STOCK PURCHASE AGREEMENT by and among PEC Solutions, Inc. a Delaware corporation and
Exhibit 2.1
by and among
PEC Solutions, Inc.
a Delaware corporation
and
AC Technologies, Inc.,
a Delaware
corporation
and
▇▇▇▇▇ ▇▇▇▇▇
Dated: September 9, 2004
TABLE OF CONTENTS
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY STOCKHOLDER |
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COMPANY STOCKHOLDER’S STATUS, AUTHORITY, EXECUTION AND DELIVERY. |
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ii
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4.11 |
DISCLOSURE. |
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5.10 |
FURTHER ASSURANCES. |
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iii
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iv
EXHIBITS
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Exhibit A |
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Employment Agreement |
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Exhibit B |
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Agreement Concerning Confidential Information and Other Property |
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Exhibit C |
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Section 338 Allocations |
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Exhibit D |
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Escrow Agreement |
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Exhibit E |
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Retention Agreements |
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Exhibit F |
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Mutual Release |
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Exhibit G |
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Opinion Letter of Counsel for Company and Company Stockholder |
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Exhibit H |
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Initial Employee Bonus Payments |
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Exhibit I |
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Flow of Funds Memorandum |
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Exhibit J |
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Stock Options |
v
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of September 9, 2004 by and among (i) PEC Solutions, Inc., a Delaware corporation (the “Buyer”), (ii) AC Technologies, Inc., a Delaware corporation (the “Company”), and (iii) ▇▇▇▇▇ ▇▇▇▇▇ (the “Company Stockholder”). Each of the Buyer, the Company and the Company Stockholder may sometimes be referred to herein as a “Party” and collectively as the “Parties.”
WHEREAS, the Company Stockholder is the holder of record and the beneficial owner of one hundred percent (100%) of the Company Stock.
WHEREAS, the Company Stockholder desires to sell to the Buyer, and the Buyer desires to purchase from the Company Stockholder, the Company Stock pursuant to this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties, agreements and covenants herein contained, the Parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Capitalized terms undefined in the text of this Agreement shall have the following meanings:
“Accounts Receivable” shall mean the billed and unbilled accounts and notes receivable of the Company (including, without limitation, receivables from and advances to employees and the Company Stockholder).
“Affiliate” shall mean any corporation, partnership, limited liability company, sole proprietorship or other entity that, directly or indirectly, Controls, is Controlled by, or is under common Control with or of, such entity. The term “Control” (including, with correlative meaning, the terms “Controlled by” and “under common Control with”), as used with respect to any entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.
“Bank” shall mean Bank of America, N.A.
“Bank Loan” shall mean the Company’s outstanding indebtedness to the Bank, pursuant to the Loan and Security Agreement (a copy of which has been provided to the Buyer), in the principal amount of Fourteen Million Dollars ($14,000,000).
“Bank Loan Amount” shall mean an amount equal to, as of the Closing Date, the then outstanding principal of, and accrued and unpaid interest on, and any premiums, prepayment fees and penalties due upon prepayment and full satisfaction of, the Bank Loan.
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“Closing Fees and Expenses” shall have the meaning set forth in Section 8.11.
“Closing Payment” shall mean the cash sum to be delivered to the Company Stockholder at the Closing equal to the Purchase Price less the Escrow Amount.
“Company Stock” shall mean all of the issued and outstanding capital stock of the Company, consisting of 5,000 shares issued and outstanding of common stock, $1.00 par value per share.
“Company Stockholder Equity” shall mean the assets of the Company as of the Closing Date minus the liabilities of the Company as of the Closing Date, which liability amount shall reflect the amount of any liability related to the Redemption Note Amount and the Bank Loan Amount, and shall not include the liabilities for (i) the Retention Bonuses pursuant to the Retention Agreements, (ii) the Closing Fees and Expenses, (iii) any accrued bonuses payable to Company employees except for periods prior to the Closing Date, (iv) any Taxes arising from the Election except for the 1374 Tax, (v) the Tax Amount (as defined in Section 5.5(f) below), and (vi) any redemption payments to the Former Stockholder arising from or related to the 2005 Performance Bonus Payments or the March 2006 Performance Bonus Payments. Further, Company Stockholder Equity shall not take into account or include any payments from Buyer to or into the Company through the Closing Date, whether as advances, equity contributions, loans or otherwise, and shall not include any reserves for accounts receivable of the Company relating to the Identified A/R. The cost and expense of preparing Pre-closing Returns shall be accrued by the Company as a liability on the Estimated Closing Balance Sheet delivered at Closing and the Company Stockholder Equity shall be increased by 50% of the amount of such accrued liability.
“Company Stockholder Equity Amount” shall mean Seven Million Dollars ($7,000,000).
“Employee Benefit Plan” shall mean any “employee pension benefit plan” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), and any other written or oral plan, agreement or arrangement involving direct or indirect compensation, including without limitation insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation, whether any of the foregoing is funded, insured or self-funded, written or oral, (i) sponsored or maintained by the Company or any of its ERISA Affiliates and covering active or former employees (or their beneficiaries) of the Company or any ERISA Affiliate, (ii) to which the Company or any ERISA Affiliate is a party or by which the Company or any ERISA Affiliate (or any of the rights, properties or assets thereof) is bound, or (iii) with respect to which the Company or any ERISA Affiliate has made any payments, contributions or commitments or may otherwise have any liability (whether or not the Company or any ERISA Affiliate still maintains such Employee Benefit Plan).
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“Employment Agreement” shall mean the employment agreement to be entered into with the Company Stockholder in connection with the transactions contemplated by this Agreement, the form of which is set forth as Exhibit A hereto.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“ERISA Affiliate” shall mean any entity which is a member of (i) a controlled group of corporations (as defined in Section 414(b) of the Code), (ii) a group of trades or businesses under common control (as defined in Section 414(c) of the Code) or (iii) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes the Company.
“Escrow Amount” shall mean a cash sum of Six Million Nine Hundred Sixty-Three Thousand Three Hundred Thirty-Three Dollars ($6,963,333), to be delivered to the Escrow Agent into the Escrow Fund in accordance with Section 7.2.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Former Stockholder” shall mean ▇▇▇ ▇▇▇▇.
“Governmental Entity” shall mean any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency.
“Key Employees” shall mean ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ Giodarno, ▇▇▇▇ Zurich and the Former Stockholder.
“Knowledge” shall mean (i) in the case of a Party who is an individual, such Party’s actual knowledge, (ii) in the case of a Party that is an entity (other than the Company), the actual knowledge of any trustee, executive officer or director of such Party, and (iii) in the case of the Company, the actual knowledge of the Key Employees.
“Legal Requirements” shall mean all laws, statutes, ordinances, rules, regulations, codes, plans, injunctions, judgments, orders, decrees (unilateral or consent), rulings, settlements and charges thereunder by or of federal, state or local Governmental Entities.
“Material Adverse Effect” shall mean material event, change, condition or effect related to the financial condition, properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities taken as a whole. Any reference to a Material Adverse Effect with respect to any entity or group of entities means any event, change or effect that is materially adverse to the financial condition, properties, assets, liabilities, business, operations or results of operations of such entity considered as a whole; provided, however, that the following will not be considered a Material Adverse Effect: any adverse effect that primarily results from the announcement of the transactions contemplated by this Agreement; the execution and delivery of this Agreement; changes in the financial markets
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or general economic conditions; changes affecting the industry in which the entity operates, considered as a whole; national or international political or social conditions including engagement by the United States in hostilities; changes in GAAP; changes in financial, banking or securities markets (including disruption thereof of any decline in the price of any security or other market index).
“Material Contracts” shall mean Government Contracts other than Completed Government Contracts, and other contracts, commitments, leases, instruments, agreements, proposed transactions, written or oral, by which the Company or its properties are bound (including, without limitation, contracts with customers, profit-sharing, licensing or software agreements, consulting agreements, joint venture, bonus, pension, partnership agreements, contracts with any labor organizations, employment agreements, consulting agreements, loan agreements, service agreements, confidentiality, non-disclosure or non-competition agreements, indemnity or guaranty agreements, bonds, mortgages, options to purchase land, any contract or agreement as such terms are defined in Regulation S-K promulgated under the Securities Act, or Security Interests) (a) to which the Company, the Company Stockholder or any Affiliate of the Company, the Company Stockholder or any officer or director of the Company are parties, and (b) which have not expired or have not been terminated (i) that may give rise to obligations or liabilities exceeding $25,000 after January 1, 2004, (ii) that may generate revenues or income exceeding $25,000 after January 1, 2004 or (iii) that authorize, declare, pay or distribute any dividend or any other distribution upon or with respect to any class or series of the Company’s capital stock.
“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of ERISA.
“Ordinary Course of Business” shall mean actions within the ordinary course of business consistent with past custom and practice of the Company.
“Other Payments” shall mean the “other payments” identified on the Flow of Funds Memorandum.
“Person” shall mean any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, or Governmental Entity or any department, agency or political subdivision thereof.
“Purchase Price” shall mean a cash sum of Forty Eight Million Dollars ($48,000,000) to be paid by the Buyer to the Company Stockholder, subject to adjustment as provided in Sections 2.4 and 7.2 herein.
“Redemption Note Amount” shall mean an amount equal to, as of the Closing Date, the then outstanding principal of, and accrued and unpaid interest on, and any premiums, prepayment fees and penalties due upon prepayment and full satisfaction of, the Redemption Promissory Note.
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“Redemption Promissory Note” shall mean the promissory note made by the Company for the redemption of certain shares of Company Stock on August 13, 2004.
“Retention Bonuses” shall mean the Initial Employee Bonus Payment, and the additional bonus payments required to be paid pursuant to Section 6.2(c) of this Agreement.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Security Interest” shall mean any mortgage, pledge, security interest, encumbrance, charge, or other lien (whether arising by contract or by operation of law), other than (i) mechanic’s, materialmen’s and similar liens, (ii) liens arising under worker’s compensation, unemployment insurance, social security, retirement and similar legislation, (iii) purchase money security interests (iv) liens on goods in transit incurred pursuant to documentary letters of credit, (v) liens for Taxes not yet due or payable, (vi) statutory encumbrances of landlords, carriers or warehousemen imposed by Legal Requirements, (viii) easements, rights-of-way and similar restrictions, in each case arising in the Ordinary Course of Business of the Company.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Purchase and Sale of Stock. Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined below), the Buyer shall purchase from the Company Stockholder, and the Company Stockholder will sell, transfer and deliver to the Buyer, all of the shares of Company Stock free and clear from all Security Interests. In payment for the Company Stock, the Buyer shall pay the Purchase Price to the Company Stockholder.
2.2 The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, and shall be deemed to be effective at 11:59 p.m. local time on September 9, 2004 (the “Closing Date”).
(a) The Company Stockholder shall deliver the following to the Buyer:
(i) stock certificates representing the Company Stock, accompanied by stock powers duly executed in blank or duly executed instruments of transfer and any other documents that are necessary to transfer to the Buyer good and marketable title to the Company Stock free and clear of all Security Interests;
(ii) resignations of the Board of Directors (the “Board of Directors”) and officers of the Company as the Buyer has requested;
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(iii) a properly executed statement as to non-foreign person status in a form required under Treasury Regulation § 1.1445-2(b)(2);
(iv) the various instruments and documents referred to in Section 6.1;
(v) the Company’s minute books, corporate seal and stock certificates; and
(vi) the Company’s original and complete stock ledger.
(b) The Buyer shall deliver the following to the Company Stockholder:
(i) the Closing Payment; and
(ii) the various instruments and documents referred to in Section 6.2.
(c) Subject to and in accordance with the provisions of Article VII hereof, the Buyer shall cause to be delivered to the Escrow Agent (as defined in Article VII) the Escrow Amount. The Escrow Amount shall be held in escrow in accordance with Section 7.2 and the Escrow Agreement and shall be available to compensate the Buyer for certain damages as provided in Article VII. To the extent not used for such purposes, the Escrow Amount shall be released as provided in Article VII and the Escrow Agreement and paid to the Company Stockholder.
(d) Not later than one (1) business day prior to the Closing, the Company shall deliver to the Buyer a statement setting forth the Redemption Note Amount and the Bank Loan Amount assuming that the Closing Date was the next day. At the Closing, the Buyer shall pay the Redemption Note Amount and the Bank Loan Amount to the Company, and the Company shall immediately pay the Redemption Note Amount to the Former Stockholder and the Bank Loan Amount to the Bank.
(e) At the Closing, the Buyer shall pay the amounts described in Section 8.11 to the Company or directly to third parties, and the Buyer, or Company, as applicable, shall pay to the Company Stockholder and the Former Stockholder the Other Payments pursuant to the Flow of Funds Memorandum attached as Exhibit I.
2.4 Adjustment to Closing Payment.
(a) The Company shall have delivered to the Buyer a balance sheet of the Company, updated from and after the Balance Sheet Date (the “Estimated Closing Balance Sheet”), which the Company shall certify as being a good faith estimate of the balance sheet of the Company as of the Closing Date.
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(b) In the event that the Company Stockholder Equity as set forth in the Estimated Closing Balance Sheet is less than or greater than the Company Stockholder Equity Amount, the Buyer shall adjust the Closing Payment to be delivered to the Company Stockholder at Closing (a “Closing Payment Adjustment”) as follows:
(i) if Company Stockholder Equity is greater than the Company Stockholder Equity Amount, the Closing Payment shall be increased dollar by dollar by such difference; and
(ii) if Company Stockholder Equity is less than the Company Stockholder Equity Amount, the Closing Payment shall be decreased dollar for dollar by such difference.
(c) Within sixty (60) days after the Closing Date, the Buyer and the Company Stockholder shall agree to a statement of work (the “Statement of Work”) pursuant to which an audit firm will audit on a timely basis the Company’s financial statements, books and records and prepare and deliver to the Buyer and the Company Stockholder a Selected Accountant’s Certificate (as defined below). Such audit will be conducted in conformance with the provisions of Section 2.7 and the Selected Accountants’ Certificate shall be prepared in conformance with the provisions of Section 2.7. The Buyer shall deliver the Statement of Work to each audit firm listed on Schedule 2.4(c) hereto and request a proposal from each. The Buyer and the Company Stockholder shall select from among the proposals the lowest bidding firm which has indicated that it can accomplish the requirements of the Statement of Work in the time frame indicated therein (the “Selected Accountants”). The Selected Accountants shall provide a signed certificate (the “Selected Accountants’ Certificate”) certifying the Selected Accountants’ determination of the Company Stockholder Equity as of the Closing Date, and identifying any adjustments to the Company Stockholder Equity as reflected on the Estimated Closing Balance Sheet, which determination will become final and binding upon the Parties unless, within thirty (30) days following delivery of the Selected Accountants’ Certificate, the Buyer or the Company Stockholder objects in the manner set forth below. If the Final Company Stockholder Equity (as defined below) is greater than the Company Stockholder Equity as reflected on the Estimated Closing Balance Sheet, the Buyer shall, within three (3) business days, pay to the Company Stockholder, the amount of such difference. If the Final Company Stockholder Equity is less than the Company Stockholder Equity as reflected on the Estimated Closing Balance Sheet, the amount of such difference shall, within three (3) business days, be paid to the Buyer from the Escrow Fund. As used herein, the term “Final Company Stockholder Equity” shall mean the Company Stockholder Equity reflected in the Selected Accountants’ Certificate if uncontested, or the amount finally determined by negotiation of the Parties or by the Neutral Auditor, as provided below.
