AGREEMENT AND PLAN OF MERGER
By and Among
Xxxxxxx Research Corporation,
WAL Acquisition Company, Inc.
and
Welkin Associates, Ltd.
Dated: June 26, 1998
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June
26, 1998, by and among XXXXXXX RESEARCH CORPORATION, a Delaware corporation
("Xxxxxxx"), WAL ACQUISITION COMPANY, INC., a Virginia corporation and a
subsidiary of Xxxxxxx ("Merger Sub"), and WELKIN ASSOCIATES, LTD., a Virginia
corporation ("Welkin").
R E C I T A L S
Welkin is engaged in providing engineering and management services to
national intelligence organizations with emphasis on systems engineering,
processing and analysis, mission utility assessment, systems acquisition, and
tactical operations and support (the 'Welkin Business'). This Agreement provides
for the acquisition of Welkin by Xxxxxxx pursuant to the merger of Merger Sub
into and with Welkin. At the effective time of such merger, the outstanding
shares of the common stock of Welkin shall be converted into the right to
receive shares of the common stock of Xxxxxxx (except as provided in Section 1.6
of this Agreement). As a result, shareholders of Welkin shall become
shareholders of Xxxxxxx. The Board of Directors of Xxxxxxx, Merger Sub, and
Welkin have adopted resolutions approving this Agreement and the consummation of
the transactions contemplated hereby. The transactions described in this
Agreement are subject to the approval of the shareholders of Welkin and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the merger for federal income
tax purposes shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code, and for accounting purposes shall qualify
for treatment as a pooling of interests.
AGREEMENT AND PLAN
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Agreement and Plan
and prescribe the terms and conditions hereof and the manner and basis of
carrying the merger into effect, which shall be as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon performance of all covenants and
obligations of the parties contained herein and upon fulfillment or waiver of
all conditions to the obligations of the parties contained herein, on the Merger
Date, as hereinafter defined, and pursuant to the Virginia Stock Corporation Act
(the "VSCA"), Merger Sub will be merged with and into Welkin (the "Merger"),
which will be the surviving corporation, and as a result thereof shall become a
wholly-owned subsidiary of Xxxxxxx. The purposes of the surviving corporation
shall be those stated in the Articles of Incorporation of Welkin. As soon as
practicable after the terms and conditions of this Agreement have been
satisfied, Articles and Plan of Merger, substantially in the form attached as
Exhibit "A" hereto, properly completed and executed in accordance with the VSCA
(the "Articles of Merger"), will be filed with the State Corporation Commission
of Commonwealth of Virginia. The merger shall become effective at the time and
on the date the filing of the Articles of Merger with the State Corporation
Commission of the Commonwealth of Virginia shall have been completed. The date
and time when the merger becomes effective is referred to in this Agreement as
the 'Merger Date.'
Section 1.2 Conversion of Shares. Upon consummation of the Merger and
without any action on the part of Xxxxxxx, Merger Sub, Welkin or the
shareholders thereof, each share of Welkin's common stock, $1.00 par value
("Welkin Stock"), outstanding immediately prior to the Merger, except shares
held by shareholders who have properly exercised their dissenters' rights under
Sections 13.1-729 through 13.1-741 of the VSCA ("Dissenting Shares") or shares
then owned by Xxxxxxx or by a Xxxxxxx' subsidiary, shall be converted into the
right to receive that number of shares of Xxxxxxx' common stock, $0.01 par value
("Xxxxxxx Stock") determined in accordance with the formula set forth on
Schedule 1.2, Conversion of Shares, hereto (the "Conversion Ratio"). The
outstanding shares of Merger Sub immediately prior to the Merger shall, upon
consummation of the Merger, be converted into an equal number of shares of
Welkin Stock, and shall thereafter constitute the outstanding capital stock of
the surviving corporation. The authorized capital stock of Welkin as set forth
in its Articles of Incorporation shall continue to be the authorized capital
stock for the surviving corporation.
Section 1.3 Stock Options.
(a) At the Merger Date, each option to purchase shares of
Welkin Stock pursuant to stock options ("Welkin Options") granted by Welkin
under the Incentive Stock Option Plan of 1988 of Welkin Associates, Ltd. (the
'Welkin Stock Option Plan'), which are outstanding at the Merger Date, whether
or not exercisable, shall be converted into and become rights with respect to
Xxxxxxx Stock, and Xxxxxxx shall assume each Welkin Option in accordance with
the terms of the Welkin Stock Option Plan and stock option or other agreement by
which it is evidenced, except that from and after the Merger Date, (i) Xxxxxxx
and its stock option committee shall be substituted for Welkin and Welkin's
Board of Directors administering such Welkin Stock Option Plan, (ii) each Welkin
Option assumed by Xxxxxxx may be exercised solely for shares of Xxxxxxx Stock,
(iii) the number of shares of Xxxxxxx Stock subject to such Welkin Options shall
be equal to the number of shares of Welkin Stock subject to such Welkin Options
immediately prior to the Merger Date multiplied by the Conversion Ratio, and
(iv) the per share exercise price under each such Welkin Option shall be
adjusted by dividing the per share exercise price under each such Welkin Option
by the Conversion Ratio and rounding up to the nearest cent. Notwithstanding the
provisions of clause (iii) of the preceding sentence, Xxxxxxx shall not be
obligated to issue any fraction of a share of Xxxxxxx Stock upon exercise of
Welkin Options and any fraction of a share of Xxxxxxx Stock that otherwise would
be subject to a converted Welkin Option shall represent the right to receive a
cash payment upon exercise of such converted Welkin Option equal to the product
of such fraction and the difference between the market value of one share of
Xxxxxxx Stock at the time of exercise of such Welkin Option and the per share
exercise price of such Welkin Option. The market value of one share of Xxxxxxx
Stock at the time of exercise of a Welkin Option shall be the Weighted Average
Share Price of Xxxxxxx Stock as set forth on Schedule 1.3(a), Weighted Average
Share Price, hereto. Xxxxxxx and Welkin agree to take all necessary steps to
effectuate the foregoing provisions of this Section.
(b) As soon as practicable after the Merger Date and in any
event no later than thirty (30) days after the Merger Date, Xxxxxxx shall
deliver to the participants of the Welkin Stock Option Plan an appropriate
notice setting forth such participant's rights pursuant thereto and the grants
subject to the Welkin Stock Option Plan shall continue in effect on the same
terms and conditions (subject to the adjustments required by Section 1.3(a)
after giving effect to the Merger). Within fifteen (15) days after the Merger
Date, Xxxxxxx shall file a registration statement on Form S-8 (the "S-8
Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares of Xxxxxxx Stock subject to such
options. Xxxxxxx shall use its best efforts to maintain the effectiveness of the
S-8 Registration Statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
The S-8 Registration Statement and all amendments and supplements thereto will
conform in all respects with the requirements of the Securities Act and all
rules and regulations thereunder.
(c) All contractual restrictions or limitations on transfer
with respect to Welkin Stock awarded under the Welkin Stock Option Plan to the
extent that such restrictions or limitations shall not have already lapsed
(whether as a result of the Merger or otherwise), and except as otherwise
expressly provided in such plan, shall remain in full force and effect with
respect to shares of Xxxxxxx Stock into which such restricted stock is converted
pursuant to Section 1.3(a) of this Agreement.
Section 1.4 No Fractional Shares. Only whole shares of Xxxxxxx Stock
shall be issued in the Merger. In lieu of fractional shares, each holder of
Welkin Stock who otherwise would be entitled to a fractional share of Xxxxxxx
Stock shall, upon surrender of such holder's stock certificate, be entitled to
receive a cash payment (without interest) equal to the product of such
fractional share and the value per share of Xxxxxxx Stock as determined above in
Section 1.2.
Section 1.5 Exchange of Certificates; Deposits. On the Merger Date,
Welkin shall deliver to Xxxxxxx a list of the names, addresses, and Social
Security numbers of the Welkin shareholders (the "Welkin Shareholders"), and the
number of shares of Welkin Stock owned by each Welkin Shareholder. Except as set
forth above, from and after the Merger Date, each holder of a certificate which
prior thereto represented shares of Welkin Stock shall be entitled to receive in
exchange therefor, upon surrender thereof to Xxxxxxx, a certificate or
certificates representing the number of whole shares of Xxxxxxx Stock into which
the Welkin Stock shall have been converted, and, in respect of any fractional
share, a cash payment in accordance with Section 1.4 above, except that 10% of
the Xxxxxxx Stock to which each Welkin Shareholder is entitled to receive (the
"Escrow Shares") shall be evidenced by a separate Xxxxxxx Stock certificate in
the name of the SouthTrust Bank (the "Escrow Agent") as Escrow Agent, and at the
Merger Date shall be deposited with the Escrow Agent to hold pursuant to the
terms and conditions of the Escrow Agreement attached hereto as Exhibit "B" (the
"Escrow Agreement"). For purposes of determining the number of shares of Xxxxxxx
Stock to be deposited with the Escrow Agent and Xxxx X. Xxxx, Xx., on behalf of
each Welkin Shareholder, a fractional share shall be rounded down to the nearest
whole number of shares. Until so surrendered to Xxxxxxx, each certificate
formerly representing shares of Welkin Stock, except Dissenting Shares, shall be
deemed for all corporate purposes to evidence only the right to receive the
number of shares of Xxxxxxx Stock and/or the cash payment determined in
accordance with Sections 1.2 and 1.4. All shares of Xxxxxxx Stock to be
delivered hereunder shall be delivered to the Representative (as defined below)
for further distribution to the Welkin Shareholders in accordance with the
Shareholders' Letter Agreement.
Section 1.6 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained herein,
Dissenting Shares shall not be converted into or be exchangeable for the right
to receive shares of Xxxxxxx Stock and cash in lieu of fractional shares, unless
and until the holder thereof shall have effectively withdrawn or lost his right
to dissent from the Merger.
(b) Welkin shall give Xxxxxxx (i) prompt notice of any written
objection, notice, withdrawal of objections or notices, and any other instrument
served pursuant to Sections 13.1-729 or 13.1-741 of the VSCA and received by
Welkin, and (ii) the opportunity to direct all negotiations and proceedings with
respect to holders of Dissenting Shares. Welkin shall not voluntarily make any
payment with respect to any demands for payment for shares under any of Sections
13.1-729 through 13.1-741 of the VSCA and will not, except with the prior
written consent of Xxxxxxx, settle or offer to settle any such demands.
Section 1.7 Shareholder Approval. The Board of Directors of Welkin
shall cause a special meeting of shareholders of Welkin to be duly held as soon
as practicable after the execution hereof (the "Welkin Shareholders' Meeting").
This Agreement shall be submitted to such shareholders meeting for the purpose
of considering its approval. The Board of Directors of Welkin shall recommend to
its shareholders approval of this Agreement and the transactions contemplated
herein.
Section 1.8 Stock Transfer Books. At the Merger Date, the stock
transfer books of Welkin shall be closed and no transfer of Welkin Stock shall
thereafter be made.
Section 1.9 Welkin Shareholder Representative.
(a) The proxy submitted to the Welkin Shareholders in
connection with the Welkin Shareholders' Meeting shall include a proposal to
constitute and appoint Xxxx X. Xxxx, Xx. (the 'Representative') to act as the
respective agent, representative, and attorney-in-fact of the Welkin
Shareholders (other than holders of Welkin Dissenting Shares) for all purposes
and with respect to all matters arising under this Agreement. The powers and
authority of the Representative shall include, but not be limited to, the power
and authority to give and accept notices as provided hereunder, execute on
behalf of the Welkin Shareholders the Escrow Agreement, exercise all of the
rights, powers, and duties of the Representative set forth in the Escrow
Agreement and the Shareholders' Letter Agreement, and carry out the purposes and
intent of this Agreement.
