ASSET PURCHASE AGREEMENT
Exhibit 2.4
This Asset Purchase Agreement (“Agreement”) is made and entered into as of March 20, 2006, by
and among The O’Gara Group, Inc., an Ohio corporation (“TOG”), O’Gara Virginia, Inc., an Ohio
corporation (“Buyer”), and VIR Rally, LLC, a Virginia limited liability company (“Seller”).
WHEREAS, Seller owns and operates Virginia Safety and Security Institute (“SSI”);
WHEREAS, Buyer desires to purchase and Seller desires to sell certain assets and properties
associated with the SSI Business (as hereinafter defined), as more fully described herein; and
WHEREAS, Buyer is a wholly owned subsidiary of TOG;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified or referred to
in this Section 1:
“Closing Date”—the date and time as of which the Closing actually takes place.
“Closing Documents” — all documents to be delivered by the parties to each other on
or prior to the Closing Date pursuant to this Agreement and the transactions contemplated hereby.
“Code”—the Internal Revenue Code of 1986 or any successor law, and regulations issued
by the IRS pursuant to the Internal Revenue Code or any successor law.
“Contract”—any agreement, contract, obligation, promise, or undertaking (whether
written or oral) that is legally binding and is related to the SSI Business.
“Copyright” — any copyright, whether under statute or common law, in an original work
in any tangible medium of expression related to the SSI Business.
“Disclosure Schedule”—the disclosures delivered concurrently with the execution and
delivery of this Agreement.
“EBITDA of the SSI Business” — the earnings before interest, taxes, depreciation and
amortization of the Post Closing SSI Business. In calculating the EBITDA of the Post Closing SSI
Business, TOG corporate overhead in the amount of $175,000 per year (which amount shall be
increased 5% per each calendar year beginning in 2008) shall be allocated to the Post Closing SSI
Business. Rental revenue derived by Buyer for any of the Facilities for which no training is
performed by any TOG employee shall be included in the EBITDA of the SSI Business.
Provided, however, income and expenses from Excluded Customers or from Other Facilities, both as
defined herein shall not be included in the EBITDA of the SSI Business.
“Encumbrance”—any charge, claim, community property interest, condition, equitable
interest, lien, option, pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
“Environment”—soil, land surface or subsurface strata, surface waters, groundwaters,
drinking water supply, stream sediments, ambient air, plant and animal life, and any other
environmental medium or natural resource.
“Environmental, Health, and Safety Liabilities”—any cost, damages, expense,
liability, obligation, or other responsibility arising from or under Environmental Law or
Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health,
or safety matters or conditions (including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products); (b) fines, penalties, judgments,
awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses arising under Environmental Law
or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response actions required by
applicable Environmental Law or Occupational Safety and Health Law and for any natural resource
damages; or (d) any other compliance, corrective, investigative, or remedial measures required
under Environmental Law or Occupational Safety and Health Law. The terms “removal,” “remedial,”
and “response action,” include the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended
(“CERCLA”).
“Environmental Law”—any legal requirement that requires or relates to: (a) advising
appropriate authorities, employees, and the public of intended or actual releases of pollutants or
hazardous substances or materials, violations of discharge limits, or other prohibitions and of the
commencements of activities that could have significant impact on the Environment; (b) preventing
or reducing to acceptable levels the release of pollutants or hazardous substances or materials
into the Environment; (c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated; (d) assuring that products are designed,
formulated, packaged, and used so that they do not present unreasonable risks to human health or
the Environment when used or disposed of; (e) reducing to acceptable levels the risks inherent in
the transportation of hazardous substances, pollutants, oil, or other potentially harmful
substances; (f) cleaning up pollutants that have been released, preventing the threat of release,
or paying the costs of such clean up or prevention; or (g) making responsible parties pay private
parties, or groups of them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries done to public
assets.
“ERISA”—the Employee Retirement Income Security Act of 1974 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
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“Excluded Customers” — customers or potential customers of or for the Post Closing
SSI Business who have notified TOG or Buyer that they no longer desire to utilize the Facilities
because (i) the usage fees have become uncompetitive or too expensive based on the rate of
comparable facilities and Seller and Buyer have been unable to reach reasonable accommodation on
updated usage fees for such customer or potential customer; (ii) the improvements at the Facilities
do not meet the needs of the customer or potential customer, do not comply with the specifications
of the customer or potential customer or do not contain improvements required by the customer or
potential customer, which needs or requirements are required by such customer or potential customer
for its use of other similar facilities and Seller has not made, caused to be made or is not
reasonably in the process of making the improvements to the Facilities to satisfy the needs or
requirements of such customer or potential customers within thirty (30) days after being requested
in writing to do so by Buyer; (iii) the Buyer is unable to schedule the customers or potential
customers at the Facilities because others are previously scheduled to use the Facilities at the
time desired by the customer or potential customer and the Facilities are being used at least
sixteen (16) business days in the month that such customer or potential customer desires to use the
Facilities; (iv) the use by non-military or non-governmental personnel of the Facilities through
Persons other than Buyer causes the Facilities to become undesirable for the customer or potential
customer and such Person after written notice from Buyer has elected to continue to allow such
non-military or non-governmental personnel to use the Facilities. It is the intention of Seller
and Buyer to work together in good faith in order to minimize the number of Excluded Customers.
“Facilities”—any real property, leaseholds, or other interests currently owned or
operated by Seller and any buildings, plants, structures, or equipment currently owned or operated
by Seller or any affiliate thereof relating to the SSI Business all as set forth on Exhibit 1,
attached hereto and incorporated herein.
“GAAP”—United States generally accepted accounting principles.
“Hazardous Activity”—the distribution, generation, handling, manufacturing,
processing, production, release, storage, transportation, treatment, or use of Hazardous Materials
in, on, under, about, or from the Facilities or any part thereof into the Environment, and any
other act, business or operation that increases the danger or poses an unreasonable risk of harm to
persons or property on or off the Facilities, or that may affect the value of the Facilities or
Seller, other than the acts of driving, racing and shooting.
“Hazardous Materials”—any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a
pollutant or a contaminant under or pursuant to any Environmental Law.
“Intellectual Property Assets” — all Marks, Patents, Copyrights and Trade Secrets
owned, used or licensed as licensee or licensor as used in the SSI Business.
“IRS”—the United States Internal Revenue Service or any successor agency, and, to the
extent relevant, the United States Department of the Treasury.
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“Knowledge of Seller” — the knowledge after reasonable inquiry of Seller and the
owners and management employees of Seller, including without limitation Xxxxxx Xxx Xxxxxx Xxxxxx
and Xxxxxx Xxxxxxx Xxxxxx.
“Market Value”—prior to TOG having a registration statement declared effective by the
Securities and Exchange Commission for the sale of its common stock with its shares listed on the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market (“IPO”), the
price per share of TOG Stock established by an equity investment by third parties into TOG as of a
date the closest to the Closing Date or the Payment Date (as hereinafter defined), or if requested
by either Buyer or Seller, by a mutually acceptable business appraiser (whose fee shall be split,
with one-half (1/2) of such fee being paid by each of Buyer and Seller); and subsequent to an IPO,
the average closing price per share of the TOG Stock on the NYSE, AMEX or NASDAQ National Market as
listed in the Wall Street Journal during the five (5) business days ending on the business day
which is four business days prior to the Payment Date.
“Marks” — all fictional business names, trading names, registered and unregistered
trademarks, service marks, and applications related to the SSI Business.
“Occupational Safety and Health Law”—any legal requirement designed to provide safe
and healthful working conditions and to reduce occupational safety and health hazards, and any
program, whether governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful working conditions.
“Other Facilities” — facilities acquired post Closing by TOG or its subsidiaries
within the Buyer Territory (as hereinafter defined) that provide at the time of the acquisition
drivers’ training for security and law enforcement purposes, including for the purposes of evading
terrorist and criminal threats and/or tactical firearms training.
“Organizational Documents”—(a) the articles or certificate of incorporation and the
bylaws or code of regulations of a corporation; (b) the articles of organization and operating
agreement of a limited liability company; (c) the partnership agreement and any statement of
partnership of a general partnership; (d) the limited partnership agreement and the certificate of
limited partnership of a limited partnership; (e) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and (f) any amendment to
any of the foregoing.
“Patents” — all patents, patent applications, including provisional applications, and
inventions and discoveries that may be patentable.
“Person”—any individual, corporation (including any non-profit corporation), general
or limited partnership, limited liability company, joint venture, estate, trust, association,
organization, labor union, or other entity or governmental body.
“Post Closing SSI Business” —drivers’ training for security and law enforcement
purposes, including for the purposes of evading terrorist and criminal threats (both on road and
off road) and tactical firearms training conducted at the Facilities after the Closing Date by
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former SSI Employees or individuals employed to market or conduct such training after the Closing
Date by Buyer.
“Securities Act”—the Securities Act of 1933 or any successor law, and regulations and
rules issued pursuant to that Act or any successor law.
“Shareholders Agreement” — the Amended and Restated Shareholders Agreement, dated as
of December 16, 2005, by and among all of the shareholders of TOG.
“SSI Business” — drivers’ training for security and law enforcement purposes,
including for the purposes of evading terrorist and criminal threats (both on road and off road)
and tactical firearms training.
“SSI Employees” — all employees of Seller who perform any services in connection with
the SSI Business other than Xxxxxx Xxx Xxxxxx Nyholm and Xxxxxx Xxxxxxx Xxxxxx.
“TOG Stock” — prior to an IPO, Series G preferred shares of TOG or its equivalent and
subsequent to an IPO, the common shares of TOG.
“Trade Secrets” — all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, plans, drawings, and blue prints.
ARTICLE II
SALE OF ASSETS; CLOSING
SALE OF ASSETS; CLOSING
| 2.1 | SALE OF CERTAIN ASSETS AND PROPERTIES ASSOCIATED WITH THE SSI BUSINESS |
(a) Subject to the terms and conditions contained in this Agreement, Seller, by its execution
of this Agreement, hereby sells, transfers and delivers, or causes to be sold, transferred or
delivered, to Buyer, its successors and assigns, all of Seller’s right, title and interest in and
to the assets and personal properties (except those assets described in Section 2.1(d) of this
Agreement) used in the SSI Business, tangible or intangible, wherever situated and (as to those
assets which are presently being used by Seller) whether or not carried on the books and records of
Seller as listed on Exhibit 2.1(a), attached hereto and incorporated herein, as well as the
following:
(i) all of the business books, personnel records, any other files and records (whether
in written form or stored electronically or electromagnetically or in any other form),
orders, customer lists, promotional materials, customer prepaid advertising and any other
prepaid items and imprinted material, office supplies, and other personal property related
to the SSI Business as of the Closing including, without limitation, those assets listed on
Exhibit 2.1(a)(i) attached hereto and made a part hereon;
(ii) all Intellectual Property Assets and intangible assets including, but not limited
to, privileges, permits, licenses, certificates, commitments, goodwill, training material
and training methodologies, which are used or useable in the operation of the SSI Business;
and
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(iii) all of Seller’s right, title and interest under the executory contracts listed
on Exhibit 2.1(a)(iii) attached hereto and made a part hereof, provided that Buyer assumes
all performance obligations under such executory contracts which accrue on or after the
Closing (hereinafter referred to collectively as the “Executory Contracts”).