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such work papers and all other applicable documents of the Company relating to the preparation of the Selected Accountants’ Certificate as may be reasonably necessary to permit the Buyer, the Neutral Auditor and the Company Stockholder to review in detail the manner in which the Selected Accountants’ Certificate was prepared. If the Buyer or the Company Stockholder objects to any item on the Selected Accountants’ Certificate, the Buyer or the Company Stockholder shall notify the Selected Accountants in writing of such objection within thirty (30) days after the Buyer’s and the Company Stockholder’s receipt of the Selected Accountants’ Certificate (such notice setting forth in reasonable detail the basis for such objection). The Buyer and the Company Stockholder shall thereafter negotiate in good faith to resolve any such objections. If the Buyer and the Company Stockholder are unable to resolve any such disagreements within fifteen (15) days of the Buyer’s (or the Company Stockholder’s) receipt of the Company Stockholder’s (or the Buyer’s) objections, the Buyer and the Company Stockholder shall jointly retain Ernst & Young LLP or another mutually agreed to national accounting firm (the “Neutral Auditor”) to resolve any remaining disagreements. At the time of the Neutral Auditor’s selection, each of the Buyer and the Company Stockholder shall represent and warrant that, at such time, it does not have and has not had any material relationship with the Neutral Auditor in any capacity, including without limitation, as an auditor, consultant or teaming partner. Each Party agrees to execute, if requested by the Neutral Auditor, a reasonable engagement letter with the Neutral Auditor. The Neutral Auditor shall determine only those issues in dispute at the end of the resolution period and the Neutral Auditor’s determination shall be based upon and consistent with the terms and conditions of this Agreement. The determination by the Neutral Auditor shall be based solely on presentations with respect to such disputed items by the Buyer and the Company Stockholder to the Neutral Auditor and not on the Neutral Auditor’s independent review. Each of the Buyer and the Company Stockholder shall use its reasonable best efforts to make its presentation as promptly as practicable following submission to the Neutral Auditor of the disputed items, and each such Party shall be entitled, as part of its presentation, to respond to the presentation of the other Party and any questions and requests of the Neutral Auditor. In deciding any matter, the Neutral Auditor (i) shall be bound by the provisions of this Section 2.4(d) and (ii) may not assign a value to any item greater than the greatest value for such item claimed by either the Buyer or the Company Stockholder or less than the smallest value for such item claimed by the Buyer or the Company Stockholder. The Buyer and the Company Stockholder shall direct the Neutral Auditor to render a determination within forty-five (45) days of its retention (which retention shall be made no later than five (5) business days after the 15-day period), or as soon thereafter as possible, and the Buyer and the Company Stockholder shall use commercially reasonable efforts to cause the Neutral Auditor to resolve all disagreements over individual line items as soon as possible. The Neutral Auditor shall consider only those items and amounts in the Selected Accountants’ Certificate which the Buyer and the Company Stockholder are unable to resolve. The determination of the Neutral Auditor shall be final, conclusive, non-appealable and binding upon the Buyer and the Company Stockholder for all purposes hereunder, provided that such determination may be reviewed, corrected or set aside by a court of competent jurisdiction but only upon a finding that the Neutral Auditor committed manifest error with respect to its determination. All fees and expenses (including reasonable attorneys’ fees and expenses and fees and expenses of the Neutral Auditor) incurred in connection with any dispute over the Selected Accountants’ Certificate shall be borne by the
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Parties based on the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party.
2.5 No Further Rights. The Purchase Price paid for the Company Stock in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to such Company Stock.
2.6 Taking of Necessary Action; Further Action. If, at any time after the Closing, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Buyer with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, the Company Stockholder agrees to take, and will take, all such lawful and necessary action required to so do, so long as such action is not inconsistent with this Agreement. If, at any time after the Closing, any further action is necessary or desirable to terminate any personal guaranties made by the Company Stockholder in connection with any Company obligations or liabilities or to remove the Company Stockholder as a trustee under any Employee Benefit Plan, the Buyer and the Company agree to take, and will take, all such lawful and necessary action reasonably requested by the Company Stockholder.
2.7 Accounting Terms. Except as otherwise expressly provided herein or in the Schedules hereto including without limitation, the definition of Company Stockholder Equity in Article I, all accounting terms used in this Agreement shall be interpreted, and all financial statements, Schedules, certificates and reports as to financial matters required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles (“GAAP”), consistently applied by Company; provided, however, that in the event that any accounting principles consistently applied by Company are not in accordance with GAAP, then the Selected Accountants shall use accounting principles that conform with GAAP and which are customarily applied by firms in the government information technology services industry. Notwithstanding the foregoing, the Interim Financials shall not be required to contain (a) notes otherwise required under GAAP and (b) shall be subject to normal year-end adjustments. Furthermore, subject to the above provisions, the parties understand and acknowledge that there are elements to GAAP that are subject to interpretation and that there may be more than one acceptable method of handling a particular item under GAAP.
2.8 Form of Payments. All payments made pursuant to this Agreement shall be made by delivery to the recipient by bank wire transfer, the required amount (in immediately available funds) in an account of the recipient, which account shall be designated by the recipient in writing at least three (3) business days prior to the date of the required payment.
ARTICLE IIi
REPRESENTATIONS AND WARRANTIES OF THE COMPANY and the
Company Stockholder
To induce the Buyer to enter into this Agreement and consummate the transactions contemplated hereby, each of the Company and the Company Stockholder, hereby represent and
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warrant to the Buyer that, as of the date hereof unless the section specifically references another date and in such case, the date referenced, the statements contained in this Article III are true and correct, except as set forth in the letter provided by the Company and the Company Stockholder to the Buyer (the “Disclosure Letter”).
3.1 Company Stockholder’s Status, Authority, Execution and Delivery.
(a) Company Stockholder’s Status. The Company Stockholder is a natural person who is a citizen of the United States, with a principal place of residence located in the Commonwealth of Virginia.
(b) Company Stockholder’s Authority. The Company Stockholder has the full capacity, power and authority to execute, deliver and perform his obligations under this Stock Purchase Agreement and the transactions contemplated by this Agreement. Assuming the due authorization, execution and delivery by the Buyer, this Agreement constitutes a valid and binding obligation of the Company Stockholder, enforceable against the Company Stockholder in accordance with its terms, except that (i) such enforcement may be subject to (A) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and (B) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (ii) rights to indemnity may be limited by applicable law or the public policies underlying such laws.
3.2 Title to Company Stock. Except as set forth in Section 3.2 of the Disclosure Letter, the Company Stockholder is the record and owner of the Company Stock free and clear of all Security Interests. Upon consummation of the transactions contemplated hereby and upon payment in full by the Company of the Redemption Promissory Note, the Company Stockholder will transfer good and valid title to such Company Stock to the Buyer, free and clear of all Security Interests.
3.3 Due Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and the Company is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to own, operate and lease its properties and to carry on its business in the places and in the manner as now conducted, except where the failure to be so authorized or qualified, individually or collectively, would not have a Material Adverse Effect on the Company. Section 3.3 of the Disclosure Letter contains a list of all jurisdictions in which the Company is authorized or qualified to do business. The Company is in good standing as a foreign corporation in each jurisdiction in which it does business, including but not limited to, the states of Alabama, California, Florida, Illinois, Maryland, North Carolina, New York, Ohio, Texas, Utah, Virginia, and West Virginia and the District of Columbia. The Company has delivered to the Buyer true, complete and correct copies of the Certificate of Incorporation and Bylaws of the Company, each as amended. Such Certificate of Incorporation and Bylaws are collectively referred to as the “Charter Documents.” The Company is not in violation of any Charter Documents. The minute books of the Company have been made available to the Buyer
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(and have been delivered or will be delivered at Closing, along with the Company’s complete stock ledger and corporate seal, to the Buyer) and are correct and complete in all material respects. Section 3.3 of the Disclosure Letter contains a complete and accurate list of the directors and officers of the Company.
3.4 Authorization; Validity. The Company has all requisite corporate power and authority to enter into and perform its obligations pursuant to the terms of this Agreement. The Company and the Company Stockholder each have the full legal right and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the performance by the Company of the transactions contemplated herein have been duly and validly authorized by the Board of Directors, and this Agreement has been duly and validly authorized by all necessary corporate action. Assuming the due authorization, execution and delivery by the Buyer, this Agreement is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws now or hereafter in effect affecting the enforcement of creditors’ rights generally, and except that the availability of equitable remedies (regardless of whether enforcement is considered in a proceeding in equity or law), including specific performance, is subject to the discretion of the court before which any proceeding therefore may be brought and rights to indemnify may be limited by applicable law or the public policies underlying such laws.
3.5 No Conflicts. The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the Charter Documents, or any resolution adopted by the Board of Directors or the Company Stockholder;
(b) except as set forth in Section 3.5(b) and Section 3.22(d) of the Disclosure Letter, conflict with, result in a default (or would constitute a default but for any requirement of notice or any of lapse of time or both), result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent, approval or waiver under, any document, agreement, Lease, license, sublicense, franchise, permit, indenture, instrument of indebtedness, Security Interest or other instrument to which the Company is a party or by which the Company is bound or result in the creation or imposition of any Security Interest on any of the Company’s assets or the Company Stock pursuant to: (i) any Legal Requirements to which the Company, any of its assets or the Company Stock is subject; or (ii) any judgment, order, writ, injunction, or decree of any court or Government Entity to which the Company is bound or any of its assets or the Company Stock is subject;
(c) result in termination or any impairment or material breach of any permit, license, franchise, contractual right or other authorization of the Company; or
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(d) violate any Legal Requirements to which the Company or the Company Stockholder is subject or by which the Company or the Company Stockholder is bound, except for such violations, individually or collectively, that would not have a Material Adverse Effect on the Company.
3.6 Capital Stock of the Company. The authorized capital stock of the Company consists solely of 10,000 shares of common stock, $1.00 par value, of which 5,000 are issued and outstanding. The Company has not issued and there are no other outstanding equity securities of the Company or securities convertible into equity securities of the Company. All of the issued and outstanding shares of Company Stock have been duly authorized and validly issued and are fully paid and nonassessable. No person or entity is entitled to any rights with respect to the registration of any capital stock of the Company under the Securities Act. Neither the Company nor the Company Stockholder has granted options or other rights to purchase any shares of Company Stock from the Company Stockholder and the Company has no Knowledge that the Company Stockholder has granted options or other rights to purchase any shares of Company Stock from the Company Stockholder. All of the shares of Company Stock were offered, issued, sold and delivered by the Company in compliance with all applicable state and federal laws concerning the issuance and sale of securities, except where such non-compliance, individually or collectively, would not have a Material Adverse Effect on the Company. None of the shares of Company Stock were issued in violation of any preemptive rights. Other than a legend related to the Securities Act, no legend or other reference to any other Security Interest appears upon any certificate representing capital stock of the Company. Except as set forth in Section 3.6 of the Disclosure Letter, there are no agreements, written or oral, between or among the Company and/or any equity holders, relating to the acquisition (including, without limitation, rights of first refusal or preemptive rights), disposition or voting of the capital stock of the Company.
3.7 Transactions in Capital Stock. No option, warrant, call, subscription right, conversion right or other contract or commitment of any kind exists of any character, written or oral, contingent or otherwise, that may obligate the Company to issue or sell any shares of capital stock or by which any shares of capital stock may otherwise become outstanding (collectively, an “Option”). The Company has no and has never had any stock plan, stock purchase, stock option or other similar agreement or understanding between the Company and any holder of equity securities of the Company (collectively, a “Plan”). The Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. Since inception, the Company has not granted any Options. The Company Stockholder has executed and delivered a waiver of rights and obligations under any Company Plan in effect immediately prior to Closing. As a result of the transactions contemplated by this Agreement, assuming the Buyer’s full compliance with its obligations contemplated by this Agreement, the Buyer will be the record and beneficial owner of all outstanding capital stock of the Company and all rights to acquire capital stock of the Company.
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3.8 Absence of Claims Against Company. Except as set forth in Section 3.8 of the Disclosure Letter, the Company Stockholder has no claim of any kind against the Company nor has the Company Stockholder assigned any such claims to any third party.
3.9 Subsidiaries and Stock. The Company has no subsidiaries. The Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any Person.
3.10 Complete Copies of Materials. The Company has delivered to the Buyer true, complete and correct copies of each agreement, contract, commitment or other document that is referred to in the Disclosure Letter.
3.11 Financial Statements.
(a) Section 3.11(a) of the Disclosure Letter includes (a) true, complete and correct copies of the Company’s audited balance sheet as of December 31, 2003, and income statement for the year ended December 31, 2003 (collectively, the “Audited Financials”) and (b) true, complete and correct copies of the Company’s unaudited balance sheet (the “Interim Balance Sheet”) as of July 31, 2004 (the “Balance Sheet Date”), and unaudited income statement, for the seven (7) month period then ended (collectively, the “Interim Financials,” and together with the Audited Financials, the “Company Financial Statements”). The Company Financial Statements have been prepared from the books and records of the Company in accordance with GAAP and present fairly the financial condition and results of operation, changes in stockholders’ equity and cash flow of the Company for the periods referred to in the Financial Statements. Since the dates of the Company Financial Statements, there have been no material changes in the Company’s accounting policies.
(b) The Company’s books and financial records do not include any revenue for any contract (whether Government Contract, or any contract with any other entity) which has been recognized before it has been earned; and, in the case of Government Contracts whereunder payment is made by means of milestone or progress payments, no revenue has been recognized prior to completion of the applicable milestone or point of progress.
(c) The Company has never been advised by its external auditor, attorneys or other advisors that it must adjust or change in a material way any financial record, any internal financial practice, policy or procedure, to comply with any Legal Requirements, or any accounting best practice, and has not made such adjustment or change; and any such adjustment or change that could affect the Company’s current or future business or revenues is listed on Section 3.11(c) of the Disclosure Letter.
3.12 Absence of Certain Changes. Except as set forth on Section 3.12 of the Disclosure Letter and except for the transactions contemplated hereby, since the Balance Sheet Date, the Company has conducted its business in the ordinary course consistent with past practice and there has not occurred any change, event or condition (whether or not covered by insurance),
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individually or collectively, that has resulted in, or would reasonably be expected to result in any Material Adverse Effect on the Company and there has not been:
(a) any change, by itself or together with other changes, individually or collectively, that has had a Material Adverse Effect on the Company or is likely to have a Material Adverse Effect on the business, operations, affairs, properties, assets, profits or condition (financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by insurance), individually or collectively, that has had a Material Adverse Effect on the Company;
(c) any split, combination, reclassification or other change in the authorized capital of the Company or in its outstanding securities or any change in the ownership interests or any grant of any options, warrants, calls, conversion rights or commitments;
(d) any issuance, sale, or agreement or commitment to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) or authorization the issuance, sale or delivery of, or redemption or repurchase of, any stock of any class or any other securities or any rights, warrants or options to acquire any such stock or other securities, or amend any of the terms of any such convertible securities, options or warrants (other than issuance of replacement certificates for the Company Stock, if required, as a result of lost stock certificates);
(e) except as reflected on the Estimated Closing Balance Sheet, any declaration or payment of any dividend or distribution (other than distributions or dividends made by the Company to the Company Stockholder to pay income taxes or estimated income taxes of such stockholders on their pro rata share of the taxable income of the Company) in respect of the capital stock, or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company;
(f) any increase in the compensation, bonus, sales commissions or fee arrangements payable or to become payable by the Company to any of its officers, directors, employees, consultants or agents, except for bonuses and salary increases for employees in the Ordinary Course of Business, nor has the Company entered into, amended or terminated any Employee Benefit Plan, employment, severance or other agreement relating to compensation or fringe benefits;
(g) any adoption or amendment of any Employee Benefit Plan or any employment or severance agreement or arrangement of the type described in Section 3.28(e) or any increase in any manner the compensation or fringe benefits of, or modification of the employment terms of, its directors, officers or employees, generally or individually (other than the Retention Bonuses, the Employment Agreement or promotions and salary increases in the Ordinary Course of Business), or payment of any benefit not required by the terms in effect on the date hereof of any existing Employee Benefit Plan;
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(h) any work interruptions, labor grievances or claims filed, or any similar event or condition, individually or collectively, having a Material Adverse Effect on the business of the Company;
(i) any sale or transfer, or any agreement to sell or transfer, any material Intellectual Property, assets, property or rights of the Company outside the Ordinary Course of Business to any Person, including, without limitation, the Company Stockholder or his Affiliates;
(j) any cancellation, waiver, forgiveness or release or agreement to cancel, forgive or release any indebtedness or other obligation owing to the Company, including, without limitation, any indebtedness or obligation of the Company Stockholder and his Affiliates;
(k) any discharge or satisfaction of any Security Interest or payment of any obligation or liability other than in the Ordinary Course of Business, except as otherwise required in this Agreement;
(l) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the assets, property or rights of the Company outside the Ordinary Course of Business or requiring consent of any party to the transfer and assignment of any such assets, property or rights;
(m) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business of the Company;
(n) any waiver of any material rights, debts, or claims of the Company;
(o) any breach, amendment or termination of its Charter Documents or any Material Contract, or any material breach, amendment or termination agreement, license, Permit or other right to which the Company is a party;
(p) any transaction by the Company outside the Ordinary Course of Business;
(q) any capital commitment or expenditure by the Company, either individually or in the aggregate, exceeding $25,000, outside the Ordinary Course of Business;
(r) any change in accounting methods, principles or practices (including any change in depreciation or amortization policies or rates) by the Company or the revaluation by the Company of any of its assets;
(s) any creation or assumption by the Company of any Security Interest or other encumbrance on any asset of the Company (other than Security Interests arising under
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existing lease financing arrangements which are not material and liens for Taxes not yet due and payable);
(t) any loan by the Company to any Person, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others other than advances to Employees in the Ordinary Course of Business;
(u) any direct or indirect loan made by the Company to, or for the benefit of, any stockholder, employee, officer or director of the Company, or any members of their immediate families, other than advances made in the Ordinary Course of Business;
(v) any resignation, termination or discharge of any officer or employee of the Company and there is no impending or, to the Knowledge of the Company, threatened resignation, termination or discharge of any officer or employee of the Company;
(w) the commencement or written or specific oral notice or, to the Knowledge of the Company, threatened commencement, of any lawsuit or proceeding against, or investigation of, the Company or any of its affairs; or
(x) agreement by the Company or any officer or employee thereof to do any of the things described in the preceding clauses (a) through (w) (other than negotiations with the Buyer and its representatives regarding the transactions contemplated by this Agreement).