(b) The Representative shall be entitled to rely on any
communication or document that he believes to be genuine. Neither the
Representative nor any of his employees, attorneys, and other agents shall be
liable to any Welkin Shareholder for any action or omission on their respective
parts except for gross negligence or willful misconduct. In his capacity as the
Representative, Xxxx X. Xxxx, Xx. will be acting for the convenience of the
non-dissenting Welkin Shareholders, without compensation, and, in such capacity,
he shall have no duties or liabilities beyond those expressly assumed by him in
this Agreement and the Escrow Agreement. As the Representative, Xxxx X. Xxxx,
Xx. shall not be required to make any inquiry or investigation concerning any
matter other than those expressly contemplated hereunder, nor shall he, in such
capacity, be deemed to have made any representation or warranty of any kind to
any person. The Representative shall be indemnified against any liabilities
resulting from his role as Representative by the Welkin Shareholders, except to
the extent caused by or arising out of the Representative's gross negligence or
willful misconduct. In the event of death, resignation, or incapacity of Xxxx X.
Xxxx, Xx., a majority of the Welkin Shareholders shall elect a successor
Representative who shall have all of the rights, powers, and duties of the
Representative set out herein and in the Escrow Agreement.
Section 1.10 Closing. The closing (the 'Closing') of the Merger shall
take place at the offices of Xxxxxxx Xxxxxx & Green in Washington, D.C. at 10:00
a.m. local time on the Merger Date which shall occur as promptly as possible
after the date the conditions specified in Articles VI and VII hereof are
satisfied or at such other time and place as Welkin, Merger Sub, and Xxxxxxx
shall agree in writing. The obligations of Welkin, Merger Sub, and Xxxxxxx shall
be subject to satisfaction, unless waived, of the applicable conditions set
forth in this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WELKIN
Welkin represents and warrants to Xxxxxxx as follows:
Section 2.1 Authorized and Outstanding Common Stock. As of the date
hereof and as of the Closing, the issued and outstanding capital stock of Welkin
and the number of shares of authorized capital stock of Welkin are and will be
as follows:
Designation Number of Shares Number of Shares Number of Shares
Authorized Issued and Subject to Options
Outstanding
--------------------------------------------------------------------------------
Common Stock 50,000__________ 36,603_________ 2,508
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All of the issued and outstanding shares of Welkin Stock are validly issued,
fully paid and non-assessable. Set forth on Schedule 2.1, Welkin Shareholders
and Number of Shares on Merger Date, on the date hereof and as of the Closing
are the number of Shares held by each Welkin Shareholder and the number of
shares of Welkin Stock subject to Welkin Options held by each Welkin Option
holder. Welkin has and at Closing will have no other authorized, issued or
outstanding shares of capital stock nor any outstanding securities, bonds,
convertible securities, subscription agreements, warrants, options, buy-sell
agreements, or other liens, agreements or commitments relating to Welkin's
capital stock. Identified on Schedule 2.1, Welkin Shareholders and Number of
Shares on Merger Date, are those Welkin Shareholders who are 'affiliates' of
Welkin under Rule 145(c) as defined in Rule 405 of the Rules and Regulations of
the Securities and Exchange Commission under the Securities Act of 1933.
Section 2.2 Organization and Standing. Welkin is and will be at Closing
a corporation duly organized, validly existing and in good standing under the
laws of the State of Virginia, and will be at Closing duly qualified to do
business in and in good standing as a foreign corporation in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification, except where the lack of such qualification would
not have a material adverse effect on the financial condition of Welkin taken as
a whole. No jurisdiction where it is not presently qualified as a foreign
corporation has made any assertion to Welkin that its business or operations or
ownership of property makes qualification as a foreign corporation in such
jurisdiction necessary. Welkin has all requisite corporate power and authority
to own, lease and operate its properties and carry on its business as and where
it is now being conducted. A copy of Welkin's Articles of Incorporation and all
amendments thereto as of the date hereof and a copy of its Bylaws, as amended to
the date hereof (both certified by the Secretary), have been furnished to
Xxxxxxx and are true, accurate and complete as of the date hereof. Welkin owns
no stock or securities of any other corporation or entity, except as shown on
Schedule 2.9(a), Affiliates of Welkin.
Section 2.3 No Violation. Except as disclosed in Schedule 2.3,
Violations, the execution, delivery and performance of this Agreement by Welkin
and the consummation of the transactions contemplated hereunder will not, with
or without the giving of notice or the passage of time or both, (i) violate,
conflict with, or constitute a default (or cause an acceleration) under Welkin's
Articles of Incorporation or Bylaws or any material contract, note, lien,
security agreement, license, permit, or instrument to which Welkin is a party or
by which Welkin or its shareholders are bound or which may affect any of the
assets, business or operations of Welkin, (ii) result in the creation or
imposition of any lien, claim, charge or encumbrance upon any of Welkin's
properties or assets, or (iii) constitute a violation of any statute, ordinance,
judgment, order, decree, regulation, rule or law of any court, government,
authority or arbitrator applicable to or relating to Welkin or any of the
assets, business or operations of Welkin. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which Welkin is a party constitutes the
valid and legally binding obligations of Welkin enforceable against it in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally, and equitable principles. Except
as disclosed on Schedule 2.3, Violations and Schedule 2.20, Governmental
Approvals, and except for the approval of this Agreement by the Welkin
Shareholders and the filing of the Articles of Merger with the State Corporation
Commission of the Commonwealth of Virginia, there are no consents, waivers or
approvals of persons or authorities required in connection with the consummation
of the transactions contemplated by this Agreement and the other agreements
referenced herein.
Section 2.4 Financial Statements.
(a) Annexed hereto as Schedule 2.4(a), Financial Statements,
are financial statements of Welkin (the "Financial Statements") consisting of:
(i) the unaudited balance sheet of Welkin at May 31, 1998 (the 'Interim Balance
Sheet'), together with the related statements of income and stockholders' equity
for the two (2) month period ended May 31, 1998, and (ii) the audited balance
sheets of Welkin at March 31, 1996, 1997, and 1998, together with the audited
and related statements of income, stockholders' equity and cash flows of Welkin
for such periods.
(b) Except as disclosed in Schedule 2.4(b), Exceptions to
Financial Statements, all of the foregoing Financial Statements, in each case,
have been prepared in conformity with generally accepted accounting principles
('GAAP') applied on a consistent basis throughout the periods involved and with
prior periods except as otherwise expressly stated therein and fairly present
the assets, liabilities and financial condition and results of operations of
Welkin at, or for the periods ended at, the dates thereof; provided, however,
that the Interim Balance Sheet and the related statements of income,
stockholders' equity and cash flows are subject to normal year-end adjustments
and lack footnotes and other presentation items.
Section 2.5 Liabilities. There are no material debts, liens, security
interests, claims, liabilities or obligations of Welkin, whether accrued,
contingent, absolute, direct or indirect, or matured or unmatured, including,
but not limited to, liabilities for taxes, interest and penalties, except (i) as
and to the extent reflected or reserved against in the Interim Balance Sheet;
(ii) incurred in the ordinary course of business and not material in amount; and
(iii) those disclosed on Schedule 2.5, Liabilities.
Section 2.6 Accounts Receivable. All of the accounts receivable of
Welkin are actual bona fide receivables representing obligations for the total
dollar amount thereof as shown on the Financial Statements and books of Welkin
which resulted from the ordinary course of business of Welkin, and are stated on
the Financial Statements net of an appropriate reserve for bad debt and
noncollectible accounts.
Section 2.7 Fixed Assets and Inventory.
(a) The dollar amount of the fixed assets owned by Welkin as
shown on the Interim Balance Sheet and as acquired thereafter and treated on the
books of Welkin as an asset does not exceed the cost of same, less depreciation
determined in accordance with GAAP consistently applied, and Welkin has not
written up the value of any such fixed assets. The fixed assets and inventory of
Welkin as of the date of the Interim Balance Sheet include those items set forth
in Schedule 2.7(a), Assets and Inventory, hereto, and, at Closing, such fixed
assets and inventory shall be in existence, except for fixed assets and
inventory sold or otherwise disposed of in the ordinary course of business. The
fixed assets of Welkin are in good working order, reasonable wear and tear
excepted.
(b) Welkin is not under any liability or obligation with
respect to the return of payments and, for the twelve month period immediately
prior to the Closing, Welkin has not experienced any claims with respect to
defective or unsatisfactory services or products except as specifically set
forth on Schedule 2.7(b), Defective or Unsatisfactory Services or Products
Claims. The inventory of Welkin existing on the Closing shall have been acquired
in the ordinary course of Welkin's business.
Section 2.8 Contracts.
(a) Except as provided in 2.8(d) below, Schedule 2.8,
Contracts, contains a list of all material verbal or written (i) leases, (ii)
contracts (including employment and independent contractor and professional
contracts), (iii) agencies, (iv) purchase orders, (v) marketing or referral
agreements, (vi) software agreements (including software license agreements),
(vii) maintenance or support agreements, (viii) training agreements, (ix)
royalty agreements, (x) employee benefit, bonus or compensation agreements, (xi)
bids, (xii) government contracts, (xiii) computer software agreements, (xiv)
contracts for the furnishing of all services, (xv) all contracts for referrals,
(xvi) all contracts to obtain supplies or services, (xvii) subcontracts, (xviii)
teaming agreements, and (xix) all other agreements or understandings between
Welkin and any other party or person (collectively, "Contracts"), which are not
otherwise attached to any other Schedules of this Agreement. Such list includes
completed Contracts where the services have been performed but the obligor has
not paid. True, correct and complete copies of all of the written Contracts
listed on Schedule 2.8, Contracts, have been made available for inspection by
Xxxxxxx.
(b) Welkin's standard agreements identified on Schedule
2.8(b), Welkin's Standard Agreements, have been made available to Xxxxxxx for
inspection.
(c) Since the Interim Balance Sheet, Welkin has not entered
into any Contracts not in the ordinary course of business except as listed in
Schedule 2.8(c), Contracts Not in the Ordinary Course of Business. Except for
the contracts disclosed on Schedule 2.8(c), Contracts Not in the Ordinary Course
of Business, none of the Contracts to which Welkin is a party or to which it is
subject or by which it is bound requires the consent of any other person for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. Each of the Contracts to which Welkin is a party or to
which it is subject or by which it is bound, to the extent not otherwise already
fully performed by Welkin, is a valid and existing contract of Welkin in full
force and effect without modification, enforceable against Welkin in accordance
with its terms, and Welkin does not have any knowledge that any Contract is not
a valid and existing contract of the other parties thereto in full force and
effect without modification and there are no pending or, to Welkin's knowledge,
threatened disputes thereunder, and all will continue to be binding (except as
to which the enforceability is limited by bankruptcy laws and equitable
principles) in accordance with their terms after consummation of the
transactions contemplated hereby and each is with unrelated and unaffiliated
third parties and was entered into on an arms-length basis in the ordinary
course of business, except as to agreements with Welkin Shareholders listed in
Schedule 2.8, Contracts. Except as disclosed in Schedule 2.8, Contracts, Welkin
has timely performed all material obligations required to be performed by it and
is not in material default under any verbal or written Contract to which it is a
party or to which it is subject or by which it is bound and no event has
occurred which, with or without the lapse of time or the giving of notice, or
both, or action by a third party, could result in a material default under any
of the forgoing. To Welkin's knowledge, no other party is in default under any
such Contract. None of the contracts provide for a scope of work substantially
greater than the scope of work of any contracts that Welkin has completely
performed.