(b) This Agreement shall constitute the “Xxxx of Sale,” and by its execution and delivery of
this Agreement Buyer acknowledges receipt by Buyer of all assets transferred pursuant to this
Agreement. Possession of the assets so purchased is delivered concurrently with the execution and
delivery of this Agreement.
(c) Upon TOG’s request, Seller shall take all actions necessary including, without limitation,
the completion and execution of appropriate forms and certificates, to transfer ownership of any
operation, or portion thereof, of the SSI Business to Buyer, to transfer ownership of any required
business permits or licenses relating to the SSI Business or otherwise to give effect to the
transactions contemplated by this Agreement.
(d) Notwithstanding Section 2.1(a) of this Agreement, the following assets are expressly
excluded from the assets sold, transferred or delivered pursuant to this Agreement and shall be
retained by Seller:
(i) those assets leased by Seller to Buyer pursuant to the terms of the Operating
Agreement/Lease (as hereinafter defined);
(ii) the limited liability company records of Seller to the extent such records relate
to Seller as a limited liability company and not particularly to the operation of the SSI
Business, including, without limitation, Seller’s Articles of Incorporation or Certificate
of Organization, Operating Agreement, members records, minute books and other limited
liability company and tax records;
(ii) any insurance policy or policies maintained by Seller covering any assets retained
by Seller following the Closing whether or not such policies also cover a portion of the SSI
Business as well;
(iii) Seller’s accounts receivable;
(iv) any of the assets or business of Dynamic Labyrinth (collectively, the “Excluded
Assets”)
| 2.2 | PURCHASE PRICE |
(a) The purchase price (“Purchase Price”) for the assets transferred to Buyer from Seller
pursuant to this Agreement will be Three Million Dollars $3,000,000, payable as set forth in
Section 2.5(b) below, plus the Earn Out Payments calculated and paid in accordance with Section 2.2
(b) below. The parties to this Agreement hereby agree to allocate the Purchase Price among the
assets purchased hereunder by mutual agreement of the parties in good faith made in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. The
parties will each complete and file Form 8594, Asset Acquisition
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Statement under Section 1060 (the “Form”), in a manner that is consistent with the foregoing
allocation, and cooperate in providing information necessary to complete the Form. If the Purchase
Price is adjusted subsequent to the filing of the Form, the adjustment will be allocated in the
manner required by Temporary Treasury Regulations section 1.1060-IT(f)(3). Following any such
adjustment, the parties will file a supplemental statement to the Form in accordance with the
instructions thereto. In addition, (i) all federal, state and local tax returns, including any
schedules or exhibits thereto, will reflect, and in all respects be consistent with, the agreed
upon allocation and (ii) no party will take any action or maintain any position inconsistent with
such agreed allocation.
(b) Subject to the terms and conditions of this Agreement, Buyer shall make to Seller four
additional annual earn-out payments comprised of a combination of cash and TOG Stock the total
value of which shall be equal to fifty percent (50%) of the EBITDA of the SSI Business for each of
the four calendar years beginning with January 1, 2007 (the “Earn-Out Payments”). Each annual
Earn-Out Payment shall be allocated between TOG Stock and cash as determined by Seller by written
notice to Buyer no later than December 31 of the year for which such payment relates; provided,
however, that Seller shall allocate at least thirty percent (30%) of each Earn-Out Payment to TOG
Stock. In the event that Seller has not provided to Buyer written notice of such allocation for an
Earn-Out Payment by December 31 of the related year, the allocation shall automatically be thirty
percent (30%) to TOG Stock and seventy percent (70%) cash. Each annual Earn-Out Payment shall be
paid within one hundred twenty (120) days following the end of the calendar year to which it
relates (the “Payment Date”). The number of shares of TOG Stock issued on each Payment Date shall
be determined by dividing (i) the dollar value of the Earn-Out Payment allocated to TOG Stock
pursuant to this Section 2.2(b) by (ii) the Market Value of TOG Stock per share as of December 31
of the calendar year to which the Earn-Out Payment relates. On each Payment Date, Buyer shall
deliver to Seller a statement setting forth in reasonable detail the EBITDA of the SSI Business for
such period, the related Earn-Out Payment and the information utilized to calculate the Market
Value of the TOG Stock fifteen days prior to each Payment Date. Notwithstanding the foregoing,
subsequent to an IPO, Seller may elect to be paid the remaining Earn-Out Payments up to one hundred
percent (100%) in cash.
(c) For sixty days (60) days following each Earn-Out Payment reasonable access, subject to
customary confidentially restrictions, to the financial books and records of Buyer shall be given
to Seller and an independent accounting firm during normal business hours for the purpose of
conducting an independent audit of the Earn-Out Payment, the results of which audit shall be final
and binding on the parties. If the audit results in total additional payments to Seller in excess
of fifty thousand dollars ($50,000) (the “Minimum Earn-Out Discrepancy”), then Buyer shall be
liable for the fees and expenses of the auditor. If the audit results in no payments to Seller or
payments below the Minimum Earn-Out Discrepancy, then Seller shall be liable for the auditor’s fees
and expenses. Buyer shall make any additional payments to the Seller within twenty (20) days after
the completion of the audit. The auditor shall be a regional or national accounting firm mutually
acceptable to Buyer and Seller and shall be engaged jointly by Seller and Buyer.
| 2.3. | NO ASSUMPTION OF LIABILITIES EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT. |
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(a) Other than those liabilities set forth on Exhibit 2.3 of this Agreement (“Assumed
Liabilities”), which Buyer agrees to assume, Buyer assumes no liabilities of Seller whatsoever
under this Agreement or the transactions contemplated hereby, whether known or unknown, contingent
or otherwise. Other than Assumed Liabilities, Seller agrees to pay all of Seller’s debts,
obligations and liabilities whether related to the transferred assets and properties, the operation
of the SSI Business, or otherwise, including, without limitation:
(i) The fees and expenses of Seller’s attorneys and accountants relating to the
preparation and execution of this Agreement and the purchase and sale described in this
Agreement;
(ii) all debts, liabilities or obligations for state or local taxes, or for any
business or license fees or other charges levied, assessed or imposed on Seller, or any of
Seller’s assets and properties for all time prior to the Closing, including, without
limitation, Seller’s income tax, sales tax, personal property and county taxes;
(iii) all debts, liabilities or obligations relating to Seller’s federal, state or
local payroll and employment related taxes, premiums or funds, for all periods of time prior
to the Closing, including, without limitation, income tax withholding, social security
taxes, workers’ compensation and unemployment insurance;
(iv) all debts, liabilities or obligations to suppliers, vendors, affiliates,
employees, lessors or licensers of the SSI Business incurred or accrued for all periods of
time prior to the Closing; and
(v) all debts, liabilities or obligations relating to or arising out of the Excluded
Assets.
| 2.4 | CLOSING |
The purchase and sale (the “Closing”) provided for in this Agreement will take place at the
offices of Xxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 0000 XX Xxxx Xxxxxx, Xxxxxxxxxx, XX at 10:00 a.m. on
April 3, 2006 (“Closing Date”), or at such other time and place as the parties may agree.
| 2.5 | CLOSING OBLIGATIONS |
At the Closing:
(a) Seller will deliver to Buyer:
(i) the Operating Agreement/Lease in the form of Exhibit 2.5 (a)(i) (“Operating
Agreement/Lease”);
(ii) an assignment of the Intellectual Property Assets in a form reasonably
satisfactory to Buyer;
(iii) a joinder agreement to the Shareholders Agreement;
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(iv) all consents required by any of the Executory Contract to which Seller is a party;
(v) such certificates of Seller and the officers of Seller as TOG or its counsel may
reasonably require;
(vi) the release of Community National Bank of the SSI Building and the Transferred
Assets;
(vii) the release of GMAC, NMAC and MIC from the liens each such entity has on the
vehicles to be transferred under this Agreement;
(viii) an executed copy of the Trademark Assignment Agreement executed by Blue Chip
Racing, LLC; and
(ix) a side letter from VIR Operations, LLC for the use of the FCC and Radio Licenses
as described on Schedule 3.13(b)(3).
(b) Buyer will deliver to Seller:
(i) Twenty Five Thousand Two Hundred Forty Two (25,242) shares of TOG Stock;
(ii) Forty Eight and 88/100 Dollars ($48.88) by check payable to the order of Seller;
(iii) such certificates of TOG, Buyer and the officers of both as Seller or its
counsel may reasonably require; and
(iv) the Operating Agreement/Lease.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND VIR
REPRESENTATIONS AND WARRANTIES OF SELLER AND VIR
Seller represents and warrants to Buyer and TOG as follows:
| 3.1 | ORGANIZATION |
(a) Seller is a duly organized and validly existing limited liability company, in good
standing under the laws of its jurisdiction of formation, with full limited liability company power
and authority to conduct its business as it is now being conducted and to own or use the properties
and assets that it purports to own or use.
(b) Seller has delivered to Buyer true, complete and correct copies of the Organizational
Documents of Seller as currently in effect.
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(c) The execution, delivery and performance of this Agreement has been duly and validly
authorized by the members and managers of Seller.
| 3.2 | BUSINESS |
Except as expressly set forth in Section 3.2 of the Disclosure Schedule:
(a) Seller owns and operates the SSI Business. Seller has not entered into any other
Contract or agreement to sell, transfer or mortgage the assets of the SSI Business to be
transferred pursuant to this Agreement.
(b) Seller has good and marketable title to the assets, inventory, fixtures, furniture,
equipment, improvements and other personal property transferred pursuant to this Agreement (the
“Transferred Assets”) and such assets and other personal property are free and clear of all
liabilities, or obligations, mortgages, liens, pledges, security interests and other Encumbrances
whatsoever. There is no asset which is material to the operation of the SSI Business which is not
included in the assets transferred hereby or leased to Buyer in accordance with the terms of the
Lease/Operating Agreement.
| 3.3 | AUTHORITY; NO CONFLICT |
(a) This Agreement constitutes the legal, valid, and binding obligation of Seller,
enforceable against Seller in accordance with its terms. Seller has the absolute and unrestricted
right, power, authority, and capacity to execute and deliver this Agreement and Seller’s Closing
Documents and to perform its obligations under this Agreement and Seller’s Closing Documents.
(b) Except as set forth in Section 3.3 of the Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation or breach of (A) any provision of the
Organizational Documents of Seller, (B) any resolution adopted by the members or managers of
Seller, (C) any legal requirement or any order to which Seller or any of its assets may be subject,
(D) any governmental authorization that is held by Seller or that otherwise relates to the SSI
Business of, or any of the assets owned or used by, Seller, or (E) any Contract to which Seller is
a party or by which Seller or its assets are bound or affected; or
(ii) result in the imposition or creation of any Encumbrance upon or with respect to any of
the assets owned or used in connection with the SSI Business.