3.13 Liabilities and Obligations.
(a) The Company is not liable for or subject to any material liabilities other than:
(i) those liabilities reflected on the Interim Balance Sheet and not previously paid or discharged;
(ii) those liabilities arising in the Ordinary Course of Business under any contract, lease, commitment or agreement specifically disclosed in the Disclosure Letter to this Agreement or not required to be disclosed therein because of the term or amount involved;
(iii) those liabilities incurred since the Balance Sheet Date in the Ordinary Course of Business;
(iv) liabilities arising in connection with the transaction contemplated by this Agreement; and
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(v) liabilities related to the redemption transaction dated August 13, 2004 between the Company, the Company Stockholder and the Former Stockholder and related financing transactions or as listed in Section 3.12 of the Disclosure Letter.
(b) The Company is not a guarantor or otherwise liable for any liability or obligation of any other Person.
(c) For purposes of this Section 3.13, the term “liabilities” shall include, without limitation, any liability, indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility that is accrued, absolute, contingent, mature, unmature or otherwise and whether known or unknown, fixed or unfixed, ▇▇▇▇▇▇ or inchoate, liquidated or unliquidated, secured or unsecured, provided, however, the term “liabilities” shall exclude any liability, cost, expense, obligation or responsibility arising from the Retention Agreements or Employment Agreement.
3.14 Books and Records. The Company has made and kept financial books and records and accounts that, in reasonable detail, accurately and fairly reflect its activities. The Company has not engaged in any material transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds that have been and are reflected in its books and records. The minute books of the Company contain complete and accurate records of all meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof where actions by its stockholders, Board of Directors or committees were formally approved. The stock ledger of the Company is complete and reflects all issuances, repurchases and cancellations of shares of capital stock of the Company.
3.15 Bank Accounts; Powers of Attorney. Section 3.15 of the Disclosure Letter sets forth a complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has any account or safe deposit box;
(b) the names in which such accounts or boxes are held;
(c) the types of such accounts;
(d) the name of each Person authorized to draw thereon or have access thereto; and
(e) the name of each Person holding a general or special power of attorney from the Company and a description of the terms of such power.
3.16 Accounts and Notes Receivable. The Company has delivered to the Buyer a complete and accurate list as of September 7, 2004 of all Accounts Receivable and such Accounts Receivable are listed in Section 3.16 of the Disclosure Letter. All Accounts
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Receivable represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. Except as set forth on Section 3.16 of the Disclosure Letter, the Accounts Receivable as reflected in the Interim Balance Sheet are current, to the Company’s Knowledge, collectible, subject to any reserves set forth on the Estimated Closing Balance Sheet, and represent bona fide claims against debtors for sales and other charges, and are not subject to discount except for normal cash and immaterial trade discounts. The value at which reserves are carried reflect the reserve valuation policy of the Company which is consistent with its past practice and in accordance with GAAP. The Company and the Company Stockholder have no Knowledge that any of the Accounts Receivable will not be collected in the usual and Ordinary Course of Business of the Company. There is no contest, claim or right of set-off under any contract with any obligor of an Account Receivable relating to the amount or validity of such Account Receivable.
3.17 Permits. The Company owns or holds all licenses, franchises, permits and other governmental authorizations, including, without limitation, permits, titles, licenses and franchises necessary for the continued operation of its business as it is currently being conducted (the “Permits”), except where the failure to own or hold any such Permits, individually or collectively, would not have a Material Adverse Effect on the Company. The Permits are valid, and the Company has not received any written or specific oral notice that any governmental authority intends to modify, cancel, terminate or fail to renew any Permit. No present or former stockholder, officer, manager, member or employee of the Company or any Affiliate of the Company, or any other Person, owns or has any proprietary, financial or other interest in any Permits. The Company has conducted and is conducting its business in compliance with, and is not in violation of, any requirements, standards, criteria and conditions set forth in the Permits and other applicable orders, approvals, variances, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which violations, individually or collectively, would result in a Material Adverse Effect on the Company. The transactions contemplated by this Agreement will not result in a default under, or a breach or violation of, or have a Material Adverse Effect on the rights and benefits afforded to the Company by any Permit. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the registration and delivery of this Agreement, except such as been duly and validly obtained or filed, or with respect to any filings that must be made after Closing, as will be filed in a timely manner or disclosed in Section 3.17 of the Disclosure Letter.
3.18 Real Property Leases. Section 3.18 of the Disclosure Letter lists all real property leased or subleased to the Company. The Company has delivered to the Buyer correct and complete copies of the leases and subleases (as amended to date, each a “Lease” and collectively, the “Leases”) listed in Section 3.18 of the Disclosure Letter. With respect to each Lease listed in Section 3.18 of the Disclosure Letter:
(a) each Lease is legal, valid, binding, enforceable and in full force and effect with respect to the Company, to the Company’s Knowledge, such Lease is legal, valid, binding,
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enforceable and in full force and effect with respect to each other party thereto, and will continue to be so following the Closing Date in accordance with the terms thereof as in effect prior to the Closing, provided that each of the consents and approvals set forth in Section 3.18(b) of the Disclosure Letter are obtained prior to the Closing;
(b) the Company is not in breach or default under any such Lease, to the Knowledge of the Company and the Company Stockholder, no other party to the Lease is in breach or default and, no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration of any rent due thereunder by the lessor or sublessor, as applicable, thereunder;
(c) there are no disputes, individually or collectively, which could have a Material Adverse Effect upon the Company if resolved in favor of the complainant against the Company and no oral agreements or forbearance programs in effect as to any Lease; and
(d) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold.
3.19 Personal Property.
(a) Section 3.19(a) of the Disclosure Letter sets forth a complete and accurate list of all personal property included on the Interim Balance Sheet and all other personal property owned or leased by the Company with a current book value in excess of $10,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date, and in each case, true, complete and correct copies of leases for such leased personal property have been delivered to the Buyer, and an indication as to which assets are currently owned, or were formerly owned by the Company Stockholder or the Company.
(b) The Company currently owns or leases all personal property necessary to conduct the business and operations of the Company as they are currently being conducted.
(c) Except as set forth in Section 3.19(c) of the Disclosure Letter, no asset of the Company (tangible or intangible) is subject to any Security Interest.
(d) The inventories (net of any reserves) shown on the Company Financial Statements or thereafter acquired by the Company, consist of items of a quantity and quality usable or salable in the Ordinary Course of Business. Since the Balance Sheet Date, the Company has continued to replenish inventories in a normal and customary manner consistent with past practices. The Company has not received written, nor to the Company’s Knowledge, oral, notice from any Significant Supplier that it will experience during the next six (6) months any difficulty in obtaining, in the desired quantity and quality and at the agreed upon price, terms and conditions of its products. The value at which inventories are carried reflect the inventory valuation policy of the Company, which is consistent with its past practice and in accordance with GAAP.
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(e) All of the material, machinery and equipment of the Company, including that listed in Section 3.19(a) of the Disclosure Letter, are in good working order and condition, ordinary wear and tear excepted. All leases set forth in Section 3.18 of the Disclosure Letter are in full force and effect and constitute valid and binding agreements of the Company, and the Company is not in breach of any of their terms. All fixed assets used by the Company that are material to the operation of its business are either owned by the Company or leased under an agreement listed in Section 3.19(a) of the Disclosure Letter.
3.20 Intellectual Property.
(a) Section 3.20(a) of the Disclosure Letter lists all of the material Intellectual Property (defined below) including Third Party Intellectual Property (as defined below), that is necessary for the operation of the Company’s business as it is currently conducted and to which Company owns all right, title, and interest in or has a license or other legally enforceable right to use, but excluding commercial off the shelf software and any Intellectual Property furnished by the Company to the Government, or received or licensed from a thirty party by the Company under a Government Contract.
(b) “Intellectual Property” means all U.S. and foreign (a) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (b) registered and unregistered trademarks, service marks, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (c) registered and unregistered copyrightable works and copyrights, and all applications, registrations, and renewals in connection therewith; (d) trade secrets (including research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer lists, pricing and cost information, and business and marketing plans and proposals to the extent that any of the foregoing constitute trade secrets used in connection with the operation of the business); (e) computer software programs (including data and related documentation); and (f) copies and tangible embodiments thereof (in whatever form or medium). Intellectual Property owned by third parties is referred to herein as “Third Party Intellectual Property.”
(c) Except for off-the-shelf computer software programs used in the Ordinary Course of Business, the Company has no obligations to compensate any Person for the use of any Intellectual Property, including Third Party Intellectual Property as such is currently used by the Company, nor has the Company granted to any Person any license, option or other rights to use in any manner any Intellectual Property, whether or not requiring the payment of royalties (except such licenses or rights granted in the Ordinary Course of Business and licenses furnished under Government Contracts).
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(d) The Company is not nor will the Company be as a result of the Company’s execution and delivery of this Agreement or the performance of its obligations hereunder, in violation of any Third Party Intellectual Property license, sublicense or agreement. No claims with respect to Intellectual Property or Third Party Intellectual Property are currently pending, nor do any reasonable grounds for any such claims exist, nor, to the Knowledge of the Company, are any such claims overtly threatened by any Person: (i) to the effect that the services provided by the Company or the sale, licensing or use of any product as now used, sold or licensed or proposed for use, sale or license by the Company infringes on any Third Party Intellectual Property; (ii) against the use by the Company of any Intellectual Property used in the Company’s business as currently conducted or proposed to be conducted; or (iii) challenging the Company’s license for, or legally enforceable right to use, Third Party Intellectual Property. The Company has not been sued or charged in writing as a defendant in any claim, suit, action or proceeding that involves a claim or infringement of any Intellectual Property and that has not been finally terminated, nor has the Company been informed or notified by any third party that the Company may be engaged in such infringement.
(e) To the Company’s Knowledge, no officer, employee or director of the Company is obligated under any contract (including any license, covenant or commitment of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict or interfere with: (i) the performance of such Person’s duties as an officer, employee or director of the Company; (ii) the use of such Person’s best efforts to promote the interests of the Company; or (iii) the Company’s business as conducted. To the Company’s Knowledge, no Person (including, without limitation, any prior employer or any employee of the Company) has any right to or interest in any inventions, improvements, discoveries or other information assigned to the Company by any employee pursuant to the Company’s Agreement Concerning Inventions and Copyrights in the form attached to Section 3.20(e) of the Disclosure Letter executed by such employee, or otherwise. Except as set forth in Section 3.20(e) of the Disclosure letter, all current Company employees have executed such Agreement Concerning Inventions and Copyrights. To the Company’s Knowledge, the use of any inventions of any of its employees made prior to their employment by the Company is not necessary to operate the Company’s business as it is currently conducted.
3.21 Owned Real Property. The Company does not own any real property.
3.22 Material Contracts and Commitments.
(a) Section 3.22(a) of the Disclosure Letter sets forth a complete and accurate list of all Significant Customers and Significant Suppliers. For purposes of this Agreement, “Significant Customers” are the twenty (20) customers that have generated the greatest revenue for the Company during the twelve (12) months ending on the Balance Sheet Date, and “Significant Suppliers” are the twenty (20) suppliers who supplied the largest amount by dollar volume of products or services to the Company during the twelve (12) months ending on the Balance Sheet Date.
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(b) Section 3.22(b) of the Disclosure Letter contains, as of August 27, 2004, a complete and accurate list of all Material Contracts. The Company has delivered to the Buyer true, complete and correct copies of the Material Contracts.
(c) Except as set forth in Section 3.22(c) of the Disclosure Letter (i) none of the Company’s Significant Customers has canceled or reduced nor to the Company’s Knowledge are the Company’s Significant Customers, taken as a whole, currently attempting, threatening to cancel or materially reduce their purchases from the Company, (ii) the Company has complied with all of its material commitments and obligations and is not in material default under any of the Material Contracts, and no written or specific oral notice of default has been received with respect to any thereof, and (iii) there are no Material Contracts that were not negotiated at arm’s length.
(d) Except as set forth on Section 3.22(d) of the Disclosure Letter, each Material Contract is valid and binding on the Company and is in full force and effect and is not subject to any default thereunder by any party obligated to the Company pursuant thereto. Except as set forth on Section 3.22.(d) of the Disclosure Letter, the Company has obtained all necessary consents, waivers and approvals of parties to any Material Contracts which are required in connection with any of the transactions contemplated hereby, or are required by any Governmental Entity or other third party in order that any such Material Contract remain in effect without modification after the Closing and without giving rise to any right to termination, cancellation or acceleration or loss of any right or benefit (“Third Party Consents”). All Third Party Consents are listed in Section 3.22(d) of the Disclosure Letter.
3.23 Government Contracts.
(a) Definitions Related to Government Contracts. The following capitalized terms, when used in this Section 3.23 and other provisions of this Stock Purchase Agreement, shall have the respective meanings set forth below:
(i) “Active Government Contract” means a Government Contract which is not a Completed Government Contract.
(ii) “Bid” means any bid, proposal, offer, statement of qualification or interest, or quotation made by the Company or by a contractor team or joint venture, in which the Company is participating, that, if accepted, would lead to a Government Prime Contract or a Government Subcontract.
(iii) “Completed Government Contract” means a Government Contract for which final payment has been made and for which final closeout, including audit (the audit requirements in this subsection (iii) do not apply to contracts with the United States Postal Service) has been completed.
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(iv) “Government Contract” means any Government Prime Contract or Government Subcontract.
(v) “Government Prime Contract” means any prime contract, basic ordering agreement, letter contract, purchase order, delivery order, change order or other commitment of any kind between the Company and either the U.S. Government or a State Government.
(vi) “Government Subcontract” means any subcontract, basic ordering agreement, letter subcontract, purchase order, delivery order, change order or other commitment of any kind between the Company and any prime contractor to either the U.S. Government or a State Government or any subcontractor (of any tier) with respect to a Government Prime Contract.
(vii) “State Government” means any state, territory or possession of the United States or any department or agency of any of the above with statewide jurisdiction and responsibility, or any local government department or agency within such state, territory or possession.
(viii) “Teaming Agreement” has the same meaning as the term, “contractor team arrangement,” as defined in Federal Acquisition Regulation (“FAR”) 9.601.
(ix) “U.S. Government” means the United States Government or any department, agency or instrumentality thereof.
(b) Government Contracts.
(i) Section 3.23(b)(i) of the Disclosure Letter lists as of August 27, 2004 each and every Active Government Contract and every Completed Government Contract (excluding change orders, and excluding purchase and delivery orders for amounts less than $100,000 and which are not issued under GSA Schedule contracts) to which the Company is (or has been at any time during the past five years) a party.
(ii) Section 3.23(b)(ii) of the Disclosure Letter lists as of August 27, 2004 each and every pending Bid.
(iii) Section 3.23(b)(iii) of the Disclosure Letter lists as of August 27, 2004 each and every Teaming Agreement currently in effect to which the Company is a party.
(iv) Section 3.23(b)(iv) of the Disclosure Letter lists as of August 27, 2004 each and every multiple award schedule Government Prime Contract
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(excluding change orders and excluding purchase and delivery orders for amounts less than $100,000) to which the Company is (or has been at any time during the past five years) a party.
(v) Section 3.23(b)(v) of the Disclosure Letter lists as August 27, 2004 each and every Active Government Contract (excluding change orders and excluding purchase and delivery orders for amounts less than $100,000) to which the Company is a party and which was awarded to the Company pursuant to any set-aside program (small business, small disadvantaged business, 8(a), woman owned business, veteran owned business etc.).
(vi) There are no Active Government Contracts awarded to the Company in the last five years for which the Company submitted cost or pricing data at any point.
(vii) Section 3.23(b)(vii) of the Disclosure Letter lists as of August 27, 2004 each and every Active Government Contract which contains an organizational or other conflict of interest provision that restricts the Company from performing a specific project in the future.
(viii) Section 3.23(b)(viii) of the Disclosure Letter lists as of August 27, 2004 each and every Active Government Contract to which the Company is a party and which requires the Company to maintain a facility security clearance and the level of such requirement.
(ix) Section 3.23(b)(ix) of the Disclosure Letter lists as of August 27, 2004 each and every sales representation, consulting and other agreement regarding marketing and selling the Company products and services to the U.S. Government, any State Government or any foreign government (or department, agency or instrumentality thereof) or foreign entity, to which the Company is a party, and identifies any such agreement to which the Company has been a party at any time during the last five years under which the Company is obligated or may be obligated to pay a contingent fee or amount.
(x) Section 3.23(b)(x) of the Disclosure Letter lists as August 27, 2004 each and every Active Government Contract which is a cost reimbursable Government Contract which:
(1) contains a ceiling or cap on any indirect rate, and the nature of the cap or ceiling;
(2) which provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total the Company costs (e.g., a cost-plus-incentive-fee contract); or
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(3) which provides for a fee consisting of a base amount and an award amount (e.g., a cost-plus-award-fee contract).
(xi) No Active Government Contracts have been awarded to the Company pursuant the Small Business Innovative Research (“SBIR”) program.
