EXHIBIT 10.1
Stock Purchase Agreement
among
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
and
ICTS, Inc.
and
Interboro Holding, Inc.
and
Educational Video Conferencing, Inc.
Thd id word 503
STOCK PURCHASE AGREEMENT
AGREEMENT made as of June 29, 2001 by and among ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (collectively "Sellers"), Interboro
Holding, Inc., a Delaware corporation, or a newly formed wholly owned subsidiary
of EVCI or its assignee ("Buyer"), ICTS Inc. a Delaware Corporation, and
Educational Video Conferencing, Inc., a Delaware corporation ("EVCI").
This Agreement sets forth the terms and conditions upon which Sellers
will sell to Buyer, and Buyer will purchase, all of the shares of ICTS, Inc.
("ICTS") owned by Sellers.
In consideration of the mutual agreements contained herein, intending to
be legally bound hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Action" means any claim, suit, litigation, proceeding, labor
dispute, arbitration, mediation, or audit, or investigation by any Governmental
Authority at law or in equity.
"Affiliate" of a Person means any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Stock Purchase Agreement, including the
Exhibits and Schedules and any amendments and supplements thereto, unless the
context requires otherwise.
"Ancillary Agreements" means the Employment Agreements.
"Assets" means all assets, real and personal, tangible and intangible
of ICTS.
"Benefit Plans" means all bonus, deferred compensation, incentive
compensation, share purchase, share appreciation and share option, severance or
termination pay, hospitalization or other medical benefits, life or other
insurance, dental, disability, salary continuation, vacation, employment
insurance benefits, profit-sharing, mortgage assistance, employee loan, employee
assistance, pension, retirement or supplemental retirement plan or agreement
(including, without limitation, any defined benefit or defined contribution
pension plan and any group registered retirement savings plan), and each other
employee benefit plan or agreement (whether oral or written, formal or informal,
funded or unfunded) sponsored, maintained or contributed to or required to be
contributed to by ICTS for the benefit of any of the officers, directors, or
employees of, or consultants or advisors to, ICTS, whether or not insured and
whether or not subject to any applicable Law.
"Books and Records" means all of ICTS's (i) books of account,
accounting records and other financial data and information relating to the
Business, including copies of filed Tax Returns and tax assessment notices for
each of the fiscal years commencing after January 1, 1995, (ii) all books and,
records relating to students, student enrollment, Student SFA Programs, school
courses, programs and requirements, (iii) business reports and research and
development information and plans and projections for the Business and (iv)
other documents, files, records, correspondence, and other data and information,
financial or otherwise, which are relevant to the Business, including without
limitation, all data and information stored electronically or on computer
related media.
"Bridge Loan" means the $150,000 loaned by EVCI to ICTS for operating
expenses, as evidenced by the promissory note of ICTS dated May 31, 2001.
"Business" means the business, currently conducted by ICTS of
providing career vocational training through its operation of four branch
locations in Atlanta, Georgia, Baltimore, Maryland, Alexandria, Virginia and
Hampton Virginia and a corporate support center in Alexandria Virginia.
"Buyer" is defined in the first paragraph of this Agreement.
"Closing" means the completion of the sale to, and purchase by, Buyer
of the ICTS Shares and Sellers' Other ICTS Interests.
"Closing Date" means July 1, 2001.
"Closing Document" means any document, instrument or certificate
delivered at or subsequent to the Closing as provided in, or pursuant to, this
Agreement.
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"Consents" means all licenses, permits, franchises, approvals,
acknowledgements, registrations, authorizations, consents or orders of, or
filings with, any Governmental Authority (whether foreign, federal, state or
local), or accreditation or membership organization or any other Person,
necessary for the present conduct of the Business, or for the consummation of
the transactions contemplated by this Agreement or any Ancillary Agreement.
"Contract" means any agreement, contract, lease, note, loan, evidence
of indebtedness, purchase order, letter of credit, bond, personal guarantee,
undertaking, covenant not to compete, employment agreement, license, instrument,
obligation or commitment to which a Person is a party or beneficiary or by which
it is bound, whether oral or written.
"Damages" means all damages, claims, losses, liabilities and expenses
(including, without limitation, attorneys' fees and disbursements incurred in
investigating and preparing for any Action).
"Employment Agreements" means the employment agreements between ICTS
and each of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, respectively in the
forms of Exhibit ▇-▇, ▇-▇, and A-3 hereto, to be entered into at the Closing
"Encumbrance" means any encumbrance of any kind whatever and includes
a security interest, mortgage, lien, pledge, hypothecation, assignment, charge,
trust or deemed trust (whether contractual, statutory or otherwise arising), a
voting trust or pooling agreement with respect to securities, an adverse claim
or any other right, option or claim of others of any kind whatever affecting the
Assets or ICTS Shares or Other ICTS Interests, any covenant or other agreement,
restriction or limitation on the transfer of any ICTS Shares or Other ICTS
Interests, a deposit by way of security and an easement, restrictive covenant,
agreement or right of way (registered or unregistered), restriction,
encroachment, burden or title reservation of any kind with respect to real
property.
"Environmental Laws" includes all federal, state, municipal or local
statutes, regulations, by-laws, guidelines, policies or rules, and Orders of any
Governmental Authority and the common law, relating in whole or in part to the
environment and includes those laws relating to the storage, generation, use,
handling, manufacture, processing, transportation, import, export, treatment,
release or disposal of any Hazardous Substance and any laws relating to asbestos
or asbestos containing materials in the environment, in the workplace or in any
Facility.
"Environmental Permits" includes all permits, certificates, approvals,
consents, authorizations, registrations, and licenses issued, granted,
conferred, created or required by any Governmental Authority pursuant to any
Environmental Laws.
"EVCI" is defined in the first paragraph of this Agreement.
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"EVCI Warrants" means the warrants that will be delivered at the
Closing, in payment of the Purchase Price, to purchase (i) 250,000 shares of
EVCI's common stock at an exercise price of $1.00 (ii) 90,000 shares of common
stock at an exercise price of $3.00 per share.
"Facilities" means each premises, improvement, fixture and parcel of
land and related facilities owned, leased or operated by ICTS.
"Family Member" with respect to a Person, means the spouse, parents,
children, siblings, mothers and fathers-in-law, sons and daughters-in-law, and
brothers and sisters-in-law of such Person.
"FAC Funds" means the funds managed by First Analysis Corporation, a
Delaware Corporation with offices at The Sears Tower, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇, that are parties to FAC Agreement.
"FAC Agreement" means the agreement among Buyer, EVCI, and the FAC
Funds.
"Free Cash Flow" means net income after taxes and adding back
depreciation and all other non-cash expenses or charges of ICTS as determined in
accordance with U. S. GAAP.
"Governmental Authority" means any government (foreign, federal, state
or local) or any other governmental agency, authority, body, instrumentality,
tribunal, or commission, council or other political subdivision of any kind
whatsoever.
"Hazardous Substance" means any pollutant, contaminant, waste,
hazardous substance, hazardous material, toxic substance, dangerous substance or
dangerous good as defined, judicially interpreted or identified in any
Environmental Law, including any that may impair the quality of any waters.
"ICTS" is defined in the first paragraph of this Agreement.
"ICTS Shares" means the shares of capital stock of ICTS owned by the
Sellers.
"Inventory" means all inventories of equipment, fixtures,
personal property, books and course study materials.
"Law" means any state, federal or local law (including the common
law), ordinance, rule, regulation, restriction, regulatory policy or guideline,
by-law (zoning or otherwise), or Order, or any consent, exemption, approval or
license of any Governmental Authority.
"Leased Premises" means the Facilities which are subject to real
property Leases.
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"Leases" means the leases or agreements in the nature of a
lease of real property or Personal Property to which any ICTS is a party,
whether as lessor or lessee.
"Liabilities" means any liabilities or obligations of any kind, nature
or description (absolute, accrued, contingent or otherwise) of a specified
Person.
"Liabilities Schedules" means, collectively, the Schedules referred to
in Section 3.9.
"Material" means (i) in an amount, (ii) having a value or (iii)
resulting in Damages, individually or collectively, in excess of $25,000. At
such time as cumulative Damages incurred by an Indemnified Party exceed $75,000,
all other breaches of this Agreement that cause Damage to such Indemnified Party
shall be deemed to be Material.
"Material Adverse Effect" or "Material Adverse Change" means an
adverse effect on, or change in, the financial condition, business, results of
operations, assets liabilities or operations of ICTS exceeding $100,000 or any
event or condition which would, with the passage of time, result in an adverse
effect or change exceeding $100,000, other than any effect or change
contemplated by this Agreement or disclosed in the requisite Schedule(s). In
determining whether a Material Adverse Effect or Material Adverse Change has
occurred, all uncured or uncompensated adverse effects or changes, shall be
aggregated with the most current adverse effect or change, in each case whether
or not the individual adverse effect or change is Material.
"Material Contract" means any (i) Personal Property Lease that is
referred to in the Capital Leases Payable Schedule, (ii) real property Lease,
(iii) Contract governing indebtedness of a ICTS to any lender, (iv) executory
Contract made out of the ordinary course of the Business of ICTS, (v) employment
or other agreement with any executive officer (as defined in the ▇▇▇▇ ▇▇▇) of
ICTS, (vi) executory Contract providing for future payment(s) by ICTS exceeding
$10,000, (vii) Contract creating or governing any Encumbrance on any Material
Assets, and (viii) any Contract which management of ICTS deems to be important
to the conduct of the Business.
"NASDAQ" means the NASDAQ SmallCap Market or the NASDAQ National
Market, as applicable.
"1933 Act" means the United States Securities Act of 1933, as amended.
"1934 Act" means the United States Securities Exchange Act of 1934, as
amended.
"Occupational Health and Safety Act" means the Occupational Health and
Safety Act and all other legislation of any jurisdiction dealing with any of the
subject matter of that Act or with any aspect of the health or safety of
employees.
"Order" means any order (draft or otherwise), judgment, injunction,
decree, award or writ of any court, tribunal, arbitrator, Governmental
Authority, or other Person having jurisdiction.
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"Ordinary course" when used in relation to the conduct of the Business
means any transaction which constitutes an ordinary day-to-day business activity
of ICTS conducted in a commercially reasonable and businesslike manner
consistent with ICTS past practices.
