STOCK PURCHASE AGREEMENT
between
TITAN TECHNOLOGIES AND INFORMATION SYSTEMS CORPORATION,
VALIDITY CORPORATION
and
THE SHAREHOLDERS OF
VALIDITY CORPORATION
March ___, 1998
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF STOCK..............................................1
2. PURCHASE PRICE..........................................................1
2.1 Purchase Price....................................................1
3. THE CLOSING; DELIVERY...................................................2
3.1 The Closing.......................................................2
3.2 Delivery..........................................................2
4. REPRESENTATIONS AND WARRANTIES OF VALIDITY..............................3
4.1 Organization and Standing.........................................3
4.2 No Subsidiaries...................................................3
4.3 Authorization.....................................................3
4.4 Title to Stock; Encumbrances......................................4
4.5 No Breach, Etc....................................................4
4.6 Capitalization....................................................4
4.7 Taxes.............................................................5
4.8 Financial Statements..............................................6
4.9 No Undisclosed Liabilities........................................7
4.10 Absence of Certain Changes........................................7
4.11 Title to Assets...................................................8
4.12 Bank Accounts; Receivables........................................9
4.13 Equipment.........................................................9
4.14 Litigation, Etc...................................................9
4.15 Intellectual Property.............................................9
4.16 Contracts........................................................10
4.17 Security Matters.................................................14
4.18 Employee and Labor Matters; Benefit Plans........................15
4.19 Compliance with Laws.............................................17
4.20 Governmental Authorizations......................................17
4.21 Related Persons..................................................18
4.22 Insurance........................................................18
4.23 Real Property; Owned or Leased...................................18
i.
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4.24 Environmental Matters............................................19
4.25 Corporate Records................................................19
4.26 Full Disclosure..................................................19
4.27 Brokers..........................................................20
4.28 Disallowable Director Expense Items..............................20
4.29 Certain Definitions..............................................20
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.....................21
5.1 Title to Stock; Encumbrances.....................................21
6. REPRESENTATIONS AND WARRANTIES OF BUYER................................21
6.1 Organization and Standing........................................21
6.2 Corporate Power; Authorization...................................21
6.3 Brokers..........................................................21
6.4 Consents.........................................................21
6.5 Litigation, Etc..................................................22
6.6 Investment Purpose...............................................22
7. CERTAIN COVENANTS OF VALIDITY AND THE SHAREHOLDERS.....................22
7.1 Access and Investigation.........................................22
7.2 Operation of Validity's Business.................................22
7.3 Notification; Updates to Disclosure Schedule.....................24
7.4 No Negotiation...................................................24
8. ADDITIONAL COVENANTS OF THE PARTIES....................................25
8.1 Filings and Consents.............................................25
8.2 Public Announcements.............................................25
8.3 Best Efforts.....................................................25
8.4 Noncompetition Agreements........................................25
8.5 Employee Retention Program.......................................26
8.6 Release..........................................................26
8.7 Stock Options....................................................26
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...........................26
9.1 Accuracy of Representations......................................26
ii.
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9.2 Performance of Covenants.........................................26
9.3 Consents.........................................................26
9.4 Agreements and Documents.........................................26
9.5 Lease Amendment..................................................26
9.6 No Restraints....................................................27
9.7 No Legal Proceedings.............................................27
9.8 Legends..........................................................27
9.9 Invention Assignments............................................27
9.10 No Material Adverse Effect.......................................27
9.11 Termination of Executive Employment Agreements...................27
9.12 Termination of Right of First Refusal............................28
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS................28
10.1 Accuracy of Representations......................................28
10.2 Performance of Covenants.........................................28
10.3 Documents........................................................28
10.4 No Restraints....................................................28
10.5 No Legal Proceedings.............................................28
10.6 Guaranty.........................................................28
11. ADDITIONAL AGREEMENTS..................................................29
11.1 Payment of Taxes.................................................29
11.2 Tax Election.....................................................29
11.3 Tax Allocations..................................................29
12. TERMINATION............................................................30
12.1 Termination Events...............................................30
12.2 Termination Procedures...........................................30
12.3 Termination Fees.................................................30
12.4 Effect of Termination............................................31
13. INDEMNIFICATION........................................................31
13.1 Survival of Representations, Etc.................................31
13.2 Indemnification by Shareholders..................................31
iii.
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13.3 Threshold; Ceiling...............................................32
13.4 No Contribution..................................................32
13.5 Defense of Third Party Claims....................................33
13.6 Definitions......................................................33
13.7 Recovery of Damages from Notes...................................33
13.8 Shareholders' Agent..............................................34
14. MISCELLANEOUS..........................................................35
14.1 Further Assurances...............................................35
14.2 Fees and Expenses................................................35
14.3 Attorneys' Fees..................................................35
14.4 Notices..........................................................35
14.5 Time of the Essence..............................................36
14.6 Headings.........................................................36
14.7 Counterparts.....................................................36
14.8 Governing Law....................................................37
14.9 Successors and Assigns...........................................37
14.10 Remedies Cumulative; Specific Performance........................37
14.11 Waiver...........................................................37
14.12 Amendments.......................................................37
14.13 Severability.....................................................37
14.14 Parties in Interest..............................................37
14.15 Entire Agreement.................................................38
14.16 Construction.....................................................38
14.17 Negotiation of Disputes..........................................38
14.18 Arbitration......................................................38
iv.
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EXHIBITS
Exhibit A - Schedule of Shareholders
Exhibit B - Form of Secured Promissory Note
Exhibit C - Form of Pledge Agreement
Exhibit D - Form of Release
Exhibit E - Opinion of Shareholders' Counsel
Exhibit F - Opinion of Buyer's Counsel
Exhibit G - Schedule of Key Employees
v.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the
24th day of March, 1998 between TITAN TECHNOLOGIES AND INFORMATION SYSTEMS
CORPORATION, a Delaware corporation ("Buyer"), a wholly-owned subsidiary of The
Titan Corporation ("Titan"), VALIDITY CORPORATION, a California corporation
("Validity"), and the shareholders of Validity (each a "Shareholder,"
collectively the "Shareholders") identified on Exhibit A hereto (the "Schedule
of Shareholders").
RECITALS
A. The Shareholders own a total of 60,650 shares of Common Stock of
Validity, in the amounts indicated on the Schedule of Shareholders, which
constitute all of the outstanding capital stock of Validity (the "Shares").
B. Buyer wishes to acquire from the Shareholders and the Shareholders wish
to sell to Buyer all of the Shares upon the terms and subject to the conditions
contained in this Agreement.
C. This Agreement has been approved by the boards of directors of
Validity, Titan and Buyer.
D. Buyer and the Shareholders desire that Buyer and the Shareholders make
a joint election under Sections 338(a) and 338(h)(10) of the Internal Revenue
Code (and a comparable election under state or local Law) with respect to the
purchase and sale of the Shares by Buyer.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions of this
Agreement, in consideration of the payments to be made to the Shareholders by
Buyer pursuant to Section 2 below, each of the Shareholders hereby sells,
assigns, conveys and transfers to Buyer, and Buyer hereby purchases from each of
the Shareholders, all right, title and interest in and to the Shares held by the
Shareholders free and clear of any liens or other Encumbrances.
2. PURCHASE PRICE.
2.1 Purchase Price. The aggregate purchase price for the Shares (the
"Purchase Price") shall be $15,000,000 payable as follows:
(a) $12,000,000 [less the amount of any cash advance, in an
amount not to exceed $600,000, made by Buyer to Validity (for payment as
directed by the Shareholders) made not more than five business days prior to the
Closing for the purpose of
1.
enabling the Shareholders to compensate certain persons for their efforts in
connection with the transactions contemplated herein] payable in immediately
available funds; and
(b) Promissory notes of Buyer in the aggregate principal
amount of $3,000,000 (each a "Note," collectively the "Notes"), substantially in
the form attached hereto as Exhibit B. Each Note shall bear interest at the
Prime Rate of Imperial Bank and shall be secured by a pledge by Titan of
treasury shares of Titan common stock with a fair market value of $3,000,000
("Titan Shares") based upon the average of the closing price of Titan common
stock on the New York Stock Exchange during the ten trading days ending the day
before Closing, pursuant to a pledge agreement substantially in the form
attached as Exhibit C ("Pledge Agreement"). Each Note shall mature and shall be
fully due and payable (subject to offset as expressly provided in this
Agreement) on the first anniversary of this Agreement.
2.2 Allocation of Purchase Price. At the Closing, Buyer shall pay
each Shareholder an amount in cash equal to the product of (i) the Shareholder's
"Applicable Fraction" multiplied (ii) by $12,000,000 (or such lesser amount as
Buyer delivers at the Closing, as set forth in Section 2.1(a) hereof) and shall
deliver to each Shareholder a Note in the principal amount equal to the product
of (x) the Shareholder's Applicable Fraction and (y) $3,000,000. A Shareholder's
"Applicable Fraction" shall be the fraction (i) having a numerator equal to the
number of Shares held by such Shareholder on the Closing Date as set forth on
the Schedule of Shareholders, and (ii) having a denominator equal to the total
number of Shares held by all of the Shareholders on the Closing Date as set
forth on the Schedule of Shareholders.
3. THE CLOSING; DELIVERY.
3.1 The Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall take place at the offices of Xxxxxx Godward LLP,
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx 00000, at 10:00 a.m. on
a date that is no later than March 31, 1998 (the "Closing Date"), or at such
other place, time and date as Buyer and the Shareholders may agree.
3.2 Delivery. At the Closing:
(a) The Shareholders shall deliver to Buyer stock
certificates, with duly executed assignments separate from certificate endorsing
the certificates in Buyer's name, representing the Shares being sold, assigned,
conveyed and transferred hereunder by the Shareholders to Buyer.
(b) Each Shareholder shall receive an amount in cash (paid by
wire transfer, cashier's or certified check, or other means of payment of
immediately available funds) equal to the amount specified by Section 2.2.
(c) Each Shareholder shall receive a Note, for the principal
amount specified by Section 2.2, and the Pledge Agreement together with a stock
certificate and assignment separate from certificate endorsed in blank for the
Titan Shares to be held by an escrow agent on behalf of the pledgees.
2.
(d) Buyer shall have received from each of the Shareholders a
general release in the form of Exhibit D.
(e) Buyer shall have received from the Shareholders' counsel
an opinion of such counsel in the form of Exhibit E.
(f) The Shareholders shall have received from Buyer's counsel
an opinion of such counsel in the form of Exhibit F.
(g) Buyer shall have received from Validity resignations of
all of the directors of Validity.