(c) No license, franchise, permit or other similar authorization held by Seller relating to
the SSI Business will be terminated or impaired as a result of the transactions contemplated by
this Agreement.
(d) Except as set forth in Section 3.3 of the Disclosure Schedule, Seller does not or will
not be required to give any notice to or obtain any consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
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| 3.4 | CAPITALIZATION |
Schedule 3.4 sets forth all of the members of Seller and their corresponding membership
interests as of the date hereof.
| 3.5 | FINANCIAL STATEMENTS |
(a) For purposes of this Agreement: “Seller Financial Statements” shall mean the unaudited
balance sheet and/or year-end financial statements of Seller solely relating to the SSI Business
dated as of December 31, 2005, and the related statements of income, members’ equity and cash flows
for the year then ended, and the unaudited balance sheet of Seller solely relating to the SSI
Business dated as of January 31, 2006, and the income statement for the one (1) month ended that
date. From the date of execution of this Agreement until closing, Seller will provide reasonable
access to Buyer of all financial records relating to the SSI Business. The Seller Financial
Statements, to the extent that they exist and to the best of Seller’s knowledge (i) have been
prepared on a basis consistent with past practice, (ii) fully reflect in all material respects all
liabilities and contingent liabilities of Seller relating to the SSI Business required to be
reflected therein on such basis as at the date thereof, and (iii) fairly present in all material
respects the financial position of Seller relating to the SSI Business as of the respective dates
of the balance sheets included in the Seller Financial Statements and the results of its operations
for the respective periods indicated, except that the balance sheet and income statement as of and
for the period ended January 31, 2006, omit footnotes and year-end adjustments in the ordinary
course of business.
| 3.6 | BOOKS AND RECORDS |
Except as disclosed in Section 3.6 of the Disclosure Schedule, the books of account and other
records of Seller related to the SSI Business, all of which have been made available to TOG, are
complete and correct in all material respects. Except as disclosed in Section 3.6 of the
Disclosure Schedule, the minute books of Seller contain in all material respects accurate and
complete records of all meetings held of, and limited liability company action taken by, the
members and the managers of Seller.
| 3.7 | TITLE TO PROPERTIES; ENCUMBRANCES |
Section 3.7 of the Disclosure Schedule contains a complete and accurate list of all real
property, leaseholds, or other interests in real property therein owned by Seller related to the
SSI Business showing and differentiating in each case those items that are being transferred
pursuant to this Agreement and those items that are being leased pursuant to the Operating
Agreement/Lease. Seller has delivered or made available to TOG true, complete and correct copies
of the deeds and other instruments by which Seller acquired such real property and interests, and
copies of all title insurance policies, environmental audits, and surveys in the possession of
Seller and relating to such real property or interests. Section 3.7 of the Disclosure Schedule
also contains a complete and accurate list of the fixed assets used in the SSI Business and carried
on its books for tax purposes. Except as set forth on Section 3.7 of the Disclosure Schedule,
Seller owns all the properties and assets used in connection with the SSI Business. Except as set
forth on Schedule 3.7 of the Disclosure Schedule, all properties and assets reflected
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in the Seller Financial Statements and transferred to Buyer pursuant to this Agreement are free and
clear of all Encumbrances.
| 3.8 | CONDITION AND SUFFICIENCY OF ASSETS |
To the Knowledge of Seller, the buildings, vehicles, and equipment owned or leased by Seller
used in connection with the SSI Business are structurally sound, are in good operating condition
and repair, and are adequate for the uses to which they are being put, and none of such buildings,
vehicles or equipment is in need of maintenance or repairs except for ordinary, routine maintenance
and repairs that are not material in nature or cost. Except as set forth on Section 3.8 of the
Disclosure Schedule, none of the buildings, vehicles and equipment not transferred to Buyer in
accordance with this Agreement or leased to Buyer in accordance with the Operating Agreement/Lease
is necessary to the continued and future conduct of the SSI Business as currently conducted.
| 3.9 | RESERVED | |
| 3.10 | TAXES |
Seller has properly and timely filed all federal, state and local tax returns and have paid
all taxes, assessments and penalties due and payable. All such tax returns were correct in all
material respects as filed, and no claims have been assessed with respect to such returns. To the
Knowledge of Seller, there are no present disputes as to taxes of any nature payable by Seller, nor
any tax liens whether existing or inchoate on any of the assets of Seller, except for current year
taxes not presently due and payable. The federal income tax returns of Seller have never been
audited. No IRS or foreign, state, county or local tax audit is currently in progress. Seller has
not waived the expiration of the statute of limitations with respect to any tax returns.
| 3.11 | NO MATERIAL ADVERSE CHANGE |
Since December 31, 2005, there has not been any material adverse change in the business,
operations, properties, assets, or financial condition of Seller or the SSI Business, and no event
has occurred or circumstance exists that may result in such a material adverse change.
| 3.12 | EMPLOYEE BENEFITS |
(a) Except as set forth in Section 3.12 of the Disclosure Schedule, neither Seller, nor any
corporation or business which is now or at the relevant time was a member of a controlled group of
companies or trades or businesses within the meaning of Section 414 of the Code (“Related
Company”), maintains, contributes to or has any liability under, or at any time maintained,
contributed to or had any liability under, nor do the SSI Employees receive or expect to receive as
a condition of employment (i) any non-qualified deferred compensation or retirement plans or
arrangements; (ii) any defined contribution retirement plans or arrangements; (iii) any qualified
defined benefit pension plan; (iv) any other plan, program, agreement or arrangement under which
former SSI Employees or their beneficiaries are entitled, or current SSI Employees will be entitled
following termination of employment, to medical, health or life insurance or other benefits other
than pursuant to benefit continuation rights granted by state or federal law; or (v) any other
employee benefit, health, welfare, medical, disability, life insurance, severance pay,
12
stock, stock purchase or stock option plan, program, agreement, arrangement or policy. All such
plans shall be referred to collectively as “Plans,” and any such plans which are employee pension
benefit plans within the meaning of Section 3(2) of ERISA shall be referred to as “Pension Plans”
and any such plans which are employee welfare benefit plans within the meaning of Section 3(1) of
ERISA shall be referred to as “Welfare Plans.”
(b) Seller has furnished to TOG true, complete and correct copies of (i) the Plan documents
and any related trusts or funding vehicles, policies or contracts and the related summary plan
descriptions with respect to each Plan; (ii) the most recent IRS determination letter; (iii) the
latest financial statements and annual reports for each of the Plans and related trusts as of the
end of the most recent Plan Year with respect to which the filing date for such information has
passed; and (iv) copies of all limited liability company resolutions or other documents pertaining
to the adoption of the Plans or any amendments thereto or to the appointment of any fiduciaries
thereunder and copies of any investment management agreement thereunder and of any fiduciary
insurance policies, surety bonds, rules, regulations or policies, of the trustees or of any
committee thereunder.
(c) To the Knowledge of Seller, each Plan complies in all material respects with ERISA, the
Code, and all other applicable laws and administrative or government rules or regulations. All
required reports, notices and descriptions with respect to the Plans have been appropriately filed
or distributed (including without limitation IRS Form 5500 Annual Reports, summary plan
descriptions, summary annual reports and any notice of Plan amendment which is required prior to
the effectiveness of such amendments) and all required surety bonds have been properly purchased
and maintained. The cost of administering the Plans, including fees for the trustees and other
service providers which are customarily paid by Seller, have been paid prior to the date hereof.
No plan is maintained in connection with any trust described in Section 501(c)(9) of the Code.
There are no actions, suits or claims pending or to the Knowledge of Seller, threatened (other than
routine claims for benefits) with respect to any Plan. No prohibited transactions described in
Section 406 of ERISA or Section 4975 of the Code have occurred. Each Plan has been operated in
compliance with its terms. Seller has complied with the health care continuation requirements of
part 6 of Title I of ERISA.
(d) All Plans that are intended to be qualified under section 401(a) of the Code have
received a favorable determination letter as to such qualification from the IRS, and no event has
occurred, either by reason of any action or failure to act, which would cause the loss of any such
qualification. There is no reason why any Plan is not so qualified in operation.
(e) With respect to all Pension Plans of Seller and any qualified employee pension benefit
plan of a Related Company (“Related Company Pension Plan”), all required contributions for all Plan
Years ending prior to the date hereof have been made. Contributions with respect to all current
Plan Years have been made or accrued prior to the date hereof by Seller in accordance with the
terms of the plan and past practice, with respect to each Pension Plan which is a qualified defined
contribution plan. With respect to all other Plans, all required or recommended (in accordance
with plan terms and past practice) payments, premiums, contributions, reimbursements or accruals
for all periods ending prior to or as of the date hereof have been made or properly accrued on the
financial statements. All of the Welfare Plans are fully insured. None of the Plans is a
“top-heavy” plan, as defined in section 416 of the Code. There have been no changes in the
operation or interpretation of any of the Plans since the most
13
recent annual report which would have any material effect on the cost of operating or maintaining
such Plans.
(f) No SSI Employee currently participates in any “multi-employer plan” (as defined in
Section 3(37) or 4001(a)(2) of ERISA or Section 414(f) of the Code) on account of such employee’s
employment with Seller, and no person may reasonably expect to participate in such a plan on
account of such person’s employment with Seller, nor does Seller or any Related Company have any
obligation to contribute to or liability, potential liability or contingent liability (including
without limitation liability for past-due contributions) with respect to any multi-employer plan on
behalf of any current or former employee. Neither Seller nor any Related Company has incurred any
current or potential withdrawal liability under Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under Sections 4207 or 4208 thereof), as a result of a
complete or partial withdrawal (or potential partial withdrawal) from any multi-employer plan.
| 3.13 | COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS |
(a) Except as set forth in Section 3.13 of the Disclosure Schedule, Seller is in material
compliance with all laws, regulations, orders, ordinances, judgments and decrees affecting the
business or operations of Seller, including, without limitation, federal, state and local: (i)
Environmental Laws; (ii) Occupational Safety and Health Laws; and (iii) securities laws, rules and
regulations. Seller has not been charged with violating, nor to the Knowledge of Seller,
threatened with a charge of violating, nor, to the Knowledge of Seller, is Seller under
investigation with respect to a possible violation of, any provision of any federal, state or local
law, order or administrative ruling or regulation relating to any of its assets or properties or
any aspect of the SSI Business.
(b) Section 3.13 of the Disclosure Schedule contains a complete and accurate list of each
governmental authorization, license or permit that is held by Seller or that otherwise relates to
the SSI Business of, or to any of the assets owned or used in the SSI Business by, Seller. Each
governmental authorization listed or required to be listed in Section 3.13 of the Disclosure
Schedule is valid and in full force and effect.
