Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
dated August 29, 2003
FOR THE ACQUISITION OF
MICROSERV, INC.
BY
HALIFAX CORPORATION
AGREEMENT AND PLAN OF MERGER
Table of Contents
Section 1: D efined Terms 1
Section 2: The First Merger 1
2.1 The Merger 1
2.2 First Merger Effective Time 1
2.3 Effect of the First Merger 2
2.4 Articles of Incorporation and Bylaws 2
2.5 Directors and Officers 2
2.6 Merger Consideration; Conversion of Capital Stock 2
2.7 Delivery of Merger Consideration and Surrender of
Certificates 3
2.8 Merger Consideration Adjustment. 3
2.9 Computation of Deferred Merger Consideration. 5
2.10 Tax Consequences 7
2.11 Further Action 7
Section 3: The Second Merger 7
3.1 The Second Merger 7
3.2 The Second Merger Effective Time 7
3.3 Effect of the Second Merger 7
3.4 Certificate of Formation and Agreement of Limited
Liability Company 8
3.5 Managers and Officers 8
3.6 Effect on Capital Stock and Membership Interests 8
Section 4: Representations of the Company and the Selling
Shareholders 8
4.1 Organization 8
4.2 Authority; Non-Contravention. 9
4.3 Capital Stock and Ownership. 10
4.4 Financial and Corporate Records. 11
4.5 Compliance with Law; Permits. 12
4.6 Financial Statements. 12
4.7 Assets. 13
4.8 Obligations. 13
4.9 Operations Since the Latest Balance Sheet Date 13
4.10 Accounts Receivable 14
4.11 Tangible Property 14
4.12 Real Property; Environmental Laws. 14
4.13 Software and Intangibles. 15
4.14 Contracts. 16
4.15 Employees and Independent Contractors. 17
4.16 Employee Benefit Plans. 18
4.17 Customers and Suppliers 20
4.18 Taxes. 20
4.19 Proceedings and Judgments. 21
4.20 Insurance 22
4.21 Questionable Payments 22
4.22 Related Party Transactions 22
4.23 Brokerage Fees 22
4.24 Inapplicability of Anti-takeover Laws 22
4.25 Company's Tax Representations Related to
Reorganization. 22
4.26 Investment Matters. 22
4.27 Full Disclosure 25
Section 5: Representations of Buyer, Merger Sub and Newco LLC 25
5.1 Organization 25
5.2 Authority; Non-Contravention 25
5.3 Buyer's Stock 26
5.4 Indebtedness 26
5.5 Consents 26
5.6 SEC Filings 26
5.7 Full Disclosure 27
5.8 Buyer's Tax Representations Relating to
Reorganization. 27
Section 6: Obligations of the Company and the Selling Shareholders
Pending Closing 27
6.1 Conduct of the Company's Business 27
6.2 Interim Financial Statements 28
6.3 Buyer's Due Diligence Investigation; Confidentiality 29
6.4 Consents 29
6.5 Acquisition Proposals 29
6.6 Advice of Changes 29
6.7 Best Efforts 30
Section 7: Certain Obligations of Buyer, Merger Sub and Newco LLC
Pending Closing 30
7.1 Corporate/Limited Liability Company Status 30
7.2 The Company's and Selling Shareholders' Due Diligence
Investigation; Confidentiality 30
7.3 Consents 30
7.4 SEC Reports 31
7.5 Advice of Changes 31
7.6 Best Efforts 31
Section 8: Conditions Precedent to the Company's and the Selling
Shareholders' Closing Obligations 31
8.1 Buyer's, Merger Sub's and Newco LLC's Representations
and Performance 31
8.2 Absence of Proceedings 31
8.3 Approvals 31
8.4 Registration Rights and Right of First Offer
Agreement 32
8.5 Key Employee Agreements 32
8.6 Voting Agreement 32
8.7 Research Industries Incorporated Debt 32
8.8 Adverse Changes 32
8.9 Tax-Free Reorganization 32
8.10 Closing Deliveries 32
Section 9: Conditions Precedent to Buyer's, Merger Sub's and
Newco LLC's Closing Obligations 32
9.1 The Company's and Selling Shareholders' Representations
and Performance 32
9.2 Absence of Proceedings 33
9.3 Adverse Changes 33
9.4 Approvals 33
9.5 Environmental Review 33
9.6 Obligations to Selling Shareholders 33
9.7 General Release 33
9.8 Intentionally Omitted. 33
9.9 Key Employee Agreements 33
9.10 Cancellation of Securities 33
9.11 Registration Rights and Right of First Offer
Agreement 33
9.12 Intentionally Omitted. 34
9.13 Purchaser Representative 34
9.14 Questionnaires 34
9.15 Dissenters' Rights 34
9.16 Closing Deliveries 34
Section 10: Closing Deliveries 34
10.1 Company's and Selling Stockholders' Obligations at
Closing 34
10.2 Buyer's, Merger Sub's and Newco LLC's Obligations
at Closing 35
Section 11: Certain Rights and Obligations of Buyer and the
Selling Shareholders after Closing 36
11.1 Restrictions on Dispositions of Buyer Shares 36
11.2 Cooperation with Buyer and the Second Merger
Survivor 37
11.3 Member of Buyer's Board of Directors 37
11.4 Payment of RII 37
Section 12: Certain Obligations of the Selling Shareholders,
Buyer and/or Newco LLC After Closing 37
12.1 Taxes. 37
12.2 Transfer Taxes 38
12.3 Reportable Transactions. 39
12.4 Audits 39
12.5 Amendment of Tax Returns 39
12.6 Fees and Expenses 39
12.7 Employment Matters 40
12.8 Disposition of Company Employee Benefit Plans 40
12.9 Tax-Free Reorganization. 40
Section 13: Indemnification 40
13.1 The Company's and Selling Shareholders'
Indemnification 40
13.2 Indemnification by Buyer 41
13.3 Indemnification Procedures 41
13.4 Limits on Indemnification 42
13.5 Setoff. 43
13.6 Time Limitations 44
13.7 Exclusive Remedy 44
13.8 Merger Consideration Adjustment 44
Section 14: Termination 44
14.1 Right to Terminate 44
14.2 Obligations to Cease 45
Section 15: Other Provisions 45
15.1 Publicity 45
15.2 Fees and Expenses 45
15.3 Notices 46
15.4 Reliance; Interpretation of Representations 46
15.5 Entire Understanding 47
15.6 Parties in Interest; Assignment 47
15.7 Waivers 47
15.8 Severability 47
15.9 Counterparts; Facsimile 47
15.10 Section Headings 47
15.11 References 47
15.12 Controlling Law 47
15.13 Arbitration; Jurisdiction and Process. 47
15.14 No Third-Party Beneficiaries 48
15.15 Neutral Construction 48
15.16 Shareholder Representative. 48
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of August 29, 2003, by and among Halifax Corporation, a
Virginia corporation ("Buyer"), Microserv Merger Corp., a Delaware
corporation and wholly-owned subsidiary of Buyer ("Merger Sub"),
Microserv Merger LLC, a Delaware limited liability company and wholly
owned subsidiary of Buyer ("Newco LLC"), Microserv, Inc., a Washington
corporation (the "Company"), and the shareholders of the Company
identified on the signature page attached hereto (each a "Selling
Shareholder" and collectively, the "Selling Shareholders").
BACKGROUND
The Company is in the business of providing enterprise maintenance
solutions, including without limitation, multi-vendor computer hardware
support services that focus on providing customized equipment service
and support primarily to the desktop market, such as personal and
notebook computers, monitors, terminals, printers and storage devices
(the "Business"). The Selling Shareholders own, collectively, 100% of
the issued and outstanding shares of capital stock of the Company. At
Closing (as defined herein), the parties desire that Merger Sub be
merged with and into the Company (with the Company surviving the
merger) on the terms and subject to the conditions set forth in this
Agreement. The parties desire that immediately after the consummation
of the First Merger (as hereinafter defined), the First Merger
Surviving Corporation (as hereinafter defined) be merged with and into
Newco LLC (with Newco LLC surviving that merger). The Board of
Directors of the Company has determined that the mergers referenced
above and the other transactions contemplated by this Agreement (such
mergers and other transactions to collectively be referred to herein as
the "Transactions") are in the best interests of the Company and the
shareholders of the Company. The respective Boards of Directors and
Managers, as the case may be, of Buyer, Merger Sub and Newco LLC have
determined that the Transactions are in the best interests of Buyer,
Merger Sub, Newco LLC and their respective stockholders or members, as
the case may be.
Intending to be legally bound, in consideration of the mutual
agreements contained herein and subject to the satisfaction of the
terms and conditions set forth herein, the parties hereto agree as
follows:
Section 1: Defined Terms
Certain capitalized or defined terms used in this Agreement and
not specifically defined in context shall have their respective
meanings contained in Exhibit 1A attached hereto.
Section 2: The First Merger
2.1 The Merger. At the First Merger Effective Time, subject to and
upon the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "DGCL") and the
Washington Business Corporation Act (the "WBCA"), Merger Sub shall be
merged with and into the Company, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation (the "First Merger"). The Company, as the surviving
corporation of the First Merger, is hereinafter sometimes referred to
as the "First Merger Surviving Corporation".
2.2 First Merger Effective Time. Subject to the provisions of this
Agreement, the parties hereto shall cause the First Merger to be
consummated by filing (i) a Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with the relevant
provisions of the DGCL (the "First Merger Delaware Certificate of
Merger") and (ii) Articles of Merger with the Secretary of State of the
State of Washington in accordance with the relevant provisions of the
WBCA (the "First Merger Washington Articles of Merger") (the time of
such filings with the Secretary of State of the State of Delaware and
the Secretary of State of the State of Washington (or such later time
as may be agreed in writing by the Company and Buyer and specified in
the First Merger Delaware Certificate of Merger and the First Merger
Washington Articles of Merger) being the "First Merger Effective Time")
as soon as practicable on the Closing Date. The closing of the First
Merger and the Second Merger (as defined and further described in
Section 3 hereof) (the "Closing") shall take place at the offices of
Blank Rome, LLP, Xxx Xxxxx Xxxxxx, Xxxxxxxxxxxx, XX 00000, at a time
and date to be specified by the parties, which shall be no later than
the second business day after the satisfaction or waiver of the
conditions set forth in Sections 8 and 9 hereof (other than those
conditions which are, by their terms, to be satisfied at Closing, but
subject to the satisfaction or waiver thereof), or at such other time,
date and location as the parties hereto agree in writing (the "Closing
Date").
2.3 Effect of the First Merger. At the First Merger Effective Time,
the effect of the First Merger shall be as provided in this Agreement
and the applicable provisions of the DGCL and the WBCA. Subject to
the foregoing, from and after the First Merger Effective Time, the
First Merger Surviving Corporation shall possess all rights,
privileges, immunities, powers and franchises and be subject to all the
obligations, restrictions, disabilities, liabilities, debts and duties
of the Company and Merger Sub.
2.4 Articles of Incorporation and Bylaws. Subject to Section 3
hereof, at the First Merger Effective Time, the Articles of
Incorporation of the Company shall be the articles of incorporation of
the First Merger Surviving Corporation, until thereafter amended in
accordance with the WBCA and as provided in such Articles of
Incorporation. Subject to Section 3 hereof, at the First Merger
Effective Time, the Bylaws of the Company shall be the Bylaws of the
First Merger Surviving Corporation, until thereafter amended in
accordance with the WBCA and as provided in such Bylaws.
2.5 Directors and Officers. Subject to Section 3 hereof, from and
after the First Merger Effective Time, (a) the directors of the First
Merger Surviving Corporation shall be the directors of Merger Sub
immediately prior to the First Merger Effective Time, until their
respective successors are duly elected or appointed and qualified, and
(b) the officers of the First Merger Surviving Corporation shall be the
officers of Merger Sub immediately prior to the First Merger Effective
Time, until their respective successors are duly appointed.
2.6 Merger Consideration; Conversion of Capital Stock. The Merger
Consideration shall consist of: (a) 442,078 Buyer Common Shares; (b)
$360,000 in cash (the "Cash Payment"); (c) promissory notes in an
aggregate principal amount of $493,934 (each, a "Note", and
collectively, the "Notes") in the form attached hereto as Exhibit 2.6;
and (d) the right to receive the Deferred Merger Consideration,
computed as set forth in Section 2.9; provided, however; that the
Merger Consideration is subject to retroactive adjustment as provided
in Section 2.8. The items listed in Sections 2.6 (a) through (c)
(without adjustment as provided in Section 2.8) are herein sometimes
referred to as the Closing Date Merger Consideration. As of the First
Merger Effective Time, by virtue of the First Merger and without any
action on the part of the holder of any shares of Company Common Stock
or capital stock of Merger Sub:
2.6.1 Company Common Stock. All of the Company Common
Stock issued and outstanding immediately prior to the First Merger
Effective Time shall be cancelled and extinguished and shall be converted
into the right to receive, upon the surrender of certificates formerly
representing such shares of Company Common Stock (each a "Certificate"
and collectively, the "Certificates"), without interest, the percentage
of each of the items that collectively constitute the Merger
Consideration computed by multiplying each such item by a fraction the
numerator of which is equal to the number of shares of Company Common
Stock owned by such Selling Shareholder immediately prior to the First
Merger Effective Time and the denominator of which is the total number
of issued and outstanding shares of Company Common Stock immediately
prior to the First Merger Effective Time (with (a) the fraction for
each Seller Shareholder referred to herein as such Selling
Shareholder's "Ownership Interest" and (b) it being the agreement of
the parties that the Ownership Interests of the Selling Shareholders
set forth on Schedule 2.6.1 attached hereto (the Ownership Schedule")
be final and binding on the parties for purposes of computing the
portion of the Merger Consideration for which each Selling Shareholder
is entitled pursuant to this Agreement;
2.6.2 Stock of Merger Sub. Each share of the common stock, $0.01
par value, of Merger Sub then outstanding shall be converted into one
validly issued, fully paid, and nonassessable share of common stock of
the First Merger Surviving Corporation. Each stock certificate, if
any, of Merger Sub evidencing ownership of any such shares shall, from
and after the First Merger Effective Time, evidence ownership of such
shares of capital stock of the First Merger Surviving Corporation;
2.7 Delivery of Merger Consideration and Surrender of Certificates
2.7.1 On the Closing Date, Buyer shall deliver the
Closing Date Merger Consideration to the Selling Shareholders against
delivery to Buyer by such Selling Shareholders of Certificates formerly
representing the Company Common Stock, free and clear of all liens,
encumbrances and third party interests of any nature, which shares of
Company Common Stock delivered to Buyer shall constitute 100% of the
outstanding capital stock of the Company. In the event any
Certificates representing shares of Company Common Stock shall have
been lost, stolen or destroyed, the applicable portion of the Closing
Date Merger Consideration shall be deliverable against delivery of an
affidavit of that fact, in customary form and containing customary
indemnities, executed by the holder thereof. The Deferred Merger
Consideration, if any, shall be payable to the Selling Shareholders in
accordance with Section 2.9 hereof.
2.7.2 Buyer shall be entitled to deduct and withhold from any cash
consideration deliverable pursuant to this Agreement to any Selling
Shareholder such amounts as may be required to be deducted or withheld
therefrom under the Code or under any provision of state, local or
foreign Law, but Buyer must notify each such Selling Shareholder as to
the amount and timing of the deduction or withholding. To the extent
such amounts are so deducted or withheld and have been paid as required
to the appropriate taxing authority, the amount of such consideration
shall be treated for all purposes under this Agreement as having been
delivered to the Person entitled to such consideration hereunder.
2.8 Merger Consideration Adjustment.
2.8.1
(a) At or before Closing, the Company shall prepare
and deliver to Buyer (i) a balance sheet of the Company, prepared
in accordance with GAAP, as of August 31, 2003 (the "Closing Balance
Sheet"), (ii) a schedule (the "Cash Payment Offset Schedule") setting
forth (a) the dollar amount of any cash dividend declared or paid by
the Company in August, 2003 (the "August Dividend"), (b) the amount
by which the dollar value of stay bonuses paid by the Company in
connection with the Transactions is in excess of the agreed upon
threshold amount specified on the Cash Payment Offset Schedule, and
(c) the amount by which the severance payments made to employees in
connection with the Transactions is in excess of the agreed upon
threshold amount specified in the Cash Payment Offset Schedule
(collectively, the aggregate dollar value of such items contemplated
by (a), (b) and (c) shall be referred to herein as the "Cash Offset
Balance"), which Cash Payment Offset Schedule shall be true, complete
and correct in all material respects, (iii) an estimate of the
Working Capital (the "Estimated Closing Date Working Capital") of the
Company on August 31, 2003, and (iv) an estimate of the Net Assets
(the "Estimated Closing Date Net Assets") of the Company on
August 31, 2003.
(b) The amount of the Cash Offset Balance shall be withheld from the
Cash Payment and shall be held in escrow by Buyer subject to the terms
of this Section 2.8 (the "Cash Escrow").
(c) The aggregate Merger Consideration shall be reduced, dollar for
dollar, to the extent that the aggregate of the following amounts
computed in items (i) and (ii) below are greater than $100,000 (such
amount by which such aggregate exceeds $100,000 to be referred to
herein as the "Excess") (such aggregate of the following amounts
computed in (i) and (ii) below to be referred to herein as the
"March/Closing Comparison Aggregate"); provided, however, that the
reduction shall first come from the Cash Escrow and second from
reduction of the aggregate principal amount of the Notes:
(i) $263,644 less the Estimated Closing Date
Working Capital.
(ii) $430,861 less the Estimated Closing Date Net
Assets.
2.8.2 Within forty-five (45) days after the Closing Date,
Buyer shall cause Buyer Accountant at its sole cost and expense to (
i) review and/or conduct certain procedures upon the components of
the Estimated Closing Date Working Capital and Estimated Closing Date
Net Assets and prepare detailed statements (the "Working Capital and
Net Assets Statements") of its calculation of the actual Working
Capital of the Company as of August 31, 2003 ("Actual Closing
Working Capital") and the actual Net Assets of the Company as of
August 31, 2003 (the "Actual Closing Net Assets"), both of which
shall be appropriately adjusted for any audit adjustments for the
year ended December 31, 2002 and (ii) deliver the Working Capital
and Net Assets Statements to the Selling Shareholders. The Selling
Shareholders shall have a thirty (30) day period to review the
Working Capital and Net Assets Statements and during such period
Buyer shall cause the Buyer Accountant, if requested, to share its
work papers with the Selling Shareholders or their professional
advisers and to make itself reasonably available to the Selling
Shareholders and their professional advisers.
2.8.3 If the Selling Shareholders dispute either the Actual Closing
Working Capital or the Actual Closing Net Assets stated in the Working
Capital and Net Assets Statements, they shall deliver a notice to Buyer
no later than thirty (30) days after their receipt of the Working
Capital and Net Assets Statements (the "Calculation Dispute Notice").
The Selling Shareholders shall set forth in detail in the Calculation
Dispute Notice the basis for their disagreement with the calculations
of either of the Actual Closing Working Capital or the Actual Closing
Net Assets. If the Selling Shareholders fail to deliver the
Calculation Dispute Notice within the allotted time period, the Selling
Shareholders shall be deemed to have agreed to the calculations of the
Actual Closing Working Capital and the Actual Closing Net Assets
prepared by the Buyer Accountant, which calculations shall be final,
conclusive and binding upon the parties.
2.8.4 If the Selling Shareholders dispute either the Actual Closing
Working Capital or the Actual Closing Net Assets as determined by the
Buyer Accountant within the allotted time period, the parties in good
faith will attempt to jointly resolve any dispute during the thirty day
period following the delivery of the Calculation Dispute Notice. If
Buyer and the Selling Shareholders can resolve their dispute and agree
upon the Actual Closing Working Capital and Actual Closing Net Assets
balances of the Company, they shall memorialize their agreement in
writing and such mutually agreed upon figure(s) shall be final,
conclusive and binding upon all of the parties.
2.8.5 If Buyer and the Selling Shareholders cannot resolve the
dispute to their mutual satisfaction, Buyer and the Selling
Shareholders shall engage the Independent Accountants to determine the
Actual Closing Working Capital and Actual Closing Net Assets balances,
as the case may be, of the Company as of August 31, 2003. The costs
and expenses of the Independent Accountants shall be borne fifty
percent by Buyer and fifty percent by the Selling Shareholders (each
Selling Shareholder responsible for the amount equal to their Ownership
Interest multiplied by fifty percent of such costs and expenses);
provided, however, that the aggregate principal amount of the Notes
shall be reduced by the dollar value of the Selling Shareholders'
portion of such costs and expenses. To the extent that the Independent
Accountants desire the parties to this Agreement to meet in person, the
parties shall choose a mutually acceptable location for such meeting.