(h) Each of the Shareholders shall have delivered to Buyer the
Election pursuant to Section 11.2 of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF VALIDITY. Except as set forth in the
disclosure schedules attached hereto (each a "Schedule," collectively, the
"Disclosure Schedule"), Validity represents and warrants to Buyer, as of the
Closing Date, as follows:
4.1 Organization and Standing. Validity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and is qualified or licensed to do business and is in good standing
under the laws of the States of Arizona and Maryland. Validity has all requisite
corporate power and all necessary governmental approvals to own, lease and
operate its properties and assets, and to carry on its business as presently
conducted. Validity is qualified or licensed to do business in all jurisdictions
in which the nature of its business or properties requires such qualification,
except where the failure to so qualify will not cause a material adverse effect
on the business, assets or financial condition of Validity. Validity has not
conducted business under, or otherwise used, for any purpose or in any
jurisdiction any fictitious name, assumed name, trade name or other name other
than "Validity Corporation."
4.2 No Subsidiaries. Validity has no direct or indirect subsidiaries
and does not own or control, directly or indirectly, any interest in any other
corporation, association, partnership, joint venture or other business entity.
Validity has not agreed and is not obligated to make any future investment in or
capital contribution to any other corporation, association, partnership, joint
venture or other business entity.
4.3 Authorization. The Shareholders have all requisite power and
authority to enter into this Agreement, to sell and transfer the Shares pursuant
to this Agreement and to carry out and perform all of their obligations under
the terms of this Agreement. All corporate action on the part of Validity, if
any, and all actions on the part of Validity's officers, directors, shareholders
and security holders that are necessary for the authorization, execution,
delivery and performance of the Agreement have been taken. The Agreement, when
executed and delivered, shall constitute the legal and binding obligation of
Validity and the Shareholders, enforceable against Validity and the
Shareholders, respectively, in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and by rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.
4.4 Title to Stock; Encumbrances. The Shareholders are the true,
lawful record and beneficial owners of the Shares being transferred and sold to
Buyer hereunder, with no restrictions on the Shareholders' voting rights or
rights of transfer or disposition pertaining to such Shares, and the Shares
constitute all of the shares of capital stock of Validity owned beneficially or
of record by the Shareholders. None of the Shares is subject to any voting trust
or other agreement or arrangement with respect to the voting thereof. Upon the
Closing, Buyer will own all of the outstanding shares of capital stock of
Validity free and clear of any lien or other Encumbrances (as defined in Section
4.29). All outstanding shares of capital stock of Validity have been issued in
compliance with applicable securities laws and other applicable Legal
Requirements (as defined in Section 4.29) and in compliance with all
requirements of applicable Contracts (as defined in Section 4.29).
4.5 No Breach, Etc. The execution and delivery of this Agreement and
all documents and certificates to be delivered hereunder by Validity and the
Shareholders in connection with the transactions contemplated hereby do not, and
the performance and consummation by Validity and the Shareholders of their
obligations hereunder will not, with or without the passage of time or
otherwise, result in any conflict with, breach or violation of or default,
termination, forfeiture or Encumbrance under any terms or provisions of
Validity's Articles of Incorporation or Bylaws, any statute, rule, regulation,
judicial or governmental decree, order or judgment or any material agreement,
lease or other instrument or other obligation, to which Validity or the
Shareholders are a party or to which Validity's assets or any Shareholders'
assets are subject and do not require any consent, approval, authorization or
permit of or filing with or notification to any Governmental Body (as defined in
Section 4.29), including without limitation, any filing under the Xxxx-Xxxxx
Xxxxxx Antitrust Improvements Act of 1976, as amended, or, except as disclosed
in Schedule 4.5, require any consent or approval of any third party, including
any party to a Material Contract (as defined in Section 4.16(a)).
4.6 Capitalization. The authorized capital stock of Validity
consists of Five Hundred Thousand (500,000) shares of Common Stock, $1.00 par
value, of which Sixty-Thousand Six Hundred Fifty (60,650) shares of Common Stock
are and will be, immediately prior to the Closing, issued and outstanding. All
of such shares of outstanding Common Stock are owned by the Shareholders in the
amounts indicated on the Schedule of Shareholders and are being sold to Buyer
hereunder. No other shares of capital stock or securities of Validity are
outstanding. All of the issued and outstanding shares of Common Stock of
Validity are duly authorized, validly issued, fully paid and nonassessable, were
not issued in violation or breach of any preemptive or similar rights, and have
been issued in compliance with all applicable federal and state securities laws.
There are no outstanding options, warrants, convertible securities or other
rights under which Validity is or may become obligated to issue, assign or
transfer any shares of its capital stock, and none of the foregoing will arise
as a result of the execution or performance of the Agreement or the transactions
contemplated herein. Validity has never repurchased, redeemed or otherwise
reacquired any shares of its capital stock or other securities and none of the
shares of capital stock or securities of Validity is subject to a right of
repurchase in favor of Validity.
4.
4.7 Taxes.
(a) All tax returns required to be filed by or on behalf of
Validity with any Governmental Body on or before the Closing Date or for periods
occurring on or before the Closing Date (i) have been or will be filed when due,
and (ii) have been, or will be when filed, accurately prepared in all material
respects. Validity has, within the time (including any extensions of applicable
due dates) and in the manner prescribed by law, paid all Taxes that are due and
payable. Validity's Financial Statements (as defined in Section 4.8) fully
accrue all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof in accordance with generally accepted
accounting principles. "Tax or Taxes" shall mean all federal, state, county,
city, municipality, assessment districts, local and foreign taxes and other
assessments and governmental charges of a similar nature including, but not
limited to, income, sales, use, excise, personal and real property (tangible and
intangible) taxes imposed by any Government Body (as defined in Section 4.29)
(whether imposed directly or through withholding), including interest, penalties
and additions to Tax applicable thereto.
(b) No claim or legal proceeding is pending or has been
threatened against or with respect to Validity in respect of any Tax. There are
no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to any
notice of deficiency or similar document received by Validity. There are no
liens for Taxes upon any of the assets of Validity, except liens for current
Taxes not yet due and payable. No extension or waiver of any limitation period
applicable to any Validity Tax returns has been granted by Validity (or any
other person) and no such extension or waiver has been requested. No Validity
return relating to Taxes has been examined or audited by any Governmental Body
except as disclosed on Schedule 4.7(b).
(c) At all times from October 1, 1990, through the Closing
Date, Validity has been an S corporation within the meaning of Section
1361(a)(1) of the Code and has used September 30 as its taxable year. Validity
and the Shareholders have not taken any action that has or shall result in the
termination of Validity's status as an S corporation within the meaning of
Section 1361(a)(1) of the Code or imposition of a tax on Validity under the
provisions of Section 1374 of the Code. Validity has not conducted any business
in any state or political subdivision in which the disposition of any of its
assets including goodwill in a transaction in which gain or income would be
realized would result in the imposition by that state or political subdivision
of a corporate level tax. Validity does not conduct any business which is a
historic business of, a continuation of, or successor to any business which was
previously conducted by another corporation or any other entity which was
subject to a United States corporate level tax on its gain or income including a
tax imposed by reason of the provisions of Section 1374 and 1375 of the Code, or
any predecessor provisions thereto. Validity has never acquired any asset,
including goodwill, the basis of which was determined in whole or in part by
reference to the basis of the asset in the hands of a C corporation within the
meaning of Section 1361(a)(2) of the Code or S corporation subject to the
provisions of Section 1374 of the Code or predecessor provisions thereto.
Validity has no accumulated earnings and profits. Validity's status as an S
corporation will continue to be in effect at the time of the consummation of the
transactions contemplated hereby so as to permit the effectiveness of the
Election (as defined in Section 11.2) and the Shareholders shall not take, and
shall not cause or permit Validity to take any action inconsistent with the
foregoing.
5.
(d) Except for potential Tax on built-in gain under Section
1374 of the Code as disclosed on Schedule 4.7(c), which shall not exceed the
Excluded Liability (as defined in Section 11.1), Validity will not be liable for
any Tax under Section 1374 of the Code in connection with the deemed sale of
assets caused by the Election.
4.8 Financial Statements.
(a) Validity has delivered to Buyer the following financial
statements and notes (collectively, the "Financial Statements"):
(i) the unaudited balance sheets of Validity as of
September 30, 1997 and 1996, and the related unaudited income statements,
statements of shareholders' equity and statements of cash flows of Validity for
the years then ended, together with the notes thereto reviewed by Jassoy Xxxxx &
Xxxxxxx LLP; and
(ii) the unaudited balance sheet of Validity as of
December 31, 1997 (the "Unaudited Interim Balance Sheet"), and the related
unaudited income statement of Validity for the three- month period then ended.
The Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Validity as of
the respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 4.8(a)(i)) cash flows of
Validity for the periods covered thereby. The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except that the financial
statements referred to in Section 4.8(a)(ii) do not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).
(b) Validity's invoices (and its accounts receivables) on
Government Contracts as defined in Section 4.29 that permit Validity to xxxx
based upon estimates of its subcontractors' work-in-progress plus Validity's
permitted fee ("Gold P.O.s") are reasonable estimates of the actual
subcontractors' charges for the work done as of the date of the invoices on such
Government Contracts. The aggregate of all of Validity's outstanding accounts
receivable for all Gold P.O.s on Validity's books equals Validity's liability to
all subcontractors on such Government Contracts, except for Validity's permitted
fees on such subcontractor work, fees for Validity work, and except for
immaterial discrepancies resulting from Validity billing for estimated work
prior to the receipt from its subcontractors of invoices for actually completed
work. Upon receipt of all bills from subcontractors, Validity reconciles the
actual xxxx to Validity's estimates used to xxxx on Gold P.O.s and adjusts the
bills in accordance with applicable accounting procedures to account for any
such discrepancies within three (3) billing cycles. Subject to the exceptions
noted above, if the difference for all outstanding Gold P.O.s contracts as of
Closing has a net payable of $25,000 in aggregate of accrued liabilities
compared to recievables for which Gold P.O.s apply , then the discrepancy will
result in an offset against the Notes payable. This offset will not be subject
to the $1,000,000 threshold amount as described in the Agreement. Prior to
payment under the Notes, the parties will have a reconciliation of the Gold
P.O.s in accordance with the criteria set forth in Schedule 4.8 ("Final
Reconciliation"). If either party disputes the Final Reconciliation, the Final
Reconcilition will be submitted to Xxxxxx
6.
Xxxxxxxx, LLP or another Big Six accounting firm who shall determine the matter.
The findings of such accounting firm shall be binding and nonappealable.