(c) The execution, delivery and performance by Seller of this Agreement and the consummation
of the transactions contemplated by this Agreement by Seller require no action by or in respect of,
or filing with, any governmental body, agency or official.
| 3.14 | LEGAL PROCEEDINGS |
(a) Except as set forth in Section 3.14 of the Disclosure Schedule, to the Knowledge of
Seller, there is no pending claim, action, investigation, arbitration, litigation or other
proceeding (“Proceeding”):
(i) that has been commenced by or against Seller or that otherwise relates to or may affect
the business (including the SSI Business) of, or any of the assets owned or used by, Seller; or
14
(ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the transactions contemplated hereby.
(b) To the Knowledge of Seller, (i) no such Proceeding has been threatened, and (ii) no event
has occurred or circumstance exists that could reasonably be expected to give rise to or serve as a
basis for the commencement of any such Proceeding. Seller has made available to TOG copies of all
pleadings, correspondence, and other documents relating to each Proceeding listed in Section 3.14
of the Disclosure Schedule. The Proceedings listed in Section 3.14 of the Disclosure Schedule will
not have a material adverse effect on the business, operations, assets, condition, or prospects of
Seller.
| 3.15 | ABSENCE OF CERTAIN CHANGES AND EVENTS |
Except as set forth in Section 3.15 of the Disclosure Schedule, since January 1, 2006, Seller
has conducted the SSI Business only in the ordinary course of business and there has not been any:
(a) payment or increase by Seller of any bonuses, salaries, or other compensation to any
employee of Seller reflected in the Seller Financial Statements or entry into any employment,
severance, or similar Contract with any SSI Employee;
(b) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for
or with any SSI Employee;
(c) damage to or destruction or loss of any asset or property of Seller relating to SSI
Business, whether or not covered by insurance, materially and adversely affecting the properties,
assets, business, financial condition, or prospects of Seller relating to the SSI Business, taken
as a whole;
(d) entry into, termination of, or receipt of notice of termination of any Contract or
transaction involving a total remaining commitment by or to Seller of at least Twenty Five Thousand
Dollars ($25,000) relating to the SSI Business;
(e) sale, lease, or other disposition of any asset or property of Seller relating to the SSI
Business or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset
or property of Seller relating to the SSI Business;
(f) any agreement or arrangement made between or among Seller and any of the members of
Seller relating to the SSI Business;
(g) cancellation or waiver of any claims or rights relating to the SSI Business with a value
to Seller in excess of Five Thousand Dollars ($5,000);
(h) material change in the accounting methods used by Seller relating to the SSI Business; or
(i) agreement, whether oral or written, by Seller to do any of the foregoing.
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| 3.16 | CONTRACTS; NO DEFAULTS |
(a) Section 3.16(a) of the Disclosure Schedule contains a complete and accurate list in all
material respects, and Seller has delivered to TOG true, complete and correct copies, of:
(i) each Contract that involves performance of services or delivery of goods or materials by
Seller of an amount or value in excess of Five Thousand Dollars ($5,000);
(ii) each Contract that involves performance of services or delivery of goods or materials to
Seller of an amount or value in excess of Five Thousand Dollars ($5,000);
(iii) each lease, license, and other Contract affecting any leasehold or other interest in,
any real or personal property that involves the payment by or to Seller in excess of Twenty Five
Thousand Dollars ($25,000);
(iv) each licensing agreement or other Contract with respect to Patents, Trademarks,
Copyrights, trade secrets or other Intellectual Property Assets, including agreements with current
or former employees, consultants, or contractors regarding the appropriation or the non-disclosure
of any Intellectual Property Assets;
(v) each collective bargaining agreement and other Contract to or with any labor union or
other employee representative of a group of employees and each employment Contract with a SSI
Employee;
(vi) each joint venture, partnership, and other Contract involving a sharing of profits,
losses, costs, or liabilities by Seller with any other Person relating at all to the SSI Business;
(vii) each Contract containing covenants that in any way purport to restrict the business
activity of Seller or limit the freedom of Seller to engage in any line of business or to compete
with any Person;
(viii) any plan or commitment or arrangement, written or oral, providing for bonuses,
pensions, deferred compensation, retirement payments, profit sharing or the like;
(ix) any indebtedness for borrowed money;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Contract for capital expenditures in excess of Ten Thousand Dollars
($10,000);
(xii) each Contract whereby any individual using services preformed by Seller in the SSI
business purports to release or hold harmless Seller from claims; and
16
(xiii) any other Contract or commitment not made in the ordinary course of business which
calls for the expenditures by Seller in any twelve (12) month period of at least Twenty Five
Thousand Dollars ($25,000).
(b) Except as set forth in Section 3.16(b) of the Disclosure Schedule, no member of Seller
has or may acquire any rights under, and no member or affiliate of Seller has or may become subject
to any obligation or liability under, any Contract that relates to the business of, or any of the
assets owned or used by, Seller.
(c) Except as set forth in Section 3.16(c) of the Disclosure Schedule, to the Knowledge of
Seller, each Contract identified or required to be identified in Section 3.16(a) of the Disclosure
Schedule is in full force and effect and is valid and enforceable in accordance with its terms.
(d) Except as set forth in Section 3.16(d) of the Disclosure Schedule:
(i) Seller is in compliance in all material respects with the terms and requirements of each
Contract under which Seller has or had any obligation or liability or by which Seller or any of the
assets owned or used by Seller is or was bound;
(ii) to the Knowledge of Seller, each other person that has or had any obligation or
liability under any Contract under which Seller has or had any rights is in compliance in all
material respects with the terms and requirements of such Contract; and
(iii) to the Knowledge of Seller, no event has occurred or circumstance exists that (with or
without notice or lapse of time) may result in a violation or breach of any Contract.
| 3.17 | INSURANCE |
Section 3.17 of the Disclosure Schedule sets forth the premium payments and describes all the
insurance policies of Seller, which policies are now in full force and effect in accordance with
their terms and expire on the dates shown on such Schedule. There has been no default in the
payment of premiums on any of such policies, and, to the Knowledge of Seller, there is no ground
for cancellation or avoidance of any such policies, or any increase in the premiums thereof, or for
reduction of the coverage provided thereby. Such policies insure Seller in amounts and against
losses and risks, in the reasonable opinion of Seller, normal and sufficient for businesses similar
to the SSI Business, and such policies shall continue in full force and effect up to the expiration
dates shown in Section 3.17 of the Disclosure Schedule. True and correct copies of all insurance
policies listed in Section 3.17 have been previously furnished to TOG.
| 3.18 | ENVIRONMENTAL MATTERS |
Except as set forth in part 3.18 of the Disclosure Schedule:
(a) Seller is, and to the Knowledge of Seller at all times has been, in compliance with, and
has not been and is not in violation of or liable under, any Environmental Law. Seller has not
received, any actual or to the Knowledge of Seller threatened order, notice, or other communication
from (i) any governmental body or private citizen acting in the public interest, or
17
(ii) the current or prior owner or operator of any Facilities, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any
of the Facilities or any other properties or assets in which Seller has an interest, or with
respect to any property or Facility at or to which Hazardous Materials were generated,
manufactured, transferred, used, or processed by Seller, or any other Person for whose conduct they
are or may be held responsible.
(b) There are no pending or, to the Knowledge of Seller, threatened claims, Encumbrances, or
other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets in which Seller has an interest.
(c) To the Knowledge of Seller there is no basis to expect, nor has any Person for whose
conduct Seller is or may be held responsible, received, any inquiry, notice, order, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any violation or failure
to comply with any Environmental Law, or of any obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other
properties or assets in which Seller had an interest, or with respect to any property or facility
to which Hazardous Materials generated, manufactured, transferred, used, or processed by Seller, or
any other Person for whose conduct they are or may be held responsible, have been transported,
treated, stored, or handled.
(d) Neither Seller or any other Person for whose conduct it is or may be held responsible,
has any Environmental, Health, and Safety Liabilities with respect to the Facilities or with
respect to any other properties and assets in which Seller (or any predecessor) has an interest,
which includes to the Knowledge of Seller any property adjoining the Facilities.
(e) There are no Hazardous Materials present on or in the Environment at the Facilities in
violation of any applicable Environmental Law or to the Knowledge of Seller at any property
adjoining the Facilities. Neither Seller, nor any other Person for whose conduct it is or may be
held responsible, nor to the Knowledge of Seller, any other Person, has permitted or conducted, or
is aware of, any Hazardous Activity conducted with respect to the Facilities or any other
properties or assets in which Seller has an interest except in full compliance with all applicable
Environmental Laws.
(f) There has been no release or threat of release, of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were generated, manufactured,
transferred, produced, used, or processed from or by the Facilities, or from or by any other
properties and assets in which Seller has an interest, which includes to the Knowledge of Seller
any property adjoining the Facilities.
(g) Seller has delivered to TOG true and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed or initiated by Seller pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning compliance by Seller, or any
other Person for whose conduct it is or may be held responsible, with Environmental Laws.
18
| 3.19 | EMPLOYEES |
(a) Section 3.19 of the Disclosure Schedule contains a complete and accurate list of the
following information for each SSI Employee: name; job title; current compensation; vacation
accrued; and service credited for purposes of vesting and eligibility to participate under Seller’s
pension, or other employee benefit plan of any nature.
(b) To the Knowledge of Seller, no employee or director of Seller is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or manager and any other Person that in any way
adversely affects or will affect (i) the performance of his/her duties as an employee, officer, or
manager of Seller relating to the SSI Business, or (ii) the ability of Seller to conduct the SSI
Business. To the Knowledge of Seller, no member, manager or other key SSI Employee or
subcontractor engaged by Seller with respect to the SSI Business intends to terminate his
employment with Seller.
(c) Section 3.19 of the Disclosure Schedule contains a complete and accurate list of any and
all agreements related to employment, severance, change in control, confidentiality,
non-competition, data ownership, indebtedness or other similar matter between Seller and any SSI
Employee or member, manager or officer of Seller.
| 3.20 | LABOR RELATIONS |
Seller has not been and is not now a party to any collective bargaining or other labor
Contract other than agreements with individual employees, agents, consultants and/or managers
disclosed on Section 3.20 of the Disclosure Schedule. There has not been, there is not presently
pending, and to the Knowledge of Seller there is not threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any proceeding against or affecting
Seller relating to the alleged violation of any legal requirement pertaining to labor relations or
employment matters, organizational activity, or other labor or employment dispute against or
affecting any of Seller or its premises.
| 3.21 | INTELLECTUAL PROPERTY |
(a) Section 3.21(a) of the Disclosure Schedule contains a complete and accurate list and
summary description, including any royalties paid or received by Seller, of all Contracts relating
to the Intellectual Property Assets to which Seller is a party or by which Seller is bound.
(b) The Intellectual Property Assets are all those currently owned and used by Seller and its
related companies in the SSI Business as it is currently conducted. Seller is the owner of all
right, title, and interest in and to each of the Intellectual Property Assets, except as set forth
on Schedule 3.21(b) free and clear of all Encumbrances and has the right to use without payment to
a third party all of the Intellectual Property Assets.
