EXHIBIT 2.1
-----------
EXECUTION VERSION
STOCK PURCHASE AGREEMENT
DATED AS OF MAY 1, 2007
BY AND AMONG
ADVANCED CONCEPTS, INC.,
▇▇▇▇ ▇▇▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇▇▇▇▇,
L-1 IDENTITY SOLUTIONS, INC.
AND
▇▇▇▇ ▇▇▇▇▇▇▇▇,
AS SELLERS REPRESENTATIVE
TABLE OF CONTENTS
PAGE
Article 1 THE TRANSACTIONS; CLOSING........................................1
1.1 Purchase and Sale of Shares......................................1
1.2 General..........................................................2
1.3 Closing..........................................................5
1.4 Determination of Closing Purchase Price..........................5
1.5 Earnout..........................................................6
1.6 Escrow...........................................................9
1.7 Withholding Rights...............................................9
Article 2 REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS................9
2.1 Title............................................................9
2.2 No Conflict......................................................9
2.3 Validity and Enforceability.....................................10
2.4 Litigation......................................................10
Article 3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND
HOLDINGS........................................................10
3.1 Organization, Power and Standing................................10
3.2 Subsidiaries....................................................10
3.3 Foreign Qualifications..........................................11
3.4 Due Authorization; No-Conflict..................................11
3.5 Validity and Enforceability.....................................12
3.6 Capitalization..................................................12
3.7 Financial Information...........................................13
3.8 No Material Adverse Changes.....................................14
3.9 Material Contracts..............................................15
3.10 Government Contracts............................................16
3.11 Real Property...................................................18
3.12 Personal Property and Assets....................................19
3.13 Intellectual Property...........................................20
3.14 Accounts and Notes Receivable...................................22
3.15 Warranty Claims.................................................23
3.16 Business Relationships..........................................23
3.17 Regulatory and Legal Compliance.................................23
3.18 Licenses and Permits............................................24
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.19 Tax Matters.....................................................24
3.20 Litigation......................................................26
3.21 Employees and Compensation......................................26
3.22 ERISA; Compensation and Benefit Plans...........................26
3.23 Environmental Matters...........................................28
3.24 Insurance.......................................................29
3.25 Affiliate Transactions..........................................30
3.26 Absence of Undisclosed Liabilities..............................30
3.27 Brokers.........................................................30
3.28 Export Controls.................................................30
3.29 Certain Payments................................................30
3.30 Purchase Commitments............................................31
3.31 Corporate Records...............................................31
3.32 Banks; Power of Attorney........................................31
Article 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................32
4.1 Investment Representations......................................32
4.2 Organization and Authority; Consents; No-Conflict...............32
4.3 Validity and Enforceability.....................................32
4.4 Litigation......................................................33
4.5 Brokers.........................................................33
4.6 Financial Ability...............................................33
Article 5 COVENANTS OF THE COMPANY, THE SELLERS AND THE PURCHASER.........33
5.1 Conduct of the Business.........................................33
5.2 Access..........................................................36
5.3 Efforts; Cooperation............................................37
5.4 Financial Statements............................................37
5.5 Nonsolicitation.................................................38
5.6 Confidentiality.................................................38
5.7 Noncompetition..................................................39
5.8 Injunctive Relief...............................................39
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.9 Reasonable Restrictions.........................................40
5.10 Company Intellectual Property...................................40
5.11 General Release.................................................40
5.12 Incentive Plans; Key Employee Noncompetition Agreements.........40
5.13 Joinder.........................................................41
5.14 Notice of Certain Events........................................41
5.15 Employees and Benefit Plans.....................................41
5.16 Collection of Accounts Receivable...............................42
5.17 S-Corporation Election..........................................42
5.18 Patriot.........................................................43
Article 6 COVENANTS OF THE PURCHASER......................................43
6.1 Representations and Warranties..................................43
6.2 Efforts.........................................................43
6.3 Confidentiality.................................................43
6.4 Financing.......................................................43
6.5 Indemnification of Directors and Officers.......................43
Article 7 TAX COVENANTS...................................................43
7.1 Consistent Tax Reporting........................................43
7.2 Tax Periods Ending on or Before the Closing Date................44
7.3 Tax Periods Beginning Before and Ending After the Closing
Date............................................................44
7.4 Cooperation on Tax Matters......................................45
7.5 Control of Audits...............................................45
7.6 Certain Taxes...................................................46
7.7 FIRPTA..........................................................46
Article 8 CONDITIONS TO CLOSING...........................................46
8.1 Conditions to Obligations of the Purchaser......................46
8.2 Conditions to Obligations of the Company and the Sellers........48
Article 9 TERMINATION.....................................................49
9.1 Termination.....................................................49
9.2 Effect of Termination...........................................50
Article 10 SURVIVAL; INDEMNIFICATION.......................................51
iii
TABLE OF CONTENTS
(CONTINUED)
PAGE
10.1 Survival........................................................51
10.2 Indemnification Limits..........................................52
10.3 Indemnification by the Selling Stockholders.....................52
10.4 Indemnification by the Purchaser................................53
10.5 Procedures for Indemnification..................................53
10.6 Right of Set-Off................................................54
10.7 Escrow Agreement................................................54
10.8 Adjustment to Purchase Price....................................55
10.9 Limitations on Remedies.........................................55
Article 11 MISCELLANEOUS...................................................55
11.1 Notices.........................................................55
11.2 Severability and Governing Law; Forum...........................57
11.3 Amendments, Waivers.............................................57
11.4 Expenses........................................................57
11.5 Successors and Assigns..........................................57
11.6 Entire Agreement................................................58
11.7 Counterparts....................................................58
11.8 Headings........................................................58
11.9 Further Assurances..............................................58
11.10 Third Party Beneficiaries.......................................58
11.11 No Strict Construction..........................................58
11.12 Publicity.......................................................58
11.13 Schedules and Exhibits..........................................58
11.14 Waiver of Jury Trial............................................59
11.15 Exclusive Agent for Sellers.....................................59
11.16 Rights and Remedies.............................................59
11.17 Knowledge of the Company........................................59
11.18 Construction....................................................60
Article 12 DEFINITIONS.....................................................60
iv
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as
of May 1, 2007 by and among Advanced Concepts, Inc., a Maryland corporation (the
"Company"), ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ (each, a "Selling Stockholder" and
together, the "Selling Stockholders"), L-1 Identity Solutions, Inc., a Delaware
corporation (the "Purchaser"), and ▇▇▇▇ ▇▇▇▇▇▇▇▇, solely in his capacity as the
Sellers Representative (as hereinafter defined).
Introduction
WHEREAS, the Selling Stockholders own all of the outstanding shares
of common stock, no par value per share (the "Shares"), of the Company, which
constitutes all of the issued and outstanding shares of capital stock of the
Company.
WHEREAS, the Selling Stockholders will effect the following
transactions prior to the Closing (as hereinafter defined): (a) the Selling
Stockholders shall contribute all of their Shares to a newly-formed Maryland
limited liability company ("Holdings," and together with the Selling
Stockholders, the "Sellers"), (b) Holdings shall elect to be treated as an "S
corporation" as provided in Section 1362(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and (c) Holdings shall make an election to treat
the Company as a "qualified subchapter S subsidiary" as provided in Section
1361(b)(3)(B) of the Code and the Treasury Regulations thereunder (collectively,
the "Pre-Closing Transactions").
WHEREAS, upon completion of the Pre-Closing Transactions, the
Selling Stockholders will own all of the issued and outstanding membership
interests of Holdings (the "Interests"), and Holdings will own all of the issued
and outstanding Shares.
WHEREAS, the Selling Stockholders wish to cause Holdings to sell the
Shares to the Purchaser on the terms set forth herein. The Pre-Closing
Transactions, the purchase of the Shares and the other transactions contemplated
hereby or by the other Transaction Documents are sometimes collectively referred
to herein as the "Transactions."
WHEREAS, the parties intend that, for federal and all applicable
state, local and foreign tax purposes, the Transactions will be treated as a
purchase by the Purchaser of the assets of the Company.
An index of defined terms used herein is set forth in Article 12.
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE 1
THE TRANSACTIONS; CLOSING
1.1 PURCHASE AND SALE OF SHARES. In reliance upon the representations
and warranties contained herein, and subject to the terms and conditions hereof,
at the Closing, the Selling Stockholders agree to cause Holdings to sell to the
Purchaser, and the Purchaser agrees to purchase from Holdings, the Shares. At
the Closing, the Selling Stockholders will cause Holdings to execute and deliver
assignments transferring the Shares to the Purchaser free and clear of all
Liens, other than restrictions on transfers under applicable securities laws.
1.2 GENERAL.
(a) Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
"Base Purchase Price" means $71,500,000.
"Business Day" means any day of the year on which national banking
institutions in the State of Delaware are open to the public for conducting
business and are not required or authorized to close.
"Closing Purchase Price" means the sum of the Base Purchase Price,
plus the amount, if any, by which the Closing Working Capital exceeds $4,655,786
or minus the amount, if any, by which the Closing Working Capital is less than
$4,655,786, all as finally determined in accordance with Section 1.4.
"Closing Working Capital" means (i) the consolidated cash and cash
equivalents, inventory, accounts receivable, prepaid expenses and all other
current assets of the Company as of immediately prior to the Closing (net of all
applicable reserves), minus (ii) the consolidated liabilities of the Company as
of immediately prior to the Closing (including accounts payable, accrued Taxes
and accrued expenses), excluding for this purpose all Indebtedness and
Transaction Expenses paid by or on behalf of the Sellers at the Closing. The
Closing Working Capital shall be determined in a manner consistent with the
Company's past accounting principles, methods, practices and conventions and
calculated in accordance with Schedule 1.2(b)(i); provided that the Closing
Working Capital shall in all events be determined in accordance with GAAP.
"Contract" means any contract, agreement, indenture, note, bond,
loan, instrument, lease, commitment, work order, task order, statement of work
or other arrangement, whether written or oral.
"Escrow" means five percent (5%) of the Closing Purchase Price paid
at Closing, which will be deposited at the Closing with the Escrow Agent
pursuant to the Escrow Agreement.
"Escrow Agent" means Computershare Trust Company, Inc., a limited
purpose trust company.
"Escrow Agreement" means the Escrow Agreement among the Purchaser,
the Sellers Representative and the Escrow Agent, in substantially the form of
Exhibit 1.2.
"Estimated Closing Purchase Price" means the estimate of the Closing
Purchase Price set forth on the Estimated Closing Purchase Price Certificate.
2
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied.
"Gross Profits" means, with respect to any period, the Revenue for
such period less the costs of direct labor, subcontractors, travel, and other
direct costs corresponding to such Revenue, as well as indirect costs included
or allocated to cost of Revenues in the Company's financial statements provided
to the Purchaser, all determined in a manner consistent with the manner in which
Gross Profit of $19,295,715 is calculated in line item 3 of Schedule 1.2(a)
attached hereto; provided that Revenues and cost of Revenues shall in all events
be determined in accordance with GAAP.
"Indebtedness" means with respect to the Company (i) all principal,
interest, fees, prepayment and redemption premiums or penalties, expenses and
other obligations or amounts in respect of borrowed money, notes, bonds,
debentures and other debt securities, interest rate, currency or other hedging
arrangements, letters of credit or similar extensions of credit, and/or
installment purchases incurred by the Company prior to the Closing, or required
to be paid in order to discharge fully all such amounts as of the Closing (other
than capital leases and trade payables not overdue by more than ninety (90) days
and incurred in the ordinary course of business); (ii) all obligations of the
type referred to in clause (i) for the payment of which the Company is
responsible or liable, directly or indirectly, as obligor, guarantor, surety or
otherwise, including guarantees of such obligations; and (iii) all obligations
of the type referred to in clauses (i) and (ii) of other Persons secured by (or
for which the holder of such obligations has an existing right, contingent or
otherwise, to be secured by) any Lien on any property or asset of the Company
(whether or not such obligation is assumed by such Person).
"Liens" means liens, charges, claims, deeds of trust, easements,
encumbrances, leases, mortgages, options, pledges, proxies, rights of first
refusal, security interests, voting trusts or agreements and restrictions or
limitations of any kind, including any transfer restrictions.
"Revenue" means the gross revenues of the Company determined in a
manner consistent with the Company's past accounting, principles, methods,
practices and conventions (as reflected in the Financial Statements) from the
sale of services to customers by the Company less (i) all discounts, rebates and
allowances, (ii) all sales, use, tariff, import/export duties and other excise
Taxes, and (iii) all credits to customers because of the rejection or return of
products or services (including credits or reserves relating to differences
between provisional and actual overhead and general and administrative rates,
including bid and proposal costs and research and development costs); provided
that Revenue shall in all events be determined in accordance with GAAP. Revenue
shall include only services that have been billed or are billable for work
actually performed under the terms of an executed Contract with the applicable
customer.
"Transaction Expenses" means the aggregate fees, costs, expenses and
obligations incurred by or on behalf of the Company, or for which the Company is
liable, in connection with the Transactions including all (i) amounts in respect
of legal, accounting, investment banking and other similar fees and expenses
through and including the Closing Date and (ii) employee transaction bonuses and
any other payments becoming due as a result of the Closing, either alone or in
connection with a subsequent event, including any payments made or to be made
3
pursuant to the Stock Appreciation Rights Plan of the Company dated effective as
of January 1, 2001 (the "Stock Appreciation Rights Plan").
"Treasury Regulations" means the U.S. Department of Treasury
regulations promulgated under the Code, as amended, including any successor
provisions thereto.
(b) PRE-CLOSING DELIVERIES. At least three (3) Business Days prior
to the Closing Date, the Company will furnish to the Purchaser (i) a certificate
signed by the Company setting forth the Company's (A) estimate of the Closing
Working Capital, including an itemization of the components of Closing Working
Capital, calculated in accordance with Schedule 1.2(b)(i) ("Schedule
1.2(b)(i)"), and (B) a certificate (the "Estimated Closing Purchase Price
Certificate") containing the Estimated Closing Purchase Price, and (ii) a
schedule ("Schedule 1.2(b)(ii)"), in form and substance reasonably satisfactory
to the Purchaser, (A) identifying each holder of Indebtedness, indicating the
amount required to discharge in full such Indebtedness at Closing, and setting
forth wire transfer instructions for each such holder, (B) identifying each
payee of any portion of the Transaction Expenses, indicating the amount required
to discharge in full such Transaction Expenses at Closing, and setting forth
wire transfer instructions for each such payee (other than the Company), (C)
setting forth wire transfer instructions for the Company (for amounts payable to
the Company pursuant to Section 1.2(c), (D) setting forth wire transfer
instructions for the Escrow Agent and (E) setting forth wire transfer
instructions for the balance of the Estimated Closing Purchase Price payable to
Holdings pursuant to Section 1.2(c)(vi).
(c) PAYMENTS AT CLOSING. At the Closing, the Purchaser will make
or cause to be made the following payments of the Estimated Closing Purchase
Price in exchange for delivery to the Purchaser of the Shares by wire transfer
of immediately available funds per such wire instructions as are set forth on
Schedule 1.2(b)(ii), as follows:
(i) the Purchaser will pay the Indebtedness to the
respective holders thereof (to the extent not previously paid off by the Sellers
or the Company);
(ii) the Purchaser will pay the Transaction Expenses (other
than the Transaction Expenses with respect to the Stock Appreciation Rights
Plan) to the respective payees thereof (to the extent not previously paid by the
Sellers or the Company);
(iii) the Purchaser will pay the aggregate Transaction
Expenses with respect to the Stock Appreciation Rights Plan to the Company,
which, immediately thereafter, shall be paid at the Closing by the Company to
the payees thereof, in each case in accordance with the Company's standard
payroll practices, subject to any amounts that the Company is required to
withhold pursuant to Legal Requirements;
(iv) the Purchaser will deliver the Escrow to the Escrow
Agent; and
(v) the Purchaser will pay the balance of the Estimated
Closing Purchase Price remaining after the payments in items (i), (ii), (iii)
and (iv) above to Holdings. For the avoidance of doubt, the payments in items
(i), (ii), (iii) and (iv) shall all be made using the proceeds of the Estimated
Closing Purchase Price and shall reduce the Estimated Closing Purchase Price
4
payable to Holdings. In no event shall the aggregate payments made pursuant to
this Section 1.2(c) exceed the Estimated Closing Purchase Price.
1.3 CLOSING. The purchase and sale of the Shares and the other
Transactions contemplated hereby shall take place at a closing (the "Closing")
to be held at the offices of Weil, Gotshal & ▇▇▇▇▇▇ LLP located at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (or such other place or in such other manner as
the parties may agree) on the date that is five (5) Business Days after the
satisfaction or waiver of the conditions to Closing specified in Article 8, or
on such other date as agreed to in writing by the Company and the Purchaser (the
"Closing Date").
1.4 DETERMINATION OF CLOSING PURCHASE PRICE.
(a) Within sixty (60) days after the Closing Date, the Purchaser
will deliver to the Sellers Representative a certificate (the "Closing Purchase
Price Certificate"), executed by the Purchaser, setting forth an itemized
statement of the Closing Working Capital and a statement setting for in
reasonable detail the calculation of the Closing Purchase Price.
(b) If the Sellers Representative delivers written notice (the
"Disputed Items Notice") to the Purchaser within forty-five (45) days after the
delivery of the Closing Purchase Price Certificate, stating that the Sellers
Representative objects to any items on the Closing Purchase Price Certificate,
specifying the basis for such objection in reasonable detail and setting forth
the Sellers Representative's proposed modifications to the Closing Purchase
Price Certificate, the Sellers Representative and the Purchaser will attempt to
resolve and finally determine and agree upon the Closing Purchase Price as
promptly as practicable.
(c) If the Sellers Representative and the Purchaser are unable to
agree upon the Closing Purchase Price within fifteen (15) days after delivery of
the Disputed Items Notice, the Sellers Representative and the Purchaser will
refer the matter to an independent, nationally recognized accounting firm
mutually selected by the Purchaser and the Sellers Representative, to resolve
the disputed items specified in the Disputed Items Notice. If the Purchaser and
the Sellers Representative are unable to agree on the selection of an accounting
firm, the accounting firm will be chosen by the American Arbitration
Association, with the expenses of the American Arbitration Association to be
borne fifty percent (50%) by Holdings and fifty percent (50%) by the Purchaser.
The accounting firm shall address only the disputed items set forth in the
Disputed Items Notice and may not assign a value greater than the greatest value
claimed for such item by either party or smaller than the smallest value claimed
for such item by either party. The accounting firm will (i) resolve the disputed
items specified in the Disputed Items Notice and (ii) determine the Closing
Purchase Price, as modified only by the resolution of such items. The
determination of the selected accounting firm will be made within thirty (30)
days after being selected and will be final and binding upon the parties. The
fees, costs and expenses of the accounting firm so selected will be borne by the
party whose positions generally did not prevail in such determination, or if the
accounting firm determines that neither party could be fairly found to be the
prevailing party, then such fees, costs and expenses will be borne fifty percent
(50%) by Holdings and fifty percent (50%) by the Purchaser.
5
(d) If the Sellers Representative does not deliver the Disputed
Items Notice to the Purchaser within forty-five (45) days after the delivery of
the Closing Purchase Price Certificate (or at such earlier time as the Sellers
Representative delivers written notice to the Purchaser stating that the Sellers
Representative does not object to any items on the Closing Purchase Price
Certificate), the calculation of the Closing Purchase Price specified in the
Closing Purchase Price Certificate will be conclusively presumed to be true and
correct in all respects and will be final and binding upon the parties, and the
Sellers Representative shall be deemed to have agreed with the calculations of
Closing Working Capital and Closing Purchase Price specified in the Closing
Purchase Price Certificate.
(e) Within ten (10) days after the Closing Purchase Price is
finally determined pursuant to Section 1.4(c) or (d), (i) if the aggregate
amount paid at Closing under Section 1.2(c) exceeds the Closing Purchase Price,
Holdings shall pay to the Purchaser an aggregate amount equal to such excess and
(ii) if the aggregate amount paid at Closing under Section 1.2(c) is less than
the Closing Purchase Price, the Purchaser shall pay to Holdings an aggregate
amount equal to such difference.
(f) Subject to Section 10.2, the final determination of the
Closing Purchase Price under this Section 1.4 shall not impair any other rights
of a party under this Agreement, including any rights to indemnification.
(g) After the Closing, the Purchaser and the Company shall, and
shall cause their respective employees to, provide the Sellers Representative,
its accountants and any accountant selected pursuant to Section 1.4(c)
reasonable access to the personnel, properties, books and records of the
Purchaser and the Company in connection with any dispute under this Section 1.4.