4.9 No Undisclosed Liabilities. Except as set forth in this
Agreement and except for liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet and accrued payables or accrued
salaries that have been incurred by Validity since January 1, 1998, in the
ordinary course of business and consistent with past practices; (i) Validity has
no liabilities, commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect, matured or unmatured or
otherwise) and (ii) no facts exist that could reasonably be expected to give
rise to any basis for the assertion against Validity of any liability except
liabilities and obligations incurred in the ordinary course of Validity's
business and consistent with past practice.
4.10 Absence of Certain Changes. Since December 31, 1997, there has
not been any:
(a) material adverse change in the financial condition,
assets, liabilities, business or operations of Validity;
(b) material loss, damage or destruction, whether covered by
insurance or not, affecting Validity's business or properties or any material
interruption in the use of any of Validity's properties;
(c) material increase in the salaries, wages or other
remuneration or compensation to any employee or agent of Validity, or in any
benefits payable or to become payable to any employee or agent of Validity
(including, without limitation, any increase or change pursuant to any bonus,
pension, profit sharing, retirement or other plan or commitment or the
establishment or adoption of any new employee benefit plan), or any material
bonus or other employee benefit granted, made or accrued to any such person
except as set forth on Schedule 4.10(c);
(d) hiring of any new employee with an annual base
compensation rate (including projected commissions) in excess of $40,000 other
than employees who are chargeable as direct labor on Validity's existing
Government Contracts;
(e) labor dispute or disturbance;
(f) declaration, setting aside, or payment of any dividend or
any other distribution to any of the Shareholders; any redemption, purchase or
other acquisition by Validity of any shares or other interest in Validity, or
any security relating thereto; or any other payment to any shareholder or
shareholders of Validity;
(g) sale, lease or other transfer or disposition of any
material properties or assets of Validity, except for the sale of inventory
items in the ordinary course of business;
7.
(h) indebtedness for borrowed money incurred, assumed or
guaranteed by Validity except for routine borrowings in the ordinary course of
Validity's business under its $1.25 million line of credit from Union Bank of
California ("Line of Credit");
(i) mortgage, pledge, lien or Encumbrance made on any of the
properties or assets of Validity;
(j) capital expenditures in excess of $25,000 in the aggregate
or $10,000 as to any individual capital expenditure;
(k) waiver of material rights under any material contract to
which Validity is a party;
(l) sale, issuance or authorization of any capital stock or
other security, or any option or right to acquire any capital stock, or any
instrument convertible into or exchangeable for any capital stock or other
security;
(m) amendment to Validity's Articles of Incorporation or
Bylaws, and Validity has not effected or been a party to any acquisition
transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(n) formation of a subsidiary or acquisition of any other
entity;
(o) write-off as uncollectible, or establishment of any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(p) change in Validity's method of accounting or accounting
practices;
(q) commencement or settlement of legal proceedings;
(r) loan or advance (other than advances to employees in the
ordinary course of business for travel in accordance with past practice) to any
person including, but not limited to, any officer, director or employee of
Validity;
(s) entering into of any type of license agreement or other
agreement regarding intellectual property rights;
(t) making of any Tax election;
(u) other material action, commitment or transaction by
Validity (including, without limitation, any borrowing or capital expenditure)
other than in the ordinary course of business consistent with past practice; or
(v) agreement or commitment to take any of the actions
referred to in clauses "(c)" through "(u)" above.
4.11 Title to Assets. Validity owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i) all
assets owned and reflected on the
8.
Unaudited Interim Balance Sheet; (ii) all of its rights under the Contracts
identified in Schedule 4.16; and (iii) all other assets reflected in its books
and records as being owned by Validity. Except as set forth in Schedule 4.11,
all of said assets are owned by Validity free and clear of any liens or other
Encumbrances, except for any lien for current taxes not yet due and payable.
Schedule 4.11 identifies all assets that are material to the business of
Validity and that are being leased or licensed to Validity and the lease or
license agreement relating to each such asset.
4.12 Bank Accounts; Receivables.
(a) Schedule 4.12(a) provides accurate information with
respect to each account maintained by or for the benefit of Validity at any bank
or other financial institution.
(b) Schedule 4.12(b) provides an accurate and complete
breakdown and aging of all accounts receivable, notes receivable and other
receivables of Validity as of December 31, 1997. Except as set forth in Schedule
4.12(b), all existing accounts receivable of Validity (i) represent valid
obligations of customers of Validity arising from bona fide transactions entered
into in the ordinary course of business and (ii) are current and will be
collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $85,000 in the aggregate).
4.13 Equipment. All material items of equipment and other tangible
assets owned by or leased to Validity are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of Validity's business, in the manner
in which such business is currently being conducted.
4.14 Litigation, Etc. No action, suit, proceeding, or investigation
of any nature is pending or, to the best of Validity's knowledge, threatened
against Validity, nor, to the best of Validity's knowledge, is there any basis
therefor. The foregoing includes: any action, suit, proceeding or investigation,
pending or threatened, which questions the validity of the Agreement or the
right of Validity or the Shareholders to enter into the Agreement or to sell and
transfer the Shares being sold and transferred hereunder, or which might result,
either individually or in the aggregate, in any material adverse change in the
condition or affairs of Validity, financial or otherwise; or any litigation
pending or threatened by or against Validity or any Shareholder by reason of the
past or current employment relationships of any employee, officer or consultant
of Validity or the activities of any Shareholder, including but not limited to
negotiations by any Shareholder with possible purchasers of, or investors in,
Validity or its business. There is no judgment, decree, injunction, rule or
order of any court, governmental department, commission agency, instrumentality
or arbitrator or other similar ruling outstanding against Validity or any
Shareholder with respect to Validity. No action, suit, proceeding or
investigation is pending or threatened by Validity or any Shareholder with
respect to Validity.
4.15 Intellectual Property. The term "Validity Intellectual
Property" shall include all (i) registered and unregistered trademarks, service
marks and applications therefor (collectively "Marks"), (ii) patents (including
any extension, continuation, registration, confirmation, reissue, renewal or
re-examination thereof) and patent applications (collectively "Patents"), (iii)
copyrights in both published works and unpublished works ("Copyrights"), and
9.
(iv) know-how, trade secrets and other confidential information ("Trade
Secrets"), in each case owned, used or licensed by Validity as licensee or
licensor. All material Validity Intellectual Property owned or licensed by
Validity is listed on Schedule 4.15. The Validity Intellectual Property includes
all intellectual property rights necessary for the operation of the business of
Validity as it is currently conducted. The operation of the business of Validity
as it is currently conducted does not and will not infringe, violate or
misappropriate any intellectual property rights of any third party. Validity is
the owner or licensee of all right, title and interest in and to all of the
Validity Intellectual Property free and clear of all liens and Encumbrances, and
has the right to use without further payment to a third party all of the
Validity Intellectual Property. To Validity's knowledge, there are no actual or
claimed infringements, violations or misappropriations existing by or against
any third party with respect to the Validity Intellectual Property. To
Validity's knowledge, all of the Validity Intellectual Property is valid and
enforceable, and neither Validity nor any Shareholder has, by act or failure to
act, including without limitation, by failure to attach any required notice or
failure to pay fees, transferred any rights to the Validity Intellectual
Property into the public domain. Validity is not making use of any Validity
Intellectual Property in connection with the business of Validity in which any
present or past employee, partner, shareholder, licensor, licensee or agent of
Validity has or has claimed an interest, and to Validity's knowledge, there are
no facts that could reasonably be expected to give rise to such a claim.
4.16 Contracts.
(a) Schedule 4.16 identifies each Contract of Validity:
(i) relating to the employment of, or the performance of
services by, any employee, consultant or independent contractor which involves a
potential commitment in excess of $40,000 per year other than employees who are
chargeable as direct labor on Validity's existing Government Contracts;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Validity Intellectual
Property;
(iii) imposing any restriction on Validity's right or
ability (A) to compete with any other person or entity, (B) to acquire any
product or other asset or any services from any other person or entity, to sell
any product or other asset to or perform any services for any other person or
entity or to transact business or deal in any other manner with any other person
or entity, or (C) to develop or distribute any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) relating to the acquisition, issuance or transfer of
any securities;
(vi) relating to the creation of any Encumbrance with
respect to any asset of Validity;
10.
(vii) involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity or any surety
arrangement;
(viii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Related
Party (as defined in Section 4.21);
(x) constituting or relating to a Government Contract
(as defined in Section 4.29) or Government Bid (as defined in Section 4.29);
(xi) that was entered into outside the ordinary course
of business or was inconsistent with Validity's past practices;
(xii) that has a term of more than 60 days and that may
not be terminated by Validity (without penalty) within 60 days after the
delivery of a termination notice by Validity; and
(xiii) that contemplates or involves (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $40,000 in the aggregate, or (B) the performance of services having a value
in excess of $40,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) Validity has made available to Buyer accurate and complete
copies of all written Material Contracts identified in Schedule 4.16, including
all amendments thereto. Schedule 4.16(b) provides an accurate description of the
terms of each Material Contract that is not in written form. Each Material
Contract is valid and in full force and effect, and, to the best of the
knowledge of Validity, is enforceable by Validity in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Schedule 4.16 and 4.16(b):
(i) Validity has not violated or breached, or committed
any default under, any Material Contract, and, to the best of the knowledge of
Validity, no other person or entity has violated or breached, or committed any
default under, any Material Contract;
(ii) to the best of the knowledge of Validity, no event
has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or could reasonably be expected to, (A) result in
a violation or breach of any of the provisions of any Material Contract, (B)
give any person or entity the right to declare a default or exercise any remedy
under any Material Contract, (C) give any person or entity the right to
11.
accelerate the maturity or performance of any Material Contract, or (D) give any
person the right to cancel, terminate or modify any Material Contract;
(iii) since January 1, 1997, Validity has not received
any notice or other communication regarding any actual or possible violation or
breach of, or default under, any Material Contract; and
(iv) Validity has not waived any of its material rights
under any Material Contract.
(d) No person or entity is renegotiating, or has a right
pursuant to the terms of any Material Contract to renegotiate, any amount paid
or payable to Validity under any Material Contract or any other material term or
provision of any Material Contract.
(e) The Contracts identified in Schedule 4.16 and Schedule
4.16(b) collectively constitute all of the contracts necessary to enable
Validity to conduct its business in the manner in which its business is
currently being conducted.
(f) Schedule 4.16 and Schedule 4.16(b) identify and provide a
brief description of each proposed contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by Validity since July 1, 1997.
(g) Schedule 4.16 and Schedule 4.16(b) provide an accurate
description and breakdown of Validity's backlog as of December 31, 1997, under
the Material Contracts.