Section 2.9 Corporate Actions. The minute books of Welkin contain
appropriate corporate minutes and authorizations for all material corporate
actions taken by Welkin's Board of Directors, its officers, and shareholders.
Welkin does not own any stock or otherwise possess ownership rights in any other
corporation or organization and has no affiliates (other than Welkin
Shareholders), except as disclosed in Schedule 2.9(a), Affiliates of Welkin.
Attached hereto as Schedule 2.9(b), Directors and Officers of Welkin, is a list
of directors and officers of Welkin.
Section 2.10 Intellectual Property Rights. Schedule 2.10, Intellectual
Property Rights, hereto sets forth a true and materially complete list of all
trademarks, service marks, trade name, patents, patent applications, copyrights,
and copyright applications heretofore or presently used or required to be used
by Welkin in connection with its business (collectively "Intellectual Property
Rights"). All Intellectual Property Rights are owned solely and exclusively by
Welkin, except for those rights identified on Schedule 2.10, Intellectual
Property Rights, as licensed by Welkin from third parties and are not subject to
any license, lien, royalty arrangement or pending or, to Welkin's knowledge,
threatened dispute, except as disclosed on Schedule 2.10, Intellectual Property
Rights. Except as disclosed in Schedule 2.10, Intellectual Property Rights, to
Welkin's knowledge, no product or service marketed, manufactured, sold or
licensed, and no marketing, service or process used by Welkin infringes any
Intellectual Property Rights of others and no product or service marketed, or
process used by any other person, firm, corporation or other entity infringes
any Intellectual Property Rights heretofore or presently used or required to be
used by Welkin. Except as set forth on Schedule 2.10, Intellectual Property
Rights, Welkin has not received notification of infringement by Welkin of any
Intellectual Property Right of others. No trademark, service xxxx or trade name
used by Welkin infringes any trademark, service xxxx or trade name of others in
the United States of America or any foreign country. None of the Intellectual
Property Rights is subject to any outstanding order, decree, judgment,
stipulation or charge. No other material intellectual property rights are
necessary for the conduct of the Welkin Business. Except as disclosed on
Schedule 2.10, Intellectual Property Rights, all rights of Welkin in and to its
Intellectual Property Rights will not be adversely affected by the Merger.
Section 2.11 Insurance Policies. Schedule 2.11, Insurance Policies and
Claims, hereto, sets forth a list of all business insurance policies held or
owned by Welkin or which name Welkin as beneficiary, and true and correct copies
of all such policies have heretofore been made available to Xxxxxxx. All
premiums due thereon prior to the Closing have been paid. All the insurance
policies listed in Schedule 2.11, Insurance Policies and Claims, will remain in
full force and effect during the period immediately following the Closing. There
are no pending material claims under such insurance policies. Schedule 2.11,
Insurance Policies and Claims, also sets forth all claims filed during the past
twelve (12) months with respect to insurance policies maintained by Welkin.
Section 2.12 Backlog. The backlog of orders, sales and service
commitments of Welkin is set forth on Schedule 2.12, Backlog, and such backlog,
together with all Contracts to which Welkin is a party, consist of contracts for
services of Welkin which are typical of the types of services heretofore
marketed, sold or rendered by Welkin and which do not require the development or
application of any materially new or materially more advanced technology or
service than that utilized by Welkin in the past. No purchase or expansion of
property (other than purchases of inventory consistent with Welkin's past
ordinary course of business), plant, equipment or capacity is needed to timely
fill the current backlog and current Contracts.
Section 2.13 Compensation. Set forth on Schedule 2.13, Employee
Compensation and Bonuses, is a list of the names, age, title, total annual
compensation, date of last salary or hourly rate adjustment and amount thereof,
and length of time in current position of all employees of Welkin, including a
list of paid leave as of May 31, 1998. Welkin has not entered into any
commitments or understandings with any employee concerning future compensation,
bonuses and benefits of a material nature to be paid after May 31, 1998, except
as set forth on Schedule 2.13, Employee Compensation and Bonuses, and there are
no employment agreements, written or verbal, except as set forth on Schedules
2.8, Contracts and/or 2.16(a), Written and Oral Employee Contracts with Welkin
and except for the employment contracts delivered with this Agreement. All
employees of Welkin are "at will" and may be terminated at any time by Welkin,
except as set forth on Schedule 2.16(a), Written and Oral Employee Contracts
with Welkin.
Section 2.14 Employee Benefits.
(a) Set forth on Schedule 2.14(a), Employee Benefit Plans, is
a materially accurate and complete list of all material employee benefit plans
("Plans") within the meaning of Section 3(3) of the Employee Retirement Income
Security Act ("ERISA"), whether or not any such Plans are otherwise exempt from
all or part of the provisions of ERISA, established, maintained or contributed
to for the benefit of Welkin's employees, and a list of Pension Plans terminated
prior to the date hereof.
(b) Except as set forth in Schedule 2.14(b), Plans Not In
Compliance with ERISA, Welkin does not maintain, cause to be maintained or
contribute to any Plan subject to ERISA which is not, or in the past has not
been in substantial compliance with ERISA or the Internal Revenue Code of 1986
(the "Code"), or which has incurred any accumulated funding deficiency within
the meaning of Section 412 or 418(b) of the Code, or which has applied for or
obtained a waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code. Except as set forth on Schedule
2.14(b), Plans Not In Compliance with ERISA, Welkin has not incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC") in connection
with any Plan covering any employees of Welkin.
(c) Welkin has caused the "group health plan," as such term is
defined in Section 162(i)(3) of the Code, to be maintained, administered and
operated in all material respects in compliance with the applicable requirements
of Section 601 of ERISA and Section 162(k) of the Code, and Welkin has no
liability, including, but not limited to, additional contributions, fines,
penalties or loss of tax deduction as a result of such administration and
operation. Welkin does not maintain any Plan (whether qualified or nonqualified
within the meaning of Section 401(a) of the Code) providing for retiree health
and/or life benefits.
(d) Except as disclosed on Schedule 2.14(d), Employee Benefit
Plan Amendments, none of the Plans have been amended subsequent to the date as
of which copies thereof have been provided to Xxxxxxx except as required by law.
(e) Each Plan intended to be qualified under Section 401(a) of
the Code has been determined to be so qualified by the Internal Revenue Service
and nothing has occurred since the date of the last such determination which
resulted or is likely to result in the revocation of such determination.
(f) The execution of, and consummation of the transactions
contemplated by this Agreement, do not constitute a triggering event under any
Plan, policy, arrangement, statement, commitment or agreement, which will or may
result in any payment (whether of severance pay or otherwise), acceleration,
vesting or increase in benefits to any employee or former employee or director
of Welkin.
(g) Welkin has made available for inspection and copying by
Xxxxxxx true and complete copies of (i) all Plans as now in effect, together
with all amendments thereto which will become effective at a later date, and
(ii) Form 5500 for the most recent completed fiscal year for each Plan required
to file such form.
(h) Xxxxxxx has requested that after the Merger Welkin change
its fiscal year to a fiscal year ending August 31. As a result of this change in
Welkin's fiscal year, all of the current fiscal year for the Plans will be a
"stub" year ending August 31, 1988. To the extent that the foregoing causes a
breach of any of the warranties in this Agreement or an economic loss to any
person, the parties hereto acknowledge and agree that the Welkin Shareholders
will not be responsible for any such breach or loss.
(i) Xxxxxxx acknowledges that the employee benefits currently
offered by Welkin are substantially greater than the employee benefits currently
offered by Xxxxxxx, which benefits will be offered to the current Welkin
employees after the Closing. To the extent that the decrease in employee
benefits offered to the current Welkin employees after the Closing results in
any loss, harm or damage to Xxxxxxx or Welkin after the Closing, including,
without limitation, the loss of the services of any employee, the parties hereto
acknowledge and agree that the Welkin Shareholders will not be responsible for
any such loss, harm or damage.
Section 2.15 Environmental Matters.
(a) Welkin holds and is in substantial compliance with all
material environmental permits, certificates, licenses, approvals, registrations
and authorizations ("Permits") required under all applicable environmental laws,
rules and regulations in connection with its business as currently operated, and
all of such Permits are in full force and effect. To Welkin's knowledge, without
independent investigation, Welkin has complied with in all material respects,
and is not in violation of any, material applicable environmental statutes,
rules, regulations, ordinances and orders of any authority, including, those
relating to Hazardous Substances (as defined below).
(b) To Welkin's knowledge, without independent investigation,
no notice, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending
or, to Welkin's knowledge, threatened by any authority with respect to (i) any
alleged violation by Welkin of any environmental statute, ordinance, rule,
regulation or order of any authority; or (ii) any alleged failure by Welkin to
have any environmental Permit, certificate, license approval, registration or
authorization required in connection with its business; or (iii) any use,
generation, treatment, storage, recycling, transportation or disposal
(collectively, "Management Activities" with respect to Hazardous Substances) of
any hazardous substance, hazardous waste, hazardous materials, toxic substance,
pollutants or contaminants as defined in federal, state or local laws,
ordinances or regulations and including petroleum products and radioactive
materials generated or used (collectively, "Hazardous Substances") by Welkin.
Hazardous Substances shall not include office products, equipment, supplies and
cleaning fluids customarily found in a commercial office setting.
(c) Welkin has not received any request for information,
notice of claim, demand or notification that it is or may be potentially
responsible with respect to any investigation or clean-up of any threatened or
actual release of any Hazardous Substance.
(d) Except as set forth on Schedule 2.15(d), Management
Activities Regarding Hazardous Substances, Welkin has not conducted any
Management Activities, whatsoever, with respect to any Hazardous Substances on
its properties, identified on Schedule 2.17, Assets, Liens and Encumbrances of
Welkin, or the properties of another.
(e) Except as set forth on Schedule 2.15(e), PCBs or Asbestos
Insulation Present at Welkin Facilities, hereto, to Welkin's knowledge, without
independent investigation, no polychlorinated biphenyls ("PCBs") or asbestos
insulation is or has been present at the facilities leased by Welkin.
(f) Hazardous Substances, if any, for which Welkin performs
Management Activities (if any) are listed on Schedule 2.15(f), Hazardous
Substances Generated by Welkin, and any Hazardous Substances listed on Schedule
2.15(f), Hazardous Substances Generated by Welkin, to Welkin's knowledge,
without independent investigation,, have been generated by Welkin in regulated
quantities and have been recycled, treated, stored, disposed of or transported,
as applicable, in substantial compliance with all applicable laws.
(g) Except as set forth on Schedule 2.15(g), Hazardous
Substances Transported, Welkin has not transported any Hazardous Substances or
arranged for the transportation of such substances to any location which is
listed or proposed for listing under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. " 9601-9657 ("CERCLA"), or on
any similar state list.
(h) No Hazardous Substance has been released, spilled, leaked,
discharged, disposed of, pumped, poured, emitted, emptied, injected, leached,
dumped or allowed to escape ("Releases") by Welkin from, at, on or under the
properties leased by Welkin. To Welkin's knowledge, no employee of Welkin in the
course of his or her employment has been exposed to any chemical or other
Hazardous Substance or material produced by Welkin which could give rise to a
claim against Welkin.