1.5 EARNOUT. If earned in accordance with this Section 1.5 and Schedule
1.5, the Company shall make the following additional payments (each, an "Earnout
Payment") in the aggregate, to Holdings:
(a) If the Revenue for the period commencing as of January 1, 2007
and ending as of December 31, 2007 (the "2007 Revenue" and such period, the
"2007 Measurement Period") is equal to or greater than the 2007 Revenue Target
(as defined in Schedule 1.5), the Company shall pay to Holdings an amount equal
to $3,000,000. If the 2007 Revenue is less than the 2007 Revenue Target but
equal to or greater than the 2007 Revenue Minimum (as defined in Schedule 1.5),
the Company shall pay to Holdings an amount equal to (i) $1,500,000 plus (ii)
the product of (A) $1,500,000 multiplied by (B) a fraction, the numerator of
which is the 2007 Revenue minus the 2007 Revenue Minimum and the denominator of
which is 4,300,000. If the 2007 Revenue is less than the 2007 Revenue Minimum,
no payment will be due pursuant to this Section 1.5(a). Notwithstanding anything
to the contrary contained herein, the maximum aggregate Earnout Payment to be
made to Holdings pursuant to this Section 1.5(a) shall not exceed $3,000,000.
(b) If the Revenue for the period commencing as of January 1, 2008
and ending as of December 31, 2008 (the "2008 Revenue" and such period, the
"2008 Measurement Period") is equal to or greater than the 2008 Revenue Target
(as defined in Schedule 1.5), the Company shall pay to Holdings an amount equal
6
to $3,000,000. If the 2008 Revenue is less than the 2008 Revenue Target but
equal to or greater than the 2008 Revenue Minimum (as defined in Schedule 1.5),
the Company shall pay to Holdings an amount equal to (i) $1,500,000 plus (ii)
the product of (A) $1,500,000 multiplied by (B) a fraction, the numerator of
which is the 2008 Revenue minus the 2008 Revenue Minimum and the denominator of
which is 7,000,000. If the 2008 Revenue is less than the 2008 Revenue Minimum,
no payment will be due pursuant to this Section 1.5(b). Notwithstanding anything
to the contrary contained herein, the maximum aggregate Earnout Payment to be
made to Holdings pursuant to this Section 1.5(b) shall not exceed $3,000,000.
(c) Notwithstanding the foregoing provisions of this Section 1.5,
in the event that the Gross Profits of the Company during the 2007 Measurement
Period or the 2008 Measurement Period, as applicable, represent an amount less
than forty percent (40%) of Revenues during such period, Holdings shall not be
entitled to receive the applicable Earnout Payment for such period.
(d) The determination of whether amounts are due under this
Section 1.5 shall be made in good faith by the board of directors of the
Company, and written notice thereof (the "Earnout Payment Notice") shall be
given to the Sellers Representative not later than thirty (30) days after the
Purchaser files with the SEC its audited consolidated financial statements for
the 2007 Measurement Period or the 2008 Measurement Period, as applicable.
(e) If the Sellers Representative delivers written notice (the
"Disputed Earnout Payment Notice") to the Company within forty-five (45) days
after delivery of any Earnout Payment Notice, stating that the Sellers
Representative objects to the amount of the Earnout Payment, specifying the
basis for such objection in reasonable detail (including the specific items in
dispute), and setting forth the Sellers Representative's proposed amount of the
Earnout Payment (including the proposed amounts of the disputed items), the
Sellers Representative and the Company will attempt to resolve and finally
determine and agree upon the Earnout Payment as promptly as practicable.
(f) If the Sellers Representative and the Company are unable to
agree upon the Earnout Payment within thirty (30) days after delivery of the
Disputed Earnout Payment Notice, the Sellers Representative and the Company will
select an independent, nationally recognized accounting firm to resolve the
disputed amount and make a determination of the Earnout Payment. If the Company
and the Sellers Representative are unable to agree on the selection of an
accounting firm, the accounting firm will be chosen by the American Arbitration
Association, with the expenses of the American Arbitration Association to be
borne fifty percent (50%) by Holdings and fifty percent (50%) by the Company.
The accounting firm shall address only the disputed items set forth in the
Disputed Earnout Payment Notice and may not assign a value greater than the
greatest value claimed for such item by either party or smaller than the
smallest value claimed for such item by either party. The accounting firm will
(i) resolve the disputed items specified in the Disputed Earnout Payment Notice
and (ii) determine the Earnout Payment, as modified only by the resolution of
such items. The determination by the accounting firm so selected will be made
within thirty (30) days after such selection and will be final and binding upon
the parties. The fees, costs and expenses of the accounting firm so selected
will be borne by the party whose positions generally did not prevail in such
determination, or if the accounting firm determines that neither party could be
7
fairly found to be the prevailing party, then such fees, costs and expenses will
be borne fifty percent (50%) by Holdings and fifty percent (50%) by the Company.
(g) If the Sellers Representative does not deliver the Disputed
Earnout Payment Notice to the Company within forty-five (45) days after delivery
of the Earnout Payment Notice (or at such earlier time as the Sellers
Representative delivers written notice to the Purchaser stating that the Sellers
Representative does not object to any items on the Earnout Payment Notice), the
Earnout Payment specified in the Earnout Payment Notice will be conclusively
presumed to be true and correct in all respects and will be final and binding
upon the parties.
(h) At such time as any Earnout Payment is finally determined
pursuant to Section 1.5(f) or (g), the Company shall pay Holdings such Earnout
Payment by wire transfer of immediately available funds to such bank account as
may be designated in writing by Holdings. Any amounts due hereunder shall be
paid fifty (50) days after delivery of the Earnout Payment Notice (or within ten
(10) days after such earlier date as the Sellers Representative delivers written
notice to the Purchaser stating that the Sellers Representative does not object
to the calculation of such Earnout Payment), or if there is a dispute with
respect to the amount due, within ten (10) days after resolution of such dispute
in accordance with this Section 1.5.
(i) The parties agree that amounts paid pursuant to this Section
1.5 shall be treated for all Tax purposes as an adjustment to the Closing
Purchase Price, unless otherwise required by any Legal Requirement.
(j) After the Closing, the Purchaser and the Company shall, and
shall cause their respective employees to, provide the Sellers Representative,
its accountants and any accountant selected pursuant to Section 1.5(f)
reasonable access to the personnel, properties, books and records of the
Purchaser and the Company in connection with any dispute under this Section 1.5.
(k) Until the end of the 2008 Measurement Period, the Purchaser
shall: (i) use its commercially reasonable efforts to preserve in all material
respects the goodwill of the Company's customers, suppliers, vendors and
employees; (ii) maintain the Company as a separate business unit; (iii) maintain
accounting records with respect to the operations of the Company in a manner
that enables the Purchaser to compute the Earnout Payments; (iv) use its
commercially reasonable efforts to provide in the then current circumstances
reasonable support to the Company in the ordinary course of business, including,
working capital, technical support, equipment, office space, supplies and
assistance with recruiting and other corporate functions; and (v) not, without
the written consent of the Sellers Representative (which consent shall not be
unreasonably be withheld, delayed or conditioned), assign or transfer to any
other Person (including Purchaser or any of its Affiliates) or terminate any
Contracts of the Company. Subject to compliance with the foregoing, nothing set
forth in this Agreement or otherwise shall limit or restrict the ability of the
board of directors or officers of the Company or the Purchaser to operate the
Company in any manner they deem appropriate following the Closing Date.
8
1.6 ESCROW. The Escrow will be deposited at the Closing with the Escrow
Agent, and subject to the terms and conditions of the Escrow Agreement, shall
remain in escrow until the one (1) year anniversary of the Closing Date. If the
Purchaser or any of its Affiliates is entitled to indemnification under Article
10, then the Purchaser shall have the right to submit a claim in accordance with
the terms of Article 10 and the Escrow Agreement.
1.7 WITHHOLDING RIGHTS. The Purchaser (and any other Person required to
withhold with respect to any payment pursuant to this Agreement) shall be
entitled to deduct and withhold from the amounts otherwise payable pursuant to
this Agreement such amounts as the Purchaser or such other Person may be
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign Tax law. To the extent
that amounts are so deducted and withheld, such withheld amounts will be treated
for all purposes of this Agreement as having been paid to the Person in respect
of which such deduction and withholding were made by the Purchaser or such other
Person.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS
Each Selling Stockholder severally, but not jointly, represents and
warrants to the Purchaser in this Article 2 as follows:
2.1 TITLE. As of the date hereof and until the consummation of the
Pre-Closing Transactions, such Selling Stockholder is the record and beneficial
owner of the Shares set forth opposite such Selling Stockholder's name on
Schedule 3.6(a), free and clear of all Liens, other than restrictions on
transfers under applicable securities laws and other Liens described in such
Schedule 3.6(a). After the Pre-Closing Transactions, the Selling Stockholder
will be the record and beneficial owner of the Interests set forth opposite such
Selling Stockholder's name on Schedule 3.6(b), free and clear of all Liens,
other than restrictions on transfers under applicable securities laws. Except as
set forth on Schedule 2.1, such Selling Stockholder has not granted any option
or right, and is not a party to any agreement that requires or, upon the passage
of time, the payment of money or occurrence of any other event, would require
such Selling Stockholder to transfer any of the Shares or Interests set forth
opposite such Selling Stockholder's name on Schedule 3.6(a) to anyone other than
the Purchaser. Such Selling Stockholder has as of the date hereof and until the
consummation of the Pre-Closing Transactions, and Holdings will have after the
Pre-Closing Transactions, the power and authority to sell, transfer, assign and
deliver the Shares set forth opposite such Selling Stockholder's name on
Schedule 3.6(a) as provided in this Agreement, and such delivery by Holdings
will convey to the Purchaser good and marketable title to such Shares, free and
clear of any and all Liens, other than restrictions on transfers under
applicable securities laws.
2.2 NO CONFLICT. Except as set forth on Schedule 2.2, no consent, order,
authorization, approval, declaration or filing is required on the part of such
Selling Stockholder for or in connection with the execution, delivery or
performance of this Agreement and the other agreements, documents and
instruments of such Selling Stockholder contemplated hereby. Except as set forth
on Schedule 2.2, the execution, delivery and performance of this Agreement and
the other agreements, documents and instruments to be executed and delivered
pursuant to this Agreement (including for this purpose the Joinder Agreement)
9
(collectively with this Agreement, the "Transaction Documents") by such Selling
Stockholder will not result in any violation of, be in conflict with, constitute
a default under, or cause the acceleration of any obligation or loss of any
rights under any Legal Requirement, charter, by-laws, operating agreement,
partnership agreement, organizational document, authorization, franchise,
certification, material Contract, material instrument, material license or
material permit to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound.
2.3 VALIDITY AND ENFORCEABILITY. This Agreement is, and each of the
other Transaction Documents to which such Selling Stockholder is to be a party
shall be when executed and delivered by such Selling Stockholder, the valid and
binding obligation of such Selling Stockholder, enforceable in accordance with
its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and by laws related to the
availability of specific performance, injunctive relief or other equitable
remedies.
2.4 LITIGATION. No action, arbitration, suit, proceeding or
investigation against the Selling Stockholder is pending or, to the knowledge of
such Selling Stockholder, threatened against such Selling Stockholder, in
relation to the affairs of the Company, such Selling Stockholder's ownership of
the Shares set forth opposite such Selling Stockholder's name on Schedule 3.6(a)
or that would materially interfere with the Purchaser's ability to consummate
the Transactions or to operate the Business after the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND HOLDINGS
The Selling Stockholders and the Company hereby represent and
warrant to the Purchaser in this Article 3 as follows:
3.1 ORGANIZATION, POWER AND STANDING.
(a) Company. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, and has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as currently conducted (the "Business").
(b) Holdings. Upon its execution of the Joinder Agreement and at
the Closing, Holdings will be a limited liability company duly organized validly
existing and in good standing under the Maryland Limited Liability Company Act,
with all requisite power and authority to own, lease and operate its properties
and to carry on its business as currently conducted.
3.2 SUBSIDIARIES.
(a) Company. Except as set forth on Schedule 3.2, the Company has
no subsidiaries and the Company does not directly or indirectly own or have the
10
right to acquire any equity interest in any other corporation, partnership,
limited liability company, joint venture, trust or other business organization.
(b) Holdings. Upon its execution of the Joinder Agreement and
immediately prior to the Closing, Holdings will not directly own or have the
right to acquire any equity interest in any other corporation, partnership,
limited liability company, joint venture, trust or other business organization,
other than the Shares. At no time during the Noncompetition Period (as such term
is defined in clause (i) of the defined term "Noncompetition Period" in Section
5.7(b)) will Holdings operate a Covered Business (as such term is defined in
Section 5.7(b)).
3.3 FOREIGN QUALIFICATIONS. The Company is duly qualified and authorized
to do business and in good standing in each of the jurisdictions listed on
Schedule 3.3. The Company is not required to qualify to do business as a foreign
entity in any other jurisdiction, other than jurisdictions in which the failure
to so qualify would not have a Company Material Adverse Effect. Holdings is not
required to qualify to do business as a foreign entity in any jurisdiction.
3.4 DUE AUTHORIZATION; NO-CONFLICT.
(a) Due Authorization of the Company. The Company has full power
and authority and has taken all required action on its part necessary to permit
it to execute and deliver, to perform its obligations under and to consummate
the Transactions contemplated by the Transaction Documents to which the Company
is or will be a party.
(b) Due Authorization of Holdings. Upon its execution of the
Joinder Agreement, Holdings will have full power and authority and will have
taken all required action on its part necessary to permit it to execute and
deliver, to perform its obligations under and to consummate the Transactions
contemplated by the Transaction Documents to which Holdings is or will be a
party.
(c) No Conflict for Company or Holdings. Except as specified on
Schedule 3.4 and except for applicable filings and approvals under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no consent, order, authorization, approval, declaration or filing,
including any consent, approval or authorization of or declaration or filing
with any Governmental or Regulatory Authority or any party to a Material
Contract, is required on the part of the Company, or will be required on the
part of Holdings, for or in connection with its execution, delivery or
performance of this Agreement and the other Transactions Documents to which it
will be a party, or the conduct of the Business by the Company immediately
following the Closing (collectively with any other consent, order,
authorization, approval, declaration or filing set forth on Schedule 2.2, the
"Required Consents"). Neither the Company nor the Selling Stockholders has
knowledge of any events, conditions, facts, circumstances or occurrences that
are reasonably likely to cause any of the Required Consents to not be obtained.
Subject to obtaining the Required Consents specified on Schedule 3.4, the
execution, delivery and performance of this Agreement and the other Transaction
Documents to which the Company and/or Holdings will be a party will not result
in any violation of, be in conflict with, constitute a default under, or cause
or give rise to any right of acceleration of any obligation, grant of any
license or other rights with respect to any Company Intellectual Property, or
loss or impairment of any rights (including Intellectual Property rights) or
benefits under, any Legal Requirement, charter, by-laws, operating agreement,
11
partnership agreement, organizational document, authorization, franchise,
certification, material Contract, material instrument, material license or
material permit to which the Company or Holdings is a party or by which the
Company or Holdings is bound, or result in the creation of any Liens upon any
properties or assets of the Company.
3.5 VALIDITY AND ENFORCEABILITY.
(a) Company. This Agreement is, and each of the other Transaction
Documents to which the Company is a party, shall be when executed and delivered
by the Company, the valid and binding obligation of the Company enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and by laws related to the
availability of specific performance, injunctive relief or other equitable
remedies.
(b) Holdings. Upon execution of the Joinder Agreement by Holdings,
this Agreement will be, and each of the other Transaction Documents to which
Holdings will be a party, shall be when executed and delivered the valid and
binding obligation of Holdings, enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, and by laws related to the availability of specific performance,
injunctive relief or other equitable remedies.
3.6 CAPITALIZATION.
(a) Capitalization of the Company Prior to Pre-Closing
Transactions. The Company's authorized and aggregate outstanding Shares prior to
the Pre-Closing Transactions are as set forth on Schedule 3.6(a). The Shares
constitute all of the Company's outstanding shares of capital stock and are duly
authorized, validly issued, fully paid and nonassessable. The offer, issuance
and sale of the securities listed on Schedule 3.6(a) were made in compliance
with all applicable federal and state securities laws and all applicable
preemptive and similar rights. Except as set forth on Schedule 3.6(a), there are
no outstanding options, warrants, convertible or exchangeable securities or
other rights that could, directly or indirectly, obligate the Company to offer,
sell or issue shares of capital stock or other securities of the Company. Except
as described on Schedule 3.6(a) and except for this Agreement (including the
Pre-Closing Transactions), there are no agreements, written or oral, relating to
any shares of capital stock or other securities of the Company, including
agreements relating to the acquisition, disposition, voting or registration
under applicable securities laws of any interests. No Person has any right of
first offer, right of first refusal, preemptive right or other similar right in
connection with the issuance or sale of the securities listed on Schedule
3.6(a), or with respect to any future offer, sale or issuance of shares of
capital stock or other securities of the Company. Except as set forth on
Schedule 3.6(a), there are no obligations of the Company to provide material
funds to, or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any Person. Except as set forth on Schedule 3.6(a) and except
for the Stock Appreciation Rights Plan, there are no outstanding stock
appreciation, phantom stock, profit participation or similar rights with respect
12
to the Company. As used herein, "Person" means any natural person or
corporation, limited liability company, partnership, trust or other entity.
(b) Capitalization of Holdings Following Pre-Closing Transactions.
After giving effect to the Pre-Closing Transactions, Holdings' authorized and
outstanding membership interests will be as set forth on Schedule 3.6(b). The
securities listed on Schedule 3.6(b) will constitute all of Holdings'
outstanding equity interests, will be owned beneficially and of record by the
Persons and in the amounts set forth on Schedule 3.6(b) and will be duly
authorized, validly issued, fully paid and nonassessable. The offer, issuance
and sale of the securities listed on Schedule 3.6(b) will be made in compliance
with all applicable federal and state securities laws and all applicable
preemptive and similar rights. After giving effect to the Pre-Closing
Transactions, there will be no outstanding options, warrants, convertible or
exchangeable securities or other rights that could, directly or indirectly,
obligate Holdings to issue its membership interests or other securities. After
giving effect to the Pre-Closing Transactions, other than this Agreement or any
agreement contemplated hereby, there will be no agreements, written or oral,
relating to any interests in Holdings, including agreements relating to the
acquisition, disposition, voting or registration under applicable securities
laws of any interests. No Person has any right of first offer, right of first
refusal, preemptive right or other similar right in connection with the issuance
or sale of the securities listed on Schedule 3.6(b), or with respect to any
future offer, sale or issuance of interests in Holdings.
(c) Capitalization of Company after Pre-Closing Transactions.
After giving effect to the Pre-Closing Transactions, the Company's authorized
and outstanding shares of capital stock will be as set forth on Schedule 3.6(c).
The securities listed on Schedule 3.6(c) will constitute all of the Company's
outstanding equity interests, will be owned beneficially and of record by
Holdings, free and clear of all Liens other than restrictions on transfers under
applicable securities laws, and will be duly authorized, validly issued, fully
paid and nonassessable. After giving effect to the Pre-Closing Transactions,
there will be no outstanding options, warrants, convertible or exchangeable
securities or other rights that could, directly or indirectly, obligate the
Company to issue shares of capital stock or other securities. After giving
effect to the Pre-Closing Transactions, other than this Agreement or any
agreement contemplated hereby, there will be no agreements, written or oral,
relating to any shares of capital stock or other securities of the Company
including agreements relating to the acquisition, disposition, voting or
registration under applicable securities laws of shares of capital stock or
other securities.
3.7 FINANCIAL INFORMATION.
(a) Delivery of Company Financial Statements. The Company has
delivered to the Purchaser (i) the audited, consolidated balance sheet of the
Company as at December 31, 2004, and the audited, consolidated statements of
cash flows, income and stockholders' equity for the fiscal year then ended and
(ii) the unaudited, consolidated balance sheets of the Company as at December
31, 2005 and December 31, 2006, and the unaudited, consolidated statements of
cash flows, income and stockholders' equity for the fiscal years then ended. The
unaudited, consolidated balance sheet of the Company as at December 31, 2006 is
referred to herein as the "Balance Sheet," the unaudited, consolidated income
statement of the Company for the fiscal year ended December 31, 2006 is referred
13
to herein as the "Income Statement," and December 31, 2006 is referred to herein
as the "Balance Sheet Date".