(h) Except as set forth in Schedule 4.16 and Schedule 4.16(b):
(i) Validity has not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) Validity has complied in all material respects with
all Legal Requirements with respect to all Government Contracts and Government
Bids;
(iii) Validity has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the
Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations, or (I)
any other applicable procurement law or regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by Validity
in any certification, representation or disclosure statement submitted by
Validity with respect to any Government Contract or Government Bid were current,
accurate and complete as of the date of submission;
12.
(v) neither Validity nor any of its employees has been
debarred or suspended from doing business with any Governmental Body, and, to
the best of the knowledge of Validity, no circumstances exist that would warrant
the institution of debarment or suspension proceedings against Validity or any
employee of Validity;
(vi) no negative determinations of responsibility have
been issued against Validity in connection with any Government Contract or
Government Bid;
(vii) no direct or indirect costs incurred by Validity
have been questioned or disallowed as a result of a finding or determination of
any kind by any Governmental Body;
(viii) no Governmental Body, and no prime contractor or
higher-tier subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to Validity under any
Government Contract other than routine retentions that are not in dispute;
(ix) there are not and have not been any irregularities,
misstatements or omissions relating to any Government Contract or Government Bid
that have led to or could reasonably be expected to lead to (A) any
administrative, civil, criminal or other investigation, legal proceeding or
indictment involving Validity or any of its employees, (B) the questioning or
disallowance of any costs submitted for payment by Validity, (C) the recoupment
of any payments previously made to Validity, (D) a finding or claim of fraud,
defective pricing or improper payments on the part of Validity, or (E) the
assessment of any penalties or damages of any kind against Validity;
(x) there is not and has not been any (A) outstanding
claim against Validity by, or dispute involving Validity with, any prime
contractor, subcontractor, vendor or other person arising under or relating to
the award or performance of any Government Contract, (B) fact known by Validity
upon which any such claim could reasonably be expected to be based or which may
give rise to any such dispute, or (C) final decision of any Governmental Body
against Validity;
(xi) Validity is not undergoing and has not undergone
any audit, and Validity has no knowledge of any basis for any impending audit,
arising under or relating to any Government Contract (other than normal routine
audits conducted in the ordinary course of business);
(xii) Validity has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xiii) no payment has been made by Validity or by any
person acting on Validity's behalf to any person (other than to any bona fide
employee or agent (as defined in subpart 3.4 of the FAR) of Validity) which is
or was contingent upon the award of any Government Contract or which would
otherwise be in violation of any applicable procurement law or regulation or any
other Legal Requirement;
13.
(xiv) Validity's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any Legal
Requirement;
(xv) Validity has complied with all applicable
regulations and other Legal Requirements and with all applicable contractual
requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other proprietary assets;
(xvi) in each case in which Validity has delivered or
otherwise provided any technical data, computer software or Validity
Intellectual Property to any Governmental Body in connection with any Government
Contract, Validity has marked such technical data, computer software or Validity
Intellectual Property with all markings and legends (including any "restricted
rights" legend and any "government purpose license rights" legend) necessary
(under the FAR or other applicable Legal Requirements) to ensure that no
Governmental Body or other person or entity is able to acquire any unlimited
rights with respect to such technical data, computer software or Validity
Intellectual Property;
(xvii) Validity has not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xviii) Validity has reached agreement with the
cognizant government representatives approving and "closing" all indirect costs
charged to Government Contracts for all years from inception through 1993, and
those years are closed;
(xix) the responsible government representatives have
agreed with Validity as to the "forward pricing rates" that Validity is charging
on cost-type Government Contracts and including in Government Bids;
(xx) Validity is not and will not be required to make
any filing with or give any notice to, or to obtain any consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of the execution, delivery of
performance of this Agreement or any of the other agreements referred to in this
Agreement; and
(xxi) Neither Validity nor any director, officer, agent,
employee or other person acting on behalf of Validity has used any corporate or
other funds for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds. Neither Validity nor any director, officer, agent, employee or other
person acting on behalf of Validity has accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.17 Security Matters. Validity is in compliance with all security
and related requirements on its Government Contracts.
14.
4.18 Employee and Labor Matters; Benefit Plans.
(a) Schedule 4.18(a) identifies each salary, bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance
pay, termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (collectively, the "Plans") sponsored, maintained,
contributed to or required to be contributed to by Validity for the benefit of
any employee of Validity ("Employee").
(b) Except as set forth in Schedule 4.18(a), Validity does not
maintain, sponsor or contribute to, and, has not at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees (a "Pension Plan").
(c) Validity maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Schedule
4.18(a) (the "Welfare Plans"), none of which is a multiemployer plan (within the
meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, Validity has delivered to
Buyer:
(i) an accurate and complete copy of such Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report,
if required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and record
keeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
15.
(e) Validity is not and has never been required to be treated
as a single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. Validity has never been a member of
an "affiliated service group" within the meaning of Section 414(m) of the Code.
Validity has never made a complete or partial withdrawal from a multiemployer
plan, as such term is defined in Section 3(37) of ERISA, resulting in
"withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(f) Validity does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would affect any Employee.
(g) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and neither Validity nor any of the Shareholders is aware of
any reason why any such determination letter should be revoked.
(k) Except as set forth in Schedule 4.18(k), neither the
execution, delivery or performance of this Agreement, nor the consummation of
the sale of Shares or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of Validity
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Schedule 4.18(l) contains a list of all salaried Employees
of Validity as of the date of this Agreement, and correctly reflects, in all
material respects, their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions.
Schedule 4.18(l) also contains a list of all Employees of Validity with security
clearances and the level of such security clearance. Validity is not a party to
any collective
16.
bargaining contract or other Contract with a labor union involving any of its
Employees. All of Validity's employees are "at will" employees.
(m) Schedule 4.18(m) identifies each Employee who is not fully
available to perform work because of disability or other leave and sets forth
the basis of such leave and the anticipated date of return to full service.
(n) Validity is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters including without limitation Legal
Requirements respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, and occupational
safety and health requirements, and has not and are not engaged in any unfair
labor practice.
(o) Validity has good labor relations with its Employees and
has no reason to believe that (i) the sale of Shares or any of the other
transactions contemplated by this Agreement will have a material adverse effect
on Validity's labor relations, or (ii) that any Validity Employees intend(s) to
terminate his or her employment with Validity following the Closing.
(p) All persons classified by Validity as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and Validity has fully and accurately reported their compensation on
IRS Forms 1099 when required to do so, except to the extent that any
misclassification of any such person will not have a material adverse effect on
Validity.
(q) There is no charge or compliance proceeding actually
pending or, to Validity's knowledge threatened against Validity before the Equal
Employment Opportunity Commission or any state, local, or foreign agency
responsible for the prevention of unlawful employment practices.
4.19 Compliance with Laws. Validity is, and at all times during the
period prior to the date hereof Validity has been, in material compliance with
all applicable Legal Requirements. Validity has not received any notice or
communication from any Governmental Body regarding any violation of, or failure
to comply with, any Legal Requirements.
4.20 Governmental Authorizations. Validity has all Governmental
Authorizations necessary to enable Validity to conduct its business in the
manner in which business is currently being conducted, except where any failure
to have such Governmental Authorizations has not had and will not have a
material adverse effect on Validity. Validity is, and at all times since January
1, 1993, has been, in compliance with the material terms and requirements of
such Governmental Authorizations. Since January 1, 1993, Validity has not
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization. "Governmental
17.
Authorization" shall mean any (a) permit, license, consent, certificate,
franchise, permission, clearance, registration, qualification, or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement; or (b) right under
any Government Contract.
4.21 Related Persons. (a) No shareholder, director, officer, former
director or officer, or employee of Validity, or any member of the immediate
family of such person or any entity owned or controlled in whole or in part by
any such person ("Related Party") has, and no Related Party has at any time
since January 1, 1993, had, any direct or indirect interest in any material
asset used in or otherwise relating to the businesses of Validity; (b) no
Related Party is, or has at any time since January 1, 1993, been, indebted to
Validity; (c) since January 1, 1993, no Related Party has entered into, or has
had any direct or indirect financial interest in, any material Contract,
transaction or business dealing with or involving Validity; (d) no Related Party
is competing, or has at any time since January 1, 1993, competed, directly or
indirectly, with Validity; and (e) no Related Party has any claim or right
against Validity (other than rights to receive compensation for services
performed as an employee of Validity).
4.22 Insurance. Schedule 4.22 sets forth (a) an accurate summary
description of each insurance policy providing coverage for liability exposure
(including policies providing property, casualty, liability and workers'
compensation coverage and bond and surety arrangements) to which Validity is
currently, or has been during the past three years, a party, a named insured or
otherwise the beneficiary of coverage and (b) all insurance loss runs or
worker's compensation claims received for the past three policy years. With
respect to each such insurance policy: to Validity's knowledge, (a) the policy
is legal, valid, binding, enforceable and in full force and effect; (b) there
will be no breach or other violation of the policy resulting from this
transaction; and (c) Validity is not in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
policy.
4.23 Real Property; Owned or Leased. Schedule 4.23 sets forth a
complete and accurate description of each parcel of real property owned by or
leased to Validity. Schedule 4.23 contains a description of all buildings,
fixtures, and other improvements located on these real properties and a list of
the policies of title insurance, if any, issued to Validity for these
properties. All the leases listed on Schedule 4.23 are valid and in full force
and effect, and there does not exist any default or event that with notice or
lapse of time, or both, would constitute a default under any of these leases and
no person (except Validity) has any right of possession to such leased property
or any part thereof. Validity owns clear and marketable title, free of any liens
or Encumbrances, to all improvements and fixtures located on these real
properties. There is presently no pending or, to Validity's knowledge,
contemplated condemnation of any of the property listed on Schedule 4.23 or any
part thereof, and Validity has made no commitment to any governmental or
quasi-governmental entity or to any other person or entity which relates to such
property or imposes upon Validity or Validity's successors or assigns any
obligation to pay or contribute property or money or to construct, install or
maintain any improvements on or off such property. There are no violations by
Validity of any law, including any building, planning or zoning law relating to
any owned or leased real properties
18.
that would have a material adverse effect on Validity or its financial
condition, assets, liabilities, business, or operations.