"Organizational Documents" means the articles, certificate of
incorporation or equivalent pursuant to which a corporation is formed under its
jurisdiction of formation and the by-laws or equivalent of such corporation.
"Other ICTS Interests" means the warrants and options issued by, and
debt of, ICTS and any other interest in or claim against ICTS, that is owned by
Sellers or their Affiliates.
"Person" shall be broadly interpreted and includes an individual,
corporation, partnership, joint venture, trust, association, unincorporated
organization, any Governmental Authority or any other entity recognized by Law.
"Personal Property" means tangible personal property of every kind,
nature and description.
"Prime Rate" for any day means the rate of interest expressed as a
rate per annum that is published in The Wall Street Journal that day under the
caption "Money Rates".
"Purchase Price" means the EVCI Warrants issued at the Closing in
payment for the ICTS Shares and Other ICTS Interests.
"School" means a school that is owned and operated by ICTS and is
identified in Schedule 3.31.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" means all reports, forms, financial statements,
schedules, exhibits and other documents required to be filed by EVCI pursuant to
the reporting requirements of the 1934 Act.
"Sellers" is defined in the first paragraph of this Agreement.
"SFA Program" means any Student Financial Aid Program.
"Taxes" means all federal, state, municipal and local, foreign or
other income, capital, real property, personal property, withholding, payroll,
employer health, transfer, sales, all other taxes of any kind for which ICTS may
have any liability imposed by any Governmental Authority, whether disputed or
not, and any assessments, charges, duties, fees, imposts, levies or other
governmental charges and interest, penalties or additions associated therewith.
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"Trading Days" means any day on which (i) purchases and sales of
securities authorized for quotation on NASDAQ are reported thereon, (ii) no
event which results in a material suspension or limitation of trading on EVCI's
common stock on NASDAQ has occurred, and (iii) at least one bid for the trading
of EVCI's common stock is reported on NASDAQ. For purposes of this definition
only, references to NASDAQ mean the applicable over-the-counter market or other
national securities exchange.
"U.S. GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the United States accounting profession, which are
applicable to the facts and circumstance on the date of determination.
1.2 Other Defined Terms. The following terms shall have the meanings
provided for in the Sections set forth below:
Term Section
Accreditations 3.5(a)
Assessments 3.25
Audited Financial Statements 3.7
CDs 2.3(a)
Confidential Information 10.1
CUP 3.31
Determined Damages 8.5(d)
Discloser 10.1
Equitable Claim 8.5(b)
Indemnified Group 8.2
Indemnified Party 8.3
Indemnifying Party 8.2
Memberships 3.5(a)
MHEC Bond 2.3(a)
Money Claim 8.5(a)
Notice of Claim 8.3
Program 3.31(b)
Receivables Schedule 3.8(a)
Recipient 10.1
Seller Indemnities 2.3(a)
Stub Period Financial Statements 3.7
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ARTICLE II
PURCHASE AND SALE; OTHER CONSIDERATION
2.1 Purchase and Sale; Allocation.
In consideration of the Purchase Price, the Sellers agree that, at the
Closing, they will sell, assign, transfer and deliver to Buyer the ICTS Shares
and Other ICTS Interests, free and clear of any Encumbrance, and Buyer agrees it
will purchase the ICTS Shares and Other ICTS Interests. The Purchase Price shall
be allocated among the Sellers as set forth on Schedule 2.1
2.2 Place of Closing. The closing shall take place at 35 East Grassy Sprain
Road, Yonkers, New York, or such other place as may be agreed upon by Seller and
Buyer.
2.3 Other Consideration.
(a) Sellers have advised Buyer that they have pledged Certificates of
Deposits in the amount of $250,000 (the "CDs") and have each provided their
personal indemnification to secure a bond in the amount of $487,150 ("the MHEC
Bond") so that ICTS could be licensed by the Sate of Maryland's Higher Education
Commission. Sellers have also advised Buyer that they have each provided their
personal indemnification to secure a license for ICTS to operate in the state of
Virginia and have guaranteed ICTS equipment leases. The terms of such pledges,
indemnifications and guarantees are summarized in Schedule 2.3(a) and are
collectively referred to as the "Seller Indemnities".
(b) ICTS shall use 20 percent of its Free Cash Flow to obtain the
following in the order of priority indicated: (i) the release of the CDs to
Sellers, then (ii) the release of Sellers from any remaining liability with
respect to the MHEC Bond and then (iii) the release of Sellers from any
liability with respect to any remaining Seller Indemnities. Within 30 days after
the end of each calendar quarter, commencing the calendar quarter ending
September 31, 2002, ICTS shall apply as aforesaid five percent of the estimated
Free Cash Flow for the full fiscal year in which such quarter occurs. Within 90
days after the end of each such fiscal year, appropriate adjustment shall be
made to reconcile estimated Free Cash Flow applications for the fiscal year to
actual Free Cash Flow for such fiscal year. Any shortfall shall be applied by
ICTS to the release of Seller Indemnities and any excess shall be carried over
and applied to satisfy the application of Free Cash Flow required for the
immediately succeeding fiscal year. Notwithstanding the foregoing, Buyer shall
have the option to obtain the release of the Seller Indemnities by other means.
(c) To the extent, if any, the Seller Indemnities have not been fully
released by December 31, 2003, ICTS shall substitute other ICTS assets in order
to obtain such release.
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(d) If a Seller's employment by ICTS is terminated without cause,
after the Closing, then ICTS shall obtain the release of the Seller Indemnities
made by such Seller by substituting other ICTS assets. However, if any of such
Seller Indemnities is joint and several, ICTS shall have no obligation to make
such substitution. Notwithstanding the above, if ▇▇▇▇▇ ▇▇▇▇▇▇'▇ employment is
terminated without cause, ICTS shall obtain the release of the Seller
Indemnities made by Louis and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
(e) For purposes of this paragraph 2.3. "cause" shall be defined as
willful interference with the business or operations of ICTS. When possible,
ICTS shall give notice to Seller prior to Seller's termination that Seller is
willfully interfering with the business or operations of ICTS. In such event,
Seller shall immediately take such action as is necessary and appropriate to
cease such interference. In the event that a Seller is terminated for "cause",
then the sole issue to be arbitrated pursuant to Article IX shall be whether or
not Buyer had "cause" to terminate Seller.
2.4 Cash Infusion. Within five days after the Closing, EVCI shall infuse
$500,000 of operating capital into ICTS. These funds may be used to repay the
Bridge Loan.
2.5 ICTS Board of Directors Sellers shall be entitled to nominate one
member of the ICTS Board of Directors, and ICTS will use its best efforts to
have that nominee elected a director.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally (except as specified below) represent
and warrant to Buyer and EVCI as follows and acknowledge that Buyer and EVCI are
relying upon these representations and warranties in entering into and
performing this Agreement:
3.1 ICTS Corporate Organization. ICTS is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power and authority to carry on its business as it is now
being conducted and to own the Assets it now owns and is duly qualified,
licensed or registered to do business in good standing in the jurisdictions
listed in Schedule 3.1, which are all the jurisdictions in which such
qualification licensing or registration is required. Copies of the
Organizational Documents of Seller have been or shall be delivered promptly, to
EVCI. ICTS has no subsidiaries or any equity interest of any kind in any Person.
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3.2 Capitalization; Other ICTS Interests.
(a) The authorized capital stock of ICTS consists of 3,000,000 shares
of common stock, $.01 stated value, of which 1,181,001 shares are issued and
outstanding, and 1,000,000 shares of preferred stock, $.01 stated value, or
which 400,000 shares are issued and outstanding. All issued and outstanding
shares of ICTS are validly issued, fully paid and nonassessable and are owned of
record and beneficially solely by the Persons identified, together with their
respective holdings and residences, on Schedule 3.2(a). Schedule 3.2(a) also
sets forth the record and beneficial ownership by each Person of warrants,
options or other rights to purchase shares of ICTS. Except as set forth on
Schedule 3.2(a), there are no outstanding options, rights or contracts relating
to the issuance, transfer of or the creation or existence of any Encumbrance on
any capital stock or other equity securities of Seller.
(b) Schedule 3.2(b) sets forth all of the Other ICTS Interests owned
of record and beneficially by each Seller and its Affiliates.
3.3 Title. Each Seller severally represents and warrants that it has the
complete and unrestricted power to sell and deliver to Buyer, all right, title
and interest in and to, the ICTS Shares and Other ICTS Interests, owned by such
Seller, free and clear of any Encumbrance.
3.4 Authorization; Binding Effect; No Conflict.
(a) The execution, delivery and performance of this Agreement and each
Ancillary Agreement has been duly and validly authorized by all necessary action
on the part of each Seller and ICTS. Each Seller has the full undivided power
and authority to enter into this Agreement and the Ancillary Agreements to which
each Seller is a party and to consummate the transactions contemplated hereby
and thereby. This Agreement and each Ancillary Agreement to which each Seller is
a party has been duly executed and delivered by each Seller. This Agreement and
each Ancillary Agreement to which each Seller is a party is the valid and
binding obligation of each Seller enforceable in accordance with its terms,
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, or other similar laws now or hereafter in effect relating to
creditors' rights and to general principles of equity.
(b) The execution, delivery and performance by each Seller of this
Agreement and each Ancillary Agreement to which Seller is a party does not (i)
violate or conflict with any Laws or any Order; (ii) violate the Organizational
Documents of ICTS or (iii) violate, conflict with, or constitute a default
under, or result in the acceleration of any debt or obligation of ICTS or any
Seller or the creation or imposition of any Encumbrance upon any property or
Assets of ICTS or any Seller under, any Consent or Contract to which ICTS or any
Seller is a party or by which ICTS or any Seller is bound.
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3.5 Consents.
(a) Schedule 3.5 lists and attaches evidence of all Consents,
including those required, academic accreditation organizations (collectively,
"Accreditations") and academic membership organizations (collectively,
"Memberships") held or required by the Schools in order to operate the Business.
Each School owns or possesses each Consent obtained by it free and clear of all
Encumbrances. All such Consents are renewable by their terms or in the ordinary
course of business without the need to comply with any qualification procedures,
with which the Schools are not currently able to comply, or to pay any amounts
other than routine filing fees and will not be adversely affected by the
execution and delivery of, or the consummation of, the transactions contemplated
by this Agreement or any of the Ancillary Agreements. The Schools have complied,
and are currently in compliance with, all Material respects with the terms and
conditions of all Consents, Accreditations and Memberships and no notice of
noncompliance has been received by any School within the past 90 days, nor does
any Seller or ICTS know of, or is aware of any basis for, any event which, with
the lapse of time, would result in such a notice being given to any School.