(i) No oral or written notification of a Release or threat of
Release of a Hazardous Substance has been filed by or on behalf of Welkin or, to
Welkin's knowledge, without independent investigation, any other person in
relation to any properties now or previously owned, operated or leased by
Welkin. No such properties are listed or proposed for listing on the National
Priority List promulgated pursuant to CERCLA, or on any similar state list of
sites requiring investigation or clean-up.
(j) To Welkin's knowledge, without independent investigation,
there are no environmental liens on the properties of Welkin, and no government
actions have been taken or are in process or pending which could subject
Welkin's properties to such liens. To Welkin's knowledge, without independent
investigation, Welkin or any other person (solely as a result of the acts or
omissions of Welkin) would not be required to place any notice or restriction
relating to the presence of Hazardous Substance in the deed to any properties
leased to Welkin.
(k) In respect of environmental matters, no consent, approval
or authorization of, or registration or filing, with any person or authority is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(l) There have been no environmental inspections,
investigations, studies, audits, tests, reviews or other analyses conducted by
or on behalf of Welkin in relation to Welkin's properties or operations.
(m) To Welkin's knowledge, without independent investigation,
there are no facts or circumstances related to environmental matters concerning
the properties or businesses of Welkin that could lead to any future material
environmental claims, liabilities or responsibilities of Xxxxxxx or Welkin.
Section 2.16 Labor and Employment Matters.
(a) Schedule 2.16(a), Written and Oral Employee Contracts With
Welkin, hereto contains a complete and correct list of all written and oral
contracts with employees of Welkin (inclusive of officers and directors)
together with all bonus, stock option, and other incentive arrangements, pension
and retirement plans, profit sharing plans, group or individual medical, health,
dental, accident, life and other employee benefit insurance and other employee
compensation or benefit plans, arrangements, understandings or policies (whether
written or oral), except as otherwise disclosed pursuant to Sections 2.8, 2.13
or 2.14 hereto, affecting employees of Welkin, Welkin is not in default under
any of the foregoing. There have been no claims of default under any of the
foregoing and there are no facts or conditions which, with or without the
passage of time or the giving of notice or both, would constitute or result in a
default under any of the foregoing. True and complete copies of all the
foregoing have heretofore been delivered by Welkin to Xxxxxxx.
(b) Schedule 2.16(b), Written and Unwritten Employee Policies
and Practices, identifies all written and material unwritten policies and
practices describing termination payments and benefits to terminated employees
of Welkin.
(c) Except as set forth on Schedule 2.16(c), Noncompliance
With Federal, State, Local or Other Applicable Laws, Welkin is in compliance in
all material respects with all federal, state, local or other applicable laws or
requirements of any governmental, regulatory or administrative authority or
court respecting preemployment and employment practices, terms and conditions of
employment and wages and hours and occupational safety and health, including,
but not limited to, the National Labor Relations Act, the Fair Labor Standards
Act (including the Equal Pay Act), Title VII of the Civil Rights Act of 1964,
the Occupational Safety and Health Act of 1970, the Service Contract Act, the
Contract for Work Hours and Safety Standards Act, the Rehabilitation Act of
1973, the Vietnam ERA Veterans Readjustment Assistance Act of 1974, Executive
Order 11246, the Employees Retirement Income Security Act of 1974, and state and
local employment, unemployment and worker's compensation statutes, and Welkin is
not engaged in any unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act. Welkin is not party to any collective bargaining
agreement and, to Welkin's knowledge, no union organizational efforts are
currently in progress.
(d) Except as disclosed in Schedule 2.16(d), Threatened or
Pending Employment Practices Litigation and Schedule 2.24, Litigation and
Compliance, there is no administrative or private claim, charge, complaint,
dispute, action, grievance, suit, administrative, arbitration or other
proceeding or investigation, pending or, to Welkin's knowledge, threatened
against Welkin relating to any of the items or matters referenced in
subparagraph (c) directly above, or with regard to any allegedly accrued or
vested employee benefits or any other common or statutory law claim involving
tort, contract, or equity.
(e) There is no labor strike, dispute, slowdown or stoppage
actually pending or, to Welkin's knowledge, threatened against Welkin, and no
such strike, dispute, slowdown, or stoppage has been experienced by Welkin since
the date of Welkin's incorporation.
(f) Except as disclosed on Schedule 2.16(f), Threatened or
Pending Discrimination Litigation, there are no charges, administrative
proceedings, investigations or formal complaints of discrimination pending or,
to Welkin's knowledge, threatened before the Equal Employment Opportunity
Commission ("EEOC") or any federal, state or local agency or court. There are no
pending or, to Welkin's knowledge, threatened audits of the equal employment
opportunity practices of Welkin.
Section 2.17 Title to Assets, Liens and Encumbrances.
(a) Welkin is the owner of, and has good and marketable title
to, free and clear of all security interests, mortgages, pledges, liens, claims,
restrictions, equities, easements, rights-of-way, rights of first refusal and
any other encumbrances and charges whatsoever, or is the lessee of, all of its
respective property and assets, except for the Permitted Liens (as hereinafter
defined) and except as set forth on Schedule 2.17(a), Assets, Liens and
Encumbrances of Welkin hereto. Welkin owns or leases all of the assets used by
it in the operation and conduct of its business or required by Welkin for the
normal conduct of its business.
"Permitted Liens" shall mean:
(i) carriers', warehousemen's, mechanics',
materialmen's, repairmen's, or other like liens arising in the ordinary course
of business;
(ii) easements, rights-of-way, restrictions,
license rights, leases and other sim ilar encumbrances incurred in the
ordinary course of business which do not in any case materially detract from
the value of the property subject thereto or interfere with the ordinary
conduct of the business of Welkin;
(iii) pledges or deposits in connection with
workers' compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
self-insurance arrangements;
(iv) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in theordinary course of business; and
(v) purchase money security interests in
respect of new equipment in an aggregate amount not in excess of $25,000
at any time.
(b) Schedule 2.17(b), Real Property Leases, sets forth a true
and complete list and description of all real property, land, buildings and
improvements leased by Welkin as of the Closing. True and correct copies of all
leases with respect to the property listed on Schedule 2.17(b), Real Property
Leases, have heretofore been made available to Xxxxxxx for inspection and
copying. Except as disclosed in Schedule 2.17(b), Real Property Leases, all such
real property, land and buildings used or leased by Welkin as of the Closing are
used by or useful to Welkin in the ordinary course of business, and the use and
occupancy by Welkin conforms in all material respects with all applicable laws,
and, to Welkin's knowledge, the same are in good operating condition. Welkin
owns no real property, land, buildings or improvements.
(c) Except as set forth on Schedule 2.17(c), Noncompliance
with Respect to Real Property, Welkin has not received any notices of violations
of law, governmental orders, ordinances or requirements issued by any national,
federal, state, municipal or other governmental, department or authority or
corresponding foreign governmental instrumentality or any fire department or
insurance carrier, that would have a material adverse effect or purport to have
a material adverse effect on the use and occupancy of the real property used or
leased by Welkin. Copies of all real property leases to which Welkin is a party
have been made available for inspection by Xxxxxxx.
(d) The leases described in Schedules 2.8, Contracts Delivered
to Xxxxxxx or 2.17(b), Real Property Leases, are in full force and effect on the
Closing without any material default or breach by Welkin or, to Welkin's
knowledge, any lessor.
(e) Welkin has not received any notice of any requirements or
recommendations by any insurance company which has issued a policy covering any
part of the real property used or leased by Welkin or by any board of fire
underwriters or other body or authority exercising similar functions, requiring
or recommending any repairs or work to be done on any part of said real
property.
(f) Schedule 2.17(f), Personal Property Leases, lists
all personal property leased by Welkin.
Section 2.18 Customer Claims and Complaints. Except as disclosed on
Schedule 2.18, Customer Claims and Complaints, and the Financial Statements,
Welkin has no liability or obligation with respect to the return of any funds
because of products or services provided by it and has not experienced any
material claims with respect to its products or services other than in the
ordinary course during the thirty-six (36) months immediately preceding the
execution of this Agreement. No customer, client, or contracting party has
requested that performance under any contract or other agreement be canceled or
delayed for any period of time. No customer liability claim is presently pending
or, to Welkin's knowledge, threatened against Welkin. Welkin has not experienced
any warranty claims for products or services in the past three (3) years, except
as disclosed on Schedule 2.18, Customer Claims and Complaints.
Section 2.19 Secrecy and Non-Competition Agreements. Welkin has not
entered into any secrecy or non-competition agreements with any person with
respect to the Welkin Business except as disclosed on Schedule 2.19, Secrecy and
Non-Competition Agreements.
Section 2.20 Governmental Approvals. Except as disclosed on Schedule
2.20, Governmental Approvals, no authorization, novation, approval, order,
license, permit, franchise, or consent and no registration, declaration or
filing by Welkin with any governmental authority is required in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
Section 2.21 Orders, Decrees, Etc. Except as set out in Schedule 2.21,
Orders, Decrees, Etc., there are no orders, writs, decrees, injunctions, or
rulings of any court, authority, arbitration tribunal, or any governmental
department, commission, board, agency or instrumentality, domestic or foreign,
issued, or pending or, to Welkin's knowledge, threatened against, nor consents
binding on, Welkin, and any officer, director or employee of Welkin, which do or
may affect, limit or control Welkin or any of its assets or Welkin's method or
manner of doing business.
Section 2.22 Compliance with the Law. Except as otherwise disclosed in
the Schedules hereto, Welkin is in material compliance with all foreign,
federal, state and local laws, rules, orders and regulations, including, but not
limited to those relating to the Code, antitrust, occupational safety and
health, environmental protection, water or air pollution, ERISA, toxic and
hazardous waste and controlled substances, consumer product safety, product
liability, employment and employment practices, term and conditions of
employment, bidding and contracting procedures, dealings with federal, state,
governmental, municipal or local authorities, hiring, wages, hours, employee
benefit plans and programs, collective bargaining and withholding and social
security taxes, and it has received no notices of alleged violations thereof. No
governmental authorities are presently conducting proceedings against Welkin,
and, to Welkin's knowledge, no such investigation or proceeding is threatened.
Except as disclosed on Schedule 2.22, Compliance with the Law, Welkin has
obtained all material permits, licenses and authorizations required for the
conduct of its affairs as currently conducted, and all of such permits, licenses
and authorizations will remain in full force and effect following such
consummation. True, complete and correct copies of the foregoing permits,
licenses and authorizations, if any, have been made available for inspection by
Xxxxxxx.
Section 2.23 Actions Not in Ordinary Course and No Material Change.