4.24 Environmental Matters. Validity is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by Validity of all permits and other Government
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. Validity has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that Validity is not in
compliance with any Environmental Law, and there are no circumstances that may
prevent or interfere with Validity's compliance with any Environmental Law in
the future. No current or prior owner of any property leased or controlled by
Valdity has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that such current or prior owner is not in compliance
with any Environmental Law. All Government Authorizations currently held by
Validity pursuant to Environmental Laws are identified in Schedule 4.24. None of
the real properties owned or leased by Validity (including, without limitation,
soils, surface water and groundwater located at such properties) is contaminated
with any Materials of Environmental Concern. "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern. "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroluem products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
4.25 Corporate Records Validity has delivered, or made available for
inspection, to Buyer accurate and complete copies of (1) Validity's articles of
incorporation and bylaws, including all amendments thereto; (2) the stock
records of Validity; and (3) the minutes and other records of the formal meeting
and proceedings (including any actions taken by written consent or otherwise
without a meeting) of the Shareholders, the board of directors of Validity and
all committees of the board of directors of Validity. There have been no formal
meetings or other proceedings of the Shareholders, the board of directors of
Validity or any committee of the board of directors of Validity that are not
fully reflected in such minutes or other records. The stock records and minutes
books are accurate, up to date and complete in all material respects.
4.26 Full Disclosure. No statement by the Shareholders or Validity
contained in this Agreement, or the Exhibits, Schedules or other attachments
hereto, or any written certificate furnished or to be furnished to Buyer
pursuant hereto (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
19.
4.27 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement based on any arrangement or agreement made by or on behalf of Validity
or the Shareholders.
4.28 Disallowable Director Expense Items. All costs related to
Related Persons (as defined in Section 4.21), including, but not limited, to
compensation, consultation fees, life insurance premiums, auto allowances,
business meals related party facility cost and any facility purchase options
have been properly classified as unallowable costs for Government Contract
accounting purposes as described below. Any costs related to the Related Persons
that have not been properly self disallowed for Government accounting purposes
but were not self disallowed and which result in liability to Buyer will be used
to offset the Note and shall not be subject to the $1,000,000 exclusion.
4.29 Certain Definitions. For purposes of this Agreement:
(a) "Contract" shall mean any written, oral or other
agreement, contract, subcontract, lease, understanding, instrument, note,
warranty, insurance policy, benefit plan or legally binding commitment or
undertaking of any nature.
(b) "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security
(excluding restrictions under applicable federal and state securities laws) or
other asset, any restriction on any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
(c) "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
(d) "Governmental Body" shall mean any (i) nation, state,
commonwealth, province, territory, county, city, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of any
nature (including governmental division, department, agency, commission, board,
instrumentality, official, organization, unit, or body).
(e) "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor otherwise has or may acquire any right or interest other than
any contract, subcontract, letter contract, purchase order or delivery order
that was fully performed by Validity before 1990 and has been closed.
(f) "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted,
20.
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder,
severally and not jointly, represents and warrants to Buyer, as of the Closing
Date, as follows:
5.1 Title to Stock; Encumbrances. Such Shareholder is the true,
lawful record and beneficial owner of the Shares set forth beside such
Shareholder's name on the Schedule of Shareholders and such Shares are being
transferred and sold to Buyer hereunder, with no restrictions on the voting
rights or rights of disposition pertaining to such Shares (excluding
restrictions under applicable federal and state securities laws). The Shares set
forth beside such Shareholder's name on the Schedule of Shareholders constitute
all of the shares of capital stock of Validity owned beneficially or of record
by each such Shareholder. As of the Closing such Shareholder will convey to
Buyer good and valid title to such Shares free and clear of any and all liens or
other Encumbrances. None of the Shares is subject to any voting trust or other
agreement or arrangement with respect to the voting thereof.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Validity and the Shareholders as follows:
6.1 Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority and is entitled to
carry on its respective business as now being conducted by it and to own, lease
or operate its respective properties as and in the places where such business is
now conducted and properties are now owned, leased or operated.
6.2 Corporate Power; Authorization. Buyer has all requisite legal
and corporate power and authority to enter into the Agreement and to execute and
deliver the Notes and Pledge Agreement (the "Transaction Documents") and to
carry out and perform all of its obligations under the terms of the Agreement
and the Transaction Documents. All corporate action on the part of Buyer and all
action on the part of its officers and directors necessary for the
authorization, execution and delivery of this Agreement and the Transaction
Documents by Buyer and for the performance of Buyer's obligations hereunder and
thereunder has been taken, and the Agreement and the Transaction Documents, when
duly executed and delivered, shall constitute the valid and binding obligation
of Buyer enforceable against Buyer in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditor's rights and by rules of law governing specific performance, injunctive
relief or other equitable remedies.
6.3 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement based on any arrangement or agreement made by or on behalf of Buyer.
6.4 Consents. The execution, delivery and performance by Buyer of
this Agreement, and the consummation of the transactions contemplated herein
does not require the
21.
consent, approval or action of, or any filing with or notice to, any
Governmental Body or other person or entity.
6.5 Litigation, Etc. No action, suit, proceeding, or investigation
of any nature is pending or, to the best of Buyer's knowledge, is threatened
against Buyer which questions the validity of the Agreement or the right of
Buyer to enter into the Agreement.
6.6 Investment Purpose. Buyer is acquiring the Shares solely for the
purpose of investment, and not with a view to, or for offer or sale in
connection with, any distribution thereof.
7. CERTAIN COVENANTS OF VALIDITY AND THE SHAREHOLDERS.
7.1 Access and Investigation. During the period from the date of
this Agreement through the Closing Date (the "Pre-Closing Period"), Validity
shall, and shall cause its representatives to: (a) provide Titan, Buyer and
their representatives with reasonable access to Validity personnel and assets
and to all existing books, records, tax returns, work papers and other documents
and information relating to Validity; and (b) provide Titan, Buyer and their
representatives with copies of such existing books, records, tax returns, work
papers and other documents and information relating to Validity, and with such
additional financial, operating and other data and information regarding
Validity, as Titan or Buyer may reasonably request.
7.2 Operation of Validity's Business. During the Pre-Closing Period,
except pursuant to prior written consent of Buyer, Validity shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and maintain its relations and good will with all suppliers,
customers, landlords, creditors, employees and other persons having business
relationships with it;
(c) keep in full force all insurance policies identified in
Schedule 4.22;
(d) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(e) not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option or right to acquire any capital
stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(f) not amend or waive any of its rights under, or permit the
acceleration of vesting under, any outstanding stock option or warrant to
acquire Validity Common Stock;
22.
(g) not amend or permit the adoption of any amendment to
Validity's Articles of Incorporation or bylaws, or effect or permit Validity to
become a party to any acquisition transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(h) not form any subsidiary or acquire any equity interest or
other interest in any other entity;
(i) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of Validity during the Pre-Closing Period, do not exceed $10,000 per month;
(j) subject to requirements contained in the Line of Credit
referred to below, not (i) enter into, or permit any of the assets owned or used
by it to become bound by, any Contract that is or would constitute a Material
Contract, or (ii) amend or prematurely terminate, or waive any material right or
remedy under, any such Contract;
(k) not (i) acquire, lease or license any right or other asset
from any other person, (ii) sell or otherwise dispose of, or lease or license,
any right or other asset to any other person, or (iii) waive or relinquish any
right, except for assets acquired, leased, licensed or disposed of by Validity
pursuant to Contracts that are not Material Contracts;
(l) not (i) lend money to any person or (ii) incur or
guarantee any indebtedness for borrowed money (except that Validity may make
routine borrowings in the ordinary course of business under its Line of Credit;
provided that Validity shall use its best efforts to use collections from
accounts receivable and other cash receipts to pay down the Line of Credit prior
to Closing);
(m) not (i) establish, adopt or amend any Plan, (ii) pay any
bonus or make any profit-sharing payment, cash incentive payment or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees (other than the $600,000 set aside from the Purchase Price
to be awarded by Validity prior to Closing), or (iii) hire any new employee
whose aggregate annual compensation is expected to exceed $40,000 other than
employees who are chargeable as direct labor on existing or newly awarded
Validity Government Contracts;
(n) not change any of its methods of accounting or accounting
practices in any material respect;
(o) not make any Tax election;
(p) not commence or settle any material Legal Proceeding; and
(q) not agree or commit to take any of the actions described
in clauses "(d)" through "(p)" above.
23.
7.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Validity shall promptly
notify Buyer in writing of:
(i) the discovery by Validity of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Validity or any of the Shareholders in this
Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by Validity or any of the Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
Validity or any of the Shareholders; and
(iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set forth in Section
9 or Section 10 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 7.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then Validity shall promptly deliver to Buyer an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by Validity or
any of the Shareholders in this Agreement, or (ii) determining whether any of
the conditions set forth in Section 9 has been satisfied.
7.4 No Negotiation. During the Pre-Closing Period, neither Validity
nor any of the Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any person (other than Titan or Buyer) relating to a
possible Acquisition Transaction (as defined below);
(b) participate in any discussions or negotiations or enter
into any agreement with, or provide any non-public information or afford access
to the properties, books or records of Validity to any person (other than Titan
or Buyer) relating to or in connection with a possible Acquisition Transaction;
or
24.
(c) consider, entertain or accept any proposal or offer from
any person (other than Titan or Buyer) relating to a possible Acquisition
Transaction.
The parties acknowledge that any breach of the foregoing provisions by any
representative of Validity shall be deemed a breach by Validity. Validity shall
promptly notify Buyer in writing of any material inquiry, proposal or offer
relating to a possible Acquisition Transaction that is received by Validity or
any of the Shareholders or any of their representatives during the Pre-Closing
Period. For purposes of this Agreement, "Acquisition Transaction" means any
transaction involving: (i) the sale, license, disposition or acquisition of all
or a material portion of Validity's business or assets; (ii) the issuance,
disposition or acquisition of (1) any capital stock or other equity security of
Validity (other than common stock issued to employees of Validity in routine
transactions in accordance with the Validity's past practices), (2) any option,
call, warrant or right (whether or not immediately exercisable) to acquire any
capital stock or other equity security of Validity (other than stock options
granted to employees of Validity in routine transactions in accordance with
Validity's past practices), or (3) any security, instrument or obligation that
is or may become convertible into or exchangeable for any capital stock or other
equity security of Validity; or (iii) any merger, consolidation, business
combination, reorganization or similar transaction involving Validity.
8. ADDITIONAL COVENANTS OF THE PARTIES.
8.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the sale of the Shares and the other transactions
contemplated by this Agreement, and (b) shall use all commercially reasonable
efforts to obtain all consents (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the sale of the Shares and the other transactions contemplated
by this Agreement. Validity shall (upon request) promptly deliver to Buyer a
copy of each such filing made, each such notice given and each such consent
obtained by Validity during the Pre-Closing Period.
8.2 Public Announcements. During the Pre-Closing Period, (a) neither
Validity nor any of its Shareholders shall (and Validity shall not permit any of
its representatives to) issue any press release or make any public statement
regarding this Agreement, or regarding any of the other transactions
contemplated by this Agreement, without Titan's or Buyer's prior written
consent, and (b) Buyer will use reasonable efforts to consult with Validity
prior to issuing any press release or making any public statement regarding the
Agreement.