Each of Buyer and the Selling Shareholders shall cause their accounting
professional advisers to provide the Independent Accountants such of
their respective work papers as may be requested by the Independent
Accountants. The Independent Accountants shall be requested to
complete their engagement within forty five days of being retained by
Buyer and the Selling Shareholders. The determination of the
Independent Accountants shall be final, conclusive and binding upon the
parties.
2.8.6 The final determination of the Actual Closing Working Capital
and Actual Closing Net Assets of the Company on the Closing Date
pursuant to this Section 2.8 shall be referred to herein as the "Final
Closing Working Capital" and "Final Closing Net Assets", respectively.
The extent to which the Final Closing Working Capital is less than the
Estimated Closing Date Working Capital shall be referred to herein as a
"Negative Working Capital Balance". The extent to which the Final
Closing Net Assets is less than the Estimated Closing Date Net Assets
shall be referred to herein as a "Negative Net Assets Balance". The
extent to which the Final Closing Working Capital is greater than the
Estimated Closing Date Working Capital shall be referred to herein as a
"Positive Working Capital Balance". The extent to which the Final
Closing Net Assets is greater than the Estimated Closing Date Net
Assets shall be referred to herein as a "Positive Net Assets Balance".
2.8.7 The Merger Consideration shall be reduced, dollar for dollar,
to the extent the aggregate of the Negative Working Capital Balance, if
any, and the Negative Net Assets Balance, if any, exceeds the aggregate
of the Positive Working Capital Balance, if any, and the Positive Net
Assets Balance, if any, (a "Negative Adjustment"). The reduction shall
come first from the Cash Escrow and second from the reduction of the
aggregate principal amount of the Notes; provided, however, that the
aggregate reduction of the Cash Escrow and the Notes at Closing and in
connection with a Negative Adjustment shall be limited to the amount by
which the sum of the March/Closing Comparison Aggregate plus the
Negative Adjustment exceeds $100,000. Any amount remaining in the Cash
Escrow after giving effect to the Negative Adjustment shall be
distributed promptly to the Selling Shareholders within five business
days of the final determination of the Negative Adjustment.
2.9 Computation of Deferred Merger Consideration.
2.9.1 The Selling Shareholders shall be entitled to
additional merger consideration (the "Deferred Merger Consideration")
equal to $250,000, payable in cash or a combination of cash and
Buyer Common Shares, as provided below, promptly upon determination
thereof in accordance with this Section 2.9, if the aggregate of the
Net Revenues earned by the Second Merger Survivor in connection with
certain of the Company's accounts listed on Exhibit 2.9 (collectively,
the Earnout Accounts") for the twelve (12) month period beginning
September 1, 2003 and ending August 31, 2004 (the "Earnout Net
Revenues") is equal to or greater than 105% of the Net Revenues figure
specified on Exhibit 2.9. In the discretion of the Selling
Shareholders, as determined by the Shareholder Representative, the
Deferred Merger Consideration, if earned, shall be paid in a mix of
cash and Buyer Common Shares (with the aggregate number of such Buyer
Common Shares being equal to (i) the dollar value of the portion of
Deferred Merger Consideration requested to be paid in Buyer Common
Shares, divided by the Deferred Merger Consideration Price), provided,
however, that notwithstanding anything to the contrary contained in this
Agreement, (a) the aggregate number of Buyer Common Shares issued in
connection with the Deferred Merger Consideration shall not exceed
49,120, and (b) the Deferred Merger Consideration shall be paid in cash
to the extent necessary to satisfy the intent of the parties contemplated
by subsection (a) of this proviso.
2.9.2 By October 25, 2004, Buyer shall (i) calculate the Earnout
Net Revenues and the amount of the Deferred Merger Consideration, if
any, and prepare detailed statements (the "Earnout Statements") of its
calculation of the Earnout Net Revenues and the Deferred Merger
Consideration and (ii) deliver the Earnout Statements to the Selling
Shareholders. The Selling Shareholders shall have a twenty (20) day
period to review the Earnout Statements and during such period Buyer
shall, if requested, share its relevant supporting documentation with
the Selling Shareholders or their professional adviser.
2.9.3 If the Selling Shareholders dispute either the Earnout Net
Revenues or the Deferred Merger Consideration stated in the Earnout
Statements, they shall deliver a notice to Buyer no later than twenty
(20) days after delivery of the Earnout Statements (the "Earnout
Dispute Notice"). The Selling Shareholders shall set forth in detail
in the Earnout Dispute Notice the basis for their disagreement with the
calculations of the Earnout Net Revenues or Deferred Merger
Consideration specified in the Earnout Statements. If the Selling
Shareholders fail to deliver the Earnout Dispute Notice within the
allotted time period, the Selling Shareholders shall be deemed to have
agreed to the calculations of the Earnout Net Revenues and Deferred
Merger Consideration specified in the Earnout Statements, which
calculations shall be final, conclusive and binding upon the parties.
2.9.4 If the Selling Shareholders dispute the Earnout Net Revenues
or Deferred Merger Consideration as specified in the Earnout Statements
within the allotted time period, the parties in good faith will attempt
to jointly resolve any dispute during the thirty day period following
the delivery of the Earnout Dispute Notice. If Buyer and the Selling
Shareholders can resolve their dispute and agree upon the Earnout Net
Revenues and Deferred Merger Consideration, they shall memorialize
their agreement in writing and such mutually agreed upon figure(s)
shall be final, conclusive and binding upon all of the parties.
2.9.5 If Buyer and the Selling Shareholders cannot resolve the
dispute to their mutual satisfaction, Buyer and the Selling
Shareholders shall engage the Independent Accountants to determine the
Earnout Net Revenues and Deferred Merger Consideration. The costs and
expenses of the Independent Accountants shall be borne fifty percent by
Buyer and fifty percent by the Selling Shareholders (each Selling
Shareholder responsible for the amount equal to their Ownership
Interest multiplied by fifty percent of such costs and expenses);
provided, however, that the Deferred Merger Consideration payable
hereunder shall be reduced by the Selling Shareholder's portion of such
costs and expenses; provided, further, that if the value of the Selling
Shareholders' portion of such costs and expenses is in excess of such
Deferred Merger Consideration payable hereunder, the aggregate
principal amount of the Notes shall be reduced by such excess. To the
extent that the Independent Accountants desire the parties to this
Agreement to meet in person, the parties shall choose a mutually
acceptable location for such meeting. Each of Buyer and the Selling
Shareholders shall provide or cause their accounting professional
advisers, as the case may be, to provide the Independent Accountants
such of their respective work papers or other relevant supporting
documentation as may be requested by the Independent Accountants. The
Independent Accountants shall be requested to complete their engagement
within forty five days of being retained by Buyer and the Selling
Shareholders. The determination of the Independent Accountants shall
be final, conclusive and binding upon the parties.
2.10 Tax Consequences. The parties intend that the Mergers, taken
together, shall constitute a tax free reorganization within the meaning
of Section 368(a) of the Code and such parties shall treat the
Transactions consistent with that intent on all applicable Tax Returns.
2.11 Further Action. If, at any time after the First Merger Effective
Time, any further action is reasonably determined by Buyer to be
necessary or desirable to carry out the purposes of this Agreement or
to vest the First Merger Surviving Corporation with full right, title
and possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the First Merger Surviving
Corporation and Buyer shall be fully authorized (in the name of Merger
Sub, in the name of the Company and otherwise) to take such action.
Section 3: The Second Merger
3.1 The Second Merger. Immediately after the consummation of the
First Merger, subject to and upon the terms and conditions of this
Agreement and the applicable provisions of the WBCA and the Delaware
Limited Liability Company Act (the "DLLCA"), the First Merger Surviving
Corporation shall be merged with and into Newco LLC, the separate
corporate existence of the First Merger Surviving Corporation shall
cease and Newco LLC shall continue as the survivor (the "Second
Merger"). Newco LLC, as the survivor of the Second Merger, is
hereinafter sometimes referred to as the "Second Merger Survivor".
3.2 The Second Merger Effective Time. Subject to the provisions of
this Agreement (including the first sentence of Section 3.1 hereof),
the applicable parties hereto shall cause the Second Merger to be
consummated by filing (i) a Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with the relevant
provisions of the DLLCA (the "Second Merger Delaware Certificate of
Merger") and (ii) Articles of Merger with the Secretary of State of the
State of Washington in accordance with the relevant provisions of the
WBCA (the "Second Merger Washington Articles of Merger) (the time of
such filing with the Secretary of State of the State of Delaware and
the Secretary of State of the State of Washington (or such later time
as may be agreed in writing by the parties and specified in the Second
Merger Delaware Certificate of Merger and the Second Merger Washington
Articles of Merger) being the "Second Merger Effective Time") as soon
as practicable on the Closing Date.
3.3 Effect of the Second Merger. At the Second Merger Effective Time,
the effect of the Second Merger shall be as provided in this Agreement
and the applicable provisions of the WBCA and the DLLCA. Subject to
the foregoing, from and after the Second Merger Effective Time, the
Second Merger Survivor shall possess all rights, privileges,
immunities, powers and franchises and be subject to all the
obligations, restrictions, disabilities, liabilities, debts and duties
of the First Merger Surviving Corporation and Newco LLC.
3.4 Certificate of Formation and Agreement of Limited Liability
Company. At the Second Merger Effective Time, the Certificate of
Formation of Newco LLC immediately prior to the Second Merger Effective
Time shall be the Certificate of Formation of the Second Merger
Survivor until thereafter amended in accordance with the DLLCA and as
provided in such Certificate of Formation; provided, however, that as
of the Second Merger Effective Time, the Certificate of Formation shall
provide that the name of the Second Merger Survivor is "Microserv,
LLC". At the Second Merger Effective Time, the agreement of limited
liability company of Newco LLC, if any, existing immediately prior to
the Second Merger Effective Time, shall be the agreement of limited
liability company of the Second Merger Survivor until thereafter
amended in accordance with the DLLCA and as provided in such agreement
of limited liability company; provided, however, that all references in
such agreement of limited liability company to Newco LLC shall be
amended to refer to "Microserv, LLC"
3.5 Managers and Officers. The initial managers of the Second Merger
Survivor shall be the managers of Newco LLC immediately prior to the
Second Merger Effective Time, until their respective successors are
duly elected or appointed and qualified. The initial officers of the
Second Merger Survivor shall be the officers of Newco LLC immediately
prior to the Second Merger Effective Time, until their respective
successors are duly appointed.
3.6 Effect on Capital Stock and Membership Interests. Subject to the
terms and conditions of this Agreement, at the Second Merger Effective
Time, by virtue of the Second Merger and without any action on the part
of Buyer, the First Merger Surviving Corporation, Newco LLC or the
holders of any securities thereto, the following shall occur:
3.6.1 Each share of capital stock of the First Merger
Surviving Corporation issued and outstanding immediately prior to
the Second Merger Effective Time shall be automatically cancelled and
extinguished without payment of any consideration therefor and without
any conversion thereof; and
3.6.2 Each unit of membership interest of Newco LLC issued and
outstanding immediately prior to the Second Merger Effective Time shall
be converted into one validly issued, fully paid, and nonassessable
unit of membership interest of the Second Merger Survivor. Each
certificate, if any, of Newco LLC evidencing ownership of any such
units of membership interest shall continue to evidence ownership of
such units of membership interest of the Second Merger Survivor.
Section 4: Representations of the Company and the Selling
Shareholders
Knowing that Buyer, Merger Sub and Newco LLC are relying thereon,
the Company (but only for the period prior to the occurrence of the
Closing) and each of the Selling Shareholders severally, but not
jointly (however, subject to the limitations specified in Section 13
hereof), represent and warrant to Buyer, Merger Sub and Newco LLC, and
covenant with Buyer, Merger Sub and Newco LLC, as follows:
4.1 Organization. The Company is a corporation, duly organized and
validly existing under the Laws of the State of Washington. The
Company possesses the necessary corporate power and corporate authority
to enter into and perform its obligations under this Agreement. The
Company possesses the necessary corporate power and authority: (i) to
own and use its Assets in the manner in which such Assets are currently
owned and used, and (ii) to conduct its business as such business is
currently being conducted. The Company is duly qualified or registered
to do business in each jurisdiction where such qualification or
registration is required by applicable Law, except where the failure to
so qualify would not have a Material Adverse Effect.
4.1.1 Except as set forth on Schedule 4.1, the Company
does not own any securities of any corporation or any other interest
in any Person. The Company has never acquired or succeeded to all or
substantially all of the Assets or businesses of any other Person,
and there is no other Person that may be deemed to be a predecessor
of the Company.
4.1.2 Schedule 4.1 sets forth for the Company: (i) its exact legal
name; (ii) its corporate business form and jurisdiction and date of
formation; (iii) its federal employer identification number; (iv) its
headquarters address; (v) its directors and officers, indicating all
current title(s) of each individual; (vi) its registered agent and/or
office in its jurisdiction of formation (if applicable); (vii) all
foreign jurisdictions in which it is qualified or registered to do
business, the date it so qualified or registered, and its registered
agent and/or office in each such jurisdiction (if applicable); (viii)
all fictitious, assumed or other names of any type that are registered
or used by it or under which it has done business at any time since its
date of incorporation; and (ix) any name changes, recapitalizations,
mergers, reorganizations or similar events since its date of formation.
4.1.3 Accurate and complete copies of the articles of incorporation
and bylaws, each as amended to date, and all Contracts related to the
formation of the Company and still in force, have been delivered to
Buyer.
4.2 Authority; Non-Contravention.
4.2.1 The Company has the necessary corporate power
and corporate authority to enter into and to perform its obligations
under this Agreement, and the execution, delivery and performance
of this Agreement and the consummation of the Transactions by the
Company have been duly authorized by all necessary actions by its
board of directors and shareholders. Each of the Selling
Shareholders has the necessary authority and capacity to enter into,
execute, deliver and perform all of his or its obligations under
this Agreement and under each other agreement, document or
instrument referred to in or contemplated by this Agreement to which
such Selling Shareholder is or becomes a party. This Agreement
constitutes the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and
subject to applicability of general principles of equity. This
Agreement (i) has been duly and validly executed by each Selling
Shareholder, and (ii) constitutes a valid and binding obligation of
each Selling Shareholder, enforceable against each Selling Shareholder
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and subject to applicability of general
principles of equity.
4.2.2 Except as set forth on Schedule 4.2, neither the execution,
delivery and performance of this Agreement nor the consummation or
performance of the Transactions by the Company and/or any of the
Selling Shareholders, will directly or indirectly (with or without
notice or lapse of time):
(a) result in a breach or a violation of (i) any of the provisions of
the articles of incorporation or bylaws of the Company; or (ii) any
resolution adopted by the shareholders, board of directors or any
committee of the board of directors of the Company; or (iii) result in
a breach or violation of, or give any Governmental Body or other Person
the right to enjoin or invalidate any of the Transactions or to
exercise any remedy or obtain any relief under, any Law or any Judgment
to which the Company or any of the Selling Shareholders, or any of the
Assets owned or used by the Company, is subject;
(b) result in a breach or a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Permit that is held
by the Company or that otherwise relates to any of the businesses of
the Company or to any of the Assets owned or used by the Company;
(c) result in a breach or a violation, or a default under, any
provision of, any Specified Contract to which the Company is a party or
by which it is bound, except where such breach, violation or default
would not have a Material Adverse Effect; or
(d) result in the imposition or creation of any Encumbrance upon or
with respect to any Asset owned or used by the Company.
4.2.3 Except as set forth on Schedule 4.2 neither the
Company nor any of the Selling Shareholders was, is or will be
required to make any filing with or give any notice to, or to obtain
any Consent from, any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any
of the Transactions.
4.3 Capital Stock and Ownership.
4.3.1 Schedule 4.3 sets forth the authorized capital
stock of the Company, including the type of shares authorized, the
par value per share and the number of each type of shares that are
issued and outstanding. Schedule 4.3 contains an accurate and
complete list of: (i) the full legal names of all shareholders of the
Company; (ii) the addresses of such shareholders' respective current
principal residences; and (iii) the numbers of shares and type of
shares owned of record by such shareholders and the certificate
numbers of the stock certificates representing such shares. For each
of the shareholders of the Company, he, she or it is the sole record
and beneficial owner of his, her or its shares of capital stock of the
Company as set forth on Schedule 4.3, and he, she or it has good and
marketable title to such shares, free and clear of any Encumbrance.
With respect to each such shareholder: (i) he, she or it is the holder
and beneficial owner of the shares of the capital stock of the Company
set forth on Schedule 4.3 next to such shareholder's name (the "Shares")
and has good and valid title to the Shares, free and clear of any
Encumbrances; (ii) the Shares are the only shares of the capital stock
of the Company held by such shareholder; (iii) such shareholder has the
ability to vote all of the Shares at any meeting of the shareholders
of the Company, or by written consent in lieu of any such meeting;
and (iv) other than in connection with the Transactions or as set
forth on Schedule 4.3, such shareholder has not appointed or granted
any proxy or entered into any agreement, contract, commitment or
understanding with respect to any of the Shares. Except as set
forth on Schedule 4.3, the Company has never authorized, offered,
sold or issued any securities other than shares of Company Common
Stock. Except for the Selling Shareholders, there are no other
record or beneficial owners of any shares of the capital stock
of the Company or any other securities of the Company. Except for the
Shares listed on Schedule 4.3, there currently are no other issued or
outstanding shares of capital stock of the Company. All outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, and are fully paid and nonassessable. Except as set
forth on Schedule 4.3, there exists no right of first refusal or other
preemptive right with respect to the Company or the capital stock,
business or Assets of the Company.
4.3.2 All offerings, sales and issuances by the Company of any
shares of capital stock were conducted in compliance with all
applicable federal and state securities Laws and all other applicable
Laws.
4.3.3 Except as set forth on Schedule 4.3, there is no:
(a) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of the Company;
(b) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital
stock or other securities of the Company;
(c) Contract under which the Company is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other
securities;
(d) pending or previously asserted or overtly threatened claim by any
Person to the effect that such Person is or was entitled to acquire or
receive any shares of capital stock or any other securities of the
Company; or
(e) condition or circumstance that, to the knowledge of the Company
and the Selling Shareholders, may directly or indirectly be reasonably
expected to give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is or may be
entitled to acquire or receive any shares of capital stock or other
securities of the Company.
4.3.4 All securities repurchased, redeemed or otherwise
reacquired by the Company were reacquired in material compliance with
the applicable provisions of all applicable Contracts and all
applicable Laws.
4.3.5 As of Closing, each outstanding stock option
issued pursuant to any stock option plan or other agreements or
arrangements of the Company will be canceled and extinguished and
the stock option plans of the Company shall have been terminated.
All options required to be accelerated under any option plan of
the Company shall have been accelerated in accordance with the
terms of the plan.
4.3.6 As of Closing, each warrant and every other call,
subscription or right to acquire Company Common Stock or other
securities of the Company shall have been cancelled and extinguished.
4.4 Financial and Corporate Records.
4.4.1 The books and records of the Company are and have been
properly prepared and maintained in form and substance adequate for
preparing audited financial statements in accordance with GAAP except
as set forth on schedule 4.4, and such books and records fairly and
accurately reflect (i) all of the material Assets and material
Obligations of the Company and (ii) all of the Contracts and other
transactions to which the Company is or was a party or by which the
Company or the business or Assets of the Company is or was affected.
4.4.2 Accurate and complete copies of the contents of
the minute books and stock books of the Company will be delivered to
Buyer at Closing. Such minute books and stock books include
(i) minutes of all meetings of the shareholders, board of directors
and any committees of the board of directors at which any material
action was taken, which minutes accurately record all material
actions taken at such meetings, (ii) accurate and complete written
consents of all actions taken by the shareholders, board of directors
and any committees of the board of directors without a meeting, and
(iii) accurate and complete records of the subscription, issuance,
transfer and cancellation of all shares of capital stock and all
other securities since the date of incorporation. None of the
shareholders, board of directors or any committee of the board of
directors has taken any material action other than those actions
reflected in the records referenced in clauses (i) and (ii) of
the preceding sentence.
4.4.3 Schedule 4.4 contains an accurate and complete
list of all bank accounts, other accounts, certificates of deposit,
marketable securities, other investments, safe deposit boxes, lock
boxes and safes of the Company, and the names of all officers,
employees or other individuals who have access thereto or are
authorized to make withdrawals therefrom or dispositions thereof.
4.5 Compliance with Law; Permits.
4.5.1 Except as set forth on Schedule 4.5, (i) the
Company is in full compliance with each Judgment and with each Law
that is applicable to it or to the conduct of any of its businesses
or the ownership or use of any of its Assets; (ii) no event has
occurred, and no condition or circumstance exists, that would
reasonably be expected (with or without notice or lapse of time)
constitute or result in a violation by the Company of, or a failure
on the part of the Company to comply with, any Judgment or Law; and
(iii) the Company has not received, at any time, any notice or other
communication (in writing) from any Governmental Body or any other
Person regarding (i) any actual or alleged violation of, or failure
to comply with, any Judgment or Law, or (ii) any actual or alleged
obligation on the part of the Company to undertake, or to bear all
or any portion of the cost of, any cleanup or any remedial,
corrective or response action of any nature.