Except as set forth on Schedule 2.13, Employee Compensation and Bonuses, since
the date of the Interim Balance Sheet, Welkin has conducted its business in a
manner consistent with past practice. Since the Interim Balance Sheet, the
business of Welkin has been operated only in the regular and ordinary course and
there has been no materially adverse change in the financial condition or
business of Welkin. Except as set forth in Schedule 2.23, Actions Not in the
Ordinary Course and as otherwise required by the terms and provisions of this
Agreement, since the date of the Interim Balance Sheet, Welkin has not:
(a) Except in the usual and ordinary course of its businesses,
consistent with past practice, incurred any indebtedness or other liabilities
(whether accrued, absolute, contingent or otherwise), guaranteed any
indebtedness or sold any of its assets;
(b) Suffered any damage, destruction or loss, whether or
not covered by insurance;
(c) Except as disclosed pursuant to Section 2.13, and except
for the award of employee bonuses consistent with past Welkin compensation
practices, increased the regular rate of compensation payable by it to any
employee, or increased such compensation by bonus, percentage, compensation
service award or similar or other arrangement theretofore or thereafter in
effect for the benefit of any of its employees, and no such increase is
required;
(d) Established or agreed to establish any pension, retirement
or welfare plan for the benefit of its employees not heretofore in effect;
(e) Suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate has had a material adverse
effect on Welkin;
(f) Experienced any labor organizational efforts or complaints
or entered into any collective bargaining agreements with any union;
(g) Made any single capital expenditure which exceeded $25,000
or made any capital expenditures in the aggregate which exceed $100,000;
(h) Permitted or allowed any of the assets (real, personal or
mixed, tangible or intangible) of Welkin to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind
other than Permitted Liens;
(i) Written down the value of any assets or written off as
uncollectible any notes or accounts receivable or contracts, except for
write-downs and write-offs in the ordinary course of business and consistent
with past practice;
(j) Paid, discharged or satisfied any claims, liabilities or
obligations other than in the usual and ordinary course of business;
(k) Canceled any debts or claims or waived any claims or
rights, except in the usual and ordinary course of business and except as
required by the Agreement;
(l) Paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with
any of the Welkin Shareholders or their affiliates, or any of the officers or
directors of Welkin or their affiliates, except for reimbursement of ordinary
and reasonable business expenses related to the business of Welkin;
(m) Amended or terminated any contract, agreement or
license of significant value, to which Welkin is a party, except in the
ordinary course of business;
(n) Made any change in any method of accounting or
accounting practice;
(o) Canceled or failed to continue insurance coverage, other
than key man life insurance;
(p) Acquired, whether by merger, purchase of stock or purchase
of assets, all or substantially all of the business or assets of any other
business or entity, or engaged in negotiations of any sort concerning such
acquisition or acquired assets;
(q) Issued any stock, any option to acquire stock or other
securities, or taken any action with respect thereto, or declared or paid any
dividends, or made or authorized any other distributions to the Welkin
Shareholders with respect to their Welkin Stock;
(r) Amended or repealed its Articles of Incorporation or
Bylaws;
(s) Agreed, whether in writing or otherwise, to take
any action described in this Section 2.23.
Section 2.24 Litigation. Except as set forth on Schedule 2.24,
Litigation and Compliance hereto, there is no litigation, proceeding,
arbitration, governmental claim or investigation instituted, pending or, to
Welkin's knowledge, threatened, against or affecting Welkin or the assets of
Welkin or which questions or challenges the validity of this Agreement or any
action taken or to be taken pursuant to this Agreement.
Section 2.25 Taxes and Tax Returns.
(a) Welkin's federal and state income, franchise, share and ad
valorem tax returns for the fiscal years ended March 31, 1995, 1996, 1997, and
1998, have been made available for inspection by Xxxxxxx. Welkin does not
currently owe any taxes not reflected on the Interim Balance Sheet or incurred
thereafter in the ordinary course of business.
(b) Except as set forth on Schedule 2.25, Taxes attached
hereto:
(i) Within the times and in the manner
prescribed by law Welkin has filed all federal, state and local tax returns
and extensions and all tax returns for other governing bodies having
jurisdiction to levy taxes which are required to be filed;
(ii) Welkin has paid all taxes, interest, penal-
ties, assessments and deficiencies which have been shown on such returns to be
due, or which have been claimed to be due or which were due prior to Closing
unless Welkin is contesting in good faith such tax, interest, penalty,
assessment or deficiency and such contested amounts are reserved against on the
Interim Balance Sheet;
(iii) To Welkin's knowledge, all tax returns or
extensions, if any, filed by Welkin constitute complete and accurate
representations of the tax liabilities of Welkin for the periods covered
thereunder and accurately set forth all items (to the extent required to be
included or reflected in such returns) relevant to Welkin's past tax
liabilities;
(iv) Welkin has not waived or extended any
applicable statute of limitations relating to the assessment of federal,
state, local or foreign taxes;
(v) No examinations of the federal, state,
local or foreign tax returns of Welkin are currently in progress or, to
Welkin's knowledge, threatened and no deficiencies have been asserted
or assessed as a result of any audit by the Internal Revenue Service or
any state or local taxing authority and no deficiency has been proposed
or threatened;
(vi) The charges, accruals and reserves for
taxes due by Welkin or accrued but not yet due from Welkin, relating to the
income, properties or operations of Welkin for any periods ending on or
before the Closing or the portion of any period that ends on and includes
the Closing as reflected on Welkin's Interim Balance Sheet are adequate to
cover any such taxes payable by Welkin;
(vii) There is no action, suit, proceeding,audit
or claim pending or, to Welkin's knowledge, threatened regarding any taxes of
Welkin;
(viii) All taxes which Welkin are required by
law to withhold and collect with respect to Welkin's employees have been
duly withheld and collected, and have been timely paid over to the proper
authorities to the extent due and payable; and
(ix) There are no liens for any tax on Welkin or
the assets of Welkin, except for ad valorem taxes accrued but not yet due or
payable.
(c) All federal, state and local income, franchise, property
and other tax returns filed by Welkin are in all material respects complete and
correct representations of the tax liabilities of Welkin for the periods covered
by such returns.
Section 2.26 Bank Accounts. Schedule 2.26, Bank Accounts, is a true and
complete list as of the date hereof of all banking institutions in which Welkin
has accounts or safety deposit boxes, plus the numbers thereof and the name of
the persons authorized to make withdrawals therefrom or have access thereto.
Section 2.27 Disclosure. No representations and warranties by Welkin in
this Agreement or any document or certificate furnished to Xxxxxxx pursuant
hereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading.
Section 2.28 Proprietary Rights. The term "Proprietary Rights" includes
all material inventions, trade secrets, processes, proprietary rights, product
specifications, blueprints, drawings, technical data, engineering information,
other proprietary knowledge and know-how, patents, trademarks, service marks,
trade name, copyrights, marks, symbols, logos, and all material documentation
related thereto, and all licenses and agreements in respect thereof and
applications therefor used or related to the Welkin Business, except for
software and information systems as defined in Section 2.29. Welkin has all
Proprietary Rights necessary for the operation of the Welkin Business as
currently operated. Except as set forth on Schedule 2.28, Proprietary Rights,
which includes a listing of material contracts or material licenses pursuant to
which Welkin uses the intellectual property of third parties, with respect to
the Proprietary Rights, (a) Welkin is either the sole and exclusive owner of or
a licensee of its Proprietary Rights; (b) no action, suit, arbitration, or other
proceeding or investigation is pending or to Welkin's knowledge threatened which
involves any Proprietary Rights, (c) none of the Proprietary Rights infringes
upon, conflicts with, or otherwise violates the rights of others or is being
infringed upon by others, (d) none of the Proprietary Rights is subject to any
outstanding order, decree, judgment, stipulation, or charge, (e) there are no
royalty, commission, or similar arrangements and no licenses, sublicenses, or
agreements relating to any of the Proprietary Rights, (f) Welkin has not
received any notice of interference or infringement of or by the Proprietary
Rights, (g) Welkin has not agreed to indemnify any person or entity for or
against any infringement of or by the Proprietary Rights, (h) no other material
Proprietary Rights not owned by Welkin are necessary for the conduct of the
Welkin Business, and (i) to Welkin's knowledge no other party is operating a
business or otherwise acting in violation or infringement of, Welkin's
Proprietary Rights. Except as set forth on Schedule 2.28, Proprietary Rights,
Welkin has good and marketable title to, or a valid license for the Proprietary
Rights free and clear of all security interests, liens, pledges, encumbrances
and restrictions.
Section 2.29 Software and Information Systems.
(a) Welkin does not own, have a license to, or have any use,
possessory or proprietary rights to any information systems, programs and
software, other than non-exclusive commercial software.
(b) Welkin's use of the non-exclusive commercial software does
not infringe on any patents, trademarks, copyrights or other rights or
intellectual property rights of any third persons. Welkin has taken reasonable
measures necessary to maintain and protect the non-exclusive commercial software
used by or licensed to Welkin and no claims have been asserted by any person or
entity to Welkin's use of the same or challenging or questioning the validity or
effectiveness of the same, and there is no valid basis to any such claim.
(c) Schedule 2.29, Software, also contains a list of the
current software development and consulting activities and projects of Welkin.
Welkin has described such projects and developments to Xxxxxxx. Welkin knows of
no impediments to fully developing and exploiting the information systems,
programs and software currently under development or to performing its currently
pending consulting contracts.
Section 2.30 Material Commitments. As used in this Section 2.30, the
term "Material Commitments" means each Contract of Welkin which obligates Welkin
to sell, license, distribute, deliver or provide products or services
(including, without limitation, consulting services) for a consideration in
excess of $100,000 and over a period of more than one (1) month. Schedule 2.30,
Project List, sets forth a "Project List" with respect to each Material
Commitment. The Project List sets forth Welkin's production schedule or
performance schedule, and budget, with regard to each Material Commitment.
Except as described in the Project List, the performance of Welkin or any other
party involved with each Material Commitment is on schedule and within budget,
and no practical or technological problems have been encountered that might
reasonably be expected to impede completion or materially increase the cost of
Welkin's performance with a corresponding detriment to profit. Each Material
Commitment was made on a basis calculated to produce a profit under the
circumstances prevailing when it was made, and, except as disclosed on Schedule
2.30, Project List, and except for changes to the Material Commitments that may
result from the transactions contemplated hereby, Welkin is not aware of any
circumstances that might reasonably be expected to prevent the realization of a
profit. To Welkin's knowledge, except as set forth on the Project List, no
Material Commitment involves the development of any product or technology that
would infringe on the proprietary rights of any other party. Welkin is not bound
by any Material Commitments for the performance of services or delivery of
services or products in excess of its current ability to provide such services
or deliver such products during the time available to satisfy such commitments;
and all outstanding Material Commitments for the performance or delivery of
services or products were made on a basis calculated to produce a profit under
the circumstances prevailing when such commitments were made. Copies of
outstanding commitments have been previously made available to Xxxxxxx and in
all material respects contain the complete and correct terms and conditions of
same, except for deletions required to comply with government security
restrictions.
Section 2.31 Estoppel Provisions. Immediately after the Closing, except
as provided under Virginia law or applicable federal law, the Welkin
Shareholders will have no right, title, claim, demand, interest, action or cause
of action in, to or against Welkin in any capacity whatsoever (whether as a
shareholder, officer, director or creditor), except (i) with respect to holders
of Dissenting Shares, and (ii) in respect of their status as employees, officers
or directors of Welkin, and then only to the extent of accrued and unpaid
salary, benefits and reimbursable expenses under Welkin policy up to the date of
Closing. Upon the Closing, the Welkin Shareholders shall have no option, warrant
or other right to acquire any of the capital stock of Welkin.
Section 2.32 Accounting and Tax Matters. There are no facts or
circumstances relating to Welkin other than as disclosed in a certain
representation letter delivered by the Representative to Ernst & Young, LLP,
independent auditors, that may prevent the merger from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Code.