(c) Status of Government Contracts. With respect to the Company’s Government Contracts:
(i) The Company has complied with all material terms and conditions of the Company’s Active Government Contracts, including all clauses, provisions and requirements incorporated expressly by reference or by operation of applicable Legal Requirements therein, and Teaming Agreements;
(ii) The Company has complied with all applicable Legal Requirements related to Active Government Contracts;
(iii) All representations and certifications executed, acknowledged or set forth in or pertaining to any Bid which was submitted by the Company within the past five (5) years which resulted in any Government Contract were current, accurate and complete in all material respects as of their effective date, any and all material representations or certifications required at any time to be updated were in fact updated as required, and the Company has complied in all material respects with all such representations and certifications;
(iv) Neither the U.S. Government, any State Government nor any prime contractor, subcontractor or other person has notified the Company in writing that the Company has breached or violated any applicable Legal Requirements or any certification, representation, clause, provision or requirement of any Active Government Contract or Bid; and, to the Knowledge of the Company, no such notification has been made in oral form;
(v) The cost accounting practices that the Company is using (and has used at all times during its existence) to estimate and record costs in connection with the submission of Bids and performance of Active Government Contracts are in compliance with applicable Legal Requirements, including but not limited to, the Cost Principles of applicable procurement regulations and Cost Accounting Standards (if required), and have been properly disclosed to the U.S. Government (if required to be disclosed by applicable Legal Requirements);
(vi) Neither the Company, nor any of its current directors or officers, is (or has been at any time during the past five (5) years) or employees are suspended or debarred from doing business with the U.S. Government or any
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State Government, or has been declared nonresponsible or ineligible for U.S. Government or State Government contracting; and to the Company’s Knowledge, there are no circumstances that could give rise to in the future the institution of suspension or debarment proceedings, criminal or civil fraud or other criminal or civil proceedings or a determination of nonresponsibility or ineligibility against the Company or any of its directors, officers or employees;
(vii) Except as set forth on Section 3.23(c)(vii) of the Disclosure Letter, no termination for convenience, stop work, cure notice or show cause notice has been issued to the Company in writing within the last five (5) years with respect to any of the Company’s Active Government Contracts, and, to the Knowledge of the Company, no event, condition or omission has occurred or exists that would constitute grounds for any such action; and, during the period of its existence no termination for default has been issued to the Company with respect to any of the Company’s Government Contracts;
(viii) No pending cost item in excess of $1,000 or group, type or class of cost in excess of $5,000 in the aggregate, which was incurred or invoiced by the Company on any Active Government Contract has been questioned in writing or disallowed, or otherwise been the subject of a formal dispute, nor has any such question or disallowance, having been made against any Completed Government Contract in the past five (5) years, not been accounted for in the Company’s financial books or records in accordance with GAAP;
(ix) No money presently due to the Company on any Active Government Contract to which the Company is a party has been withheld (including standard time and materials withholds allowed under the FAR), refused to be paid or set off or subject to attempts to withhold, refuse to pay or setoff;
(x) The Company has not made any expenditures or incurred costs or obligations in excess of any applicable limitation of government liability, limitation of cost, limitation of funds or any similar clause limiting the U.S. Government’s liability on any Active Government Contract (including, without limitation, any work being performed “at risk” in advance of receipt of funding), nor has any excess obligation or expenditure made on any Completed Government Contract in the past five (5) years not been accounted for in the Company’s financial books or records in accordance with GAAP;
(xi) Except as set forth on Section 3.23(c)(xi) of the Disclosure Letter, with respect to all cost reimbursable Government Contracts, the Company’s actual indirect cost rates are not less than the applicable provisional billing indirect cost rates unless such variance has been accounted for against revenues in the Company’s financial books or records, and the Company’s actual indirect cost rates do not exceed and are not reasonably expected to exceed the applicable
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indirect cost rate ceilings; nor has any rate variance of any type on any Completed Government Contract in the past five (5) years not been accounted for in the Company’s financial books or records in accordance with GAAP;
(xii) The Company and its respective employees hold such security clearances as are required to perform Government Contracts of the type performed by the Company; to the Knowledge of the Company, there are no facts or circumstances that could reasonably be expected to result in the suspension or termination of such clearances or that could reasonably be expected to render the Company ineligible for such security clearances in the future; and the Company has complied in all material respects with all industrial and personnel security measures, actions, statements and certifications required by Government Contracts or Legal Requirements;
(xiii) Based on experience and submissions to the U.S. Government to date, the Company reasonably expects that its provisional rates under any Bid to or on behalf of the U.S. Government or any State Government reflect its current cost expectations for the years for which the rates were bid;
(xiv) There are no Active Government Contracts that are fixed-price that the Company reasonably expects, as of the date of the Closing Date, can only be completed at a loss;
(xv) Except as set forth on Schedule 3.23(c)(xv) of the Disclosure Letter, there are no Active Government Contracts that include liquidated damages clauses;
(xvi) There are no Active Government Contracts under which any item of cost (whether direct or indirect) has been (or reasonably could be expected to be) deemed not reimbursable by action of the contract or any finding, determination or decision of any customer at any tier; and
(xvii) There are no Active Government Contracts under which the Company has been notified in writing that any of its products or service have been rejected or not accepted by any customer at any tier or that any of its products or services do not meet the acceptance criteria of such contract. Furthermore, to the Knowledge of the Company, the Company will not be so notified with respect to any Active Government Contract.
(d) Investigations and Audits.
(i) Neither the Company nor any of its directors, officers, employees or any of its agents or consultants is (or has been, during any of the last five (5) years) under administrative, civil (including, but not limited to, claims made under
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the False Claims Act) or criminal investigation, indictment or information, audit or internal investigation with respect to any alleged irregularity, misstatement or omission arising under or relating to any Government Contract;
(ii) The Company has not made a written voluntary disclosure to the U.S. Government or any State Government with respect to any alleged irregularity, misstatement or omission arising under or relating to any Government Contract within the past five (5) years;
(iii) To the Knowledge of the Company, there are no irregularities, misstatements or omissions arising under or relating to any Active Government Contract that has led or could reasonably be expected to lead, either before or after the Closing Date, to any of the consequences set forth in Section 3.23(d)(i) or Section 3.23(d)(ii), or to any other damage, penalty assessment, recoupment of payment, or disallowance of cost;
(iv) During the past five years the Company has not received any negative Contractor Performance Assessment Reports (“CPAR”) in respect of any Government Contract; and
(v) Section 3.23(d)(v) of the Disclosure Letter identifies the years for which incurred costs have not been audited and finalized.
(e) Claims.
(i) The Company has no interest in any pending or potential claim or request for equitable adjustment against the U.S. Government, any State Government or any prime contractor, subcontractor or vendor arising under or relating to any Government Contract, Bid or Teaming Agreement, and the Company is not a party (either as the protestor or an interested party) to any protest to the procuring agency or other governmental body or agency.
(ii) There exist no outstanding claims against the Company, either by the U.S. Government or a State Government or by any prime contractor, subcontractor, vendor or other third party, arising out of or relating to any Government Contract, Bid or Teaming Agreement, and to the Knowledge of the Company, there are no facts that might give rise to or result in such a claim.
(iii) There exist no pending disputes between the Company and the U.S. Government or any State Government, or between the Company and any prime contractor, subcontractor, vendor or other third party, arising out of or relating to any Government Contract, Bid or Teaming Agreement, and to the Knowledge of the Company, there are no facts that the Company reasonably expects might give rise to or result in such a dispute.
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(iv) There exist no assignments of money due or to become due with respect to any Active Government Contract to which the Company is a party.
(f) Multiple Award Schedules.
(i) The Company Customer and Discounts. Section 3.23(f)(i) of the Disclosure Letter identifies as of August 27, 2004, the “Company customer” and the discount relationship between the prices charged to the U.S. Government and the prices charged to the Company customer with respect to each multiple award schedule Government Contract identified on Section 3.23(b)(iv) of the Disclosure Letter, and all such discount relationships have been agreed to by GSA.
(ii) Compliance with Price Reduction Clause. The Company has complied with the notice and pricing requirements of the price reduction or similar clause in each multiple award schedule Government Contract identified in Section 3.23(b)(iv) of the Disclosure Letter, and there are no facts or circumstances that could reasonably be expected to result in a demand by the U.S. Government for a refund based upon the Company’s failure to comply with the price reduction or any similar clause.
(g) Government Furnished Property. Section 3.23(g) of the Disclosure Letter identifies as of August 27, 2004, all personal property, equipment, software and fixtures loaned, bailed or otherwise furnished to the Company by or on behalf of the U.S. Government for use in the performance of a Government Contract (including any that was contractor-supplied or contractor-procured) (“Government-Furnished Property”) and the Government Contracts to which each item of Government-Furnished Property relates. The Company has complied in all material respects with all of its obligations relating to the Government-Furnished Property.
(h) Former Government Officials. The Company does not employ or engage as a consultant any former procurement official or former high ranking military officer or other government officials who remain under any restrictions relating to his or her former employment that may negatively affect the Company’s business, operations, eligibility for government contracts, or the deployment of such employee or consultant.
(i) Ethics Policy. Attached hereto at Section 3.23(i) of the Disclosure Letter is the Company’s “ethics compliance” policy regarding how its employees are required to conduct themselves and perform work done under Government Contracts. Each of the Company’s employees (and any consultant, agent, subcontractor or other party covered by the terms of such policy) has been provided a copy of that policy and instructed to comply with it, and to the Knowledge of the Company, each of the Company’s employees (or other covered person) has conducted himself or herself in accordance with that policy.
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(j) Timekeeping. Attached hereto at Section 3.23(j) of the Disclosure Letter is the Company’s policy regarding how its employees are to record their time and complete their time cards with respect to work done under Government Contracts. Each of the Company’s employees has been provided a copy of that policy and instructed to comply with it. To the Company’s Knowledge, each of the Company’s employees has recorded his or her time and completed his or her time cards in accordance with that policy.
3.24 Powers of Attorney. Other than the powers of attorney relating to bank accounts set forth on Section 3.15 of the Disclosure Letter, there are no outstanding powers of attorney executed on behalf of the Company.
3.25 Insurance. Section 3.25 of the Disclosure Letter lists each insurance policy (including fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements, but excluding those listed on Section 3.28 of the Disclosure Letter) to which the Company is a party, a named insured, or otherwise the beneficiary of coverage at any time within the past year and includes the title of the policy, the policy number and the renewal, expiration or termination date of such policy. Section 3.25 of the Disclosure Letter lists each Person required to be listed as an additional insured under each such policy. Other than as set forth on Section 3.25 of the Disclosure Letter, each such policy is in full force and effect and by its terms and with the payment of the requisite premiums thereon will continue to be in full force and effect (assuming full compliance and performance by the Company, the Buyer and their respective Affiliates thereunder) for thirty (30) days following the Closing.
The Company is not in breach or default (including with respect to the payment of premiums or the giving of notices) under such policy, 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 such policy; and the Company has not received any written or specific oral notice from the insurer disclaiming coverage or reserving rights with respect to a particular claim or such policy in general. The Company has not incurred any material loss, damage, expense or liability covered by any such insurance policy for which it has not properly asserted a claim under such policy. To the Company’s Knowledge, the Company is covered by insurance in scope and amount customary and reasonable for the businesses in which it is engaged.
3.26 Tax Matters.
(a) For purposes of this Agreement:
(i) “Tax” (including with correlative meaning the terms “Taxes” and “Taxable”) means (A) all foreign, federal, state, local and other income, gross receipts, sales, use, ad valorem, value-added, intangible, unitary, transfer, franchise, license, payroll, employment, estimated, excise, environmental, stamp, occupation, premium, property, prohibited
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transactions, windfall or excess profits, customs, duties or other taxes, levies, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (B) any liability for payment of amounts described in clause (A) as a result of transferee liability, of having been a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law and (C) any liability for payment of amounts described in clause (A) or (B) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person for Taxes;
(ii) The term “Tax Return” shall mean any return (including any information return), report, statement, schedule, notice, form, estimate or declaration of estimated tax relating to or required to be filed with any governmental authority in connection with the determination, assessment, collection or payment of any Tax; and
(iii) The term “Code” shall mean the Internal Revenue Code of 1986, as amended.
(b) (i) The Company is currently an S corporation and has been an S corporation since January 1, 1998. The Company will be subject to tax under Section 1374 of the Code and applicable state built-in gains Taxes as a result of the transactions contemplated by this Agreement as set forth on Section 3.26(b) of the Disclosure Letter (the “1374 Tax”).
(ii) All Tax Returns required to be filed by or on behalf of the Company have been filed, and such Tax Returns are true, correct, and complete in all material respects.
(iii) The Company has paid in full on a timely basis all Taxes required to have been paid by it, whether or not shown on any Tax Return.
(iv) The amount of the Company’s liability for unpaid Taxes as of the date of the Company Financial Statements did not exceed the amount of the current liability accruals for Taxes (excluding reserves for deferred Taxes) shown on such Company Financial Statements, and the amount of the Company’s liability for unpaid Taxes for all periods or portions thereof ending on or before the Closing Date (other than the 1374 Tax which is reflected on the Estimated Closing Balance Sheet) will not exceed the amount of the current liability accruals for Taxes (excluding reserves for deferred Taxes) as such accruals are adjusted on the books and records of the Company for operations and transactions in the Ordinary Course of Business through the Closing Date.
(v) No written notice has been received by the Company regarding any action, suit, proceeding, investigation, audit or claim now proposed or pending against or with respect to the Company in respect of any Tax. No written notice has been received by the Company regarding any action, suit, proceeding, investigation, audit or claim with respect to any Tax.
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(vi) The Company currently has a taxable year ending on December 31.
(vii) The Company has not agreed to, and is not and will not be required to, make any adjustments under Section 481(a) of the Code as a result of a change in accounting methods, except as may be required by the transactions contemplated by this Agreement.
(viii) The Company has withheld and paid over to the proper governmental authorities all Taxes required to have been withheld and paid over and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, independent contractor, creditor or other third party.
(ix) The Company has not requested or been granted any extension or waiver of the statute of limitations period applicable to any Tax Return or Tax, and all Tax Returns filed by the Company for the preceding three (3) years have been made available to and delivered to the Buyer.
(x) There are (and as of immediately following the Closing there will be) no Security Interests on or covering the assets of the Company relating or attributable to Taxes, other than liens for Taxes not yet due and payable.
(xi) The Company has no Knowledge of any reasonable basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any lien on the assets of the Company or otherwise have a Material Adverse Effect on the Company.
(xii) None of the Company’s assets is treated as “tax exempt use property” within the meaning of Section 168(h) of the Code.
(xiii) There are no contracts, agreements, plans or arrangements covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount (or portion thereof) that would not be deductible pursuant to Section 280G, 404 or 162 of the Code.
(xiv) The Company Stockholder has not filed a consent under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(xv) The Company is not, nor has it ever been, a party to a tax sharing, tax indemnity or tax allocation agreement, and the Company has not assumed the tax liability of any other person or entity under contract, provided that such terms shall exclude agreements the primary purpose of which is not the allocation of Tax Liability and which provisions regarding Taxes are typical of such agreements.
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(xvi) The Company is not now, nor has it ever been, a member of an affiliated group filing a consolidated federal income Tax Return. The Company does not now, and will not have up to and including the Closing Date, any interest in any other corporation with respect to which the Company owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.
(xvii) The Company does not have any liability for the Taxes of any individual or entity other than the Company under Section 1.1502-6 of the Treasury Regulations (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract or otherwise.
(xviii) The Company is not a party to any joint venture, partnership or other arrangement that is treated as a partnership for federal income tax purposes.
(c) Section 3.26(c) of the Disclosure Letter contains accurate and complete descriptions of (i) the Company’s basis in its assets; and (ii) any tax elections affecting the Company.
3.27 Employees; Officers and Directors. Set forth in Section 3.27 of the Disclosure Letter is a complete list of all employees of the Company as of August 31, 2004. Except as set forth on Section 3.27 of the Disclosure Letter, no employee has any agreement or contract, written or verbal, regarding his employment. To the Knowledge of the Company, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company. Except as set forth on Section 3.27 of the Disclosure Letter, all employees of the Company have executed the Agreement Concerning Confidential Information and Other Property in the form attached as Exhibit B hereto. To the Knowledge of the Company the continued employment by the Company of its present employees, and the performance of the Company’s contracts with its independent contractors, will not result in any such violation. The Company has not received any written or specific oral notice alleging that any such violation has occurred. Except as set forth on Section 3.27 of the Disclosure Letter, no employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. Except as set forth on Section 3.27 of the Disclosure Letter, to the Company’s Knowledge, no officer, employee, or any group of employees, intends to terminate his, her or their employment with the Company, and, the Company has no present intention to terminate the employment of any officer, employee or group of employees. The Company is in compliance in all material respects with all currently applicable laws and regulations respecting wages, hours, occupational safety, health and employment practices, and discrimination in employment terms and conditions, and is not engaged in any unfair labor practice except, in each case, where such practice or failure to comply, individually or collectively, would not reasonably be expected to have a Material
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Adverse Effect on the Company. There are no pending claims against the Company under any workers compensation plan or policy or for long term disability. The Company currently is not obligated to pay premiums for COBRA coverage with respect to any former employees or beneficiaries that are not reimbursed by such former employees. There are no proceedings pending or, to the Knowledge of the Company and the Company Stockholder, threatened, between the Company and any of its current or former employees. The Company has provided to, or accrued for, all employees, all relocation benefits, bonuses and incentives, and all other compensation that such employee has earned up through the date of this Agreement or that such employee was otherwise promised in their employment agreements with the Company, if any.