8.3 Best Efforts. During the Pre-Closing Period, (a) Validity and
the Shareholders shall use their best efforts to cause the conditions set forth
in Section 9 to be satisfied on a timely basis, and (b) Buyer shall use its best
efforts to cause the conditions set forth in Section 10 to be satisfied on a
timely basis.
8.4 Noncompetition Agreements. At or prior to the Closing, each of
XxXxx X. Xxxx, X.X. Xxxxxxx, Xx., Xxxx X. Xxxxxxx, Xxxxxx X. Xxxxxx and Xxxxxxxx
X. Xxxxxxx shall execute and deliver to Validity and Buyer a Noncompetition
Agreement as reasonably requested by Buyer.
25.
8.5 Employee Retention Program. If and as reasonably requested by
Buyer, Validity shall enter into employee retention agreements with employees
identified by Buyer and Validity.
8.6 Release. At the Closing, each of the Shareholders shall execute
and deliver to Validity a Release in the form of Exhibit D.
8.7 Stock Options. Following the Closing, Buyer shall grant to the
key managerial employees of Validity (the "Key Employees") listed on Exhibit G
hereto, either nonqualified options to acquire shares of Buyer's Common Stock
and/or shares of Titan's Common Stock (the "Options") in Buyer's sole
discretion. The Options will be granted to the Key Employees subject to
substantially similar terms and conditions as options granted to similarly
situated employees of Titan and Buyer. The exercise price for such options shall
be set at the fair market value of Buyer's or Titan's (as the case may be)
Common Stock on the date of grant and shall vest from the date of grant equally
over four years, on an annual basis.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
9.1 Accuracy of Representations. Each of the representations and
warranties made by Validity and the Shareholders in this Agreement and in each
of the other agreements and instruments delivered to Buyer in connection with
the transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties), and
shall be accurate in all material respects as of the Closing Date as if made on
the Closing Date (without giving effect to any update to the Disclosure Schedule
and without giving effect to any "material adverse effect" or other materiality
qualifications, or any similar qualifications, contained or incorporated
directly or indirectly in such representations and warranties).
9.2 Performance of Covenants. All of the covenants and obligations
that Validity and the Shareholders are required to comply with or to perform at
or prior to the Closing shall have been complied with and performed in all
respects.
9.3 Consents. All Consents required to be obtained in connection
with the sale of Shares and the other transactions contemplated by this
Agreement (including the consents identified in Schedule 4.5) shall have been
obtained and shall be in full force and effect.
9.4 Agreements and Documents. Buyer and Validity, as provided
herein, shall have received the agreements, documents and deliveries set forth
in Section 3.2, each of which shall be in full force and effect.
9.5 Lease Amendment. Validity shall have entered into with its
landlord for its facility located at 000 Xxxxx Xxxxx Xxxxxxx 000, Xxxxx X,
Xxxxxxxxx, Xxxxxxxxxx, an amendment to the facility lease modifying the term of
the lease to be a month-to-month lease terminable by either Validity or the
landlord on 90 days' prior written notice, but otherwise subject to the same
terms and conditions as the existing facility lease, and Validity shall have
26.
provided to Buyer a consent and estoppel certificate from such landlord in form
and content acceptable to Buyer.
9.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the sale of
the Shares contemplated by this Agreement shall have been issued by any court of
competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the sale of the Shares that makes
consummation of the transactions contemplated hereby illegal.
9.7 No Legal Proceedings. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the transactions contemplated
hereby or seeking to prohibit or limit the exercise by Buyer of any material
right pertaining to its ownership of securities of Validity.
9.8 Legends. Validity shall have provided Buyer with evidence,
reasonably satisfactory to Buyer, that all technical data, computer software and
Validity Intellectual Property delivered or otherwise provided or made available
by or on behalf of Validity to any Governmental Body in connection with
Government Contracts have been marked with all markings and legends (including
any "restricted rights" legend and any "government purpose license rights"
legend) appropriate (under the FAR, under other applicable Legal Requirements or
otherwise) to ensure that no Governmental Body or other Person is able to
acquire any unlimited rights with respect to any of such technical data,
computer software or Validity Intellectual Property Assets and to ensure that
Validity has not lost or relinquished and will not lose or relinquish any
material rights with respect thereto.
9.9 Invention Assignments. Buyer shall have received from Validity
confidential invention and assignment agreements, reasonably satisfactory in
form and content to Buyer, executed by all employees and former employees of
Validity and by all consultants and independent contractors and former
consultants and former independent contractors to Validity who have not already
signed such agreements.
9.10 No Material Adverse Effect. There shall not have occurred from
and after December 31, 1997, any event, condition or state of facts that has
resulted, or that is reasonably likely to result, in a material adverse effect
on the assets, liabilities, business, financial condition or prospects of
Validity or in the ability of Buyer to consummate the purchase of the Shares.
9.11 Termination of Executive Employment Agreements. The Executive
Employment Agreements between Validity and each of XxXxx X. Xxxx, X.X. Xxxxxxx,
Xx., Xxxx X. Xxxxxxx and Xxxxxx X. Xxxxxx (collectively, the "Principal
Shareholders"), the Stock Redemption Agreement for Principal Shareholders dated
February 25, 1993, as amended, and the Validity Corporation Stock Redemption
Agreement between Validity and Xxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx dated
February 25, 1993, as amended, shall each have been terminated without any
liability or additional obligations on the part of Validity and without the
payment of any additional compensation to any of the Principal Shareholders,
Xxxx X. Xxxxxx or Xxxxxx X. Xxxxxxx or any other person, including any amounts
accrued as of December 31, 1997 or
27.
thereafter for any obligations other than accruals for salaries and employment
benefits accrued and paid in the ordinary course of business.
9.12 Termination of Right of First Refusal. All rights of first
refusal, including without limitation any provision in Validity's Bylaws,
restricting the transfer of shares of Validity shall have been terminated or
irrevocably waived to the satisfaction of Buyer.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS. The
obligations of the Shareholders to effect the sale of Shares and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
10.1 Accuracy of Representations. Each of the representations and
warranties made by Buyer in this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
materiality or similar qualifications contained in such representations and
warranties), and shall be accurate in all material respects as of the Closing as
if made at the Closing Date (without giving effect to any materiality or similar
qualifications contained in such representations and warranties).
10.2 Performance of Covenants. All of the covenants and obligations
that Buyer is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
10.3 Documents. The Shareholders shall have received the documents,
agreements and deliveries required by Section 3.2.
10.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the sale of
the Shares contemplated by this Agreement shall have been issued by any court of
competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the sale of the Shares that makes
consummation of the transactions contemplated hereby illegal.
10.5 No Legal Proceedings. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the transactions contemplated
hereby or seeking to prohibit or limit the exercise by Buyer of any material
right pertaining to its ownership of securities of Validity.
10.6 Guaranty. The Line of Credit shall have been amended so that
the Principal Shareholders shall have been released as guarantors of the Line of
Credit or Buyer shall have indemnified the Principal Shareholders from and
against any liability on the guaranties of the Line of Credit (other than for
any liability arising from any breach of the Line of Credit or guaranties
occurring prior to the Closing and not disclosed to Buyer in the Disclosure
Schedules). Any person who has provided a guaranty or whose signature or
cooperation is necessary will fully cooperate with Buyer and Buyer's Agents
provided they incur no costs or liability to remove any encumbrances under the
Line of Credit.
28.
11. ADDITIONAL AGREEMENTS.
11.1 Payment of Taxes. The Shareholders have paid, or (to the extent
not yet due and payable) will pay, in a timely fashion, all Taxes required to be
paid attributable to their ownership of Shares in respect of all periods on or
prior to the Closing Date, including without limitation, Taxes for which they
are liable due to the status of Validity as an S corporation for federal income
tax purposes (and any analogous provisions of state or local law) and, in
particular, such Taxes arising as a result of the Election (as defined in
Section 11.2) The Shareholders shall reimburse Buyer or Validity within ten (10)
days of any payment by Buyer or Validity for the payment of, any and all such
Taxes of Validity attributable to any taxable period ending on or prior to the
Closing Date, other than up to $100,000 attributable to any built-in gain
incurred under Section 1374 of the Code in connection with the deemed sale of
assets caused by the Election ("Excluded Liability"). With respect to the
reimbursement for Tax on any built-in gain incurred under Section 1374 of the
Code, the amount required to be paid by the Shareholders shall be reduced for
the present value tax savings excluding the amount of savings otherwise
attributable to the first $100,000 of such tax (i.e., total available deductions
multiplied by the applicable federal corporate income tax rate) that Validity
will realize as a result of being able to amortize or depreciate the amount of
such Tax as a part of the deemed purchase price of Validity's assets. Present
value shall be calculated using the then applicable Federal rate for a debt of
the same maturity as the amortization period.
11.2 Tax Election. Buyer and each Shareholder shall jointly make the
elections provided for by Sections 338(a) and 338(h)(10) of the Code and Treas.
Reg. ss. 1.338(h)(10)-1 (and any comparable election under state or local law)
with respect to the purchase of the Shares by Buyer (each, an "Election"). At
the Closing, Buyer shall deliver a signed and completed Form 8023 to the
Shareholders and the Shareholders shall execute and deliver the form to Buyer at
the Closing. Also, Buyer and Shareholders shall cooperate with each other to
take all actions necessary and appropriate (including filing such additional
forms, returns, elections, schedules, and other documents as may be required) to
effect and preserve a timely Election in accordance with the provisions of
Treas. Reg. ss. 1.338(h)(10)-1 (or any comparable provisions of state or local
tax law) or any successor provisions. Buyer and Seller shall report the purchase
by Buyer of the Shares pursuant to the Agreement consistent with the Elections
(and any comparable election under state or local tax laws) and shall take no
position inconsistent therewith in any tax return, or any proceeding before any
taxing authority or otherwise.
11.3 Tax Allocations. In connection with the Elections, not later
than the Closing, Buyer and Shareholders shall act together in good faith to (i)
determine and agree upon a "Modified Aggregate Deemed Sales Price" of Validity
(within the meaning of, and in accordance with, Treas. Reg. ss.