(c) Section 3.21(c) of Disclosure Schedule contains a complete and accurate list of all Marks
of Seller and the current legal status of those Marks. Seller is the owner of all right, title,
and interest in and to each of the Marks as set forth on Schedule 3.21(c) free and clear of all
Encumbrances. To the Knowledge of Seller, no Xxxx is infringed or has been challenged or
19
threatened in any way. To the Knowledge of Seller, none of the Marks used by Seller infringes or
is alleged to infringe any trade name, trademark, or service xxxx of any third party.
(d) Section 3.21(d) of Disclosure Schedule contains a complete and accurate list of all
Patents of Seller. Seller is the owner of all right, title, and interest in and to each of its
Patents, except as set forth on Schedule 3.21(d) free and clear of all Encumbrances. All of its
Patents that have been registered with the United States Patent and Trademark Office are currently
in compliance with all formal legal requirements and are valid and enforceable. None of its
Patents are infringed or have been challenged or threatened in any way. To the Knowledge of Seller,
none of subject matter of any of the Patents used by Seller infringes or is alleged to infringe any
patent of any third party.
(e) Section 3.21(e) of the Disclosure Schedule contains a complete and accurate list of all
Copyrights of Seller. Seller is the owner of all right, title, and interest in and to each of its
Copyrights, except as set forth on Schedule 3.21(e) free and clear of all Encumbrances. All its
Copyrights that have been registered are currently in compliance with formal legal requirements,
and are valid and enforceable. No Copyright is infringed or has been challenged or threatened in
any way. To the Knowledge of Seller, none of the subject matter of any of its Copyrights infringes
or is alleged to infringe any copyright of any third party or is a derivative work based on the
work of a third party.
(f) Seller has taken all reasonable precautions to protect the secrecy, confidentiality, and
value of its Trade Secrets. Seller has good title and an absolute right to use its Trade Secrets.
Its Trade Secrets have not been used, divulged, or appropriated either for the benefit of any
Person (other than Seller) or to the detriment of Seller. To the Knowledge of Seller, none of its
Trade Secrets are subject to any adverse claim or has been challenged or threatened in any way.
| 3.22 | CERTAIN PAYMENTS |
Neither Seller, nor to the Knowledge of Seller any manager, officer, agent, or employee of
Seller, or any other Person associated with or acting for or on behalf of Seller, directly or
indirectly, has (a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of Seller or any affiliate of Seller, or (iv) in
violation of any legal requirement, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of Seller.
| 3.23 | RELATIONSHIPS WITH RELATED PERSONS |
Except as set forth in Section 3.23 of the Disclosure Schedule, neither Seller nor to the
Knowledge of Seller, any officer, manager or employee of Seller or any spouse or child of any of
them (“Related Person”) has any interest in any property used in or pertaining to Seller’s
businesses. No Related Person has, to the Knowledge of Seller, owned an equity interest or any
other financial or profit interest in, a Person that has (i) had business dealings with Seller, or
(ii) engaged in competition with Seller. Except as set forth in Section 3.23 of the Disclosure
20
Schedule, no Related Person is, to the Knowledge of Seller, a party to any Contract with, or has
any claim or right against, Seller.
| 3.24 | BROKERS OR FINDERS |
Except as set forth in Section 3.24 of the Disclosure Schedule, Seller has not incurred an
obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’
commissions or other similar payment in connection with this Agreement.
| 3.25 | DEPOSIT ACCOUNTS |
Section 3.25 of the Disclosure Schedule contains a complete and accurate list of (a) the name
of each financial institution in which Seller has an account or safe deposit box relating to the
SSI Business, (b) the names in which each such account or box is held, (c) the type of such
account, and (d) the name of each person authorized to draw on or have access to each such account
or box.
| 3.26 | CUSTOMER RELATIONSHIPS |
To the Knowledge of Seller, there are no facts or circumstances that are likely to result in
the loss of any customer of Seller relating to the SSI Business or a material change in the
relationship of Seller with such a customer.
| 3.27 | DISCLOSURE |
(a) No representation or warranty of Seller in this Agreement and no statement in the
Disclosure Schedule omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
(b) To the Knowledge of Seller there is no fact that has specific application to Seller
(other than general economic conditions) and that materially adversely affects or, as far as Seller
can reasonably foresee, materially threatens, the assets, business, prospects, financial condition,
or results of operations of Seller (on a consolidated basis) relating to the SSI Business that has
not been set forth in this Agreement or the Disclosure Schedule.
| 3.28 | NO UNDISCLOSED LIABILITIES |
Except as set forth in Schedule 3.28 of the Disclosure Schedule, to the Knowledge of Seller,
Seller has no liabilities or obligations of any nature (whether absolute, accrued, contingent or
otherwise) relating to the SSI Business except for: (a) liabilities or obligations reflected or
reserved against in the Seller Financial Statements; (b) current liabilities incurred since January
31, 2006, in the ordinary course of business; and (c) otherwise, in an amount not to exceed Five
Thousand Dollars ($5,000), Seller acknowledges that its lack of knowledge of any such undisclosed
liability shall not limit its liability for such undisclosed liability.
| 3.29 | SECURITIES LAWS |
21
(a) Seller acknowledges that the TOG Stock has not been registered under the Securities Act,
or under the securities law of any state, and that the issuance of the TOG Stock in connection with
the Purchase Price is being made in reliance upon and in compliance with an exemption from
registration provided by the Securities Act.
(b) The shares of TOG Stock are being issued for Seller’s own account and for investment and
not with a view to or for resale in connection with any distribution or public offering of the TOG
Stock within the meaning of the Securities Act and Seller has no agreement, understanding or
arrangement to sell, assign or transfer any portion of the TOG Stock to any other person or entity.
(c) Seller has such knowledge and experience in financial and business matters that Seller is
capable of evaluating the merits and risks of the purchase of the TOG Stock.
(d) All documents, records, and books pertaining to TOG and the issuance of the TOG Stock in
connection with the Purchase Price have been made and are available to Seller and representatives
of Seller, and Seller has had an opportunity to ask questions of and receive answers from all
persons related to TOG concerning TOG and the TOG Stock.
(e) Neither TOG nor any person acting on its behalf has offered or sold the TOG Stock to
Seller by, or used in connection with such offer or sale, any form of general solicitation or
general advertising, including without limitation, any hand bills or any advertisement, article,
notice, or other communication published in any newspaper, magazine, or similar medium or broadcast
over television or radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(f) To the Knowledge of Seller, no commission, discount, or remuneration (excluding any
legal, accounting, and printing fees) has been paid or given directly or indirectly in connection
with the offer or sale of the TOG Stock or for soliciting Seller to accept the TOG Stock.
(g) Seller will not offer, sell, transfer, assign, exchange or otherwise dispose of any of
the TOG Stock at any time unless the shares of TOG Stock are (i) registered under the Securities
Act, or (ii) offered, sold or otherwise disposed of in compliance with an exemption from the
registration requirements of the Securities Act (as evidenced by an opinion of counsel reasonably
satisfactory to TOG that such an exemption is available to Seller).
(h) Seller understands and agrees that the certificates for the TOG Stock will bear a
restrictive legend stating that transfer of the TOG Stock is prohibited except in accordance with
the provisions of this Agreement and the Shareholders Agreement and that TOG is entitled to refuse
to register any transfer of the TOG Stock not made in accordance with the provisions of this
Agreement and the Shareholders Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TOG AND BUYER
REPRESENTATIONS AND WARRANTIES OF TOG AND BUYER
TOG and Buyer represent and warrant to Seller as follows:
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| 4.1 | ORGANIZATION AND GOOD STANDING |
Section 4.1 of the Disclosure Schedule contains a complete and accurate list for TOG and Buyer
of its name, its jurisdiction of incorporation and other jurisdictions in which they are authorized
to do business. TOG and Buyer are corporations duly organized, validly existing, and in good
standing under the laws of their jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted and to own or use the properties and
assets that each currently owns or uses. Each of TOG and Buyer is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each state or other jurisdiction in
which either the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification except for such failures to qualify as
could not reasonable be expected to have a material adverse effect.
| 4.2 | AUTHORITY; NO CONFLICT |
(a) This Agreement constitutes the legal, valid, and binding obligation of TOG and Buyer,
enforceable against TOG and Buyer in accordance with its terms. TOG and Buyer have the absolute
and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and
their respective Closing Documents and to perform their obligations under this Agreement and such
Closing Documents.
(b) Except as set forth in Section 4.2 of the Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation or breach of (A) any provision of the
Organizational Documents of TOG or Buyer, (B) any resolution adopted by the board of directors or
the shareholders of TOG or Buyer, (C) any legal requirement or any order to which TOG or Buyer, or
any of the assets owned or used by TOG or Buyer, may be subject, (D) any governmental
authorization that is held by TOG or Buyer or that otherwise relates to the business of, or any of
the assets owned or used by, TOG or Buyer, or (E) any Contract to which TOG or Buyer is a party or
by which TOG, Buyer or their assets is bound or affected; or
(ii) result in the imposition or creation of any Encumbrance upon or with respect to any of
the assets owned or used by TOG or Buyer.
(c) No license, franchise, permit or other similar authorization held by TOG or Buyer will be
terminated or impaired as a result of the transactions contemplated by this Agreement.
Except as set forth in Section 4.2 of the Disclosure Schedule, neither TOG nor Buyer is or
will be required to give any notice to or obtain any consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
| 4.3 | CAPITALIZATION; TOG’S SHARES |
23
(a) TOG has authorized capital stock consisting of: (i) 956,000 shares of common stock with no
par value per share, of which 10 shares have been duly authorized, validly issued,
and are outstanding and are fully paid and non-assessable and held of record as of the date hereof
as set forth in Schedule 4.3 of the Disclosure Schedule, of which 10,150 shares are covered by
options to purchase and of which 0 shares are held by TOG as treasury stock; (ii) 120,000 shares
of Series A 5% Cumulative Participating Preferred Stock, of which 107,775 shares have been duly
authorized, validly issued and are outstanding and are fully paid and non-assessable and held of
record as of the date hereof as set forth in Schedule 4.3; (iii) 35,000 shares of Series B 5%
Cumulative Participating Preferred Stock, of which 26,959 shares have been duly authorized, validly
issued and are outstanding and are fully paid and non-assessable and held of record as of the date
hereof as set forth in Schedule 4.3; (iv) 42,500 shares of Series C 3% Cumulative Participating
Preferred Stock of which 42,071 shares have been duly authorized, validly issued and are
outstanding and are fully paid and non-assessable and held of record as of the date hereof as set
forth in Schedule 4.3; (v) 35,000 shares of Series D 5% Cumulative Participating Preferred Stock of
which 34,380 shares have been duly authorized, validly issued and are outstanding and are fully
paid and non-assessable and held of record as of the date hereof as set forth in Schedule 4.3; (vi)
8,500 shares of Series E 5% Cumulative Participating Preferred Stock of which 8,414 shares have
been duly authorized, validly issued and are outstanding and are fully paid and non-assessable and
held of record as of the date hereof as set forth in Schedule 4.3; (vii) 30,000 shares of Series F
5% Cumulative Participating Preferred Stock of which 25,243 shares have been duly authorized,
validly issued and are outstanding and are fully paid and non-assessable and held of record as of
the date hereof as set forth in Schedule 4.3; and (viii) 70,000 shares of Series G 3% Cumulative
Participating Preferred Stock of which 2,296 shares have been duly authorized, validly issued and
are outstanding and are fully paid and non-assessable and held of record as of the date hereof as
set forth in Schedule 4.3. All of the outstanding equity securities of TOG have been duly
authorized and validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other securities of TOG
except as described in this Section 4.3. None of the outstanding equity securities or other
securities of TOG were issued in violation of the Securities Act or any other material legal
requirement.