4.5.2 Except as set forth on Schedule 4.5, the Company
has obtained and holds all Permits required for the lawful operation
of its business as and where such business is presently conducted.
All Permits held by the Company are listed on Schedule 4.5, and
accurate and complete copies of such Permits have been delivered
to Buyer.
4.6 Financial Statements.
4.6.1 The Company's fiscal year end is December 31.
4.6.2 The Company has delivered to Buyer the following
financial statements and related notes (the "Financial Statements"):
(i) the unaudited balance sheet of the Company as of
December 31, 2002, and the unaudited statements of income and cash
flows of the Company for the twelve (12) month period then ended;
(ii) the unaudited balance sheet of the Company (the "Latest Balance
Sheet") as of March 31, 2003 (the "Latest Balance Sheet Date") and
the unaudited statements of income and cash flows of the Company
for the three month period then ended; and (iii) the unaudited
balance sheet of the Company as of June 30, 2003, and the
unaudited statements of income and cash flows of the Company for
the six month period then ended.
4.6.3 The Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the
results of operations, changes in shareholders' equity and cash flows
of the Company in accordance with GAAP for the periods covered thereby.
Except as disclosed on Schedule 4.6, the Financial Statements have been
prepared in accordance with GAAP.
4.7 Assets.
4.7.1 Schedule 4.7 accurately identifies all Assets that are being
leased or licensed to the Company (other than commercially available,
off the shelf, software programs).
4.7.2 Except as set forth on Schedule 4.7, the Company
owns and has good, valid and marketable title to, all of its
respective Assets that are purported to be owned by it and has the
right to transfer all rights, title and interest in such Assets,
free and clear of any Encumbrance.
4.7.3 Except for the Assets of the Company reflected on
the Latest Balance Sheet, no other Assets are necessary to operate,
or are material to the operation of, the business of the Company.
4.8 Obligations.
4.8.1 The Company has no Obligations in an amount in excess of
$20,000 other than (i) Obligations identified as such in the
"liabilities" column on the Latest Balance Sheet, (ii) Obligations set
forth on Schedule 4.8, (iii) Obligations under Contracts of the type
listed on Schedule 4.14, provided that as of the Latest Balance Sheet
Date, no such Obligation consisted of or resulted from a default under
or violation of any such Contract, and (iv) Obligations that were
incurred since the Latest Balance Sheet Date and which were not
incurred in breach of any of the representations and warranties made in
Section 4.9. Except as described on Schedule 4.8, none of the
Company's Obligations are guaranteed by any Person.
4.9 Operations Since the Latest Balance Sheet Date. Except as set
forth on Schedule 4.9, since the Latest Balance Sheet Date:
4.9.1 except in the ordinary course of its business
consistent with its past practices or reasonably in furtherance
of the Transactions, the Company has not: (i) pledged or
hypothecated any of its Assets or otherwise permitted any of its
Assets to become subject to any Encumbrance; (ii) incurred any
Obligation in an amount in excess of $20,000; (iii) made any loan
or advance to any Person in an amount in excess of $20,000;
(iv) assumed, guaranteed or otherwise become liable for any
Obligation of any Person in an amount in excess of $20,000; (v)
committed for any capital expenditure not reflected in the Financial
Statements; (vi) purchased, leased, sold, abandoned or otherwise
acquired or disposed of any business or Assets greater than $20,000;
(vii) waived or released any right or canceled or forgiven any debt or
claim in an amount in excess of $20,000; (viii) discharged any
Encumbrance or discharged or paid any indebtedness or other Obligation
in an amount in excess of $20,000; (ix) assumed or entered into any
Contract other than this Agreement that would result in Obligations to
the Company over a 12 month period in an amount in excess of $20,000;
(x) amended or terminated any Specified Contract; (xi) increased, or
authorized an increase in, the compensation or benefits paid or
provided to any of their directors, officers, employees, salesmen,
agents or representatives; (xii) established, adopted or amended
(including any amendment with a future effective date) any Employee
Benefit Plan; (xiii) declared, accrued, set aside, or paid any dividend
or made any other distribution in respect of any shares of capital
stock, other securities, Cash Assets or other Assets, except for the
August Dividend referenced in Section 2.8.1 hereof; (xiv) repurchased,
redeemed or otherwise reacquired any shares of capital stock or other
securities; (xv) sold or otherwise issued any shares of capital stock
or any other securities; (xvi) amended articles of incorporation or
bylaws; (xvii) been a party to any merger, consolidation,
recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction; (xviii) accrued any deferred
bonuses or compensation due to any shareholder, employee or agent of
the Company, or paid any such deferred bonuses or compensation except
to the extent such deferred bonuses or compensation was accrued on the
Latest Balance Sheet; (xix) changed any of its methods of accounting or
accounting practices in any respect; or (xx) made any Tax Election;
4.9.2 even in the ordinary course of its businesses
consistent with its past practices, the Company has not incurred
any Obligation, made any loan to any Person, acquired or disposed
of any business or Assets, entered into any Contract (other than
customer contracts) or other transaction, or done any of the other
things described in Section 4.9.1 hereof, involving an amount
exceeding $20,000 in any single case or $40,000 in the aggregate;
and
4.9.3 there has been no Material Adverse Change.
4.10 Accounts Receivable. All Accounts Receivable of the Company arose
in the ordinary course of business and are proper and valid Accounts
Receivable, and can be collected by the Company in full (without any
counterclaim or setoff), subject to any reserves set forth in the
Financial Statements. There are no refunds, discounts, rights of
setoff or assignments affecting any such Accounts Receivable. Proper
amounts of deferred revenues appear on the books and records of the
Company, in accordance with GAAP, with respect to all of the Company's
(i) billed but unearned Accounts Receivable; (ii) previously billed and
collected Accounts Receivable still unearned; and (iii) unearned
customer deposits.
4.11 Tangible Property. The Company has good and marketable title to
all of the Tangible Property purported to be owned by the Company, free
and clear of any Encumbrances, except as set forth in the Latest
Balance Sheet or on Schedule 4.11. Except as set forth on Schedule
4.11, all of the Company's Tangible Property is located at the
Company's offices or facilities and the Company has the right to
require the immediate return of any of its Tangible Property which is
not located at its offices or facilities. All Tangible Property of the
Company, wherever located, (i) is in good condition, ordinary wear and
tear excepted, (ii) complies with, and is being operated and otherwise
used in material compliance with, all applicable Laws, and (iii) is
sufficient for the operations and business of the Company as presently
conducted.
4.12 Real Property; Environmental Laws.
4.12.1 The Company does not own any Real Property.
Schedule 4.12 contains an accurate and complete list of all Real
Property leased by the Company, showing location, rental cost and
landlord. All Real Property under lease to or otherwise used by
the Company is in good condition, ordinary wear and tear excepted,
and is sufficient for the current operations of the Company. No
such Real Property, nor the occupancy, maintenance or use thereof,
is in violation of, or breach or default under, any Contract or
Law, and no notice or threat from any lessor, Governmental Body
or other Person has been received by the Company claiming any
violation of, or breach, default or liability under, any Contract
or Law, or requiring the Company to perform any work, repairs,
construction, alteration, installations or environmental
remediation. To the knowledge of the Company and the Selling
Shareholders, no Proceedings are pending which would have a Material
Adverse Effect on the zoning or use of the Company's Real Property.
All of the Company's Real Property has direct access to, abuts, and is
served by a public road, which road does provide a means of ingress and
egress thereto and therefrom. All utilities, including water, gas,
telephone, electricity, sanitary and storm sewers, are currently
available to all of the Company's Real Property, and are adequate to
serve the Company's Real Property for the Company's current use
thereof.
4.12.2 The Company is in compliance with all applicable
Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof. Except as set forth on schedule 4.12, neither the
Company nor any of the Selling Shareholders has placed or caused to be
placed, and neither the Company nor any of the Selling Shareholders has
any knowledge that there were or are, any Hazardous Substances in, on,
under or migrating from any of the Company's Real Property.
4.13 Software and Intangibles.
4.13.1 Set forth on Schedule 4.13 is an accurate and
complete list and description of all Company Intangibles (other
than commercially available, off the shelf, software programs).
No other Software or Intangible is used to operate the Business
of the Company.
4.13.2 Except as set forth on Schedule 4.13, the
Company has good and marketable title to, and has the right to
use, all of the Company Intangibles owned by the Company (the
"Company Owned Intangibles"), free and clear of any Encumbrance.
4.13.3 Except as set forth on Schedule 4.13, all of the Company
Owned Intangibles were created as a work for hire (as defined under
U.S. copyright law) by regular full time employees of the Company. To
the extent that any author or developer of any Company Owned Intangible
was not a regular full-time salaried employee of the Company at the
time such person contributed to such Company Owned Intangible, such
author or developer has irrevocably assigned to the Company in writing
all copyrights and other proprietary rights in such person's work with
respect to such Company Owned Intangibles.
4.13.4 To the Company's knowledge, after due inquiry, none of the
Company Intangibles, or their respective past or current uses,
including the preparation, distribution, marketing or licensing thereof
is violating or infringing upon, any Software, technology, patent,
copyright, trade secret or other Intangible of any Person. None of the
Company Intangibles is subject to any Judgment to which the Company is
a party. No Proceeding is pending or is threatened against the
Company, nor has any claim or demand been made against the Company,
which challenges the legality, validity, enforceability, use or
exclusive ownership by the Company of any of the Company Owned
Intangibles. To the knowledge of the Company and the Selling
Shareholders, no Person is violating or infringing upon, or has
violated or infringed upon at any time, any of the Company Owned
Intangibles.
4.13.5 The Company has used reasonable efforts to maintain the
confidentiality of all trade secrets with respect to the Company Owned
Intangibles.
4.13.6 Any license, sublicense or other Contract covering or
relating to any Company Intangible is legal, valid, binding,
enforceable and in full force and effect, and upon consummation of the
transactions contemplated hereby, will continue to be legal, valid,
binding, enforceable and in full force and effect on terms identical to
those in effect immediately prior to the consummation of the
transactions contemplated hereby. The Company is not in breach of or
default under any license, sublicense or other Contract covering or
relating to any Company Intangible or has performed any act or omitted
to perform any act which, with notice or lapse of time or both, will
become or result in a material violation, breach or default thereunder,
except where the foregoing could result in a Material Adverse Effect.
No Proceeding is pending or is being or has been threatened, nor has
any claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any license, sublicense or other
Contract covering or relating to any Company Intangible.
4.13.7 None of the Company Owned Intangibles is owned by or
registered in the name of any current or former owner, shareholder,
partner, director, executive, officer, employee, salesman, agent,
customer, representative or contractor or any of the shareholders nor
does any such Person have any interest therein or right thereto,
including the right to royalty payments.
4.13.8 Except with respect to demonstration or trial copies, no
portion of any Company Intangible created by the Company contains any
"back door," "time bomb," "Trojan horse," "worm," "drop dead device,"
"virus" or other software routines or hardware components designed to
permit unauthorized access or to disable or erase software, hardware,
or data without the consent of the user.
4.13.9 Set forth in Schedule 4.13 are all Internet domain names
related to the Company's Business ("Domain Names"). The Company is the
registrant of all Domain Names and all the registrations of Domain
Names are currently in good standing. The Company has not received any
notice that any action has been taken or is pending to challenge rights
to, suspend, cancel or disable any Domain Name, registration therefor
or the right of the Company to use a Domain Name. The Company has all
right, title and interest in and to, and rights to use on the Internet
and common law rights as a trade-xxxx and trade name, the Domain Names.
4.13.10 Except as disclosed in Schedule 4.13, the Company is the sole
owner of, and has good and marketable title to, and all right, title
and interest in and to all databases related to the Company's Business.
Except as specified in Schedule 4.13, no Person other than the Company
has any right or interest of any kind or nature in or to such
databases. To the knowledge of the Company, no person (i) is violating
or infringing upon, or has violated or infringed upon at any time, any
right of the Company in or to such databases; or (ii) is breaching or
has breached at any time any duty or obligation owed to the Company in
respect of such databases. All licenses referred to in Schedule 4.13
are in full force and effect and neither the Company nor the other
party thereto is in material default of its obligations thereunder.
Neither the past nor current use of any such database or the
information contained therein in the Company's Business (i) has
violated or infringed upon, or is violating or infringing upon, the
rights of any Person; or (ii) breaches any duty or obligation owed to
any Person; or (iii) violates the privacy or any Law relating to the
privacy of any Person.
4.13.11 The Company has not experienced any Year 2000-related
problems with respect to such Software or received any notices from any
Person relating to any Year 2000-related problems.
4.14 Contracts.
4.14.1 Schedule 4.14 contains an accurate and complete list of the
following types of Contracts, to the extent such Contracts involve
payments by or to the Company in excess of $20,000 per year (with the
Contracts set forth on Schedule 4.14 collectively referred to as the
"Specified Contracts"), grouped into the following categories: (a)
customer Contracts; (b) Contracts for the purchase or lease of Real
Property or otherwise concerning Real Property owned or used by the
Company; (c) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (d) Contracts for the purchase, lease and/or
maintenance of computer equipment and other equipment, Contracts for
the purchase, license, lease and/or maintenance of Software under which
the Company is the licensor, purchaser, licensee, lessee or user, and
other supplier Contracts; (e) employment, consulting and sales
representative Contracts (excluding Contracts which constitute Employee
Benefit Plans listed on Schedule 4.16 and excluding oral Contracts with
employees for "at will" employment); (f) Contracts under which any
rights in and/or ownership of any Software product, technology or other
Intangible of the Company, or any prior version thereof, or any part of
the customer base, business or Assets of the Company was acquired; (g)
Contracts containing clauses that prohibit or restrict the Company from
soliciting any employee or customer of any other Person or otherwise
prohibiting or restricting the Company from engaging in any business;
and (h) other Contracts (excluding Contracts which constitute Insurance
Policies listed on Schedule 4.20, excluding this Agreement and all
other Contracts entered into between the Company and Buyer, or among
the Company, Buyer and other parties in connection herewith or
therewith). A description of each oral Specified Contract is included
on Schedule 4.14 and copies of each written Specified Contract have
been delivered or made available to Buyer.
4.14.2 Except as set forth on Schedule 4.14, or except where any of
the following would not have a Material Adverse Effect, with respect to
each of the Specified Contracts (i) the Company is neither in default
thereunder nor, based on currently existing circumstances, would be in
default thereunder with the passage of time, the giving of notice or
both; (ii) to the knowledge of the Company and the Selling
Shareholders, none of the other parties to any Specified Contract is in
default thereunder or, based on currently existing circumstances, would
be in default thereunder with the passage of time, the giving of notice
or both; (iii) the Company has not given or received any notice of
default or notice of termination with respect to any Specified
Contract; and (iv) each Specified Contract is in full force and effect
and is enforceable by the Company in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and subject to
applicability of general principles of equity.
4.14.3 The Specified Contracts, together with the other Contracts of
the Company, are all the Contracts necessary and sufficient to operate
the Company's Business as currently conducted. Except as set forth on
Schedule 4.14, there are no currently outstanding proposals or offers
submitted by the Company to any customer, prospect, supplier or other
Person with respect to Company's Business which, if accepted, would
result in a legally binding Contract of the Company involving an amount
or commitment exceeding $20,000.
4.14.4 Except as set forth on Schedule 4.14, each of the customers
of the Company has signed and is bound by a written Contract that has
been provided or made available to Buyer in due diligence materials,
and the provisions of each such customer Contract are binding on the
customer and enforceable by the Company.
4.15 Employees and Independent Contractors.
4.15.1 Schedule 4.15 contains an accurate and complete list of all
of the employees of the Company (including any employee of the Company
who is on a leave of absence or on layoff status) and (i) their titles
or responsibilities; (ii) their dates of hire; (iii) their current
salaries or wages; (iv) any Permit that is held by them and that
relates to or is useful in connection with any of the businesses of the
Company; and (v) any outstanding loans or advances made to them by the
Company.
4.15.2 Schedule 4.15 also contains an accurate and complete list of
all sales representatives and independent contractors engaged by the
Company where their payment arrangements are other than in accordance
with industry standards (if not set forth in a Specified Contract
listed or described on Schedule 4.14).
4.15.3 Except as limited by the specific and express terms of any
employment Contracts listed on Schedule 4.14 and except for any
limitations of general application which may be imposed under
applicable employment Laws, the Company has the right to terminate the
employment of each of its employees at will and to terminate the
engagement of any of its independent contractors without payment to
such employee or independent contractor other than for services
rendered through termination and without incurring any penalty or
liability.
4.15.4 The Company is in compliance with all Laws relating to
employment practices, except where such failure to be in compliance
would not have a Material Adverse Effect. The Company has delivered to
Buyer accurate and complete copies of all employee manuals and
handbooks, disclosure materials, policy statements and other materials
relating to the employment of the current employees of the Company.
4.15.5 The Company has never been a party to or bound by any union
or collective bargaining Contract, nor is any such Contract currently
in effect or being negotiated by or on behalf of the Company.
4.15.6 To the knowledge of the Company and the Selling Shareholders,
no employee of the Company is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other Contract
(with any Person) that will have an adverse effect on (A) the
performance by such employee of any of his duties or responsibilities
as an employee of the Company, or (B) any of the businesses or
operations of the Company.
4.15.7 Except as set forth on Schedule 4.15, since the Latest
Balance Sheet Date, no employee of the Company having an annual salary
of $50,000 or more has indicated an intention to terminate or has
terminated his or her employment with the Company
4.16 Employee Benefit Plans.
4.16.1 Schedule 4.16 contains an accurate and complete list and
description of all of the Company's Employee Benefit Plans
(collectively referred to as the "Company Employee Benefit Plans"), all
employees affected or covered by the Company Employee Benefit Plans,
and all Obligations thereunder. Accurate and complete copies of all of
the Company Employee Benefit Plans have been provided to Buyer.
4.16.2 Except as set forth on Schedule 4.16, the Company has not
(i) established, maintained or contributed to (nor does the Company
have any obligation to contribute to) any Employee Benefit Plans, (ii)
proposed any Employee Benefit Plans which it plans to establish or
maintain or to which it plans to contribute, or (iii) proposed any
changes to any Employee Benefit Plans now in effect.
4.16.3 If permitted by applicable Law, the Company has properly
submitted all of the Company Employee Benefit Plans intended to be
qualified under Section 401(a) of the Code to the Internal Revenue
Service (the "IRS") for its approval within the time prescribed
therefor under applicable federal regulations, except to the extent
that such plan is a master and prototype or volume submitter plan
entitled to rely on a favorable opinion or advisory letter issued to
the sponsor of the plan. Favorable letters of determination of such
tax-qualified status from the IRS are attached to Schedule 4.16.
4.16.4 With respect to the Company Employee Benefit Plans, the
Company will have made, on or before the Closing Date, all payments
required to be made by them on or before the Closing Date and will have
accrued (in accordance with GAAP) as of the Closing Date all payments
due but not yet payable as of the Closing Date, so there will not have
been, nor will there be, any Accumulated Funding Deficiencies (as
defined in ERISA or the Code) or waivers of such deficiencies.
4.16.5 The Company has delivered to Buyer an accurate and complete
copy of the most current Form 5500 and any other form or filing
required to be submitted to any Governmental Body with regard to any of
the Company Employee Benefit Plans and the most current actuarial
report, if any, with regard to any of the Company Employee Benefit
Plans.
4.16.6 All of the Company Employee Benefit Plans are, and have been,
operated in material compliance with their provisions and with all
applicable Laws including ERISA and the Code and the regulations and
rulings thereunder. The Company and all fiduciaries of the Company
Employee Benefit Plans have complied with the provisions of the Company
Employee Benefit Plans and with all applicable Laws including ERISA and
the Code and the regulations and rulings thereunder. There have been
no Reportable Events (as defined in ERISA) or events described in
Sections 4062, 4063 or 4064 of ERISA with respect to any Company
Employee Benefit Plan that is subject to Title IV of ERISA, no remedial
filings with the IRS and no termination or partial termination
(including any termination or partial termination attributable to this
sale) of any of the Company Employee Benefit Plans. There would be no
Obligation of the Company under Title IV of ERISA if any of the Company
Employee Benefit Plans were terminated as of the Closing Date. The
Company has not incurred, and will not incur, any withdrawal liability,
and the Company does not have any contingent withdrawal liability,
under ERISA to any Multiemployer Plan (as defined in ERISA or the
Code). The Company has not incurred, and will not incur, any
Obligation to the Pension Benefit Guaranty Corporation (or any
successor thereto).