1.338(h)(10)-1(f)) and (ii) determine and agree upon the proper allocations (the
"Allocations") of the "Modified Aggregate Deemed Sales Price" among the
respective assets of Validity (in accordance with Section 338(b)(5) of the Code
and Treasury regulations promulgated thereunder). Buyer and the Shareholders
agree that the amount of the Purchase Price allocated to tangible personal
property will not exceed the value of such assets on the books of Validity as of
the Closing Date. Buyer and the Shareholders shall (i) be bound by such
determinations and such Allocations for purposes of determining any taxes, (ii)
prepare and file their tax returns on a basis consistent with such
determinations and such Allocations and (iii)
29.
take no position inconsistent with such determinations and Allocations on any
applicable tax return, in any proceeding before any taxing authority or
otherwise. In the event that any such Allocation is disputed by any taxing
authority, the party receiving notice of the dispute shall promptly notify the
other party hereto concerning resolution of the dispute. Any liability for taxes
arising from the Elections (other than the Excluded Liability which shall be
payable by Validity) shall be borne by the Shareholders, jointly and severally.
12. TERMINATION.
12.1 Termination Events. This Agreement may be terminated prior to
the Closing without either party incurring any termination fee:
(a) by Buyer if Buyer reasonably determines that the timely
satisfaction of any condition set forth in Section 9 has become impossible
(other than as a result of any failure on the part of Buyer to comply with or
perform any covenant or obligation of Buyer set forth in this Agreement);
(b) by Validity if Validity reasonably determines that the
timely satisfaction of any condition set forth in Section 10 has become
impossible (other than as a result of any failure on the part of Validity or any
of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument delivered to
Buyer);
(c) by Buyer if the Closing has not taken place on or before
Closing (other than as a result of any failure on the part of Buyer to comply
with or perform any covenant or obligation of Buyer set forth in this
Agreement);
(d) by Validity if the Closing has not taken place on or
before Closing (other than as a result of the failure on the part of Validity or
any of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument delivered to
Buyer); or
(e) by the mutual consent of Buyer and Validity.
12.2 Termination Procedures. If Buyer wishes to terminate this
Agreement pursuant to Section 12.1(a) or Section 12.1(c), Buyer shall deliver to
Validity prompt written notice stating that Buyer is terminating this Agreement
and setting forth a brief description of the basis on which Buyer is terminating
this Agreement. If Validity wishes to terminate this Agreement pursuant to
Section 12.1(b) or Section 12.1(d), Validity shall deliver to Buyer prompt
written notice stating that Validity is terminating this Agreement and setting
forth a brief description of the basis on which Validity is terminating this
Agreement.
12.3 Termination Fees.
(a) Validity shall pay Buyer a termination fee of $1,000,000
payable upon termination of this Agreement, if the Agreement is terminated due
to Validity's or any of its Shareholders' material breach of this Agreement.
30.
(b) Buyer shall pay to Validity a termination fee of
$1,000,000, payable upon termination of this Agreement, if this Agreement is
terminated due to Buyer's material breach of this Agreement.
(c) Validity, the Shareholders and Buyer agree that in the
event this Agreement is terminated due to breach, the non-breaching party's sole
and exclusive remedy shall be to collect the termination fees pursuant to this
Section 12.3. Each of the parties acknowledges that it is impractical or
extremely difficult to estimate damages that a party would suffer due to
termination for breach and that the termination fee represents the parties' best
estimate of the sums which would be fair compensation for such damages.
12.4 Effect of Termination. If this Agreement is terminated pursuant
to Section 12.1, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) neither Validity nor Buyer shall
be relieved of any obligation to pay a termination fee as set forth in Section
12.3 and (b) the parties shall, in all events, remain bound by and continue to
be subject to the Confidentiality and Standstill Agreement dated January 20,
1998.
13. INDEMNIFICATION.
13.1 Survival of Representations, Etc.
(a) The representations and warranties made by Validity
(including the representations and warranties set forth in Section 4 shall
survive the Closing and shall expire on the first anniversary of the Closing
Date; provided, however, that if, at any time prior to the first anniversary of
the Closing Date, any Titan Indemnitee (defined below) (acting in good faith)
delivers to any of the Shareholders a written notice alleging the existence of
an inaccuracy in or a breach of any of the representations and warranties made
by Validity (and setting forth in reasonable detail the basis for such Titan
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under this Section 13 based on such alleged inaccuracy or
breach, then the claim asserted in such notice shall survive the first
anniversary of the Closing until such time as such claim is fully and finally
resolved, provided the Titan Indemnitee pursues such resolution in good faith
and with due diligence.
(b) The representations, warranties, covenants and obligations
of Validity and the Shareholders, and the rights and remedies that may be
exercised by the Titan Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to (other than the Disclosure
Schedule), or any investigation made by or knowledge of, any of the Titan
Indemnitees or any of their representatives.
13.2 Indemnification by Shareholders.
(a) From and after the Closing, the Shareholders, jointly and
severally, shall hold harmless and indemnify each of the Titan Indemnitees from
and against, and shall compensate and reimburse each of the Titan Indemnitees
for, any Damages which are directly or indirectly suffered or incurred by any of
the Titan Indemnitees or to which any of the Titan Indemnitees may otherwise
become subject (regardless of whether or not such Damages relate to any third
party claim) and which arise from or as a result of, or are directly or
indirectly
31.
connected with: (i) any inaccuracy in or breach by Validity of any
representation or warranty set forth in Section 4; (ii) any breach of any
covenant or obligation set forth in this Agreement of Validity or any of the
Shareholders; (iii) any claim by any former or present employee or consultant to
Validity arising from any alleged promise to pay any special bonus in connection
with the change of control of Validity or arising from a reassignment of the
responsibilities of and/or changes in the compensation levels of executives of
Validity following the change in control and (iv) any Legal Proceeding relating
to any inaccuracy or breach of the type referred to in clause "(i)","(ii)" or
"(iii)" above (including any Legal Proceeding commenced by any Titan Indemnitee
for the purpose of enforcing any of its rights under this Section 13).
(b) The Shareholders acknowledge and agree that, if Validity
suffers, incurs or otherwise becomes subject to any Damages as a result of or in
connection with any inaccuracy in or breach of any representation, warranty,
covenant or obligation, then (without limiting any of the rights of Validity as
an Titan Indemnitee) Buyer shall also be deemed, by virtue of its ownership of
the stock of Validity, to have incurred Damages as a result of and in connection
with such inaccuracy or breach.
13.3 Threshold; Ceiling.
(a) The Shareholders shall not be required to make any
indemnification payment pursuant to Section 13.2 for any inaccuracy in or breach
of any of their representations, covenants or obligations set forth herein until
such time as the total amount of all Damages (including the Damages arising from
such inaccuracy or breach and all other Damages arising from any other
inaccuracies in or breaches of any representations or warranties) that have been
directly or indirectly suffered or incurred by any one or more of the Titan
Indemnities, or to which any one or more of the Titan Indemnities has or have
otherwise become subject, exceeds $1,000,000 in the aggregate (excluding (i) any
liability for Taxes payable pursuant to Section 11 or for breach of the
representation and warranty in Section 4.7 or any Legal Proceeding relating
thereto, other than the Excluded Liability, (ii) any breach of the
representation and warranty in Section 4.8(b) or any Legal Proceeding relating
thereto, (iii) any liability under clause (ii) of Section 13.2(a) or any Legal
Proceeding relating thereto, and (iv) any liability under Section 4.28 or any
Legal Proceeding relating thereto, each of which shall be payable without any
deductible and shall not be counted in determining the $1,000,000 threshold). If
the total amount of such Damages exceeds $1,000,000, then the Titan Indemnities
shall be entitled to be indemnified against and compensated and reimbursed only
for the portion of such Damages exceeding $1,000,000.
(b) Except as provided below, the indemnification liability of
Shareholders under this Section shall be $2,000,000 and shall be payable solely
through offsets against the Notes. The $2,000,000 cap on indemnification
liability and the limitation on collection exclusively to offset against the
Notes set forth in the preceding sentence does not apply to liabilities for
Taxes payable under Section 11 or for breach of warranty under Section 4.7 as
modified by the Disclosure Schedule.
13.4 No Contribution. Each Shareholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against Validity in connection
32.
with any indemnification obligation or any other liability to which he may
become subject under or in connection with this Agreement.
13.5 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Validity, Buyer, Titan or against any other Person) with respect to which any of
the Shareholders may become obligated to hold harmless, indemnify, compensate or
reimburse any Titan Indemnitee pursuant to this Section 13, Buyer shall have the
right, at its election, to proceed with the defense of such claim or Legal
Proceeding on its own with counsel selected by Buyer. Buyer shall have the right
to settle, adjust or compromise such claim or Legal Proceeding with the consent
of the Shareholders' Agent (as defined in Section 13.8); provided, however, that
such consent shall not be unreasonably withheld. Consent may not be withheld if
each Titan Indemnitee against whom the claim has been made receives, as part of
the settlement or compromise, an unconditional release relating to such claim.
Buyer shall give the Shareholders' Agent prompt written notice of the
commencement of any such Legal Proceeding against Buyer or Validity; provided,
however, that any failure on the part of Buyer to so notify the Shareholders'
Agent shall not limit any of the obligations of the Shareholders under this
Section 13 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).
13.6 Definitions. For the purposes of this Section 13, the following
definitions shall apply:
(a) "Damages" shall include any loss, damage, injury,
liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee
(including reasonable attorneys' fees), charge, cost (including costs of
investigation) or expense of any nature, regardless of whether in the case of a
third party claim, the claim has any merit so long as Titan is pursuing such
third party claim in good faith.
(b) "Titan Indemnitees" shall mean the following: (a) Buyer;
(b) Buyer's current and future affiliates (including Titan and Validity); (c)
the respective Representatives of the persons or entities referred to in clauses
"(a)" and "(b)" above; and (d) the respective successors and assigns of the
persons or entities referred to in clauses "(a)," "(b)" and "(c)" above;
provided, however, that the Shareholders shall not be deemed to be "Titan
Indemnitees."
(c) "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
(d) "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
13.7 Recovery of Damages from Notes. Any Titan Indemnitee that has
directly or indirectly suffered, incurred or otherwise become subject to any
Damages shall be entitled to offset the aggregate amount of such Damages plus
interest thereon (computed at the
33.
Prime Rate of Imperial Bank, subject to maximum rate permitted by law through an
offset first pro rata against principal payable on all of the Notes and second
pro rata against any interest accrued on the Notes; provided that the Titan
Indemnitees comply with the following procedure:
(a) Prior to any offset, the Titan Indemnitee shall deliver to
the Shareholders' Agent a Claim Notice that shall: (i) state that Titan
Indemnitees has suffered or incurred Damages or reasonably believes in good
faith it will prospectively incur Damages, (ii) specify the amount of such
Damages and the date on which such Damages were suffered or incurred or are
expected to be incurred and (iii) specify in reasonable detail the facts alleged
as the basis for such Damages and the section or sections of this Agreement or
other document the violation or breach of which is alleged to have resulted in
or given rise to such Damages.