3.28 Employee Benefits.
(a) Section 3.28(a) of the Disclosure Letter contains a complete and accurate list of all material Employee Benefit Plans. Complete and accurate copies of (i) all Employee Benefit Plans which have been reduced to writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance contracts and summary plan descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R for the last three plan years for each Employee Benefit Plan, have been delivered to the Buyer. Each Employee Benefit Plan has been administered in all material respects in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code). The Company and each ERISA Affiliate has performed all obligations required to be performed by it under all Employee Benefit Plans and is not in any material respect in default under or violation of any Employee Benefit Plan. The Company has no Knowledge of any material default or violation by any other party to, any of the Employee Benefit Plans, and, except as listed on Section 3.28(a) of the Disclosure Letter, has made all required contributions thereto within the time periods required under applicable laws.
(b) There are no investigations by any Governmental Entity, termination proceedings or other claims (except claims for benefits payable in the normal operation of the Employee Benefit Plans and proceedings with respect to qualified domestic relations orders), suits or proceedings against or involving any Employee Benefit Plan or asserting any rights or claims to benefits under any Employee Benefit Plan that could give rise to any liability, individually or collectively, that would likely have a Material Adverse Effect on the Company.
(c) All the Employee Benefit Plans that are intended to be qualified under Section 401(a) of the Code have been amended to reflect the changes in law referred to as “GUST” and “EGTRRA” as well as to reflect the final Treasury regulations for minimum required distributions, and have received determination letters from the Internal Revenue Service to the effect that such Employee Benefit Plans are qualified, or were adopted initially and maintained at all times as prototype plans that have each received a favorable opinion letter from the Internal Revenue Service that it meets the requirements of Section 401(a) of the Code and have been entitled to full and complete reliance on such opinion letters at all times. Such Employee Benefit Plans and the trusts related thereto are qualified and exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code. No such
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determination letter has been revoked and revocation has not been threatened. No such Employee Benefit Plan has been amended (other than as described in this Section 3.28(c)) since the date of its most recent determination letter or application therefor, if any, in any respect, and no act or omission has occurred, that could adversely affect its qualification or increase its cost.
(d) Neither the Company nor any ERISA Affiliate has ever sponsored, maintained or otherwise contributed to or has any liability with respect to any Employee Benefit Plan (including any Multiemployer Plan) which is or was subject to Section 412 of the Code or Title IV of ERISA.
(e) Neither the Company nor any ERISA Affiliate or any organization which is a successor or parent corporation of such entities, within the meaning of ERISA Section 4069(b), has engaged in a transaction described in ERISA Section 4069.
(f) There has been no amendment to, written interpretation or announcement (whether or not written) by the Company or any ERISA Affiliate relating to, or change in participation or coverage under, any Employee Benefit Plan which would materially increase the expense of maintaining or contributing to such plan above the level of expense incurred with respect to that plan for the most recent fiscal year included in the Company’s financial statements.
(g) There are no unfunded obligations under any Employee Benefit Plan providing benefits after termination of employment to any employee of the Company (or to any beneficiary of any such employee), including but not limited to retiree health coverage and deferred compensation, but excluding continuation of health coverage required to be continued under Section 4980B of the Code and insurance conversion privileges under federal or state law.
(h) No act or omission has occurred and no condition exists with respect to any Employee Benefit Plan maintained by the Company or any ERISA Affiliate that would subject the Company or any ERISA Affiliate to any material fine, penalty, tax or liability of any kind imposed under ERISA, the Code or other applicable law.
(i) No Employee Benefit Plan is funded by, associated with, or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code.
(j) No Employee Benefit Plan, plan documentation or agreement, summary plan description or other written communication distributed generally to employees by its terms prohibits the Company from amending or terminating any such Employee Benefit Plan.
(k) The consummation of the transactions contemplated by this Agreement will not: (i) entitle any current or former employee, director, consultant or agent of the Company to severance pay, unemployment compensation or any similar payment; or (ii) accelerate the time
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of payment or vesting, or increase the amount of any compensation due to, or in respect of, any current or former employee, director, consultant or agent of the Company.
(l) No payment by Buyer or the Company or any ERISA Affiliate that is owed or may become due under or in connection with any Employee Benefit Plan will be non-deductible under Code Section 280G or will be subject to tax under Code Section 4999; nor will Buyer or the Company or any ERISA Affiliate be required to “gross up” or otherwise compensate any person under or in connection with any Employee Benefit Plan because of the imposition of any excise tax under Code Section 4999.
(m) All contributions and payments (including salary deferral contributions elected by employees) with respect to Employee Benefit Plans that are due and owing, accrued, or required to be made by the Company or any ERISA Affiliate with respect to periods ending on or before the Closing Date (including periods from the first day of the current plan year or policy year to the Closing Date whether or not the applicable plan documents require contribution be made before the Closing Date) have been, or will be, made before the Closing Date in accordance with the appropriate plan document, actuarial report, collective bargaining agreements or insurance contracts or arrangements or as otherwise required by ERISA or the Code.
3.29 Environmental Matters.
(a) Hazardous Material. The Company has not released, emitted, spilled, dumped, discharged or disposed of any substance that is designated or regulated by any governmental entity or by applicable federal, state, local or other applicable law to be radioactive, toxic, hazardous or otherwise a threat to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances regulated as hazardous substances, pollutants or contaminants pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq., or regulated as hazardous waste pursuant to the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. § 6901 et seq., and the regulations promulgated pursuant to said laws (a “Hazardous Material”), at, in, on or under any property, including without limitation, the soil, improvements, ground water, surface water, or other environmental media thereof, that the Company or any of its predecessors in interest has at any time owned, operated, occupied or leased, and, to the Company’s Knowledge, no amount of any Hazardous Material is present or has been released, emitted, spilled, dumped, discharged, or disposed of at, in, on or under any such property by any other person (excluding however, office and janitorial supplies in such quantities and amounts as ordinarily used for routine office operations and maintenance, provided such supplies are properly and safely maintained).
(b) Environmental Liabilities. The Company is and has at all times been in compliance with all applicable Legal Requirements relating to health and the environment, and no material expenditures are or will be required in order to comply with any such existing Legal Requirements. The Company has received no written, or to the Company’s Knowledge, other notice of potential liability under any Legal Requirements or common law relating to health or
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the environment. To the Company’s Knowledge, none of the properties where the Company’s Hazardous Materials have been sent for treatment, storage, recycling or disposal is listed on any regulatory list of potentially contaminated properties, and to the Company’s Knowledge, no such property is or has been the subject of any cleanup or remediation of Hazardous Materials. The Company has disclosed to the Buyer its practices relating to its use and management of Hazardous Materials and disposal of wastes. The Company has delivered to the Buyer all environmental reports, audits, assessments, studies, inspections, evaluations or similar documents relating to any environmental condition at any property owned, operated, occupied or leased by the Company or the Company’s operations, which either have been prepared by the Company or at its request or, to the Company’s Knowledge, has been delivered to it by a third party, with respect to all such property. The Company has not agreed to assume and has not assumed by operation of law any environmental liability of any other person.
3.30 Conformity with Law; Litigation.
(a) Except as set forth on Section 3.30(a) of the Disclosure Letter, none of the Company, the Company Stockholder or Key Employee (in the course of his or her employment with the Company), has violated any Legal Requirements or any order of any court or Governmental Entity, agency or instrumentality having jurisdiction over it, including, without limitation, equal employment opportunity (including but not limited to laws prohibiting discrimination and/or harassment) and affirmative action requirements, Buy American Act/North American Free Trade Agreement/Israeli Trade Act/Balance of Payments Program requirements, Service Contract Act requirements, ▇▇▇▇▇-▇▇▇▇▇ Public Contracts Act requirements, National Labor Relations Act requirements, Drug-Free Workplace requirements, Anti-Kickback Act requirements, industrial and personnel security requirements, Export Administration Regulation requirements, personnel qualification requirements, procurement integrity regulations, corporate organization or qualification etc. – which violations, individually or collectively, would reasonably be likely to have a Material Adverse Effect on the Company and (a) affects or relates to this Agreement or the transactions contemplated hereby or (b) is applicable to the Company or its business. Except as set forth on Section 3.30(a) of the Disclosure Letter, there are no agreements, judgments, injunctions, orders, adverse findings or decrees to which the Company is party and binding upon the Company which, individually or in the aggregate, have or would reasonably be expected to have the effect of prohibiting or materially impairing any current or future business practice of the Company as currently contemplated by the Company, any acquisition of property of or by the Company or the conduct of business by the Company as currently conducted.
(b) Except as set forth on Section 3.30(b) of the Disclosure Letter, there is no action, suit, proceeding, hearing, investigation, charge, grievance, whether or not related to union issues, complaint, claim, demand, or written or specific oral notice has been given to or commenced against the Company or, to the Knowledge of the Company or the Company Stockholder, threatened against or adversely affecting the Company at law or in equity, or before or by any Governmental Entity having jurisdiction over it, and no written, or to the Company’s Knowledge, oral, notice of any claim, action, suit or proceeding, whether pending or threatened,
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has been received. There are no judgments, orders, injunctions, decrees, stipulations, adverse findings or awards (whether rendered by a court or administrative agency or by arbitration) against the Company or against any of its properties or business.
3.31 Relations with Governments. The Company has not made, offered or agreed to offer anything of value to any governmental official, political party or candidate for government office in violation of any Legal Requirement, nor has it otherwise taken any action that would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. The Company is also otherwise compliant with laws and regulations concerning conflicts of interest, lobbying restrictions, and procurement integrity.
3.32 Disclosure. The Disclosure Letter and all exhibits to this Agreement are, and all documents delivered under Section 2.3(a) hereof are complete and accurate in all material respects. No representation or warranty by the Company Stockholder or the Company contained in this Agreement, in the Disclosure Letter attached hereto or in any certificate furnished by the Company Stockholder or the Company to the Buyer in connection herewith or pursuant hereto contains any untrue statement of a material fact.
3.33 Broker. Except as set forth on Section 3.33 of the Disclosure Letter, the Company and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other payment in connection with this Agreement.
ARTICLE Iv
REPRESENTATIONS AND WARRANTIES OF THE BUYER
To induce the Company Stockholder and the Company to enter into this Agreement and consummate the transactions contemplated hereby, the Buyer represents and warrants to the Company Stockholder and the Company as follows:
4.1 Due Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to own, operate and lease its properties and to carry on its respective businesses in the places and in the manner as now conducted, except where the failure to be so authorized or qualified, individually or collectively, would not have a Material Adverse Effect on the Buyer.
4.2 Authorization; Validity of Obligations. The Buyer has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the performance of this Agreement and the consummation of the transactions contemplated hereby and thereby by the Buyer have been duly and validly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been duly and validly executed and delivered by the Buyer and, assuming the due authorization, execution and delivery by the Company and the Company
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Stockholder, constitutes a valid and binding obligation of the Buyer, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally, and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought.
4.3 No Conflicts. The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the Certificate of Incorporation or Bylaws, each as amended, of the Buyer, or any resolution adopted by the Board of Directors or stockholders of the Buyer;
(b) conflict with, or result in a default (or would constitute a default but for any requirement of notice or any lapse of time or both), result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any document, agreement, lease, sublease, license, sublicense, franchise, permit, indenture, mortgage, instrument of indebtedness, Security Interest or other instrument to which the Buyer is a party or by which the Buyer is bound or result in the creation or imposition of any Security Interest on any of the Buyer’s assets pursuant to: (i) any Legal Requirements to which the Buyer or any of its assets are subject; or (ii) any judgment, order, writ, injunction or decree of any court or Government Entity to which the Buyer is bound or any of its assets is subject;
(c) result in termination or any impairment or material breach of any permit, license, franchise, contractual right or other authorization of the Buyer; or
(d) violate any Legal Requirements to which the Buyer is subject or by which the Buyer is bound.
4.4 Broker. The Buyer and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.
4.5 No Proceedings. There is no pending proceeding (arbitral or otherwise), or cause of action or any nature that has been commenced against the Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, the Buyer’s ability to consummate the contemplated transactions. To the Buyer’s Knowledge, no such proceeding (arbitral or otherwise) or claim, suit, judgment, decree, settlement, rule, order, investigation, cause of action has been threatened, and to the Buyer’s Knowledge, there is no reasonable basis for any such proceeding or cause of action.
4.6 Investment Intent. The Buyer is acquiring the shares of Company Stock for its own account and not with a view to their distribution within the meaning of Section 2(11) of the
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Securities Act or any successor law, or regulations or rules issued pursuant to that Act or any successor law.
4.7 Company Action. The Board of Directors of the Buyer, at a meeting duly called and held, have (i) determined that the transaction contemplated herein is fair and in the best interests of the Buyer and each of its stockholders, and (ii) adopted this Agreement in accordance with the provisions of the DGCL.
4.8 Solvency. The Buyer will not become insolvent as a result of consummating the transactions contemplated by this Agreement.
4.9 No Other Representations. The Buyer acknowledges that, except for the representations and warranties of the Company and the Company Stockholder contained in this Agreement (including the Disclosure Letter) and documents delivered by the Company or the Company Stockholder to the Buyer pursuant to Sections 2.3, 6.1(e),(g), (h), (i) and (j) hereto, (i) neither the Company nor the Company Stockholder makes any representations or warranties, express or implied and (ii) neither the Company nor the Company Stockholder makes any representations and warranties with respect to (A) any projections, predictions, forecasts, estimates or budgets (including the reasonableness of the assumptions underlying such projections, predictions, forecasts, estimates or budgets) made available to the Buyer or its legal counsel, accountants or advisors by any means or media (including, without limitation, in connection with management presentations or any information memoranda) or (B) information or documents (financial or otherwise) made available to the Buyer or its legal counsel, accountants or advisors with respect to the Company.
4.10 Reports and Financial Statements. The Buyer has filed complete and accurate copies, as amended or supplemented, of its (a) Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission (the “SEC”), and (b) all other reports filed by the Buyer under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC since December 31, 2003 (such reports are collectively referred to herein as the (“Buyer SEC Reports”). The Buyer SEC Reports constitute all of the documents required to be filed by the Buyer under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from December 31, 2003 through the date of this Agreement. The Buyer SEC Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder when filed. As of their respective dates, the Buyer SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited financial statements and unaudited financial statements of the Buyer included in the Buyer SEC Reports (i) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto when filed, (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby except as may be indicated therein or in the notes thereto, and in the case of quarterly financial statements, as permitted by Form 10-Q under the Exchange Act, (iii) fairly present the
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consolidated financial condition, results of operations and cash flows of the Buyer as of the respective dates thereof and for the periods referred to therein, and (iv) are consistent with the books and records of the Buyer.
4.11 Cash Available. The Buyer has sufficient cash available to the Buyer to consummate the transactions contemplated hereby.
4.12 Disclosure. All schedules and exhibits to this Agreement and all documents delivered to the Company and the Company Stockholder under Section 2.3(b) and 6.2(a) are and will be complete and accurate in all material respects. No representation or warranty by the Buyer contained in this Agreement or in any certificate furnished by the Buyer to the Company and Company Stockholder in connection herewith or pursuant hereto contains any untrue statement of a material fact.
ARTICLE V
COVENANTS
5.1 Notices and Consents. Each of the Buyer, the Company, and the Company Stockholder shall use its respective commercially reasonable efforts to obtain within ten (10) business days of the Closing, at the Company’s expense, all such waivers, Permits, consents, approvals or other authorizations from third parties and Governmental Entities, and to effect all such registrations, filings and notices with or to third parties and Governmental Entities, as may be required by or with respect to the Buyer or the Company, respectively, in connection with the transactions contemplated by this Agreement.
5.2 Notice of Breaches. The Company Stockholder shall promptly deliver to the Buyer written notice of any event or development of which he is aware and that would (a) render any statement, representation or warranty of the Company or the Company Stockholder in this Agreement (including the Disclosure Letter) inaccurate or incomplete in any material respect, or (b) constitute or result in a breach by the Company Stockholder of, or a failure the Company Stockholder to comply with, any agreement or covenant in this Agreement applicable to such Party. The Buyer shall promptly deliver to the Company written notice of any event or development of which the Buyer is aware that would (i) render any statement, representation or warranty of the Buyer in this Agreement inaccurate or incomplete in any material respect, or (ii) constitute or result in a breach by the Buyer of, or a failure by the Buyer to comply with, any agreement or covenant in this Agreement applicable to such Party. The delivery of any notice pursuant to this Section 5.2 shall not, without the express written consent of the other Parties, be deemed to (i) modify the representations or warranties hereunder of the Party delivering such notice, (ii) modify the conditions set forth in Article VI or (iii) limit or otherwise affect the remedies available hereunder to the Party receiving such notice.