4.16.7 Neither the execution and delivery of this Agreement nor the
consummation of the Transactions will (i) result in any payment
(including any severance, unemployment compensation or golden parachute
payment) becoming due from the Company under any of the Company
Employee Benefit Plans, (ii) increase any benefits otherwise payable
under any of the Company Employee Benefit Plans, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits to
any extent other than the acceleration of vesting of options granted
under the Company's 1999 Stock Incentive Compensation Plan.
4.16.8 There are no pending Proceedings that have been asserted or
instituted against any of the Company Employee Benefit Plans, the
Assets of any of the trusts under such plans, the plan sponsor, the
plan administrator or any fiduciary of any such plan (other than
routine benefit claims), and, to the knowledge of the Company and the
Selling Shareholders, there are no facts which would reasonably be
expected to form the basis for any such Proceeding. There are no
investigations or audits of any of the Company Employee Benefit Plans,
any trusts under such plans, the plan sponsor, the plan administrator
or any fiduciary of any such plan that have been instituted or, to the
knowledge of the Company and the Selling Shareholders, threatened.
4.16.9 Except as described on Schedule 4.16, no event has occurred
nor, to the Knowledge of the Company and the Selling Shareholders,
would reasonably be expected to occur which will result in the Company
having an Obligation in connection with any Employee Benefit Plan
established, maintained, contributed to or to which there has been an
obligation to contribute (currently or previously) by it or by any
other entity which, together with the Company, constitute elements of
either (i) a controlled group of corporations (within the meaning of
Section 414(b) of the Code), (ii) a group of trades or businesses under
common control (within the meaning of Sections 414(c) of the Code or
4001 of ERISA), (iii) an affiliated service group (within the meaning
of Section 414(m) of the Code), or (iv) another arrangement covered by
Section 414(o) of the Code.
4.16.10 Except as set forth on Schedule 4.16, no Company Employee
Benefit Plan of health, hospitalization, medical or dental coverage is
maintained on a self-insured basis.
4.17 Customers and Suppliers. Schedule 4.17 contains an accurate and
complete list of (i) all customers generating greater than 5% of the
Company's revenues for the 18 month period ended June 30, 2003 and (ii)
all current suppliers of parts and other significant materials in
support of the Company's services to customers. Except as set forth on
Schedule 4.17, since January 1, 2002, none of the customers or
suppliers of the Company required to be listed in accordance with the
previous sentence has given notice or otherwise indicated to the
Company that (i) it will or intends to terminate or not renew its
Contract with the Company before the scheduled expiration date, (ii) it
will otherwise terminate its relationship with the Company, or (iii) it
may otherwise reduce the volume of business transacted with the Company
below historical levels. The relationship of the Company with its
customers is currently on a good and normal basis, and the Company has
not experienced any problems with customers or suppliers since January
1, 2002. To the knowledge of the Company and the Selling Shareholders,
there are no facts or circumstances currently existing which are, or
with the passage of time, would reasonably be expected to be materially
adverse to the Company's relationship with its customers or suppliers.
The Company has delivered to Buyer an accurate and complete copy of the
most recent customer surveys of the Company.
4.18 Taxes.
4.18.1 Schedule 4.18 contains an accurate and complete
list of all jurisdictions in which the Company (and each Selling
Shareholder with respect to the Company) is required to file Tax
Returns in the last thirty six (36) months. "Tax Returns" means
all federal, state, local, foreign and other Tax returns and
reports, information returns, statements, declarations, estimates,
schedules, notices, notifications, forms, elections, certificates or
other documents the Company is required to file or submit to any
Governmental Body with respect to the determination, assessment,
collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with
any Law relating to any Tax. Accurate and complete copies of all
federal, state, local and foreign income, sales and use Tax
Returns filed by the Company for 2001 and 2002 have been delivered
or made available to Buyer.
4.18.2 Except as set forth on Schedule 4.18: (i) the Company has
properly and timely filed all Tax Returns required to be filed by it,
all of which were accurately prepared and completed in full compliance
with all Laws; (ii) the Company has properly withheld from payments to
its employees, agents, representatives, contractors and suppliers all
amounts required by Law to be withheld for Taxes; (iii) the Company has
paid all Taxes required to be paid by it; (iv) no audit of the Company
by any governmental taxing authority has been conducted within the past
five (5) years or is currently pending or, to the knowledge of the
Company and the Selling Shareholders, is threatened; (v) no notice of
any proposed Tax audit, or of any Tax deficiency or adjustment by any
governmental taxing authority, has been received by the Company within
the past five (5) years; (vi) to the knowledge of the Company and the
Selling Shareholders, there are no agreements or waivers currently in
effect that provide for an extension of time for the assessment of any
Tax against the Company; (vii) the Financial Statements fully accrue
all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof in accordance with GAAP; (viii) since
the Latest Balance Sheet Date, the Company has not incurred any
liabilities for Taxes except in the ordinary course of business
consistent with past practices; (ix) no Proceeding is pending or has
been threatened, and no claim has been or would reasonably be expected
to be asserted, against or with respect to the Company in respect of
any Tax; (x) the Company has been a validly electing S-corporation
within the meaning of the Code for all tax periods since January 1,
1998; (xi) each Selling Shareholder that is a trust and any former
shareholder of the Company since January 1, 1998 that was a trust is or
was a trust described in Section 1361(c)(2) of the Code for all Tax
periods in which it was a shareholder of the Company since January 1,
1998; and (xii) the Selling Shareholders have filed all Tax Returns and
paid all Tax liabilities related to their respective ownership
interests in the Company. The Company has disclosed to the Internal
Revenue Service on the appropriate Tax Returns any Reportable
Transaction in which the Company has participated. The Company has
retained all documents and other records pertaining to any Reportable
Transaction in which the Company has participated, including documents
and other records listed in Treasury Regulation Section 1.6011-4(g) and
any other documents or other records which are related to
any Reportable Transaction in which the Company has participated but
not listed in Treasury Regulation Section 1.6011-4(g).
4.18.3 The Company (a) has not been a member of an affiliated group
filing a consolidated federal income tax return and (b) does not have
any liability for the Taxes of any Person (other than the Company under
Reg. 1.1502-6 (or any similar provision of state, local, or foreign
law)), as a transferee or successor, by contract, or otherwise.
4.19 Proceedings and Judgments.
4.19.1 Except as set forth on Schedule 4.19: (i) no Proceeding is
currently pending or, to the knowledge of the Company and the Selling
Shareholders, threatened in writing, nor has any Proceeding occurred at
any time since January 1, 2001, to which the Company is or was a party,
or by which the Company or any Assets or business of the Company is or
was affected; (ii) no Judgment is currently outstanding, nor has any
Judgment been outstanding at any time since January 1, 2001, against
the Company, or by which the Company or any Assets or business of the
Company is or was affected; and (iii) no breach of contract, breach of
warranty, tort, negligence, infringement, product liability,
discrimination, wrongful discharge or other claim of any nature has
been asserted or, to the knowledge of the Company or the Selling
Shareholders, threatened by or against the Company at any time since
January 1, 2001, and there is no basis for any such claim. Except as
set forth on Schedule 4.19, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that, directly or
indirectly, would reasonably be expected to give rise to or serve as a
basis for the commencement of any Proceeding described in this Section
4.19.1.
4.19.2 As to each matter described on Schedule 4.19, accurate and
complete copies of all pertinent pleadings, judgments, orders,
correspondence and other legal documents have been delivered to Buyer.
4.19.3 To the knowledge of the Company and the Selling Shareholders,
no officer or employee of the Company is subject to any Judgment that
prohibits such officer or employee from engaging in or continuing any
conduct, activity or practice relating to any of the businesses of the
Company.
4.19.4 Without in any way limiting the foregoing contained in this
Section 4.19, there is no currently outstanding Judgment or, to the
knowledge of the Company and the Selling Shareholders, proposed
Judgment, against (i) the Company or, (ii) to the knowledge of the
Company and the Selling Shareholders, the Company's officers, directors
or employees arising from their respective duties performed for the
Company.
4.20 Insurance. Schedule 4.20 contains an accurate and complete list
and description of all Insurance Policies (excluding Insurance Policies
that constitute the Company Employee Benefit Plans described on
Schedule 4.16) currently owned or maintained by the Company. Except as
set forth on Schedule 4.20, accurate and complete copies of all
Insurance Policies described or required to be described on Schedule
4.20 have been delivered to Buyer. Each such Insurance Policy is in
full force and effect; the Company has not received notice of
cancellation with respect to any such Insurance Policy; and the Company
has no knowledge of any basis for the insurer thereunder to terminate
any such Insurance Policy. Except as set forth on Schedule 4.20, there
are no claims that are pending under any of the Insurance Policies
described on Schedule 4.20.
4.21 Questionable Payments. None of the current or former partners,
owners, shareholders, directors, executives, officers, representatives,
agents or employees of the Company (when acting in such capacity or
otherwise on behalf of the Company or any of its predecessors): (a)
has used or is using any corporate funds for any illegal contributions,
gifts, entertainment or other unlawful expenses relating to political
activity; (b) has used or is using any corporate funds for any direct
or indirect unlawful payments to any foreign or domestic government
officials or employees; (c) has violated or is violating any provision
of the Foreign Corrupt Practices Act of 1977; (d) has established or
maintained, or is maintaining, any unlawful or unrecorded fund of
corporate monies or other properties; (e) has made at any time since
January 1, 2000, any false or fictitious entries on the books and
records of the Company; or (f) has made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment of any nature
using corporate funds or otherwise on behalf of the Company.
4.22 Related Party Transactions. Except as described on Schedule 4.22
and except for any employment Contracts listed on Schedule 4.14, there
are no real estate leases, personal property leases, loans, guarantees,
Contracts, transactions, understandings or other arrangements of any
nature between or among the Company and any current or former
shareholder, director, employee, officer or controlling Person of the
Company (or any of its respective predecessors) or any other Person
affiliated with the Company (or any of its respective predecessors).
4.23 Brokerage Fees. Except as set forth on Schedule 4.23, no Person
acting on behalf of the Company or any of the Selling Shareholders is
or shall be entitled to any brokerage or finder's fee in connection
with the Transactions.
4.24 Inapplicability of Anti-takeover Laws. The Company is not subject
to any Washington state takeover law that is applicable to the
Transactions.
4.25 Company's Tax Representations Related to Reorganization.
4.25.1 In connection with the Transactions, neither the
Company nor any person related to the Company (as defined in
Treasury Regulation Section 1.368-1(e)(3)) has directly or through
any transaction, agreement, or arrangement with any other person
(i) acquired stock of the Company, or (ii) redeemed any shares of
Company stock. The Company operates at least one significant
historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of
Treasury Regulation Section 1.368-1(d).
4.25.2 At the Closing Date, the Company is not an
investment company as defined in Section 368(a)(2)(F)(iii) and
(iv) of the Code.
4.26 Investment Matters.
4.26.1 Each of the Selling Shareholders (i) has
carefully read and understands that certain Confidential Private
Placement Memorandum delivered to the Selling Shareholders
contemporaneously herewith (the "Memorandum") and (ii) has based
a decision to invest in the Buyer Common Shares and the Notes
(collectively, the "Buyer Securities") solely on the information
contained in the Memorandum.
4.26.2 Each of the Selling Shareholders is acquiring the Buyer
Securities for his, her or its own account as principal for investment
and not with a view toward resale or distribution thereof in violation
of the securities laws.
4.26.3 Each of the Selling Shareholders who is not an accredited
investor, together with any purchaser representative, as defined in
Rule 501(h) of the Securities Act of 1933 acknowledged by such Selling
Shareholder as his, her or its purchaser representative (a "Purchaser
Representative"), has such knowledge and experience in financial and
business matters and is capable of evaluating the merits and risks of
the investment in the Buyer Securities being issued hereunder.
4.26.4 Each of the Selling Shareholders: (i) has no need for
liquidity in the investment in the Buyer Securities and (ii) is able to
bear the economic risk of losing the entire investment in the Buyer
Securities issued hereunder. Each of the Selling Shareholder's
investments in and commitments to non-liquid investments are, and after
a purchase of the Buyer Securities hereunder will be, reasonable in
relation to his, her or its net worth and current needs.
4.26.5 Each of the Selling Shareholders understands that the Buyer
Securities to be issued hereunder have not been registered under either
the Securities Act of 1933 or the securities laws of any state and, as
a result thereof, are subject to substantial restrictions on transfer
and shall bear a legend restricting the transfer of such securities.
4.26.6 Each of the Selling Shareholders understands that (i) except
as may be provided in the Registration Rights and Right of First Offer
Agreement, the Company has no obligation or intention to register the
Buyer Securities issued hereunder under any federal or state securities
laws, or to take any action which would make available any exemption
from the registration requirements of such laws, and (ii) therefore,
each of the Selling Shareholders may be precluded from selling or
otherwise transferring or disposing of any of such Buyer Securities or
any portion thereof and may have to bear the economic risk of his, her
or its investment therein for an indefinite period of time.
4.26.7 Each of the Selling Shareholders or his, her or its Purchaser
Representative understands that an investment in the Buyer Securities
issued hereunder involves certain risks and has taken full cognizance
of and understands all of the risk factors relating to the purchase of
such Buyer Securities, including those set forth under the caption
"Risk Factors" in the Form 10-K and the Memorandum.
4.26.8 Each of the Selling Shareholders understands that the
Memorandum and other information furnished by Buyer to the Company
and/or the Selling Shareholders does not constitute investment,
accounting, legal or tax advice. The Selling Shareholders, in making
the investment in the Buyer Securities contemplated hereunder, are
relying, if at all, solely upon the advice of each such Selling
Shareholder's tax advisers with respect to the federal and/or state tax
aspects of an investment in the Buyer Securities and, except as
expressly provided otherwise in this Agreement, the transactions
contemplated hereunder, and Buyer has not made any representation
regarding the tax consequences of such investment in the Buyer
Securities.
4.26.9 Each of the Selling Shareholders or his, her or its Purchaser
Representative has had an opportunity to ask questions and receive
answers from Buyer concerning Buyer, and has been furnished with all
information about Buyer that he, she or it has requested. Each Selling
Shareholder is an "accredited investor" as defined in Rule 501(a) of
the Securities Act of 1933, as amended, or if such shareholder is not
an "accredited investor", either such shareholder has utilized the
services of a Purchaser Representative or such shareholder alone has
such knowledge and experience in financial and business matters and is
capable of evaluating the merits and risks of the investment in the
Buyer Securities being issued hereunder.
4.26.10 Each of the Selling Shareholders and Purchaser
Representatives, if any, understands that the Buyer Securities are
being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state securities laws and that
Buyer and controlling persons thereof are relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and understandings related to the Selling Shareholders
set forth herein and in the Questionnaires in order to determine the
applicability of such exemptions and the suitability of him, her or it
to acquire the Buyer Securities being issued hereunder.
4.26.11 Each of the Selling Shareholders represents and warrants that
(i) he, she or it maintains his, her or its domicile (and is not a
transient or temporary resident) at the address set forth on the
applicable Questionnaire.
4.26.12 Each of the Selling Shareholders represents and warrants that
he, she or it is unaware of, is in no way relying on, and did not
become aware of the offering of the Buyer Securities through or as a
result of, any form of general solicitation or general advertising
including, without limitation, any article, notice, advertisement or
other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, in connection with the
offering and sale of the Buyer Securities and is not subscribing for
such Buyer Securities and did not become aware of the offering of the
Buyer Securities through or as a result of any seminar or meeting to
which such Selling Shareholder was invited by, or any solicitation of a
subscription by, a person not previously known to the Selling
Shareholder in connection with investments in securities generally.
4.26.13 Each of the Selling Shareholders acknowledges that, if the
Selling Shareholder has used the services of a Purchaser Representative
in connection with an investment in Buyer, such Purchaser
Representative has disclosed, by submitting to the Selling Shareholder
and Buyer a Purchaser Representative Questionnaire, any material
relationship between such Purchaser Representative or such Purchaser
Representative's affiliates, on the one hand, and Buyer and its
affiliates, on the other hand, which now exists or mutually is
understood to be contemplated or which has existed at any time during
the previous two (2) years, and further setting forth any compensation
received or to be received as a result of such relationship.
4.26.14 Each Selling Shareholder acknowledges that the Memorandum
contains confidential information regarding Buyer and agrees not to
(and agrees to cause his, her or its Purchaser Representative not to)
distribute or disclose such information contained therein to any other
party without the prior written consent of Buyer. Each Selling
Shareholder further agrees not to (and agrees to cause his, her or its
Purchaser Representative not to) engage in any purchase or sale
transaction in Buyer's securities following receipt of this non-public
information until such time as this non-public information is disclosed
to the public generally or advised by Buyer that it is acceptable to do
so.
4.26.15 As of the Closing, the Company shall not have greater than
thirty five (35) shareholders.
4.27 Full Disclosure. No representation or warranty made by
either the Company or any of the Selling Shareholders in this
Agreement or pursuant hereto (a) contains any untrue statement of
any material fact; or (b) omits to state any material fact that is
necessary to make the statements made, in the context in which made,
not false or misleading. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to Buyer in
connection with the transactions contemplated hereby (including
information relating to the Company and the Selling Shareholders
which is contained in the Memorandum), are accurate and complete,
and are not missing any amendments, modifications, correspondence
or other related papers which would be material to Buyer's
understanding thereof in any respect. To the knowledge of the
Company or any of the Selling Shareholders, there is no fact that
has not been disclosed to Buyer in the Schedules to this
Agreement or otherwise in writing, that was or is or, so far as either
the Company or any of the Selling Shareholders can reasonably foresee,
will have a Material Adverse Effect.
Section 5: Representations of Buyer, Merger Sub and Newco LLC
Knowing that the Company and the Selling Shareholders rely
thereon, Buyer, Merger Sub and Newco LLC, jointly and severally,
represent and warrant to the Company and the Selling Shareholders
as of the date of this Agreement, and covenant with the Company and the
Selling Shareholders, as follows:
5.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Virginia.
Merger Sub is a corporation and Newco LLC is a limited liability
company, in each case, duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Each of Buyer,
Merger Sub and Newco LLC possesses the full power and authority to own
its Assets, conduct its business as and where such business is
presently conducted, and enter into, deliver and perform this Agreement
and to consummate the Transactions. All of the issued and outstanding
shares of capital stock or membership interests, as the case may be, of
Merger Sub and Newco LLC are owned, beneficially and of record, by
Buyer.
5.2 Authority; Non-Contravention. Each of Buyer's, Merger Sub's and
Newco LLC's execution, delivery and performance of this Agreement, each
Note, and each other agreement to which Buyer, Merger Sub or Newco LLC
is or becomes a party pursuant to this Agreement, and its consummation
of the Transactions (a) have been duly authorized by all necessary
actions by their respective boards of directors or managers, as the
case may be, and, in the case of Merger Sub and Newco LLC, their
respective sole stockholder or sole member, as the case may be; (b) do
not require any approval or actions by the stockholders of Buyer; (c)
do not constitute a violation of or default under their respective
charters, bylaws, certificates of formation or operating agreements, as
the case may be; (d) do not constitute a default or breach
(immediately or after the giving of notice, passage of time or both)
under any Contract to which Buyer, Merger Sub or Newco LLC is a party
or by which they are bound; (e) do not constitute a violation of any
Law or Judgment that is applicable to it or to their respective
businesses or Assets, or to the Transactions; and (f) except as stated
on Schedule 5.2, do not require the Consent of any Person. This
Agreement, each Note, and each other agreement to which Buyer, Merger
Sub or Newco LLC is or becomes a party pursuant to this Agreement
constitutes the valid and legally binding agreement of each of Buyer,
Merger Sub and Newco LLC, enforceable against each of them in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and subject to applicability of general
principles of equity.
5.3 Buyer's Stock. The total authorized shares of capital stock of
Buyer is 7,500,000, consisting of 6,000,000 Buyer Common Shares, of
which 2,468,333 shares are issued and outstanding as of the date
hereof, and 1,500,000 shares of preferred stock, $0.24 par value per
share, none of which are issued or outstanding. Buyer has issued
warrants granting the holders thereof the right to purchase, on or
before July 22, 2008, an aggregate of 58,393 Buyer Common Shares at an
exercise price per share of $4.93. Buyer has (i) 500,000 shares of
Common Stock authorized for issuance under its stock incentive plans
(with (a) 400,000 authorized under Buyer's incentive plan for employees
and (b) 100,000 authorized under Buyer's plan for directors), and (ii)
outstanding under such plans options to purchase 397,667 shares as of
the date hereof (with (a) 326,750 outstanding under Buyer's plan for
employees and (b) 70,917 outstanding under Buyer's plan for directors).
Except as described above or on Schedule 5.3, Buyer has not issued any
securities exercisable to purchase or convertible into capital stock of
Buyer or any subsidiary of Buyer nor is Buyer or any subsidiary
otherwise bound by any agreement, whether absolute or contingent, to
issue any such securities. Each issued and outstanding share of
capital stock of the Buyer has been duly authorized and is validly
issued and outstanding and their issuance and sale have not violated
any preemptive rights. The Buyer Common Shares to be issued in the
First Merger, when so issued, shall be duly authorized and validly
issued, fully paid and nonassessable and shall not have been issued in
violation of any preemptive right.