(b) Except as provided for in schedule 3.5, no further Consents are
necessary to be obtained by ICTS for the execution, delivery and consummation of
this Agreement, or any Ancillary Agreement and Sellers agree to obtain the
consents not obtained prior to closing within 30 days of closing.
(c) All Consents are in full force and effect and are valid, binding
and enforceable in accordance with their terms.
3.6 Compliance with Law. Except as disclosed in Schedule 3.6, neither any
Seller of ICTS knows, nor is aware of any basis, for a claim of a failure by
ICTS or the Schools to conduct their operations in accordance with all
applicable Laws. Neither ICTS nor any School has received any notification from
any Governmental Authority of any alleged present or past failure by ICTS or a
School to comply with Laws.
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3.7 Financial Statements. ICTS has delivered to Buyer ICTS's financial
statements, for the Year ending December 31, 1999 audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
for the year ended December 31, 2000 audited by Gelmer, ▇▇▇▇▇▇▇ & Associate,
P.A., (the "Audited Financial Statements"). Prior to Closing, ICTS shall provide
financial statements of ICTS as, at and for the five months ended May 31, 2001
(the "Stub Period Financial Statements"), to Buyer in substantially the same
format as the unaudited ICTS financial statements, as at and for the four months
ended April 30, 2001, previously provided to Buyer by ICTS. The Audited
Financial Statements are complete and in accordance with the Books and Records
and fairly present ICTS's financial position, as of the respective dates of the
balance sheets included therein, and ICTS's results of operations and changes in
financial position for the respective periods ended on such dates, in accordance
with U.S. GAAP. The Stub Period Financial Statements will be complete and in
accordance with the Books and Records and will fairly present ICTS's financial
position as of May 31, 2001 and ICTS results of operations for the five months
ended May 31, 2001 in accordance with U.S. GAAP, except as noted therein. The
Audited Financial Statements are complete and in accordance with the Books and
Records and fairly present ICTS's financial position, as of the respective dates
of the balance sheets included therein, and ICTS's results of operations and
changes in financial position for the respective periods ended on such dates, in
accordance with U.S. GAAP. The Stub Period Financial Statements will be complete
and in accordance with the Books and Records and will fairly present ICTS's
financial position as of May 31, 2001 and ICTS results of operations for the
five months ended May 31, 2001 in accordance with U.S. GAAP, except as noted
therein
3.8 Receivables and Prepaid Items.
(a) Schedule 3.8(a) sets forth a complete and accurate list of the
accounts, notes and other receivables of ICTS by School, as of December 31, 2000
and May 31, 2001, showing the name of each account debtor, the amount owed, the
age of the receivable and any special payment or other terms (the "Receivables
Schedule"). All accounts, notes and other receivables of ICTS reflected in the
Receivables Schedule represent receivables actually due in the ordinary course
of business and, except as specified in the Receivable Schedules, are believed
by ICTS to be collectible in full in the ordinary course of Business, within
terms that that are consistent with past experience, without setoff or
deduction, net of any reserves or provision for doubtful accounts reflected in
the Audited Financial Statements and with respect to May 31, 2001, on Schedule
3.8(a).
(b) Schedule 3.8(b) sets forth a complete and accurate list of the
prepaid commissions due as of December 31, 2000 and May 31, 2001, showing the
method of calculation thereof.
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(c) Schedule 3.8(c) sets forth a complete and accurate list of the
prepaid expenses and other deposits of ICTS, as of December 31, 2000 and May 31,
2001, showing the name of the Person holding the deposit or receiving the other
prepaid item and the amount thereof.
3.9 Liabilities.
(a) Schedule 3.9(a) sets forth a complete and accurate list of the
accounts payable and deposits of ICTS, as of December 31, 2000 and May 31, 2001,
showing the name of the account creditor, the amount owed, the age of the
payable and any special payment or other terms.
(b) Schedule 3.9(b) sets forth a complete and accurate list of
Projected Earned Revenue of ICTS as May 31, 2001, showing the name of each party
from whom revenue will be earned, and the estimated month that the revenue will
be earned. The May 31, 2001 Balance Sheet reflect approximately 3.9 million
dollars of deferred revenue under current ICTS accounting practices. Of such 3.9
million dollars ICTS shall earn 2.9 million dollars between May 31, 2001 and
December 31, 2001. Sellers shall provide to ICTS by July 31, 2001 a schedule of
the deferred revenue by campus and month and a list of prepaid students as of
May 31, 2001.
(c) Schedule 3.9(c) sets forth a complete and accurate list of the
capital leases payable of ICTS, as of May 31, 2001, showing the name of each
lessor, the inception date of the lease, the amounts of the periodic payments
required under the remaining term of the Lease and the due dates thereof and a
brief description of the Personal Property that is the subject of each lease and
sets forth a complete and accurate list of the Personal Property Leases,
including payments, expiration date, and buyout costs. All such leases are
reflected on the Audited Financial Statements.
(d) Intentionally omitted
3.10 No Undisclosed Liabilities. ICTS has no Liabilities, except as fully
reflected or reserved in the Audit Financial Statements and Stub Period
Financial Statements and disclosed in the Liabilities Schedules and for
Liabilities incurred in the ordinary course of the Business. The reserves and
doubtful accounts reflected in the Stub Financial Statements are adequate,
appropriate and reasonable.
13
3.11 Taxes. Except as disclosed in Schedule 3.11, ICTS has fully filed all
tax reports, and returns required to be filed by it and has duly paid all taxes
and other charges due or claimed to be due from it by federal, state, local or
other taxing authorities. Except as disclosed in Schedule 3.11 there are no Tax
liens upon any property or assets of the ICTS except liens for current taxes not
yet due. There are no audits of ICTS's Tax returns pending and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax returns for any period. Except as disclosed in Schedule
3.11 complete and correct copies of the income tax returns for ICTS (federal and
state) with respect to fiscal years ended December 31, 1997, 1998, 1999, have
been delivered to the Buyer. Buyer has filed an Extension for filing its 2000
Income tax return until September 15, 2001. A copy of the filing is also
attached.
3.12 Title to Assets. ICTS has good, valid and marketable title to all the
properties and Assets which it purports to own, free and clear of all title
defects or objections or Encumbrances. The Assets presently owned, leased or
licensed by ICTS and described elsewhere in this Agreement include all Assets
necessary to permit ICTS to conduct its Business substantially in the manner as
its Business has been conducted prior to the date hereof. ICTS does not own any
real property.
3.13 Inventory. Schedule 3.13 sets forth, by School, a complete and
accurate list of the Inventory and the cost thereof as of December 31, 2000 and
May 31, 2001. All such Inventory, at December 31, 2000, is reflected on the
Audited Financial Statements and, at May 31, 2001, will be reflected in the Stub
Period Financial Statements, and consists of a quality and quantity usable an
salable in the ordinary course of the Business, except for obsolete items and
items of below-standard quality, all of which have been written down in the
Audited Financial Statements or will be written down in the Stub Period
financial statements, to realizable market value or for which adequate reserves
have been provided therein. Except as disclosed in Schedule 3.13, the quantities
of all Inventory are reasonable and warranted in the present circumstances of
the Business.
3.14 Intentionally left blank.
3.15 Personal Property. Schedule 3.15 sets forth the identity, cost,
accumulated depreciation and net book value as of December 31, 2000 and May 31,
2001 of all items of Personal Property owned, leased or used by ICTS in
connection with the Business and properly includable in the following
categories: (i) furniture and equipment; (ii) leasehold improvements; (iii)
computers, office equipment or any other items under capital leases. All of the
Personal Property, is in generally good operating condition and repair and is
adequate for the uses to which it is being put and, except as disclosed in
Schedule 3.15, none of Personal Property is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not, in the
aggregate, Material in nature or cost, reasonable wear and tear excepted.
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3.16 Intellectual Property Rights. Schedule 3.16 lists and briefly
describes all Material patents, trademarks, service marks, trade names, brand
names, copyrights, and applications therefor registered in the name of any ICTS
or in which ICTS a has any right, license, or other interest. Except as
disclosed in Schedule 3.16 ICTS is not a party to any Contracts, either as
licensor or licensee, with respect to any Material patents, trademarks, service
marks, trade names, brand names, or copyrights or applications therefor. ICTS
knows of no basis for a belief that (i) it does not have good and marketable
title to, or the right to use, all patents, trademarks, service marks, trade
names, brand names, or copyright trade secrets and know-how necessary for the
operation of the Business, without the payment of any royalty or similar payment
or (ii) that it is infringing on any patent, trademark, service ▇▇▇▇, trade
name, brand names, or copyright trade secret, know-how or other intellectual
property rights of others. ICTS is not aware of any infringement by others of
any such intellectual property rights owned by ICTS. ).
3.17 Material Contracts.
(a) Schedule 3.17 sets forth the names of the parties, subject matter
and expiration date of all Material Contracts (other than the Personal Property
Leases) to which ICTS is a party, or by which it, or any of its property is
bound. Except as disclosed on Schedule 3.17, all Material Contracts are in full
force and effect and neither ICTS, nor any other party is in breach of, or
default under, any such Material Contract. Each Material Contract is a valid and
binding obligation of the parties thereto enforceable in accordance with its
terms except that such enforcement may be subject to bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to
creditors' rights and general principles of equity. ICTS has delivered to Buyer
a complete and correct copy of each Material Contract. No action has been taken
by ICTS and no event has occurred which, with notice or lapse of time or both,
would permit termination, modification or acceleration by a party to a Material
Contract other than ICTS. Except as set forth on Schedule 3.17, no party to any
Material Contract has repudiated in writing any term thereof or threatened in
writing to terminate, cancel or not renew any such Material Contract. Neither
any Seller nor ICTS has assigned, transferred, conveyed, or subjected to any
Encumbrance any interest therein or in any leased property subject thereto (or
any portion thereof). No Contract, restricts the relocation or closing of any
part of the Business. ICTS has delivered to Buyer true and complete copies of
the Material Contracts.