5.3 Unpaid Taxes; Refunds. The Company Stockholder covenants and agrees to reimburse promptly the Buyer for any amount by which the Company’s liability for unpaid Taxes, if any, for all periods or portions thereof ending on or before the Closing Date exceeds the
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amount of the current liability accruals for Taxes (excluding reserves for deferred Taxes) set forth on the Company Financial Statements as such accruals are adjusted on the books and records of the Company for operations and transactions in the Ordinary Course of Business through the Closing Date in accordance with past custom and practice of the Company; provided that if any such unpaid Taxes result from an amended Tax Return or the audit of a Tax Return, the procedures set forth in Sections 5.4 and 5.5 below shall have been fully complied with by the Buyer.
5.4 Tax Returns.
(a) The Company Stockholder shall prepare or cause to be prepared and timely file, by not later than January 31, 2005, and the Company and the Buyer shall cooperate with the Company Stockholder in the preparation and timely filing of, all Tax Returns required to be filed by or on behalf of the Company after the Closing Date which apply to periods prior to the end of the Closing Date (the “Pre-closing Returns”). The Buyer and the Company shall have a reasonable opportunity to review and consent to the filing of such Tax Returns, which consent shall not be unreasonably withheld or delayed. The Company shall timely pay any Taxes shown as due by the Company on the Tax Returns described in this Section 5.4.
(b) If any Tax shown as due on any such Tax Return referred to in (a) above is required to be borne by the Company Stockholder (taking into account indemnification obligations hereunder and adjustments to the Purchase Price) or affects taxable income reportable by the Company Stockholder by reason of his former ownership of the Company Stock, such Tax Return shall be prepared in a manner consistent with the prior practice of the Company unless otherwise required by applicable Tax laws; a draft of each such Tax Return shall be provided to the Company for review and approval not later than December 31, 2004 (or, if required to be filed within thirty (30) days of the Closing, as soon as possible following the Closing); and the Company and the Buyer shall have the right to review and approve such Tax Return prior to the filing of such Tax Return (which approval shall not be unreasonably withheld or delayed). The Company and the Buyer shall prepare or cause to be prepared all Tax Returns of the Company for periods commencing after the Closing Date and shall be responsible for paying any Taxes shown as due on such Tax Returns.
(c) The Parties shall, unless prohibited by applicable law, cause the taxable period of the Company to end as of 11:59 p.m. local time on the Closing Date. For the avoidance of doubt, the Parties hereto agree that the taxable year of the Company, as a subchapter S corporation, shall terminate and end at the end of the Closing Date for federal income tax purposes (and to the extent applicable, for state and local tax purposes as well), and that all items of income, gain, deduction, or loss recognized after the Closing Date shall be included by the Company and the Buyer in the Buyer’s consolidated federal income Tax Return (and to the extent applicable, in the Buyer’s Tax Return for state and local tax purposes as well). For purposes of this Agreement, Taxes incurred by the Company with respect to a taxable period that includes but does not end on the Closing Date, shall be allocated to the portion of the taxable period ending on the Closing Date (the “Pre-Closing Period”) (i) except as provided in (ii) and
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(iii) below, to the extent feasible, on a specific identification basis, according to the date of the event or transaction giving rise to the Tax, and (ii) except as provided in (iii) below, with respect to periodically assessed ad valorem Taxes and Taxes not otherwise reasonably allocable to specific identifiable transactions or events or dates, in proportion to the number of days in such taxable period that occur on or before the Closing Date compared to the total number of days in such taxable period, and (iii) in the case of any Tax based upon or related to income or receipts, in an amount equal to the Tax which would be payable if the relevant taxable period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company.
5.5 Cooperation on Tax Matters.
(a) The Buyer, the Company and the Company Stockholder (at no expense to the Company Stockholder) shall cooperate fully, as and to the extent reasonably requested by the other Parties, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the Buyer and the Company providing to the Company Stockholder the same information as provided to the Selected Accountants under Section 2.4(c) at the same time that the Buyer or the Company provides such information to the Selected Accountants, the retention and (upon the other Parties’ request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company agrees (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Buyer or the Company Stockholder, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other Parties reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Parties so request, the Company shall allow the other Parties to take possession of such books and records.
(b) Except in connection with an audit resolved pursuant to Section 5.5(c) (including consistent correlative adjustments to Tax Returns for non-audited taxable periods), no Party may amend a Tax Return filed by any Party with respect to the Company or file or amend any Tax election of the Company, in each case, for a taxable period beginning prior to the Closing Date, without the consent of the other Parties hereto, not to be unreasonably withheld or delayed. The Buyer shall, upon request by Company Stockholder and at his sole expense, cooperate in the preparation of and submission to the proper taxing authority of any such amended Tax Return which is required to cause such Tax Return to be consistent with adjustments to the Tax Returns of the Company for any other taxable period proposed by any taxing authority, or to give effect to an allowable loss carryback or carryover from a taxable period of the Company ending on or before the Closing Date.
(c) Any Party who receives any notice of a pending or threatened Tax audit,
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assessment, or adjustment relating to the Company, or the Company Stockholder with respect to the Company, which may give rise to liability of another Party hereto, shall promptly notify the Buyer and the Company Stockholder within ten (10) business days of the receipt of such notice. The Parties each agree to consult with and to keep the other Parties hereto informed on a regular basis regarding the status of any Tax audit or proceeding to the extent that such audit or proceeding could affect a liability of such other Parties (including indemnity obligations hereunder). The Company Stockholder shall have the right to represent the Company’s interests in any Tax audit or administrative or judicial proceeding and to employ counsel of the Company Stockholder’s choice, but reasonably satisfactory to the Buyer, at their expense, but only to the extent such audit or other proceeding pertains to taxable periods ending on or before the Closing Date. The Buyer shall have the right to participate in such proceeding at its own expense, and shall be entitled to control the disposition of any issue involved in such proceeding which does not affect a potential liability of the Company Stockholder. The Buyer and the Company Stockholder shall be entitled to represent their own interests in light of their responsibilities (including indemnity obligations) for the related Taxes, at their own expense, in any audit or administrative or judicial proceedings involving a taxable period that includes but does not end on the Closing Date. Notwithstanding the foregoing, the Company Stockholder shall not agree to any settlement for any taxable period that would effect Tax liabilities of the Buyer or the Company for any taxable period beginning on or after the Closing Date without prior written consent of the Buyer.
(d) The Buyer and the Company Stockholder shall jointly make a timely election provided for by Section 338(h)(10) of the Code and Section 1.338(h)(10) of the Treasury regulations (and any comparable election under state or local laws) (collectively, the “Election”) with respect to the acquisition of the Company Stock. The Purchase Price shall be allocated among the assets of the Company based upon the fair market value of the assets of the Company at the time of Closing for purposes of completing all forms of any nature necessary to effectuate the Election (including, but not limited to, Internal Revenue Service Form 8023, Corporate Qualified Stock Purchase, Form 8883 (Asset Allocation Statement) and any similar forms under applicable state or local law) (the “Section 338 Forms”) in accordance with applicable U.S. Treasury regulations. Such allocation shall be agreed upon by the Buyer and the Company Stockholder as of the Closing Date and shall be set forth on Exhibit C attached hereto and made a part hereof. Based on such allocation, the Buyer and the Company Stockholder shall jointly prepare the Section 338 Forms and the Buyer and the Company shall execute and deliver the Section 338 Forms to one another for filing. The Company and the Buyer shall duly and timely file the Section 338 Forms in accordance with applicable tax laws and in accordance with this Agreement. The Company and the Buyer shall report the acquisition by the Buyer of the Company Stock pursuant to this Agreement consistent with the Elections and shall take no position contrary thereto or inconsistent therewith in any Tax Return, any discussion with or proceeding before any taxing authority, or otherwise. The Buyer agrees to provide the Company Stockholder within thirty (30) days of the Closing Date written instructions in accordance with applicable law as to what is necessary to file a timely, valid Election. The Company Stockholder and the Company agree to comply with such reasonable instructions.
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In the event the parties are unable to agree as to the allocations referred to above, the parties shall appoint an independent accountant to resolve such dispute whose costs shall be borne equally by such parties.
(e) The Buyer and the Company Stockholder further agree, upon request, to use their reasonable efforts (without expense to the Company Stockholder) to obtain any certificate or other document from any Governmental Entity or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, without limitation, with respect to the transactions contemplated hereby).
(f) The Buyer shall pay the Company Stockholder as additional consideration an amount equal to fifty percent (50%) of the additional state and federal taxes incurred directly by the Company Stockholder and the Company solely from the Election (including any 1374 Tax), up to an aggregate payment amount of One Million Dollars ($1,000,000) (the “Tax Amount”). Any such amounts incurred by the Company Stockholder shall be calculated by the Company Stockholder and submitted to the Buyer for its approval along with supporting work papers. Any such amounts incurred by the Company shall be calculated by the Buyer and submitted to the Company Stockholder for his approval along with supporting work papers. In each case, such approval shall not be unreasonably withheld. If the Parties are unable to agree as to the Tax Amount, such dispute shall be resolved by an independent accountant chosen by the Parties whose costs shall be borne equally by the Parties.
(g) The Buyer covenants that it will not and will not cause or permit the Company or any Affiliate of the Buyer to (i) take any action on the Closing Date other than in the Ordinary Course of Business, including, without limitation, the distribution of any dividend or the effectuation of any redemption which would result in any tax liability to the Company Stockholder, or (ii) make any election or deemed election under Section 338 of the Code on the Closing Date other then the Election or amend any Tax Return of the Company on the Closing Date.
5.6 Director and Officer Indemnification.
(a) The Buyer agrees that it shall cause, for a period of six (6) years after the Closing, all rights to indemnification existing immediately prior to the Closing in favor of the current and former directors (both in their capacity as directors and officers of the Company) of the Company at or prior to the Closing and the officers of the Company listed in Section 5.6(a) of the Disclosure Letter (“Indemnified Employees”) as provided for in the Company’s Bylaws as of the date hereof to continue (without amendment or modification in any way unless required by law or regulation) in full force. Subject to the foregoing, the Buyer may, from and after the Closing, cause the Company to merge, dissolve or reorganize.
(b) This Section 5.6 shall be binding on all successors and assigns of the Company and the Buyer. In the event that the Buyer or the Company or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the
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continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then and in each such case, proper provision shall be made so that such successors and assigns shall assume all obligations set forth in this Section 5.6. The provisions of this Section 5.6 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Employee, his or her heirs, or his or her representatives or assigns.
5.7 Excluded Assets. The Buyer and the Company Stockholder acknowledge and agree that the assets set forth in Section 5.7 of the Disclosure Letter may be transferred by the Company to the Company Stockholder at or prior to the Closing.
5.8 Books and Records. Each Party agrees that it will reasonably cooperate with and make available (or cause to be made available) to the other Party, during normal business hours, all books and records, information and employees (without substantial disruption of employment) retained, remaining in existence or continuing to be employed after the Closing Date which are necessary or useful in connection with any Tax inquiry, audit, or dispute, any litigation or investigation or any other matter requiring any such books and records, information or employees for any reasonable business purpose (a “Permitted Use”). The Party requesting any such books and records, information or employees shall bear all of the out-of-pocket costs and expenses reasonably incurred in connection with providing such books and records, information or employees. All information received pursuant to this Section 5.8 shall be kept confidential pursuant to Section 8.1 (which shall continue to apply to this extent following the Closing Date) by the Party receiving it, except to the extent that disclosure is reasonably necessary in connection with any Permitted Use.
5.9 Employees. The Buyer’s present intention is to retain the Company’s employees at positions and salaries substantially commensurate with their current positions, and to retain the Company’s current level of benefits without making any material adverse change thereto. The Buyer shall use commercially reasonable efforts to provide employees with credit for past service with the Company with respect to any new or amended benefits. The Buyer shall cause the Company to accrue employee bonuses through December 31, 2004 (the “2004 Bonuses”) in the Ordinary Course of Business and to pay the 2004 Bonuses to the employees in the Ordinary Course of Business; provided that the Company shall not be required to pay 2004 Bonuses in excess of $750,000 and shall not include any amounts to be paid to the Company Stockholder or the Former Stockholder. Immediately after the Closing, the Buyer shall provide the Company employees the Buyer stock options set forth on Exhibit J subject to an employee’s execution of the Agreement Concerning Confidential Information and Other Property.
5.10 Identified A/R. Following the Closing, the Buyer and the Company will make a good faith effort to collect the Identified A/R (as defined below), which effort shall include all actions that the Company would take in the Ordinary Course of Business. Upon the Company Stockholder’s request, the Company shall provide the Company Stockholder with any information and documentation related to the Identified A/R including whether payment has been paid. Neither the Buyer nor the Company shall compromise the amount or timing of payment of
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the Identified A/R without the prior consent of the Company Stockholder, such consent not to be unreasonably withheld or delayed. If the Buyer or the Company shall determine to compromise any portion of the Identified A/R without the Company Stockholder’s prior consent, then a corresponding amount shall be released from the A/R Escrow and such compromise shall be deemed a Payment Event.
5.11 Certain Assets. Promptly after the Closing, the Buyer shall in good faith determine whether the software product AccuCode (i) has material value to the business of the Company, (ii) was developed pursuant to Government Contracts of the Company or independently by the Company and (iii) if transferred out of the Company prior to the Closing, would have materially adversely affected the Purchase Price. The Buyer may make whatever investigation that it deems reasonable and necessary with respect to making the determination referred to in the preceding sentence, including, without limitation, discussing AccuCode with the Former Stockholder. In the event that the Buyer determines that AccuCode does not have material value to the business of the Company, was not developed pursuant to Government Contracts of the Company and if transferred out of the Company prior to the Closing, would not have materially adversely afffected the Purchase Price, the Buyer shall immediately cause the Company to transfer all rights in AccuCode to the Former Stockholder without payment by the Former Stockholder pursuant to documentation reasonably acceptable to the Buyer and the Former Stockholder.
ARTICLE
VI
CONDITIONS TO CONSUMMATION OF TRANSACTION
6.1 Conditions to Obligations of the Buyer. The obligations of the Buyer to consummate the transactions contemplated under this Agreement are subject to the delivery by the Company, the Company Stockholder and the employees listed on Exhibit H (the “Exhibit H Employees”), as the case may be, of the following:
(a) Employment Agreement. The Company Stockholder shall execute the Employment Agreement in substantially the same form attached hereto as Exhibit A.
(b) Escrow Agreement. The Escrow Agent and the Company Stockholder will execute the Escrow Agreement contemplated by Article VIII in the form attached hereto as Exhibit D (the “Escrow Agreement”).
(c) Retention Agreements. The Company and each of the Exhibit H Employees shall have executed and delivered the Retention Agreement in the form attached hereto as Exhibit E (the “Retention Agreement”).
(d) Mutual Release. The Company Stockholder and the Company shall execute and deliver the mutual release attached hereto as Exhibit F.
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(e) Delivery of Closing Balance Sheet. The Buyer shall have received the Estimated Closing Balance Sheet pursuant to Section 2.4 herein.
(f) Opinion of Counsel. The Buyer shall have received from Holland & Knight, LLP, as legal counsel to the Company and the Company Stockholder, an opinion substantially in the form attached hereto as Exhibit G and dated as of the Closing Date.
(g) Charter Documents. The Company Stockholder and the Company shall have delivered to the Buyer (i) true, complete and correct copies of the Certificate of Incorporation of the Company as currently in effect, certified by an appropriate authority in the state of its incorporation and (ii) copies of the Bylaws of the Company certified by the Secretary of the Company, and such documents shall be in form and substance reasonably acceptable to the Buyer and its counsel.
(h) Cross Receipt. Upon payment of the Closing Payment, each Company Stockholder shall have delivered an executed cross-receipt, in a form reasonably satisfactory to the Buyer and the Company (the “Cross-Receipt”).
(i) Flow of Funds Memorandum. The Company and the Company Stockholder shall have executed and delivered the flow of funds memorandum, in substantially the form set forth as Exhibit I (the “Flow of Funds Memorandum”).
(j) Payments Under Retention Agreements.
(i) Pursuant to the terms of the Retention Agreements, the Company (upon receipt of funds from Buyer) shall pay each Exhibit H Employee, the amount in cash appearing next to such employee’s name on Exhibit H attached hereto (a “Initial Employee Bonus Payment” and collectively, the “Initial Employee Bonus Payments”); provided, however, in no event shall the aggregate amount of the Initial Employee Payments exceed One Million Five Hundred Thousand Dollars ($1,500,000).