5.4 Indebtedness. Buyer does not have any secured debt, except as set
forth on Schedule 5.4, which describes the name of any lender, the
maximum amount Buyer can borrow under the loan facility, and the amount
actually borrowed as of a recent date. Buyer has outstanding
subordinated promissory notes to Research Industries Incorporated
("RII") in the aggregate principal amount of $2,000,000, and a
convertible subordinated debenture to RII with a balance at Closing of
$800,000. Except for the foregoing, Buyer does not have any secured
debt, any outstanding indebtedness for borrowed money, or any agreement
pursuant to which Buyer can borrow money from any Person. Accurate and
complete copies of all agreements, notes, amendments or other documents
relating to all of the foregoing have been delivered to the Company for
the benefit of the Selling Shareholders. Subject to receiving consents
from applicable lenders, which consents are listed on Schedule 5.5,
Buyer has, or by Closing shall have the right to pay the obligations of
Buyer under the Notes to the Selling Shareholders as and when such
obligations become due unless a default is declared under Buyer's
senior and subordinated loan documents.
5.5 Consents. Except as set forth on Schedule 5.5 attached hereto, no
consent, approval, authorization, order, license, permit, filing or
registration with any governmental entity or other regulatory body is
required of the Buyer, Merger Sub or Newco LLC as a condition of its
execution, delivery or performance of this Agreement, the Notes, or any
other agreements to which Buyer, Merger Sub or Newco LLC is or becomes
a party pursuant to this Agreement or their respective consummation of
the Transactions and has not been obtained, other than filings with the
Secretary of State of Delaware and the Secretary of State of Washington
as specifically contemplated herein.
5.6 SEC Filings. Buyer has timely filed with the SEC all of the
reports that it has been required to file pursuant to Section 13 or 14
of the Securities Exchange Act of 1934, as amended (the "1934 Act") in
respect of all periods, events or stockholder actions since April 1,
2002 ("Buyer SEC Documents"). As of the time it was filed with the SEC
(or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Buyer SEC
Documents complied in all material respects with the applicable
requirements of the 1934 Act; and (ii) none of the Buyer SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
5.7 Full Disclosure. No representation or warranty made by any of
Buyer, Merger Sub or Newco LLC in this Agreement or pursuant hereto (a)
contains any untrue statement of any material fact; or (b) omits to
state any material fact that is necessary to make the statements made,
in the context in which made, not false or misleading. The copies of
documents attached as Schedules to this Agreement or otherwise
delivered to the Company and/or Selling Shareholders in connection with
the transactions contemplated hereby (including information relating to
Buyer contained in the Memorandum), are accurate and complete, and are
not missing any amendments, modifications, correspondence or other
related papers which would be material to their understanding thereof
in any respect. To the knowledge of Buyer, Merger Sub and Newco LLC,
there is no fact that has not been disclosed to the Company and/or the
Selling Shareholders in the Schedules to this Agreement or otherwise in
writing, that was or is or, so far as Buyer, Merger Sub or Newco LLC
can reasonably foresee, will have a Material Adverse Effect.
5.8 Buyer's Tax Representations Relating to Reorganization.
5.8.1 In connection with the Transactions, neither Buyer nor any
person related to Buyer (as defined in Treasury Regulation Section
1.368-1(e)(3)) will have acquired directly or through any transaction,
agreement or arrangement with any other person, stock of the Company
with any consideration other than common stock of Buyer, except for
Merger Consideration pursuant to this Agreement. Other than with
respect to the right of first offer described in the Registration
Rights and Right of First Offer Agreement, there is no plan or
intention by Buyer or any person related to Buyer (as defined in
Treasury Regulation Section 1.368-1(e)(3)) to acquire or redeem any of
the stock of Buyer issued in the Transactions either directly or
through any transaction, agreement, or arrangement with any other
person; provided, however, that Buyer may repurchase Buyer's stock
issued in the Transactions pursuant to an open market stock repurchase
program, as described in Revenue Ruling 99-58, 1999-2 C.B. 701.
5.8.2 At the Closing Date, none of Buyer, Merger Sub or Newco LLC
is an investment company as defined Section 368(a)(2)(F)(iii) and
(iv) of the Code.
Section 6: Obligations of the Company and the Selling Shareholders
Pending Closing
6.1 Conduct of the Company's Business. Between the date of this
Agreement and the Closing Date, the Company will and the Selling
Shareholders, severally, will cause the Company to:
6.1.1 not take or suffer or permit any action which would render
untrue any of the representations or warranties of the Company and the
Selling Shareholders herein contained, and not omit to take any action
within its power, the omission of which would render untrue any such
representation or warranty;
6.1.2 conduct its business in the ordinary and usual course;
6.1.3 not enter into any Contract with any party, other than
Contracts entered into in the ordinary course of business, and not
amend, modify or terminate any Contract other than in the ordinary
course of business without the prior written consent of Buyer;
6.1.4 use its reasonable best efforts to preserve the Business
intact, to keep available the services of its employees, and to
preserve its relationships with employees, customers, suppliers and
others with whom it deals;
6.1.5 not reveal, orally or in writing, to any party, other than
Buyer and Buyer's authorized agents, any of the business procedures and
practices followed by it in the conduct of its business or any
technology used in the conduct of its business;
6.1.6 maintain in full force and effect all of the Insurance
Policies listed on Schedule 4.20 and make no change in any insurance
coverage without the prior written consent of Buyer;
6.1.7 keep the premises occupied by it and all of its equipment and
other tangible personal property in good order and repair and perform
all necessary repairs and maintenance within normal time frames of
scheduled maintenance;
6.1.8 continue to maintain all of its usual business books and
records in accordance with its past practices;
6.1.9 not amend its articles of incorporation or bylaws;
6.1.10 Except for the August Dividend, not declare or make any
dividend or other payment on or with respect to its securities, redeem
or otherwise acquire any securities or issue any securities or any
option, warrant or right relating thereto;
6.1.11 not pay any bonuses (i) to any employees who are Selling
Shareholders and (ii) with respect to employees other than Selling
Shareholders, other than in the ordinary course of business, consistent
with past practice;
6.1.12 not waive any right or cancel any claim.;
6.1.13 not increase the compensation or the rate of compensation
payable to any of its employees other than in the ordinary course of
business consistent with past practices by amounts that do not exceed
five percent (5%);
6.1.14 maintain its entity existence and not merge or consolidate
with any other entity;
6.1.15 comply with all material provisions of any Contract
applicable to it and all applicable Laws;
6.1.16 except with Buyer's consent, not make any capital
expenditures outside of the ordinary course of business; and
6.1.17 use its reasonable best efforts to effectuate the
Transactions, and to do all things whatsoever necessary and proper to
effect the Transactions and agreements contemplated herein.
6.2 Interim Financial Statements. For each calendar month that
ends between the date hereof and the Closing Date, the Company shall,
and the Selling Shareholders shall cause the Company to, promptly
prepare and deliver to Buyer monthly financial statements, which shall
be accurate and complete and fairly present, in all material respects,
the financial condition of the Company as of the end of such month
and of the results of operations of the Company for such month.
6.3 Buyer's Due Diligence Investigation; Confidentiality. Between the
date of this Agreement and the Closing Date, the Company and the
Selling Shareholders shall (a) permit Buyer and its authorized
representatives to have reasonable access to the facilities and offices
of the Company during normal business hours, to observe the operations
of the Company, to meet with the officers and employees of the Company,
to contact the customers, prospects and suppliers of the Company, and
to audit, examine and copy the files, books and records and other
documents and papers of the Company, and (b) provide to Buyer and its
authorized representatives all information concerning the business,
Assets and financial condition of the Company that Buyer reasonably
requests. Buyer will not reveal any confidential data and/or
information supplied by the Company except to its management, counsel,
accountants, insurance representatives, investment and commercial
bankers and like agents, for purposes relating to the evaluation and
consummation of the transactions contemplated by this Agreement, and in
the event the transactions contemplated by this Agreement are not
consummated, such data and information will be returned to the Company
and, regardless of whether the Transactions are consummated, will be
held confidential by those to whom it is disclosed. In addition, the
parties acknowledge that the information being provided to one another
in connection with the Transactions contemplated hereunder is subject
to the terms and conditions of that certain undated Confidential Non-
Disclosure Agreement (the "Confidentiality Agreement"), the terms of
which are incorporated herein by reference.
6.4 Consents. Between the date of this Agreement and the Closing
Date, the Company and the Selling Shareholders shall in good faith use
their best efforts to obtain all Consents and approvals of all lenders,
lessors, vendors, customers and other Persons necessary to permit the
mergers and the other Transactions contemplated hereunder to be
consummated without violating any loan agreement, lease or other
material contract to which the Company is a party or by which the
Company is bound, and to give the notices, make the filings and obtain
the Consents required to be described or disclosed on Schedule 4.2.
6.5 Acquisition Proposals. Between the date of this Agreement and the
Closing Date, none of the Company, the Selling Shareholders, or any
officer, employee, representative or agent of the Company or the
Selling Shareholders shall, directly or indirectly, solicit, initiate,
encourage or respond to any inquiries or proposals from, or participate
in any discussions or negotiations with, or provide any non-public
information to, any Person or group (other than Buyer and its officers,
employees, representatives and agents) concerning any bulk sale of any
Assets of the Company, any sale of shares of capital stock or other
securities of the Company, or any merger, consolidation or similar
transaction involving the Company. The Company and/or the Selling
Shareholders shall immediately advise Buyer of, and communicate to
Buyer the terms of, any such inquiry or proposal received by the
Company or any Selling Shareholder. Any violation of the restrictions
by any officer, director, affiliate, employee, agent, investment
banker, attorney or other advisor or representative of the Company or
the Selling Shareholders shall be deemed to be a breach of this Section
6.5 by the Company and Selling Shareholders.
6.6 Advice of Changes. Between the date of this Agreement and the
Closing Date, the Company and each Selling Shareholder shall promptly
advise Buyer, in writing, of any fact of which any of them obtains
knowledge and that, if existing or known as of the date of this
Agreement, would have been required to be set forth or disclosed in or
pursuant to this Agreement (it being understood that such advice shall
not be deemed to modify the representations, warranties and covenants
of the Company and/or of any Selling Shareholder contained in this
Agreement).
6.7 Best Efforts. The Company and each Selling Shareholder shall use
its or his reasonable best efforts to consummate the mergers and the
other Transactions contemplated hereunder as of the earliest
practicable date, including but not limited to voting or executing a
written shareholder consent in favor of the First Merger. Neither the
Company nor any of the Selling Shareholders shall take, or cause to be
taken, or to the best of their ability permit to be taken, any action
that would impair the prospect of completing the mergers and/or the
other Transactions contemplated hereunder.
Section 7: Certain Obligations of Buyer, Merger Sub and Newco LLC
Pending Closing
7.1 Corporate/Limited Liability Company Status. Between the
date of this Agreement and the Closing Date:
7.1.1 Each of Buyer, Merger Sub and Newco LLC shall maintain their
corporate and limited liability company existence, as the case may be,
and good standing in their respective jurisdictions of formation or
incorporation, as the case may be, and shall not amend their respective
charters, bylaws, certificates of formation or operating agreements, as
the case may be, in any manner that would be inconsistent with their
respective obligations under this Agreement.
7.1.2 Buyer, Merger Sub and Newco LLC shall not enter into any
Contract that commits them to take any action or omit to take any
action that would be inconsistent with any of the provisions of this
Section 7.1 or any other provisions of this Agreement.
7.1.3 The Buyer shall not take or suffer or permit any action which
would render untrue any of the representations or warranties of the
Buyer herein contained, and not omit to take any action within its
power, the omission of which would render untrue any such
representation or warranty.
7.1.4 Buyer shall conduct its business in the ordinary and usual
course other than as necessary to consummate the Transactions.
7.2 The Company's and Selling Shareholders' Due Diligence
Investigation; Confidentiality. Between the date of this Agreement and
the Closing Date, upon the Company's request, Buyer shall (a) permit
the Company, the Selling Shareholders and their authorized
representatives to visit Buyer's facilities during normal business
hours, to meet with Buyer's key officers, and (b) provide to the
Company, the Selling Shareholders and their authorized representatives
all information concerning Buyer and its subsidiaries and their
businesses, assets and financial condition, that the Company and the
Selling Shareholders reasonably request. The Company and Selling
Shareholders will not reveal any confidential data and/or information
supplied by the Company except to its management, counsel, accountants,
insurance representatives, investment and commercial bankers and like
agents, for purposes relating to the evaluation and consummation of the
transactions contemplated by this Agreement, and in the event the
transactions contemplated by this Agreement are not consummated, such
data and information will be returned to Buyer and will be held
confidential by those to whom it is disclosed. In addition, the
parties acknowledge that the information being provided to one another
in connection with the Transactions contemplated hereunder is subject
to the terms and conditions of the Confidentiality Agreement, the terms
of which are incorporated herein by reference.
7.3 Consents. Between the date of this Agreement and the Closing
Date, Buyer, Merger Sub and Newco LLC shall in good faith cooperate
with the Company and the Selling Shareholders in their efforts to
obtain the consents and approvals, and to give the notices and make the
filings, described in Section 5.2.
7.4 SEC Reports. Between the date of this Agreement and the Closing
Date, Buyer shall file all reports and other filings required to be
filed by it under the 1934 Act, and Buyer shall notify the Selling
Shareholders, promptly after they become available, of all registration
statements, proxy statements, reports and other filings, and all
amendments thereto, that Buyer files with the SEC.
7.5 Advice of Changes. Between the date of this Agreement and the
Closing Date, Buyer shall promptly advise the Company and the Selling
Shareholders, in writing, of any fact of which it obtains knowledge and
that, if existing or known as of the date of this Agreement, would have
been required to be set forth or disclosed pursuant to a representation
or warranty in this Agreement (it being understood that such advice
shall not be deemed to modify the representations, warranties and
covenants of Buyer, Merger Sub and/or Newco LLC contained in this
Agreement).
7.6 Best Efforts. Buyer, Merger Sub and Newco LLC shall use their
best efforts to consummate the mergers and the other Transactions
contemplated hereunder as of the earliest practicable date, and Buyer,
Merger Sub and Newco LLC shall not take, or cause to be taken, or to
the best of their ability permit to be taken, any action that would
impair the prospect of completing the mergers and the other
Transactions contemplated hereunder.
Section 8: Conditions Precedent to the Company's and
the Selling Shareholders' Closing Obligations
Each obligation of the Company and the Selling Shareholders to be
performed on the Closing Date shall be subject to the satisfaction of
each of the conditions stated in this Section 8, except to the extent
that such satisfaction is waived by the Company and/or the Selling
Shareholders in writing.
8.1 Buyer's, Merger Sub's and Newco LLC's Representations and
Performance. The representations and warranties of Buyer, Merger Sub
and Newco LLC contained in this Agreement will be true and correct on
and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (or, to the extent such
representations and warranties speak as of an earlier date, they shall
be true and correct as of such earlier date). Each of Buyer, Merger
Sub and Newco LLC will have performed and complied with all covenants
and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing Date.
8.2 Absence of Proceedings. No Proceeding shall have been instituted
(excluding any Proceeding instituted by or on behalf of the Company or
any Selling Shareholder), no Judgment shall have been issued, and no
new Law shall have been enacted, on or before the Closing Date, that
seeks to or does prohibit or restrain, or that seeks damages as a
result of, the consummation of the mergers or any of the other
Transactions contemplated hereunder.
8.3 Approvals. All necessary approvals and/or filings, including
those set forth on Schedules 5.4 and 5.5, for the transactions
contemplated hereby to be obtained and/or made by Buyer, Merger Sub and
Newco LLC will have been obtained and/or made, as the case may be, and
shall be in full force and effect. As of Closing, Buyer shall have
filed the requisite listing application with the American Stock
Exchange with respect to the Buyer Common Shares to be issued as part
of the Merger Consideration. Buyer shall use its reasonable best
efforts to have such Buyer Common Shares approved for listing as soon
as practicable after Closing but in no event later than one year after
Closing.
8.4 Registration Rights and Right of First Offer Agreement. The
Registration Rights and Right of First Offer Agreement shall have been
executed by Buyer.
8.5 Key Employee Agreements. The Key Employee Agreements shall have
been executed by Buyer.
8.6 Voting Agreement. The Voting Agreement (the "Voting Agreement")
by and among the Selling Shareholders and each of the shareholders of
Buyer set forth on Schedule 8.6 attached hereto (collectively, the
"Buyer Voting Shareholders") shall have been executed by each of the
Buyer Voting Shareholders.
8.7 Research Industries Incorporated Debt. Buyer shall have paid at
least $1,200,000 of the $2,000,000 portion of Buyer's debt to Research
Industries Incorporated ("RII") which is convertible into equity
securities of Buyer.
8.8 Adverse Changes. There shall not have been any Material Adverse
Change or material casualty loss affecting the Buyer or its business,
assets or financial condition, between the date of this Agreement and
the Closing Date, and there shall not have been any Material Adverse
Change in the financial performance of the Buyer between the date of
this Agreement and the Closing Date.
8.9 Tax-Free Reorganization. The aggregate value of all Buyer Common
Shares to be delivered to the Selling Shareholders on the Closing Date
hereunder (determined by (i) multiplying the closing sale price of
Buyer Common Shares on the American Stock Exchange on the last
completed trading day immediately preceding the time of Closing by (ii)
the number of Buyer Common Shares to be delivered to Selling
Shareholders pursuant to this Agreement, must equal or exceed the sum
of the Cash Payment described in Section 2.6(a), the non-adjusted
principal amount of the Notes described in Section 2.6(c), the maximum
amount of the Deferred Merger Consideration that may be received as
described in Section 2.9.1 and any other consideration paid or deemed
paid to Selling Shareholders not consisting of Buyer Common Shares.
This condition is intended to ensure that the continuity of interest
requirements of Treasury Regulation Section 1.368-1(e) are satisfied
and shall be interpreted and applied consistently therewith.
8.10 Closing Deliveries. The deliveries contemplated by Section 10.2
hereof shall have been made.
Section 9: Conditions Precedent to Buyer's, Merger Sub's and Newco
LLC's Closing Obligations
Each obligation of Buyer, Merger Sub and Newco LLC to be performed
on the Closing Date shall be subject to the satisfaction of each of the
conditions stated in this Section 9 except to the extent that such
satisfaction is waived by Buyer in writing.
9.1 The Company's and Selling Shareholders' Representations and
Performance. The representations and warranties of the Company and the
Selling Shareholders contained in this Agreement will be true and
correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date (or, to the extent such
representations and warranties speak as of an earlier date, they shall
be true and correct as of such earlier date). Each of the Company and
the Selling Shareholders will have performed and complied with all
covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing Date.
9.2 Absence of Proceedings. No Proceeding shall have been instituted
(excluding any such Proceeding initiated by or on behalf of Buyer,
Merger Sub or Newco LLC), no Judgment shall have been issued, and no
new Law shall have been enacted, on or before the Closing Date, that
seeks to or does prohibit or restrain, or that seeks damages as a
result of, the consummation of the mergers or any of the other
Transactions contemplated hereunder.
9.3 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting the Company or its business,
Assets or financial condition, between the date of this Agreement and
the Closing Date, and there shall not have been any material adverse
change in the financial performance of the Company between the date of
this Agreement and the Closing Date.
9.4 Approvals. All necessary approvals and/or filings (including
Consents generally and the requisite approval of the Company's
shareholders) for the transactions contemplated hereby to be obtained
and/or made by the Company and the Selling Shareholders will have been
obtained and/or made, as the case may be, and shall be in full force
and effect.
9.5 Environmental Review. The delivery to Buyer of environmental
database analyses or, if requested by Buyer, a Phase I environmental
report with respect to the Company's Real Property (with applicable
costs related to such phase I report to be borne 50% by Buyer, on the
one hand, and 50% by the Selling Shareholders, on the other hand.
9.6 Obligations to Selling Shareholders. Any and all Obligations of
the Company due to the Selling Shareholders shall have been paid off in
full satisfaction of such Obligations on or prior to the Closing Date
except for such Obligations accrued on the Closing Balance Sheet.
9.7 General Release. Each of the Selling Shareholders, including
those Selling Shareholders who formerly held stock options issued by
the Company, who are identified on Schedule 9.7 hereto, shall have
executed and delivered to Buyer a general release of claims against the
Company in the form attached hereto as Exhibit 9.7 (the "General
Release").
9.8 Intentionally Omitted.
9.9 Key Employee Agreements. Buyer and each person listed on Schedule
9.9, including without limitation, Xxxx Xxxxxxxx and Xxxxxxxx Xxxxx
(each, a "Key Employee" and collectively, the "Key Employees") shall
have entered into the employment agreements in the form attached hereto
as Exhibit 9.9 (the "Key Employee Employment Agreements").