Section 2.33 Transactions With Affiliates and Related Parties. Except
as disclosed on Schedule 2.33, Transactions With Affiliates and Related Parties
hereto, neither the Welkin Shareholders, nor any officer, director, employee,
family members (whether related by blood or marriage) or any affiliates or
relatives of any Welkin Shareholder, has
(a) Borrowed money from or loaned money to Welkin which remains outstanding;
(b) Had any contractual or other claim, express or implied, of any kind
whatsoever against Welkin;
(c) Had any interest in any property or assets used by Welkin in its business;
or
(d) Engaged in an other transaction with Welkin (other than employment
relationships).
Section 2.34 Brokers and Finders. No broker or finder has been involved
in this transaction on behalf of the Welkin Shareholders or Welkin, and neither
Welkin, Xxxxxxx nor the Welkin Shareholders will be obligated to pay any
brokers' or finders' fees as a consequence of any brokerage agreement entered
into by the Welkin Shareholders or Welkin.
Section 2.35 Year 2000 Compliance. To Welkin's knowledge, Software,
when used in accordance with its associated documentation, is capable of
correctly processing, providing and/or receiving date-related or date-dependent
data within and between the twentieth (20th) and twenty-first (21st) centuries,
provided that all products (including hardware, software and firmware) used with
the software utilized by Welkin in the conduct of its business properly exchange
accurate date data with such software.
Section 2.36 Incurred Cost Submission. The Incurred Cost Submission of
Welkin for the fiscal year ended March 31, 1997 has been submitted to the United
States Government and is a true and accurate representation of costs
reimbursable under Welkin's government contracts.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF XXXXXXX AND MERGER SUB
Xxxxxxx and Merger Sub, jointly and severally, represent and warrant to
Welkin as follows:
Section 3.1 Organization; Standing; Corporate Power. Xxxxxxx and Merger
Sub are each a corporation duly organized, validly existing, and in good
standing under the laws of the states of their incorporation. Merger Sub is a
wholly-owned subsidiary of Xxxxxxx. Xxxxxxx and Merger Sub each have all
requisite power and authority, corporate and otherwise, to carry on and conduct
their respective businesses as they are now being conducted and to own and lease
their properties and assets.
Section 3.2 Authority. Xxxxxxx and Merger Sub each has full legal
right, powers, and authority to execute and deliver this Agreement and to carry
out the transactions contemplated hereby. All corporate and other acts or
proceedings required to be taken by Xxxxxxx and Merger Sub to authorize the
execution, delivery, and performance of this Agreement and all transactions
contemplated hereby have been duly and properly taken.
Section 3.3 Approvals and Consents. No approval, authorization,
consent, order, or action of, or filing with, any person, entity, court,
administrative agency, or other governmental authority is required for the
execution and delivery by Xxxxxxx and Merger Sub of this Agreement or the
documents to be delivered at Closing.
Section 3.4 Validity. This Agreement has been, and the documents to be
delivered by Xxxxxxx and Merger Sub at Closing will be, duly executed and
delivered and constitute lawful, valid, and binding obligations of Xxxxxxx and
Merger Sub enforceable in accordance with their terms, subject to bankruptcy,
insolvency, reorganization, moratorium, and other laws affecting the rights of
creditors generally and to the discretion of a court in granting equitable
relief. The approval of the shareholders of Xxxxxxx is not required for the
authorization or issuance of the Xxxxxxx Stock or for any of the other
transactions contemplated by this Agreement.
Section 3.5 No Breach. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby are not prohibited by,
will not violate or conflict with any provision of, and will not constitute a
default under or a breach of (a) the charter or bylaws of Xxxxxxx or Merger Sub,
(b) any contract, agreement, or other instrument to which Xxxxxxx or Merger Sub
is a party, (c) any order, writ, injunction, decree, or judgment of any court or
governmental agency, or (d) any law, rule, or regulation applicable to Xxxxxxx
or Merger Sub.
Section 3.6 Finders. No finder or broker has acted or is acting on
behalf of Xxxxxxx or Merger Sub in connection with the transactions contemplated
by this Agreement.
Section 3.7 Periodic Reports. The information in the Xxxxxxx Form 10-Q
Reports for the first and second quarters of 1998, Xxxxxxx Annual Report to its
Shareholders for 1997, Xxxxxxx Proxy Statement for the 1998 Annual Shareholders
Meeting, and Xxxxxxx Form 10-K for 1997 and any Current Reports on Form 8-K
filed for any period since December 31, 1997 (collectively the 'Xxxxxxx
Disclosure Documents') do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Xxxxxxx Disclosure Documents include the consolidated
balance sheet of Xxxxxxx as of August 31, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
ended August 31, 1997, accompanied by the related report thereon by Ernst &
Young, LLP, independent auditors. Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved and with prior periods except as otherwise expressly stated therein and
fairly present the assets, liabilities and financial condition and results of
operations of Xxxxxxx at, or for, the periods ended at, the dates thereof. Since
August 31, 1997, there has been no material adverse change in the condition,
financial or otherwise, of Xxxxxxx. Xxxxxxx has made, and shall use its best
efforts to continue to make, all filings with the Securities and Exchange
Commission which it is required to make.
Section 3.8 Xxxxxxx Stock. All shares of Xxxxxxx Stock which may be
delivered to the Welkin Shareholders pursuant to Article I hereof will be duly
authorized, validly issued, fully paid, and nonassessable. The authorized
capital stock of Xxxxxxx as of the date hereof consists of 30,000,000 shares of
Common Stock. At May 31, 1998, there were 13,440,212 shares of Common Stock
issued, including 168,500 shares held in the treasury.
Section 3.9 Ownership of Welkin Stock. Neither Xxxxxxx nor Merger
Sub owns any Welkin Stock.
Section 3.10 Litigation. There are no legal actions, suits,
arbitrations, or other legal or administrative proceedings or governmental
investigations pending or threatened against Xxxxxxx or Merger Sub which would
impair the ability of Xxxxxxx or Merger Sub to consummate the transactions
contemplated in this Agreement.
Section 3.11 Governmental Approval and Filings. No approval,
authorization, consent, license, clearance, or order of, declaration or
notification to, or filing registration or compliance with, any governmental
regulatory authority, including nongovernmental self-regulatory agencies, is
required in order to permit Xxxxxxx and Merger Sub to perform their obligations
under this Agreement, except for the filing and recording of appropriate merger
documents as required by the VSCA.
Section 3.12 Disposition of Assets. Xxxxxxx has no present intention to
cause Welkin to dispose of more than an insubstantial part of Welkin's assets
during the two-year period following the Merger Date.
Section 3.13 Financial Capability. Xxxxxxx has the financial capacity
to perform all of its obligations under this Agreement and has no contemplation
of insolvency. Xxxxxxx, immediately after the Closing: (i) will be solvent; (ii)
will be able to meet its obligations and debts as they become due; (iii) the
value of Xxxxxxx' assets at such time will exceed Xxxxxxx' liabilities; and (iv)
Xxxxxxx will have adequate capital for the conduct of its business.
ARTICLE IV
COVENANTS OF WELKIN
From the date of this Agreement until the Closing, Welkin will act in
good faith and use its best efforts to cause the conditions to the obligations
of Xxxxxxx and Merger Sub set forth in Article VI to be satisfied on or before
the Closing and will:
Section 4.1 Operate in Ordinary Course. Operate its business in the
usual and ordinary manner as heretofore conducted; perform in all material
respects all of its obligations; not materially modify, amend, supplement, or
waive any obligation under any material lease, contract, agreement, or
commitment without the prior written consent of Xxxxxxx which will not be
unreasonably withheld; and not take, or permit to be taken, any of the actions
described in subparagraphs (a) through (s) of Section 2.23.
Section 4.2 Preserve Business Organization. Use all reasonable efforts
to preserve intact its present business organization; keep available the
services of the current Employees; preserve its relationships with suppliers,
distributors, customers, and others having business relationships with it; and
refrain from changing in any material way any of its material policies
(including, without limitation, advertising, marketing, pricing, purchasing,
personnel, sales, or budget policies) without the prior written consent of
Xxxxxxx which will not be unreasonably withheld.
Section 4.3 Maintain Properties. Retain and maintain all of Welkin's
assets in customary repair, order, and condition, except for reasonable wear,
the disposal of worn-out or obsolete equipment, the sale of inventory in the
ordinary course of business, and damage due to unavoidable casualty.
Section 4.4 Maintain Books of Account. Maintain Welkin's
books of account and records in theusual and ordinary manner and in accordance
with GAAP.
Section 4.5 Comply with Law. Comply in all material respects with all
laws applicable to Welkin in connection with the transactions contemplated
hereby, or contest or settle in good faith, upon the advice of counsel, any
alleged failure to comply with any such laws.
Section 4.6 Maintain Insurance. Maintain the insurance policies listed
on Schedule 2.11, Insurance Policies and Claims, in full force and effect, with
policy limits and scope of coverage not less than is now provided.
Section 4.7 Advise Xxxxxxx of Adverse Change. Promptly advise Xxxxxxx
of the occurrence of any material adverse change in the financial condition or
results of the operations of Welkin; the occurrence of any other event or
condition that materially and adversely affects Welkin's assets or the conduct
of Welkin's business; or the imposition of any lien, pledge, or encumbrance on
any of Welkin's assets other than Permitted Liens.
Section 4.8 Access for Xxxxxxx. Provide Xxxxxxx'x employees, agents,
and authorized representatives with reasonable access, during normal business
hours and consistent with the normal operation of Welkin's business, to the
locations owned or leased by Welkin and to the books and records relating to
Welkin, to the extent necessary to enable Xxxxxxx to make a thorough
investigation of Welkin, and to examine Welkin's books and records. Xxxxxxx'x
employees, agents, and authorized representatives shall hold all such
information and materials in strict confidence, shall not use the same for any
purpose other than to evaluate this transaction and, treat all such information
in a manner consistent with Xxxxxxx'x policies and procedures concerning its own
confidential and proprietary information. If the transactions contemplated
hereby are not consummated for any reason, Xxxxxxx shall (a) upon the request of
Welkin, return all originals, copies, and summaries of such information to
Welkin and (b) continue to treat all such information as strictly confidential
in a manner consistent with Xxxxxxx'x policies and procedures concerning its own
confidential and proprietary information.
Section 4.9 Third-Party Consents. Use its best efforts to obtain
all consents and approvals of third parties, if any.
Section 4.10 Welkin Shareholders' Approval of Merger. Call the Welkin
Shareholders= Meeting to be held on or before July 27, 1998, and submit this
Agreement at the Welkin Shareholders' Meeting for approval and adoption at the
meeting, all as provided by law and its Articles of Incorporation and Bylaws.
The notice of the Welkin Shareholders' Meeting, proxy, and accompanying proxy
statement shall be prepared by Welkin and shall be subject to the reasonable
approval of Xxxxxxx prior to delivery to the Welkin Shareholders. The materials
submitted to the Welkin Shareholders shall include (i) this Agreement, (ii) the
Xxxxxxx Disclosure Documents, (iii) a description of the transaction, (iv)
appropriate securities law disclosures regarding the fact that the Xxxxxxx Stock
delivered at Closing will be unregistered, and therefore, the certificates
evidencing such stock will bear a restrictive legend to the effect the shares
may not be sold unless registered or exempt from registration, and (v) proposed
resolutions to be adopted by the Welkin Shareholders which shall include (1)
approval of the Agreement and Plan of Merger, and (2) appointment of Xxxx X.