(ii) If the Company meets or exceeds the revenue target of Fifty Million Dollars ($50,000,000) for calendar year 2004 (the “2004 Revenue Target”), each Exhibit H Employee is eligible to receive an additional bonus payment to be paid on March 31, 2005 under the terms of the Retention Agreements in the amount appearing next to such employee’s name in Exhibit H (collectively the “March 2005 Performance Bonus Payments”); provided, however, in no event shall the aggregate amount of the March 2005 Performance Bonus Payments exceed Five Hundred Thousand Dollars ($500,000). In the event that the Company meets or exceeds the 2004 Revenue Target, any portion of the March 2005 Performance Bonus Payments not made to an employee either because such employee is not actively employed by the Company on March 31, 2005, or for another reason contemplated by the Retention Agreements, such unpaid amounts shall either be paid to another employee of the Company designated in writing
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by the Company Stockholder, or to the Company Stockholder as agreed to by the Company Stockholder and the Buyer.
(iii) If the Company meets or exceeds the revenue target of Fifty Million Dollars ($50,000,000) for calendar year 2005 (the “2005 Revenue Target”), each Exhibit H Employees is also eligible to receive an additional bonus payment to be paid on March 31, 2006 under the terms of the Retention Agreements (collectively the “March 2006 Performance Bonus Payments”) calculated as follows: if the 2005 Revenue Figure is greater than Fifty Million Dollars ($50,000,000) but less than Fifty Seven Million Dollars ($57,000,000) then each such Exhibit H Employee shall receive the March 2006 Performance Bonus Payment set forth opposite his or her name on Exhibit H multiplied by a fraction, the numeration of which is the 2005 Revenue Figure minus Fifty Million Dollars ($50,000,000) and the denominator of which is Seven Million Dollars (7,000,000). For example, if the 2005 Revenue Figure is Fifty Three Million Five Hundred Thousand Dollars ($53,500,000), then the aggregate March 2006 Performance Bonus Payments would equal Five Hundred Thousand Dollars ($500,000). In no event shall the aggregate amount of the March 2006 Performance Bonus Payments exceed One Million Dollars ($1,000,000). In the event that the Company meets or exceeds the 2005 Revenue Target, any portion of the March 2006 Performance Bonus Payments not made to an employee either because such employee is not actively employed by the Company on March 31, 2006, or for another reason contemplated by the Retention Agreements, such unpaid amounts shall either be paid to another employee of the Company designated in writing by the Company Stockholder, or to the Company Stockholder as agreed to by the Company Stockholder and the Buyer.
(iv) Beginning on the Closing Date and continuing until December 31, 2005, the Buyer shall ensure that the Company is managed in the Ordinary Course of Business, and shall not take any action intended to, or that could reasonably be expected to, result in a reduction in the business or revenues of the Company, unless such action is permitted in accordance with Section 6.1(j)(v) below. Without limiting the generality of the preceding sentence, the Buyer shall, during such period, (A) make reasonable commercial efforts to ensure that the Company maintains, in the Ordinary Course of Business, the services of all key technical and management employees who currently work on projects for the Company, and not transfer, reassign or terminate without cause the employment (including by means of a constructive termination) of any such employee (unless such action is consistent with the Company’s Ordinary Course of Business), (B) allow the Company management to reasonably exercise management and control of all projects undertaken by the Company and of all employees working on such projects, (C) provide reasonable support to the Company as may be reasonably requested by Company management from time to time, including, without limitation, working capital, technical support, equipment, office space, supplies and assistance with recruiting and other corporate functions, and (D) not transfer to outside of the Company any assets currently used by the Company (unless such action is consistent with the Company’s Ordinary Course of Business or permitted in accordance with Section 6.1(j)(v) below). If Buyer
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breaches its obligations under this subsection (iv), then the March 2005 Performance Bonus Payments and March 2006 Performance Bonus Payments shall be paid in the amounts set forth on Exhibit H and pursuant to the terms of this Section 6.1(j) regardless of whether the Company meets the target revenues set forth above. The obligations of Buyer under this Section 6.1(j) to make the March 2005 Performance Bonus Payments or the March 2006 Performance Bonus Payments pursuant to Section 6.1(j)(ii) and (iii) shall not be affected by the death or disability of Company Stockholder or the termination of Company Stockholder’s employment by the Company or Company Stockholder for any reason. Buyer shall maintain a financial reporting system that will separately account for revenues of the Company and shall provide its determination of 2004 Company revenues by March 1, 2005 and the 2005 revenue figure by March 1, 2006 and will promptly provide to Company Stockholder any back up or supporting documentation related to revenue of the Company as reasonably requested by Company Stockholder.
(v) Notwithstanding the restrictions set forth in Section 6.1(j)(iv) above, the Buyer may take any such action provided that the Parties have first mutually agreed to an addendum to this Agreement that adjusts the revenue targets to take into account the expected impact of any such change on the Company’s revenues.
(vi) In the event the Company Stockholder and the Buyer cannot agree to the allocation of the unpaid amounts under the last sentence of subsections (ii) and (iii), respectively such amounts shall be allocated to the Exhibit H Employees then employed by the Company pro rata in accordance with their bonus amounts.
(k) Redemption Promissory Note; Bank Loan. The Company (upon receipt of funds from Buyer) shall have paid the Redemption Promissory Note and the Bank Loan in full and shall have delivered to the Buyer the original of the Redemption Promissory Note marked “paid in full”.
6.2 Conditions to Obligations of the Company. The obligations of the Company and the Company Stockholder to consummate the transactions contemplated under this Agreement are subject to the satisfaction by the Buyer of the following:
(a) Employment Agreement. The Buyer shall have executed and delivered the Employment Agreement with Company Stockholder.
(b) Escrow Agreement. The Buyer shall have executed and delivered to the Company Stockholder the Escrow Agreement.
(c) Cross Receipt. Upon delivery of the Stock Certificates, by the Company Stockholder, the Buyer shall have delivered an executed the Cross Receipt.
(d) Payments Under Retention Agreements. Pursuant to the terms of the Retention Agreements, the Company shall have paid the Initial Employee Bonus Payments.
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(e) Flow of Funds Memorandum. The Buyer shall have executed and delivered the Flow of Funds Memorandum.
6.3 Certain Obligations. The Company and the Buyer shall obtain the full release of any personal guaranty provided by the Company Stockholder for the Company obligation’s set forth on Section 6.3 of the Disclosure Letter. In the event such release is not obtained as of Closing, the Buyer and the Company agree to indemnify and hold harmless each Company Stockholder from any liabilities, court costs and reasonable attorneys’ fees arising out of his or her personal guaranty.
ARTICLE
VII
ESCROW AND INDEMNIFICATION
7.1 Indemnification.
(a) The Company Stockholder shall indemnify and hold harmless the Buyer and its respective officers, directors, agents and employees, and each Person, if any, who controls or may control the Buyer within the meaning of the Securities Act (hereinafter referred individually as an “Indemnified Person” and collectively as “Indemnified Persons”) from and against any and all losses, costs, damages, liabilities and expenses arising from claims, demands, actions, causes of action, including, without limitation reasonable legal fees, provided that individual claims for damages or losses must equal or exceed $25,000, net of (i) the Deductible Amount, (ii) any recoveries under insurance policies, (iii) tax benefit received by the Buyer as a result of such damages, (iv) indemnities from third parties or in the case of third party claims, by any amount actually recovered by the Buyer pursuant to counterclaims made by any of them directly relating to the facts giving rise to such third party claims (collectively, “Damages”) arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties, covenants and agreements given or made by the Company or the Company Stockholder in this Agreement, the Disclosure Letter or any Exhibit to this Agreement. The Buyer shall act in good faith and in a commercially reasonable manner to mitigate any Damages the Buyer or any Indemnified Person may suffer.
(b) Nothing in this Agreement shall limit the liability of the Company or the Company Stockholder for any breach of any representation, warranty or covenant if the transaction does not close.
(c) The Buyer shall indemnify, defend, save and hold the Company and the Company Stockholder (collectively, “Seller Indemnitees”) harmless from and against any and all losses, costs, damages, liabilities and expenses arising from claims, demands, actions, causes of action, including, without limitation reasonable legal fees asserted against, imposed upon, resulting to, required to be paid by, or incurred by any Seller Indemnitees, directly or indirectly,
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in connection with, arising out of, which could result in, or which would not have occurred but for:
(i) the Buyer’s material breach of any representation or warranty contained in this Agreement and any exhibits or schedules hereto, or in any certificate or document delivered by the Buyer to the Company and the Company Stockholder; or
(ii) the Buyer’s breach or nonfulfillment of any covenant or agreement made by the Buyer in or pursuant to this Agreement, provided that the Company’s liability for any breach of the covenants set forth in Section 5.9 shall be limited to the amount of the 2004 Bonuses not paid by the Company (including reasonable legal fees asserted against, imposed upon, resulting to, required to be paid by, or incurred by any Seller Indemnitees, directly or indirectly, in connection with, arising out of the breach of the covenants set forth in Section 5.9).
7.2 Escrow Fund. (a) Upon Closing, the Escrow Amount shall be deposited with the institution identified in the Escrow Agreement (the “Escrow Fund” and such institution, the “Escrow Agent”). The Escrow Fund (other than the Bonus Escrow) shall be governed by the terms set forth herein and in the Escrow Agreement. The Escrow Fund shall be subject to reduction to satisfy the obligations of the Company and the Company Stockholder under this Article VII. Notwithstanding the provisions of this Section 7.2, no Party or Person may receive any payment from the Escrow Fund except as provided in this Section 7.2, Section 7.5 and the Escrow Agreement.
(b) The Escrow Fund shall be divided into four sub-escrow accounts as follows:
(i) Five Million One Hundred Thousand Dollars ($5,100,000) shall be placed in a general escrow and shall be used for satisfaction of claims for indemnity of the Buyer for Damages arising under this Agreement other than for those set forth in Sections 7.2(b)(ii)-(iv) (the “General Escrow”);
(ii) Four Hundred Thousand Dollars ($400,000) shall be placed in an escrow sub-account (the “A/R Escrow”) with respect to the Accounts Receivable identified in Section 7.2 of the Disclosure Letter (the “Identified A/R”) and upon payment of any Identified A/R, an amount identical to the payment received shall be released to the Company Stockholder;
(iii) $463,333 shall be placed in an escrow sub-account (the “Bonus Escrow”) and upon the payment of the March 2005 Performance Bonus Payments and the March 2006 Performance Bonus Payments, a portion of the Bonus Escrow shall be released to the Company Stockholder or the Former Stockholder as described below in this subsection (iii). One business day after the payment of the March 2005 Performance Bonus Payments, an amount equal to one-third of the March 2005 Performance Bonus Payments paid to the Company employees shall be paid from the Bonus Escrow to the Former Stockholder (the “2005 Former Stockholder Amount”) and $166,667 less the 2005 Former Stockholder Amount (if any) shall be
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paid from the Bonus Escrow to the Company Stockholder. One business day after the payment of the March 2006 Performance Bonus Payments, an amount equal to the lesser of (A) one-third of the March 2006 Performance Bonus Payments paid to Company employees or (B) $296,672 shall be paid from the Bonus Escrow to the Former Stockholder (the “2006 Former Stockholder Amount”) and $296,672 less the 2006 Former Stockholder Amount (if any) shall be paid from the Bonus Escrow to the Company Stockholder. Notwithstanding anything to the contrary herein, amounts distributed from the Bonus Escrow shall be paid only to either the Company Stockholder or the Former Stockholder (pursuant to the terms of this Section 7.2(b)(iii)) and shall not be subject to any indemnity obligations of the Company Stockholder or any of the other terms of this Article VII. If any amounts in the Bonus Escrow are not paid by April 5, 2006, such amounts shall be paid as directed by the Company Stockholder; and
(iv) One Million Dollars ($1,000,000) shall be placed in an escrow sub-account (the “Contract Escrow”) and upon the Modification (as defined below) of the contract identified (“Identified Contract”) in Section 7.2 of the Disclosure Letter, the entire Contract Escrow shall be released to the Company Stockholder.
(A) If the Contract Escrow is not paid when due to the Company Stockholder pursuant to this Section 7.2(b)(iv), interest shall accrue on any unpaid amount at the rate of prime plus 1% per annum commencing on the date that payment is due.
(B) In the event there are any funds remaining in the Contract Escrow on December 31, 2005, because the Modification has not occurred with respect to the Identified Contract, (and there is no Contract Escrow Claim Notice, joint directive or dispute pending with respect to such funds), then the entire Contract Escrow shall be paid to the Buyer. Notwithstanding the foregoing, in the event of a dispute as to whether the Modification has occurred, such dispute shall be settled in accordance with Section 7.6(b), and the funds in the Contract Escrow shall remain in escrow and not be released to any Party until resolution of the dispute.
(v) The Escrow Fund shall not be the sole and exclusive remedy to compensate the Buyer pursuant to the indemnification obligations of the Company Stockholder set forth in Section 7.1(a) provided; however, that the Buyer agrees in all instances to seek recovery from the Escrow Fund (other than the Bonus Escrow), and only if such portions of the Escrow Fund are insufficient to cover such claim will the Buyer proceed against the Company Stockholder, and then only to the extent of the insufficiency, and within the limitations of this Agreement, and further provided that the Company Stockholder’s liability shall be limited to Thirteen Million Two Hundred Fifty Thousand ($13,250,000). The total amount payable by the Company Stockholder in the case of any claims arising hereunder based on fraud shall not be subject to any limitation on liability.
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7.3 Definitions.
(a) “A/R Escrow Claim Notice” shall mean with respect to the A/R Escrow, a written notification, signed by the Indemnitor Representative (as defined in Section 7.5 below) that a Payment Event (as defined below) has occurred, identifying with specificity the Payment Event, and providing such other information as required by the Escrow Agreement.
(b) “Claim” shall mean, with respect to the General Escrow, a claim for indemnification by the Buyer hereunder; or with respect to the A/R Escrow, a claim by the Indemnitor Representative that a Payment Event has occurred, indicating the amount of funds in the A/R Escrow that are to be released upon the specific Payment Event in accordance with Section 7.2 of the Disclosure Letter; or with respect to the Contract Escrow, a claim by the Indemnitor Representative that the Modification has occurred, indicating that the entire Contract Escrow be released.
(c) “Contract Escrow Claim Notice” shall mean with respect to the Contract Escrow, a written notification, signed by the Indemnitor Representative indicating that the Modification has occurred, that the entire Contract Escrow shall be released, and such other information as required by the Escrow Agreement.
(d) “General Escrow Claim Notice” shall mean with respect to the General Escrow, a written notification, signed by the Indemnitee Representative, which shall specify the obligation, representation or agreement herein with respect to which a Claim for Damages is being made, that the Claim is made against the General Escrow, the facts giving rise to and the alleged basis for such Claim, the estimated Damages of such Claim, the information set forth in Section 7.5(b) and such other information as required by the Escrow Agreement.
(e) “Payment Event” shall mean the payment of any Identified A/R.
(f) “Modification” shall mean (i) the modification of or other arrangement with respect to the Identified Contract by the U. S. Government that removes the 8(a) requirements of Contract Modification Number 002; (ii) the waiver by the U.S. Government of its termination rights as a result of the Company ceasing to be an 8(a) concern and the Buyer has not been restricted from receiving a subcontract under the Identified Contract by the SBA; or (iii) the Company is not prohibited from, or notified that it will be prohibited from, continuing to provide services under the Identified Contract at any time prior to December 31, 2005 because it ceases to be an 8(a) concern, and the Buyer has not been restricted from receiving a subcontract under the Identified Contract by the SBA. If the SBA restricts a subcontract to the Buyer prior to December 31, 2005, under subsections (ii) or (iii), but the Company is successful in receiving a modification that meets the requirements of subsection (i) of this definition on or before December 31, 2005, then a “Modification” shall have occurred and the Contract Escrow shall be released to the Company Stockholder.
7.4 Escrow Period. The “Escrow Period” shall terminate (a) with respect to the General Escrow (the “General Escrow Period”) December 31, 2005, (b) with respect to the A/R Escrow (the “A/R Escrow Period”) on December 31, 2005, and (c) with respect to the Contract
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Escrow (the “Contract Escrow Period”) on December 31, 2005. Any Escrow Funds remaining in the General Escrow at the end of the General Escrow Period and not subject to a General Escrow Claim Notice shall be distributed 100% to the Company Stockholder. Any Escrow Funds remaining in the A/R Escrow and not subject to an A/R Escrow Claim Notice shall be distributed 100% to the Buyer. Any Escrow Funds remaining in the Contract Escrow and not subject to a Contract Escrow Claim Notice shall be distributed 100% to the Buyer. Any such retained portion of the Escrow Funds shall be retained only until Claims for indemnification pursuant to which such portion is being retained is settled or finally determined between the Buyer and the Company Stockholder in accordance with Section 8.6 below.
(a) The Buyer and the Company Stockholder shall each designate in the Escrow Agreement a person to act as their respective representative under this Article VII and the Escrow Agreement, such representative with respect to the Buyer, the “Indemnitee Representative” and with respect to the Company Stockholder, the “Indemnitor Representative”.