(b) Immediately after the Closing, Buyer will have authorized capital stock consisting of
1,000 shares of common stock with no par value per share, of which 100 shares will be duly
authorized, validly issued, and outstanding and fully paid and non-assessable and held of record by
TOG.
| 4.4 | FINANCIAL STATEMENTS |
(a) For purposes of this Agreement: “TOG Financial Statements” shall mean the audited
consolidated balance sheet of TOG dated as of December 31, 2004, and the related statements of
income, stockholders’ equity and cash flows for the year then ended, and the unaudited balance
sheet of TOG dated as of December 31, 2005, and the income statement for the 12 months ended that
date.
(b) The TOG Financial Statements, which are incorporated herein by reference, (i) have been
prepared in accordance with GAAP applied on a basis consistent with past practice, (ii) fully
reflect in all material respects all liabilities and contingent liabilities of TOG required to be
24
reflected therein on such basis as at the date thereof, and (iii) fairly present in all material
respects the financial position of TOG as of the respective dates of the balance sheets included in
the TOG Financial Statements and the results of its operations for the respective periods
indicated, except that the balance sheet and income statement as of and for the period ended
October 31, 2005 omit footnotes and year-end adjustments in the ordinary course of business.
| 4.5 | TOG STOCK |
The shares of TOG Stock delivered to Seller at the Closing have been duly authorized, and upon
issuance of such shares as provided in the Agreement, will be validly issued, fully paid and
nonassessable.
ARTICLE V
COVENANTS OF SELLER AND PRINCIPALS
COVENANTS OF SELLER AND PRINCIPALS
| 5.1 | RESTRICTIVE COVENANT OF SELLER AND PRINCIPALS |
(a) Seller, Xxxxxx Xxx Xxxxxx Xxxxxx and Xxxxxx Xxxxxxx Xxxxxx (Xxxxxx and Xxxxxx
collectively “Principals”) acknowledge that TOG and Buyer would not consummate the transactions
contemplated by this Agreement without the assurance that Seller and Principals will not engage in
the activities prohibited by this Section 5.1 as and for the period set forth below. In order to
induce TOG and Buyer to consummate the transactions contemplated by this Agreement, Seller, and
Principals, jointly and severally, agree to restrict their actions and activities throughout United
States and Canada (the “Seller Territory”) as provided in this Section 5.1. Seller and Principals
acknowledge and agree that the restrictions in this Section 5.1 are reasonable in light of the
benefits of the transactions contemplated by this Agreement to Seller and Principals.
(b) Seller and each of the Principals hereby covenant and agree that until the earlier of (i)
December 31, 2016, or (ii) a termination of the Operating Agreement/Lease pursuant to Sections 10,
11 or 16 of the Operating Agreement/Lease or as a result of a Tenant Default (as defined in the
Operating Agreement/Lease), he, she or it will not in the Seller Territory, directly or indirectly,
engage in the SSI Business or in the business of providing surveillance, surveillance detection or
counter surveillance training services or products. Notwithstanding any provision of this Section
5.1(b), it shall not be a violation of this Section 5.1(b) for Principals (i) to own five percent
(5%) or less of a public company, PROVIDED THAT, Principals do not exert or have the power to exert
any management or other control over such public company, (ii) to have an ownership interest in
Dynamic Labyrinth and for its activities to continue post Closing, or (iii) to have an ownership
interest in a racetrack currently being developed in Millville, New Jersey, which shall be
permitted to rent the facility for training as performed at the Facilities transferred herein, but
the Millville facility shall not actively solicit such business, nor shall the Millville facility
enter into an arrangement with a third-party unrelated to TOG to develop a business reasonably
similar to the SSI Business.
(c) Seller and each of the Principals hereby covenant and agree that from the Closing Date
through December 31, 2016, he, she or it will not induce or attempt to induce, in any manner,
directly or indirectly, any employee, agent, representative, customer or any other person
25
or
concern dealing with or in any way associated with Buyer or any of its affiliates to terminate
or to modify, in any other fashion to the detriment of Buyer or any of its affiliates, such
association with Buyer or any of its affiliates.
(d) The parties hereto agree that the agreements of Seller and Principals contained in this
Section 5.1 relate to matters of unique character and peculiar value impossible of replacement,
that breach of such agreements by Seller or Principals will cause Buyer to suffer and incur
irreparable injury, that the remedy at law for any breach of the agreements contained in this
Section 5.1 will be inadequate and that TOG and/or Buyer, in addition to any other relief available
to it, shall be entitled to seek temporary restraining orders and preliminary and permanent
injunctive relief or other equitable relief without the necessity of proving actual damage or of
providing bond so as to prevent a breach of any of the agreements contained in this Section 5.1 and
to secure the enforcement thereof.
| 5.2 | NORMAL COURSE |
From the date hereof until the Closing, Seller shall: (a) maintain its limited liability
company existence in good standing; (b) maintain the general character of its business; (c) use all
reasonable best efforts to maintain in effect all of its presently existing insurance coverage (or
substantially equivalent insurance coverage), preserve its business organization substantially
intact, keep the services of its present principal employees and preserve its present business
relationships with its material suppliers and customers; (d) permit TOG, its accountants, its legal
counsel and its other representatives full access to its management, minute books and equity
transfer records, other books and records, contracts, agreements, properties and operations at all
reasonable times and upon reasonable notice; and (e) except as permitted by Section 5.3, in all
respects conduct its business in the usual and ordinary manner consistent with past practice and
perform in all material respects all agreements or other obligations with banks, customers,
suppliers, employees and others.
| 5.3 | CONDUCT OF BUSINESS |
From the date hereof until the Closing, Seller shall not, without the prior written consent of
TOG:
(a) amend or otherwise modify its Organizational Documents;
(b) mortgage, pledge or grant any security interest in any of its assets;
(c) increase the compensation of any of its employees who hold management positions, except
for amounts accrued as of December 1, 2005 and reflected in the Interim Financial Statements;
(d) adopt or (except as otherwise required by law) amend any Employee Benefit Plan or enter
into any collective bargaining agreement;
(e) terminate or modify any Contract, except for terminations of Contracts upon their
expiration during such period in accordance with their terms;
26
(f) incur or assume any indebtedness for borrowed money or guarantee any obligation or the
net worth of any Person;
(g) sell, transfer, lease to others or otherwise dispose of any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(h) except in the ordinary course of business consistent with past practice, commit to
provide services for an indefinite period or a period of more than two (2) months;
(i) enter into other agreements, commitments or contracts, except agreements, commitments or
contracts made in the ordinary course of business consistent with past practice; or
(j) enter into any commitment to do any of the foregoing.
| 5.4 | CONSENTS AND APPROVALS |
Seller shall use its best efforts to obtain as promptly as practicable all consents,
authorizations, approvals and waivers required in connection with the consummation of the
transactions contemplated by this Agreement.
| 5.5 | BEST EFFORTS TO SATISFY CONDITIONS |
Seller shall use its best efforts to cooperate with TOG for purposes of satisfying the
conditions set forth in Sections 7 and 8 that are within the control of Seller.
| 5.6 | NOTIFICATION OF CERTAIN MATTERS |
Seller shall promptly notify TOG of (i) the occurrence or non-occurrence of any fact or event
to the Knowledge of Seller which would be reasonably likely (A) to cause any representation or
warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Closing Date or (B) to cause any covenant, condition or
agreement of Seller in this Agreement not to be complied with or satisfied in any material respect
and (ii) any failure of Seller to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material respect; provided, however, that no
such notification shall affect the representations or warranties of Seller, or the right of TOG to
rely thereon, or the conditions to the obligations of TOG. Seller shall give prompt notice to TOG
and of any notice or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions contemplated by this
Agreement.
| 5.7 | NO SOLICITATION |
Prior to the Closing Date, or, if sooner, until April 30, 2006, none of Seller, Principals or
any of their respective officers, employees, representatives or agents shall solicit or entertain
an offer from, engage in discussions or otherwise negotiate with, or provide information to, any
Person other than TOG with respect to a merger, share exchange, consolidation, business
combination, or similar transaction involving, or any purchase or sale of all or any significant
27
portion of, the assets or any interest in Seller (collectively a “Competing Offer”). Seller shall
immediately notify the Buyer of any attempt by any third party to pursue a Competing Offer.
ARTICLE VI
COVENANTS OF TOG AND BUYER
COVENANTS OF TOG AND BUYER
TOG and Buyer hereby covenant and agree as follows:
| 6.1 | BEST EFFORTS TO SATISFY CONDITIONS |
TOG and Buyer agree to use its best efforts to satisfy the conditions set forth in Sections 7
and 8 that are within their control.
| 6.2 | NOTIFICATION OF CERTAIN MATTERS |
TOG shall promptly notify Seller of (i) the occurrence or non-occurrence of any fact or event
of which TOG has knowledge which would be reasonably likely (A) to cause any representation or
warranty of TOG or Buyer contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Closing Date or (B) to cause any covenant,
condition or agreement of TOG or Buyer in this Agreement not to be complied with or satisfied in
any material respect and (ii) any failure of TOG or Buyer to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in any material respect;
provided, however, that no such notification shall affect the representations or warranties of TOG
or Buyer, or Seller’s right to rely thereon, or the conditions to the obligations of Seller. TOG
shall give prompt notice to Seller of any notice or other communication from any third party
alleging that the consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
| 6.3 | RESTRICTIVE COVENANT OF BUYER AND TOG |
(a) TOG and Buyer acknowledge that Seller and Principals would not consummate the
transactions contemplated by this Agreement without the assurance that TOG and Buyer will not
engage in the activities prohibited by this Section 6.3 as and for the period set forth below. In
order to induce Seller and Principals to consummate the transactions contemplated by this
Agreement, TOG and Buyer, jointly and severally, agree to restrict their actions and activities
within those US states east of the Mississippi River (the “Buyer Territory”) as provided in
this Section 6.3. TOG and Buyer acknowledge and agree that the restrictions in this Section 6.3
are reasonable in light of the benefits of the transactions contemplated by this Agreement to TOG
and Buyer.