Xxxx, Xx., as the Representative with full authority to sign the Escrow
Agreement and to act for the Welkin Shareholders in regard to any claim for
indemnity or other matter arising in regard to this Agreement or the Escrow
Agreement.
Section 4.11 Board of Director Resignations. Obtain the
resignation of each of the members of the Board of Directors of Welkin other
than Xxxx X. Xxxx, Xx. and Xxxx X. Xxxx, each such resignation to be effective
upon the Closing.
Section 4.12 Articles of Merger. Exert its best efforts to obtain
assurance from the Secretary of State of the State of Virginia that the Articles
of Merger attached as Exhibit 'A' comply with the VSCA.
Section 4.13 Shareholders' Letter Agreement. Cause each of
Xxxx X. Xxxx, Xx., Xxxx X. Xxxx, Xxxxxxxxx X. Xxxxxxx and Zeta Associates,
Inc. to deliver to Xxxxxxx not later than 10 days prior to the Merger Date a
written agreement, substantially in the form of Exhibit 'C.'
ARTICLE V
COVENANTS OF XXXXXXX
Section 5.1 Compliance with Conditions. Prior to the Closing, Xxxxxxx
will act in good faith and use its best efforts to cause the conditions set
forth in Article VII to be satisfied on or prior to the Closing.
Section 5.2 Articles of Merger. Prior to the Closing, Xxxxxxx will
exert its best efforts to obtain assurance from the Corporation Commission of
the Commonwealth of Virginia that the Articles of Merger attached as Exhibit 'A'
comply with the VSCA.
Section 5.3 Advise Welkin of Adverse Change. Promptly advise Welkin of
the occurrence of any material adverse change in the financial condition or
results of operations of Xxxxxxx; the occurrence of any other event or condition
that materially and adversely affects Xxxxxxx' assets or the conduct of Xxxxxxx'
business.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF XXXXXXX AND MERGER SUB
The obligations of Xxxxxxx and Merger Sub under this Agreement are
subject to the satisfaction on or before the Closing of the following
conditions, unless such conditions are waived by Xxxxxxx or Merger Sub, as
appropriate:
Section 6.1 Representations and Warranties True as of Closing. Welkin's
representations and warranties made in this Agreement are true in all material
respects on and as of the Closing as though such representations and warranties
were made on and as of the Merger Date.
Section 6.2 Compliance with Agreement. Welkin has performed and
complied in all material respects with all of its obligations and covenants
under this Agreement that are to be performed or complied with by it on or
before the Closing, and Welkin is not otherwise in default in any material
respect under any of the provisions of this Agreement.
Section 6.3 No Litigation. No litigation, proceeding, investigation, or
inquiry is pending or threatened which, if sustained, would enjoin or prevent
the consummation of the transactions contemplated by this Agreement or would
materially and adversely affect Xxxxxxx'x or Welkin's ability to carry on the
Welkin Business presently and ordinarily conducted following the Closing.
Section 6.4 Third-Party Consents and Approvals. Welkin has obtained all
third-party consents and approvals, if any, all in form and substance reasonably
satisfactory to Xxxxxxx, Merger Sub and their counsel. At or before the Closing,
Welkin will deliver to Xxxxxxx and Merger Sub all such third party consents or
approvals.
Section 6.5 No Material Change. Xxxxxxx has made a good faith
determination, with the assistance and advice of counsel, that there has been no
material adverse change in the financial condition, assets, liabilities, net
capital, business, or affairs of Welkin.
Section 6.6 Shareholders' Equity. On the last business day prior to the
Merger Date, the shareholders' equity of Welkin, as determined in accordance
with GAAP, shall be no less than $2,750,000.
Section 6.7 Non-Competition Agreements.Each of Xxxx X. Xxxx, Xx.,Xxxx X.
Xxxx and Xxxxxxxxx X. Xxxxxxx shall have executed and delivered the
non-competition agreements with Welkin attached hereto as Exhibits 'D-1,' 'D-2,'
and 'D-3.'
Section 6.8 Employment Agreements. Each of Xxxx X. Xxxx, Xx. and Xxxx
X. Xxxxxxx shall have executed and delivered the employment agreements attached
as Exhibits 'E-1' and 'E-2.'
Section 6.9 Certificates of Fulfillment of Conditions. Welkin shall
have delivered to Xxxxxxx and Merger Sub certificates, dated as of the Closing
and signed by the President of Welkin, stating that the conditions set forth in
Sections 6.1, 6.2, 6.3, 6.4, 6.6 and 6.10 have been fulfilled. Welkin shall have
delivered to Xxxxxxx copies of resolutions adopted by its Board of Directors and
the Welkin Shareholders, certified as of the Closing by its Secretary or an
Assistant Secretary, approving the execution and delivery of this Agreement and
the performance of its obligations under this Agreement.
Section 6.10 Shareholder Approval. The Welkin Shareholders
shall have approved the consummation of the transactions contemplated by this
Agreement.
Section 6.11 Welkin Dissenting Shares. The number of shares of Welkin
Stock held by a holder who has demanded and/or perfected the right, if any, to
dissent from this Agreement in accordance with the VSCA shall be less than five
percent of the total number of shares of Welkin Stock outstanding as of the date
hereof.
Section 6.12 Pooling Letter. Xxxxxxx shall have received a letter,
dated as of the Merger Date, from Ernst and Young, LLP, confirming that the
Merger, as closed and consummated in accordance with this Agreement, will
qualify for pooling-of-interests accounting treatment under Accounting
Principles Board Opinion No. 16.
Section 6.13 Opinion of Counsel. Welkin shall have delivered to Xxxxxxx
an opinion of its counsel, Xxxxxxx Xxxxxx & Green, P.C., dated as of the Merger
Date, in the form of Exhibit 'F' hereto.
Section 6.14 Number of Welkin Shareholders. On the Merger Date,
the number of Welkin Shareholders shall not exceed thirty-five.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF WELKIN
The obligations of Welkin under this Agreement are subject to the
satisfaction on or prior to the Closing of the following conditions, unless such
conditions are waived by Welkin:
Section 7.1 Representations and Warranties True on Closing. Each of
Xxxxxxx'x and Merger Sub's representations and warranties made in this Agreement
are true in all material respects on and as of the Closing as though such
representations and warranties were made on and as of the Merger Date.
Section 7.2 Compliance with Agreement. Xxxxxxx has performed and
complied in all material respects with all of its obligations and covenants
under this Agreement that are to be performed or complied with by it on or
before the Closing, and Xxxxxxx is not other-wise in default in any material
respect under any of the provisions of this Agreement.
Section 7.3 No Litigation. No litigation, proceeding, investigation, or
inquiry is pending or threatened which, if sustained, would enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
Section 7.4 Certified Resolutions. Each of Xxxxxxx and Merger Sub has
delivered to Welkin copies of resolutions adopted by its respective Board of
Directors, certified as of the Closing by its Secretary or an Assistant
Secretary, approving the execution and delivery of this Agreement and the
performance of its respective obligations under this Agreement. Xxxxxxx or
Merger Sub, as the case may be, has delivered to Welkin evidence satisfactory to
Welkin of the approval by the sole shareholder of Merger Sub of this Agreement
and the transactions contemplated hereby.
Section 7.5 Certificate of Fulfillment of Conditions. Xxxxxxx, on
behalf of itself and Merger Sub, shall have delivered to Welkin a certificate,
dated as of the Closing and signed by an officer of Xxxxxxx stating that the
conditions set forth in Sections 7.1 and 7.2 and 7.3 have been fulfilled.
Section 7.6 Shareholder Approval. The Welkin Shareholders shall
have approved the consummation of the transactions contemplated by this
Agreement.
Section 7.7 Opinion of Counsel. Xxxxxxx shall have delivered an opinion
of its counsel, Xxxxxx Xxxx Xxxxxx & Xxxxx, P.C., dated as of the Merger Date in
the form of Exhibit 'G' hereto.
ARTICLE VIII
POST CLOSING COVENANTS
Section 8.1 Merger of 401(k) Plans. Xxxxxxx and Welkin will determine
whether or not to merge the Welkin Associates Limited Savings Plan listed in
Schedule 2.14(a), Employee Benefit Plans, into the Xxxxxxx Retirement Plan after
the Closing. The features and benefits of the Xxxxxxx Retirement Plan offered
the employees by Welkin will be determined by Xxxxxxx. Welkin will notify all
plan participants and the appropriate government agencies (as required under
ERISA and the Code), if any, of the cessation of further benefit accrual under
the Welkin 401(k) Plan.
Section 8.2 Welkin Benefit Plans. Except for the Welkin 401(k) Plan,
each of the Plans listed on Schedule 2.14(a), Employee Benefit Plans, shall
continue in existence for one year after the Closing, unless Xxxx X. Xxxx, Xx.,
agrees to an earlier termination of any such plan or unless continuation
following the Merger of any such plan would violate the nondiscrimination or
other provisions of the Code or ERISA. After the Closing, a three-year plan will
be implemented to consolidate the Welkin employee fringe benefits, including the
employee benefit plans listed on Schedule 2.14(a), Employee Benefit Plans, and
the Welkin employment policies and procedures with the Xxxxxxx employee fringe
benefits and the Xxxxxxx employment policies and procedures.
Section 8.3 Other Benefits. The employees of Welkin will be entitled to
participate in the benefit plans sponsored by Xxxxxxx in accordance with the
terms and provisions of such plans unless comparable benefits are provided under
benefit plans maintained by Welkin after the Closing.
Section 8.4 Employee Stock Options. A total of 40,000 shares of Xxxxxxx
Stock will be reserved for issuance of stock options to employees of Welkin
after Closing pursuant to the terms of the Xxxxxxx Stock Option Plan. Such
amount includes 35,000 shares of Xxxxxxx Stock for options granted to Xxxx X.
Xxxx, Xx. and Xxxx X. Xxxxxxx pursuant to their employment agreements. The
employees selected to receive Xxxxxxx' stock options and the number of shares
subject to such options will be determined within thirty (30) days after the
Closing after considering the recommendations of Xxxx X. Xxxx, Xx., and Xxxx
Xxxxxx, and such options will be granted within forty-five (45) days after the
Closing.
Section 8.5 Registration of Xxxxxxx Stock. Within fifteen days after
the Merger Date, Xxxxxxx shall file with the Securities and Exchange Commission
a registration statement (the "S-3 Registration Statement") on Form S-3 under
the Securities Act with respect to the Xxxxxxx Stock delivered in exchange for
the Welkin Stock hereunder, including those shares delivered to the Escrow Agent
in accordance with the Escrow Agreement and those shares delivered to the
Representative as Cost Account Shares (the "Merger Stock"). Xxxxxxx shall use
its best efforts to cause the S-3 Registration Statement to become effective as
soon as practicable. Xxxxxxx shall maintain the effectiveness of the S-3
Registration Statement for a period of two years after the Merger Date or until
all Xxxxxxx Stock delivered in exchange for the Merger Stock is sold, whichever
occurs first. The S-3 Registration Statement and all amendments and supplements
thereto will conform in all material respects with the requirements of the
Securities Act and all rules and regulations thereunder. The Merger Stock (other
than the Escrowed Stock or the Cost Account Stock) will be freely tradeable by
the Welkin Shareholders from and after the effective date of the S-3
Registration Statement, and the Escrowed Stock will be freely tradeable by the
Welkin Shareholders from and after the release of such shares from the escrow
pursuant to the Escrow Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time on or before the Closing, as follows:
(a) By the mutual consent of Xxxxxxx and Welkin;
(b) By Xxxxxxx if any of the conditions set forth in Article
VI of this Agreement have become incapable of fulfillment or are not fulfilled
on or before August 15, 1998;
(c) By Welkin if any of the conditions set forth in Article
VII of this Agreement have become incapable of fulfillment or are not fulfilled
on or before July 31, 1997; or
(d) By Welkin or by Xxxxxxx if any action, suit, or proceeding
before any court or other governmental body or agency has been instituted to
restrain, modify, or prohibit the transactions contemplated hereby.