(b) In order to make a Claim upon the General Escrow, the Indemnitee Representative shall on or before the last day of the General Escrow Period deliver to the Escrow Agent, with a copy to the Indemnitor Representative, a General Escrow Claim Notice:
(i) stating that with respect to the indemnification obligations of the Company Stockholder under this Agreement, Damages exist in an aggregate amount greater than Two Hundred Fifty Thousand Dollars ($250,000) (the “Deductible Amount”) (which aggregate amount cannot include any individual Damage items less than Twenty Five Thousand Dollars ($25,000)); and
(ii) specifying that the Claim relates to the General Escrow and specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid, or properly accrued or arose, the nature of the misrepresentation, breach of warranty or claim to which such item is related.
(c) In order to make a Claim upon the A/R Escrow, the Indemnitor Representative shall on or before the last day of the A/R Escrow Period deliver to the Escrow Agent, with a copy to the Indemnitee Representative, an A/R Escrow Claim Notice.
(d) In order to make a claim upon the Contract Escrow, the Indemnitor Representative shall on or before the last day of the Contract Escrow period deliver to the Escrow Agent, with a copy to the Indemnitee Representative, a Contract Escrow Claim Notice.
(e) The Indemnitor Representative shall have thirty (30) days to respond to any General Escrow Claim Notice. If the Indemnitor Representative does not dispute the General Escrow Claim Notice, the Indemnitee Representative and the Indemnitor Representative shall
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execute written authorization to the Escrow Agent (a “Joint Written Direction”) authorizing the Escrow Agent to deliver to the Buyer out of the General Escrow, as promptly as practicable, a cash amount equal to such Damages with respect to the indemnification obligations of the Company Stockholder set forth in Section 7.1.
(f) The Indemnitee Representative shall have thirty (30) days to respond to any A/R Escrow Claim Notice. If the Indemnitee Representative does not dispute the A/R Escrow Claim Notice, the Indemnitee Representative and the Indemnitor Representative shall sign a Joint Written Direction authorizing the Escrow Agent to deliver to the Company Stockholder out of the A/R Escrow, as promptly as practicable, a cash amount equal to such Claim.
(g) The Indemnitee Representative shall have thirty (30) days to respond to any Contract Escrow Claim Notice. If the Indemnitee Representative does not dispute the Contract Escrow Claim Notice, the Indemnitee Representative and the Indemnitor Representative shall sign a Joint Written Direction authorizing the Escrow Agent to deliver to the Company Stockholder the entire Contract Escrow, as promptly as practicable.
7.6 Resolutions of Conflicts and Arbitration.
(a) The Indemnitor Representative shall provide written notice to the Indemnitee Representative in case the Indemnitor Representative shall object to any General Escrow Claim Notice (a “General Escrow Claim Response”). The Indemnitee Representative shall have thirty (30) days from receipt of a General Escrow Claim Response to respond in a written statement to the objection of the Indemnitor Representative. If after such thirty (30) day period there remains a dispute as to any Claims, the Indemnitor Representative and the Indemnitee Representative shall attempt in good faith for twenty (20) days thereafter to agree upon the rights of the respective parties with respect to each of such Claims. If the Indemnitor Representative and the Indemnitee Representative should so agree, they shall each execute a Joint Written Direction and deliver it to the Escrow Agent.
(b) The Indemnitee Representative shall provide written notice to the Indemnitor Representative in case the Indemnitee Representative shall object to any A/R Escrow Claim Notice (a “A/R Escrow Claim Response”). The Indemnitor Representative shall have thirty (30) days from receipt of an A/R Escrow Claim Response to respond in a written statement to the objection of the Indemnitee Representative. If after such thirty (30) day period there remains a dispute as to any Claims, the Indemnitee Representative and the Indemnitor Representative shall attempt in good faith for twenty (20) days thereafter to agree upon the rights of the respective parties with respect to each of such claims. If the Indemnitor Representative and the Indemnitee Representative should so agree, they shall each execute a Joint Written Direction and deliver it to the Escrow Agent.
(c) The Indemnitee Representative shall provide written notice to the Indemnitor Representative in case the Indemnitee Representative shall object to any Contract
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Escrow Claim Notice (a “Contract Escrow Claim Response”). The Indemnitor Representative shall have thirty (30) days from receipt of the Contract Escrow Claim Response to respond in a written statement to the objection of the Indemnitee Representative. If after such thirty (30) day period there remains a dispute as to any Claims, the Indemnitee Representative and the Indemnitor Representative shall attempt in good faith for twenty (20) days thereafter to agree upon the rights of the respective parties with respect to each of such claims. If the Indemnitor Representative and the Indemnitee Representative should so agree, they shall each execute a Joint Written Direction and deliver it to the Escrow Agent.
(d) If no such agreement can be reached after good faith negotiation under Sections 7.6(a), (b), or (c), either the Indemnitee Representative or the Indemnitor Representative may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both Parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by one arbitrator. Within fifteen (15) days after such written notice is sent, the Indemnitee Representative and the Indemnitor Representative shall each select one arbitrator, and the two arbitrators so selected shall select the third arbitrator, which third arbitrator shall be the single arbitrator who conducts the arbitration. The arbitrators selected must be independent arbitrators with experience in the area of the Company’s business. The decision of the arbitrator as to the validity and amount of any claim in such Claim Notice shall be binding and conclusive upon the Parties to this Agreement. The Indemnitee Representative and the Indemnitor Representative shall deliver a copy of the arbitrator’s decision and a Joint Written Direction to the Escrow Agent authorizing the Escrow Agent to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith.
(e) Arbitration shall be held in Fairfax County, Virginia under the commercial rules then in effect of the American Arbitration Association or any other means mutually agreeable to the Parties. The non-prevailing Party to an arbitration shall pay its own expenses, the fees of the arbitrator, the administrative fee of the American Arbitration Association (or such other applicable administrative fee), and the expenses, including without limitation attorneys’ fees and costs, reasonably incurred by the other party to the arbitration.
(f) Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction.
7.7 Third-Party Claims.
(a) If any claim is instituted by a third party with respect to which any Indemnified Person or Seller Indemnitee (an “Indemnified Party”) intends to claim any Damages (a “Third Party Claim”), pursuant to this Article VII, such Indemnified Party shall promptly notify the Party or Parties from whom indemnification is being claimed (the “Indemnifying Party”) of such claim and, in any event, within fifteen (15) days after receipt by such Indemnified Party of written notice of such Third-Party Claim. Thereafter, the Indemnified Party shall deliver
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to the Indemnifying Party, within ten (10) days after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third Party Claims. The notice provided by the Indemnified Party to the Indemnifying Party shall describe the Third Party Claim (the “Asserted Liability”) in reasonable detail and shall indicate the amount (estimated, if necessary, and to the extent feasible) of the Damages that have been or may be suffered by the Indemnified Party. The failure of an Indemnified Party to give any notice required by this Section 7.7(a) shall not affect any of such Party’s rights under this Article VII or otherwise except and to the extent that such failure is prejudicial to the rights or obligations of the Indemnifying Party.
(b) The Indemnifying Party may elect to defend, at its own expense and with its own counsel reasonably satisfactory to the Indemnified Party, any Asserted Liability, unless the Asserted Liability is one in which: (i) the Third Party asserting the claim is a current, ongoing customer of the Company or the Buyer; (ii) an adverse judgment with respect to the Asserted Liability will establish a precedent materially adverse to the continuing business interests of the Indemnified Party; or (iii) there is a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of such defense. If the Indemnifying Party elects to defend the Asserted Liability, the Indemnified Party shall cooperate, at the expense of the Indemnifying Party, in the defense of such Asserted Liability and the Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge such Third Party Claim.
(c) In any case in which the Indemnified Party retains the defense of the Asserted Liability, the Indemnifying Party may participate in the defense of the Asserted Liability, and neither party shall admit any liability with respect to, or settle, compromise or discharge such Third Party Claim without the other party’s prior written consent, (which consent shall not be unreasonably withheld or delayed).
(d) If the Indemnifying Party chooses to defend or participate in the defense of any Asserted Liability as provided hereunder, the Indemnified Party shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense and shall otherwise cooperate in the defense of such Asserted Liability.
(e) The Indemnified Party may pay, compromise or defend any Asserted Liability in which the Indemnifying Party does not assume or participate in the defense, at the sole cost and expense of the Indemnifying Party if, and to the extent, the Indemnifying Party is determined to be liable for indemnification to the Indemnified Party under this Agreement.
7.8 Limitation. Any indemnification obligations of the Company Stockholder shall be satisfied from any amounts held by the Escrow Agent under the Escrow Agreement prior to Buyer exercising any other remedy, action, claim or offset. No claims for Damages under the General Escrow shall be made until Damages exceed $250,000 and then only to the extent of the amount in excess of $250,000. No individual claim for Damages under the General Escrow will be made unless such individual claim equals or exceeds $25,000.
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7.9 Broker’s Fees.
(a) Except for payments to be made by the Buyer pursuant to Section 8.11, the Company Stockholder will indemnify and hold Buyer harmless from any payment alleged to be due for any brokerage or finder’s fee or agent’s commission or other payment in connection with this Agreement to be due by or through the Company or the Company Stockholder as a result of the action of the Company or the Company Stockholder or their officers, employees or agents.
(b) The Buyer will indemnify and hold the Company Stockholder harmless from any payment alleged to be due for any brokerage or finder’s fee or agent’s commission or other payment in connection with this Agreement to be due by or through the Buyer as a result of the action of the Buyer or its officers, employees or agents.
7.10 Subrogation. Upon making an indemnity payment pursuant to this Agreement, the Indemnifying Party will, with the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld, to the extent of such payment, be subrogated to all rights of the Indemnified Party against any third party in respect of the damages to which the payment related. Without limiting the generality of any other provision hereof and subject to the foregoing sentence, each such Indemnified Party and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above described subrogation rights.
7.11 No Double Recovery; Use of Insurance. Notwithstanding anything herein to the contrary, no Party shall be entitled to indemnification or reimbursement under any provision of this Agreement for any amount to the extent such Party or its Affiliate has been indemnified or reimbursed for such amount under any other provision of this Agreement, the Exhibits or Disclosure Letter attached hereto, or any document executed in connection with this Agreement, by any insurance proceeds or under any insurance policy, or otherwise. To the extent that any Damages are covered by insurance, each Party hereto shall use its commercially reasonable efforts to collect any such amounts from such insurer. If a Party is reimbursed for such amount after receiving indemnification or reimbursement under this Agreement, the Party receiving reimbursement shall pay the amount reimbursed (up to the amount of indemnification received) to the other Party.
7.12 Treatment of Indemnity Payments Between the Parties. Unless otherwise required by applicable law, all indemnification payments shall constitute adjustments to the Purchase Price for all Tax purposes, and no Party shall take any position inconsistent with such characterization.
MISCELLANEOUS
8.1 Confidentiality, Press Releases and Announcements. No Party hereto shall (or permit its Representatives (as defined below) to), directly or indirectly: (i) make any disclosure
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relating to any matter contemplated by this Agreement, except as required to receive required consents and approvals contemplated by this Agreement; (ii) disclose to any third party that discussions are taking place among the Parties regarding the transaction except as required to receive required consents and approvals contemplated by this Agreement; or (iii) disclose any information received from another Party or its Representatives (as defined below) in connection with the transaction, including without limitation, information received during a Party’s due diligence investigation (such party receiving such information, and its Representatives, the “Receiving Party” and such party disclosing such information, the “Disclosing Party”); except as required by law or judicial or administrative processes, including any reports required to be filed by the Buyer with the Securities and Exchange Commission. Information will not be subject to the provisions of this Section 8.1 which (i) is or becomes publicly available other than as a result of a breach by the Receiving Party; (ii) is or becomes available on a non-confidential basis from a source which is not prohibited by contract or law from disclosing such information to the Receiving Party; or (iii) was known by the Receiving Party prior to the disclosure thereof by the Disclosing Party other than by means that would be a violation of this Section 8.1 had it been in effect at the time of disclosure. The Parties agree that the terms of this Agreement are confidential and shall not be shared with or disclosed to any other Person other than the Parties’ respective Representatives who have agreed to maintain the confidentiality thereof. As used herein, the term “Representatives” refers to each of the Buyer’s and the Company’s directors, officers, employees, affiliates, representatives, tax or financial advisors, attorneys or agents as so indicated. The Parties acknowledge and agree that any breach of this Section 8.1 by a Party would cause irreparable harm to the other Parties hereto and that, in such event, such other Parties shall have the right, among other things, to preliminary and injunctive relief, in addition to any other relief to which such other Parties may be entitled. In the event that the transaction is not consummated, the Receiving Party shall promptly return all such written information provided by the Disclosing Party or its Representatives and destroy any copies or notes derived therefrom.
No Party shall issue any press release or make any public disclosure relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party shall advise the other Parties and provide them with a copy of the proposed disclosure as reasonably in advance as possible prior to making the disclosure).
8.2 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
8.3 Entire Agreement. This Agreement, the Disclosure Letter, the Exhibits, the documents and instruments and other agreements among the Parties referred to herein constitute the entire agreement among the Parties and supersedes any prior understandings, agreements or representations by or among the Parties, written or oral, with respect to the subject matter hereof.
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8.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties.
8.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly delivered two business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service or sent via facsimile (with acknowledgment of complete transmission) with a confirmation copy by registered or certified mail, in each case to the intended recipient as set forth below:
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AC Technologies, Inc. |
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Holland & Knight LLP |
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PEC Solutions, Inc. |
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▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP |
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If to the Company Stockholder: |
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AC Technologies, Inc. |
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Holland & Knight LLP |
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Any Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, facsimile, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the Party for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Virginia.
8.9 Amendments and Waivers. Except as otherwise provided herein, the Parties may mutually amend any provision of this Agreement at any time prior to Closing. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend
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to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent default, misrepresentation, breach of such warranty or covenant.
8.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed, provided that this Agreement shall not then substantially deprive either Party of the bargained-for performance of the other Party.
8.11 Expenses. Except as set forth in the next sentence, the legal and accounting obligations incurred to consummate the transaction on behalf of the Company shall be paid by the Company or the Company Stockholder as set forth in the Flow of Funds Memorandum. The Buyer (and not the Company or Company Stockholder) has and will pay the fees, expenses and disbursements of the Company and the Company Stockholder and each of their financial advisers, accountants and counsel incurred in connection with the subject matter of this Agreement as set forth in the Flow of Funds Memorandum, not to exceed Two Million Dollars ($2,000,000) (“Closing Fees and Expenses”). The Buyer has and will pay the fees, expenses and disbursements of the Buyer and each of its agents, representatives, financial advisers, accountants and counsel incurred in connection with the subject matter of this Agreement.
8.12 Exclusive Remedies. The remedies provided for in this Agreement shall be the sole and exclusive remedies of the Parties and their respective officers, directors, employees, Affiliates, agents, representatives, successors and assigns for any breach of or inaccuracy in any representation, warranty or covenant contained in this Agreement or any document delivered at Closing; provided, however, that nothing herein is intended to waive any claims for fraud or willful misconduct or waive any equitable remedies to which a Party may be entitled.
8.13 Employment Agreements; Confidentiality Agreements. The noncompetition and confidentiality provisions of the Employment Agreement and Agreements Concerning Confidential Information and Other Property constitute a material part of the purchase and sale transaction contemplated by this Agreement and are supported by adequate consideration. Notwithstanding the foregoing, and any other provisions of this Agreement to the contrary, the obligations of the individual parties under each such agreement shall not constitute an obligation of any other Party to this Agreement, and a breach of any such obligation shall not give rise to any claim for indemnification or recovery of Damages under this Agreement.
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8.14 Specific Performance; Remedies. Each Party hereto acknowledges that the other Parties will be irreparably harmed and that there will be no adequate remedy at law for any violation by any of them of any of the covenants or agreements contained in this Agreement, including without limitation, the noncompetition provisions referenced in Section 8.13. It is accordingly agreed that, in addition to any other remedies that may be available upon the breach of any such covenants or agreements, each Party hereto shall have the right to obtain injunctive relief to restrain a breach or threatened breach of, or otherwise to obtain specific performance of, the covenants and agreements contained in this Agreement.
8.15 Construction. The Parties agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.
8.16 Incorporation of Exhibits and Schedules. The Exhibits and Disclosure Letter identified in this Agreement are incorporated herein by reference and made a part hereof.
8.17 Survival of Representations, Warranties and Covenants. The representations and warranties of the Parties hereto contained in this Agreement or in any exhibit, certificate, letter, or other writing delivered pursuant hereto or in connection herewith shall survive the Closing and will remain in effect until one year from the Closing, except (i) as to matters as to which a Party has delivered a General Escrow Claim Notice, an A/R Escrow Claim Notice or a Contract Escrow Claim prior to the expiration of the Escrow Period, which matters shall survive the expiration of such Escrow Period until such claim for Damages is finally resolved and any obligations with respect thereto are fully satisfied in accordance with this Agreement; and (ii) for the representatives and warranties set forth in Section 3.2 which will survive indefinitely and those set forth in Section 3.26 will survive until the expiration of the applicable statutes of limitations. Except as otherwise provided herein, the covenants of the Parties will survive the Closing and expire in accordance with their terms or the applicable statutes of limitations, whichever is earlier.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.
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President and CEO |
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