(b) TOG and Buyer hereby covenant and agree that until the earlier of (i) December 31, 2016
or (ii) a termination of the Operating Agreement/Lease pursuant to Sections 10, 11 or 16 of the
Operating Agreement/Lease or as a result of a Landlord Default (as defined in the Operating
Agreement/Lease), they will not in the Buyer Territory, directly or indirectly, own or lease any
other track or off-road course to perform antiterrorism drivers training or any other tactical
training facility to perform tactical firearms training. It shall not be a violation of this
Section 6.3 for Buyer or TOG, directly or indirectly (i) to provide such training to any Excluded
28
Customer at any location or (ii) to acquire Other Facilities, provided that TOG shall not solicit
customers of the Facilities to utilize the Other Facilities for services that could be provided at
the Facilities, taking into account the current or reasonably projected operational status of the
Facilities.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF TOG AND BUYER
CONDITIONS TO OBLIGATIONS OF TOG AND BUYER
The obligations of TOG and Buyer under this Agreement are subject to the following conditions:
| 7.1 | REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS AND OBLIGATIONS PERFORMED. |
All of the representations and warranties of Seller shall have been true and complete when
made and shall be true and complete in all material respects as of the Closing (except for
representations and warranties with materiality qualifiers, which shall be true and correct in all
respects), with the same force and effect as though such representations and warranties had been
made at the Closing Date. Seller shall have performed in all material respects all covenants,
agreements and obligations to be performed by it hereunder prior to or at the Closing Date. Seller
shall have delivered to TOG certificates of its officers to such effect.
| 7.2 | NO PROHIBITION. |
No provision of applicable law or regulation and no judgment, injunction or other decree of
any court or governmental body, agency or official shall prohibit the transaction contemplated by
this Agreement.
| 7.3 | REQUIRED CONSENTS. |
All necessary consents (the “Required Consents”) under the Contracts identified in Section 7.3
of the Disclosure Schedule as requiring consents prior to the Closing shall have been received.
| 7.4 | NO ACTION. |
There shall not be instituted or pending any action or proceeding by or before any domestic
governmental agency, commission, instrumentality, court or other regulatory or administrative body
(A) challenging the acquisition of the Seller’s assets or seeking to obtain material damages as a
result thereof or the entering into the Operating Agreement/Lease, (B) seeking to prohibit Buyer’s
ownership or operation of all or a material portion of Seller’s business or assets or to compel
Buyer to dispose of or hold separate all or a material portion of Seller’s business or assets, (C)
which reasonably could be expected to impose material limitations on Buyer’s ability to effectively
hold, or to exercise full rights of ownership of, Seller’s assets, or (D) otherwise materially
adversely affecting the Seller.
| 7.6 | REAL ESTATE |
29
| TOG and Buyer shall have received, all in form and substance satisfactory to TOG: |
(a) A leasehold title insurance policy covering the Demised Premises procured at Buyer’s
expense as defined in the Operating Agreement/Lease, and will provided evidence of title insurance
on the TTC;
(b) A descriptive plat showing the boundaries of the Demised Premises and the TTC; and
(c) A phase one environmental assessment covering the entire VIR property which
includes the Demised Premises and the TTC.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the following conditions:
| 8.1 | REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS AND OBLIGATIONS PERFORMED |
All of the representations and warranties of TOG and Buyer herein shall have been true and
complete when made and shall be true and complete in all material respects as of the Closing
(except for representations and warranties with materiality qualifiers, which shall be true and
correct in all respects), with the same force and effect as though such representations and
warranties had been made at the Closing Date. Each of TOG and Buyer shall have performed in all
material respects all covenants, agreements and obligations to be performed by them hereunder prior
to or at the Closing Date. TOG and Buyer shall have delivered to Seller certificates of its
officers to such effect.
| 8.2 | NO PROHIBITION. |
No provision of applicable law or regulation and no judgment, injunction or other decree of
any court or governmental body, agency or official shall prohibit the transaction contemplated by
this Agreement.
ARTICLE IX
INDEMNIFICATION; REMEDIES
INDEMNIFICATION; REMEDIES
| 9.1 | SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE |
All representations, warranties, covenants, and obligations in this Agreement, the Disclosure
Schedule, and any other certificate or document delivered pursuant to this Agreement will survive
the Closing. The right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by any investigation
conducted with respect to, or any knowledge of the party seeking indemnification, the payment of
Damages or other remedy acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement or the Closing Date, with
30
respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation.
| 9.2 | INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER |
Seller will indemnify and hold harmless Buyer and TOG and their representatives,
stockholders, controlling persons, and affiliates (collectively, the “Indemnified Persons”) for,
and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage
(specifically excluding incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys’ fees) or diminution of value, whether or not
involving a third-party claim (collectively, “Damages”), arising, directly or indirectly, from or
in connection with:
(a) any breach of any representation or warranty made by Seller in this Agreement, the
Disclosure Schedule, or any other certificate or document delivered by Seller pursuant to this
Agreement;
(b) any breach by any Seller or Principals of any covenant or obligation of Seller or
Principals in this Agreement; and
(c) the operation of the SSI Business of Seller prior to the Closing Date;
(d) any liability of Seller other than the Assumed Liabilities; and
(e) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by any such Person with Seller
in connection with the transactions contemplated hereby.
The remedies provided in this Section 9.2 will not be exclusive of or limit any other remedies
that may be available to Buyer, TOG or the other Indemnified Persons.
| 9.3 | INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER AND TOG |
Buyer and TOG will jointly and severally indemnify and hold harmless Seller, and will pay to
Seller the amount of any Damages arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Buyer or TOG in this Agreement or in
any certificate delivered by Buyer or TOG pursuant to this Agreement,
(b) any breach by Buyer or TOG of any covenant or obligation of Buyer or TOG in this
Agreement, or
(c) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such Person with Buyer or
TOG in connection with the transactions contemplated hereby.
The remedies provided in this Section 9.3 will not be exclusive of or limit any other remedies
that may be available to Seller.
31
| 9.4 | RIGHT OF SET-OFF |
(a) In the event that Buyer, TOG or any of the other Indemnified Persons have asserted a
claim against Seller pursuant to this Agreement or the Operating Agreement/Lease (collectively
“Claim”), Buyer may place in escrow any Earn-out Payments due during the time that such Claim is
being resolved either between the parties or pursuant to terms of Section 11.4 of this Agreement or
Section 22 of the Operating Agreement/Lease.
(b) Within five business days following the resolution of such Claim, all funds held in any
escrow account established in accordance with Section 9.4(a) shall be paid over to Seller.
(c) Notwithstanding Section 9.4(b), in the event that any Claim has been resolved in favor of
Buyer, TOG or any other Indemnified Party and Seller has not paid over to Buyer, TOG or any other
Indemnified Party sums due as a result of such resolved Claim, Buyer shall be entitled to set-off
from Earn-out Payments due Seller the sums due Buyer, TOG or any other Indemnified Party as a
result of such resolved Claim. Neither the exercise of nor the failure to exercise such right of
set-off will constitute an election of remedies or limit Buyer or TOG in any manner in the
enforcement of any other remedies that may be available to it.
| 9.5 | PROCEDURE FOR INDEMNIFICATION —THIRD PARTY CLAIMS |
Promptly after receipt by an indemnified party of notice of the commencement of any proceeding
against it, such indemnified party will, if a claim is to be made against an indemnifying party,
give notice to the indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability that it may have to
any indemnified party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnified party’s failure to give such notice.
| 9.6 | NOTICE OF OTHER CLAIMS |
A claim for indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
| 9.7 | LIMITATIONS ON AMOUNT. |
(a) Seller and Principals shall have no liability under Section 9.2 until the total Damages
exceeds Five Thousand Dollars ($5,000) in the aggregate and then only for the amount which exceeds
Five Thousand Dollars ($5,000).
(b) Notwithstanding anything in this Agreement to the contrary, under no circumstances will
Seller and Principals’ aggregate liability to TOG and Buyer exceed Three Million Dollars
($3,000,000) plus the sum of the Earn-Out Payments.
(c) Notwithstanding anything in this Agreement to the contrary, under no circumstances will
TOG and Buyer’s aggregate liability to Seller exceed the Three Million Dollars
32
($3,000,000) plus the sum of the Earn-Out Payments less any cash paid to Seller under the terms of
this Agreement.
ARTICLE X
TERMINATION
TERMINATION
| 10.1 | TERMINATION |
This Agreement may be terminated and the acquisition may be abandoned at any time prior to the
Closing Date:
(a) by mutual consent of Seller and TOG;
(b) by either Seller or TOG if there has been a material misrepresentation or breach of
warranty on the part of the other party in the representations and warranties contained herein; or
(c) by either Seller or TOG if the Closing has not been consummated by April 30, 2006,
unless the failure to close is due to the action or inaction of the party seeking to terminate this
Agreement. Moreover, the Seller and TOG agree to use their good faith best efforts to close by
March 31, 2006.
| 10.2 | EFFECT OF TERMINATION. |
If this Agreement is terminated pursuant to Section 10.1 of this Agreement, this Agreement
shall become void and have no effect with no liability on the part of any party hereto except that
the agreement with respect to expenses contained in Section 11.1 shall survive the termination
hereof. Additionally, notwithstanding Section 11.1 of this Agreement, in the event that this
Agreement is terminated in accordance with Section 10.1(b), the terminating party shall be entitled
to reimbursement from the breaching party of the terminating party’s out-of-pocket expenses arising
out of and related to this Agreement including, but not limited to, the negotiation of, performance
of due diligence with respect to this Agreement.
ARTICLE XI
GENERAL PROVISIONS
GENERAL PROVISIONS
| 11.1 | EXPENSES |
Except as otherwise expressly provided in this Agreement, each party to this Agreement will
bear its respective expenses incurred in connection with the preparation, execution, and
performance of this Agreement, including all fees and expenses of agents, representatives, counsel,
and accountants. Seller shall be responsible for any sales taxes due as a result of the
transactions contemplated by this Agreement.
| 11.2 | PUBLIC ANNOUNCEMENTS |
Any public announcement or similar publicity with respect to this Agreement, the Closing, or
the transactions contemplated hereby will be issued, if at all, at such time and in such manner as
TOG determines with the concurrence of Seller. Unless disclosure is consented to by
33
TOG and Seller in advance or required by law, Seller and TOG and their respective affiliates shall
keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any
Person. Seller and TOG will consult with each other concerning the means by which Seller’s
employees, customers, and suppliers and others having dealings with Seller will be informed of this
Agreement, the Closing and the transactions contemplated hereby, and TOG may at its option be
present for any such communication.
| 11.3 | NOTICES |
All notices, consents, waivers, and other communications under this Agreement must be in
writing and will be deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by fax (with written confirmation of receipt), provided that a
copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt requested), in each case to
the appropriate addresses and fax numbers set forth below (or to such other addresses and fax
numbers as a party may designate by notice to the other parties):
| Seller: | VIR Rally LLC 0000 Xxxxxxxx Xxxx Xxxxx, XX 00000 Attention: Xxxxxx Xxx Xxxxxx Nyholm Fax No.: (000) 000-0000 |
|
| with a copy to: | Xxxxxx X. Xxxx Xxxxx Xxxxxxxx Marks & Xxxxxx 000 X. Xxxx Xx. Xxxxx 0000 Xxxxxxxx, XX 00000 Fax No: (000) 000-0000 |
|
| Buyer: | The O’Gara Group, Inc. 0000 Xxxxxxxxx Xxxx Xx. Xxxxxxxxxx, XX 00000 Attention: Xxxxxxx X. X’Xxxx Fax No: (000) 000-0000 |
|
| with a copy to: | Xxxxx X. Xxxxxx General Counsel The O’Gara Company 0000 Xxxxxxxxx Xxxx Xx. Xxxxxxxxxx, XX 00000 Fax No: (000) 000-0000 |
|
| 11.4 | DISPUTE RESOLUTION |
(a) The parties will act in good faith and use commercially reasonable efforts promptly to
resolve any claim, dispute, controversy or disagreement (each a “Dispute”) between the parties or
any of their respective subsidiaries, affiliates, successors and assigns under or related to this
34
Agreement or any document executed pursuant to this Agreement or any of the transactions
contemplated hereby. If the parties cannot promptly resolve the Dispute, the Dispute will be
submitted to a committee made up of a senior executive from TOG and Seller (the “Management
Committee”) for resolution. For ten (10) days following submission of the Dispute to the
Management Committee, the Management Committee will have the exclusive right to resolve such
Dispute; provided that the Management Committee will have the final and exclusive right to resolve
Disputes arising from any provision of the Agreement which expressly or implicitly provides for the
parties to reach mutual agreement as to certain terms. Neither party will seek, nor will be
entitled to seek, binding outside resolution of the Dispute unless and until the Management
Committee has been unable to resolve the Dispute during the ten-day period as set forth in this
Section 11.4(a). In addition, if the Management Committee is unable to resolve amicably the
Dispute during the ten-day period, then the parties shall submit such Dispute to arbitration in
accordance with Section 11.4 (b) hereof.