(b) All fixed rent and additional rent presently due and owing to the
landlord pursuant to each real property Lease has been paid.
(c) Neither any Seller nor ICTS knows of, or is aware of any basis
for, the occurrence of any event which is, or with the giving of notice or
passage of time or both will become, a condition of limitation under any real
property Lease, on the part of either the or the landlord or ICTS.
15
(d) ICTS is currently the sole tenant under the real property Lease to
which it is a party, has the sole right, as tenant, to occupy the premises
covered by such Lease the ("Leased Premises") and such Lease is presently in
full force and effect.
(e) Neither any Seller nor ICTS has received any notice of default
citing any defaults under any real property Lease which remains uncured.
(f) The tenant has such rights of entry and exit to and from each
Leased Premises as are reasonably necessary to carry on the Business
substantially in the manner in which it is currently carried on by the tenant.
(g) Neither any Seller nor ICTS knows, or is aware of any basis for, a
claim that any part of the Leased Premises is subject to any building or use
restriction that would restrict or prevent the use and operation of such Leased
Premises for its current use.
(h) All of the Leased Premises are fully serviced to permit the
Business to be carried on as currently carried on.
(i) Neither any Seller nor ICTS knows of any work orders outstanding
against any of the Leased Premises or that ICTS has received any deficiency
notices, requests or written advice of any breach of an applicable Law in
respect of the foregoing which could, if not corrected, become a work order or
could require performance of Material work or a Material expenditure of money
for the ICTS to correct all such work orders.
(j) To the knowledge of each Seller and ICTS, each Leased Premises is
zoned to permit its current uses and the Facilities thereon comply in all
Material respects with the by-laws and building codes of each municipality in
which they are situate; to the knowledge of each Seller and ICTS, the Facilities
are located wholly within the boundaries of the Leased Premises on which they
are located and there are no Material encroachments affecting any of the Leased
Premises which could adversely affect the ability of ICTS to carry on the
operations of the Business as they have been carried on in the past.
(k) ICTS has no outstanding application for a re-zoning of any Leased
Premises.
(l) The Leased Premises and all equipment necessary for the operation
thereof, are and will on Closing be in good working condition and in good repair
and maintenance, normal wear and tear excepted.
(m) There are no Material matters affecting the right, title and
interest of ICTS in and to any Leased Premises which would adversely affect the
ability to carry on the Business upon the Leased Premises substantially in the
manner in which such operations are currently carried on.
16
(n) Consent of the landlord or any other Person, is not required under
the real property Leases to the consummation of the transactions contemplated
herein and the consummation of such transactions will not result in a breach or
a default by the tenant under any Lease or any full or partial loss of the
tenant's right of possession to any Leased Premises or the imposition of any
monetary or other penalty on the tenant or any other Person, which breaches,
defaults, losses or impositions would be Material.
3.18 Employees.
(a) Schedule 3.18 sets forth a complete and correct list of;
(i) the names and positions of all employees of ICTS together
with the location of their employment;
(ii) the date each employee was hired;
(iii) a list of all written employment Contracts between ICTS and
its employees and a brief description of the Material terms thereof;
(iv) the rate of annual remuneration of each employee at the date
hereof, any bonuses paid since the end of the last completed financial year and
all other bonuses, incentive arrangements and benefits to which such employee is
entitled; and
(v) the amount of vacation pay to which such employee is entitled
on the date hereof. See Schedule 3.9 a;
(vi) the names of all retired employees of ICTS who are entitled
to benefits from ICTS and the nature of such benefits;
(b) Except as set forth in Schedule 3.18(b), all of ICTS's employees
may be terminated at will without any liability or obligation of ICTS except for
compensation earned prior to such termination. Neither any Seller nor ICTS knows
of any claim against ICTS by any employee or agent of ICTS including as a result
of ICTS's execution, delivery, or performance of this Agreement.
(c) ICTS is not a party, either directly or by operation of Law, to
any Contract with respect to its employees with any union, employee bargaining
agency or similar organization. Within the last three years there have been no
actual or threatened union organizing activities involving the employees of
ICTS. To the knowledge of any Seller and ICTS there are no threatened or pending
union organizing activities involving the employees of ICTS. ICTS does not have
labor problems that might have a Material Adverse Effect on the Business or lead
to an interruption of operations. There are no outstanding arbitration awards,
labor grievances, arbitration proceedings or other proceedings against ICTS.
17
(d) Schedule 3.18(d) sets forth a complete and correct list of the
names and current compensation of all consultants and others who are not
employees of ICTS and who are, or may be, entitled to compensation from ICTS for
services to ICTS.
3.19 Benefit Plans.
(a) Except as set forth in Schedule 3.19 ICTS, has no Benefit Plans.
Schedule 3.19 contains an accurate description of and sets forth the annual
amount payable pursuant to each Benefit Plan. Each Benefit Plan, if any, that is
subject to ERISA has been administered in compliance with ERISA and all other
applicable laws rules and regulations, and any necessary governmental approvals
of the Benefit Plan have been obtained. True and complete copies of the Benefit
Plans and reports filed with any Governmental Authority with respect thereto and
the amount of contributions made by ICTS to any Benefit Plan for the last three
fiscal years of ICTS have been furnished to Buyer by ICTS. Except as set forth
in Schedule 3.19, ICTS does not have obligations, contingent or otherwise, past
or present, under applicable Law or the terms of any Benefit Plan.
(b) There are no pending, threatened or anticipated claims by or on
behalf of any of the Benefit Plans, including claims by or on behalf of any of
the Benefit Plans against any Person (other than routine claims for benefits).
(i) With respect to each Benefit Plan that is funded wholly or
partially through an insurance policy, there will be no liability of ICTS as of
the Closing Date, under any such insurance policy or ancillary agreement with
respect to such insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events occurring prior to the Closing. With respect to each
Benefit Plan not funded through an insurance policy, ICTS has either fully
funded such Benefit Plan through a trust or has made appropriate provision for
all of the liability thereunder in the Audited Financial Statements. ).
3.20 Insider/Affiliate Transactions. Schedule 3.20 provides a brief
description of each transaction since December 1997 between ICTS and any Seller,
officer, director or employee of ICTS or any of their Affiliates or Family
Members. Each such transaction can be terminated without Liability to ICTS. The
total amount of indebtedness of ICTS to each Seller or any officer, director or
employee of ICTS or any of their respective Affiliates or Family Members is
disclosed in Schedule 3.20. ).
18
3.21 Litigation. Except as disclosed in Schedule 3.21, neither any Seller
nor ICTS knows of any Action, pending or threatened by or before any court,
arbitrator(s), mediator(s). Governmental Authority, Membership organization, or
any Accreditation or student financial assistance agency or organization,
involving ICTS or which questions or challenges the validity of this Agreement,
any Ancillary Agreement or the FAC Agreement or any action taken or to be taken
pursuant to this Agreement, any Ancillary Agreement or the FAC Agreement or in
connection with the transactions contemplated hereby or thereby; and neither any
Seller nor ICTS knows of any basis for any such action, lawsuit, inquiry,
student complaint, proceeding or investigation. The foregoing Actions will not,
individually or in the aggregate, have a Material Adverse Effect on ICTS in
excess of the reserves with respect thereto that are included in accrued
liabilities on the Stub Period Financial Statements.
3.22 Environmental Matters.
(a) ICTS has operated its Business in compliance with Environmental
Laws and has obtained all required Environmental Permits.
(b) Any required Environmental Permits are in full force and effect
unamended, have been complied with in all respects and there are no proceedings
in progress, or to the knowledge of any Seller or ICTS pending or threatened,
which may result in the cancellation, revocation, suspension, or modification of
any Environmental Permit. No Environmental Permit will become void or voidable
as a result of the Closing nor is any Consent of any Person required to the
transactions contemplated hereby in order to maintain any Environmental Permit
in full force and effect.
(c) ICTS has not been charged with or convicted of an offense for
non-compliance with or breach of any Environmental Law, or been fined or
otherwise sentenced for non-compliance with or breach of any Environmental Law
nor has ICTS settled any prosecution short of conviction for non-compliance with
or breach of any Environmental Law.
(d) ICTS has not received any notice of judgment or commencement of
proceedings of any nature, or experienced any search and seizure, nor is it
under investigation related to any breach or alleged breach of or non-compliance
with any Environmental Law.
(e) ICTS does not know of any release or disposal of any Hazardous
Substance from any property that could have a Material Adverse Effect on the
Facilities, Assets or Business of ICTS.
19
3.23 Occupational Health and Safety. ICTS has provided Buyer with all
inspection reports under the Occupational Health and Safety Act relating to
ICTS. There are no outstanding inspection Orders or any pending or threatened
charges made under the Occupational Health and Safety Act relating to ICTS or
the Business. There have been no accidents, fatal or otherwise, within the last
year that might lead to charges under Occupational Health and Safety Act. ICTS
has complied in all Material respects with any Orders issued under Occupational
Health and Safety Acts. There are no appeals of any Orders under Occupational
Health and Safety Acts relating to ICTS that are currently outstanding.
3.24 Insurance. Schedule 3.24 contains an accurate summary of all Material
policies of fire, liability, workmen's compensation and other forms of insurance
owned, held or for the benefit of ICTS. All such policies are in full force and
effect, and, except as disclosed in Schedule 3.24, all premiums with respect
thereto have been paid when due or before the grace period thereunder has
elapsed, and no notice of cancellation or termination has been received with
respect to any such policy. Such policies are sufficient for compliance with all
requirements of Laws and Consents and of all Contracts to which ICTS is a party;
provide adequate insurance coverage for the Assets and operations of ICTS; will
remain in full force and effect through the respective dates set forth in
Schedule 3.24; and will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement or any Ancillary
Agreement.
3.25 Workers' Compensation. There are no notices of assessment, provisional
assessment, reassessment, supplementary assessment, penalty assessment or
increased assessment (collectively, "Assessments") or any other communications
related thereto which ICTS has received from any workers' compensation board or
similar authorities in any jurisdictions where the Business is carried on and
there are no Assessments which are unpaid on the date hereof or which will be
unpaid at the completion of the Closing and there are no facts or circumstances
which may result in a Material increase in liability to ICTS from any, currently
effective, applicable workers' compensation legislation, regulations or rules
after the Closing. ICTS' accident cost/loss experience relating to the Business
is such that there are no pending or possible Assessments and there are no
claims or potential claims which are Material and could adversely affect the
ICTS' accident cost/loss experience.