If this Agreement is terminated in a manner permitted by this Section
9.1, this Agreement will become void and of no further force and effect, neither
of the parties hereto will have any liability to the other party in respect of a
termination of this Agreement.
Section 9.2 Expenses. Whether or not the transactions contemplated
hereby are consummated, except to the extent otherwise expressly provided
herein, each of the parties hereto will pay its respective expenses (including,
without limitation, the fees, disbursements, and expenses of its attorneys,
accountants, and consultants) incurred by it in negotiating, preparing, and
carrying out this Agreement and the transactions contemplated by this Agreement.
Section 9.3 Notices. Notices hereunder will be effective four business
days after they are deposited in the official mails, postage prepaid, certified
and with return receipt requested, the day after they are delivered to a courier
for overnight delivery, or upon receipt when sent by facsimile or hand delivery,
and addressed:
(a) In the case of Xxxxxxx, to:
0000 Xxxxx Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn.: Xxxxx X. Xxxxxx, Chairman
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx X. Xxxx
Xxxxxx Xxxx Xxxxxx & Xxxxx P.C.
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxx 00000
Facsimile No.: (000) 000-0000
(b) In the case of Merger Sub, to:
c/x Xxxxxxx Research Corporation
0000 Xxxxx Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn.: Xxxxx X. Xxxxxx, Chairman
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx X. Xxxx
Xxxxxx Xxxx Xxxxxx & Xxxxx P.C.
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxx 00000
Facsimile No.: (000) 000-0000
(c) In the case of Welkin, to:
c/o Xxxx X. Xxxx, Xx., President
Welkin Associates, Ltd.
0000 Xxxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx X. Pravda
Xxxxxxx Xxxxxx & Green, P.C.
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Facsimile: (000)000-0000
Any party may change the address to which notices are to be addressed by giving
the other party notice in the manner herein set forth.
Section 9.4 Public Announcements and Releases. No party to this
Agreement will make or cause to be made any public announcement or release
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party to this Agreement.
Section 9.5 Governing Law. The validity, interpretation, and
performance of this Agreement will be determined in accordance with the laws of
the State of Delaware applicable to contracts made and to be performed wholly
within that state.
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute but one and the same instrument.
Section 9.7 Headings. The headings, subheadings, and captions in this
Agreement and in any exhibit hereto are for reference purposes only and are not
intended to affect the meaning or interpretation of this Agreement.
Section 9.8 Exhibits; Disclosure Schedule. The exhibits attached
hereto, the Disclosure Schedule, and the other documents and instruments
referenced in this Agreement as having been delivered or executed pursuant
hereto are hereby made a part of this Agreement as if set forth in full herein.
A statement on the Disclosure Schedule that qualifies or limits a representation
or warranty, or that constitutes an exception to a representation and warranty,
shall specifically identify the Section of this Agreement to which the statement
relates. Information, lists, documents, agreements or other matters set forth in
the Disclosure Schedule that are not described in the preceding sentence need
only be set forth once even if another Section calls for similar disclosure.
Section 9.9 Entire Agreement. This Agreement, the exhibits attached
hereto, the Disclosure Schedule, and the other documents and instruments
referenced in this Agreement as having been delivered or executed pursuant
hereto contain the entire agreement between the parties hereto with respect to
their subject matter and supersede all negotiations, prior discussions and
understandings, written or oral, relating to their subject matter.
Section 9.10 Successors and Assigns. This Agreement will be binding
upon Welkin and Xxxxxxx and their respective successors and assigns.
Notwithstanding the immediately preceding sentence, Welkin may assign their
rights and delegate their duties under this Agreement only with the prior
written consent of Xxxxxxx.
Section 9.11 Severability. If any provision of this Agreement is held
to be unenforceable, invalid, or void to any extent, that provision shall remain
in force and effect to the maximum extent allowable, and the enforceability and
validity of the remaining provisions of this Agreement shall not be affected
thereby.
ARTICLE X
INDEMNIFICATION
Section 10.1 By the Welkin Shareholders. If the Closing occurs, the
Welkin Shareholders, severally, hereby indemnify and hold harmless Xxxxxxx from
and against all claims, damages, losses, liabilities, costs and expenses,
including, without limitation, settlement costs and legal, accounting or other
expenses paid for investigating or defending any actions or threatened actions
(collectively, the "Losses"), in connection with any breach of any
representations, warranties or covenants made by Welkin in this Agreement, the
Schedules hereto or any certificates delivered pursuant to this Agreement.
Section 10.2 By Xxxxxxx. If the Closing occurs, Xxxxxxx hereby
indemnifies and holds harmless the Welkin Shareholders from and against all
Losses in connection with any breach of any representations, warranties or
covenants made by Xxxxxxx in this Agreement, the Schedules hereto or the
certificates delivered pursuant to this Agreement.
Section 10.3 Claims for Indemnification. Whenever any claim shall arise
for indemnification under this Section 10, Xxxxxxx or the Welkin Shareholders,
as the case may be, seeking indemnification (the "Indemnified Party"), shall
promptly notify (the "Claim Notice") the party for whom indemnification is
sought hereunder (the "Indemnifying Party") of the claim and, when known, the
facts constituting the basis for such claim. In the event such Claim Notice is
sent by Xxxxxxx, Xxxxxxx shall deliver a copy of such Claim Notice to the Escrow
Agent. In the event of any such claim for indemnification hereunder resulting
from or in connection with any claim or legal proceedings by a thirty party, the
notice shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent, which shall not be
unreasonably withheld or delayed, of the Indemnifying Party; provided, however,
that if suit shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided herein, the Indemnified Party shall have the right to settle
or compromise such claim upon giving notice to the Indemnifying Party as
provided in Section 10.4. In the event that the Welkin Shareholders constitute
the Indemnifying Party, all notices and consents shall be given to, or by, the
Representative, who shall have the power and authority to bind all of the Welkin
Shareholders.
Section 10.4 Defense by the Indemnifying Party. In connection with any
claim which may give rise to indemnity hereunder resulting from or arising out
of any claim or legal proceeding by a person other than the Indemnified Party,
the Indemnifying Party, at its sole cost and expense, may, upon written notice
to the Indemnified Party, assume the defense of any such claim or legal
proceeding if the Indemnifying Party acknowledges to the Indemnified Party in
writing of the obligation of the Indemnifying Party to indemnify the Indemnified
Party with respect to all elements of such claim. If the Indemnifying Party
assumes the defense of any such claim or legal proceeding, the Indemnifying
Party shall, at its sole cost and expense, take all steps necessary in the
defense or settlement thereof. The Indemnifying Party shall not consent to a
settlement of, or the entry of any judgment arising from, any such claim or
legal proceeding, other than the payment of money, unless such settlement
includes a release of the Indemnified Party from any and all claims arising from
or related to such claim or legal proceeding. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its own counsel and at its own expense. If the Indemnifying Party does not
assume the defense of any such claim or litigation resulting therefrom within
thirty (30) days after the date such claim is made: (a) the Indemnified Party
may defend against such claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such claim or litigation,
after giving notice of the same to the Indemnifying Party on such terms as the
Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be
entitled to participate in (but not control) the defense of such action, with
its counsel and at its own expense. If the Indemnifying Party thereafter seeks
to question the manner in which the Indemnified Party defended such third party
claim or the amount or nature of any such settlement, the Indemnifying Party
shall have the burden to provide by a preponderance of the evidence that the
Indemnified Party did not defend or settle such third party claim in a
reasonably prudent manner. In the event that the Welkin Shareholders constitute
the Indemnifying Party, all references herein to the Indemnifying Party shall be
deemed to mean the Representative, who shall have the power and authority to
bind all of the Welkin Shareholders. All costs and expenses to be borne by the
Indemnifying Party, if the Indemnifying Party is the Welkin Shareholders, shall
be borne severally by each of the Welkin Shareholders.
Section 10.5 Survival of Representations; Claims for Indemnification.
If the Closing occurs, all representations and warranties made in this
Agreement, in the Schedules hereto and in all certificates delivered pursuant
hereto shall survive through and until the first anniversary of the Closing Date
(the "Termination Date"). After the Termination Date, all such representations
and warranties shall immediately expire, except with respect to claims, if any,
asserted in writing on or prior to the Termination Date and identified as claims
for indemnification pursuant to Sections 10.1 or 10.2. All claims for actions
for indemnity hereunder shall be asserted and maintained in writing by a party
hereto on or prior to the Termination Date.
Section 10.6 Exclusion for Certain Indemnity Obligations.
Notwithstanding anything to the contrary in Section 10.1, 10.2 or elsewhere in
this Agreement, if the Closing occurs, neither the Welkin Shareholders, on the
one hand, nor Xxxxxxx and Welkin (taken together), on the other hand, shall be
entitled to receive, or shall be obligated to pay, any claims hereunder until
there are first claims hereunder resulting in more than $90,000 in aggregate
amount of indemnity obligations otherwise payable pursuant to Sections 10.1 or
10.2, in which case the party seeking indemnification shall be entitled to
recover commencing with the first dollar amount so payable.
Section 10.7 Maximum Limitation for Indemnity Obligations.
(a) Notwithstanding anything to the contrary in Sections 10.1,
10.2 or elsewhere in this Agreement, if the Closing occurs, the maximum
aggregate amount payable to Xxxxxxx and all affiliates thereof by all of the
Welkin Shareholders together as a group, as indemnity pursuant to this
Agreement, or otherwise, shall be the amount of the Escrow Property (as defined
in the Escrow Agreement).
(b) Except for violations of federal and state securities laws
and violations or breaches of post-closing obligations and covenants of Xxxxxxx
in this Agreement to which the limitations in this Section 10.7(b) shall not
apply, the maximum amount payable by Xxxxxxx to the Welkin Shareholders together
as a group, as indemnity pursuant to this Agreement or otherwise, shall be
limited to $1,200,000.00.
(c) All amounts payable to Xxxxxxx and all affiliates thereof
by the Welkin Shareholders shall be paid out of the Escrow Property in
accordance with the Escrow Agreement. Upon exhaustion of the Escrow Property or
termination of the Escrow Agreement, none of the Welkin Shareholders shall have
any obligation whatsoever to indemnify Xxxxxxx or any affiliates hereunder.
Section 10.8 General Limitations. After the Closing, no party hereto
shall make any claims against any other party hereto under this Agreement, under
any legal theory or with respect to the transfer of the Merger Stock, except
pursuant to Article X hereof, each party to this Agreement hereby waiving any
and all such claims.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
XXXXXXX RESEARCH CORPORATION, a
Delaware corporation
By: Xxxxx X. Xxxxxx
---------------
Its: Chairman
WAL ACQUISITION COMPANY, INC., a
Virginia corporation
By:Xxxxx X. Xxxxxx
---------------
Its:Secretary
WELKIN ASSOCIATES, LTD., a Virginia
corporation
By: Xxxx X. Xxxx, Xx.
-----------------
Its:President