(b) Any controversy or claim arising out of or relating to this Agreement or any related
agreement shall be settled by arbitration in accordance with the following provisions:
(i) The agreement of the parties to arbitrate covers all disputes of every kind relating to or
arising out of this Agreement, any related agreement or any of the Contemplated Transactions.
Disputes include actions for breach of contract with respect to this Agreement or the related
agreement, as well as any claim based upon tort or any other causes of action relating to the
transaction, such as claims based upon an allegation of fraud or misrepresentation and claims based
upon a federal or state statute. In addition, the arbitrators selected according to procedures set
forth below shall determine the arbitrability of any matter brought to them, and their decision
shall be final and binding on the parties.
(ii) The forum for the arbitration shall be the American Arbitration Association located in
Washington, D.C..
(iii) The governing law for the arbitration shall be the law of the Commonwealth of Virginia,
without reference to its conflicts of laws provisions except that Ohio law shall govern all
corporate organizational and governance issues with respect to TOG and Section 5.1 and 6.3 of this
Agreement.
(iv) There shall be three arbitrators, unless the parties are able to agree on a single
arbitrator. In the absence of such agreement within ten (10) days after the initiation of an
arbitration proceeding, Seller shall select one arbitrator and Buyer shall select one arbitrator,
and those two arbitrators shall then select, within ten (10) days, a third arbitrator. If those two
arbitrators are unable to select a third arbitrator within such ten (10)-day period, a third
arbitrator shall be appointed by the commercial panel of the American Arbitration Association. The
decision in writing of at least two of the three arbitrators shall be final and binding upon the
parties.
(v) The arbitration shall be administered by the American Arbitration Association.
(vi) The rules of arbitration shall be the Commercial Arbitration Rules of the American
Arbitration Association, as modified by any other instructions that the parties may agree upon at
the time, except that each party shall have the right to conduct discovery in any
35
manner and to the extent authorized by the Federal Rules of Civil Procedure as interpreted by
the federal courts. If there is any conflict between those Rules and the provisions of this
section, the provisions of this section shall prevail.
(vii) The arbitrators shall be bound by and shall strictly enforce the terms of this Agreement
and may not limit, expand or otherwise modify its terms. The arbitrators shall be bound to honor
claims of privilege or work-product doctrine recognized at law, but the arbitrators shall have the
discretion to determine whether any such claim of privilege or work product doctrine applies.
(viii) The arbitrators’ decision shall provide a reasoned basis for the resolution of each
dispute and for any award. The arbitrators shall not have power to award damages in connection with
any dispute in excess of actual compensatory damages and shall not multiply actual damages or award
consequential or punitive damages or award any other damages that are excluded under the definition
of Damages herein or provisions of Section 9.7 of this Agreement.
(ix) Each party shall bear its own fees and expenses with respect to the arbitration and any
proceeding related thereto and the parties shall share equally the fees and expenses of the
American Arbitration Association and the arbitrators.
(x) The arbitrators shall have power and authority to award any remedy or judgment that could
be awarded by a court of law in Virginia. The award rendered by arbitration shall be final and
binding upon the parties, and judgment upon the award may be entered in any court of competent
jurisdiction in the United States.
(c) The provisions of Section 11.4 (b) shall not in any way limit (i) TOG and Buyer’s right
to seek injunctive or equitable relief for a violation of Sections 5.1 or 5.7 of this Agreement and
Seller and Principals shall not claim the defense of latches for the time for mediation efforts
under Section 11.4 (a) of this Agreement, and (ii) Seller’s right to seek injunctive or equitable
relief for a violation of Section 6.3 of this Agreement and TOG and Buyer shall not claim the
defense of latches for the time for mediation efforts under Section 11.4 (a) of this Agreement.
| 11.5 | FURTHER ASSURANCES |
The parties agree (a) to furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c) to do such other acts and things,
all as the other party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
| 11.6 | WAIVER |
Neither the failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will operate as a waiver of
such right, power, or privilege.
36
| 11.7 | ENTIRE AGREEMENT AND MODIFICATION |
This Agreement supersedes all prior agreements between the parties with respect to its subject
matter (including any correspondence between TOG or Buyer and Seller) and constitutes (along with
the documents referred to in this Agreement) the entire agreement between the parties with respect
to its subject matter. This Agreement may not be amended except by a written agreement executed by
the party to be charged with the amendment.
| 11.8 | ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS |
Neither party may assign any of its rights under this Agreement without the prior written
consent of the other parties except that Buyer may assign any of its rights, but not its
obligations, under this Agreement to any subsidiary or affiliate of Buyer. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in
this Agreement will be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement.
| 11.9 | SEVERABILITY |
If any provision of this Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part will remain in full force
and effect to the extent not held invalid or unenforceable.
| 11.10 | SECTION HEADINGS, CONSTRUCTION |
The headings of Sections in this Agreement are provided for convenience only and will not
affect the construction or interpretation of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word “including” does not limit the preceding words or terms.
| 11.11 | GOVERNING LAW |
This Agreement will be governed by the laws of the Commonwealth of Virginia without regard to
conflicts of law principles, except that Ohio law shall govern all corporate organizational and
governance issues with respect to TOG and Section 5.1 and 6.3 of this Agreement.
| 11.12 | COUNTERPARTS |
This Agreement may be executed in one or more counterparts, each of which will be deemed to be
an original copy of this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
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The parties have executed and delivered this Agreement as of the date first written above.
| Buyer: O’Gara Virginia, Inc. |
||||
| By: | /s/ Xxxxxxx X. X’Xxxx | |||
| Title: President and CEO | ||||
| TOG The O’Gara Group, Inc. |
||||
| By: | /s/ Xxxxxxx X. X’Xxxx | |||
| Title: President and CEO | ||||
| Seller VIR Rally, LLC |
||||
| By: | /s/ Xxxxxx Xxxxxx | |||
| Title: Managing Member | ||||
The Principals are joining in the execution of this Agreement solely to be bound by the terms of
Sections 5.1, 5.7 and 11.4 of this Agreement.
| Principals |
||||
| /s/ Xxxxxx Xxx Xxxxxx Xxxxxx | ||||
| Xxxxxx Xxx Xxxxxx Xxxxxx | ||||
| /s/ Xxxxxx Xxxxxx | ||||
| Xxxxxx Xxxxxxx Xxxxxx | ||||
38
Note: The registrant has omitted the following schedules, exhibits and similar attachments to this
agreement pursuant to Item 601(b)(2) of Regulation S-K and agrees to furnish supplementally a copy
of any omitted schedule, exhibit or similar attachment to the Securities and Exchange Commission
upon request.
Exhibit 1 — Facilities
Exhibit 2.1(a) — Assets
Exhibit 2.1(a)(iii) — Executory Contracts
Exhibit 2.1(d) — Excluded Assets
Exhibit 2.3 — Assumed Liabilities
Exhibit 2.5(a) — Operating Agreement/Lease
Exhibit 2.1(a) — Assets
Exhibit 2.1(a)(iii) — Executory Contracts
Exhibit 2.1(d) — Excluded Assets
Exhibit 2.3 — Assumed Liabilities
Exhibit 2.5(a) — Operating Agreement/Lease
Seller’s Disclosure Schedule
Schedule 3.2 — Business
Schedule 3.3 — Authority; No Conflict
Schedule 3.4 — Capitalization
Schedule 3.6 — Books and Records
Schedule 3.7 — Title to Properties; Encumbrances
Schedule 3.8 — Condition and Sufficiency of Assets
Schedule 3.12 — Employee Benefits
Schedule 3.13 — Compliance with Laws; Governmental Authorization
Schedule 3.14 — Legal Proceedings
Schedule 3.15 — Absence of Certain Changes and Events
Schedule 3.16 — Contracts; No Defaults
Schedule 3.17 — Insurance
Schedule 3.18 — Environmental Matters
Schedule 3.19 — Employees
Schedule 3.20 — Labor Relations
Schedule 3.21 — Intellectual Property
Schedule 3.23 — Relationships with Related Persons
Schedule 3.24 — Brokers or Finders
Schedule 3.25 — Deposit Accounts
Schedule 3.28 — No Undisclosed Liabilities
Schedule 7.3 — Required Consents
Schedule 3.3 — Authority; No Conflict
Schedule 3.4 — Capitalization
Schedule 3.6 — Books and Records
Schedule 3.7 — Title to Properties; Encumbrances
Schedule 3.8 — Condition and Sufficiency of Assets
Schedule 3.12 — Employee Benefits
Schedule 3.13 — Compliance with Laws; Governmental Authorization
Schedule 3.14 — Legal Proceedings
Schedule 3.15 — Absence of Certain Changes and Events
Schedule 3.16 — Contracts; No Defaults
Schedule 3.17 — Insurance
Schedule 3.18 — Environmental Matters
Schedule 3.19 — Employees
Schedule 3.20 — Labor Relations
Schedule 3.21 — Intellectual Property
Schedule 3.23 — Relationships with Related Persons
Schedule 3.24 — Brokers or Finders
Schedule 3.25 — Deposit Accounts
Schedule 3.28 — No Undisclosed Liabilities
Schedule 7.3 — Required Consents
Disclosure Schedule of The O’Gara Group, Inc.
Schedule 4.1 — Organization and Good Standing
Schedule 4.2 — Authority; No Conflict
Schedule 4.3 — Capitalization
Schedule 4.2 — Authority; No Conflict
Schedule 4.3 — Capitalization
39
