignment by Buyer by operation of
law, or (ii) any assignment by Buyer to its lenders, as collateral for security
purposes under Buyer's existing credit facility.
.
11.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors, heirs, personal
representatives and assigns.
11.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof,
superseding all negotiations, prior discussions, the confidential offering
memorandum, the letter of intent dated December 3, 2002, as amended, provided to
Sellers by Buyer and preliminary agreements. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated verbally, but only by a written instrument signed by
the party sought to be bound thereby.
11.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be given in writing and shall be deemed effectively
given upon personal delivery or upon deposit with the United States Postal
Service, by certified mail, return receipt requested, postage prepaid, or upon
deposit with FedEx, by Priority Overnight Delivery, or otherwise delivered by
hand or by messenger, addressed:
As to Sellers: Xxxxxxxxx X. Xxxxxxxxx
000 Xxx Xxxxx Xxxxx
Xxxxxxx Xxxxxxx, XX 00000
With a copy to: Xxxxx XxXxxxx Xxxxxx & Xxxxx, LLC
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxx
As to the Company: National Systems & Research Co.
0000 Xxxx Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
With a copy to: Xxxxx XxXxxxx Xxxxxx & Karsh, LLC
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxx
As to Buyer: SCB Computer Technology, Inc.
0000 Xxxxxx Xxxx-Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Executive
Vice President - Finance and Administration
Chief Financial Officer and Treasurer
With a copy to: Xxxxx, Xxxxxx & Xxxxxxx, PLLC
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxx X. Xxxxx
11.6 Tax Consequences. There shall be no recourse by any party hereto
against any other party hereto by reason of the fact that the execution or
consummation of this Agreement or of any transaction contemplated hereby has or
does not have any particular tax consequences with regard to such party hereto
as contemplated by such party.
11.7 Expenses. Each party shall bear his or its own expenses and legal
fees incurred on his or its behalf with respect to this Agreement and the
closing of the transactions contemplated hereby. The Sellers will be responsible
for and pay the fees and expenses of CFA Technology Partners.
11.8 Titles and Subtitles. The titles of the Sections, paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.9 Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. Execution and delivery of this
Agreement by delivery of a facsimile copy bearing the facsimile signature of a
party to this Agreement shall constitute a valid and binding execution and
delivery of this Agreement by such party. Such facsimile copies shall constitute
enforceable original documents.
11.10 Timely Performance. Time is of the essence as to the performance
of the obligations required of the respective parties under this Agreement.
11.11 Waiver. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or be construed as a further or continuing waiver of any such
term, provision or condition of this Agreement.
11.12 Invalid Provisions to Affect No Others. If fulfillment of any
provision hereof or any transaction related hereto at the time performance of
such provisions shall be due, shall involve transcending the limit of validity
presently prescribed by law, with regard to obligations of like character and
amount, then ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision herein contained operates
or would prospectively operate to invalidate this Agreement in whole or in part,
then such clause or provision only shall be held for naught, as though not
herein contained, and the remainder of this Agreement shall remain operative and
in full force and effect.
11.13 Litigation Costs. The parties agree that if any party hereto is
held by any Court of competent jurisdiction to be in violation, breach or
non-performance of any of the terms of this Agreement, said party shall pay all
costs of such action or suit, including reasonable attorney's fees, incurred by
the prevailing party in bringing or defending such action or suit.
11.14 Further Assurances. Each party hereto agrees to execute and
deliver all further instruments and documents, and to take all further action,
as any other party hereto may reasonably request, in order to implement, carry
out and give effect to the provisions and purposes of this Agreement and the
transactions contemplated herein.
11.15 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of Buyer
and the Sellers; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
11.16 Buyer's Access to Information During the period from the date
hereof to the Closing Date, the Company will give Buyer and its duly authorized
employees, independent auditors and other representatives full access to all the
books, records and facilities of the Company, wherever located, during regular
business hours, so that Buyer may conduct such inspection, investigation and
review of the Company's financial records, business and properties, as it deems
appropriate. The Company's management personnel will cooperate fully with
Buyer's representatives during the course of such investigation and review.
IN WITNESS WHEREOF, Sellers, the Company and Buyer have executed and
delivered this Agreement as of the day and year first above written.
SELLERS:
------------------------------------
XXXXXXXXX X. XXXXXXXXX
-------------------------------------
XXXXXXXX X. XXXXXXXXX
-------------------------------------
XXXXXXX X. XXXXXXXXX
-------------------------------------
XXXXX X. XXXXXXXXX
-------------------------------------
XXXXXX XXXXXXX
THE COMPANY:
NATIONAL SYSTEMS & RESEARCH CO.
By:
-------------------------------
Title:
------------------------------
BUYER:
SCB COMPUTER TECHNOLOGY, INC.
By:
-------------------------------
Title:
------------------------------
EXHIBIT INDEX
Exhibit A - Company Shareholders of Record and Quantities of Stock Held
Exhibit B - Form of Series I Buyer Note
Exhibit C - Form of Series II Buyer Note
Exhibit D - Allocation of Purchase Price
Exhibit E - Form of Sellers' Releases
Exhibit F - Form of Employment Agreement
Exhibit G - Form of Consulting Agreement
Exhibit H - Opinion of Sellers' Counsel
Exhibit I - Powers of Attorney
Exhibit J - The Company's Financial Statements
Exhibit K - Registration Rights Agreement
Exhibit L - Individuals Receiving Stock Options
Exhibit M - Form of Office Lease
SCHEDULE INDEX
Schedule 3.3(i) - States in which qualified to do business
Schedule 3.3(ii) - Officers and Directors of the Company
Schedule 3.7 - Broker's Fees owed by the Sellers or the Company
Schedule 3.11(a) - Personal Property Assets Owned by the Company
Schedule 3.11(b) - Personal Property Assets Leased by the Company
Schedule 3.12(b) - Leased Real property
Schedule 3.13(a)(i) - Government Contracts
Schedule 3.13(a)(iii) - Proposals and contracts in Negotiation, Government
Contracts
Schedule 3.14(a)(i) - Other Contractual Obligations
Schedule 3.14(c) - Third-Party Consents for Other Contractual Obligations
Schedule 3.18 - Employee Matters
Schedule 3.19 - Employee Benefit Plans
Schedule 3.19(a)(iii) - COBRA Benefits
Schedule 3.20(b) - Environmental, Health and Safety Permits
Schedule 3.22 - Conflicts of Interest
Schedule 3.24(c) - Federal, State, Local and Foreign Income Tax Returns;
Extensions
Schedule 3.24(f) - Basis, Loss, Credit and Other Tax Information
Schedule 3.26 - Powers of Attorney
Schedule 3.28 - Insurance
Schedule 3.29 - Patents, Trademarks and Other Intellectual Property Owned by the
Company
Schedule 3.30 - Litigation
Schedule 3.33 - Product Warranties
Schedule 4.6 - Consents
Schedule 7.22 - CEO and NSRgt office furniture and furnishings