3.26 Absence of Change. Since the Audited Financial Statements, there has
not been any:
(a) transaction by ICTS except in the ordinary course of the Business;
(b) Material Adverse Change in the financial condition, Liabilities,
Assets, Business or prospects of ICTS;
(c) destruction, damage to, or loss or impairment of any Material
Assets or Consents of ICTS (if not covered by insurance with deductibles that
are not, individually or in the aggregate Material);
20
(d) labor dispute or other similar event or condition having or which
could have a Material Adverse Effect on the financial condition, Liabilities,
Assets, Business or prospects of ICTS;
(e) change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rate) or the
revaluation by ICTS of any of its Assets, including writing off notes or
accounts receivable other than for which adequate reserves have been
established;
(f) except in accordance with past practice:
(i) increase in the salary or other compensation payable or to
become payable by ICTS to any of its officers, directors employees, consultants
or agents;
(ii) declaration, payment, or commitment or obligation of any
kind for the payment, by ICTS, of a bonus or other additional salary or
compensation to any such Person; or
(iii) hiring or termination of any such Person;
(g) amendment or termination of any Material Contract to which ICTS is
a party, or by which it or any of its Assets or properties are subject, except
in the ordinary course of Business;
(h) cancellation of any indebtedness or waiver or release of any right
or claim of ICTS, except in the ordinary course of Business in accordance with
past practice;
(i) declaration of, or agreement to make, any distribution of any
Assets of any kind whatsoever;
(j) citations, notices, or communications received by ICTS for any
violations of any Law, Order or Consent;
(k) claim incurred by ICTS for damages or alleged damages for actual
or alleged negligence or other tort or breach of Contract which is not fully
covered by insurance underwritten by responsible insurers;
(l) sales, transfers, disposals of or granting any Encumbrance on, or
agreements to sell, transfer or otherwise dispose of or grant any Encumbrance
on, any of the Assets, except in the ordinary course of Business or with the
prior written consent of EVCI;
(m) Contracts entered into by ICTS granting any preferential rights to
purchase any of the Assets (including management and control thereof);
(n) issuance or reservation for issuance by ICTS of, or commitment of
it to issue or reserve for issuance, any capital shares of or other equity
securities or obligations or securities convertible into or exchangeable for
capital shares or other equity securities;
21
(o) increase, decrease or reclassification of the capital shares of
ICTS.
(p) amendment of the Organizational Documents of ICTS.
(q) capital expenditure or execution of any lease or any incurring of
liability therefor by ICTS, involving payments in excess of $25,000 in the
aggregate;
(r) indebtedness incurred by ICTS for borrowed money or any commitment
to borrow money entered into by ICTS, or any loans made or agreed to be made by
ICTS.
(s) acquisition by ICTS of any equity interest in any other Person; or
(t) agreement by ICTS to do any of the things described in the
preceding clauses (a) through (t).
3.27 Books and Records.
(a) The ICTS's Books and Records, are up to date, in reasonable
detail, reflect accurately and fairly the conduct of the Business, in all
Material respects, since its date of incorporation and have been provided to
Buyer for its inspection.
(b) ICTS maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed with
management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's authorization and (iv) the recorded accountability
for Assets is compared with existing Assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(c) Since January 1, 1996, ICTS has not engaged in any transaction or
series of transactions, that are individually or cumulatively Material, or
maintained any bank accounts or used any corporate funds, except for
transactions, bank accounts or funds which have been and are reflected in the
normally maintained Books and Records.
(d) the stock records and minute books of ICTS are up to date and
fully reflect all minutes of all material meetings, resolutions and other
Material actions and proceedings of its stockholders and board of directors and
all committees thereof and, all issuances, transfers and redemptions of capital
shares of ICTS, and contain true, correct and complete copies of the
Organizational Documents.
3.28 No Joint Venture Interests. ICTS is not, nor has it agreed to become,
a partner, member, owner, proprietor or equity investor of or in any
partnership, joint venture, co-tenancy or other business undertaking other than
with a college or university as set forth in Schedule 3.28.
22
3.29 Management Recommendation Letters. Seller has provided to Buyer copies
of all management recommendation letters relating to ICTS and the Business
received from the current or any previous auditor of ICTS, during the last three
years.
3.30 Intentionally omitted.
3.31 Schools.
(a) Schedule 3.31(a) sets forth a complete and accurate list of the
Schools, showing, with respect to each School, the School's address, the
School's trade name, and the date the School opened, and the College and
University Program ("CUP") with which it is partnered.
(b) Schedule 3.31(b) sets forth a complete and accurate list, by
School, of all programs (each a "Program") provided by the Schools showing, the
courses required to complete each Program, the class hours required to complete
each course, the name of the Governmental Authority or other Person that
accredits or otherwise legitimizes the Program or licenses the School and, the
Programs which lead to licensure or admission to examination by any Governmental
Authority or other Person. Each such Program meets the standards prescribed by
such Governmental Authority or other Person, as evidenced by the letters or
certificates from them that are attached as a part of Schedule 3.31(b).
(c) Each of the personnel instructing courses at each of the Schools
meets the standards required by each Governmental Authority or other Person with
jurisdiction over establishing or monitoring compliance with such standards.
(d) Schedule 3.31(d) sets forth, by School the full time equivalent
number of students enrolled at each School for each of the past two years ended
December 31, 2000 and the current enrollment (headcount) at each School, showing
the formula for calculating full-time equivalent, and the unduplicated number of
starts and completions by month and Program for each of the last two years.
(e) Schedule 3.31(e) sets forth a complete and accurate list of all
Program and fiscal reviews of the Schools, that have been conducted by any
outside Person during the past five years showing such information by School and
system-wide, and summarizing the results of each review, including fiscal
findings that are detailed in tables of disallowances or refunds required.
3.32 Student Financial Assistance. Schedule 3.32 sets forth a brief
description of each SFA Program. ICTS is not subject to disallowance of funds
advanced or to be reimbursed to it with respect to any current or prior period
under any SFA Programs and there is no basis for any disallowance. Except as
disclosed in Schedule 3.32, neither Seller nor ICTS knows of, or is aware of any
basis for, pending or threatened claims, assessments, notices, proposals to
assess, or audits with respect to any funds disbursed to any school under SFA
Programs or for which any school has applied for disbursement.
23
3.33 Third Party Lenders. Schedule 3.33 sets forth a description of the
third party lenders ICTS makes available to its students and copies of the
agreements.
3.34 Banking Facilities; Cash. Schedule 3.34 lists:
(a) each bank, savings and loan, brokerage or similar financial
institution in which ICTS has an account or safety deposit box and the numbers
of the accounts or safety deposit boxes maintained by ICTS;
(b) the names of all signatories authorized to draw on each such
account or to have access to any such safety deposit box facility, together with
a description of the authority (and conditions thereof, if any) of each such
signatory with respect thereto; and
(c) the cash, securities and other property on deposit or maintained
in an account at or invested through each such financial institution as of May
31, 2001.
3.35 Powers of Attorney and Suretyships. ICTS has no general or special
powers of attorney outstanding (whether as grantor or grantee thereof) or any
obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any Person or entity except as
endorser or maker of checks endorsed or made in the ordinary course of Business.
3.36 Illegal Payments. ICTS has not directly or indirectly, paid or
delivered any fee, commission or other sum of money or item or property, however
characterized, to any, Person which is in any manner related to the Business and
which is, or may be with the passage of time or discovery, illegal under any
Law; and ICTS has not participated, directly or indirectly, in any boycotts or
other similar practices affecting any of its actual or potential students.
3.37 No Brokers. Except as disclosed on Schedule 3.37, no Seller or ICTS,
or any officer, director, employee or Affiliate of Seller or ICTS has employed
or made any agreement with any third party which obligates ICTS or any of its
Affiliates to pay any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby.
Each Buyer represents and warrants with respect to only itself that:
3.38 Investment Purpose. Each Seller (i) is acquiring the EVCI Warrants and
(ii) upon exercise of the EVCI Warrants, will acquire the EVCI Shares then
issuable, for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except as permitted by applicable federal and state securities Laws.
3.39 Investor Status. Each Seller alone, or together with its advisor(s),
if any, has such knowledge and experience in financial matters, including
investments in securities that are restricted as to their transferability, that
it is capable of evaluating the risks and merits of an investment in the EVCI
Warrants and EVCI Shares and of making an informed investment decision.
24
3.40 Reliance on Exemptions. Each Seller understands that the EVCI Warrants
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of federal and state securities Laws and that EVCI is
relying in part upon the truth and accuracy of, and such Seller's compliance
with, the representations, warranties, agreements, acknowledgements and
understandings of such Seller set forth herein in order to determine the
availability of such exemptions and the eligibility of such Seller to acquire
the EVCI Warrants.
3.41 Information. Each Seller and its advisor(s), if any, have been
furnished with all materials relating to the business, finances and operations
of EVCI and materials relating to the offer and sale of the EVCI Warrants which
have been requested by such Seller.
3.42 No Governmental Review. Seller understands that no Governmental
Authority has passed on or made any recommendation or endorsement of the EVCI
Warrants or the fairness, suitability, or merits of the Purchase Price.
3.43 Transfer or Resale. Seller understands that the EVCI Warrants and the
EVCI Shares have not been and are not being registered under the 1933 Act or any
other securities Laws, and may not be offered for sale, sold, assigned or
transferred, except under pursuant to an effective registration statement under
the 1933 Act and other applicable securities Laws or an opinion of counsel
satisfactory to EVCI to the effect that the EVCI Warrants and EVCI Shares may be
sold, assigned or transferred pursuant to an exemption from such registration.
3.44 Legend. Seller understands that the EVCI Warrants and any certificates
representing the EVCI Shares, when issued, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order will be placed
against transfer of such certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER, THAT SUCH REGISTRATION IS NOT REQUIRED.
3.45 Disclosure. No representation or warranty by any Seller or ICTS in
this Agreement or any Ancillary Agreement and no statements contained in any
document, certificate, or other writing furnished or to be furnished by any
Seller or ICTS to Buyer or any of its to representatives pursuant to this
Agreement or any Ancillary Agreement contains any untrue statement of a Material
fact or omits to state any Material fact necessary to make any of the
representations or warranties contained herein or therein not misleading.