9.10 Cancellation of Securities. As contemplated by Sections 2.6.3 and
2.6.4 hereof, each option, warrant, call, subscription or right to
acquire Company Common Stock or other securities of the Company shall
have been cancelled and extinguished such that only Company Common
Stock shall be issued and outstanding at the Closing.
9.11 Registration Rights and Right of First Offer Agreement. The
Selling Shareholders and Buyer shall have entered into a Registration
Rights and Right of Offer Agreement in the form attached hereto as
Exhibit 9.11 (the "Registration Rights and Right of First Offer
Agreement").
9.12 Intentionally Omitted.
9.13 Purchaser Representative. All shareholders of the Company who are
not "accredited investors", as defined in Rule 501(a) under the
Securities Act of 1933, other than such shareholders who have such
knowledge and experience in financial and business matters and are
capable of evaluating the merits and risks of the investment in the
Buyer Securities being issued hereunder, shall have secured the
services of a Purchaser Representative reasonably satisfactory to
Buyer.
9.14 Questionnaires. As early as practicable before Closing, (a) each
shareholder of the Company (including holders of options of the
Company) shall have completed an investor questionnaire in a form
reasonably satisfactory to Buyer and delivered such questionnaire to
Buyer, and (b) each Purchaser Representative of any unaccredited
shareholder of the Company shall have completed the purchaser
representative questionnaire in a form reasonably satisfactory to Buyer
(the questionnaires to be completed by the shareholders and option
holders referenced above as well as applicable purchaser
representatives shall collectively be referred to herein as the
"Questionnaires") and delivered such Questionnaire to Buyer.
9.15 Dissenters' Rights. There shall not have occurred the exercise of
dissenters' rights by any shareholders of the Company on the Closing
Date.
9.16 Closing Deliveries. The deliveries contemplated by Section 10.1
hereof shall have been made.
Section 10: Closing Deliveries
10.1 Company's and Selling Stockholders' Obligations at Closing.
At the Closing, the Company and/or Selling Shareholders shall deliver
the following to Buyer:
10.1.1 Certificates representing all issued and outstanding
shares of Company Common Stock.
10.1.2 All instruments or documents necessary to change the names of
the individuals who have access to or are authorized to make
withdrawals from or dispositions of all bank accounts, other accounts,
certificates of deposits, marketable securities, other investments,
safe deposit boxes, lock boxes and safes of the Company described on
Schedule 4.4 and all keys and combinations to all safe deposit boxes,
lock boxes and safes of the Company and other depositories described on
Schedule 4.4.
10.1.3 Intentionally Deleted.
10.1.4 The First Merger Delaware Certificate of Merger and the First
Merger Washington Articles of Merger, in form and substance acceptable
to the parties duly executed by the Company.
10.1.5 The original (or facsimile) signed copies of all Consents
listed on Schedule 4.2.
10.1.6 The Registration Rights and Right of First Offer Agreement
duly executed by each of the Selling Shareholders.
10.1.7 All of the existing original minute books, stock and share
books and similar records of the Company and duly executed
resignations, dated the Closing Date, of all directors and officers of
the Company other than as specified by Buyer.
10.1.8 Good standing certificates or certificates of existence or
subsistence, as the case may be, of the Company, dated no earlier than
ten (10) days before the Closing Date, from the applicable jurisdiction
of formation or organization and from each other jurisdiction in which
it is qualified or registered to do business as a foreign corporation.
10.1.9 A certificate of Secretary of the Company as to the
incumbency and signatures of the officers of the Company executing this
Agreement.
10.1.10 Copies of the resolutions duly adopted by the board of
directors and shareholders of the Company authorizing the Company to
execute, deliver and perform this Agreement and the other agreements
and documents contemplated hereby and to consummate the Transactions
contemplated hereby and thereby, certified by an officer of the Company
as in full force and effect, without modification or rescission, on and
as of the Closing Date.
10.1.11 The General Release duly executed by each of the Selling
Shareholders who are identified on Schedule 9.7 attached hereto.
10.1.12 Intentionally Deleted.
10.1.13 Receipts acknowledging payment to the Selling Shareholders of
the Closing Date Merger Consideration.
10.1.14 The Key Employee Agreements duly executed by each Key
Employee.
10.1.15 Payoff statements or termination statements and any other
termination documents terminating all Encumbrances and claims in and to
the Assets and the Real Property leased by the Company and the shares
of capital stock of the Company, including liens recorded by each of
Dell Computers and Silicon Valley Bank, except those Encumbrances which
Buyer agrees in writing to assume.
10.1.16 All other agreements, certificates, instruments, financial
statement certifications and documents reasonably requested by Buyer in
order to fully consummate the Transactions and carry out the purposes
and intent of this Agreement.
10.2 Buyer's, Merger Sub's and Newco LLC's Obligations at Closing.
At the Closing, Buyer, Merger Sub and Newco, LLC shall deliver the
following to the Selling Shareholders:
10.2.1 Certificates representing the Buyer Common Shares
issued to the Selling Shareholders as contemplated by the Merger
Consideration Schedule.
10.2.2 The Notes duly executed by Buyer, in amounts set forth on
the Merger Consideration Schedule.
10.2.3 With respect to the Cash Payment, checks delivered to each
Selling Shareholder in an amount consistent with each such Selling
Shareholder's Ownership Interest.
10.2.4 If required to be executed by Merger Sub in accordance with
applicable Law, the First Merger Delaware Certificate of Merger and the
First Merger Washington Articles of Merger, in form and substance
acceptable to the parties duly executed by Merger Sub.
10.2.5 The Second Merger Delaware Certificate of Merger and the
Second Merger Washington Articles of Merger, in form and substance
acceptable to the parties, dated the Closing Date and duly executed by
Newco LLC and, if required by applicable Law, the First Merger
Surviving Corporation.
10.2.6 The Registration Rights and Right of First Offer Agreement
duly executed by Buyer.
10.2.7 The Voting Agreement duly executed by the Buyer Voting
Shareholders.
10.2.8 The Key Employee Agreements duly executed by Buyer.
10.2.9 Intentionally Deleted.
10.2.10 Good standing certificates or certificates of existence or
subsistence, as the case may be, for each of Buyer, Merger Sub and
Newco LLC, dated no earlier than ten (10) days before the Closing Date,
from the Commonwealth of Virginia and State of Delaware, as the case
may be.
10.2.11 Copies of the resolutions duly adopted by the board of
directors of Buyer and by the board of directors and/or managers, as
the case may be, and the sole stockholder or member of each of Merger
Sub and Newco LLC, authorizing Buyer, Merger Sub and Newco LLC,
respectively, to execute, deliver and perform this Agreement and to
consummate the Transactions, certified by an officer of Buyer, Merger
and Newco LLC, respectively, as in full force and effect, without
modification or rescission, on and as of the Closing Date.
10.2.12 A certificate of an appropriate officer of each of Buyer,
Merger Sub and Newco LLC as to the incumbency and signatures of the
officers of Buyer, Merger Sub and Newco executing this Agreement.
10.2.13 All other agreements, certificates, instruments, opinions of
counsel and documents reasonably requested by the Company and/or
Selling Shareholders in order to fully consummate the Transactions and
carry out the purposes and intent of this Agreement.
Section 11: Certain Rights and Obligations of Buyer and the Selling
Shareholders after Closing
11.1 Restrictions on Dispositions of Buyer Shares. From and after
the Closing Date, none of the Selling Shareholders shall sell, assign,
give, pledge or otherwise transfer, dispose of or reduce his or its
risk relating to any of his or its Buyer Common Shares until the twelve
month anniversary of the Closing Date has expired and, thereafter, only
in compliance with applicable federal and state securities Laws.
11.2 Cooperation with Buyer and the Second Merger Survivor. From and
after the Closing Date, (a) each of the Selling Shareholders shall
fully cooperate to transfer to Buyer and the Second Merger Survivor the
full control of the Business and Assets of the Company, (b) none of the
Selling Shareholders shall take any action, directly or indirectly,
alone or together with others, which obstructs or impairs the
assumption by Buyer and the Second Merger Survivor of control of the
Business and Assets of the Company; and (c) the Selling Shareholders
shall promptly deliver to Buyer and the Second Merger Survivor all
correspondence, papers, documents and other items and materials
received by them or found to be in their possession which pertain to
the Business or the Assets of the Company and (d) the Selling
Shareholders shall use their reasonable best efforts to cooperate with
Buyer and the Second Merger Survivor in connection with the preparation
and audit of any financial statements of the Company, including,
without limitation, where appropriate, the signing of such reasonable
accurate management representation letters as are required in
connection with such audit. Provided, however, that the foregoing will
in no way affect the rights of each Selling Shareholder to dispute the
calculations of Buyer's Accountant pursuant to Section 2.8.3 and
Section 2.9.3. At any time and from time to time after the Closing
Date, at Buyer's request and without further consideration, each of the
Selling Shareholders shall promptly execute and deliver all such
further agreements, certificates, instruments and documents and perform
such further actions as Buyer may reasonably request, in order to fully
consummate the mergers and the other Transactions contemplated
hereunder and to fully carry out the purposes and intent of this
Agreement, including, but not limited to, such documents and actions as
may be required in connection with the continuation or termination of
the employee benefit plans of the Company, the adoption by the Second
Merger Survivor of Buyer's employee benefit plans, and the filing of
tax returns of the Company for all periods ending on, before or
including the Closing Date.
11.3 Member of Buyer's Board of Directors. From and after the Closing
Date until such time as the Selling Shareholders fail to own
collectively greater than 50% of the aggregate number of shares of
Buyer Common Stock issued on the Closing Date (as appropriately
adjusted for any combination, division or similar recapitalization
affecting such Buyer Common Shares), the Selling Shareholders shall
have the right to nominate one member to Buyer's board of directors.
Buyer shall recommend, consistent with the fiduciary duties of its
Board of Directors, such nominee to its shareholders and undertake its
best efforts to secure the election of such nominee. Xxxxxx Xxxxx
shall be the initial nominee of the Selling Shareholders and such
nominee will be appointed to the Company's board of directors at the
next scheduled meeting of such board of directors expected to be held
in October, 2003.
11.4 Payment of RII. Buyer shall (i) pay off at least $400,000 of the
$2,000,000 debt referenced in Section 8.7 hereof within thirty (30)
days of receipt by Buyer of certain additional funds to be received in
the form of advance payment from a certain large customer of Buyer
(such date which shall be thirty (30) days after receipt of such
advance payment to be referred to herein as the "Post Closing RII
Payment Date") and (ii) use its reasonable best efforts to pay off the
remaining $400,000 of such debt within thirty (30) days after the Post
Closing RII Payment Date, subject to appropriate cash needs of Buyer.
Section 12: Certain Obligations of the Selling Shareholders, Buyer
and/or Newco LLC After Closing
12.1 Taxes.
12.1.1 Tax Periods Through the Closing Date. Except as
provided in Section 12.2, the Selling Shareholders shall prepare or
cause to be prepared all Tax Returns required by applicable Law with
respect to the Company for taxable periods ending on or before the
Closing Date which are filed after the Closing Date ("Short-Period
Returns") and shall provide the Short-Period Returns to Buyer at
least thirty (30) days before the due date therefor, as extended by
any proper extension, which Buyer shall timely file or cause to be
filed at the Selling Shareholders' request. With respect to
Short-Period Returns for Income Taxes, the Selling Shareholders shall
include any income, gain, loss, deduction or other Tax items for
such period on their own Tax Returns in a manner consistent with the
Schedule K-1s for the Short Period Returns. With respect to
Short-Period Returns for other Taxes, the Selling Shareholders shall
timely pay the Taxes due as shown on the Short Period Returns that
are not accrued on the Closing Balance Sheet. The Company (or Second
Merger Survivor, if applicable) shall timely pay all Taxes due as
shown on the Short Period Returns that are accrued on the Closing
Balance Sheet. Buyer shall review the Short-Period Returns
but shall not change their content without the Selling Shareholders'
consent (which consent shall not be unreasonably withheld).
12.1.2 Tax Periods Straddling the Closing Date. Except as provided
in Section 12.2, with respect to each jurisdiction in which one Tax
Return ("Full Year Return") for a period beginning before the Closing
Date and ending after the Closing Date ("Full Year Period") will be
required, the Selling Shareholders shall prepare or cause to be
prepared a Tax Return for the Company for the short period starting at
the beginning of the Full Year Period and ending on and including the
Closing Date, on a pro forma basis as if a Short-Period Return for such
period were required ("Pro Forma Return") and as if there were a
closing of the Company's books as of the end of the Closing Date, and
the Selling Shareholders shall provide such Pro Forma Return to Buyer
at least thirty (30) days before the due date for the corresponding
Full Year Return. Pro Forma Returns shall be prepared on the same
basis as Short-Period Returns under Section 12.1.1. Pro Forma Returns
shall not be filed, but the Selling Shareholders shall timely pay to
Buyer an amount equal to Company Taxes due as shown thereon that are
not accrued on the Closing Balance Sheet. The Company (or Second
Merger Survivor, if applicable) shall timely pay such amount of Taxes
shown on the Pro Forma Returns that are accrued on the Closing Balance
Sheet. Buyer shall prepare or cause to be prepared the Full Year
Returns for the Company and the Second Merger Survivor (or Buyer, if
applicable), and shall timely and properly file or cause to be filed
the Full Year Returns and pay or cause to be paid the amount of Taxes
due shown thereon.
12.1.3 Tax Periods After the Closing Date. Buyer shall timely
prepare and file or cause to be timely prepared and filed all Tax
Returns for the Buyer and Second Merger Survivor required to be filed
for taxable periods beginning after the Closing Date. Buyer shall,
subject to Section 12.2 hereof, timely pay or cause to be paid the
amount of Taxes due shown on such Tax Returns.
12.2 Transfer Taxes. The Selling Shareholders agree to pay all
Transfer Taxes imposed by Law on Selling Shareholders, Merger Sub and
Newco LLC solely by reason of the Closing of the First Merger and the
Second Merger. Buyer and Second Merger Survivor agree to pay all
Transfer Taxes imposed by Law on Buyer or Second Merger Survivor solely
by reason of the Closing of the First Merger and the Second Merger.
Tax Returns in respect of Transfer Taxes shall be prepared and filed by
the party responsible thereof under applicable Law provided that such
party shall provide a draft of each such Return to the other parties
within a reasonable amount of time prior to the due date thereof and
shall make any changes to such draft return as may be reasonably
requested by the other parties.
12.3 Reportable Transactions. The Company agrees to retain all
documents and other records for the appropriate period of time as set
forth in Treasury Regulation Section 1.6011-4(g) which relate to
any Reportable Transaction in which the Company has participated.
12.4 Audits. The Selling Shareholders shall have sole control over all
audits and other proceedings (at their own expense) that relate to
Taxes of the Company or the Selling Shareholders for any period that
ends on or before the Closing Date; provided, that (i) the Selling
Shareholders shall consult with Buyer regarding any such audit and
Buyer shall have the right to review any adjustments related to the
same before they are made, (ii) Buyer and counsel of its own choosing
shall have the right to participate in, but not direct, the prosecution
or defense of such proceedings at Buyer' s sole expense, and (iii) with
respect to any proceeding that would reasonably be expected to
adversely affect the Company or Buyer, the Selling Shareholders shall
consult with Buyer prior to the settlement of any such proceedings and
shall obtain the prior written consent of Buyer prior to the settlement
of any such proceedings, which consent shall not be unreasonably
withheld. Buyer shall have sole control over all audits and other
proceedings that relate to Taxes of the Second Merger Survivor or Buyer
for any period that begins after the Closing Date; provided, that with
respect to any audit or other proceeding that would reasonably be
expected to adversely affect Selling Shareholders in any taxable period
ending on or before the Closing Date (i) Buyer shall consult with
Selling Shareholders regarding any such audit and the Selling
Shareholders shall have the right to review any adjustments related to
the same before they are made, (ii) Selling Shareholders and counsel of
their own choosing shall have the right to participate in, but not
direct, the prosecution or defense of such proceedings at Selling
Shareholders' sole expense, and (iii) Buyer shall consult with Selling
Shareholders prior to the settlement of any such proceedings, and shall
obtain the prior written consent of the Selling Shareholders prior to
the settlement of any such proceedings, which consent shall not be
unreasonably withheld. The Selling Shareholders and Buyer shall
cooperate as to any audits or other proceedings that relate to Taxes of
the Company and Second Merger Survivor (or Buyer, if applicable) for
any period that straddles the Closing Date. Buyer and each of the
Selling Shareholders shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing
of Tax Returns pursuant to this Section 12 and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such
audit, litigation or other proceeding.
12.5 Amendment of Tax Returns. Selling Shareholders may file or amend
all Tax Returns that relate to Taxes of the Company or the Selling
Shareholders for any period that ends on or before the Closing Date,
provided that any amended Tax Return of the Company or claim for Tax
refund on behalf of the Company for any period for which the Selling
Shareholders are responsible under Sections 12.1 and 12.2 hereof shall
not be filed without the prior written consent of Buyer (which consent
shall not be unreasonably withheld or delayed) to the extent such
filing, if accepted, reasonably might change the Tax liability of the
Company or Buyer for any period ending on or after the Closing Date.
Any other amended Tax Return of the Company or claim for Tax refund on
behalf of the Company shall be filed, or caused to be filed, only by
Buyer.
12.6 Fees and Expenses. The Company shall pay prior to Closing, or
shall accrue on the Closing Balance Sheet, all fees and expenses (not
including fees and expenses incurred by Buyer) associated with
preparing Income Tax Returns of the Company for periods ending on or
before the Closing Date. The Second Merger Survivor shall pay all such
fees and expenses accrued on the Closing Balance Sheet but not paid by
the Company. The Buyer shall pay all fees and expenses associated with
preparing Tax Returns of the Company and Second Merger Survivor for
periods ending after the Closing Date, Short-Period Returns of the
Company that do not relate to Income Taxes, and the Full Year Returns.
12.7 Employment Matters. During the one year period commencing at
the Second Merger Effective Time, Buyer shall provide or cause the
Second Merger Survivor to provide employees of the Company who continue
to be employed after the Merger benefits that are in the
aggregate, substantially comparable to the benefits being
provided to such employees as of the date of this Agreement.
12.8 Disposition of Company Employee Benefit Plans. As soon as is
practicable after the Second Merger Effective Time, Buyer shall review
the Company Employee Benefit Plans to determine which such plans should
remain in effect as plans of the Second Merger Survivor and which
should be replaced with Buyer's Employee Benefit Plans, with a view
toward replacing all of the Company Employee Benefit Plans with Buyer's
Employee Benefit Plans except where cost factors or unusual
circumstances dictate otherwise. If such termination of the Company
Employee Benefit Plans causes any timing gap in comparable Buyer
coverage, then the Company's relevant benefit plan will be continued
until such timing gap does not exist.
12.9 Tax-Free Reorganization.
12.9.1 Buyer and the Company shall each use its best
efforts to cause the Transactions to be treated as a reorganization
within the meaning of Section 368(a) of the Code, subject to the
rights and obligations of the parties specified in Section 13.5
hereof and Section 7 of the Registration Rights and Right of First
Offer Agreement.
12.9.2 The Company, Buyer, Merger Sub and Newco LLC shall each
report the Transactions as a reorganization within the meaning of
Section 368(a) of the Code in all federal, state, and local Tax
Returns.
12.9.3 Buyer intends for Newco LLC to continue a significant
historic business line of the Company or to use a significant portion
of the Company's historic business assets in a business after the
Transactions, in each case within the meaning of Treasury Regulation
Section 1.368-1(d).
12.9.4 Buyer will own 100% of the equity of Newco LLC after the
Transactions and has no plan or intention to cause Newco LLC to take
any action that would result in Buyer owning less than 100% of the
equity of Newco LLC.
12.9.5 Following the Transactions, Buyer has no plan or intention to
merge Newco LLC with or into another corporation (other than Buyer),
sell or dispose of any Newco LLC equity, or cause Newco LLC to sell or
dispose of any of its assets or the assets acquired from the Company
and Merger Sub, except for dispositions in the ordinary course of
business.
12.9.6 Buyer, Merger Sub, Newco LLC, the Company and the Selling
Shareholders will pay their respective expenses, if any, incurred in
connection with the Transactions.
12.9.7 No indebtedness between Buyer and the Company, between Merger
Sub and the Company or between Newco LLC and the Company was issued,
acquired or will be settled at a discount.