(b) If the Titan Indemnitee delivers a Claim Notice to the
Shareholders' Agent and the Shareholders' Agent agrees with the Claim or fails
to respond within 20 calendar days commencing on the delivery of the Claim
Notice, then Buyer may offset the claim against the Notes.
(c) If, during the 20 day period commencing on the date of
delivery of a Claim Notice, Buyer shall have received a written notice from or
on behalf of the Shareholders' Agent stating that the Shareholders in good faith
dispute the claim asserted in such Claim Notice, then Buyer shall not make any
offset against the Notes until: (i) Buyer and the Shareholders' Agent agree in
writing on the amount of Damages to be offset, or (ii) the disputed claim is
resolved through a final arbitration in accordance with this Agreement.
13.8 Shareholders' Agent. The Shareholders hereby irrevocably
appoint XxXxx X. Xxxx as their agent for purposes of this Section 13 (the
"Shareholders' Agent"), and XxXxx X. Xxxx hereby accepts his appointment as the
Shareholders' Agent. Buyer shall be entitled to deal exclusively with the
Shareholders' Agent on all matters relating to Section 13, and shall be entitled
to rely conclusively (without further evidence of any kind whatsoever) on any
document executed or purported to be executed on behalf of any Shareholder by
the Shareholders' Agent, and on any other action taken or purported to be taken
on behalf of any Shareholder by the Shareholders' Agent, as fully binding upon
such Shareholder. If the Shareholders' Agent shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the
Shareholders, then the Shareholders shall, within ten business days after such
death or disability, appoint a successor agent and, promptly thereafter, shall
notify Buyer of the identity of such successor. Any such successor shall become
the "Shareholders' Agent" for purposes of this Section 13. If for any reason
there is no Shareholders' Agent at any time, all references herein to the
Shareholders' Agent shall be deemed to refer to the Shareholders. The
Shareholders' Agent shall be entitled to make such decisions as may be necessary
under this Agreement without consulting with any other Shareholder and shall
incur no liability and shall be indemnified, protected and held harmless by all
such Shareholders (but not by Validity or Buyer) from any and all liability,
loss, cost, claim, expense or liability (other than such liability as he may
have as a Shareholder under this Agreement) for any action taken by the
Shareholders' Agent in good faith in the exercise of his business judgment. If
the Shareholders' Agent, in his sole discretion, does consult with the other
Shareholders as to any matter, the vote of those persons holding more than 50%
of the
34.
outstanding principal amount of the Notes shall be controlling on any issue so
submitted to the Shareholders for decision under this Section 13.8.
14. MISCELLANEOUS.
14.1 Further Assurances. Each party hereto shall execute and cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
14.2 Fees and Expenses. Each party to this Agreement shall bear and
pay all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Buyer and its Representatives with respect
to the Validity's business (and the furnishing of information to Buyer and its
Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement (including the Disclosure
Schedule) and all agreements, certificates, opinions and other instruments and
documents delivered or to be delivered in connection with the transactions
contemplated by this Agreement, (c) the preparation and submission of any filing
or notice required to be made or given in connection with any of the
transactions contemplated by this Agreement, and the obtaining of any consent
required to be obtained in connection with any of such transactions, and (d) the
consummation of the transactions contemplated herein. Validity shall not accrue
or pay any fees, costs or expenses incurred by Validity until after the Closing.
Any Shareholder who retains counsel or advisors (other than counsel to Validity)
to advise or represent such Shareholder in connection with such transaction
shall be responsible for paying such fees and shall not seek reimbursement from
Validity or Buyer.
14.3 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
14.4 Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
35.
if to Buyer:
The Titan Corporation
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xxx Xxxxxx, Esq., General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxx, Esq.
Xxxxxx Godward LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to Validity:
Validity Corporation
000 Xxxxx Xxxxx Xxxxxxx 000, Xxxxx X
Xxxxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to any of the Shareholders:
To the addresses listed on Exhibit A
with a copy to:
P. Xxxxx Xxxxxxxx, Esq.
Pillsbury Madison & Sutro LLP
000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
14.5 Time of the Essence. Time is of the essence of this Agreement.
14.6 Headings. The underlined headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
14.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
36.
14.8 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
14.9 Successors and Assigns. This Agreement shall be binding upon:
Validity and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any) and Buyer and its successors and assigns (if
any).
14.10 Remedies Cumulative; Specific Performance. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
14.11 Waiver.
(a) No failure on the part of any person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
14.12 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
14.13 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.14 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
parties hereto and their respective successors and assigns (if any).
37.
14.15 Entire Agreement. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
14.16 Construction.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
Except as otherwise indicated, all references in this Agreement to "Sections"
and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits
to this Agreement.
14.17 Negotiation of Disputes. If a dispute arises between the
parties relating to the interpretation or performance of this Agreement or the
grounds for the termination thereof, and the parties cannot resolve the dispute
within thirty days of a written request by either party to the other, such
dispute shall be referred to the Chief Executive Officer of Buyer and the
Shareholders' Agent for resolution. Such persons shall hold a meeting to attempt
in good faith to negotiate a resolution of the dispute prior to pursuing other
available remedies. If within 10 business days after such meeting, the Chief
Executive Officer of Buyer and the Shareholders' Agent have not succeeded in
negotiating a resolution of the dispute, such dispute shall be submitted to
arbitration as set forth in Section 14.18 below.
14.18 Arbitration. Disputes that have not been successfully resolved
pursuant to Section 14.17 above shall be submitted to final and binding
arbitration under the then current commercial rules and regulations of JAMS
Endispute ("JAMS") relating to voluntary arbitration in San Diego, California.
The arbitration shall be conducted by three arbitrators, one selected by each
party to the arbitration and one selected by arbitrators appointed by the
parties. If the arbitrators cannot agree on a third arbitrator, the third
arbitrator shall be selected in accordance with the JAMS rules. If a party fails
to designate an arbitrator within the time limits set by the JAMS rules, the
arbitrator selected by the other party shall be the sole arbitrator. All
arbitrators must be knowledgeable in the subject matter at issue in the dispute.
Each party shall initially bear its own costs and legal fees associated with
such arbitration and the parties shall split the cost of the arbitrators. The
prevailing party in any such arbitration shall be entitled to recover from the
other party the reasonable attorneys' fees, costs and expenses incurred by such
prevailing party in connection with such arbitration. The decision of the
arbitrator(s) shall be final and may be sued on or enforced by the party in
whose favor it runs in any court of competent jurisdiction at
38.
the option of the successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement or the grounds for the termination thereof, shall survive the
expiration or termination of this Agreement for any reason. The arbitrator(s)
shall be empowered to award specific performance, injunctive relief and other
equitable remedies as well as damages, but shall not be empowered to award
punitive or exemplary damages or award any damages in excess of any limitations
set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have fully executed this Agreement,
including Exhibits A through G and the Schedules attached hereto and
incorporated herein and made a part hereof, as of the date first written above.
TITAN TECHNOLOGIES AND INFORMATION
SYSTEMS CORPORATION
By:____________________________________
Print Name:____________________________
Title:_________________________________
VALIDITY CORPORATION
By:____________________________________
Print Name:____________________________
Title:_________________________________
SHAREHOLDERS OF VALIDITY:
_______________________________________
XXXXX X. XXXX
_______________________________________
X.X. XXXXXXX, XX.
_______________________________________
XXXX X. XXXXXXX
_______________________________________
XXXXXX X. XXXXXX
39.
_______________________________________
XXXXXXXX X. XXXXXXX
_______________________________________
XXXX X. XXXXXX
_______________________________________
XXXXXX X. XXXXXXX
_______________________________________
XXXXXX X. XXXXXXX
_______________________________________
XXXXXXX X. XXXXX
_______________________________________
XXXX X. XXXXXXX
_______________________________________
XXXXX X. XXXXX, III
_______________________________________
XXXXX X. XXXXXX
_______________________________________
XXX X. XXXXX, XX.
_______________________________________
XXXXX X. XXXXXX
_______________________________________
XXXXXX X. XXXXX
_______________________________________
XXXXXXX X. XXXXX
40.
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
Number
of Shares
Owned by Shareholder
Shareholder Name Shareholder(1) Net Cash Note Address
---------------- -------------- -------- ---- -------
XxXxx X. Xxxx 10,000 $1,879,637.26 $494,641.39 __________________
__________________
X.X. Xxxxxxx, Xx. 10,000 1,879,637.26 494,641.39 __________________
__________________
Xxxx X. Xxxxxxx 10,000 1,879,637.26 494,641.39 __________________
__________________
Xxxxxx X. Xxxxxx 10,000 1,879,637.26 494,641.39 __________________
__________________
Xxxxxxxx X. Xxxxxxx 4,000 751,854.90 197,856.55 __________________
__________________
Xxxx X. Xxxxxx 3,200 601,483.92 158,285.24 __________________
__________________
Xxxxxx X. Xxxxxxx 2,700 507,502.06 133,553.17 __________________
__________________
Xxxxxx X. Xxxxxxx 2,500 469,909.31 123,660.35 __________________
__________________
A-1
Number
of Shares
Owned by Shareholder
Shareholder Name Shareholder(1) Net Cash Note Address
---------------- -------------- -------- ---- -------
Xxxxxxx X. Xxxxx 1,750 328,936.52 86,562.24 __________________
__________________
Xxxx X. Xxxxxxx 1,750 328,936.52 86,562.24 __________________
__________________
Xxxxx X. Xxxxx III 1,500 281,945.59 74,196.21 __________________
__________________
Xxxxx X. Xxxxxx 750 140,972.80 37,098.10 __________________
__________________
Xxx X. Xxxxx, Xx. 750 140,972.80 37,098.10 __________________
__________________
Xxxxx X. Xxxxxx 750 140,972.80 37,098.10 __________________
__________________
Xxxxxx X. Xxxxx 500 93,981.87 24,732.07 __________________
__________________
Xxxxxxx X. Xxxxx 500 93,981.87 24,732.07 __________________
========= ============== =============
Totals: 60,650 $11,400,000.00 $3,000,000.00
(1) As of the Closing Date.
A-2
EXHIBIT B
FORM OF SECURED PROMISSORY NOTE
B-1
EXHIBIT C
FORM OF PLEDGE AGREEMENT
C-1
EXHIBIT D
FORM OF RELEASE
D-1
EXHIBIT E
OPINION OF SHAREHOLDERS' COUNSEL
E-1
EXHIBIT F
OPINION OF BUYER'S COUNSEL
F-1
EXHIBIT G
SCHEDULE OF KEY EMPLOYEES
G-1