25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND EVCI
Buyer and EVCI jointly and severally represent and warrant to Sellers as
follows and acknowledge that each Seller is relying upon such representations
and warranties in entering into this Agreement.
4.1 Organization, Etc. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. EVCI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Buyer and EVCI has full power and authority to carry
on its business as it is now contemplated and to own the properties and assets
it now owns.
4.2 Authorization; Binding Effect. Each of Buyer and EVCI has full
corporate power and authority to enter into this Agreement and each Ancillary
Agreement to which it is a party and to carry out the transactions contemplated
hereby and thereby. Each of this Agreement and the Ancillary Agreements to which
Buyer or EVCI is a party is a valid and binding agreement of Buyer and EVCI,
respectively, enforceable in accordance with its terms except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and general principles of equity.
4.3 No Violation. None of Buyer's or EVCI's execution and delivery of this
Agreement or any Ancillary Agreement to which it is a party, or Buyer's
execution and delivery of the FAC Agreement, nor its consummation of the
transactions contemplated hereby or thereby will (i) violate the Organizational
Documents of Buyer or EVCI; (ii) violate, or be in conflict with, or constitute
a default under, or cause the acceleration of any debt of Buyer or EVCI or the
creation or imposition of any Encumbrance upon any property or assets of Buyer,
or EVCI, under, any Consent or Contract to which Buyer or EVCI is a party or by
which Buyer or EVCI is bound; or (iii) violate any Laws or any Order of any
court or Governmental Authority. Except as set forth on Schedule 4.3, no notices
to, declaration, filing or registration with, approvals or Consents of, or
assignments by, any Persons (including any Governmental Authority) are necessary
to be made or obtained by Buyer or EVCI in connection with the execution,
delivery or performance of this Agreement or any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby.
4.4 Ownership of Buyer. All of Buyer's issued and outstanding shares of
capital stock are owned directly or indirectly by EVCI.
4.5 EVCI's Capitalization. As of the date of this Agreement, the authorized
capital stock of EVCI consists of (i) 20,000,000 shares of common stock, of
which 4,492,961 shares are issued and outstanding, 2,852,095 shares are reserved
for issuance upon exercise of outstanding options and warrants and conversion of
preferred stock and 700,000 shares are reserved for issuance as the EVCI Shares
and (ii) 1,000,000 shares of preferred stock of which 130,000 shares are issued
and outstanding. The number of shares reserved for issuance is subject to
adjustment pursuant to outstanding options, warrants and preferred stock.
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4.6 Litigation. Buyer and EVCI do not know of any Actions, pending or
threatened by or before any court, arbitrator, mediator, or Governmental
Authority involving EVCI or any of its subsidiaries which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect on
EVCI and its subsidiaries, or which questions or challenges the validity of this
Agreement or any Ancillary Agreement or any action taken or to be taken by Buyer
or EVCI pursuant to this Agreement or any Ancillary Agreement or in connection
with the transactions contemplated hereby or thereby.
4.7 SEC Documents and Financial Statements. EVCI has timely filed all SEC
Documents and has previously made available to each Seller true and complete
copies of all SEC Documents requested by such Seller. The SEC Documents, as of
their respective dates, complied in all material respects with the applicable
requirements of the 1934 Act, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of EVCI, including the notes thereto, included in the SEC
Documents have been prepared in accordance with U.S. GAAP and fairly present the
consolidated financial condition of EVCI as at the dates thereof and
consolidated results of operations and cash flows for the periods then ended.
4.8 EVCI Warrants and Shares. The EVCI Warrants and EVCI Shares are duly
authorized and, upon issuance in accordance with this Agreement, will be validly
issued, fully paid and non-assessable and, except as contemplated by this
Agreement or required by law, free from all Encumbrances or taxes with respect
to the issuance thereof.
4.9 No Material Adverse Change. Since March 31, 2001, no Material Adverse
Change has occurred or exists with respect to EVCI and its subsidiaries, taken
as a whole, except as disclosed in any press release available at least two days
prior to the date hereof or any document filed with the SEC at least five days
prior to the date hereof and available on ▇▇▇▇▇. Neither EVCI nor any of its
subsidiaries has taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does EVCI have any
knowledge or reason to believe that its creditors intend to initiative
involuntary bankruptcy.
4.10 No Integrated Offering. EVCI has not, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require cause this offering of the EVCI Warrants
to be integrated with prior offerings of securities by EVCI for purposes of the
1933 Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of Nasdaq; nor will EVCI or any of
its subsidiaries take any action or steps that would require registration of the
EVCI Warrants under the 1933 Act or cause the offering of the EVCI Warrants to
be integrated with other offerings.
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ARTICLE V
COVENANTS
Seller, Buyer and EVCI covenant and agree:
5.1 Access to Management, Properties and Records. From the date of this
Agreement until the Closing Date, Sellers shall cause ICTS, and ICTS agrees, to
grant officers, attorneys, accountants and other authorized representatives of
Buyer free and full access, upon reasonable notice and during normal business
hours, to all management personnel, offices, Assets and Books and Records of
ICTS, so that Buyer may have full opportunity to make such investigation as it
shall desire to make of the management, Business, Assets and affairs of ICTS.
Buyer shall be permitted, at its own expense, to make abstracts from, or copies
of, all such Books and Records, subject to the obligations of confidentiality
contained in Article X. Seller shall cause ICTS, and ICTS agrees, to furnish to
Buyer such financial and operating data and other information regarding ICTS as
Buyer shall reasonably request.
5.2 Conduct of Business. From the date of this Agreement until the Closing
Date, Seller shall cause ICTS, and ICTS agrees, to carry on its Business, in the
ordinary course, diligently and substantially in the same manner as heretofore
and not make or institute any unusual or new methods of management, accounting
or operation. Seller shall cause ICTS, and ICTS agrees, to use, operate, repair
and maintain all of ICTS's Assets solely in accordance with past practice in the
ordinary course of Business.
5.3 Absence of Material Changes. From the date of this Agreement until the
Closing Date, without the prior written consent of Buyer or EVCI, in each case,
Seller and ICTS undertake that ICTS shall not:
(a) take any action to amend its Organizational Documents;
(b) issue any stock, bonds or other corporate securities or grant any
option or issue any warrant to purchase or subscribe for any of such securities
or issue any securities convertible into such securities;
(c) incur any Material Liability, except current Liabilities incurred
and obligations under Contracts entered into in the ordinary course of Business;
(d) declare or make any payment or distribution to its stockholders in
cash or with respect to its stock or purchase or redeem any of its capital
shares;
(e) subject to any Encumbrance any of its Assets;
(f) sell, assign, or transfer any of its Assets, other than in the
ordinary course of Business, or enter into any Contract or transaction out of
the ordinary course of Business or take any action that would, under applicable
Law, require stockholder approval;
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(g) cancel any debts or claims, except in the ordinary course of
Business;
(h) merge or consolidate with or into any corporation or other entity;
(i) make, accrue or become liable for any Benefit Plan or increase the
rate of compensation payable or to become payable by it to any of its employees,
officers, directors, consultants or agents;
(j) make any election or give any consent under tax laws, rules or
regulations of the United states or of any individual state or other
jurisdiction or permit any termination, revocation or cancellation of any such
election or any consent or compromise or settle any claim for past or present
Taxes due;
(k) waive any rights of Material value, except with respect to claims
and rights of students waived in accordance with past practice;
(l) modify, amend, alter or terminate any of its executory Material
Contracts;
(m) take or permit any act or omission constituting a Material breach
or default under any Material Contract;
(n) fail to make best efforts to (i) preserve its Assets and Business
and the possession and control thereof by ICTS, (ii) keep in service its present
officers and key employees, (iii) preserve the goodwill of its students,
faculty, employees, vendors, agents, consultants and others having business
relations with it, (iv) to comply in all Material respects with all applicable
Laws, and any Material Liability under any Contract;
(o) fail to operate its Business and maintain its Books, and Records
in the customary manner and in the ordinary course of Business and maintain in
good repair its Facilities;
(p) enter into any Contract, other than those entered into in the
ordinary course of Business;
(q) incur any capital expenditure or make any investment or commitment
therefor, in any Person;
(r) engage or terminate any officer or key employee except for
teachers in the ordinary course of business;
(s) enter into or consummate any agreement or transaction that would
interfere with the consummation of the transactions contemplated hereby or cause
a breach of the representations and warranties of either Seller or ICTS
hereunder;
(t) settle any pending litigation;
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(u) Materially alter the terms, status or funding condition of any
Benefit Plan; or
(a) violate any conditions set forth in the promissory note executed
in conjunction with the Bridge Loan.
(v) commit or agree to do any of the foregoing in the future.
5.4 Notification. Any Seller or ICTS shall give prompt notice to Buyer and
Buyer shall give prompt notice to any Seller of (i) the occurrence, or failure
to occur, of any event that becomes known to any of them which would be likely
to cause any of their respective representations or warranties contained in this
Agreement or in any Exhibit or any Schedule hereto, to be untrue or inaccurate
in any Material respect and (ii) any Material failure by a party to this
Agreement that becomes known to any of them to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or any Exhibit; provided, however, that such disclosure shall not
be deemed to cure any breach of a representation, warranty, covenant or
agreement or to satisfy any condition. .
5.5 Exclusive Dealing. Neither any Seller or ICTS will, directly or
indirectly, through any employee, officer, director, agent of ICTS or otherwise,
(i) solicit, initiate or encourage submission of proposals or offers from any
Person relating to an acquisition or purchase of ICTS capital stock or Assets
out of the ordinary course of the Business or any Material portion of the
Business or (ii) participate in any discussions or negotiations regarding, or
furnish to any other Person, any non-public information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. Each Seller and ICTS agrees to promptly notify Buyer of any such
proposal or offer, or any inquiry or contact with respect thereto received by
any Seller or ICTS.
5.6 Cooperation and Consents. Each Seller, ICTS and Buyer shall cooperate
with each other and in consultation with one another, use their respective best
efforts to obtain any Consent required to be obtained by them, respectively,
from any Person in connection with the consummation of the transactions
contemplated by this Agreement. ICTS shall not expend or commit to expend any
Material consideration to obtain the Consents without Buyer's approval, which
approval Buyer shall not unreasonably withhold or delay.