Section 13: Indemnification
13.1 The Company's and Selling Shareholders' Indemnification.
Subject to the conditions and limitations expressed in this
Section 13, the Selling Shareholders and the Company (prior to
the First Merger Effective Time) and the Selling Shareholders
(after the First Merger Effective Time), with such indemnifying
parties being collectively referred to for purposes of this
Section 13 as the "Microserv Group"), severally (but subject to
the limitations set forth in Section 13.4.2 hereof) shall indemnify,
defend and hold harmless Buyer, Merger Sub, Newco LLC and the Company
(post closing), their respective officers, directors, employees,
agents, representatives and their successors and assigns (each a
"Buyer Indemnified Party" or, collectively, "Buyer Indemnified
Parties") from and against any and all actions, suits, claims,
demands, debts, liabilities, obligations, losses, damages,
costs and expenses, including reasonable attorney's fees and court
costs ("Loss", or "Losses"), arising out of or caused by, directly or
indirectly, any of the following:
13.1.1 Any breach of any warranty or representation
made by the Microserv Group in or pursuant to this Agreement.
13.1.2 Any failure or refusal by any of the Microserv Group to
satisfy or perform any covenant in this Agreement or any agreement or
document contemplated hereby required to be satisfied or performed by
any or all of them.
13.1.3 Any deficiency, adjustment or assessment for Taxes made
against or imposed upon the Company (or any of its predecessors or
successors) with respect to any period ending on or before the Closing
Date that is not accrued on the Closing Balance Sheet. The right of
the Buyer Indemnified Parties to indemnification under this Section
13.1.3 shall not be affected by the fact that such deficiency,
adjustment or assessment is made against or imposed upon the Buyer
Indemnified Parties as a result of the fact that, after the Closing
Date, the Company/Second Merger Survivor shall be included in the
consolidated federal income tax returns filed by Buyer.
13.2 Indemnification by Buyer. Subject to the conditions and
limitations expressed in this Section 13, Buyer shall indemnify, defend
and hold harmless the Selling Shareholders and the Company (but the
indemnification obligation benefiting the Company under this Section
13.2 shall expire upon the occurrence of the Closing) and their
respective officers, managers, employees, agents, representatives and
successors and assigns (each a "Microserv Indemnified Party" or,
collectively, the "Microserv Indemnified Parties"), from and against
any and all Losses, arising out of or caused by, directly or
indirectly, any or all of the following:
13.2.1 Any breach of any warranty or representation made
by Buyer, Merger Sub or Newco LLC in or pursuant to this Agreement.
13.2.2 Any failure or refusal by Buyer, Merger Sub or Newco LLC to
satisfy or perform any covenant in this Agreement or any agreement to
be executed and delivered pursuant to this Agreement that is required
to be satisfied or performed by them.
13.3 Indemnification Procedures. With respect to each event,
occurrence or matter (an "Indemnification Matter") as to which any
member of the Buyer Indemnified Parties or the Microserv Indemnified
Parties, as the case may be (the "Indemnitee") is entitled to
indemnification from Buyer or the Microserv Group, as the case may be
(the "Indemnitor") under Section 13.1 or 13.2:
13.3.1 Within ten (10) days after the Indemnitee
receives written documents underlying the Indemnification Matter
or, if the Indemnification Matter does not involve a third party
action, suit, claim or demand, promptly after the Indemnitee first
has actual knowledge of the Indemnification Matter, the Indemnitee
shall give notice to the Indemnitor ("Indemnification Notice") of
the nature of the Indemnification Matter and the amount demanded or
claimed in connection therewith, together with copies of any such
written documents; provided, however, that failure to timely provide
such notice shall not be a defense to the underlying indemnity
claim except to the extent that delay in providing such notice has
damaged the Indemnitor.
13.3.2 If a third party action, suit, claim or demand is involved,
then, upon receipt of the Indemnification Notice, the Indemnitor shall,
at its expense and through counsel of its choice, promptly assume and
have sole control over the litigation, defense or settlement (the
"Defense") of the Indemnification Matter, except that (i) the
Indemnitee may, at its option and expense and through counsel of its
choice, participate in (but not control) the Defense; (ii) if the
Indemnitee reasonably believes that the handling of the Defense by the
Indemnitor may have a material adverse effect on the Indemnitee, its
business or financial condition, or its relationship with any customer,
prospect, supplier, employee, salesman, consultant, agent or
representative, then the Indemnitee may, at its option and expense and
through counsel of its choice, assume control of the Defense, provided
that the Indemnitor shall be entitled to participate in the Defense at
its expense and through counsel of its choice; (iii) the Indemnitor
shall not consent to any Judgment, or agree to any settlement, without
the Indemnitee's prior written consent (which consent shall not be
unreasonably withheld) unless the result of such settlement is the
complete and final release of Indemnitee with respect to the matter in
dispute; and (iv) if the Indemnitor does not promptly assume control
over the Defense or, after doing so, does not continue to prosecute the
Defense in good faith, the Indemnitee may, at its option and through
counsel of its choice, but at the Indemnitor's expense, assume control
over the Defense. In any event, the Indemnitor and the Indemnitee
shall fully cooperate with each other in connection with the Defense,
including by furnishing all available documentary or other evidence as
is reasonably requested by the other.
13.3.3 All amounts owed by the Indemnitor to the Indemnitee (if any)
shall be paid in full within ten (10) business days after a final
Judgment (without further right of appeal) determining the amount owed
is rendered, or after a final settlement or agreement as to the amount
owed is executed (the "Indemnification Amount"). If the
Indemnification Amount owed by the Indemnitor to the Indemnitee is not
paid when due, interest shall accrue on such amount at the rate of ten
percent (10%) per annum compounded until paid in full.
13.4 Limits on Indemnification. Indemnitor's liability under this
Section 13 shall be limited as follows:
13.4.1 Except with respect to Carve-Outs (as
defined below), the Buyer Indemnified Parties, on the one hand,
and the Microserv Indemnified Parties, on the other hand, shall
not be entitled to be indemnified for Losses under this Section
13 unless the aggregate of such Losses arising hereunder for which
indemnification liability would, but for this proviso, exist equals
or exceeds $70,000; provided, however, that at such time as the
aggregate of such Losses equals or exceeds $70,000, the Buyer
Indemnified Parties or Microserv Indemnified Parties, as the case
may be, shall be entitled to be indemnified against the full amount
of such Losses that have been incurred or suffered by such parties
(and not merely the portion in excess of $70,000). For purposes of
this Agreement, a "Carve-Out shall mean (i) an Indemnification Matter
(where a Buyer Indemnified Party is the Indemnitee) involving
(a) intentional misrepresentation or fraud, (b) failure of the
Selling Shareholders to deliver to Buyer at Closing shares of
Company Common Stock representing 100% of the issued and
outstanding capital stock of the Company (exclusive of claims related
to title which are addressed in Section 13.4.2(b) hereof), or (c)
Taxes, and (ii) an Indemnification Matter (where a member of the
Microserv Group is an Indemnitee) involving intentional
misrepresentation or fraud.
13.4.2
(a) Subject to Section 13.4.2(b), each Selling Shareholder shall be
responsible for a portion of each indemnification claim made by a Buyer
Indemnified Party equal to his or its Ownership Interest multiplied by
the dollar amount of the applicable claim.
(b) Notwithstanding anything contained in this Section 13 to the
contrary, with respect to a claim that certain shares of Company Common
Stock were delivered to Buyer without good and marketable title, free
and clear of any Encumbrance, the applicable Selling Shareholder(s)
whose shares of Company Common Stock are the subject of the claim shall
be solely liable as an indemnitor and no other Selling Shareholder
shall have any obligation as an indemnitor in respect thereof.
13.4.3 The amount of indemnification to be paid by an
Indemnitor shall be reduced by the receipt by the Indemnitee, with
respect to any Losses for which indemnification is sought, of
(i) any tax benefit and (ii) any insurance proceeds received in
respect of such Losses.
13.5 Setoff.
13.5.1 Buyer's rights to indemnification pursuant to
this Section 13 shall be satisfied solely by (i) first, its right
to setoff any sums for which a Buyer Indemnified Party is entitled
to indemnification under this Section 13 against (a) first, up to
$400,000 due under the Notes, and (b) next, payments of Deferred
Merger Consideration contemplated by Section 2.9 hereof, and
(ii) second, in connection with claims made by a Buyer Indemnified
Party for which an Indemnification Notice is delivered on or before
the first annual anniversary of the Closing Date and to the extent
the setoff right contemplated by Section (i) above is not sufficient
to satisfy one or more claims, the delivery by the Selling
Shareholders to Buyer of a number of Closing Shares equal to the
dollar value of the unsatisfied claim(s) or portion thereof divided
by the Indemnification Price (it being the agreement of the parties
that each Selling Shareholder deliver Closing Shares on a pro-rata
basis with the other Selling Shareholders in accordance with
his or its Ownership Interest); provided, however, that the aggregate
number of Buyer Common Shares that may be delivered to Buyer pursuant
to this Section (ii) in connection with Indemnification Matters other
than Carve-Outs shall be 221,039 (as appropriately adjusted for any
combination, division or similar recapitalization occurring after the
date hereof and affecting such Buyer Common Stock).
13.5.2 If any Indemnification Matters for which a Buyer Indemnified
Party is the Indemnitee are pending at a time when Buyer is required to
pay or deliver any such amounts due under the Notes and/or Deferred
Merger Consideration to the Indemnitor, then Buyer shall have the
right, upon notice to the Indemnitor, to withhold from such payment or
delivery, until final determination of such pending Indemnification
Matters, the total amount for which the Indemnitor may become liable as
a result thereof, as determined by Buyer reasonably and in good faith.
13.5.3 The twelve (12) month prohibition on transfer of the Closing
Shares as contained in the Registration Rights and Right of First Offer
Agreement is incorporated herein by reference and shall be deemed
extended hereunder if any Indemnification Matters for which a Buyer
Indemnified Party is the Indemnittee are pending at the end of such
twelve month period until final determination of such pending
Indemnification Matters, and if applicable, satisfaction thereof;
provided, however, that the extension of the prohibition on transfer
shall only apply to that number of Closing Shares which the Indemnitor
may become liable to deliver as a result of such Indemnification
Matters, as determined by Buyer reasonably and in good faith. Any
transfer, sale, assignment, pledge, encumbrance or other disposition of
Closing Shares in violation of the restriction contemplated in this
Section 13.5.3 or in the Registration Rights and Right of First Offer
Agreement shall be null and void.
13.5.4 If it is necessary for the Selling Shareholders to deliver
Closing Shares to Buyer pursuant to Section 13.5.1, each Selling
Shareholder shall, within ten days of receiving the applicable
Indemnification Notice, return to Buyer any certificate(s) representing
such Closing Shares for cancellation and Buyer, in exchange, will issue
or cause to be issued to each Selling Shareholder a new certificate
reflecting the appropriate number of Closing Shares held by each such
Selling Shareholder after the reduction contemplated in Section 13.5.1
herein. If a Selling Shareholder does not deliver to Buyer its
certificate(s) as contemplated in the preceding sentence, (i) such
certificate(s) shall immediately be deemed cancelled and Buyer shall
xxxx its records to indicate that such certificate(s) have been
cancelled and (ii) Buyer shall issue a new certificate to such Selling
Shareholder in accordance with the previous sentence. Each Selling
Shareholder hereby gives the Secretary of Buyer an irrevocable power of
attorney to make such cancellations on Buyer's books on behalf of each
such Selling Shareholder in accordance with the foregoing.
13.6 Time Limitations. No claim for indemnity under this Section 13
shall be valid if not made before the expiration of eighteen months
from the Closing Date; provided, however, that claims with respect to
Carve Outs may be made until the relevant statute of limitations has
expired, or would have expired but for an action or omission of the
party entitled to such indemnity that has tolled or otherwise extended
such statute of limitations.
13.7 Exclusive Remedy. Except with respect to disputes concerning the
Merger Consideration Adjustment and Deferred Merger Consideration
contemplated by Sections 2.8 and 2.9 hereof, from and after the Closing
Date, the provisions and limitations of this Section 13 shall provide
the exclusive remedy with respect any claim arising out of or relating
in any way to this Agreement, and no such claim shall be brought other
than pursuant to this Section 13; provided, however, that each party
shall retain the right to pursue claims for specific performance,
injunctive or other equitable relief for any breach of any obligation
required to be performed hereunder.
13.8 Merger Consideration Adjustment. The parties agree to treat any
payment made under this Section 13 as an adjustment to the Merger
Consideration pursuant to Section 2.6.
Section 14: Termination
14.1 Right to Terminate. Notwithstanding anything to the
contrary set forth in this Agreement, this Agreement may be
terminated and the Transactions abandoned at any time prior to
the Closing:
14.1.1 by mutual consent of Buyer, Merger Sub and
Newco LLC, on the one hand, and the Selling Shareholders and the
Company, on the other;
14.1.2 by Buyer, Merger Sub and Newco LLC, on the one hand, or the
Selling Shareholders and the Company, on the other hand, if the Closing
shall not have occurred by August 29, 2003, provided, however, that the
right to terminate this Agreement under this Section 14.1.2 shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date;
14.1.3 by Buyer, Merger Sub and Newco LLC, on the one hand, or the
Selling Shareholders and the Company, on the other hand, if a court of
competent jurisdiction shall have issued an order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting the
Transactions, and such order, decree, ruling or other action shall have
become final and nonappealable;
14.1.4 by the Selling Shareholders and the Company if Buyer and/or
Merger Sub and/or Newco LLC (x) breach their material representations
and warranties in any material respect, or (y) fail to comply in any
material respect with any of their material covenants or agreements
contained herein; or
14.1.5 by Buyer, Merger Sub and Newco LLC if the Selling
Shareholders and/or the Company (x) breach their material
representations and warranties in any material respect, or (y) fail to
comply in any material respect with any of their material covenants or
agreements contained herein.
14.2 Obligations to Cease. Subject to the next succeeding
sentence, in the event that this Agreement shall be terminated
pursuant to Section 14.1 hereof, all obligations of the parties
hereto under this Agreement shall terminate and there shall be
no liability of any party hereto to any other party except for
(i) the obligations with respect to publicity contained in
Section 15.1 hereof and (ii) the obligations with respect to
costs contained in Section 15.2 hereof, provided, however, that
in the event of a termination of this Agreement by reason of
either Section 14.1.4 or 14.1.5 hereof, the non-terminating
party(ies) shall reimburse the terminating party(ies) for its (their)
reasonable out-of-pocket expenses (which shall include legal and
accounting fees, etc.), incurred relative to this Agreement and the
Transactions.
Section 15: Other Provisions
15.1 Publicity. At all times before the Closing Date, without the
prior written consent (which consent shall not be unreasonably
withheld) of the other parties hereto, none of the parties hereto shall
issue any announcement, press release, public statement or other
information to the press or any third party with respect to this
Agreement or the transactions contemplated hereby; provided, however,
that nothing contained herein shall prevent any party hereto, at any
time, from furnishing any required information to any Government Body
or from issuing any announcement, press release, public statement or
other information to the press or any third party with respect to the
Agreement or the transaction contemplated hereby if required by Law or
any stock exchange or inter-dealer quotation system on which the
securities of a party are traded. If a party is required by Law or
stock exchange requirements to make any such disclosure, it must first
provide to the other party the content of the proposed disclosure, with
a reasonable opportunity to comment thereon, the reasons that such
disclosure is required by law, and the time and place that the
disclosure will be made. Notwithstanding anything to the contrary in
this Agreement or any other agreement relating to the transaction
described in this Agreement, the parties hereto shall be permitted to
disclose the U.S. federal income tax treatment and tax structure of the
transaction described in this Agreement (including any materials,
opinions or analyses relating to such tax treatment or tax structure,
but without disclosure of information if disclosure of such information
is subject to restrictions reasonably necessary to comply with
securities laws) on and after the date of the earlier of the date of
the public announcement of discussions relating to the Transactions,
the date of the public announcement of the Transactions, or the date of
the execution of this Agreement. Moreover, notwithstanding any other
provision of this agreement, there shall be no limitation on either
party's ability to consult any tax advisor, whether or not independent
from the parties, regarding the U.S. federal income tax treatment or
tax structure of the transaction described in this Agreement.
15.2 Fees and Expenses. Except with respect to indemnification claims
which shall be governed by Section 13, Buyer, Merger Sub and Newco LLC
shall pay all of the fees and expenses incurred by them, and the
Selling Shareholders and the Company (pre-closing) shall pay all of the
fees and expenses incurred by the them, in negotiating and preparing
this Agreement (and all other Contracts and documents executed in
connection herewith or therewith) and in consummating the transactions
contemplated hereby; provided, however, that Buyer shall pay the
expense of any financial statement audit related to the transactions
contemplated hereby (other than audits of taxes contemplated by Section
12.4 hereof), which shall be paid as provided therein.
15.3 Notices. Any notices, requests, demands or other
communications required or permitted to be sent hereunder shall
be delivered personally or by facsimile, sent by overnight or
international courier or mailed by registered or certified mail,
return receipt requested, to the following addresses, and shall
be deemed to have been received on the day of personal delivery
or delivery by facsimile, one business day after deposit with
an overnight domestic courier or three business days
after deposit in the mail:
If to Buyer, Merger Sub or Newco LLC : c/o Halifax Corporation
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx Xxxxxxx, Chief Financial
Officer
Telefax: (000) 000-0000
With a copy to: Blank Rome LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, Esq.
Telefax: (000) 000-0000
If to Company or any Selling Shareholder: To each Selling
Shareholder at his or its address
set forth on the signature page hereof
and to the Company at:
Microserv, Inc.
00000 XX 000xx Xx.
Xxxxxxxx, XX 00000
Attn: Chief Executive Officer
Telefax: (000) 000-0000
With a copy to: Stoel Rives LLP
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: L. Xxxx Xxxxxxxxx, Jr., Esq.
Telefax: (000) 000-0000
15.4 Reliance; Interpretation of Representations.
Notwithstanding any right of Buyer to fully investigate the affairs
of the Company (and vice versa) and notwithstanding any knowledge
of facts determined or determinable by Buyer pursuant to such
investigation or right of investigation (and vice versa), Buyer,
Merger Sub and Newco LLC, on the one hand, and the Company and the
Selling Shareholders, on the other hand, have the right to rely
fully upon the representations, warranties, covenants and agreements
contained in this Agreement or in any document delivered to them or
any representatives in connection with the transactions contemplated
by this Agreement. Each warranty, representation and covenant
contained in this Agreement is independent of all other warranties,
representations and covenants contained herein (whether or not
covering identical or related subject matter) and must
be independently and separately complied with and satisfied.
15.5 Entire Understanding. This Agreement, together with the
Exhibits and Schedules hereto, state the entire understanding among
the parties with respect to the subject matter hereof, and supersede
all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to
the subject matter hereof, including all confidentiality letter
agreements and letters of intent (including but not limited to
that certain Letter of Intent dated July 21, 2003) previously
entered into among some or all of the parties hereto. No amendment
or modification of this Agreement shall be effective unless in
writing and signed by the party against whom enforcement is sought.
15.6 Parties in Interest; Assignment. This Agreement shall bind,
benefit, and be enforceable by and against the Company, Buyer, Merger
Sub, Newco LLC and their respective successors and assigns, and the
Selling Shareholders and their respective heirs, estates and personal
representatives. No party shall in any manner assign any of its or his
rights or obligations under this Agreement without the express prior
written consent of the other parties.
15.7 Waivers. Except as otherwise expressly provided herein, no waiver
with respect to this Agreement shall be enforceable unless in writing
and signed by the party against whom enforcement is sought. Except as
otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy
by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or
further exercise of, any right, power or remedy.
15.8 Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without
regard thereto.
15.9 Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts, including by facsimile, each of which when so
executed and delivered shall be an original hereof, and it shall not be
necessary in making proof of this Agreement to produce or account for
more than one counterpart hereof.
15.10 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a
part of this Agreement, and shall not affect its interpretation.
15.11 References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or
permits.
15.12 Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY
THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
15.13 Arbitration; Jurisdiction and Process.
15.13.1 The parties shall use their best efforts to
amicably resolve any disputes, controversies or misunderstandings
concerning the terms and provisions contained in this Agreement
prior to seeking arbitration pursuant to this Section 15.13.
Should the parties be unable to amicably resolve disputes, controversies
and misunderstandings concerning this Agreement, other than claims for
equitable remedies and except as otherwise provided herein
(including disputes concerning the purchase price adjustment and
Deferred Merger Consideration contemplated by Sections 2.8 and 2.9
hereof, respectively), all claims, demands, disputes, controversies,
differences or misunderstandings between the parties arising out of,
or by virtue of, this Agreement shall be submitted to and determined
by arbitration in accordance with this Section 15.13. With respect
to any matter being arbitrated hereunder, an arbitrator shall be
mutually agreed upon by Buyer and Seller. If Buyer and Seller are
unable to agree upon such arbitrator, such arbitrator shall be
selected by the Independent Accountants. The matter shall be
arbitrated in Chicago, Illinois, in accordance with the
rules of the American Arbitration Association applying the laws of
Delaware. At any time before a decision of the arbitrator has been
rendered, the parties may resolve the dispute by settlement. If the
arbitrator resolves all disputes presented to it in the manner proposed
by one of the parties, the fees and expenses of the arbitrator shall be
paid for by the other party. In all other events, the fees and
expenses of the arbitrator relating to the dispute shall be shared in
the same proportion that a given party's position, on the one hand, and
the other disputing party's position, on the other hand, initially
presented to the arbitrator bears to the arbitrator's award. The
decision of the arbitrator shall (a) be binding and conclusive on all
parties and (b) not be appealable and shall include a finding for
payment of the costs of such arbitration. Judgment of a court of
competent jurisdiction may be entered upon the award and may be
enforced as such in accordance with the provisions of the award. The
parties may obtain discovery in aid of the arbitration to the fullest
extent permitted under law. All discovery disputes shall be resolved
by the arbitrator. This agreement to arbitrate is specifically
enforceable by the parties to this Agreement.
15.13.2 Subject to Section 15.13.1 hereof and except as provided
otherwise herein (including disputes concerning the purchase price
adjustment and Deferred Merger Consideration contemplated by Sections
2.8 and 2.9 hereof, respectively), in any action between or among any
of the parties, whether arising out of this Agreement or otherwise, (a)
each of the parties irrevocably consents to the exclusive jurisdiction
and venue of the federal and state courts located in the state of
Delaware, (b) if any such action is commenced in a state court, then,
subject to applicable law, no party shall object to the removal of such
action to any federal court located in the State of Delaware, (c) each
of the parties irrevocably waives the right to trial by jury, (d) each
of the parties irrevocably consents to service of process by first
class certified mail, return receipt requested, postage prepaid, to the
address at which such party is to receive notice in accordance with
Section 15.3, and (e) the prevailing parties shall be entitled to
recover their reasonable attorneys' fees and court costs from the other
parties.
15.14 No Third-Party Beneficiaries. No provision of this
Agreement is intended to or shall be construed to grant or confer
any right to enforce this Agreement, or any remedy for breach of
this Agreement, to or upon any Person other than the parties hereto,
including any customer, prospect, supplier, employee, contractor,
salesman, agent or representative of the Company.
15.15 Neutral Construction. In view of the fact that each of the
parties hereto have been represented by their own counsel and this
Agreement has been fully negotiated by all parties, the legal principle
that ambiguities in a documents are construed against the draftsperson
of that document shall not apply to this Agreement.
15.16 Shareholder Representative.
15.16.1 Each Selling Shareholder hereby irrevocably
authorizes and appoints Xxxxx Xxxxxx as the Shareholder Representative,
with full power of substitution and resubstitution, as his or its
representative in connection with the Transactions.
15.16.2 Each Selling Shareholder agrees that the Shareholder
Representative shall have the full power, authority and right to
perform, do and take any and all actions he deems necessary or
advisable to carry out the purposes of this Agreement and the
Transactions all without liability to such Selling Shareholder, so long
as same are carried out by the Shareholder Representative in good
faith. Such actions include the power to amend, modify or waive any
agreement in the name of each Selling Shareholder as if such Selling
Shareholder had himself amended, modified or waived such agreement;
provided that the Shareholder Representative shall have no power to
alter any term of this Agreement which would reduce the amount or
change the type of Merger Consideration to be received by any Selling
Shareholder unless a majority of the Selling Shareholders shall so
agree. In particular, but not by way of limitation, the Shareholder
Representative shall have the power to make and carry out decisions
under this Agreement or in furtherance of the Transactions on behalf of
each Selling Shareholder and to sign documents and make filings on
behalf of each Selling Shareholder as if such Selling Shareholder had
himself or itself signed or filed such document.
15.16.3 Each Selling Shareholder understands and agrees that this
appointment is irrevocable.
15.16.4 The Shareholder Representative may resign at any time. Upon
such resignation, each Selling Shareholder hereby authorizes the
Shareholder Representative to appoint a new Shareholder Representative
to replace such resigning Shareholder Representative with the same
powers and duties as such resigning Shareholder Representative,
provided that such newly appointed Shareholder Representative shall
have been a Selling Shareholder immediately prior to the First Merger
Effective Time.
15.16.5 If the Shareholder Representative or any successor shall die,
or become unable to act as the Shareholder Representative, a
replacement shall promptly be appointed by a writing signed by Selling
Shareholders who received a majority of the Merger Consideration,
provided that such newly appointed Shareholder Representative shall
have been a Selling Shareholder immediately prior to the First Merger
Effective Time.
[Signature page follows]
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement effective as of the day and year first above
written.
HALIFAX CORPORATION
By: /s/ Xxxxxxx XxXxx
Name: Xxxxxxx XxXxx
Title: President & CEO
MICROSERV MERGER CORP.
By: /s/ Xxxxxxx XxXxx
Name: Xxxxxxx XxXxx
Title: President
MICROSERV MERGER LLC
By: /s/ Xxxxxxx XxXxx
Name: Xxxxxxx XxXxx
Title: President
MICROSERV, INC.
By: /s/ Xxxxxxxx Xxxxx
Name:
Title:
THE SELLING SHAREHOLDERS:
/s/ Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
[Signature page to Agreement and Plan of Merger]
The Xxxxxxx 1996 Revocable Trust dated
November 13, 1996
By: /s/ Xxxx Xxxxxxx III
Name: Xxxx Xxxxxxx III
Title: Trustee
G. and X. Xxxxx Living Trust dated
October 29, 1968
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Trustee
/s/ Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
/s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
/s/ Xxxx Xxxxxx
Xxxx Xxxxxx
/s/ Xxxxxxxx X. Xxxxx
Xxxxxxxx X. Xxxxx
NEW VENTURE ASSOCIATES, LLC PROFIT
SHARING PLAN
By: /s/ Xxxxxxx X. Xxxxx
Name:
Title:
[Signature page to Agreement and Plan of Merger]
/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
/s/ Xxxx Working
Xxxx Working
/s/ X.X. Xxxxxxxxxxx
X.X. Xxxxxxxxxxx
/s/ Xxx X. Xxxxxx
Xxx X. Xxxxxx
[Signature page to Agreement and Plan of Merger]
EXHIBIT "1A"
Defined Terms
"Accounts Receivable" means (a) any right to payment for goods sold,
leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not
it is evidenced by any Contract; (b) any note receivable; or (c) any
other receivable or right to payment of any nature.
"Actual Closing Net Assets" shall have the meaning specified in Section
2.8.2 of the Agreement.
"Actual Closing Working Capital" shall have the meaning specified in
Section 2.8.2 of the Agreement.
"Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets, prepayments, deposits,
escrows, Accounts Receivable, Tangible Property, Real Property,
Software, Contract Rights, Intangibles and goodwill, and claims, causes
of action and other legal rights and remedies.
"Buyer Accountant" means Deloitte & Touche LLP, or such other
independent accounting firm of internationally recognized standing
selected by Buyer for purposes of Section 2.8.2 of the Agreement.
"Buyer Common Shares" means shares of common stock, $.24 par value, of
Buyer.
"Buyer SEC Documents" shall have the meaning specified in Section 5.6
of the Agreement.
"Buyer Securities" shall have the meaning specified in Section 4.26.1
of the Agreement.
"Buyer Shareholders" shall have the meaning specified in Section 11.3
of the Agreement.
"Calculation Dispute Notice" shall have the meaning specified in
Section 2.8.3 of the Agreement.
"Cash Asset" means any cash on hand, cash in bank or other accounts,
readily marketable securities, and other cash-equivalent liquid assets
of any nature.
"Certificate" shall have the meaning specified in Section 2.6.1 of the
Agreement.
"Closing" shall have the meaning specified in Section 2.2 of the
Agreement.
"Closing Balance Sheet" shall have the meaning specified in Section
2.8.1 of the Agreement.
"Closing Date" shall have the meaning specified in Section 2.2 of the
Agreement.
"Closing Date Merger Consideration" shall have the meaning specified in
Section 2.6 of the Agreement.
"Closing Shares" means the Buyer Common Shares delivered to the Selling
Shareholders as part of the Closing Date Merger Consideration.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Common Stock" means shares of the common stock, $0.01 par
value, of the Company.
"Company Employee Benefit Plans" shall have the meaning specified in
Section 4.16.1 of the Agreement.
"Company Intangible" means all Software and other Intangibles owned,
marketed, licensed, supported, maintained, used or under development
by the Company.
"Confidentiality Agreement" shall have the meaning specified in Section
6.3 of the Agreement.
"Consent" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application,
notice or report to, or any waiver by, or any other action (whether
similar or dissimilar to any of the foregoing) of, by or with, any
Person, which is necessary in order to take a specified action or
actions in a specified manner and/or to achieve a specified result.
"Contract" means any written or oral contract, agreement, instrument,
order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data
processing agreements, maintenance agreements, license agreements,
sublicense agreements, loan agreements, promissory notes, security
agreements, pledge agreements, deeds, mortgages, guaranties,
indemnities, warranties, employment agreements, consulting agreements,
sales representative agreements, joint venture agreements, buy-sell
agreements, options or warrants.
"Contract Right" means any right, power or remedy of any nature under
any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance
of another party's Obligations, rights to demand that another party
accept property or services or take any other actions, and rights to
pursue or exercise remedies or options.
"Deferred Merger Consideration Price" means the greater of (i) the
market price of the Buyer Common Shares on the date of payment of the
Deferred Merger Consideration, or (ii) the average market price of the
Buyer Common Shares over the five trading days immediately prior to
such date of payment.
"DGCL" shall have the meaning specified in Section 2.1 of the
Agreement.
"DLLCA" shall have the meaning specified in Section 3.1 of the
Agreement.
"Earnout Accounts" shall have the meaning specified in Section 2.9.1 of
the Agreement.
"Earnout Dispute Notice" shall have the meaning specified in Section
2.9.3 of the Agreement.
"Earnout Net Revenues" shall have the meaning specified in Section
2.9.1 of the Agreement.
"Earnout Statements" shall have the meaning specified in Section 2.9.2
of the Agreement.
"Employee Benefit Plan" means any employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other plan, program, policy or arrangement
for or regarding bonuses, commissions, incentive compensation,
severance, vacation, deferred compensation, pensions, profit sharing,
retirement, payroll savings, stock options, stock purchases, stock
awards, stock ownership, phantom stock, stock appreciation rights,
medical/dental expense payment or reimbursement, disability income or
protection, sick pay, group insurance, self insurance, death benefits,
employee welfare or fringe benefits of any nature; but not including
employment Contracts with individual employees.
"Encumbrance" means any lien, superlien, security interest, pledge,
right of first refusal, mortgage, easement, covenant, restriction,
reservation, conditional sale, prior assignment, or other encumbrance,
claim, burden or charge of any nature.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any
company limited by shares, limited liability company or joint stock
company), firm, society or other enterprise, association, organization
or entity.
"Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to the public health and
safety and protection of the environment, including those governing the
use, generation, handling, storage and disposal or cleanup of Hazardous
Substances, all as amended.
"Estimated Closing Date Net Assets" shall have the meaning specified in
Section 2.8.1 of the Agreement.
"Estimated Closing Date Working Capital" shall have the meaning
specified in Section 2.8.1 of the Agreement.
"Final Closing Net Assets" shall have the meaning specified in Section
2.8.6 of the Agreement.
"Final Closing Working Capital" shall have the meaning specified in
Section 2.8.6 of the Agreement.
"Financial Statements" shall have the meaning specified in Section
4.6.2 of the Agreement.
"First Merger" shall have the meaning specified in Section 2.1 of the
Agreement.
"First Merger Delaware Certificate of Merger" shall have the meaning
specified in Section 2.2 of the Agreement.
"First Merger Effective Time" shall have the meaning specified in
Section 2.2 of the Agreement.
"First Merger Surviving Corporation" shall have the meaning specified
in Section 2.1 of the Agreement.
"First Merger Washington Articles of Merger" shall have the meaning
specified in Section 2.2 of the Agreement.
"Form 10-K" shall have the meaning specified in Section 5.4 of the
Agreement.
"GAAP" means generally accepted accounting principles under current
United States accounting rules and regulations, consistently applied.
"General Release" shall have the meaning specified in Section 9.7 of
the Agreement.
"Governmental Body" means any (a) nation, principality, republic,
state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental
division, subdivision, department, agency, bureau, branch, office,
commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or
other tribunal); (d) multi-national organization or body; or (e)
individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
"Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by any United States
federal government authority, or any state or local government
authority having jurisdiction over any Real Property, to be capable of
posing a risk of injury or damage to health, safety, property or the
environment, including (a) all substances, wastes, contaminants,
pollutants and materials defined, designated or regulated as hazardous,
dangerous or toxic pursuant to any Law of any state in which any Real
Property is located or any United States Law, and (b) asbestos,
polychlorinated biphenyls ("PCB's"), petroleum, petroleum products and
urea formaldehyde.
"including" means including but not limited to.
"Independent Accountants" means a Neutral Accounting Firm other than
the Buyer Accountant.
"Indemnification Price" means the greater of (i) the market price of
the Buyer Common Shares on the date of payment of the applicable
indemnification claim, or (ii) the average market price of the Buyer
Common Shares over the five trading days immediately preceding such
date of payment.
"Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life,
hospital, medical, dental, disability, worker's compensation, key man,
fidelity bond, theft, forgery, errors and omissions, directors' and
officers' liability, or other insurance policy of any nature.
"Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service xxxx, service xxxx
application, trade name, brand name, product name, slogan, trade
secret, know-how, patent, patent application, copyright, copyright
application, design, logo, formula, invention, product right,
technology or other intangible asset of any nature, whether in use,
under development or design, or inactive.
"Judgment" means any order, writ, injunction, citation, award, decree
or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority
or arbitration tribunal.
"Key Employee" shall have the meaning specified in Section 9.9 of the
Agreement.
"Key Employee Agreements" shall have the meaning specified in Section
9.9 of the Agreement.
"to the knowledge of the Company and the Selling Shareholders'" and
similar phrases means that none of the Selling Shareholders, nor any of
the directors or officers of the Company have any actual knowledge or
belief, in each case after due inquiry, that the statement made is
incorrect.
"Latest Balance Sheet" shall have the meaning specified in Section
4.6.2 of the Agreement.
"Latest Balance Sheet Date" shall have the meaning specified in Section
4.6.2 of the Agreement.
"Law" means any provision of any foreign, federal, state or local law,
statute, ordinance, charter, constitution, treaty, code, rule,
regulation or guidelines, including common law (including those of self-
regulatory organizations such as the American Stock Exchange).
"Loss" or "Losses" shall have the meanings specified in Section 13.1 of
the Agreement.
"March/Closing Comparison Aggregate" shall have the meaning specified
in Section 2.9.1 of the Agreement.
"Material Adverse Change" means a change which has or can be reasonably
expected to have a Material Adverse Effect.
"Material Adverse Effect" means a material adverse effect on the
financial condition, results of operations or business of the Company
(when used in Section 4) or Buyer (when used in Section 5) or on the
ability of the Company and the Selling Shareholders (when used in
Section 4) or the Buyer Parties (when used in Section 5) to consummate
the Transactions.
"Merger Consideration" shall have the meaning specified in Section 2.6
of the Agreement.
"Memorandum" shall have the meaning specified in Section 4.26.1 of the
Agreement.
"Merger Consideration Schedule" shall have the meaning specified in
Section 2.6 of the Agreement.
"Microserv Group" shall have the meaning specified in Section 13.1 of
the Agreement.
"Negative Adjustment" shall have the meaning specified in Section 2.8.6
of the Agreement.
"Negative Net Assets Balance" shall have the meaning specified in
Section 2.8.6 of the Agreement.
"Negative Working Capital Balance" shall have the meaning specified in
Section 2.8.6 of the Agreement.
"Net Assets" means (a) the value of all assets on the Company's balance
sheet excluding (i) any assets included in the definition of Working
Capital hereunder and (ii) inventory, less (b) the value of all
liabilities on the Company's balance sheet which are not included in
the definition of Working Capital, with such values in (a) and (b) to
be determined in accordance with GAAP; provided, however, that
severance and retention obligations equal to the threshold amount
specified in the Cash Payment Offset Schedule shall not be included as
a liability for purposes of determining Net Assets; provided, further,
that any debt of an employee owed to the Company shall not be taken
into consideration for purposes of Net Assets.
"Net Revenues" shall mean revenues net of the following offsets: sales
returns and allowances, as determined in accordance with GAAP.
"Neutral Accounting Firm" means Xxxxx Xxxxxxxx, LLP, or if Xxxxx
Xxxxxxxx, LLP is unwilling to perform as the Neutral Accounting Firm,
or at the relevant time does not qualify as an independent accounting
firm of nationally recognized standing that has not rendered services
to the Company or Buyer or any affiliate thereof, within 12 months
prior to the date of the Agreement, then the Neutral Accounting firm
shall be an accounting firm meeting the foregoing qualifications
selected by an arbitrator selected in accordance with the rules of the
American Arbitration Association.
"Note" shall have the meaning specified in Section 2.6 of the
Agreement.
"Obligation" means any debt, liability or obligation of any nature,
whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained,
unascertained, known, unknown or otherwise.
"Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued,
approved or allowed by any foreign, federal, state or local
governmental body, administrative agency or regulatory authority.
"Person" means any individual, Entity or Governmental Body.
"Positive Net Assets Balance" shall have the meaning specified in
Section 2.9.6 of the Agreement.
"Positive Working Capital Balance" shall have the meaning specified in
Section 2.9.6 of the Agreement.
"Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding
of any nature.
"Purchaser Representative" shall have the meaning specified in Section
4.26.3 of the Agreement.
"Questionnaires" shall have the meaning specified in Section 9.14 of
the Agreement.
"Real Property" means any real estate, land, building, condominium,
town house, structure or other real property of any nature, all shares
of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which
interests in real estate may be held, all leasehold estates with
respect to any of the foregoing, and all appurtenant and ancillary
rights thereto, including easements, covenants, water rights, sewer
rights and utility rights.
"Registration Rights and Right of First Offer Agreement" shall have the
meaning specified in Section 9.11 of the Agreement.
"Reportable Transaction" shall mean any transaction listed in Treasury
Regulation Section 1.6011-4(b).
"RII" shall have the meaning specified in Section 5.4 of the Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Second Merger" shall have the meaning specified in Section 3.1 of the
Agreement.
"Second Merger Delaware Certificate of Merger" shall have the meaning
specified in Section 3.2 of the Agreement.
"Second Merger Effective Time" shall have the meaning specified in
Section 3.2 of the Agreement.
"Second Merger Survivor" shall have the meaning specified in Section
3.1 of the Agreement.
"Second Merger Washington Articles of Merger" shall have the meaning
specified in Section 3.2 of the Agreement.
"Selling Shareholders' Restrictive Covenant Agreement" shall have the
meaning specified in Section 9.8 of the Agreement.
"Software" means any computer program, operating system, applications
system, firmware or software of any nature, whether operational, under
development or inactive including all object code, source code, comment
code, algorithms, menu structures or arrangements, icons, operational
instructions, scripts, commands, syntax, screen designs, reports,
designs, concepts, technical manuals, test scripts, user manuals and
other documentation therefore, whether in machine-readable form,
programming language or any other language or symbols, and whether
stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature and all data bases necessary
or appropriate to operate any such computer program, operating system,
applications system, firmware or software.
"Specified Contract" shall have the meaning specified in Section 4.14
of the Agreement.
"Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other
equipment, machinery, tools, forms, supplies or other tangible personal
property of any nature.
"Tax" means (a) any foreign, federal, state or local income, earnings,
profits, gross receipts, franchise, capital stock, net worth, sales,
use, value added, bank, bank shares, mutual thrift, occupancy, general
property, real property, personal property, intangible property,
transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security, retirement or other tax of any nature;
(b) any foreign, federal, state or local organization fee,
qualification fee, annual report fee, filing fee, occupation fee,
assessment, sewer rent or other fee or charge of any nature by a
Governmental Body; or (c) any deficiency, interest or penalty imposed
with respect to any of the foregoing.
"Tax Returns" shall have the meaning specified in Section 4.18.1 of the
Agreement.
"Transfer Tax Returns" means Tax Returns filed with respect to Transfer
Taxes.
"Transfer Taxes" means any transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest).
"WBCA" shall have the meaning specified in Section 2.1 of the
Agreement.
"Working Capital" mean (i) current assets (excluding inventory),
including but not limited to Cash Assets, Accounts Receivable and
prepaid expenses, minus (ii) current liabilities, including but not
limited to, accounts payable, accrued expenses and unearned revenue,
with such values to be determined in accordance with GAAP; provided,
however, that severance and retention obligations equal to the
threshold amount specified in the Cash Payment Offset Schedule shall
not be included as a liability for purposes of determining Working
Capital; provided, further that any debt owed by an employee to the
Company shall not be taken into consideration for purposes of the
definition of Working Capital.
"Working Capital and Net Assets Statements" shall have the meaning
specified in Section 2.8.2 of the Agreement.