(b) Accuracy of Company Financial Statements. As used herein,
"Financial Statements" means the financial statements referenced in clause (a)
above (including the Balance Sheet) together with (to the extent delivered at or
prior to the Closing) the financial statements delivered pursuant to Section
5.4. The Financial Statements and the notes thereto, if any, (i) are (or shall
be to the extent delivered at or prior to Closing pursuant to Section 5.4)
complete and accurate in all material respects and fairly present the financial
condition of the Company at the respective dates thereof and the results of
operations and cash flows for the periods then ended, and (ii) were (or shall be
to the extent delivered at or prior to Closing pursuant to Section 5.4) prepared
in accordance with the books and records of the Company in conformity with GAAP
during the periods covered thereby, except, in the case of unaudited Financial
Statements, for the omission of footnotes and normal year-end adjustments which
are not, individually and in the aggregate, material. None of the Financial
Statements contains any material, non-recurring items, except as expressly set
forth therein. There are no transactions of a material nature, individually or
in the aggregate, that have not been properly recorded in the accounting records
underlying the Financial Statements. To the knowledge of the Company and the
Selling Stockholders, there are no significant deficiencies or material
weaknesses in the design or operation of internal control over financial
reporting of the Company.
(c) Holdings. Upon formation and at all times prior to the
Closing, Holdings will not hold any assets (other than the Shares) or have any
liabilities, nor will it carry on any business activities, other than in
connection with the Transactions or as contemplated by this Agreement or any
other Transaction Documents.
3.8 NO MATERIAL ADVERSE CHANGES. Since the Balance Sheet Date, other
than as shown on Schedule 3.8, (a) the Company has operated only in the usual
and ordinary course of business, (b) there has been no event, change or
condition which individually, or together with any other events, changes or
conditions, has had or could reasonably be expected to have a Company Material
Adverse Effect, and (c) the Company has complied with the covenants set forth in
Section 5.1 (exclusive of Sections 5.1(a)(iv) and (viii)) as if this Agreement
had been executed as of such date. The term "Company Material Adverse Effect"
means any material adverse effect on the Business or the affairs, assets,
properties, condition (financial or otherwise) or results of operations of the
Company; provided that none of the following shall be deemed to constitute, and
none of the following shall be taken into account in determining whether there
has been, a Company Material Adverse Effect: any adverse change, event,
development, or effect arising from or relating to (i) changes in general
business or economic conditions, (ii) the engagement by the United States in
armed hostilities, whether or not pursuant to the declaration of a national
emergency or war, or the occurrence of any military or terrorist attack upon the
United States, (iii) changes in GAAP, (iv) changes in Legal Requirements or (v)
the taking of any action expressly required by this Agreement; provided that, in
the case of the foregoing clauses (i) through (iv), only to the extent such
changes do not disproportionately impact the Company relative to other companies
in the industries in which the Company conducts its business.
14
3.9 MATERIAL CONTRACTS. Except to the extent provided in the last
paragraph of this Section 3.9 with respect to Classified Contracts, Schedule 3.9
sets forth a complete and accurate list of all of the following Contracts to
which the Company is a party:
(a) Contracts with respect to which the Company has any liability
or obligation involving more than $25,000, contingent or otherwise;
(b) Contracts which may extend for a term of more than one (1)
year after the Closing Date;
(c) Contracts under which the amount payable by the Company is
dependent on the revenue, income or other similar measure of the Company or any
other Person;
(d) licenses, leases and Contracts with respect to any material
property of the Company, including distribution, sales and supply Contracts;
(e) Contracts relating to any Indebtedness or the guarantee
thereof or the imposition of any Liens upon any asset of the Company;
(f) Contracts of the Company with any officer, director,
stockholder or Affiliate of the Company or any of their respective relatives or
Affiliates;
(g) Contracts which contain an express limitation on the method of
conducting or scope of the Business, including any agreement that contains any
exclusivity, non-competition, non-solicitation or no-hire provisions;
(h) employment, severance, consulting, deferred compensation,
collective bargaining, benefits and similar Contracts involving the Company;
(i) Contracts relating to or involving any franchise, partnership,
strategic alliance, joint venture, or other similar arrangements or the sharing
of profits;
(j) Contracts with respect to mergers or acquisitions, sales of
securities or material assets, or investments by the Company;
(k) Government Contracts;
(l) Contracts, commitments, plans or other arrangements of the
Company outside of the ordinary course of business;
(m) Contracts that are not billed by the Company on a "time plus
materials basis" (i.e., fixed price Contracts); and
(n) other Contracts, commitments, plans or other arrangements of
the Company which are material to the Business.
All the foregoing, including all amendments or modifications
thereto, all Personal Property Leases, Real Estate Leases and all Intellectual
Property Licenses are sometimes collectively referred to as "Material
15
Contracts." Material Contracts that are classified by any Governmental or
Regulatory Authority are collectively referred to herein as "Classified
Contracts." The Company is a party to only one (1) Classified Contract, which
provides for aggregate annual payments to the Company in an amount that does not
exceed $35,000. The Company has furnished to the Purchaser true, complete and
correct copies of all Material Contracts (or descriptions thereof, in the case
of oral Contracts) other than the Classified Contracts. Each Material Contract
(or description) sets forth the entire agreement and understanding between the
Company and the other parties thereto. Each Material Contract is valid, binding
and in full force and effect in accordance with its terms against the Company
and, to the knowledge of the Company, any other party thereto. To the knowledge
of the Company, there is no event or condition which has occurred or exists
which constitutes or which, with or without notice, the happening of any event
and/or the passage of time, could reasonably be expected to constitute a default
or breach under any such Material Contract by the Company or any other party
thereto, or could reasonably be expected to cause the acceleration of any
obligation or loss of any rights of the Company or give rise to any right of
termination or cancellation thereof. The Company has not received any written
or, to its knowledge, oral notice that the parties to any Material Contract will
not fulfill their obligations thereunder in all material respects.
3.10 GOVERNMENT CONTRACTS.
(a) As used herein, "Government Contract" means any Contract to
which the Company is a party with any Governmental or Regulatory Authority or
any Contract to which the Company is a party that is a subcontract (at any tier)
with another Person that holds either a prime Contract with any Governmental or
Regulatory Authority or a subcontract (at any tier) under such a prime Contract.
(b) As used herein, "Governmental or Regulatory Authority" means
any court, tribunal, arbitrator, authority, agency, bureau, board, commission,
department, official or other instrumentality of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision, and shall include any stock exchange, quotation service and the
National Association of Securities Dealers.
(c) Schedule 3.10(c) contains a complete and correct list of all
Government Contracts (including subcontracts) that are either currently active
in performance, or have been active in the past but have not been closed after
receiving final payment, or have been active in performance at any time during
the three (3)-year period prior to the date of this Agreement. Schedule 3.10(c)
accurately reports for each Government Contract the total net payments made as
of the Balance Sheet Date, payments due for work performed, and the Company's
good faith estimate of total projected value for the one (1)-year period
following the date of this Agreement. Except as disclosed in Schedule 3.10(c),
the Company has not been awarded, nor is there any outstanding bid by the
Company for, any "small business set aside Contract," "woman-owned set aside
Contract," any other "set aside Contract" or other order or Contract requiring
small business or other special status at any time during the three (3)-year
period prior to the date of this Agreement. To the knowledge of the Company,
none of the Company's currently expected sales or orders will be lost, and the
customer relations of the Company will not be damaged, as a result of the
Company continuing the operations of the Company as an entity that does not
16
qualify as a small business concern or maintain any other special status. The
Company is, and has been throughout the three (3)-year period prior to the date
of this Agreement, in substantial compliance with all material terms and
conditions of each Government Contract, and the Company has no knowledge of and
has not received notice of any material breach or violation of or error,
omission or misstatement arising under or relating to any Contract requirement
or Legal Requirement pertaining to any Government Contract. No Contract
termination, default notice or show cause notice is, or has been at any time
during the three (3)-year period prior to the date of this Agreement, in effect
pertaining to any Government Contract.
(d) Neither (i) the Company nor any of its stockholders, officers,
directors or employees nor (ii) to the knowledge of the Company, any of their
respective predecessors has been debarred, suspended, deemed non-responsible or
otherwise excluded from participation in the award of any Government Contract or
for any reason listed on the List of Parties Excluded from Federal Procurement
and Nonprocurement Programs nor, to the knowledge of the Company, has any
debarment, suspension or exclusion proceeding been initiated against the Company
or any of its predecessors, stockholders, officers, directors or employees.
(e) There have been no Legal Proceedings involving or related to
the Company or, to the knowledge of the Company, any of its predecessors,
stockholders, officers, directors or employees with respect to an alleged or
potential violation of a Contract requirement or any applicable Legal
Requirements pertaining to any Government Contract, since the date seven (7)
years prior to the date of this Agreement. No Person has filed or, to the
knowledge of the Company, threatened to file a protest with any Governmental or
Regulatory Authority challenging a Government Contract award to the Company.
(f) Except as set forth on Schedule 3.10(f), there have been no
audits, there are no ongoing audits and, to the knowledge of the Company, there
are no audits impending or expected under or relating to any Government
Contract.
(g) The Company has not conducted any internal investigation in
connection with which the Company has engaged any outside legal counsel,
auditor, accountant or investigator, or has made any disclosure to any
Governmental or Regulatory Authority or other customer or prime contractor or
higher-tier subcontractor related to any suspected, alleged or possible
violation of a contract requirement or violation of any Legal Requirements with
respect to any Government Contract.
(h) The Company maintains systems of internal controls that are in
material compliance with all requirements of all of the Government Contracts and
of applicable Legal Requirements.
(i) Neither the Company nor, to the knowledge of the Company, any
of the employees, stockholders, officers or directors of the Company have
violated any legal, administrative or contractual restriction concerning the
employment of (or discussions concerning possible employment with) current or
former officials or employees of a state, local or federal government
(regardless of the branch of government), including (not limited to) the
so-called "revolving door" restrictions set forth at 18 U.S.C. ss. 207.
17
(j) All representations, certifications and statements executed,
acknowledged or submitted by or on behalf of the Company to a Governmental or
Regulatory Authority, prime contractor or higher-tier subcontractor in
connection with any Government Contract (or change or modification thereto)
during the five (5)-year period prior to the date of this Agreement, including
any statements made in connection with the Procurement Integrity Act, 41 U.S.C.
ss. 423, the Lobbying Disclosure Act of 1995, 2 U.S.C. ss. 1601-1612, the ▇▇▇▇
Amendment, 31 U.S.C. ss. 1352, and their associated implementing regulations,
Contract clauses, representations or certifications, were true, complete and
correct in all material respects as of their respective effective dates and, to
the knowledge of the Company, with respect only to any such representations or
certifications (or the portion thereof) that are continuing in nature, are true,
complete and correct as of the date hereof.
(k) The Company does not have any pending or anticipated claims,
requests for equitable adjustment or requests for waiver or deviation from
Contract requirements with respect to any Government Contract, and the Company
has no knowledge of any material claim or threatened claim against the Company
by any customer agency with respect to any Government Contract, including any
claim for a reduction in price under any Government Contract. To the knowledge
of the Company, there exists no reasonable basis for a claim of liability
against the Company by any Governmental or Regulatory Authority under the Truth
in Negotiations Act and/or as a result of defective cost and pricing data
submitted by the Company to any Governmental or Regulatory Authority.
(l) Except as set forth on Schedule 3.10(l), with respect to any
Government Contracts, (i) there is, as of the date of this Agreement, no request
by any Governmental or Regulatory Authority for a Contract price adjustment
based on a claimed disallowance by the Defense Contract Audit Agency (or other
applicable Governmental or Regulatory Authority) or claim of defective pricing
and (ii) there has been no dispute between the Company and a Governmental or
Regulatory Authority which, during the five (5)-year period prior to the date
hereof, has resulted in a government contracting officer's final decision.
(m) As of the date hereof, to the knowledge of the Company, the
Company does not have any outstanding bid that, if accepted or awarded, is
expected by the Company to result in a loss in excess of $100,000 to the Company
(or, following the Closing, the Purchaser or its subsidiaries). To the knowledge
of the Company, the Company is not a party to any Government Contract which is
expected by the Company to result in a loss in excess of $100,000 to the Company
(or, following the Closing, the Purchaser or its subsidiaries). For purposes of
this Section 3.10(m), such loss shall be determined by including all direct and
indirect costs, including allocated indirect costs, overheads, general and
administrative costs, bid and proposal costs and research and development costs.
3.11 REAL PROPERTY.
(a) The Company does not own any real property. As used herein,
"Permitted Liens" means (i) prior to the Closing, the Liens designated as such
on Schedule 3.11(a), (ii) statutory Liens for Taxes or assessments not yet due
and payable or that the taxpayer is contesting in good faith through appropriate
proceedings for which adequate reserves have been maintained in accordance with
GAAP, (iii) mechanic's, materialmen's, and similar liens, (iv) purchase money
18
Liens and Liens securing rental payments under capital lease arrangements, and
(v) such other Liens, imperfections in title and easements, if any, which do not
detract from the value of or interfere with the present or proposed use by the
Company of the property subject thereto or affected thereby.
(b) Schedule 3.11(b) sets forth each interest in real property
leased by the Company, the lessor of such leased property, the annual rent
payable by the Company in respect of such leased property, and each lease or any
other arrangement under which such property is leased (the "Leased Property").
The Company enjoys peaceful and quiet possession of its leased premises, and is
not in default or breach in any material respect under any Real Estate Lease.
The Company has not received written or, to its knowledge, oral notice that any
lessor under any of the leases set forth on Schedule 3.11(b) (the "Real Estate
Leases") has taken action in respect of any Real Estate Lease or threatened to
terminate any Real Estate Lease before the expiration date specified in such
lease. The Company is entitled to the benefit of non-disturbance agreements that
will permit it to continue to occupy any Leased Property under its existing
leases in the event of a change in ownership or foreclosure upon the fee
interest in such Leased Property.
(c) The Leased Property includes all real property necessary for
the conduct of the Business as currently conducted and is adequate to conduct
the operations of the Company as currently conducted. The Company does not need
to own or lease any other real property to conduct the Business as currently
conducted.
(d) To the knowledge of the Company, none of the buildings, plant
or structures on any Leased Property is in need of maintenance or repairs except
for ordinary, routine maintenance and repairs that are, individually and in the
aggregate, immaterial. To the knowledge of the Company, all utility systems
serving the Leased Property are adequate in all material respects for the
Business as currently conducted. Each Leased Property has access for ingress
from and egress to a public way that is adequate for the Business as currently
conducted. There is no pending or, to the knowledge of the Company, threatened
condemnation, eminent domain or similar proceeding with respect to any Leased
Property.
3.12 PERSONAL PROPERTY AND ASSETS.
(a) The Company has good title to or a valid leasehold or license
interest in each item of personal property used by it in the Business, free and
clear of all Liens, other than Permitted Liens. All material tangible assets of
the Company are in good operating condition and repair, normal wear and tear
excepted, and are adequate to conduct the operations of the Company as currently
conducted. The assets and properties (including Intellectual Property) of the
Company include all assets and properties (including Intellectual Property)
necessary for or currently used in the conduct of the Business, and are adequate
in all material respects to conduct the operations of the Company as currently
conducted.
(b) Schedule 3.12(b) sets forth all leases of personal property
("Personal Property Leases") involving annual payments in excess of $10,000
relating to personal property used in the Business or to which the Company is a
party or by which the properties or assets of the Company is bound. The Company
has a leasehold interest under each of the Personal Property Leases under which
19
it is a lessee that is valid and enforceable in accordance with its terms
against the Company and, to the knowledge of the Company, any other party
thereto and neither the Company nor, to the knowledge of the Company, any other
party to the Personal Property Leases has exercised any termination rights with
respect thereto.
3.13 INTELLECTUAL PROPERTY.
(a) As used herein "Intellectual Property" means all intellectual
property rights of every kind and related priority rights arising from or in
respect of the following, whether protected, created or arising under the laws
of the United States or any other jurisdiction or under any international
convention: (i) patents, patent applications, patent/invention disclosures and
inventions, including all continuations, divisionals, continuations-in-part and
provisionals and patents issuing thereon, and all reissues, reexaminations,
substitutions, renewals and extensions thereof, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names (in each case, whether
registered or unregistered) and other source or business identifiers, and all
applications, registrations, renewals and extensions thereof, (iii) copyrights
(registered or unregistered) and moral rights, and all registrations,
applications, renewals, extensions and reversions thereof, (iv) computer
programs (whether in source code or object code, and including any and all
software implementations of algorithms, models and methodologies), data,
databases, compilations, user interfaces, development tools, report formats,
templates, firmware and documentation (including user manuals and other training
documentation) related to any of the foregoing in this clause (iv)
(collectively, "Software"), (v) trade secrets and other confidential or
proprietary information or materials (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, concepts, ideas, processes, techniques, formulae,
compositions, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information) (collectively,
"Trade Secrets"), (vi) World Wide Web addresses and domain name registrations,
(vii) works of authorship including computer programs, source code and
executable code, whether embodied in Software, firmware or otherwise,
documentation, designs, files, records, data and mask works and any rights in
semiconductor masks, layouts, architectures or topography, and (viii) goodwill
associated with any of the foregoing.
(b) As used herein "Company Intellectual Property" means all
Intellectual Property used in or necessary for the conduct of the business of
the Company, or owned or held for use by the Company.
(c) As used herein "Intellectual Property License" means (i) any
grant by the Company to another Person of any license, sublicense, right,
permission, consent or non-assertion relating to or under any Company
Intellectual Property and (ii) any grant by another Person to the Company of any
license, sublicense, right, permission, consent or non-assertion relating to or
under any Intellectual Property owned by a third Person.
(d) Schedule 3.13(d) contains a complete and accurate list of all
Company Intellectual Property included in clauses (i), (ii), (iii) and (vi) of
the definition of Intellectual Property and further lists (x) the record owner
of each such item of Intellectual Property included in clauses (i), (ii), (iii)
and (vi); (y) the jurisdictions in which each such item of Intellectual Property
20
has been issued or registered or in which any such application for issuance or
registration has been filed; and (z) the registration or application date, as
applicable, for each such item of Intellectual Property. Schedule 3.13(d)
contains a complete and accurate list of all Intellectual Property Licenses and
other rights granted by the Company to any Person with respect to any Company
Intellectual Property and all Intellectual Property Licenses and other rights
granted by any Person to the Company with respect to any Company Intellectual
Property (for this purpose, excluding so-called "off-the-shelf," "shrink wrap"
Software licensed to the Company in the ordinary course of business for a fee
not exceeding $10,000 in payment by the Company ("Off-the-Shelf Software") and
excluding any implied licenses granted or obtained through product sales or
purchases). The Company is not required to pay any royalties or other
compensation to any third Person in respect of its ownership or use of any
Company Intellectual Property, other than payments in the ordinary course of
business for Off-the-Shelf Software, or as otherwise listed in Schedule 3.13(d).
(e) Except as set forth on Schedule 3.13(e), the Company owns,
solely and exclusively, or possesses valid and sufficient legal rights to use,
sell, license and otherwise commercially exploit, as the case may be, all
Company Intellectual Property and Intellectual Property licensed to the Company
under Intellectual Property Licenses as the same is used, sold, licensed and
otherwise commercially exploited by the Company in the Business as presently
conducted. To the knowledge of the Company, it (including the Company's business
practices, methods and operations) has not violated, infringed or
misappropriated, and is not violating, infringing or misappropriating, any
Intellectual Property or privacy or publicity rights of any other Person, and
the Company has no knowledge of any violation, infringement or misappropriation
by any Person of any Company Intellectual Property. The Company has not received
any notice from any Person claiming any violation, infringement or
misappropriation of any other Person's Intellectual Property rights. To the
knowledge of the Company, the Company Intellectual Property owned by the
Company, and all of the Company's rights in and to the Company Intellectual
Property are valid and enforceable. Each of the Intellectual Property Licenses
is valid and enforceable in accordance with its terms against the Company and,
to the knowledge of the Company, the other party to such Intellectual Property
License.
(f) Each item of Company Intellectual Property owned by the
Company and which is registered with, or subject to an outstanding application
for registration with, the relevant Governmental or Regulatory Authorities in
the United States or foreign jurisdictions, as the case may be, is active and
subsisting, and all necessary registration, maintenance, renewal and other
filing fees due as of the date hereof in connection with such Company
Intellectual Property have been timely paid and all necessary documents,
certificates and other relevant filings in connection with such Company
Intellectual Property have been timely filed with the relevant Governmental or
Regulatory Authorities in the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Company Intellectual Property.
(g) The Company has taken reasonable measures (consistent with the
measures generally taken in the industry in which the Company operates) to
protect its rights in, and the confidentiality of, the Company Intellectual
Property that constitutes a Trade Secret and any other confidential information
of the Company (and any confidential information owned by a third Person to whom
the Company has a confidentiality obligation). No material Trade Secret included
in the Company Intellectual Property has been authorized to be disclosed or, to
the knowledge of the Company, has been actually disclosed by the Company to any
21
third Person other than pursuant to a written non-disclosure agreement
restricting the disclosure and use of the Company Intellectual Property. Each
employee, consultant and independent contractor of the Company involved in
creating or developing any products, services or Intellectual Property related
to the Business has entered into a written non-disclosure and invention
assignment agreement with the Company in a form provided to Purchaser prior to
the date hereof or substantially similar thereto. To the knowledge of the
Company, no employee, consultant or independent contractor of the Company is
obligated under any agreement or commitment, or subject to any judgment, decree
or order of any court or administrative agency, that could be reasonably
expected to interfere with such employee's, consultant's or independent
contractor's duties to the Company with respect to the Company Intellectual
Property, or that could reasonably be expected to conflict with the Business as
currently conducted.
(h) Except as noted herein or in Schedule 3.13(d), all of the
Company's rights. title and interest in and to the Company Intellectual Property
owned by the Company are free and clear of all Liens, other than Permitted
Liens.
(i) Except as set forth on Schedule 3.13(i), no open source or
public library Software (or other Software having similar licensing or
distribution models), including any version of any Software licensed pursuant to
any GNU public license, was used in the development or modification of any
Software owned by the Company that is incorporated into or utilized by any
products of the Company where, as a result of the use of such open source or
public library Software (or other Software having similar licensing or
distribution models), the Company is obligated to make available to third
parties other than its customers any source code for the proprietary Software
owned by the Company that is incorporated into or utilized by such products.
Except as set forth on Schedule 3.13(d), the Company has not licensed or
provided to any third Person, or otherwise permitted any third Person to access
or use, any source code or related materials for any Software developed by or
for the Company. The Company is not currently a party to any source code escrow
agreement or any other agreement (or a party to any agreement obligating the
Company to enter into a source code escrow agreement or other agreement)
requiring the deposit of source code or related materials for any such Software.
3.14 ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes receivable of
the Company, including unbilled and accrued receivables, are determined in
accordance with GAAP and arose out of bona fide transactions in the ordinary
course of business. All accounts and notes receivable of the Company reflected
on the Balance Sheet, including unbilled and accrued receivables, (a) are valid
and enforceable claims, (b) are subject to no set off or counterclaim, and (c)
are collectible in the ordinary course of business (assuming collection
activities consistent with the Company's past practices) in the aggregate
recorded amounts thereof, net of the reserves shown on the Balance Sheet. All
accounts and notes receivable of the Company arising after the Balance Sheet
Date and reflected in the calculation of Closing Working Capital, including
unbilled and accrued receivables, (i) are valid and enforceable claims, (ii) are
subject to no set off or counterclaim, and (iii) are collectible in the ordinary
course of business (assuming collection activities consistent with the Company's
past practices) in the aggregate recorded amounts thereof, net of any applicable
reserve.
22
3.15 WARRANTY CLAIMS. There are, and since January 1, 2004, there have
been, no material claims against the Company alleging any defects in the
Company's services or products, or alleging any failure of the products or
services of the Company to meet applicable specifications, warranties or
contractual commitments. The Company's liability for breach of warranty is
limited to repair or replacement of products or nonconforming parts. The
Company's liability for any breach of warranty for products manufactured or
services provided prior to Closing shall not exceed the warranty reserve set
forth in the most recent financial statements set forth in Section 3.7(a). The
Company's products are free from material defects and perform in accordance in
all material respects with all applicable specifications, warranties and
contractual commitments. The Company has no material liability arising out of
any injury to individuals or property as a result of the ownership, possession,
or use of any product designed, manufactured, assembled, repaired, maintained,
delivered, sold or installed, or services rendered, by or on behalf of the
Company. The Company has not sold any products or delivered any services that
included a warranty for a period of longer than one (1) year.
3.16 BUSINESS RELATIONSHIPS. Schedule 3.16(i) sets forth a list of all
customers (other than customers under Classified Contracts) which accounted for
at least $1,000,000 of consolidated net sales by the Company during the twelve
(12) calendar months ended as of March 31, 2007. No such customer has provided
to the Company any written or, to its knowledge, oral notice that such customer
will not continue purchasing, without significant reductions, products and
services from the Company. No supplier, vendor or service provider has provided
it with any written or, to its knowledge, oral notice that such supplier, vendor
or service provider will not continue after the Closing to sell the products and
provide the services to the Company currently sold and provided by them. The
Company's relationships with such customers, suppliers, vendors and service
providers are good commercial working relationships. Except as set forth on
Schedule 3.16(ii), during the previous eighteen (18) months, no customer
representing more than $250,000 of consolidated annualized revenues and no
significant supplier, vendor or service provider (a) has terminated or, to the
knowledge of the Company, threatened to terminate, its relationship with the
Company (excluding the expiration of any Contract governing such relationship
pursuant to its terms), (b) has decreased or limited materially or, to the
knowledge of the Company, threatened to decrease or limit, the services,
supplies or materials supplied to or purchased from the Company as a result of
the quality of the products or services of the Company, or (c) has materially
changed or, to the knowledge of the Company threatened to change, its business
relationship with the Company (including the pricing or terms of its business)
as a result of the quality of the products or services of the Company.
3.17 REGULATORY AND LEGAL COMPLIANCE. The Company is in compliance in all
material respects with all Legal Requirements. Since January 1, 2004, the
Company has not received any written or, to its knowledge, oral notice from any
Governmental or Regulatory Authority or any other Person of any alleged
violation or noncompliance with any Legal Requirement. As used herein, the term
"Legal Requirements" means, with respect to any Person, all foreign, federal,
state and local statutes, laws, ordinances, judgments, decrees, orders, rules,
regulations, policies and guidelines applicable to such Person, including the
Foreign Corrupt Practices Act of 1977, as amended and the regulations
promulgated thereunder, the regulations promulgated by the General Services
Administration and the laws and regulations relating to export controls. The
Company maintains an accredited Sensitive Compartmented Information Facility for
23
the handling of classified information concerning or derived from intelligence
sources, methods, or analytical processes that complies with all Legal
Requirements. All Company personnel who have had access to classified
information have possessed the security clearance required under all applicable
Legal Requirements for such access.
3.18 LICENSES AND PERMITS. Schedule 3.18 sets forth all licenses,
permits, authorizations, franchises and certifications of Governmental or
Regulatory Authorities held by the Company. The Company is in compliance in all
material respects with all such licenses, permits, authorizations, franchises
and certifications, all of which are in full force and effect and will be in
full force and effect immediately after giving effect to the Transactions,
subject to obtaining the Required Consents, if any. No event has occurred which,
with notice or the lapse of time or both, would constitute a default or
violation, in any material respect, of any term, condition or provision of any
such license, permit, authorization, franchise or certification, and to the
knowledge of the Company or the Selling Stockholders, there are no facts or
circumstances which could reasonably be expected to form the basis for any such
default or violation. There are no other licenses, permits, authorizations,
franchises or certifications which are material to the Company or the Business
which the Company is required to obtain. The Company does not have knowledge of
any threatened suspension, revocation or invalidation of any such licenses,
permits, authorizations, franchises or certifications, or any reasonable basis
therefor.
3.19 TAX MATTERS.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) "Tax" or "Taxes" means (i) all taxes, charges, fees,
levies, penalties, additions or other assessments imposed by any foreign,
federal, state or local taxing authority, including income, excise, property,
sales, use, transfer, franchise, payroll, withholding, value added, social
security or other taxes, (ii) any interest, penalties or additions attributable
to any item described in clause (i) and (iii) any liability in respect of any
items described in clauses (i) and/or (ii) by reason of Contract, assumption,
transferee liability, operation of law, Treasury Regulation section 1.1502-6 (or
any predecessor or successor thereof or analogous or similar provision under
law) or otherwise.
(ii) "Tax Returns" means all reports, estimates, declarations
of estimated Tax, information statements and returns relating to, or required to
be filed in connection with, any Taxes and any schedules attached to or
amendments of (including refund claims with respect to) any of the foregoing.
(b) Except as set forth on Schedule 3.19(b) hereto: (i) all
material Tax Returns required to be filed by or on behalf of the Company and
Holdings, if any, have been duly filed on a timely basis; (ii) such Tax Returns
are true, complete and correct in all material respects; (iii) all Taxes owed by
the Company or Holdings for or with respect to any taxable period or partial
taxable period ending on or before the Closing Date, whether or not stated as
due on such Tax Returns, have been paid or will be timely paid by the Company or
Holdings prior to the Closing Date unless such Taxes are being contested in good
faith by appropriate proceedings and are reflected in Closing Working Capital as
finally determined pursuant to Section 1.4; (iv) the Purchaser has been supplied
24
with true and complete copies of each Tax Return of the Company and Holdings, if
any, including each franchise or excise Tax Return based on income filed for the
last three (3) taxable years; (v) neither the Company nor Holdings (A) has ever
been audited or received notice of initiation thereof by any governmental taxing
authority for which the statute of limitations for assessment of Taxes remains
open, (B) has ever extended any applicable statute of limitations regarding
Taxes for which the statute of limitations for assessment of Taxes remains open,
(C) is liable, contractually or otherwise, for the Taxes of any other Person
(other than withholding Taxes arising in the ordinary course of business), (D)
has agreed to or is required to make any adjustment under Code Section 481(a) or
263A, (E) is a party to any allocation or sharing agreement or closing agreement
under Section 7121 of the Code with respect to Taxes, (F) has ever participated
in the filing of any consolidated, combined or unitary Tax Return, (G) is
currently the beneficiary of any extension of time within which to file any Tax
Return, and (H) has ever received notice of any claim by any authority in any
jurisdiction where it does not file a particular Tax Return that it is or may be
subject to any Taxes or future taxation in such jurisdiction; and (vi) the
Company and Holdings have complied in all material respects with all applicable
laws relating to the payment and withholding of Taxes, and has duly and timely
withheld and paid over to the appropriate taxing authority all amounts required
to be so withheld and paid under all applicable laws.
(c) From the date of its organization and until such time as it is
properly treated as a "qualified subchapter S subsidiary" under Code Section
1361(b)(3)(B), the Company continuously has had in effect a valid election to be
taxed as an S corporation for federal and all applicable state law purposes.
From the date of its organization, Holdings continually has had in effect a
valid election to be taxed as an S corporation for federal and all applicable
state law purposes. Neither the Company nor Holdings has any potential liability
under Section 1374 of the Code or is, or has ever been, subject to the passive
income tax under Section 1375 of the Code.
(d) Neither the Company nor Holdings has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(i) in the two (2) years prior to the date of this Agreement or (ii) in a
distribution that could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
connection with the transactions contemplated by this Agreement.
(e) Neither the Company nor Holdings has engaged in a transaction
that is the same or substantially similar to one of the types of transactions
that the Internal Revenue Service has determined to be a reportable transaction,
as set forth in Treasury Regulation section 1.6011-4(b).
(f) Each of the Company and Holdings is and has always been
resident for Tax purposes in its place of incorporation or formation and neither
is or at any time has been treated as resident in any other jurisdiction for any
Tax purpose (including any double taxation arrangement). Neither the Company nor
Holdings is subject to Tax in any jurisdiction other than its place of
incorporation or formation by virtue of having a permanent establishment or
other place of business or by virtue of having a source of income in that
jurisdiction, except for income earned from services for which any income Tax is
satisfied through withholding. Neither the Company nor Holdings is liable for
25
any Tax as the agent of any other Person or business or constitutes a permanent
establishment or other place of business of any other Person for any Tax
purpose.
(g) Neither the Company nor Holdings is party to any nonqualified
deferred compensation plan that fails to meet the requirements of Section
409A(a)(2), (3) and (4) of the Code or is not operated in accordance with such
requirements.
3.20 LITIGATION. Except as set forth on Schedule 3.20, no action,
arbitration, suit, claim, inquiry, proceeding or investigation (each, a "Legal
Proceeding") is pending or, to the knowledge of the Company, threatened against
the Company, or, to the knowledge of the Company, pending or threatened against
any stockholder, officer, director or employee of the Company in relation to the
affairs of the Company (including any Legal Proceeding relating to any
Transaction Documents or Transactions), nor to the knowledge of the Company is
there any reasonable basis for any such Legal Proceeding. The Company is not
subject to any order, injunction, judgment, decree or ruling of any Governmental
or Regulatory Authority.
3.21 EMPLOYEES AND COMPENSATION.
(a) The Company is in compliance in all material respects with all
applicable Legal Requirements respecting employment and employment practices in
the jurisdictions within which they operate including the Age Discrimination in
Employment Act of 1967, as amended, the Americans with Disabilities Act of 1990,
as amended, ERISA, the Code and state fair employment practices laws.
(b) The Company's employees are not represented by a union, and
there is no labor strike, dispute, arbitration, grievance, slowdown, stoppage,
organizational effort, dispute or proceeding by or with any employee or former
employee of the Company or any labor union pending or, to the knowledge of the
Company, threatened against the Company. There has been no "mass layoff" or
"plant closing" as defined in the Worker Adjustment and Retraining Notification
Act ("WARN") with respect to the Company or any of its subsidiaries within six
(6) months prior to Closing.
(c) There are no employment or consulting Contracts or
arrangements (other than those terminable at will without liability to the
Company) with any employees or consultants of the Company other than as
described on Schedule 3.9. Schedule 3.21 sets forth a complete list, as of the
date of this Agreement, of all employees of and consultants to the Company, with
annual compensation in excess of $50,000, showing date of hire, hourly rate or
salary or other basis of compensation and job function, all as of the date of
this Agreement, and other benefits accruing pursuant to the Company's standard
policies, including paid time off or vacation pay. The Company has not received
any written or, to its knowledge, oral notice that any officer or key employee
of the Company intends to terminate his or her employment with the Company.
3.22 ERISA; COMPENSATION AND BENEFIT PLANS.
(a) Schedule 3.22(a) sets forth all employee compensation and
benefit plans, agreements, commitments, programs, practices, policies or
arrangements of any type (including plans described in Section 3(3) of the
26
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) providing
cash or equity-based compensation or incentives, health, medical, dental,
disability, accident or life insurance benefits or vacation, severance, change
in control, retention, retirement, pension or savings benefits that are
sponsored, offered, maintained or contributed to by the Company for the benefit
of current or former employees or directors of the Company, or with respect to
which the Company has or may have any liability, whether direct or indirect,
actual or contingent (including liabilities arising from any subsidiaries,
Affiliates or any trade or business (whether or not incorporated) which is or
has ever been under common control, or which is or has ever been treated as a
single employer with any of them under Section 414(b), (c), (m) or (o) of the
Code or Section 4001 of ERISA ("ERISA Affiliate")) (collectively, the "Benefit
Plans"), and includes a written description of all oral Benefit Plans. There are
no material compensation or benefit plans, agreements, commitments, practices or
arrangements of any type providing benefits to employees or directors of the
Company, or with respect to which the Company may have any liability, contingent
or otherwise, other than the Benefit Plans.
(b) With respect to each Benefit Plan, the Company or its ERISA
Affiliate has delivered to the Purchaser true and complete copies of: (i) any
and all plan texts, agreements and amendments thereto (including trust
agreements, insurance Contracts and investment management agreements currently
in effect); (ii) any and all material written descriptions of Benefit Plans
circulated generally among participants (including all summary plan descriptions
and material modifications thereto currently in effect); (iii) the two most
recent Form 5500 and all schedules thereto, if applicable; (iv) the most recent
annual and periodic accounting of plan assets, if applicable; (v) the most
recent determination letter received from the Internal Revenue Service (the
"Service"), if applicable; and (vi) in the case of any unfunded or self-insured
plan or arrangement, the most recent actuarial report and a current estimate of
accrued and anticipated liabilities thereunder.
(c) Except as otherwise provided on Schedule 3.22(c) with respect
to each Benefit Plan: (i) if intended to qualify under Section 401(a) of the
Code, the Internal Revenue Service has issued a favorable determination letter
or opinion letter or advisory letter upon which the Company is entitled to rely
under Internal Revenue Service pronouncements, that the plan is qualified under
Section 401(a) of the Code and the related trusts are exempt from federal income
Tax under Section 501(a) of the Code, and no such determination letter, opinion
letter or advisory letter has been revoked, nor to the Company's knowledge has
revocation been threatened, and the Company has no knowledge of any reason why
the plan is not so qualified; (ii) such plan has been administered and enforced
in accordance with its terms and all applicable Legal Requirements in all
material respects; (iii) no breach of fiduciary duty has occurred with respect
to which the Company or any Benefit Plan may be liable or otherwise damaged in
any material respect; (iv) no material disputes, actions, suits, claims or
arbitrations (other than claims for benefits in the ordinary course) nor any
audits or investigations by any Governmental or Regulatory Authority are pending
or, to the knowledge of the Company, threatened; (v) no "prohibited transaction"
(within the meaning of either Section 4975(c) of the Code or Section 406 of
ERISA) has occurred with respect to which the Company or any Benefit Plan may be
liable or otherwise damaged in any material respect; (vi) all contributions,
premiums, and other payment obligations have been accrued on the consolidated
financial statements of the Company in accordance with GAAP, and, to the extent
due, have been made on a timely basis, in all material respects; (vii) all
27
contributions or benefit payments made or required to be made under such plan
meet the requirements for deductibility under the Code to the extent intended to
be deductible; (viii) the Company has expressly reserved in itself the right to
amend, modify or terminate such plan, or any portion of it, at any time without
liability to itself; and (ix) no such plan requires the Company to continue to
employ any employee or director.
(d) No Benefit Plan is, or has ever been, subject to Title IV of
ERISA. Furthermore, neither the Company nor any ERISA Affiliate has terminated
any plan subject to Title IV of ERISA or incurred any liability under Section
4062 of ERISA within the past six (6) years.
(e) With respect to each Benefit Plan which provides welfare
benefits of the type described in Section 3(1) of ERISA: no such plan provides
medical or death benefits with respect to current or former employees or
directors of the Company beyond their termination of employment, other than
coverage mandated by Sections 601-608 of ERISA and 4980B(f) of the Code or
similar state laws, (ii) each such plan has been administered in compliance in
all material respects with Sections 601-609 of ERISA and 4980B(f) of the Code;
(iii) no such plan is or is provided through a "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA; and (iv) no such plan
has reserves, assets, surpluses or prepaid premiums in violation of Code
Sections 419 or 419A.
(f) Except as set forth on Schedule 3.22(f), the consummation of
the Transactions contemplated by this Agreement, either alone or in combination
with another event, will not (i) entitle any current or former employee,
consultant, officer or director to severance pay, retention bonuses, or change
in control payments or bonuses, (ii) accelerate the time of payment, funding or
vesting under any Benefit Plan, or (iii) increase the amount of compensation or
benefits due to any current or former employee, consultant, officer or director.
Except as set forth on Schedule 3.22(f), no payments made as a result of the
transactions contemplated by this Agreement shall constitute "excess parachute
payments" within the meaning of Section 280G of the Code.
3.23 ENVIRONMENTAL MATTERS.
(a) Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (i) the
operations of the Company are, and at all times have been, in compliance with
all applicable Environmental Laws, including possession and compliance with the
terms of all licenses and permits required by Environmental Laws, (ii) there are
no pending or, to the knowledge of the Company, threatened Legal Proceedings
under or pursuant to any Environmental Laws against the Company or involving any
real property currently or, to the knowledge of the Company, formerly owned,
operated or leased or other sites at which Hazardous Materials were disposed of,
or allegedly disposed of, by the Company, (iii) to the Company's knowledge, the
Company has received no written allegations of any liabilities under any
Environmental Law and the Company has no knowledge of any pending or threatened
such allegations, (iv) the Company has no knowledge of the presence of any
Hazardous Materials at any facility currently leased or used by the Company and
(v) the Company has not generated, transported, treated, stored, installed,
disposed of or released any Hazardous Materials in violation of, or in a manner
28
that would reasonably be expected to give rise to liability to the Company
under, any Environmental Laws.
(b) For purposes of this Section 3.23, the following terms shall
have the following meanings:
"Environmental Laws" means any and all federal, state, foreign,
interstate, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, decrees, requirements of any
Governmental or Regulatory Authority any and all common law requirements, rules
and bases of liability regulating, relating to, or imposing liability or
standards of conduct concerning pollution, Hazardous Materials or protection of
human health, safety or the environment, as currently in effect, including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., the Clean Water Act, 33 U.S.C.
Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C., Section 136 et seq.,
Occupational Safety and Health Act 29 U.S.C. Section 651 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701 et seq., and the Endangered
Species Act (16 U.S.C. Section 1531 et seq.) as such laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes.
"Hazardous Materials " means any materials or wastes, defined,
listed, classified or regulated as radioactive, hazardous, toxic or otherwise
dangerous to health or the environment in or under any Environmental Laws
including petroleum, petroleum products, friable asbestos, urea formaldehyde,
radioactive materials and polychlorinated biphenyls, but excluding office and
janitorial supplies safely stored and maintained.
3.24 INSURANCE. Schedule 3.24 sets forth all insurance policies under
which the Company is insured, the name of the insurer of each policy, the type
of policy provided by such insurer, the amount, scope and period covered thereby
and a description of any material claims made thereunder during the six (6)-year
period prior to the date of this Agreement. Such insurance policies are valid
and in full force and effect and for such amounts as are (a) sufficient for all
Legal Requirements and all agreements to which the Company is a party or by
which it is bound and (b) reasonable for the Business, assets and properties of
the Company. All premiums due to date under such policies have been paid, no
default by the Company or, to the knowledge of the Company, any other party
exists thereunder and, with respect to any material claims made under such
policies, no insurer has (i) given any notice to the Company or the Sellers of
any "reservation of rights" or (ii) refused to cover all or any portion of such
claims. The Company has not received any notice of any proposed material
increase in the premiums payable for coverage, or proposed reduction in the
scope (or discontinuation) of coverage, under any of such insurance policies
and, to the knowledge of the Company, no event has occurred which could
reasonably be expected to result in a retroactive upward adjustment in premiums
under any such insurance policies or which could reasonably be expected to
result in a prospective upward adjustment in such premiums. To the knowledge of
the Company, no event has occurred which limits or impairs the rights of the
Company under any such insurance policies.
29
3.25 AFFILIATE TRANSACTIONS. Except as set forth on Schedule 3.25 and
except as contemplated by the Stock Appreciation Rights Plan and the Incentive
Plan, (a) the Company is not a party to any Contract or arrangement with, or
indebted, either directly or indirectly, to any of its (i) officers, directors,
stockholders, or any of their respective relatives or Affiliates or (ii)
employees, other than compensation and benefits arrangements between the
Company, as employer, and such Person, as employee, in the usual, regular and
ordinary course of business, and (b) (i) none of such officers, directors or
stockholders and (ii) to the knowledge of the Company, none of its employees or
any of the relatives or Affiliates of its officers, directors or stockholders:
(A) is indebted to the Company or has any direct or indirect ownership interest
in, or any contractual or business relationship (whether written or oral) with,
any Person with which the Company is or was Affiliated or with which the Company
has a business relationship, or any Person which, directly or indirectly,
competes with the Company, (B) has any claim or cause of action against the
Company or (C) owns any interest in, or controls or is a director, officer,
employee or partner of, or consultant to, or lender to or borrower from or has
the right to participate in the profits of, any Person which is a competitor,
supplier, customer, landlord, tenant, creditor or debtor of the Company. As used
herein, "Affiliate" has the meaning ascribed to it in Rule 405 promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
3.26 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
3.26 and except for (i) accounts payable, accrued expenses and other liabilities
or obligations specifically reflected and reserved against on the Balance Sheet
and other similar amounts incurred in the ordinary course of business since the
Balance Sheet Date as of the Closing Date or (ii) liabilities incurred pursuant
to the terms of or expressly contemplated by this Agreement, the Company does
not have any material liabilities or obligations, whether absolute, accrued,
contingent or otherwise, and whether due or to become due.
3.27 BROKERS. Except as set forth on Schedule 3.27, no finder, broker,
agent, financial advisor or other intermediary has acted on behalf of the
Sellers or the Company in connection with the negotiation or consummation of
this Agreement or the Transactions and no such Person is entitled to any fee,
payment, commission or other consideration in connection therewith as a result
of any arrangement made by any of them.
3.28 EXPORT CONTROLS. The Company has not exported, and does not export,
any products or services outside of the United States. The Company does not have
a customer, supplier or distributor relationship with, or is a party to any
agreement with, any Person (i) organized or domiciled in or that is a citizen
of, the Balkans, Burma (Myanmar), Cuba, Iran, Liberia, North Korea, Sudan, Syria
or Zimbabwe (including any Governmental or Regulatory Authority within any such
country) or (ii) that appears on the Specially Designated Nationals and Blocked
Persons List of the Office of Foreign Assets Controls in the United States
Department of the Treasury, or in the Annexes to the United States Executive
Order 13224 - Blocking Property and Prohibiting Transactions with Person Who
Commit, Threaten to Commit, or Support Terrorism.
3.29 CERTAIN PAYMENTS. None of the Company nor, to the knowledge of the
Company, any director, officer, consultant, employee, or other Person associated
with or acting on behalf of any of them, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
30
payment to any Person, private or public, domestic or foreign, regardless of
form, whether in money, property, or services (i) in violation of any Legal
Requirements or (ii) to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns, (b) violated any
applicable export control, money laundering or anti-terrorism Legal Requirement,
or otherwise taken any action which would be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any applicable Legal Requirement of
similar effect or (c) established or maintained any fund or asset with respect
to the Company that has not be recorded in the books and records of the Company.
3.30 PURCHASE COMMITMENTS. Schedule 3.30 identifies the Persons that
represent, in the aggregate, at least eighty percent (80%) of the current
written commitments (whether pursuant to an agreement or purchase order) to
purchase existing products or services or products or services being developed
by the Company or any of its Affiliates (the "Purchase Commitments"). The
Company has made available to the Purchaser true and complete copies of all
documents evidencing such Purchase Commitments. The Company has no oral
commitments to purchase existing products or services or products or services
being developed by the Company or any of its Affiliates. All such Purchase
Commitments (a) are in full force and effect, have not been withdrawn, amended,
modified or terminated and are enforceable in accordance with their terms
against the Company and, to the knowledge of the Company, against any other
party thereto by the Company and (b) to the knowledge of the Company, upon
consummation of the Transactions, will be enforceable in accordance with their
terms against the Company and, to the knowledge of the Company, against any
other party to such Purchase Commitments. To the knowledge of the Company, no
fact, condition or circumstance exists that would give any party the right to
withdraw, amend, modify or terminate any Purchase Commitment and no Person has
given any notice to the Company or the Sellers, and neither the Company nor the
Sellers has any basis to believe that any Person intends to withdraw, amend,
modify or terminate any Purchase Commitment.
3.31 CORPORATE RECORDS. The Company has delivered to the Purchaser true,
correct and complete copies of the articles of incorporation and by-laws of the
Company as amended and in effect on the date of this Agreement. Upon formation,
the Company or Holdings will deliver to the Purchaser true, correct and complete
copies of the organizational documents of Holdings. The minute books of the
Company are true, correct and complete in all material respects and have been
made available to the Purchaser and contain records of all meetings and
accurately reflect, in all material respects, all other corporate actions of the
stockholders and board of directors (including committees thereof) of the
Company. The stock certificate books and stock transfer ledgers of the Company
have been made available to the Purchaser and are true, correct and complete.
All stock transfer Taxes levied, if any, or payable with respect to all
transfers of Shares prior to the date of this Agreement have been paid and
appropriate transfer Tax stamps affixed, if any.
3.32 BANKS; POWER OF ATTORNEY. Schedule 3.32 contains a complete and
correct list of the names and locations of all banks in which Company has
accounts or safe deposit boxes and the names of all Persons authorized to draw
thereon or to have access thereto. Except as set forth on Schedule 3.32, no
Person holds a power of attorney to act on behalf of the Company.
31
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers in this Article
4 as follows:
4.1 INVESTMENT REPRESENTATIONS.
(a) The Shares are being acquired by the Purchaser solely for the
Purchaser's own account, for investment purposes only and with no present
intention of distributing, selling or otherwise disposing of them in connection
with a distribution in violation of the Securities Act.
(b) The Purchaser has such knowledge and experience in financial
and business matters that the Purchaser is capable of evaluating the merits and
risks of the proposed investment in the Shares.
(c) The Purchaser understands that the Shares may not be sold,
transferred or otherwise disposed of by it without registration under the
Securities Act and any applicable state securities laws, or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Shares or an available exemption from registration, the Shares may
be required to be held indefinitely.
(d) In no event will this Section 4.1 limit or impair in any way
the Purchaser's right to bring a claim in respect of this Agreement, any other
Transaction Document or the Transactions.
4.2 ORGANIZATION AND AUTHORITY; CONSENTS; NO-CONFLICT. The Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Purchaser has full power and authority and
has taken all required action on its part (including board approval) necessary
to permit it to execute and deliver and to perform its obligations under and to
consummate the Transactions contemplated by the Transaction Documents to which
the Purchaser is or will be a party. Except for applicable filings and approvals
under the HSR Act, no consent, order, authorization, approval, declaration or
filing, including any consent, approval or authorization of or declaration or
filing with any Governmental or Regulatory Authority or any party to any
Contract with the Purchaser is required on the part of the Purchaser for or in
connection with its execution, delivery or performance of this Agreement and the
other Transaction Documents. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which the Purchaser will be a
party will not result in any violation of, be in conflict with, constitute a
default under, or cause or give rise to any right of acceleration of any
obligation or loss of any rights or benefits under, any Legal Requirement,
Contract, instrument, charter, by-laws, operating agreement, partnership
agreement, organizational document, license, permit, authorization, franchise or
certification to which the Purchaser is a party or by which the Purchaser is
bound, or result in the creation of any Liens upon any properties or assets of
the Purchaser.
4.3 VALIDITY AND ENFORCEABILITY. This Agreement is, and each of the
other Transaction Documents to which the Purchaser is a party shall be when
executed and delivered by the Purchaser, the valid and binding obligations of
32
the Purchaser enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, and by
laws related to the availability of specific performance, injunctive relief or
other equitable remedies.
4.4 LITIGATION. No Legal Proceeding against the Purchaser is pending or,
to the knowledge of the Purchaser, threatened against the Purchaser, which would
reasonably be expected to affect the legality, validity or enforceability of
this Agreement or the Transaction Documents or interfere with the Purchaser's
ability to consummate the Transactions contemplated hereby.
4.5 BROKERS. Except as set forth on Schedule 4.5, no finder, broker,
agent, financial advisor or other intermediary has acted on behalf of the
Purchaser in connection with the negotiation or consummation of this Agreement
or the Transactions and no such Person is entitled to any fee, payment,
commission or other consideration in connection therewith as a result of any
arrangement made by any of them.
4.6 FINANCIAL ABILITY. At the time of the Closing, the Purchaser will
have immediately available funds sufficient to consummate the transactions
contemplated by this Agreement, including the payment of all fees and expenses
payable by the Purchaser in connection with the Transactions contemplated by
this Agreement.
ARTICLE 5
COVENANTS OF THE COMPANY, THE SELLERS AND THE PURCHASER
5.1 CONDUCT OF THE BUSINESS. The Company will, and the Sellers will
cause the Company to, comply with the following covenants prior to the Closing,
unless otherwise approved in writing by the Purchaser (which approval shall not
be unreasonably withheld, delayed or conditioned), except as set forth on
Schedule 5.1 or pursuant Section 5.12(a).
(a) The Company will, and the Sellers will cause the Company to:
(i) maintain its legal existence;
(ii) use commercially reasonable efforts to preserve the
Business and its business organization intact, retain its licenses, permits,
authorizations, franchises and certifications, and preserve the existing
Contracts in accordance with their respective terms and goodwill of its
customers, suppliers, vendors, service providers, personnel and others having
business relations with it;
(iii) conduct its Business only in the ordinary course
(including the collection of receivables and the payment of payables and capital
expenditures);
(iv) use commercially reasonable efforts to operate in such a
manner as to assure that the representations and warranties of the Company and
the Sellers set forth in this Agreement will be true and correct in all material
33
respects as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date;
(v) maintain the books, accounts and records of the Company
in the ordinary course of business;
(vi) comply in all material respects with all contractual and
other obligations of the Company;
(vii) comply in all material respects with all Legal
Requirements; and
(viii) form Holdings and cause Holdings to execute and deliver
the Joinder Agreement as soon as reasonably practicable following the date of
this Agreement.
(b) Without limiting the generality of the foregoing, the Company
will not, and the Sellers will cause the Company not to:
(i) change its method of management or operations in any
material respect;
(ii) dispose, acquire or license any assets or properties in
an aggregate amount in excess of $25,000 or make any commitment to do so;
(iii) except in the ordinary course of business, incur any
Indebtedness for borrowed money, make any loans or advances (other than employee
advances, credit cards and expense reimbursements), assume, guarantee or endorse
or otherwise become responsible for the obligation of any other Person, or
subject any of its properties or assets to any Lien, other than Permitted Liens;
(iv) modify, amend, cancel or terminate any Material Contract
or any other existing Contract material to the Company or the Business;
(v) other than as contemplated by the Incentive Plan, make
any change in the compensation paid or payable to any indirect personnel of the
Company whose annual compensation is greater than $100,000;
(vi) except for the payments contemplated by Section
1.2(c)(iii) and other than as contemplated by the Incentive Plan, (A) increase
the salary or other compensation of any director, officer or employee of the
Company, (B) grant any bonus, benefit or other direct or indirect compensation
to any director, officer, employee or consultant, (C) increase the coverage or
benefits available under any (or create any new) severance pay, termination pay,
vacation pay, company awards, salary continuation for disability, sick leave,
deferred compensation, bonus or other incentive compensation, insurance, pension
or other employee benefit plan or arrangement made to, for, or with any of the
directors, officers, employees, agents or representatives of the Company or
otherwise modify or amend or terminate any such plan or arrangement or (D) enter
into any employment, deferred compensation, severance, special pay, consulting,
non-competition or similar Contract or arrangement with any directors or
officers of the Company (or amend any such Contract to which the Company is a
party);
34
(vii) promote, change the job title of, or otherwise alter in
any material respect the responsibilities or duties of, any management employee
or officer of the Company;
(viii) enter into any Contract with respect to which the
Company has any liability or obligation involving more than $100,000, contingent
or otherwise, or which may otherwise have any continuing effect after the
Closing (other than in the ordinary course of business, and other than such
liabilities or obligations that are billable directly to a client or customer of
the Company), or which may place any express limitation on the method of
conducting or scope of the Business;
(ix) make or cause to be made any redemption, repurchase,
recapitalization, reclassification, issuance, split, combination or other
transaction involving the capital stock or other equity securities or interests
of the Company or Holdings, or any option, warrant or right to acquire any such
capital stock, equity securities or interests (except as contemplated by the
Pre-Closing Transactions);
(x) declare, set aside, make or pay any dividend or other
distribution in respect of the capital stock of, or other equity interests of,
the Company or Holdings, except for any distribution for the purpose of paying
taxes with respect to ownership of the Shares or the Interests;
(xi) transfer, issue, sell, pledge, encumber or dispose of
any shares of capital stock or other securities of, or other equity interests
in, the Company or Holdings or grant options, warrants, calls or other rights to
purchase or otherwise acquire shares of the capital stock or other securities
of, or other ownership interests in, the Company or Holdings (except as
contemplated by the Pre-Closing Transactions);
(xii) amend the articles of incorporation, certificate of
formation, by-laws, operating agreement or equivalent organizational or
governing documents of the Company or Holdings;
(xiii) make any change in its accounting or Tax reporting
principles, methods, policies, practices or procedures, except as required by
GAAP or any Legal Requirements (except as contemplated by the Pre-Closing
Transactions);
(xiv) except as required by law, (A) file, make or change any
Tax election or any Tax Return (or any amendment thereof) (except as
contemplated by the Pre-Closing Transactions), (B) settle or compromise any Tax
claim or liability or enter into a settlement or compromise or (C) surrender any
right to claim a refund of any Taxes;
(xv) change its customer pricing, rebates or discounts, other
than in the ordinary course of business;
(xvi) acquire any Person or the business of any Person,
whether by merger or consolidation, purchase of assets or equity securities or
any other manner;
(xvii) cancel or waive any rights of substantial value, or
pay, discharge or settle any claim of an amount in excess of $10,000;
35
(xviii) make any capital expenditures that, individually or in
the aggregate, exceed $10,000;
(xix) take any other action which could reasonably be expected
to have a Company Material Adverse Effect, or could reasonably be expected to
materially and adversely affect or detract from the value of the Company, its
assets or the Business;
(xx) take any action which would adversely affect the ability
of the parties to consummate the transactions contemplated by this Agreement;
(xxi) enter into any Contract or arrangement that restrains,
restricts, limits or impedes the ability of the Company to compete with or
conduct any business or line of business in any geographic area or solicit the
employment of any Persons;
(xxii) recognize any labor union or enter into any collective
bargaining agreement;
(xxiii) commence or settle any Legal Proceeding;
(xxiv) enter into any Contract or arrangement with, make any
loans to, or borrow money from, either directly or indirectly, any of its
officers, directors, employees, stockholders, or any of their respective
relatives or Affiliates;
(xxv) (A) submit any bid that, if accepted or awarded, could
reasonably be expected to result in any loss to the Company (or, following the
Closing, the Purchaser or its subsidiaries) or (B) enter into any Contract which
could reasonably be expected to result in any loss to the Company (or, following
the Closing, the Purchaser or its subsidiaries); or
(xxvi) commit to do any of the foregoing referred to in
clauses (i)-(xxv).
5.2 ACCESS. Until the Closing Date, if requested by the Purchaser, the
Company and Holdings will, and the Selling Stockholders will cause the Company
and Holdings to, permit the Purchaser, its financing sources and their
respective representatives, during normal business hours and upon reasonable
prior notice, access to (a) the assets, properties, records, books of account,
financial information (including working papers and data in the possession of
the Company and Holdings, internal audit reports and "management letters" from
its independent auditors), Contracts and other documents of the Company and
Holdings and (b) with the Company's or Holdings' prior consent (which shall not
be unreasonably withheld, conditioned or delayed), any such specific employees,
advisors, consultants, other personnel, service providers, vendors or suppliers
of, or others having material business relations with, the Company or Holdings
as the Purchaser may reasonably request. Until the Closing Date, the Company and
Holdings will, and the Selling Stockholders will cause the Company and Holdings
to, furnish promptly to the Purchaser such additional data and other information
as to its affairs, assets, business, properties, employees or prospects as the
Purchaser, its financing sources or their representatives may from time to time
reasonably request. The Company and the Sellers shall provide reasonable
cooperation in connection with the Purchaser obtaining any financing in
connection with the transactions contemplated hereby.
36
5.3 EFFORTS; COOPERATION.
(a) The Company and the Sellers will use reasonable best efforts
to cause the conditions specified in Section 8.1 to be satisfied as soon as
practicable.
(b) The Company and the Sellers will cooperate with any reasonable
request by the Purchaser or its financing sources in connection with the
Purchaser's financing of the Transaction. Any reasonable out-of-pocket expenses
incurred by the Company or the Sellers in connection with such cooperation shall
be reimbursed by the Purchaser. For example, if requested by the Purchaser, the
Company and the Sellers will reasonably assist the Purchaser in obtaining any
mortgage, leasehold mortgage, landlord waiver, control agreement, collateral
assignment or other document, instrument or agreement reasonably requested by
the Purchaser's financing sources.
(c) To the extent required in connection with the Transactions
contemplated by this Agreement, within five (5) Business Days following the date
of execution of this Agreement each of the Company and the Purchaser shall
promptly make or cause to be made any and all required filings under the HSR
Act, and will request early termination of the waiting period required under the
HSR Act. The parties agree to cooperate and promptly respond to any inquiries or
investigations initiated by the Federal Trade Commission or the Department of
Justice in connection with any such filings. The parties further agree that the
Purchaser and the Sellers shall each bear fifty percent (50%) of the expenses
incurred in connection with the submission of the filings contemplated by this
Section 5.3(c).
5.4 FINANCIAL STATEMENTS.
(a) As soon as practicable but in no event later than the Closing
Date, the Company shall obtain and deliver to the Purchaser (i) the audited,
consolidated balance sheet of the Company as at December 31, 2006, and the
audited, consolidated statements of cash flows, income and stockholders' equity
for the fiscal year ended December 31, 2006 and (ii) unaudited condensed
consolidated financial statements for the latest quarterly period prior to the
Closing Date and the corresponding period in the prior year, reviewed by the
Company's independent auditors in accordance with Statement on Auditing
Standards No. 100 "Interim Financial Information". The Sellers and the Company
shall, and the Sellers shall cause the Company to, use their reasonable efforts
to cause Ernst & Young LLP, the Company's independent auditor (subject to
performing the keeping-current procedures required by generally accepted
auditing standards), to (A) consent to the inclusion of their report issued in
connection with their audit of the Company's financial statements for the fiscal
year ended December 31, 2006 in a periodic report on Form 8-K or Form 8-K/A to
be filed by the Purchaser with the Securities and Exchange Commission (the
"SEC") and (B) represent that such financial statements comply with the rules
and regulations promulgated by the SEC. The Sellers acknowledge and agree that
the Sellers shall be responsible for all costs and expenses relating to the
preparation of the financial statements and the audit thereof required by this
Section 5.4(a).
(b) At the request of Purchaser, the Sellers and the Company
shall, and the Sellers shall cause the Company to, use their reasonable efforts
to obtain and deliver to the Purchaser, as soon as practicable, but in no event
later than sixty (60) days after the Sellers' receipt of such request: (i) the
37
audited, consolidated balance sheets of the Company for the fiscal year ended
December 31, 2005, (ii) the audited, consolidated statements of cash flows,
income and stockholders' equity for the fiscal year ended December 31, 2005 and
(iii) the unaudited condensed consolidated interim financial statements of the
Company for any quarterly period during the fiscal years ended December 31, 2005
and the corresponding period for the preceding year, reviewed by the Company's
independent auditors in accordance with Statement on Auditing Standards No. 100
"Interim Financial Information". The Purchaser acknowledges and agrees that it
shall be responsible for all costs and expenses relating to the preparation of
the financial statements and the audit thereof required by this Section 5.4(b).
For the avoidance of doubt, such costs and expenses shall not be deemed a
liability or expense of the Company or the Sellers for any purpose, including
Closing Working Capital.
(c) For the period commencing as of the date hereof and ending as
of the Closing Date, the Company shall deliver to the Purchaser the (i)
unaudited balance sheet of the Company for each monthly and quarterly period
ending after the date of this Agreement, and (ii) related unaudited statements
of cash flows and income for such periods. Such financial statements shall be
delivered within twenty-five (25) days after the end of such month or quarter
or, if earlier, contemporaneously with the delivery of such financial statements
to the directors, stockholders or lenders of the Company and shall be prepared
in accordance with the Company's past practices.
5.5 NONSOLICITATION. From the date of this Agreement until the Closing,
or, if earlier, the termination of this Agreement in accordance with its terms,
neither the Company nor any of the Sellers will, and the Company and the Sellers
shall not permit any of their Affiliates, directors, officers, employees,
representatives or agents to, directly or indirectly, (a) solicit any offers or
proposals or initiate or enter into discussions for the recapitalization or
purchase of the Company or the purchase of all or any substantial portion of the
equity securities or assets (including by merger or in any other form of
transaction) of the Company, (b) discuss, negotiate or otherwise respond, other
than to decline to enter into such negotiations or discussions, with respect to
any unsolicited offer, proposal or indication of interest with respect to any
such transaction or (c) furnish any information concerning the Business to any
Person in connection with any such transaction. The Company and the Sellers will
promptly disclose to the Purchaser all such unsolicited offers, proposals or
indications of interest. The Sellers and the Company shall (and the Sellers and
the Company shall cause their Affiliates, directors, officers, employees,
representatives or agents to) immediately cease and cause to be terminated any
existing discussions or negotiations with any Person (other than the Purchaser).
The Sellers and the Company agree not to release any third party from any
confidentiality agreement relating to any such transaction or the standstill
provisions of any agreement to which the Company is a party.
5.6 CONFIDENTIALITY. At all times following the Closing, no Seller
shall, directly or indirectly, disclose, divulge or make use of any trade
secrets or other information of a business, financial, marketing, technical or
other nature pertaining to the Company or the Business, including information of
others that the Company has agreed to keep confidential, except (a) to the
extent that such information shall have become public knowledge other than by
breach of this Agreement by any of the Sellers, (b) as required in connection
with the performance of such Seller's duties as an employee of the Company, (c)
to the extent that disclosure of such information is required by any Legal
Requirement or legal process (but only after the Seller has provided the Company
38
with prompt notice and the opportunity to take action against any legally
required disclosure), or (d) to the extent that such information is acquired
from a Person that is not known by either Seller to be under an obligation to
keep such information confidential.
5.7 NONCOMPETITION.
(a) During the Noncompetition Period (i) no Seller will, directly
or indirectly, or as a stockholder, partner, member, manager, employee,
consultant or other owner or participant in any Person other than the Company,
engage in or assist any other Person to engage in, own, operate, control, work
for, consult with, render services for, do business with, maintain any interest
in (proprietary, financial or otherwise) or participate in the ownership,
operation, management or control of, any Covered Business anywhere in the United
States, or anywhere else in the world where the Company does business, (ii) no
Seller will, directly or indirectly, solicit or endeavor to entice away from the
Company, or offer employment or a consulting position to, or otherwise interfere
with the business relationship of the Company with, any Person who is, or was
within the one (1) year period prior thereto, an employee of or consultant to
the Company and (iii) no Seller will, directly or indirectly, solicit or
endeavor to entice away from the Company, endeavor to reduce the business
conducted with the Company by, or otherwise interfere with the business
relationship of the Company with, any Person who is, or was within the one (1)
year period prior thereto, a customer or client of, supplier, vendor or service
provider to, or other Person having business relations with, the Company. The
foregoing shall not prevent any Seller from owning for investment purposes up to
three percent (3%) of the outstanding securities of a publicly traded company
engaged in any Covered Business.
(b) For purposes of this Section 5.7, the following terms shall
have the following meanings:
"Company" means the Company, each of its subsidiaries immediately
prior to the Closing, Patriot, LLC and Patriot Partnership.
"Covered Business" means any business in which the Company is
engaged or, to the knowledge of the Sellers, plans to be engaged, as of the
Closing Date.
"Noncompetition Period" means (i) for the purposes of Section
5.7(a)(i) and (iii), the period commencing as of the Closing and ending on the
two (2)-year anniversary of the Closing Date and (ii) for the purposes of
Section 5.7(a)(ii), the period commencing as of the Closing and ending on the
three (3)-year anniversary of the Closing Date.
5.8 INJUNCTIVE RELIEF. The Company and the Sellers acknowledge that any
breach or threatened breach of the provisions of Sections 5.5, 5.6 or 5.7 will
cause irreparable injury to the Purchaser, the Company and/or their respective
subsidiaries, if any, for which an adequate monetary remedy does not exist.
Accordingly, in the event of any such breach or threatened breach, the Purchaser
(in the case of Section 5.5) and the Purchaser, the Company and/or such
subsidiaries, if any (in the cases of Sections 5.6 and 5.7) shall be entitled,
in addition to the exercise of other remedies (but in all events subject to
Section 10.9), to seek and (subject to court approval) obtain injunctive relief,
without necessity of posting a bond, restraining the Company and/or the Sellers,
as the case may be, from committing such breach or threatened breach. Subject to
39
Section 10.9, the right provided under this Section 5.8 shall be in addition to,
and not in lieu of, any other rights and remedies available (and permitted
hereunder) to the Purchaser, the Company or such subsidiaries.
5.9 REASONABLE RESTRICTIONS. Each Seller (a) has carefully read and
understands all of the provisions of this Agreement and has had the opportunity
for this Agreement to be reviewed by counsel, (b) acknowledges that the
duration, geographical scope and subject matter of Sections 5.6 and 5.7 are
reasonable and necessary to protect the goodwill, customer relationships,
legitimate business interests, trade secrets and confidential information of the
Business, (c) acknowledges that the Purchaser would not be willing to enter into
the Transaction Documents or consummate the Transactions without the benefits
contained in this Agreement, (d) will be able to earn a satisfactory livelihood
without violating this Agreement and (e) understands that this Agreement is
assignable by the Company and the Purchaser and shall inure to the benefit of
their respective successors and permitted assigns.
5.10 COMPANY INTELLECTUAL PROPERTY. If any Selling Stockholder owns or
shall at any time hereafter and prior to the Closing acquire any rights in any
Company Intellectual Property, such Selling Stockholder shall, and hereby does,
transfer all of its rights, title and interest in such Company Intellectual
Property to the Company for no additional consideration. Each Selling
Stockholder shall execute and deliver such additional documents and instruments
and take such other actions as the Purchaser shall reasonably request to give
effect to the provisions of this Section 5.10. Each of the Selling Stockholders
hereby irrevocably designates and appoints the Purchaser and its agents as its
attorneys-in-fact to act for and on such Selling Stockholders' behalf to execute
and file any document and to do all other lawfully permitted acts to further the
purposes of the foregoing with the same legal force and effect as if executed by
such Selling Stockholder.
5.11 GENERAL RELEASE. Effective as of the Closing, each Seller
voluntarily, knowingly and irrevocably releases and forever discharges the
Company, the Purchaser and their respective officers, directors, employees and
Affiliates from any and all actions, agreements, amounts, claims, damages,
expenses, liabilities and obligations of every kind, nature or description,
known or unknown, arising or existing prior to the Closing against the Company,
except for (a) any rights of such Seller under this Agreement and any other
agreements contemplated by this Agreement to be executed at or prior to Closing,
including employment agreements and (b) any claim for compensation or employee
benefits accrued but not paid prior to the Closing Date.
5.12 INCENTIVE PLANS; KEY EMPLOYEE NONCOMPETITION AGREEMENTS.
(a) Immediately prior to the Closing, the Company shall transfer
and assign all of its interest to Holdings, and Holdings shall assume all
obligations of the Company under the incentive plan set forth on Schedule
5.12(a) (the "Incentive Plan"). Any assignments or other instruments necessary
to affect such assignment and assumption shall be subject to the prior review
and approval of the Purchaser. The Selling Stockholders shall cause Holdings,
and Holdings shall, make the maximum awards authorized under the Incentive Plan
and Holdings shall make all required payments thereunder.
40
(b) The Company has executed Confidential Information, Invention
Assignment and Non-Competition Agreements with its employees named in Schedule
5.12(b) (the "Noncompetition Agreements"). If, subsequent to Closing, the
Company or the Purchaser notifies Holdings that any such employee has breached
the covenants contained in a Noncompetition Agreement, then, without limiting
the remedies available to the Company, Holdings shall (if Holdings, or a trustee
appointed by Holdings, agrees that such breach has occurred, which shall be in
Holdings' or such Trustee's, as the case may be, sole discretion) exercise all
of its legal and equitable remedies, including any rights it may have under the
Incentive Plans resulting from the employee's non-compliance with the
Noncompetition Agreements.
5.13 JOINDER. Upon the formation of Holdings in connection with the
Pre-Closing Transactions, each of the Selling Stockholders shall take all
actions necessary to cause Holdings to become a signatory to this Agreement,
agreeing to be bound by all the terms of this Agreement (which event shall not
be deemed to be an amendment of this Agreement) pursuant to an instrument of
accession or other joinder agreement in substantially the form attached hereto
as Exhibit 5.13 (the "Joinder Agreement").
5.14 NOTICE OF CERTAIN EVENTS. Each party hereto shall as promptly as
reasonably practicable notify the other parties hereto of (a) any event,
condition, fact, circumstance, occurrence, transaction or other item of which
such party becomes aware after the date hereof and prior to the Closing that
would constitute a violation or breach of this Agreement (or a breach of any
representation or warranty contained herein) or, if the same were to continue to
exist as of the Closing Date, would constitute the non-satisfaction of any of
the conditions set forth in Article 8, and (b) any event, condition, fact,
circumstance, occurrence, transaction or other item of which such party becomes
aware which would have been required to have been disclosed pursuant to the
terms of this Agreement had such event, condition, fact, circumstance,
occurrence, transaction or other item existed as of the date hereof; provided,
however, that except for actions expressly permitted or not otherwise prohibited
under Section 5.1(b), and except for new hires of indirect personnel, no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto), the conditions to
the obligations of the parties under this Agreement or the rights of any
Indemnified Party pursuant to Article 10.
5.15 EMPLOYEES AND BENEFIT PLANS.
(a) The Purchaser will cause the Company to employ or to continue
to employ the Employees as of the Closing Date (the "Transferred Employees"),
with the understanding that such employment shall be at will for all employees
other than those who have entered into employment agreements with the Company.
(b) The Selling Stockholders will cause the Company to terminate
all existing employment agreements and agreements with Affiliates of the Company
immediately prior to the Closing.
(c) Effective as of the day immediately preceding the Closing
Date, the Company shall terminate any Section 401(k) arrangement (the "Company
401(k) Plan") or any other retirement plan within the meaning of Section 3(2) of
41
ERISA, unless the Purchaser provides written notice to the Company at least
three (3) Business Days prior to the Closing Date that the Company 401(k) Plan
(or other retirement plan) need not be terminated. Unless the Purchaser provides
such written notice to the Company, the Company shall provide Purchaser with
evidence that such Company 401(k) Plan (or other retirement plan) has been
terminated pursuant to resolutions of the Company's Board of Directors. The form
and substance of such resolutions shall be subject to reasonable review and
approval of the Purchaser. The Company shall also take such other actions in
furtherance of terminating the Company 401(k) Plan(s) as the Purchaser may
reasonably require. As of the Closing Date, unless the Purchaser provides the
written notice contemplated by the first sentence of this Section 5.15(c), (A)
the employees of the Company shall be eligible to participate in the Section
401(k) arrangement maintained by the Purchaser (the "Purchaser 401(k) Plan") and
(B) the Purchaser shall cause the Purchaser 401(k) Plan to accept rollover
contributions (within the meaning of Section 401(a)(31) of the Code), including
any outstanding participant loans and related promissory notes. Following the
Closing Date, in the event that the Purchaser elects to terminate the Company
401(k) Plan, (A) the employees of the Company shall be eligible to participate
in the Purchaser 401(k) Plan and (B) the Purchaser shall cause the Purchaser
401(k) Plan to accept rollover contributions (within the meaning of Section
401(a)(31) of the Code), including any outstanding participant loans and related
promissory notes.
(d) With respect to the Transferred Employees, the Purchaser (or
the Company) shall (i) cause any Transferred Employee that was covered under a
Benefit Plan of the Company providing welfare benefits immediately prior to the
termination thereof to be covered by a reasonably comparable employee benefit
plan, program, or arrangement maintained by the Purchaser or the Company without
limitations on pre-existing conditions (and the amount of any expenses incurred
prior to the Closing Date under the Benefit Plans of the Company shall be
credited toward satisfaction of deductibles or co-payments under the benefit
plans of the Purchaser or the Company), and (ii) recognize the service completed
with the Company by the Transferred Employees prior to the Closing Date for
purposes of determining eligibility service and vesting service under any
employee benefit plan, program or arrangement maintained by the Purchaser or the
Company for their employees on or after termination of any of the Benefit Plans.
5.16 COLLECTION OF ACCOUNTS RECEIVABLE. After the Closing, the Company
shall use commercially reasonable efforts to collect all accounts and notes
receivable of the Company as of the Closing Date. If such an account or note
receivable is not collected and the Escrow Agent or the Selling Stockholders pay
the amount of such uncollected account or note receivable to any Purchaser
Indemnified Party pursuant to Article 10 as a result of a breach of the
representations and warranties set forth in Section 3.14, the Company shall (a)
continue to use commercially reasonable efforts to collect such account or note
receivable and (b) promptly remit to the Selling Stockholders any amount thereof
that is thereafter received by or on behalf of the Company or the Purchaser from
the applicable account debtor.
5.17 S-CORPORATION ELECTION. From the date of this Agreement until the
Closing, the Company shall use its reasonable best efforts to obtain and deliver
to the Purchaser copies of (a) the executed Form 2553 with respect to the
Company's election to be treated as an S-corporation under Section 1362 of the
42
Code and (b) the notice received by the Company accepting such election to be
treated as an S-corporation.
5.18 PATRIOT. Upon the request of Purchaser, the Selling Stockholders
will, and will use their commercially reasonable efforts to cause any Person
affiliated with Patriot, LLC and Patriot Partnership to, discuss the terms and
conditions of the organizational and other governing documents of Patriot LLC
and Patriot Partnership with Purchaser and consider in good faith any changes
reasonably proposed by Purchaser.
ARTICLE 6
COVENANTS OF THE PURCHASER
6.1 REPRESENTATIONS AND WARRANTIES. Until the Closing Date, the
Purchaser will not take any action that would cause any of the representations
and warranties made by the Purchaser in this Agreement not to be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as if such representations and warranties had been made on and
as of the Closing Date.
6.2 EFFORTS. Pending the Closing, the Purchaser will use reasonable best
efforts to cause the conditions specified in Section 8.2 to be satisfied as soon
as practicable.
6.3 CONFIDENTIALITY. The provisions of that certain Confidentiality
Agreement, dated as of November 9, 2006, by and among the Purchaser, the Company
and the Selling Stockholders (the "Confidentiality Agreement"), shall continue
to apply to the Purchaser in accordance with its terms, except that all
obligations thereunder shall terminate upon the Closing. If this Agreement is
terminated for any reason whatsoever, the Purchaser shall nevertheless continue
to be bound by the terms of the Confidentiality Agreement and the Purchaser
shall return to the Company all tangible embodiments (and all copies) of
"Confidential Information" (as defined in the Confidentiality Agreement) that
are in its possession.
6.4 FINANCING. The Purchaser shall use commercially reasonable efforts
to obtain the financing necessary to consummate the Transactions contemplated by
this Agreement.
6.5 INDEMNIFICATION OF DIRECTORS AND OFFICERS. For a period of six (6)
years after the Closing Date, the Purchaser shall not, and shall not permit the
Company to, amend, repeal or modify any provision of the Company's articles of
incorporation in effect as of the date hereof relating to the indemnification of
any directors or officers of the Company, it being the intent of the parties
that the directors and officers of the Company shall continue to be entitled to
such indemnification to the full extent provided in such articles of
incorporation.
ARTICLE 7
TAX COVENANTS
7.1 CONSISTENT TAX REPORTING. The Sellers, the Company and the Purchaser
(a) intend that for federal and, as permitted by law, all applicable state,
local and foreign tax purposes, the Transactions shall be treated as a purchase
by the Purchaser of the assets of the Company, (b) shall in all respects treat
43
and report the Transactions in a manner consistent with such treatment and (c)
shall not take any actions or positions inconsistent with the obligations of the
parties set forth herein.
7.2 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Selling
Stockholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns of the Company for taxable periods ending on or
before the close of business on the Closing Date ("Pre-Closing Taxable Periods")
which have not been filed prior to the Closing Date. The Selling Stockholders
shall permit the Purchaser to review and comment on each such Tax Return
described in the prior sentence at least ten (10) days prior to filing and shall
make such revisions to such Tax Returns as are reasonably requested by the
Purchaser. All Tax Returns to be prepared by or for the Selling Stockholders
pursuant to this Section 7.2 shall be prepared in a manner consistent with the
past practice of the Company, except as otherwise required by applicable Legal
Requirements. The Selling Stockholders shall be responsible for all Taxes of the
Company for all Pre-Closing Taxable Periods, except to the extent reflected in
Closing Working Capital as finally determined pursuant to Section 1.4. The
Selling Stockholders shall pay to (or as directed by) the Company any Taxes of
the Company for all Pre-Closing Taxable Periods to the extent such Taxes have
not already been paid by the Selling Stockholders (including payments made by
the Company or the Selling Stockholders prior to the Closing), and such payments
shall be made no later than five (5) Business Days prior to the due date for
paying such amount of Taxes to the relevant tax authority.
7.3 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. The
Company shall cause to be prepared and timely filed all Tax Returns of the
Company for taxable periods beginning before the Closing Date and ending after
the Closing Date. The Company shall permit the Selling Stockholders to review
and comment on each such Tax Return described in the prior sentence at least ten
(10) days prior to filing and shall make such revisions to such Tax Returns as
are reasonably requested by the Selling Stockholders. All Tax Returns to be
prepared by or for the Company pursuant to this Section 7.3 shall be prepared in
a manner consistent with the past practice of the Company, except as otherwise
required by Legal Requirements. The Selling Stockholders shall be responsible
for all Taxes of the Company which relate to the portions of any taxable periods
ending at the close of business on the Closing Date to the extent such Taxes
have not already been paid by the Selling Stockholders (including payments made
by the Company or the Selling Stockholders prior to the Closing), except to the
extent reflected in Closing Working Capital as finally determined pursuant to
Section 1.4. The Selling Stockholders shall pay to (or as directed by) the
Company any such amounts by no later than five (5) Business Days prior to the
due date for paying such amount of Taxes to the relevant tax authority. For
purposes of this Section 7.3, in the case of any Taxes that are imposed on a
periodic basis and are payable for a taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such taxable period ending at the close of business on the Closing Date shall
(a) in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in the
taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period, and (b) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended at the close of business
on the Closing Date. Any credits relating to a taxable period that begins before
44
and ends after the Closing Date shall be allocated on a basis consistent with
the allocations made pursuant to the preceding sentence. All determinations
necessary to give effect to the foregoing allocations shall be made in a
reasonable manner that endeavors to be consistent with the prior practice of the
Company to the extent such practice complies with applicable Legal Requirements.
7.4 COOPERATION ON TAX MATTERS.
(a) The Purchaser, the Company and the Selling Stockholders shall
cooperate fully, to the extent reasonably requested, in connection with the
filing of Tax Returns pursuant to Sections 7.2 and 7.3 or otherwise, and any
audit, litigation, or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such Tax Return
filing, 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.
(b) The Selling Stockholders agree (i) to provide to the Company,
upon request, 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
Company, any extensions thereof) of the respective taxable periods, and to abide
by all record-retention agreements entered into with any Tax authority, and (ii)
to give the Company reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the Company so requests, the
Selling Stockholders shall allow the Company to take possession of such books
and records.
(c) If requested by the Purchaser, the Company and the Selling
Stockholders will cooperate with the Purchaser to obtain any certificate or
other document from any Governmental or Regulatory Authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax that could be
imposed upon the Company (including with respect to the Transactions
contemplated hereby).
7.5 CONTROL OF AUDITS. After the Closing Date, except as set forth in
the next sentence, the Company shall control the conduct, through counsel of its
own choosing, of any audit, claim for refund, or administrative or judicial
proceeding involving any asserted Tax liability or refund with respect to the
Company (each, a "Contest"). In the case of a Contest after the Closing Date
that relates solely to Pre-Closing Tax Periods, the Selling Stockholders shall
control the conduct of such Contest, but the Company shall have the right to
participate in such Contest at its own expense, and the Selling Stockholders
shall not settle, compromise and/or concede any portion of such Contest that
could affect the Tax liability of the Company for any taxable year (or portion
thereof) after the Closing Date without the written consent of Company, which
shall not be unreasonably withheld, conditioned or delayed; provided that, if
the Selling Stockholders fail to assume control of the conduct of any such
Contest within 30 days following the receipt by the Selling Stockholders of
notice of such Contest, the Company shall have the right to assume control of
such Contest and shall be able to settle, compromise and/or concede any portion
of such Contest.
45
7.6 CERTAIN TAXES. All transfer, documentary, sales, use, real property
gains, stamp, registration, and other such Taxes and fees incurred in connection
with this Agreement shall be shared equally between the Purchaser on the one
hand, and the Selling Stockholders on the other hand, with 50% being paid by the
Purchaser and 50% being paid by the Selling Stockholders when due, and the
Company will, at the expense of the Purchaser and the Selling Stockholders
(shared equally on a 50/50 basis), file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, real
property gains, stamp, registration, and other Taxes and fees, and, if required
by applicable Legal Requirements, the Purchaser and the Selling Stockholders
will join in the execution of any such Tax Returns and other documentation.
7.7 FIRPTA. The Purchaser shall have received from Holdings and each of
the Selling Stockholders an affidavit of non-foreign status, dated as of the
Closing Date, that complies with Treasury Regulations Section 1.1445-2(b)(2).
ARTICLE 8
CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. Unless waived in writing
by the Purchaser, the obligation of the Purchaser hereunder to consummate the
Transactions is subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Representations and Warranties True. (i) The representations
and warranties of the Sellers and/or the Company contained in Sections 2.1, 2.3,
3.1, 3.2, 3.4(a), 3.4(b), 3.5 and 3.6 shall be true and correct in all respects
as of the Closing Date as if made on and as of that date and (ii) all of the
other representations and warranties of the Sellers and the Company contained in
this Agreement shall be true and correct in all respects as of the Closing Date
as if made on and as of that date; provided that clause (ii) hereof shall be
deemed satisfied if the cumulative effect of all inaccuracies of such
representations and warranties (for this purpose disregarding any qualification
or limitation as to materiality or Company Material Adverse Effect) would not be
reasonably likely to have a Company Material Adverse Effect.
(b) Covenants Performed. The Company and the Sellers shall have
performed and complied in all material respects with the covenants, agreements
and conditions required to be performed or complied with by them hereunder on or
prior to the Closing Date.
(c) Compliance Certificate. The Purchaser shall have received a
certificate of the Sellers and the Company certifying as to the matters set
forth in Sections 8.1(a) and (b).
(d) Required Consents Received. The Company and the Sellers shall
have obtained and delivered to the Purchaser copies of all Required Consents
listed on or required to be listed on Schedule 3.4, and no such Required
Consents shall have been withdrawn, suspended or conditioned.
(e) No Injunction or Legal Proceeding. Consummation of the
Transactions shall not violate any order, decree or judgment of any court or
Governmental or Regulatory Authority having competent jurisdiction. No Legal
Proceedings shall have been instituted or threatened or claim or demand made
46
against the Sellers, the Company or the Purchaser, seeking to restrain or
prohibit, or to obtain substantial damages with respect to, consummation of the
Transactions; provided, however, that this condition may not be invoked by the
Purchaser if the process giving rise to or resulting in such Legal Proceedings
was initiated by or on behalf of the Purchaser.
(f) Employment Arrangements. Each of the employment agreements
with ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇ (the "Employment Agreements"), which shall have been entered into as of
the date of the Agreement, shall be in full force and effect and shall have not
been amended or otherwise modified by the parties thereto in any respect since
the date of this Agreement.
(g) Customer Contacts. The Purchaser shall have completed to its
reasonable satisfaction conversations regarding the Transactions with the
Company's primary customers.
(h) Certificates; Documents.
(i) The Purchaser shall have received copies of each of the
following for the Company certified to its reasonable satisfaction by an officer
of the Company: (i) the Company's articles of incorporation, as amended,
certified by the Maryland State Department of Assessments and Taxation as of a
recent date; (ii) a certificate of the Maryland State Department of Assessments
and Taxation as of a recent date as to the legal existence and good standing of
the Company; (iii) resolutions adopted by the directors of the Company
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents and the consummation of the Transactions; and (iv)
evidence as of a recent date of the qualification of the Company as a foreign
corporation in the jurisdictions listed on Schedule 3.3. The Purchaser shall
also have received such other certificates, documents and materials as it shall
reasonably request.
(ii) The Purchaser shall have received copies of each of the
following for Holdings certified to its reasonable satisfaction by an officer of
Holdings: (i) Holdings' certificate of formation, as amended, certified by the
Maryland State Department of Assessments and Taxation as of a recent date; (ii)
Holdings' limited liability company operating agreement, (iii) a certificate of
the Maryland State Department of Assessments and Taxation as of a recent date as
to the legal existence and good standing of Holdings and (iv) resolutions
adopted by the directors and members of Holdings authorizing the execution,
delivery and performance of the Joinder Agreement, this Agreement and the other
Transaction Documents and the consummation of the Transactions. The Purchaser
shall also have received such other certificates, documents and materials as it
shall reasonably request.
(i) Escrow Agreement. The Sellers Representative and the Escrow
Agent shall have entered into the Escrow Agreement.
(j) Pre-Closing Deliveries. The Sellers and the Company shall have
delivered the items, certificates and documents required by Section 1.2(b).
47
(k) HSR Act. The waiting period under the HSR Act applicable to
the Transactions contemplated by this Agreement shall have expired or been
terminated.
(l) Pre-Closing Transactions. The Pre-Closing Transactions shall
have been effected in form and substance satisfactory to the Purchaser.
(m) Indebtedness. The Purchaser shall have received evidence in
form and substance reasonably satisfactory to the Purchaser, including a payoff
letter from Branch Banking & Trust of Virginia, that all Indebtedness has been
fully paid off and discharged, and all Liens securing such Indebtedness have
been terminated and released or the termination and release of such Indebtedness
shall be been authorized by the secured party with respect thereto.
(n) No Material Adverse Effect. There shall not have been or
occurred a Company Material Adverse Effect since the Balance Sheet Date.
(o) Termination of Employment and Affiliate Agreements. The
Sellers and the Company shall have terminated the Contracts and other
arrangements set forth on Schedule 3.25, other than the Employment Agreements
and the Noncompetition Agreements.
(p) Noncompetition Agreements. Each of the Noncompetition
Agreements shall be in full force and effect and shall have not been amended or
otherwise modified by the parties thereto in any respect since the date of this
Agreement.
(q) Releases. Releases, in form and substance satisfactory to the
Purchaser, shall have been executed and be in full force and effect, without any
amendments or modifications thereto, as of the Closing, by each of the
beneficiaries of the Stock Appreciation Rights Plan and copies thereof shall
have been delivered to the Purchaser.
8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SELLERS. Unless
waived in writing by the Selling Stockholders and Holdings, the obligation of
the Company and the Sellers hereunder to consummate the Transactions is subject
to the satisfaction at or prior to the Closing of the following conditions:
(a) Representations and Warranties True. The representations and
warranties contained in Article 4 shall be true and accurate in all material
respects on and as of the Closing Date with the same effect as though made on
and as of such date.
(b) Covenants Performed. The Purchaser shall have performed and
complied in all material respects with the covenants, agreements and conditions
required to be performed or complied with by it under this Agreement on or prior
to the Closing Date.
(c) Compliance Certificate. The Sellers shall have received a
certificate of the Purchaser certifying as to the matters set forth in Sections
8.2(a) and (b) above.
(d) No Injunction or Legal Proceeding. Consummation of the
Transactions shall not violate any order, decree or judgment of any court or
Governmental or Regulatory Authority having competent jurisdiction. No Legal
Proceedings shall have been instituted or threatened or claim or demand made
against the Sellers, the Company or the Purchaser, seeking to restrain or
48
prohibit, or to obtain substantial damages with respect to, consummation of the
Transactions; provided, however, that this condition may not be invoked by the
Company or the Sellers if the process giving rise to or resulting in such Legal
Proceedings was initiated by or on behalf of the Company or the Sellers.
(e) HSR Act. The waiting period under the HSR Act applicable to
the Transactions contemplated by this Agreement shall have expired or been
terminated.
(f) Certificates and Certain Documents. The Sellers shall have
received copies of each of the following for the Purchaser certified to their
satisfaction by an officer of the Purchaser: (i) the Purchaser's certificate of
incorporation, as amended, certified by the Secretary of State of Delaware as of
a recent date; (ii) a certificate of the Secretary of State of Delaware as of a
recent date as to the legal existence and good standing of the Purchaser; and
(iii) resolutions adopted by the directors of the Purchaser authorizing the
execution, delivery and performance of this Agreement and the other agreements,
documents and instruments contemplated hereby and the consummation of the
Transactions. The Sellers shall also have received such other certificates,
documents and materials as the Sellers Representative shall reasonably request.
(g) Employment Agreements. Each of the Employment Agreements,
which shall have been entered into as of the date of the Agreement, shall be in
full force and effect and shall have not been amended or otherwise modified by
the parties thereto in any respect since the date of this Agreement.
(h) Escrow Agreement. The Purchaser and the Escrow Agent shall
have entered into the Escrow Agreement.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement and the Transactions contemplated hereby
may be terminated at any time prior to the Closing:
(a) by mutual written consent of the Purchaser, the Company, the
Selling Stockholders and Holdings (provided that the consent of Holdings shall
not be required if it has not executed the Joinder Agreement);
(b) by the Purchaser, if the Company or the Sellers shall have
breached or failed to perform in any material respect any of their respective
obligations, covenants or agreements under this Agreement, or if any of the
representations and warranties of the Sellers and/or the Company set forth in
this Agreement shall not be true and correct to the extent set forth in Section
8.1(a), and such breach, failure or misrepresentation is not cured to the
Purchaser's reasonable satisfaction within ten (10) days after the Purchaser
gives the Company or the Sellers written notice identifying such breach, failure
or misrepresentation;
(c) by the Sellers, if the Purchaser shall have breached or failed
to perform in any material respect any of its obligations, covenants or
agreements under this Agreement, or if any of the representations and warranties
of the Purchaser set forth in this Agreement shall not be true and correct to
49
the extent set forth in Section 8.2(a), and such breach, failure or
misrepresentation is not cured to the Sellers' reasonable satisfaction within
ten (10) days after the Sellers give the Purchaser written notice identifying
such breach, failure or misrepresentation;
(d) by the Purchaser, if any condition set forth in Section 8.1
becomes incapable of satisfaction;
(e) by the Sellers, if any condition set forth in Section 8.2
becomes incapable of satisfaction; or
(f) by the Purchaser or the Sellers, if the Closing shall not have
occurred on or before June 30, 2007, which date shall be automatically extended
for up to thirty (30) days if all conditions to Closing are satisfied as of such
date, other than those conditions which are normally performed at the Closing
and the conditions set forth in Section 8.1(k) and Section 8.2(e), or such other
date, if any, as the Purchaser and the Sellers may agree in writing; provided
that this Agreement may not be terminated under this Section 9.1 by or on behalf
of any party that is in breach of any representation or warranty or in violation
of any covenant or agreement contained herein. For purposes of the foregoing
proviso, any breach of this Agreement by the Company or any Seller shall be
considered a breach of the Agreement by the Company and all of the Sellers.
9.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated (i) under Section 9.1(a) or
(ii) under Sections 9.1(d), (e) or (f) at a time when no party is in breach of a
representation or warranty or in violation of a covenant or agreement contained
herein, all further obligations of the Company and the Sellers to the Purchaser,
and of the Purchaser to the Company and the Sellers, will terminate without
further liability of any party hereto.
(b) If this Agreement is terminated under Section 9.1(b), (c),
(d), (e) or (f) at a time when one or more parties is in breach of a
representation or warranty or in violation of a covenant or agreement contained
in this Agreement, the liabilities and obligations of the parties not in breach
or violation of this Agreement shall terminate, and the party or parties which
are in breach or violation of this Agreement shall remain liable for such
breaches and violations, and nothing shall be deemed to restrict the remedies
available against such party or parties; provided, however, that the provisions
of this Section 9.2 and Sections 6.3, 11.2, 11.4, 11.12 and 11.14 and the
applicable definitions set forth herein shall remain in full force and effect
and survive any termination of this Agreement; provided, further, however, that
if any Selling Stockholder would otherwise have any liability as a result of the
immediately preceding sentence, the Company hereby assumes and agrees to satisfy
in full such liability on behalf of such Selling Stockholder. Notwithstanding
the foregoing, the assumption of the liability contemplated by the preceding
sentence shall not relieve such Selling Stockholder of any liability in the
event that the Company does not satisfy such liability in full and the Purchaser
shall be permitted to seek recovery from such Selling Stockholder in such event.
(c) If this Agreement is terminated under Section 9.1(b) as a
result of the Company's or any Seller's breach of or failure to perform its
obligations pursuant to Section 5.5, the Company shall pay to the Purchaser as
50
liquidated damages resulting therefrom $3,500,000 (the "Termination Fee"). The
Company shall make such payment to the Purchaser by wire transfer of immediately
available funds no later than two (2) Business Days following the date on which
this Agreement is terminated pursuant to Section 9.1(b) to an account to be
designated by the Purchaser. In the event that the Company shall fail to pay the
Termination Fee when due, the Termination Fee shall accrue interest for the
period commencing on the date the Termination Fee became past due at a rate
equal to the rate of interest publicly announced by Banc of America from time to
time during such period, as such bank's Prime Rate plus two percent (2%). In
addition, if the Company shall fail to pay the Termination Fee when due, the
Company shall also pay all of the Purchaser's costs and expenses (including
attorneys' fees) in connection with efforts to collect the Termination Fee. The
parties acknowledge that the Termination Fee is an integral part of this
Agreement and that without the Termination Fee the parties would not enter into
this Agreement. The parties further acknowledge that the Termination Fee is
reasonable in light of the actual damages that would be incurred by the
Purchaser in connection with a termination of this Agreement under Section
9.1(b) as a result of the Company's or any Seller's breach of or failure to
perform its obligations pursuant to Section 5.5, and that such actual damages
would be difficult to determine with exactness. ACCORDINGLY, IN THE EVENT THAT
THE PURCHASER IS PAID THE TERMINATION FEE AS PROVIDED IN THIS SECTION 9.2(C),
THE TERMINATION FEE SHALL CONSTITUTE AND BE DEEMED TO BE THE AGREED AND
LIQUIDATED DAMAGES OF THE PURCHASER, AND SHALL BE THE PURCHASER'S SOLE AND
EXCLUSIVE REMEDY HEREUNDER. THE RECEIPT OF THE TERMINATION FEE BY THE PURCHASER
IS NOT INTENDED TO AND SHALL NOT BE A FORFEITURE OR PENALTY, BUT IS INTENDED TO
AND SHALL CONSTITUTE LIQUIDATED DAMAGES.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 SURVIVAL. The representations, warranties, covenants and agreements
contained herein shall survive the Closing and any investigation made by or on
behalf of the Purchaser, the Sellers or the Company to the extent provided in
this Section 10.1. No action for a breach of the representations and warranties
contained herein shall be brought more than one (1) year following the Closing
Date, except for (a) claims arising out of the representations and warranties
contained in Sections 2.1, 2.3, 3.1, 3.2, 3.4(a), 3.4(b), 3.5, 3.6 and the first
two sentences of Section 4.2, which shall survive indefinitely after the
Closing, (b) claims arising out of the representations and warranties contained
in Sections 3.19, 3.22, 3.25, 3.27 or 4.5, which shall survive until sixty (60)
days after the expiration of the statute of limitations period (including all
extensions thereof) applicable to the underlying subject matter being
represented, and (c) claims of which the Sellers have been timely notified with
reasonable specificity by the Purchaser in accordance with Sections 10.5 or
10.7, or claims of which the Purchaser has been notified with reasonable
specificity by the Sellers in accordance with Section 10.5, within such one (1)
year period. The representations and warranties contained in Sections 2.1, 2.3,
3.1, 3.2, 3.4(a), 3.4(b), 3.5, 3.6, 3.19, 3.22, 3.25, 3.27, the first two
sentences of Section 4.2 and Section 4.5 are sometimes collectively referred to
herein as the "Specified Representations."
51
10.2 INDEMNIFICATION LIMITS. No Indemnified Party shall be entitled to
recover any Losses for breach of the representations and warranties of any party
contained herein, (a) unless, and only to the extent that, such Indemnified
Party's cumulative aggregate claims therefor exceed $400,000, or (b) for a
cumulative aggregate amount in excess of twenty percent (20%) of the Closing
Purchase Price; provided, that claims for breach of any of the Specified
Representations shall not be subject to the foregoing limits and shall not be
included in the determination of whether the limit in clause (b) has been
reached. For all purposes of this Article 10, when determining whether a
representation or warranty of any party has been breached or is inaccurate and
the amount of the Losses, any Company Material Adverse Effect or other
materiality qualifier contained in any such representation or warranty will be
disregarded, except for the materiality qualifiers in Section 3.7(b), the
reference to Company Material Adverse Effect in Section 3.8(b), the materiality
qualifiers in Section 3.9, and the materiality qualifier in the penultimate
sentence of Section 3.18. In calculating the Losses of any Indemnified Party
hereunder, it is the intent of the parties that no recovery shall be made twice
for the same Loss by virtue of the operation of any adjustment to the Closing
Purchase Price pursuant to Section 1.4 and this Article 10. For the avoidance of
doubt, if, for example, there is any difference between the amounts or
information set forth on the Estimated Closing Purchase Price Certificate and
the amounts or information set forth on the Closing Purchase Price Certificate,
and an adjustment is made with respect thereto pursuant to Section 1.4, any
Losses incurred by the Purchaser with respect to the specific facts giving rise
to such adjustment shall not be recovered twice by operation of Section 1.4 and
this Article 10.
10.3 INDEMNIFICATION BY THE SELLING STOCKHOLDERS.
(a) Subject to the other terms of this Article 10, each of the
Selling Stockholders agrees to indemnify and hold the Purchaser and its
Affiliates, including the Company (the "Purchaser Indemnified Parties"),
harmless from and against such Selling Stockholder's Pro Rata Share of all
claims, liabilities, obligations, costs, damages, losses and expenses, whether
or not involving a Claim (including reasonable attorneys' fees and costs of
investigation) of any nature (collectively, "Losses"), arising out of or
relating to (i) any breach or violation of the representations or warranties of
such Selling Stockholder, Holdings or the Company set forth in this Agreement
(including the schedules), (ii) any breach or violation of the covenants or
agreements of the Company set forth in this Agreement required to be performed
prior to or at the Closing, (iii) any breach or violation of covenants or
agreements of such Selling Stockholder or Holdings set forth in this Agreement,
(iv) the failure of any portion of the Indebtedness or the Transaction Expenses
to be paid at or prior to Closing (other than such Indebtedness for which the
Purchaser is to make payment pursuant to Section 1.2(c)), (v) except to the
extent such Taxes are accrued as a liability for purposes of determining Closing
Working Capital as finally determined pursuant to Section 1.4, any Taxes (A) for
which the Selling Stockholders are responsible pursuant to Section 7.2 and/or
Section 7.3, (B) imposed on or incurred by any Selling Stockholder, or (C) in
accordance with Section 7.6 or (vi) any failure by Holdings to pay in full and
satisfy all obligations to employees of the Company (including all payments and
obligations to be made or performed at Closing or at anytime after Closing)
under the Incentive Plan. The Sellers shall not have a right of contribution, or
any other means of recovery, from the Company for the Selling Stockholders'
indemnification obligations hereunder.
52
(b) "Pro Rata Share" for a specified Selling Stockholder shall
mean the percentage set forth opposite his name as set forth on Schedule
10.3(b).
(c) No Purchaser Indemnified Party may initiate a claim for
indemnification under this Agreement without the prior approval of the
Purchaser.
(d) In the event that a Purchaser Indemnified Party seeks payment
of an indemnification claim directly from the Selling Stockholders in accordance
with this Article 10, any dispute regarding such claim shall be resolved in
accordance with Section III(f) of the Escrow Agreement.
10.4 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify and
hold the Sellers harmless from and against all Losses arising out of or relating
to any breach or violation of the representations, warranties, covenants or
agreements of the Purchaser set forth in this Agreement. In the event that the
Sellers seek payment of an indemnification claim from the Purchaser in
accordance with this Article 10, any dispute regarding such claim shall be
resolved in accordance with Section III(f) of the Escrow Agreement.
10.5 PROCEDURES FOR INDEMNIFICATION.
(a) A claim for indemnification for any matter not involving a
Claim may be asserted in good faith by written notice from a party or parties
entitled to indemnification hereunder (the "Indemnified Party") to the party or
parties required to provide such indemnification (the "Indemnifier"). The
Indemnified Party shall assert a claim for indemnification by providing a
written notice to the Indemnifier stating in reasonable detail the nature and
basis of such claim, and such notice shall be provided to the Indemnifier as
soon as reasonably practicable after the Indemnified Party becomes aware that it
has incurred or suffered a Loss; provided, however, that any failure to provide
the Indemnifier with such notice, or any failure to provide such notice in a
timely manner as aforesaid, shall not relieve any Indemnifier from any liability
that it may have to the Indemnified Party under this Article 10 except to the
extent that the ability of such Indemnifier to defend such claim is materially
prejudiced by the Indemnified Party's failure to give such notice.
(b) An Indemnified Party will give the Indemnifier prompt written
notice of any Legal Proceeding or demand instituted, or any claim asserted, by
any third party (in each case, a "Claim") in respect of which the Indemnified
Party is entitled to indemnification hereunder, stating in reasonable detail the
nature and basis of such Claim, and such notice shall be provided to the
Indemnifier as soon as reasonably practicable after the Indemnified Party
becomes aware of the Claim; provided, however, that any failure to provide the
Indemnifier with such notice, or any failure to provide such notice in a timely
manner as aforesaid, shall not relieve any Indemnifier from any liability that
it may have to the Indemnified Party under this Article 10 except to the extent
that the ability of such Indemnifier to defend such claim is materially
prejudiced by the Indemnified Party's failure to give such notice.
(c) If the Indemnifier provides written notice to the Indemnified
Party stating that the Claim is a type for which the Indemnifier is responsible
within ten (10) days after the Indemnifier's receipt of written notice from the
Indemnified Party of such Claim, the Indemnifier shall have the right, at the
53
Indemnifier's expense, to defend against, negotiate, settle or otherwise deal
with such Claim and to have the Indemnified Party represented by counsel,
reasonably satisfactory to the Indemnified Party, selected by the Indemnifier;
provided, that the Indemnified Party may participate in any proceeding with
counsel of its choice and at its expense; provided further, that the Purchaser,
at any time when it believes in good faith that (i) any Claim seeks relief which
would limit or otherwise adversely affect the conduct of the Business by the
Company or adversely affect the business reputation of the Purchaser or its
Affiliates or (ii) any Claim seeks injunctive or other non-monetary relief or
asserts criminal conduct, may assume the defense and settlement of such Claim in
good faith, with counsel of its choice, and be fully indemnified therefor;
provided, further, that the Indemnifier may not enter into a settlement of any
Claim without the written consent of the Indemnified Party unless such
settlement provides the Indemnified Party with a full release from such Claim
and requires no more than a monetary payment for which the Indemnified Party is
fully indemnified.
(d) The parties will cooperate fully with each other in connection
with the defense of any Claim.
(e) Notwithstanding anything to the contrary contained herein, in
the event of a Contest, the provisions of Section 7.5 shall govern.
10.6 RIGHT OF SET-OFF. If the Selling Stockholders have not satisfied in
cash any indemnification obligation owed by them hereunder, the Purchaser or any
of its Affiliates may, at their discretion, satisfy the unpaid portion of such
obligation by, to the extent permitted by Legal Requirements, setting-off
against any amounts due and owing from the Purchaser or any of its Affiliates to
any of the Sellers under this Agreement, including any amounts due to Holdings
pursuant to Section 1.5.
10.7 ESCROW AGREEMENT. If any of the Purchaser Indemnified Parties seeks
to make a claim for indemnification pursuant to this Article 10, then the
Purchaser shall be required to submit such claim, and any disputes with respect
to such claim shall be resolved, in accordance with the terms of the Escrow
Agreement prior to any such Purchaser Indemnified Party seeking payment directly
from any Selling Stockholder with respect to such claim to the extent there are
funds available under the Escrow Agreement; provided, however, that in the case
of an indemnification claim by any Purchaser Indemnified Party relating to
either (a) the failure of Holdings to pay any portion of the amount due to the
Purchaser after the final determination of the Closing Purchase Price pursuant
to Section 1.4(e) or (b) any failure by Holdings to pay in full and satisfy all
obligations to employees of the Company (including all payments and obligations
to be made or performed at Closing or at anytime after Closing) under the
Incentive Plan, the Purchaser Indemnified Party shall be entitled to first seek
payment directly from any Seller with respect to such claim prior to submitting
such claim in accordance with the terms of the Escrow Agreement; provided,
further, however, that in the case of an indemnification claim by the Purchaser
Indemnified Party prior to the payment by the Purchaser of any amount payable to
Holdings pursuant to Section 1.4(e)(ii) following the final determination of the
Closing Purchase Price, if any, the Purchaser shall be permitted to reduce such
payment by the amount of such indemnification claim.
54
10.8 ADJUSTMENT TO PURCHASE PRICE. All indemnification payments paid
pursuant to this Article 10 shall, to the maximum extent permitted by Legal
Requirements, be treated as an adjustment to the purchase price for Tax
purposes. The parties hereto shall make appropriate adjustments for amounts
actually recovered under any insurance coverage in determining Losses for
purposes of this Article 10, provided that the Purchaser shall, and shall cause
the Company to, use commercially reasonable efforts to recover any such amounts
to which it is entitled under such coverage.
10.9 LIMITATIONS ON REMEDIES. No party hereto shall be liable to the
other for indirect, special, incidental, consequential or punitive damages, or
lost profits, claimed by such other party resulting from such first party's
breach of its obligations, agreements, representations or warranties hereunder;
provided that nothing under this Section 10.9 shall preclude any recovery by an
Indemnified Party against an Indemnifier for third party Claims for such damages
or lost profits. The remedies provided in Article 10 shall be the exclusive
remedies of the parties hereto after the Closing for monetary damages in
connection with this Agreement (other than for fraud), including any breach or
non-performance of any representation, warranty, covenant or agreement contained
herein.
ARTICLE 11
MISCELLANEOUS
11.1 NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person, by e-mail or fax (with written confirmation of transmission), by United
States mail, certified or registered with return receipt requested, or by a
nationally recognized overnight courier service, or otherwise actually
delivered:
(a) if to the Sellers or, prior to the Closing, the Company, to:
Advanced Concepts, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇.▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
55
(b) if to the Sellers Representative, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
(c) if to the Purchaser or, after the Closing, the Company, to:
L-1 Identity Solutions, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
and
L-1 Identity Solutions, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
with a copy (which shall not constitute notice) to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
or at such other address as may have been furnished by such person in writing to
the other parties. Any such notice, demand or communication shall be deemed
given on the date given, if delivered in person, e-mailed or faxed (with written
confirmation of transmission), on the date received, if given by registered or
certified mail, return receipt requested or given by overnight delivery service,
56
or three (3) days after the date mailed, if otherwise given by first class mail,
postage prepaid.
11.2 SEVERABILITY AND GOVERNING LAW; FORUM. This Agreement shall be
interpreted in such a manner as to be effective and valid under applicable Legal
Requirements, but if any provision hereof shall be prohibited or invalid under
any such Legal Requirement, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating or nullifying the remainder
of such provision or any other provisions of this Agreement. If any one or more
of the provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, such
provisions shall be construed by limiting and reducing it so as to be
enforceable to the maximum extent permitted by applicable Legal Requirements.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without regard to its conflicts of laws
principles. Any proceeding arising out of or relating to this Agreement (except
as otherwise contemplated by Article 10 and the Escrow Agreement) shall be
brought in the state or federal courts located in the State of Delaware. This
provision may be filed with any court as written evidence of the knowing and
voluntary irrevocable agreement between the parties to waive any objections to
venue or to convenience of forum.
11.3 AMENDMENTS, WAIVERS. This Agreement may be amended or modified only
with the written consent of the Purchaser, the Company, the Selling Stockholders
and Holdings (provided that the consent of Holdings shall not be required if it
has not executed the Joinder Agreement). No waiver of any term or provision
hereof shall be effective unless in writing signed by the party waiving such
term or provision. No failure to exercise or delay in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
11.4 EXPENSES. Except as otherwise expressly provided in this Agreement,
all legal and other costs and expenses incurred in connection with this
Agreement and the Transactions shall be paid by the party incurring such costs
and expenses, provided, however, that if the Closing occurs, the Sellers shall
be responsible for the Transaction Expenses.
11.5 SUCCESSORS AND ASSIGNS. This Agreement, and all provisions hereof,
shall be binding upon and inure to the benefit of the respective successors and
permitted assigns of the parties hereto, provided that this Agreement may not be
assigned by any party without the prior written consent of the other parties
hereto except that after the Closing (a) the indemnification and other rights
hereunder of a party may be assigned to any bank or other financial institution
which is or becomes a lender to the Purchaser or the Company or any of their
respective successors and assigns and (b) this Agreement may be assigned by the
Purchaser to any of its Affiliates, provided that such assignment does not
relieve the Purchaser of its obligations hereunder, or to any Person acquiring
substantially all of the assets, business or securities of the Company or the
Purchaser, whether by merger, consolidation, sale of assets or securities or
otherwise, and further provided that any such Person agrees to assume all of the
Purchaser's obligations hereunder.
57
11.6 ENTIRE AGREEMENT. This Agreement, the attached exhibits and
schedules, the Confidentiality Agreement, and the other Transaction Documents
contain the entire understanding of the parties, and there are no further or
other agreements or understandings, written or oral, in effect between the
parties relating to the subject matter hereof unless expressly referred to
herein.
11.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one and the same Agreement.
11.8 HEADINGS. The headings of Articles and Sections herein are inserted
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
11.9 FURTHER ASSURANCES. Following the Closing, the Sellers, on the one
hand, and the Purchaser, on the other hand, will execute and deliver to the
other party such documents and take such other actions as such other party may
reasonably request in order to fully consummate the Transactions (at the sole
cost and expense of such other party).
11.10 THIRD PARTY BENEFICIARIES. Nothing in the Agreement shall be
construed to confer any right, benefit or remedy upon any Person that is not a
party hereto or a permitted assignee of a party hereto, except as set forth in
Article 10.
11.11 NO STRICT CONSTRUCTION. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and the other agreements and
documents contemplated herein. In the event an ambiguity or question of intent
or interpretation arises under any provision of this Agreement or any other
agreement or documents contemplated herein, this Agreement and such other
agreements or documents shall be construed as if drafted jointly by the parties
thereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of authoring any of the provisions of this
Agreement or any other agreements or documents contemplated herein.
11.12 PUBLICITY. No party shall issue a press release or make any other
public announcement concerning the Transactions before or after the Closing
without the prior written consent of the Purchaser and the Sellers
Representative, which consent shall not be unreasonably withheld, conditioned or
delayed, except to the extent required by Legal Requirements or the applicable
rules of any stock exchange on which Purchaser or its Affiliates lists
securities; provided that, to the extent any such disclosure is required by any
Legal Requirement or the applicable rules of any stock exchange, the party
intending to make such release shall, subject to and consistent with such Legal
Requirement or applicable rules of any stock exchange, consult with the other
party with respect to the text thereof.
11.13 SCHEDULES AND EXHIBITS. All schedules and exhibits to this Agreement
are an integral part of this Agreement and are incorporated herein by reference
in this Agreement for all purposes of this Agreement. All Schedules delivered
with this Agreement shall be arranged to correspond with the numbered and
lettered Sections and Subsections contained in this Agreement, (it being
understood that the disclosures in any section of the disclosure schedules shall
qualify only the corresponding Sections and Subsections contained in this
58
Agreement, unless it is reasonably apparent from a reading of such section of
the disclosure schedule that it also applies to other sections).
11.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.15 EXCLUSIVE AGENT FOR SELLERS. ▇▇▇▇ ▇▇▇▇▇▇▇▇ shall serve as the
exclusive agent of the Sellers for all purposes of this Agreement and the
Transactions contemplated hereby (the "Sellers Representative"). Without
limiting the generality of the foregoing, the Sellers Representative shall be
authorized (a) in connection with the Closing, to execute all certificates,
documents and agreements on behalf of and in the name of any of the Sellers
necessary to effectuate the Closing and the Transactions, and (b) to negotiate,
execute and deliver all amendments, modifications and waivers to this Agreement
or any other agreement, document or instrument contemplated by this Agreement.
The Sellers Representative also shall be exclusively authorized to take all
actions on behalf of the Sellers in connection with any claims made under this
Agreement or in respect of the Transactions, to bring, prosecute, defend or
settle such claims, and to make and receive payments in respect of such claims
on behalf of the Sellers, and no Seller shall take any such action without the
Sellers Representative's prior written approval. The Sellers Representative
shall not be liable to any of the Sellers for any action taken by him pursuant
to this Agreement unless he has acted in bad faith or with gross negligence or
willful misconduct, and the Sellers shall jointly and severally indemnify him
from any Losses arising out of or relating to him serving as agent hereunder.
The Sellers Representative is serving in the capacity as exclusive agent of the
Sellers hereunder solely for purposes of administrative convenience.
11.16 RIGHTS AND REMEDIES. Subject to Section 10.9, the rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties hereto agree that (a) in the event of any breach or threatened breach by
any party of any covenant, obligation, or other provision of this Agreement
applicable to such party, the other parties shall be entitled (in addition to
any other remedy that may be available and permitted hereunder, subject to
Section 10.9) to seek (i) a decree or order of specific performance or mandamus
to enforce the observance and performance of such covenant, obligation or other
provision, and (ii) an injunction restraining such breach or threatened breach,
and (b) neither such other parties shall be required to provide any bond or
other security in connection with any such decree, order or injunction or in
connection with any related action or proceeding.
11.17 KNOWLEDGE OF THE COMPANY. As used in this Agreement, "to the
knowledge of the Company," "the Company has no knowledge" and similar phrases
mean that the information to be attributed to the Company is information
actually known to ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇.▇. ▇▇▇▇ or information that such persons would
reasonably be expected to know.
59
11.18 CONSTRUCTION. The words "hereby," "herein," "hereof," "hereunder"
and words of similar import refer to this Agreement as a whole (including any
exhibits and schedules hereto) and not merely to the specific section, paragraph
or clause in which such word appears. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, Exhibits to
and Schedules delivered with this Agreement unless the context shall otherwise
require. The definitions given for terms in this Agreement shall apply equally
to both the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. Except as otherwise expressly provided herein, all references to
"$" shall be deemed references to the lawful money of the United States of
America. The words "include," "includes" and "including" shall be deemed to be
followed by the phrase "without limitation." The phrase "ordinary course of
business" shall be deemed to be followed by the phrase "consistent with past
practice."
ARTICLE 12
DEFINITIONS
The following terms, as used in this Agreement, have the meanings
given to them where indicated below:
TERM SECTION OR PLACE WHERE DEFINED
Agreement Preamble
Affiliate Section 3.25
Balance Sheet Section 3.7(a)
Balance Sheet Date Section 3.7(a)
Base Purchase Price Section 1.2(a)
Benefit Plans Section 3.22(a)
Business Section 3.1(a)
Business Day Section 1.2(a)
Claim Section 10.5(b)
Classified Contracts Section 3.9
Closing Section 1.3
Closing Date Section 1.3
Closing Working Capital Section 1.2(a)
Closing Purchase Price Section 1.2(a)
Closing Purchase Price Certificate Section 1.4(a)
Code Introduction
Company Preamble, Section 5.7(b)
Company Intellectual Property Section 3.13(b)
Company Material Adverse Effect Section 3.8
Company 401(k) Plan Section 5.15(c)
Confidential Information Confidentiality Agreement
Confidentiality Agreement Section 6.3
Contest Section 7.5
Contract Section 1.2(a)
Covered Business Section 5.7(b)
60
TERM SECTION OR PLACE WHERE DEFINED
Disputed Earnout Payment Notice Section 1.5(e)
Disputed Items Notice Section 1.4(b)
Earnout Payment Section 1.5
Earnout Payment Notice Section 1.5(d)
Employment Agreements Section 8.1(f)
Environmental Laws Section 3.23(b)
ERISA Section 3.22(a)
ERISA Affiliate Section 3.22(a)
Escrow Section 1.2(a)
Escrow Agent Section 1.2(a)
Escrow Agreement Section 1.2(a)
Estimated Closing Purchase Price Section 1.2(a)
Estimated Closing Purchase Price Section 1.2(b)
Certificate
Financial Statements Section 3.7(b)
GAAP Section 1.2(a)
Government Contract Section 3.10(a)
Governmental or Regulatory Authority Section 3.10(b)
Gross Profits Section 1.2(a)
Hazardous Materials Section 3.23(b)
Holdings Introduction
HSR Act Section 3.4(c)
Incentive Plan Section 5.12(a)
Income Statement Section 3.7(a)
Indebtedness Section 1.2(a)
Indemnified Party Section 10.5(a)
Indemnifier Section 10.5(a)
Intellectual Property Section 3.13(a)
Intellectual Property License Section 3.13(c)
Joinder Agreement Section 5.13
Leased Property Section 3.11(b)
Legal Proceeding Section 3.20
Legal Requirements Section 3.17
Liens Section 1.2(a)
Losses Section 10.3(a)
Material Contracts Section 3.9
Noncompetition Agreements Section 5.12(b)
Noncompetition Period Section 5.7(b)
Off-the-Shelf Software Section 3.13(d)
Permitted Liens Section 3.11(a)
Person Section 3.6(a)
Personal Property Leases Section 3.12(b)
Pre-Closing Taxable Periods Section 7.3
Pre-Closing Transactions Introduction
Pro Rata Share Section 10.3(b)
Purchase Commitments Section 3.30
61
TERM SECTION OR PLACE WHERE DEFINED
Purchaser Preamble
Purchaser Indemnified Parties Section 10.3(a)
Purchaser 401(k) Plan Section 5.15(c)
Real Estate Leases Section 3.11(b)
Required Consents Section 3.4(c)
Revenue Section 1.2(a)
Schedule 1.2(b)(i) Section 1.2(b)
Schedule 1.2(b)(ii) Section 1.2(b)
SEC Section 5.4(a)
Securities Act Section 3.25
Sellers Introduction
Sellers Representative Section 11.15
Selling Stockholder or Selling Preamble
Stockholders
Service Section 3.22(b)
Shares Introduction
Software Section 3.13(a)
Specified Representations Section 10.1
Stock Appreciation Rights Plan Section 1.2(a)
Tax or Taxes Section 3.19(a)(i)
Tax Returns Section 3.19(a)(ii)
Termination Fee Section 9.2(c)
Trade Secrets Section 3.13(a)
Transaction Documents Section 2.2
Transactions Introduction
Transaction Expenses Section 1.2(a)
Transferred Employees Section 5.15(a)
Treasury Regulations Section 1.2(a)
WARN Section 3.21(b)
2007 Measurement Period Section 1.5(a)
2007 Revenue Section 1.5(a)
2007 Revenue Minimum Schedule 1.5
2007 Revenue Target Schedule 1.5
2008 Measurement Period Section 1.5(b)
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.5(b)
2008 Revenue Minimum Schedule 1.5
2008 Revenue Target Schedule 1.5
[Remainder of Page Intentionally Left Blank.]
62
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as a sealed instrument as of the date first above written.
L-1 IDENTITY SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman, President and Chief
Executive Officer
ADVANCED CONCEPTS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
SELLERS REPRESENTATIVE
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
SELLING STOCKHOLDERS
/s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
[Signature Page to Stock Purchase Agreement]
63