5.7 Publicity. Buyer, ICTS and EVCI will consult with each other before
making any public announcements with respect to the transactions contemplated
hereby, and any public announcements shall be made only at such time and in such
manner as EVCI and ICTS shall mutually agree, except that EVCI shall be free to
make such public announcements as it shall reasonably deem necessary to comply
to the applicable Laws for publicly traded companies; provided, however, that
EVCI shall give ICTS at least one business day notice of its intent to make a
public announcement.
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ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer and EVCI to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions, any of which may be waived in writing
by Buyer or EVCI.
6.1 Representations, Warranties and Covenants. All representations and
warranties of Sellers and ICTS contained in this Agreement shall be true and
correct in all Material respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent the facts and conditions
upon which such representations and warranties are based are expressly required
or permitted to be changed by the terms hereof. Each Seller and ICTS shall have
performed and satisfied in all Material respects all Material agreements and
covenants required hereby to be performed by them on or prior to the Closing
Date.
6.2 Consents. All Consents necessary to the consummation of the
transactions contemplated hereby shall have been obtained.
6.3 No Adverse Actions Proceedings; Litigation or Laws. No Action by any
Person shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby and which could reasonably be
expected to have a Material Adverse Effect on the Assets, Liabilities, Business
or prospects of ICTS if the transactions contemplated hereby are consummated.
There shall not be any Law that makes the transactions contemplated herein
illegal or otherwise prohibited.
6.4 Completion of Due Diligence. Buyer shall have completed its due
diligence to its satisfaction.
6.5 Ancillary Agreements. The Ancillary Agreements shall have been executed
and delivered by the parties thereto.
6.6 Opinion of Counsel. Seller shall has delivered to Buyer an opinion of
counsel to Sellers and ICTS, dated the Closing Date in satisfactory form.
6.7 Intentionally omitted
6.8 Transfer. Sellers shall have transferred the ICTS Shares and Other ICTS
Interests to Buyer, by customary instruments of assignment, free and clear of
any Encumbrance.
6.9 Cancellation of Other ICTS Interests. All of the Other ICTS Interests
that Buyer desires to cancel shall have been cancelled by instruments and
deliveries reasonably satisfactory to Buyer.
6.10 FAC Agreement. The closing shall have occurred under the FAC
Agreement.
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6.11 Other Closing Deliveries. Buyer shall have received at or prior to the
Closing, such other documents, instruments or certificates as Buyer may
reasonably request including, without limitation:
(a) a certificate as to the legal existence and good standing of ICTS
in Delaware;
(b) Intentionally omitted
(c) written resignations of the members of the Board of Directors and
officers of ICTS that have been requested by the Buyer;
(d) the original corporate minute books and stock record books of ICTS
and all of its corporate seals.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions contemplated
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of Buyer and EVCI contained in this Agreement shall be true and
correct in all Material respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof. Buyer and
EVCI shall have performed and satisfied in all Material respects all Material
agreements and covenants required hereby to be performed by it on or prior to
the Closing Date pursuant to this Agreement.
7.2 Consents. All Consents necessary to the consummation of the
transactions contemplated hereby shall have been obtained.
7.3 EVCI Warrants. EVCI shall have issued and delivered the EVCI Warrants
to which each Seller is entitled.
7.4 Ancillary Agreements. The Ancillary Agreements shall have been executed
and delivered by the parties thereto.
7.5 No Adverse Proceedings, Litigation or Laws. No Action by any Person
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby. There shall not be any Law
that makes the transactions illegal or otherwise prohibited.
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7.6 Opinion of Buyer's and EVCI's Counsel. Buyer has delivered to Sellers
an opinion of Fischbeino Badilloo Wagnero ▇▇▇▇▇▇▇, counsel to Buyer and EVCI,
dated the Closing Date in satisfactory form.
7.7 Other Closing Deliveries. Sellers shall have received at or prior to
the Closing such other documents, instruments or certificates as they may
reasonably request including, without limitation:
(a) a certificate of the Secretary of the State of Delaware as to the
legal existence and good standing of Buyer in Delaware;
(b) a certificate of the Secretary of State of the State of Delaware
as to the legal existence and good standing of EVCI in Delaware;
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations and warranties made in this Agreement
shall survive Closing for two years following the Closing Date and shall
thereupon expire together with any right to indemnification in respect thereof.
The foregoing notwithstanding, such right to indemnification shall continue to
the extent a Notice of Claim asserting a claim for breach of any such
representation or warranty shall have been given to the Indemnifying Party,
pursuant to Section 8.3 prior to the expiration of such expiration date. The
representations and warranties of the parties to this Agreement shall not be
affected by any examination made by or on behalf of any other party hereto or by
the knowledge of any of such parties' officers, directors, shareholders,
employees or agents.
8.2 Mutual Agreement to Indemnify. Subject to Section 8.1, each party (the
"Indemnifying Party") shall indemnify, defend, and hold harmless the other party
hereto and any Affiliate of the other party and their respective officers,
directors, employees, agents and representatives (collectively, the "Indemnified
Group") from and against any and all Damages incurred or suffered by any of the
Indemnified Group to the extent that the Damages arise by reason of, or result
from (a) the failure of any representation or warranty contained in this
Agreement to have been true when made and as of the Closing Date; (b) the breach
of any covenant or agreement made or to be performed by the Indemnifying Party
contained herein to the extent not waived by the other party hereto or (c) any
Money Claim or Equitable Claim arising out of any Action brought by any third
party, not disclosed in a Schedule, which is based on an act or omission or a
state of facts existing prior to the Closing. For the purposes of this Section
8.2, each of Buyer and EVCI (collectively) and Sellers (collectively) is a
party. The obligations of each such party to indemnify the other party shall be
joint and several.
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8.3 Notice of Claims. The member of the Indemnified Group seeking
indemnification under this Agreement (the "Indemnified Party") shall promptly
notify the Indemnifying Party of any fact upon which the Indemnified Party
intends to base a claim for indemnification hereunder ("Notice of Claim"). A
Notice of Claim shall in all events be considered prompt if given (a) no later
than 30 days after the Indemnified Party discovers a fact or facts giving rise
to a right of indemnification or (b) if later, in sufficient time to allow the
Indemnifying Party to exercise its rights pursuant to this Article VIII,
provided, however, that a Notice of Claim must in all events be given prior to
the date specified in Section 8.1 on which the applicable representation or
warranty ceases to survive. The failure to provide a Notice of Claim promptly
shall not relieve the Indemnifying Party of its obligations under this Article
VIII except to the extent that such failure adversely affects the ability of the
Indemnifying Party to defend against the claim asserted therein.
8.4 Direct Claims. If the Indemnifying Party does not respond or objects to
a demand for indemnification of a direct claim made under this Section 8.4, or
to all or any portion of its amount, the demand for indemnification and the
amount to which the Indemnified Party shall be entitled, if any, shall be
determined by (i) the subsequent written agreement of the Indemnified Party and
the Indemnifying Party, as of the date of such agreement, or (ii) a final award
made under an arbitration proceeding conducted in accordance with Article IX
hereof, as of the date such award becomes final.
8.5 Third Party Claims.
(a) If Damages arise out of an Action brought by a third party,
seeking recovery of money damages only or is, or includes, an Action for
equitable relief which, if successful, would not have a Material Adverse Effect
on the Indemnified Party (a "Money Claim"), the Indemnifying Party shall have
the right, in its sole discretion and at its own expense, to assume the defense
of such Money Claim, with counsel of its choosing, selection of such counsel to
be subject to the consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, the Indemnified
Party shall have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be the expense of such Indemnified Party
unless (i) the employment of such counsel shall have been expressly authorized
in writing by the Indemnifying Party for the defense of such Money Claim or (ii)
the Indemnifying Party does not assume the defense of such Money Claim within 30
days after receipt of a proper written Notice of Claim or such shorter period of
time as is necessary to prevent the entry of a default judgment. In no event
shall the Indemnifying Party be liable for fees and expenses of more than one
counsel separate from its own counsel for the Indemnified Party in connection
with any one Action or separate but similar or related Actions in the same
jurisdiction arising out of the same general allegations or circumstances. An
Indemnified Party shall have the right to settle or compromise any Money Claim
without the consent of any Indemnifying Party and recover from an Indemnifying
Party the amount paid in settlement or compromise thereof, if the Indemnified
Party has given a proper written Notice of Claim thereof to the Indemnifying
Party and the Indemnifying Party has failed to assume the defense of the Money
Claim within 60 days after receipt of said Notice of Claim or such shorter
period of time as is necessary to prevent the entry of a default judgment. Any
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Indemnifying Party shall have the right to settle or compromise any Money Claim
against an Indemnified Party, provided that the terms of such settlement or
compromise provide for the unconditional release of the Indemnified Party and
require the payment of money damages only by the Indemnifying Party.
(b) If Damages arise out of a third party claim seeking equitable
relief alone or in addition to monetary damages and, if successful, would have a
Material Adverse Effect on the Indemnified Party (an "Equitable Claim"), the
Indemnified Party shall be entitled to defend such Equitable Claim with counsel
of its choosing at the expense of the Indemnifying Party. The Indemnifying Party
shall be entitled to participate at its own expense in the defense of any
Equitable Claim. The Indemnified Party shall make no settlement, compromise,
admission, or acknowledgment which would give rise to liability or obligation on
the part of any Indemnifying Party without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld or delayed.
(c) The parties shall extend reasonable cooperation to one another in
connection with the defense of any third party claim pursuant to this Section
8.5 and, in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings, trials,
and appeals as may be reasonably requested.
(d) Any claim for indemnification that has been fixed as to amount and
becomes payable is referred to as Determined Damages. 8.6 Effect of Insurance
Proceeds. The amount of the Indemnifying Party's liability under this Agreement
shall be determined taking into account any applicable insurance proceeds
actually received by, and other savings that actually reduce the overall impact
of the Damages upon, the Indemnified Party.
8.7 Exclusive Remedy. The indemnification provided in this Article VIII
shall be the sole and exclusive remedy after the Closing Date for Damages.
8.8 Reductions and Subrogation. If the amount of any Damages at any time
subsequent to the making of payment of Determined Damages is reduced by any
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by or against any
other Person, the amount of such reduction (less any costs, expenses (including
taxes) or premiums incurred in connection therewith), together with interest
thereon from the date of payment thereof at the Prime Rate, shall promptly be
repaid by the Indemnified Party to the Indemnifying Party. Upon making a full
payment of Determined Damages, the Indemnifying Party shall, to the extent of
such Damage Payment, be subrogated to all rights of the Indemnified Party
against any third party that is not an Affiliate of the Indemnified Party in
respect of the Damages to which the payment of Determined Damages relates but
only if the Indemnifying Party shall then be in compliance with its obligations
under this Agreement in respect of such Determined Damages. Until the
Indemnified Party recovers full payment of its Determined Damages, any and all
claims of the Indemnifying Party against any such third party on account of such
Payment shall be postponed and subordinated in right of payment to the
Indemnified Party's rights against such third party. Without limiting the
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generality or effect of any other provision hereof, the Indemnified Party and
Indemnifying Party shall duly execute upon request all instruments reasonably
necessary to evidence and perfect such postponement and subordination.
8.9 Interest. All Damages shall bear interest at a rate per annum equal to
the Prime Rate, calculated and payable monthly, both before and after the date
they become Determined Damages, with interest on overdue interest at the same
rate, from the date that the Indemnified Party, suffered Damages, to the date of
payment of Determined Damages to the Indemnified Party.
8.10 Right of Offset. Buyer, EVCI and ICTS shall have the right to offset
against any obligation to Sellers, under any other agreement to which either of
them and any of Buyer, EVCI or ICTS is a party, all or any portion of any
Damages.
8.11 No Right of Contribution. No Seller shall have any claim against ICTS
for any breach by ICTS of this Agreement resulting in Damages to Buyer or EVCI.
ARTICLE IX
ARBITRATION
9.1 Arbitration. Any dispute between the parties concerning any matter
arising under this Agreement shall be submitted to binding arbitration.
9.2 Location of Arbitration. Any arbitration hereunder shall be held at
Westchester County, New York, unless the parties otherwise agree.
9.3 Laws of New York. The law to be applied in connection with the
arbitration shall be the laws of the State of New York, excluding its conflict
of law rules.
9.4 Arbitration. The arbitration shall be governed by the rules of the
American Arbitration Association and the arbitration shall be before a single
arbitrator. It shall be a condition precedent to the bringing of any legal
proceedings that are contemplated by such rules that the parties will have
concluded the arbitration process as provided by such rules.
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ARTICLE X
CONFIDENTIALITY
10.1 Confidential Information. "Confidential Information" is any
information or documentation disclosed by a party hereto (the "Discloser") to
another party hereto (the "Recipient") at any time until the Closing Date or
earlier termination of this Agreement pursuant to Section 11.1 hereof, with the
exception of the following, which are not considered Confidential information:
(a) information that is or becomes publicly available through no wrongful act of
the Recipient; (b) information obtained from third parties without a breach of
any other non-disclosure agreement; or (c) information that is independently
developed by such Recipient without reference to the Confidential Information.
10.2 Use of Confidential Information. The Recipient agrees not to disclose
to any third party any Confidential Information received from the Discloser. The
Recipient agrees that the Confidential Information it receives from the
Discloser will be used solely among the parties involved with transactions
contemplated by this Agreement, and that it will keep the Confidential
Information in the strictest confidence; provided, however, that (i) the
Confidential Information may be disclosed to directors, officers, employees and
authorized representatives of each of the parties, any of whom need to know such
information for the purpose of consummating the transactions contemplated by
this Agreement (it being understood that such directors, officers, employees and
authorized representatives shall be informed of the confidential nature of the
Confidential Information and shall be directed to treat the Confidential
Information confidentially) and (ii) any of the Confidential Information may be
disclosed if required by legal process or by operation of applicable Law. If any
party is required by legal process or by operation of applicable Law to disclose
any Confidential Information, such party shall provide the Discloser with prompt
notice of such requirement so that the Discloser may seek an appropriate
protective order.
10.3 Return of Information. In the event of termination of this Agreement
pursuant to Section 11.1 hereof, all Confidential Information shall be promptly
returned to the Discloser thereof or the Recipient shall certify in writing as
to its destruction.
10.4 Securities Laws. Each of Seller and ICTS acknowledges that it is
aware, and will advise its directors, officers, employees and authorized
representatives who are informed as to the matters which are the subject of this
Agreement, that the United States securities laws prohibit any Person who has,
non-public information concerning the matters which are the subject of this
Agreement from purchasing or selling securities of a company which may be a
party to a transaction of the type contemplated hereby, where there is a
substantial likelihood that a reasonable investor would attach importance to
such non-public in formation in determining whether to buy or sell the
securities of such company.
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10.5 Survival. The obligations of the Parties under this Article shall
survive Closing, and any termination of this Agreement pursuant to Section 10.1
hereof.
ARTICLE XI
MISCELLANEOUS
11.1 Termination. This Agreement may be terminated:
(a) by mutual written consent of the parties at any time prior to the
Closing;
(b) by Buyer or EVCI, at their sole option, if:
(i) there is a Material breach of any Material representation or
warranty set forth herein or of any Material covenant or agreement to be
complied with or performed by any Seller or ICTS pursuant to the terms of this
Agreement;
(ii) there is a Material failure of a condition set forth in
Article VI to be satisfied (and such condition is not waived in writing by Buyer
or EVCI) on or prior to the Closing Date; or
(iii) any event occurs or fails to occur which results or would
result in the failure of a condition set forth in Article VI to be satisfied on
or prior to the Closing Date; provided that Buyer or EVCI may not terminate this
Agreement pursuant to this clause (b) if Sellers and ICTS have not had a
reasonable notice and opportunity to cure such a Material breach or failure that
is capable of being cured; or
(c) by Sellers at their sole option, if
(i) there is a Material breach of any Material representation or
warranty set forth herein or of any Material covenant or agreement to be
complied with or performed by Buyer or EVCI pursuant to the terms of this
Agreement;
(ii) there is a failure of a condition set forth in Article VII
to be satisfied (and such condition is not waived in writing by Seller on or
prior to the Closing Date; or
(iii) any event occurs or fails to occur which results or would
result in the failure of a condition set forth in Article VII to be satisfied on
or prior to the Closing Date; provided that Sellers may not terminate this
Agreement pursuant to this clause (c) if Buyer and EVCI have not had any
adequate notice and opportunity to cure such Material breach or failure that is
capable of being cured.
11.2 In the Event of Termination. In the event of termination of this
Agreement as permitted by Section 11.1, no party hereto shall be deemed to have
waived any breach of this Agreement.
38
11.3 In the Event of Termination. In the Event of Termination by Seller, or
by EVCI or Buyer because of a Material Breach by any Seller, Sellers shall pay
to EVCI a Termination Fee of $100,000 within five business days of Termination.
11.4 Entire Agreement; Amendments and Waivers. This Agreement, together
with all Exhibits and Schedules hereto and thereto, constitutes the entire
Agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No amendment, supplement, modification
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall any waiver constitute a continuing waiver
unless otherwise expressly provided therein.
11.5 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.6 Expenses. Each party shall pay all expenses incurred by it or him in
connection with the negotiation, preparation, execution, delivery and
consummation of this Agreement and the Ancillary Agreements; provided, however,
ICTS shall pay legal expenses of counsel to the Sellers not exceeding $20,000 in
total.
11.7 Intentionally left blank
11.8 No Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon or to give any Person,
other than the parties hereto and their respective successors or permitted
assigns any rights (including third party beneficiary rights), remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
shall not provide third parties with any remedy, claim, liability,
reimbursement, cause of action or other right in excess of those existing
without reference to the terms of this Agreement. Nothing in the Agreement shall
be construed as giving to any employee of ICTS, or any other individual any
right or entitlement under any Benefit Plan maintained by ICTS except as
expressly provided in Benefit Plan.
11.9 Invalidity. In the event that any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent permitted by
law, such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement unless it could have a Material Adverse Effect on a
party to this Agreement and such party does not consent thereto.
11.10 Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
39
11.11 Assignment. None of the parties shall have the authority to assign
its or his rights or obligations under this Agreement without the prior written
consent of the other parties, except that Buyer may assign all or any portion
this Agreement to a wholly-owned, direct or indirect Subsidiary of EVCI, or in
connection with the merger or sale of all or substantially all the assets of
EVCI, provided Seller or its shareholders are not adversely affected thereby.
11.12 Burden and Benefit. This Agreement shall be binding upon and, to the
extent permitted in this Agreement, shall inure to the benefit of, the parties
and their respective successors and permitted assigns.
11.13 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by facsimile, receipt confirmed; the day after
being sent, if sent for next day delivery to an address in the United States by
recognized delivery service (e.g., Federal Express); and upon receipt, if sent
by certified or registered mail, return receipt requested. In each case notice
shall be sent to:
If to Seller, or ICTS :
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
with a copy to :
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
with a copy to :
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
If to Buyer or EVCI: Educational Video Conferencing, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
40
with a copy to: ▇▇▇▇▇▇▇▇▇.▇▇▇▇▇▇▇.▇▇▇▇▇▇.▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
Educational Video Conferencing, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, Esq.
General Counsel
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
11.14 Further Assurances. At any time and from time to time after the
Closing, at the request of any party, and without further consideration, the
other party or parties to whom or which such request is made shall promptly
execute and deliver such instruments of sale, transfer, conveyance, assignment
and confirmation, and take all such other action as the requesting party may
reasonably request, in order to fully effectuate the purposes and intent of this
Agreement.
11.15 Jointly Drafted Agreement. The parties acknowledge that each of them,
and their attorneys, have had the opportunity to draft and comment upon this
Agreement and the Ancillary Agreements and have in fact done so, and that this
Agreement and the Ancillary Agreements are the joint products of negotiation
among them. The parties agree that in construing this Agreement and the
Ancillary Agreements each term shall be given its ordinary meaning, waive
application of the doctrine of construction against the drafter, and acknowledge
that for purposes of construction of this Agreement and the Ancillary Agreements
they shall jointly be considered to be the drafters of the Agreement and the
Ancillary Agreements and of each term contained herein and therein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date and year first above written.
/s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇, as attorney-in-fact
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
ICTS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇, President
---------------------------------
INTERBORO HOLDING, INC.
By: /s/▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer