EXHIBIT 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
PEROT SYSTEMS CORPORATION
PEROT SYSTEMS GOVERNMENT SERVICES, INC.
COLLECTIVELY, THE "BUYERS"
SOZA & COMPANY, LTD.
"SCL"
AND
THE STOCKHOLDERS OF SCL
FEBRUARY 4, 2003
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered
into as of February 4, 2003, by and among Perot Systems Corporation, a Delaware
corporation ("PSC"), Perot Systems Government Services, Inc., a Virginia
corporation and wholly-owned subsidiary of PSC ("PSGS"), Soza & Company, Ltd., a
Virginia corporation ("SCL"), William Soza ("Soza"), John Larmer II ("Larmer"),
Kurt Pfluger ("Pfluger") and Ralph West ("West"), each of whom is a stockholder
of SCL (Soza, Larmer, Pfluger and West, individually a "Principal Stockholder"
and collectively, the "Principal Stockholders"), and all of the other
stockholders of SCL and holders of options to acquire shares of capital stock of
SCL who become bound to this Agreement by joinder agreement (collectively with
the Principal Stockholders, the "Stockholders"). SCL and the Principal
Stockholders are referred to collectively as "Sellers" and PSC and PSGS are each
referred to individually as a "Buyer" and collectively as "Buyers."
BACKGROUND
The Principal Stockholders own approximately 98% of the issued and
outstanding capital stock of SCL and approximately 64% of all options to acquire
capital stock of SCL.
Buyers desire to purchase, and the Stockholders desire to sell, all of
the shares of capital stock of SCL issued and outstanding as of the closing of
such purchase and sale (the "Shares") on the terms and subject to the conditions
set forth in this Agreement.
SCL will receive substantial direct and indirect benefits from the
transactions contemplated by this Agreement and Buyers have requested that SCL
enter into this Agreement as a condition to Buyers execution of this Agreement.
Each of Technology Planning and Management Corporation, a North
Carolina corporation ("TPMC"), Catnaz, Inc., an Ohio corporation ("Catnaz"),
SecureWater, LLC, a Virginia limited liability company ("SecureWater"), FAC
Management, LLC, a Virginia limited liability company ("FAC"), and Soza
International, Ltd., a Virginia corporation ("International"), is a wholly owned
subsidiary of SCL. Each of SCL, TPMC, Catnaz, FAC, SecureWater and International
is referred to individually as the "Company" and collectively as the
"Companies"; provided, however, upon the sale of FAC as contemplated by Section
2.12, FAC will not be deemed to be a Company for purposes of this Agreement.
In consideration of the foregoing premises and the mutual covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, agree as follows:
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ARTICLE I
PURCHASE OF SHARES
1.1. Sale and Delivery of the Shares. Pursuant to the terms, and
subject to the conditions set forth herein, PSGS hereby agrees to purchase from
the Stockholders, and the Stockholders hereby agree to sell to PSGS, the Shares
for the consideration set forth in Section 1.3.
1.2. Closing Date. The closing (the "Closing") of the sale and purchase
of the Shares will take place at the offices of Hughes & Luce, LLP, counsel to
Buyers, at 10:00 a.m. local time on February 28, 2003, or at such other date,
time and place as is mutually agreed among the parties or, if all of the
conditions to the obligations of the parties set forth in Article V have not
been satisfied or waived by February 28, 2003 and there is no agreement among
the parties, on the day which is two business days following the date on which
all such conditions have been satisfied or waived (such date and time of closing
being herein called the "Closing Date"), but in no event later than the sixth
month anniversary of the date of this Agreement.
1.3. Purchase Price.
(a) As consideration in full for the acquisition of the
Shares, Buyers will pay the consideration referred to below (the
"Purchase Price"). The Purchase Price is an aggregate amount equal to
the following, as such amount is subject to adjustment as provided in
Section 1.4:
(i) an amount equal to $75,000,000 plus Excess Cash (as
defined in Section 1.4(a)) minus the amount of Debt minus the amount of
Seller Transaction Costs (as such terms are defined below);
(ii) the First Year Contingent Payment (as defined in Exhibit
A), if any;
(iii) the Second Year Contingent Payment (as defined in
Exhibit A), if any; and
(iv) the Final Contingent Payment (as defined in Exhibit A),
if any.
Each of the First Year Contingent Payment, the Second Year Contingent
Payment and the Final Contingent Payment will be due and payable in a
single installment by March 31, 2004, March 31, 2005 and March 31,
2005, respectively. Notwithstanding the foregoing, if on the applicable
payment date, the amount of a Contingent Payment is being disputed by
the parties pursuant to the procedures set forth in Exhibit A and (x)
if the disputed amount is less than $1,500,000, Buyers will pay to the
Stockholders the undisputed portion of the Contingent Payment on the
applicable payment date and the remaining amount, if any, will be paid
to the Stockholders within ten days after resolution of the disputed
amount, and (y) if the disputed amount is greater than $1,500,000, on
the applicable payment date Buyers will deposit into an interest
bearing escrow
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account (the "Contingent Payment Escrow") an amount equal to the
Contingent Payment amount claimed by the Stockholders and such amount
will be held in escrow until final resolution of the amount of the
Contingent Payment. The Contingent Payment Escrow will be held,
maintained and disbursed by an escrow agent reasonably satisfactory to
Buyers and the Stockholders pursuant to an escrow agreement reasonably
satisfactory to Buyers and the Stockholders. Any interest earned on the
Contingent Payment Escrow will be paid simultaneously with the payment
of the Contingent Payment as follows: (A) if no portion of the disputed
amount of the Contingent Payment is paid to the Stockholders, all
interest earned will be paid to Buyers, and (B) if any portion of the
disputed amount of the Contingent Payment is paid to the Stockholders,
all interest on the undisputed amount will be paid to the Stockholders
and interest earned on any portion of the disputed amount will be paid
to the party receiving such portion of the disputed amount. As used
herein, (1) "Debt" means an amount equal to all of the Companies' debt
for borrowed money, notes payable and capital lease obligations,
including the current and long term portions, but excluding any
intercompany Debt, minus the amount of Closing Cash Balances (as
defined in Section 1.4(a)) in excess of $500,000 until the amount of
Debt becomes zero, and (2) "Seller Transaction Costs" means an amount
equal to all transaction costs and expenses incurred by or on behalf of
the Companies prior to the Closing arising from the negotiation,
execution and performance of the transactions contemplated by this
Agreement, including, without limitation any legal, accounting, broker
and other professional fees, but excluding (x) any withholding,
employment, or payroll taxes payable by or on behalf of the Companies
and deducted from the Purchase Price pursuant to Section 1.3(c)(ii) and
(y) the broker and professional fees and expenses not exceeding $35,000
set forth on Schedule 1.3(a) that have been paid by SCL prior to the
date hereof.
(b) On the Closing Date, $5,000,000 of the Purchase Price (the
"Holdback Amount") will be deposited into an interest bearing escrow
(the "Escrow") and held pursuant to an escrow agreement substantially
in the form of Exhibit B (the "Escrow Agreement"). The Escrow will be
held, maintained and disbursed by the escrow agent provided for in the
Escrow Agreement (the "Escrow Agent") and will serve solely as security
for the potential Purchase Price adjustments and repayments described
herein and for any potential claims of Buyers for indemnification under
Article VI. To the extent the Holdback Amount held in Escrow is not
applied to any such Purchase Price adjustment, repayments or claims for
indemnification, it will be released from the Escrow to the
Stockholders on the second anniversary of the Closing Date in
accordance with the terms of the Escrow Agreement.
(c) The Purchase Price will be payable ratably to the
Stockholders in accordance with their ownership percentage of the
Shares immediately prior to the Closing, each percentage amount being
such Stockholder's "Pro Rata Portion". At the Closing, Buyers will pay
the Stockholders their Pro Rata Portion of an amount (the "Closing
Payment") equal to $75,000,000 plus Excess Cash minus the Holdback
Amount minus Debt minus Seller Transaction Costs, each
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as determined from the Estimated Closing Balance Sheet (as defined in
Section 1.4(c)). Each Stockholder's Pro Rata Portion of the Closing
Payment will be paid to such Stockholder net of the outstanding
principal and accrued interest for borrowed money owing to SCL by such
Stockholder immediately prior to the Closing (the "Stockholder Debt
Obligations"), including any amounts owing to SCL by such Stockholder
in connection with the exercise price of any of his or her SCL stock
options set forth on Schedule 2.4 (the "Options"). Each Stockholder's
Pro Rata Portion of any portion of the Purchase Price (including the
Closing Payment and any amounts released from the Escrow) will be paid
to such Stockholder, as applicable, net of (i) any employment or
payroll taxes required to be withheld from such Stockholder as a result
of the exercise of Options, (ii) any additional employment or payroll
taxes required to be paid by SCL or Buyers as a result of such
Stockholder's exercise of Options, and (iii) any backup withholding
taxes or other taxes required to be withheld by SCL or Buyers as a
result of the sale of the Shares by such Stockholder under this
Agreement. Buyers will deliver to SCL at the Closing the aggregate
amount that is deducted from each Stockholder's Pro Rata Portion of the
Closing Payment for any Stockholder Debt Obligations (and SCL will
treat such Stockholder Debt Obligations as having been paid in full for
all purposes), and when due, will pay, on behalf of SCL, to the
relevant taxing authorities any taxes withheld from each Stockholder's
Pro Rata Portion of any portion of the Purchase Price. Each
Stockholder's and SCL's portion of the Closing Payment will be made in
cash to the accounts of the Stockholders and SCL provided to Buyers in
writing no less than three business days prior to the Closing Date.
Schedule 1.3(c) sets forth the expected Pro Rata Portion of the Closing
Payment, together with any anticipated withholdings and deductions
therefrom, for each Stockholder. No less than three business days prior
to the Closing Date, SCL will provide Buyers the calculations of each
Stockholder's Pro Rata Portion of the Closing Payment and the amounts
of any required withholdings or debt repayment amounts to be deducted
therefrom in accordance with this Section 1.3(c).
(d) Solely at the option of PSC, up to 70% of the aggregate
amount of Contingent Payments (as defined in Exhibit A), whether paid
or earned and payable, may be made in the form of shares of PSC's Class
A Common Stock, $.01 par value per share (the "PSC Common Stock")
valued at the Conversion Price (as defined below). Any PSC Common Stock
issued as part of the Contingent Payments will be registered with the
Securities and Exchange Commission (the "SEC") and listed for trading
on the New York Stock Exchange or on the principal national exchange on
which the PSC Common Stock is then listed (the "Exchange") as set forth
in Section 4.14. As used herein, "Conversion Price" means the average
per share closing price of the PSC Common Stock on the Exchange for the
30 trading days immediately preceding the three trading days prior to
the applicable payment date, as set forth in Section 1.3(a). Any
portion of the Contingent Payments not paid in shares of PSC Common
Stock will be paid to the Stockholders in cash.
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1.4. Potential Purchase Price Adjustment.
(a) As set forth in subsection (d)(i) below, the Purchase
Price may be reduced on a dollar for dollar basis in the event that *.
As used in this Agreement, (x) "Closing Working Capital" means an
amount equal to current assets (excluding Closing Cash Balances) minus
current liabilities (excluding any current portion of long term Debt
and any amounts outstanding on the Companies' line of credit), (y)
"Closing Cash Balances" means an amount equal to all cash and cash
equivalents, including all cash paid, to be paid or deemed to be paid
by a Buyer or by a Stockholder to SCL for the repayment of the
Stockholder Debt Obligations pursuant to Section 1.3(c), and (z)
"Closing Long Term Net Assets" means an amount equal to total fixed and
other long term assets (excluding goodwill) minus total long term
liabilities (excluding Debt), each amount being determined from the
final Closing Balance Sheet (as defined in subsection (b) below).
Notwithstanding the foregoing *. Any remaining Closing Cash Balances
after determination of Debt and application to Closing Working Capital
and Closing Long Term Net Assets is referred to as "Excess Cash" and
will be added to the Purchase Price pursuant to Section 1.3(a)(i).
(b) Closing Working Capital, Closing Cash Balances, Closing
Long Term Net Assets, Debt and Excess Cash will be determined from the
consolidated balance sheet of SCL as of the close of business on the
Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet
will be prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied, and audited by PSC's
independent accounting firm. Except as otherwise expressly stated
herein, the Closing Balance Sheet will be based solely on transactions
arising or resulting from the operation of the Companies' business and
will not include any amounts arising or resulting from the transactions
contemplated by this Agreement. The parties agree and acknowledge that
(i) any amounts paid, deemed paid by a Buyer or by a Stockholder under
this Agreement or to be paid by a Buyer or by a Stockholder under this
Agreement to SCL as of the Closing for the Stockholder Debt Obligations
will be reflected on the Closing Balance Sheet, (ii) any deferred tax
asset resulting from any Stockholder's exercise of Options will remain
with SCL, but will not be included on the Closing Balance Sheet, (iii)
the Taxes allocated to SCL pursuant to Section 4.17(c) will be included
on the Closing Balance Sheet, (iv) the Performance Bonus (as defined in
Section 4.10) and any tax benefit or cost arising therefrom will not be
included on the Closing Balance Sheet, (v) no Seller Transaction Costs
will be included on the Closing Balance Sheet, and (vi) neither the
liabilities for payments to taxing authorities referred to in Sections
1.3(c)(i), 1.3(c)(ii), and 1.3(c)(iii) nor the corresponding cash
withheld from the Purchase Price pursuant to Sections 1.3(c)(i),
1.3(c)(ii), and 1.3(c)(iii) and paid to SCL will be included on the
Closing Balance Sheet.
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*Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission.
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(c) No less than three business days prior to the scheduled
Closing Date, SCL will prepare and furnish Buyers with an estimate of
the Closing Balance Sheet (the "Estimated Closing Balance Sheet") which
will be in accordance with Section 1.4(b) and in reasonable detail and
accompanied by such financial information and methods of calculation as
may reasonably be necessary for Buyers to evaluate the accuracy
thereof. For purposes of calculating the Closing Payment, included with
the Estimated Closing Balance sheet will be estimates of the
calculations of Closing Working Capital, Closing Cash Balances, Closing
Long Term Net Assets and the resulting amount of Excess Cash, if any,
and Debt and Seller Transaction Costs.
(d) Included with the Closing Balance Sheet will be the
calculations of Closing Working Capital, Closing Cash Balances, Closing
Long Term Net Assets and any dollar for dollar reduction to the
Purchase Price resulting from each of such amounts (the aggregate of
any such potential Purchase Price reductions being, the "Deficiency
Amount"), and Debt, Seller Transaction Costs and Excess Cash and any
adjustments to the Purchase Price resulting from the actual amounts
thereof. The Purchase Price will be adjusted as follows:
(i) if the Deficiency Amount is greater than *, the Purchase
Price will be reduced dollar for dollar by an amount equal to such
excess; and
(ii) the Purchase Price will be increased or decreased, as the
case may be, to the extent the final calculations of Debt and Excess
Cash differ from the amounts therefor determined from the Estimated
Closing Balance Sheet and used in the calculation of the Closing
Payment.
Any aggregate adjustment to the Purchase Price is referred to as the
"Purchase Price Adjustment" and will be set forth on the Closing
Balance Sheet.
(e) Within the earlier of (i) 190 days after the Closing Date
or (ii) ten days after collection of all billed receivables outstanding
on the Closing Date (less any reserve for billed accounts receivable on
the Closing Date), Buyers will furnish the Stockholders with the
Closing Balance Sheet, which will be in reasonable detail and
accompanied by such other financial information and methods of
calculation as may be reasonably necessary for the Stockholders to
evaluate the accuracy thereof. The Stockholders will have a period of
30 days after receipt of the Closing Balance Sheet to notify Buyers in
writing of their election to accept or reject (and in the case of a
rejection, there must be included in such notice the reasons for
rejection in reasonable detail) the Closing Balance Sheet and any
Purchase Price Adjustment resulting therefrom. In the event no written
notice is received by Buyers during such 30 day period, Buyers' Closing
Balance Sheet and any Purchase Price Adjustment resulting therefrom
will be deemed accepted by the Stockholders and final and binding on
the parties hereto. Buyers will permit the Stockholders and their
representatives reasonable access to the Companies' relevant books,
records and other financial information relating to the calculation of
the Closing Balance Sheet.
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*Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission.
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(f) In the event the Stockholders timely reject Buyers'
Closing Balance Sheet and any Purchase Price Adjustment resulting
therefrom, Buyers and the Stockholders will promptly (and in any event
within 30 days following the date of rejection) attempt to make a joint
determination of the Closing Balance Sheet and any Purchase Price
Adjustment. If the Stockholders and Buyers are able to jointly
determine the Closing Balance Sheet, any Purchase Price Adjustment
resulting therefrom will be final and binding on the parties. In the
event the parties are unable to agree upon the final determination of
the Closing Balance Sheet within such 30-day period, then promptly
thereafter Buyers and the Stockholders will submit the issues in
dispute to an independent certified public accountant from a nationally
recognized firm to be chosen as set forth below. Buyers, on the one
hand, and the Stockholders, on the other, each will choose an
accountant, which two accountants together will select a third
accountant from a nationally recognized firm and the third accountant
will act as the sole arbitrator of the issues in dispute (the
"Arbitrator"). Buyers and the Stockholders will use good faith efforts
to agree on procedures, scheduling and the process of submitting the
dispute to the Arbitrator. To the extent that the parties fail to agree
on a process within 30 days, the dispute resolution procedures set
forth in Section 7.15 will govern the dispute. The determination of the
Arbitrator will be final and binding upon the parties. The Arbitrator
will allocate the fees of the accountants and the Arbitrator one-half
to the Stockholders and one-half to the Buyers, with the Stockholders'
portion being first deducted from the Holdback Amount and to the extent
the Holdback Amount is insufficient, paid jointly and severally by the
Principal Stockholders.
(g) If the final Deficiency Amount and the final amounts of
Debt and Excess Cash result in a Purchase Price Adjustment in favor of
Buyers, the Purchase Price Adjustment will be deducted from the
Holdback Amount and distributed to PSC in accordance with the Escrow
Agreement. To the extent the amount owed to Buyers is more than the
Holdback Amount, the Principal Stockholders, jointly and severally,
will pay the balance of the Purchase Price Adjustment to PSC by wire
transfer of immediately available funds within ten business days after
final determination of the amount due to an account specified by PSC.
If the final amounts of Debt and Excess Cash result in a Purchase Price
Adjustment in favor of the Stockholders, Buyers will pay the
Stockholders their Pro Rata Portion of the Purchase Price Adjustment in
immediately available funds within ten business days after final
determination of the amount due to the accounts specified by the
Stockholders.
1.5 Potential Stockholder Repayment. In the event that both (a) Gross
Profit (as defined and calculated in accordance with Exhibit A) is equal to or
less than the Profit Threshold (as defined below) for the period beginning on
the first day after the Closing Date and ending on December 31, 2003, and (b)
during such time period, one or more task orders relating to any Company's
Government Contracts or Government
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Subcontracts that are Section 8(a) Contracts (as defined in Section 2.21(a)) are
terminated or cancelled (without being transferred to the GSA Schedule, or any
other Schedule for which PSGS or any Company is then eligible, or to a new
contract) prior to their scheduled termination date because the Companies do not
qualify for awards of such contracts or subcontracts after the Closing, the
Stockholders will repay a portion of the Purchase Price to Buyers (the
"Repayment Amount"). The Repayment Amount, if any, will be an amount equal to *.
At the sole option of PSC, all or any portion of the Repayment Amount may be
deducted from the Holdback Amount and distributed to PSC in accordance with the
Escrow Agreement. If PSC opts not to deduct all or any portion of the Repayment
Amount from the Holdback Amount, the Principal Stockholders, jointly and
severally, will pay the balance of the Repayment Amount to PSC in immediately
available funds within ten days of notice thereof to an account specified by
PSC. Buyers intend to maintain and perform under, or intend to cause the
Companies to maintain and perform under, all of the task orders relating to the
Companies' Section 8(a) Contracts consistent in all material respects with the
past practices of the Companies. As used herein, "Delta" means *.
1.6. Purchase Price Allocation. Buyers and the Stockholders agree that
a portion of the Purchase Price will be allocated to the Noncompetition
Agreements referenced in Section 5.1 by an independent appraiser mutually agreed
to by Buyers and the Stockholders. After the date hereof, Buyers and Sellers
will use good faith efforts to agree to such appraiser and direct such appraiser
to conduct such allocation as promptly as practical. Buyers will pay the costs
and fees of such appraiser.
1.7. Closing Deliveries. At the Closing:
(a) Buyers will deliver by wire transfer of immediately
available funds (i) to the Stockholders the Closing Payment (net of the
withholdings and payments contemplated by Section 1.3(c) which will be
paid to SCL and the taxing authorities as so specified) and (ii) to the
Companies' service providers the Seller Transaction Costs evidenced by
the receipts and covered by the releases described in Section 5.1(o).
(b) Buyers will deliver to the Escrow Agent the Holdback
Amount by wire transfer of immediately available funds.
(c) The Stockholders will deliver to Buyers certificates
representing all of the Shares, together with duly executed stock
powers for transfer.
(d) Each director and officer of each Company will deliver to
Buyers his or her written resignation, unless otherwise requested by
Buyers.
(e) Each Company will have delivered to Buyers a certificate
executed by the Secretary of such Company as to the items covered by
Section 2.1.
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*Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission.
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(f) SCL will have delivered to Buyers a disclosure letter
executed by an executive officer of SCL, in form and substance
reasonably satisfactory to Buyers, attached to which will be the
articles of incorporation, bylaws, minute books and ownership records
of each Company.
(g) Sellers will deliver to Buyers the other Seller Documents
(as defined in Section 2.2), in form and substance reasonably
satisfactory to Buyers.
(h) Buyers will deliver to Sellers the other Buyer Documents
(as defined in Section 3.2), in form and substance reasonably
satisfactory to Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL STOCKHOLDERS AND SCL
The Principal Stockholders and SCL, jointly and severally, represent
and warrant to Buyers as follows:
2.1 Organization. Each Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of its organization.
Each Company has full power to own its properties and to conduct its business as
presently conducted. Each Company is duly authorized or qualified to do business
as a foreign corporation and is in good standing in each State or other
jurisdiction in which its assets are located or in which its business or
operations as presently conducted make such authorization or qualification
necessary, except in such States or other jurisdictions where failure to be so
authorized or qualified could not reasonably be expected to have a material
adverse effect on the business, financial condition, results of operations,
assets, or liabilities, of the Companies taken as a whole (a "Company Material
Adverse Effect"). Each Company is qualified to do business as a foreign
corporation in the jurisdictions set forth on Schedule 2.1. Set forth on
Schedule 2.1 is a list of all assumed names under which each Company operates
and all jurisdictions in which any of the assumed names are registered.
2.2 Authority. Each Stockholder and Company has all requisite power and
authority, corporate, stockholder or otherwise, to execute, deliver, and perform
under this Agreement and the other agreements, documents, certificates, and
instruments to be executed by it in connection with or pursuant to this
Agreement (together with this Agreement, the "Seller Documents"). The execution,
delivery, and performance by each Stockholder and Company of each Seller
Document to which it is a party have been duly authorized by all necessary
action, corporate, shareholder or otherwise, on the part of such Stockholder or
Company. This Agreement has been, and at the Closing the other Seller Documents
will be, duly executed and delivered by each Seller party thereto. This
Agreement is, and upon execution and delivery, each of the other Seller
Documents will be, a legal, valid, and binding agreement of each Stockholder or
Company party thereto, enforceable against such Stockholder or Company in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency or other laws affecting the enforcement of creditors'
rights generally, and except that the availability of the remedy of specific
performance or other equitable relief is subject to the discretion of the court
before which any proceeding therefore may be brought.
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2.3 Organic Documents. SCL has provided Buyers a true, correct, and
complete copy of each Company's articles of incorporation, bylaws, minute books
and ownership records. Such corporate records include minutes or consents
reflecting all material actions taken by the Board of Directors (including any
committees) and stockholders of the Companies.
2.4 Capitalization. The authorized capital stock of SCL consists solely
of (a) 10,000,000 shares of Class A Voting Common Stock, $.01 par value per
share, of which 1,800,000 shares are issued and outstanding, and (b) 60,000,000
shares of Class B Non-Voting Common Stock, par value $.01 per share, of which as
of the date hereof, 2,402,784 shares are issued and outstanding. The authorized
capital stock of TPMC consists solely of 2,000,000 shares of common stock, $.01
par value per share, of which 975,000 shares are issued and outstanding and
owned by SCL. The authorized capital stock of Catnaz consists solely of 1,000
shares of common stock, $.01 par value per share, of which 100 shares are issued
and outstanding and owned by SCL. All of the membership interests of SecureWater
are owned by SCL. The authorized capital stock of International consists solely
of 5,000 shares of common stock, no par value, of which 1,000 shares are issued
and outstanding and owned by SCL. As of the date hereof, all of the membership
interests of FAC are owned by SCL. The ownership of SCL on a fully-diluted basis
is set forth on Schedule 2.4. All of the Shares issued and outstanding as of the
date hereof are, and all of the Shares to be issued prior to the Closing
pursuant to the Options will be, validly issued, fully paid and nonassessable
and issued free and clear of preemptive or similar rights. As of the Closing,
the Shares will constitute all of the issued and outstanding capital stock of
the Company, assuming all of the Options are exercised or terminated. Except for
the Options set forth on Schedule 2.4, there are no outstanding options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments obligating any Company, the Stockholders or any other person or
entity to issue or sell any securities or ownership interests in any Company.
Except as set forth on Schedule 2.4, there are no shareholders' agreements,
voting agreements, voting trusts or similar agreements binding on any
stockholder's interests in any Company or applicable to any Company's shares of
capital stock, including the Shares. All of the outstanding securities of the
Companies have been offered and sold in compliance with all applicable
securities laws, rules and regulations.
2.5 Title to the Shares. The Stockholders own the Shares of record and
beneficially free and clear of any liabilities, obligations, liens, pledges,
claims, spousal interests (community or otherwise), security interests,
assignment of rights or interests, encumbrances or contingencies of any nature
(collectively, "Liens"). Upon the sale of the Shares to PSGS at the Closing,
PSGS will acquire the entire legal and beneficial interest in all of the Shares
and all other ownership interests in SCL free and clear of any Liens.
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2.6 Title to Assets.
(a) Set forth in Schedule 2.6(a) is a complete list (including
the street address, where applicable) of (i) all real property owned by
the Companies and (ii) all real property leased by the Companies
(collectively, the "Real Property"). SCL has provided Buyers with a
list of each asset owned by or used in the business of any Company
having a book or market value in excess of $10,000 (together with the
Real Property, the "Material Assets") and such list is included in
Schedule 2.6(a).
(b) Each Company has good and marketable title to all of the
Material Assets it owns and holds a valid leasehold interest in or
valid right to use all of its other assets that are included within the
Material Assets. All of the Companies' assets (including their rights
under the Material Agreements, Government Contracts and Government
Subcontracts) are free and clear of any Liens, other than the Liens
described in Schedule 2.6(b). Any Liens on the Companies' assets to
remain after the Closing are specifically identified on Schedule
2.6(b).
(c) To Sellers' Knowledge (as defined in Section 7.11), the
Real Property is zoned for a classification that permits the continued
use of the Real Property in the manner currently used by the Companies.
To Sellers' Knowledge, improvements included in the Material Assets
were constructed in compliance in all material respects with, and
remain in compliance in all material respects with, all applicable
laws, statutes, regulations, codes, covenants, conditions, and
restrictions affecting the Real Property. There are no actions pending
or, to Sellers' Knowledge, threatened that would alter the current
zoning classification of the Real Property or alter any applicable
laws, codes, covenants, conditions, or restrictions, except such
actions as could not reasonably be expected to materially and adversely
affect the current use of the Real Property. No Principal Stockholder
or any Company has received notice from any insurance company or
Governmental Body (as defined in Section 2.9) of any material defects
or inadequacies in the Real Property or the improvements thereon that
would materially and adversely affect the insurability or use of the
Real Property or prevent the issuance of new insurance policies thereon
at rates comparable to the Companies' present rates. To Sellers'
Knowledge, no fact or condition exists that would result in the
discontinuation of necessary utilities or services to the Real Property
or the termination of current access to and from the Real Property.
(d) Schedule 2.6(d) identifies by description or inventory
number equipment or fixtures loaned, bailed or otherwise furnished to
or held by any Company by or on behalf of any Governmental Body.
(e) The Companies' secure facilities have lease expiration
dates that extend through the term of the applicable Government
Contracts and Government Subcontracts to which they relate.
11
2.7 Sufficiency of Assets. The Material Assets are sufficient in all
material respects to carry on the business of the Companies as now conducted
after the Closing. The Material Assets are in good condition and repair,
ordinary wear and tear excepted, and where applicable, are in good working order
and have been properly and regularly maintained in all material respects. The
Companies maintain policies of insurance issued by insurers of recognized
standing in the industry insuring the Companies, their business and the Material
Assets, which policies are described on Schedule 2.7.
2.8 No Violation. Except as described in Schedule 2.8, neither the
execution or delivery of the Seller Documents nor the consummation of the
transactions contemplated by the Seller Documents, including without limitation
the sale of the Shares to PSGS, will conflict with or result in the breach of
any term or provision of, or violate or constitute a default under (or an event
that with notice or lapse of time or both could constitute a breach or default),
or result in the creation of any Lien on the Shares or any Material Assets or
any dissenters or similar rights pursuant to, or relieve any third party of any
obligation to any Company, or give any third party the right to terminate or
accelerate any obligation under, any charter provision, bylaw, Government
Contract or Government Subcontract, Material Agreement, Permit (as defined in
Section 2.17) or material law to which any Company is a party or by which any
Company or any Material Asset is in any way bound or obligated. No Seller or any
other individual, corporation, partnership, Governmental Body or other entity (a
"Person") having colorable authority to bind any Company or to enter into any
obligation with respect to any Company or its assets has entered into any
agreement, arrangement or understanding that purports to grant to any Person any
right to approve of, or consent to any transaction contemplated by this
Agreement or that alters or accelerates any material obligation of any Company
or adversely affects the Shares or any Material Assets upon the consummation of
the transactions contemplated by this Agreement.
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2.9 Governmental Consents. Except as set forth in Schedule 2.9 and as
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), no consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with, any
governmental or quasi-governmental agency, authority, commission, board, or
other body (collectively, a "Governmental Body") is required on the part of any
Stockholder or Company in connection with the sale of the Shares to PSGS or any
of the other transactions contemplated by the Seller Documents.
2.10 Financial Statements. Attached as Schedule 2.10(a) are true and
complete copies of (a) the unaudited consolidated balance sheet of SCL (the
"Latest Balance Sheet") as of November 30, 2002 (the "Latest Balance Sheet
Date") and the related unaudited consolidated statements of income for the 11
months then ended, (b) the audited consolidated balance sheets of SCL as of
December 31, 1999, December 31, 2000, and December 31, 2001 and the related
consolidated audited statements of income and cash flows for the fiscal years
then ended (clauses (a) and (b) are collectively, the "Financial Statements"),
and (c) the trial balances for each Financial Statement and a list of any
adjustments therefrom to derive the financial results reflected in the Financial
Statements. The Financial Statements present fairly the consolidated financial
condition of SCL at the dates specified and the results of its consolidated
operations for the periods specified and have been prepared in accordance with
GAAP, consistently applied, subject in the case of the unaudited statements to
the absence of footnote disclosure and other presentation items and to changes
resulting from normal period-end adjustments for recurring accruals, which are
not material individually or in the aggregate. The Financial Statements do not
contain any items of a special or nonrecurring nature in amount in excess of
$50,000, except as expressly stated in the Financial Statements or as set forth
on Schedule 2.10(b). The Financial Statements have been prepared from the books
and records of the Companies, which accurately and fairly reflect the
transactions of, acquisitions, and dispositions of assets by, and incurrence of
liabilities by the Companies. Except as set forth on Schedule 2.10(c), the
expense items contained in all of the Financial Statements that are material to
the calculation of Gross Profit have been consistently accumulated, compiled,
recorded, and classified (including any reclassification from any audit or
consolidation involved in the preparation of the Financial Statements) from the
trial balance level through the financial results reflected in the Financial
Statements.
2.11 Limitation on Liabilities; Absence of Undisclosed Liabilities. The
Companies have no direct or indirect debts, obligations or liabilities of any
nature, whether absolute, accrued, contingent, liquidated or otherwise, and
whether due or to become due, asserted or unasserted, known or unknown
(collectively, "Liabilities"), except for (a) Liabilities set forth on the
Latest Balance Sheet, (b) trade payables and other expenses incurred in the
Ordinary Course of Business (as defined below) after the Latest Balance Sheet
Date, (c) the Liabilities described on Schedule 2.11, (d) the Performance Bonus
and the Seller Transaction Costs and (e) obligations incurred in the Ordinary
Course of Business under Material Agreements and under other immaterial
agreements entered into by a Company in the Ordinary Course of Business that are
not required by GAAP to be reflected on SCL's consolidated balance sheet. For
purposes
13
of this Agreement, "Ordinary Course of Business" means the ordinary course of
business of the Companies, consistent with past practice, of an amount and type
that were ordinarily incurred in past periods, and if required by GAAP, fully
reflected in the Financial Statements, and does not include the incurrence of
any Liability that results from any breach or default (or event that with notice
or lapse of time would constitute a breach or default) by any Company under any
agreement binding on it.
2.12 Subsidiaries and Investments. Except for SCL's 100% ownership of
each of TPMC, Catnaz, SecureWater, International and as of the date hereof, FAC,
no Company owns or holds any direct or indirect equity or debt interest or any
form of ownership interest in any other Person or any option to acquire any such
interest. Prior to the Closing Date, SCL will sell all of the membership
interests of FAC to an entity controlled by the Principal Stockholders for an
aggregate consideration of $500. Such sale will be without recourse and no
Company will have any obligations or Liabilities with respect to FAC thereafter.
2.13 Absence of Material Adverse Change. Since the Latest Balance Sheet
Date, except as specifically contemplated by this Agreement or as set forth on
Schedule 2.13, there has not been (a) any change in the condition (financial or
otherwise), results of operations, business, assets, or Liabilities of the
Companies or with respect to the manner in which the Companies conduct their
business or operations that could reasonably be expected to result in a Company
Material Adverse Effect; (b) any declaration, setting aside, or payment of any
dividends or distributions in respect of any securities of the Companies or any
redemption, purchase, or other acquisition by the Companies of any of their
securities; (c) any payment or transfer of assets (including without limitation
any distribution or any repayment of indebtedness) to or for the benefit of any
security holder of the Companies other than compensation and expense
reimbursement to employees in the Ordinary Course of Business; (d) any
revaluation by the Companies of any of their assets, including, without
limitation, the writing down or off of notes or accounts receivable, other than
in the Ordinary Course of Business; (e) any entry by any Company into any
commitment or transaction material to any Company including, without limitation,
incurring or agreeing to incur capital expenditures in excess of $25,000,
individually or in the aggregate; (f) any increase in Debt; (g) any breach or
default (or event that with notice or lapse of time could constitute a breach or
default), termination, or threatened termination under any Material Agreement by
any Company, or, to Sellers' Knowledge, by any third party; (h) any change by
the Companies in their accounting methods, principles, or practices; (i) except
for the Performance Bonus, any increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, or other employee benefit
plan, or any increase in the compensation payable or to become payable to
members of the Board of Directors ("Board Members"), officers, employees or
consultants of any Company; (j) the termination of employment (whether voluntary
or involuntary) of any employee of any Company at the officer or director level
or the termination of employment (whether voluntary of involuntary) of employees
of any Company materially in excess of historical attrition in personnel; (k)
any material theft, condemnation, or eminent domain proceeding or any material
damage, destruction, or casualty loss
14
occurring at any Company that was in excess of $50,000 and was not adequately
covered by insurance; (l) any sale, assignment, or transfer of any Material
Asset, except sales in the Ordinary Course of Business; (m) any waiver by any
Company or any Stockholder of any material rights related to any Company's
business, operations, or assets; (n) any other transaction, agreement or
commitment entered into or affecting the Companies' business, operations, or
assets, except in the Ordinary Course of Business; or (o) any agreement or
understanding to do or resulting in any of the foregoing.
2.14 Taxes.
(a) Except as set forth on Schedule 2.14, (1) all required
federal, state, local, and other Tax (as defined in subsection (b)
below) returns, notices, and reports (including without limitation
income, property, sales, use, franchise, withholding, social security,
and unemployment Tax returns) required to have been filed by any
Company have been accurately prepared and duly filed; (2) all Taxes
required to have been paid with respect to the periods covered by any
such returns have been paid, except for amounts subject to good faith
dispute that are being diligently contested in appropriate proceedings
and for which adequate reserves have been established; (3) no Tax
deficiency has been proposed or assessed against any Company; (4) no
Company has executed any waiver of any statute of limitations on the
assessment or collection of any Tax which waiver has continuing effect;
(5) no Tax audit, action, suit, proceeding, investigation, or claim is
now pending or, to Sellers' Knowledge, threatened against any Company,
and no issue or question has been raised (and is currently pending) by
any taxing authority in connection with any Company's Tax returns or
reports; (6) the Companies have withheld or collected from each payment
made to each of their employees, contractors, creditors, stockholders
or any third party the full amount of all Taxes required to have been
withheld or collected therefrom and have paid all such amounts that are
required to have been paid to the proper Tax receiving officers or
authorized depositaries; (7) no claim has ever been made by an
authority in a jurisdiction where any Company does not file Tax returns
that it is or may be subject to taxation by that jurisdiction; (8)
there are no Liens on any assets of any Company that arose in
connection with any failure (or alleged failure) to pay any Tax
required to have been paid; (9) no Company has filed a consent under
Code Section 341(f) concerning collapsible corporations; (10) no
Company (A) has made any payments in connection with the transactions
contemplated by this Agreement or in connection with any prior
transactions the deduction of which would be disallowed under Code
Section 280G, or (B) is obligated to make any payments or is a party to
any agreement that under certain circumstances could obligate it to
make any payments in connection with the transactions contemplated by
this Agreement the deduction of which would be disallowed under Code
Section 280G; (11) no Company is a party to any Tax allocation or
sharing agreement relating to Taxes imposed on a consolidated,
combined, unitary or similar basis on members of a group of entities
that include any Company; (12) no Company (x) has been a member of an
affiliated group filing a consolidated federal income Tax return or (y)
has liability for the Taxes of any Person under Reg. Section 1.1502-6
15
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise; and (13) no
Company will be required to include any item of income in (or with
respect to clause (ii) below, exclude any item of deduction from)
taxable income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any (i) change in method of accounting
agreed to by the Companies on or before the Closing Date or required to
be made for a taxable period ending on or prior to the Closing Date
under Code Section 481(c) (or any corresponding or similar provision of
state, local or foreign income Tax law), (ii) "closing agreement" as
described in Code Section 7121 (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date or (iii) installment sale or open transaction
disposition made on or prior to the Closing Date.
(b) As used in this Agreement, "Tax" or "Taxes" means any and
all taxes, and all charges, fees, levies, assessments, duties, or other
amounts of a similar character payable to any federal, state, local, or
foreign taxing authority or agency, including, without limitation, (i)
income, franchise, profits, gross receipts, minimum, alternative
minimum, estimated, ad valorem, value added, sales, use, service, real
or personal property, capital stock, license, payroll, withholding,
disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall
profits, transfer, gift and gains taxes; (ii) customs, duties, imposts,
charges, levies, or other similar tax assessments of any kind; and
(iii) interest, penalties, and additions to Tax imposed with respect
thereto.
2.15 Litigation. Except as described in Schedule 2.15, there are no
pending or, to Sellers' Knowledge, threatened, lawsuits, administrative
proceedings, arbitrations, reviews, or formal or informal complaints or
investigations by any Person against or relating to any Company or any Company's
Board Members, officers, employees, agents, or affiliates (in their capacities
as such) that, in any such case, could reasonably be expected to have a Company
Material Adverse Effect, or to which any of the Shares are subject or relating
to the transactions contemplated by this Agreement or the consummation thereof,
nor, to Sellers' Knowledge, is there any basis therefore. No Company is subject
to or bound by any currently existing judgment, order, writ, injunction, or
decree.
2.16 Compliance with Laws. The Companies are currently complying in all
material respects with, and have at all times complied in all material respects
with, each applicable statute, law, ordinance, decree, order, rule, or
regulation of any Governmental Body, including without limitation, all federal,
state, and local laws relating to zoning and land use, occupational health and
safety, product quality and safety and employment and labor matters
(collectively, "Laws").
2.17 Permits. The Companies own or possess all right, title and
interest in all material permits, licenses, authorizations, approvals, quality
certifications, franchises, or rights issued by any Governmental Body necessary
to conduct their business as currently conducted (collectively, "Permits"). Each
Permit is listed on Schedule 2.17. No loss or
16
expiration of any Permit on Schedule 2.17 will result from the transactions
contemplated by this Agreement and no loss or expiration of any Permit on
Schedule 2.17 is otherwise, pending or, to Sellers' Knowledge, threatened other
than the expiration of such Permits in accordance with their terms that may be
renewed in the Ordinary Course of Business without lapsing.
2.18 Environmental Matters.
(a) Without limiting the generality of the other
representations and warranties set forth in this Article II, except as
described in Schedule 2.18, (i) the Companies have conducted their
business in compliance in all material respects with all applicable
Environmental Laws (as defined in subsection (b) below), including
without limitation by having all Permits required under any
Environmental Laws for the operation of the Companies' business; (ii)
to Sellers' Knowledge, no Hazardous Substances (as defined in
subsection (c) below) are present on any Real Property; (iii) no
Principal Stockholder or Company has received any notices, demand
letters, or requests for information from any Governmental Body or
other Person indicating that any Company is or may be in violation of,
or liable under, any Environmental Law; (iv) no reports have been
filed, or are required to be filed, by (or relating to) any Company
concerning any Hazardous Substance or any Environmental Law; (v) no
Hazardous Substance has been disposed of, released or transported by or
on behalf of any Company to or from any Real Property or as a result of
any activity of any Company; (vi) there have been no environmental
investigations, studies, audits, tests, reviews, or other analyses
regarding compliance or noncompliance with any Environmental Law
conducted by or for or which are in the possession of any Principal
Stockholder or Company relating to the activities of any Company or any
of the Real Property; (vii) to Sellers' Knowledge, there are no
underground storage tanks on, in, or under any of the Real Property,
and to Sellers' Knowledge, no underground storage tanks have been
closed or removed from any of the Real Property; (viii) to Sellers'
Knowledge, there is no asbestos present in any of the Real Property,
and to Sellers' Knowledge, no asbestos has been removed from any of the
Real Property; (ix) no Company nor any Material Assets is subject to
any Liabilities or expenditures relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment, or claim
asserted or arising under any Environmental Law; (x) to Sellers'
Knowledge, no Hazardous Substance is present and there are no
violations of any Environmental Laws involving property adjacent to the
Real Property and (xi) no Company nor anyone to Sellers' Knowledge has
used any of the Material Assets or any other assets or premises of any
Company for the handling, treatment, storage or disposal of any
Hazardous Substances.
(b) As used in this Agreement, "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule,
regulation, Permit, order, judgment, decree, requirement, or agreement
with any Governmental Body relating to (i) the protection, preservation
or restoration of the environment,
17
(ii) the use, storage, generation, transportation, processing,
production, release, or disposal of Hazardous Substances, or (iii) the
protection or preservation of public health, in each case as amended
and in effect on the Closing Date.
(c) As used in this Agreement, "Hazardous Substance" means any
substance presently or hereafter listed, defined, designated, or
classified as hazardous, toxic, radioactive, or dangerous under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any Governmental Body or any Environmental
Law, including without limitation any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste,
special waste, industrial substance, or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, or asbestos
containing material, urea formaldehyde, foam insulation, lead, or
polychlorinated biphenyls.
2.19 Employee Matters.
(a) Set forth on Schedule 2.19(a) is a complete list of all
current regular, full-time and/or permanent employees of each Company,
including date of employment, current title, compensation, and date and
amount of last increase in compensation. No Company has any collective
bargaining, union, or labor agreements, contracts, or other
arrangements with any group of employees, labor union, or employee
representative and there is no organization effort currently being made
or, to Sellers' Knowledge, threatened by or on behalf of any labor
union with respect to employees of any Company. No Company has
experienced in the prior two years, and, to Sellers' Knowledge, there
is no basis for, any strike, material labor trouble, work stoppage,
slow down, or other interference with or impairment of the business of
any Company. To Sellers' Knowledge, no employee of any Company is
subject to any agreement or obligation that restricts or limits his or
her ability to devote his or her full talents and efforts to the
Companies after the Closing.
(b) Except as listed in Schedule 2.19(b), no Company is
subject to any currently pending or to Sellers' Knowledge, threatened,
material claims, charges, demands or suits arising under or based upon
wages, commissions or benefits owed; covenants of fair dealing and good
faith; material claims for torts, including but not limited to
defamation, intentional infliction of emotional distress, negligence
and any other wrongful conduct; material claims for wrongful discharge
or retaliation, material claims under the Americans With Disabilities
Act, Title VII of the Civil Rights Act of 1964, as amended, the Civil
Rights Act of 1991, the Civil Rights Acts of 1866 and 1873, the Family
Medical Leave Act of 1993, the Age Discrimination in Employment Act,
the Employee Retirement Income Security Act ("ERISA"), the Fair Labor
Standards Act of 1938, or the Consolidated Omnibus Budget
Reconciliation Act of 1988 ("COBRA"). No Company is the subject of any
currently ongoing or to Sellers' Knowledge, threatened investigations
or audits by any Governmental Body for employment-
18
related violations, including any investigations or audits by or on
behalf of the Equal Employment Opportunity Commission, the Occupational
Safety and Health Administration, the Internal Revenue Service,
Department of Labor or any analogous Governmental Body. To Sellers'
Knowledge, there is no basis for any material claims, lawsuits, charges
or investigations described in this subsection (b).
(c) The Companies are currently complying in all material
respects with and have at all times complied in all material respects
with all applicable employment-related Laws. SCL has delivered to
Buyers any and all documents required to be kept by the Companies
pursuant to any Laws governing employment, including EEO-1 statements,
resumes, applications, employee handbooks, personnel files, I-9 forms
and employee medical records.
(d) Set forth on Schedule 2.19(d) is (i) a complete list of
all current regular, full time and/or permanent employees of each
Company that hold security clearances other than top secret, indicating
the type of security clearance held by each employee, and (ii) the
aggregate number of current regular, full time and/or permanent
employees that hold security clearances of top secret or higher. Each
Company has a sufficient number of employees with appropriate security
clearances to satisfy such Company's current and, to Sellers'
Knowledge, expected obligations under its Government Contracts and
Government Subcontracts.
2.20 Employee Benefit Plans.
(a) Set forth in Schedule 2.20(a)(i) is a complete list of all
"employee benefit plans" (as defined in ERISA), all plans or policies
providing for "fringe benefits" (including but not limited to vacation,
paid holidays, personal leave, employee discount, educational benefit,
or similar programs), and all other bonus, incentive, compensation,
profit-sharing, stock, severance, retirement, health, life, disability,
group insurance, employment, fringe benefit, or any other similar plan,
agreement, policy, or understanding (whether written or oral, qualified
or nonqualified, currently effective or terminated), and any trust,
escrow, or other agreement related thereto, which (i) is maintained or
contributed to by any Company, or with respect to which any Company has
or may have any liability or (ii) provides benefits, or describes
policies or procedures applicable, to any Board Member, former Board
Member, consultant, former consultant, officer, employee, former
officer, or former employee of any Company, or the dependents of any of
the foregoing, regardless of whether funded (collectively, the
"Employee Plans"). Except as set forth in the Latest Balance Sheet, no
Company has liability for accrued employee leave for vacation, sick
leave, urgent business, or other reasons. No written or oral
representations have been made to any employee or former employee of
any Company promising or guaranteeing any Company payment or funding
for the continuation of medical, dental, life, or disability coverage
for any period of time beyond the end of the current plan year
19
(except to the extent of coverage required under COBRA or applicable
state law). Except for the Performance Bonus or as set forth on
Schedule 2.20(a)(ii), the consummation of the transactions contemplated
by this Agreement will not accelerate the time of payment or vesting,
or increase the amount of compensation (including bonuses) due to, any
Board Member, officer, director, consultant or employee, (in each case,
current or former) of any Company.
(b) Except as disclosed on Schedule 2.20(b), with respect to
each "employee benefit plan" (as defined in ERISA) maintained or
contributed to, currently or in the past by any Company or any ERISA
Affiliate (as defined below), or with respect to which any Company or
any ERISA Affiliate has liability (collectively, the "Controlled Group
Plans"):
(i) there are no unfunded liabilities existing under
any Controlled Group Plan, and each Controlled Group Plan
could be terminated as of the Closing Date with no liability
to either Buyer, any Company or any ERISA Affiliate;
(ii) there is no Controlled Group Plan that is a
defined benefit plan (as defined in Section 3(35) of ERISA) or
a multiemployer plan (as defined in Section 3(37) of ERISA);
and
(iii) each such Controlled Group Plan has been
operated in compliance in all material respects with ERISA,
applicable tax qualification requirements, and all other
applicable laws.
As used in this Agreement, "ERISA Affiliate" means the Companies and
each Person or other trade or business, whether or not incorporated,
which is or has been treated as a single employer or controlled group
member with any Company pursuant to section 414 of the Code or section
4001 of ERISA.
(c) With respect to each Employee Plan, SCL has delivered to
Buyers a true, correct, and complete copy of (i) the plan documents and
summary plan description; (ii) the most recent determination letter
received from the Internal Revenue Service; (iii) the annual reports
required to be filed for the three most recent plan years of each such
Employee Plan; (iv) all related trust agreements, insurance contracts,
or other funding agreements that implement such Employee Plan; and (v)
all other documents, records, or other materials related thereto
requested by Buyers.
(d) No Company, ERISA Affiliate nor any plan fiduciary of any
Employee Plan has engaged in any transaction in violation of Section
406(a) or (b) of ERISA or any "prohibited transaction" (as defined in
Code section 4975(c)(1)) that would subject any Company or any Buyer to
any taxes, penalties, or other liabilities resulting from such
transaction.
20
(e) Except for routine claims for benefits arising in the
Ordinary Course of Business which are, to Sellers' Knowledge,
consistent with historical levels, there are no actions, suits, claims,
audits, or investigations pending or to Sellers' Knowledge, threatened
against, or with respect to, any of the Employee Plans or their assets;
and all contributions required to be made to the Employee Plans have
been made timely.
2.21 Government Contracts and Subcontracts.
(a) Schedule 2.21(a) lists each contract currently in force,
and each outstanding bid or proposal with respect to a contract between
any Company and any Governmental Body (a "Government Contract"), and
each contract currently in force, and each outstanding bid or proposal
with respect to a subcontract between any Company and a third party
relating to a contract between such third party and any Governmental
Body (a "Government Subcontract"). SCL has provided Buyers with access
to copies of, or written summaries of the non-classified terms of, each
Government Contract or Government Subcontract. Each Government Contract
and Government Subcontract which any Company received because of its
Section 8(a) status (the "Section 8(a) Contracts") or small business
size status, and which specifically identifies any Company as having
such status, is identified as such on Schedule 2.21(a).
(b) With respect to each Government Contract or Government
Subcontract, (i) each Company party thereto has complied in all
material respects with all terms and conditions of such contracts,
including all clauses, provisions and requirements incorporated
expressly, by reference or by operation of Law therein (including,
without limitation, compliance with the requirements of the Service
Contract Act and payment of any required contract fees, industrial
funding fees, revenue sharing fees or other fees), except to the extent
any such terms and conditions were waived in writing by an authorized
contracting officer of the Government Body, (ii) all information, data,
representations, statements and certifications as submitted or provided
to any Governmental Body by any Company relative to any Government
Contract or Government Subcontract were current, complete and accurate
in all material respects as of the date submitted by such Company
(including invoices, claims or other requests for payments and any
certification regarding procurement integrity), (iii) there exists no
material breach or default (or event with notice or lapse of time would
constitute a material breach or default) on the part of any Company and
no Governmental Body or prime contractor, subcontractor or other Person
has notified any Company that any Company has breached or violated any
Law, certification, representation, clause, provision or requirement
pertaining to any such contract, (iv) no Company has received any
notice of termination for convenience, notice of termination for
default, cure notice or show cause notice with respect to any such
contract, (v) no cost incurred by any Company pertaining to any such
contract has, to Sellers' Knowledge, been challenged or questioned, nor
is any such cost the subject of any audit or investigation, other than
periodic audits and reviews in
21
the Ordinary Course of Business, or has been disallowed by any
Governmental Body, (vi) no payment due to any Company pertaining to any
such contract has been withheld (except to the extent such withholding
is in the Ordinary Course of Business) or set off, nor has any written
claim been made to withhold or set off money, (vii) no bid or proposal
(or a series of related bids or proposals) was bid knowing that when
accepted it would result in a loss, and (viii) the Companies have
complied with the Limitation of Costs and Limitation of Funds clauses
as required by FAR part 52.
(c) Except for audits and reviews in the Ordinary Course of
Business by a Governmental Body, no Company nor any of its Board
Members, officers, agents or employees has been under administrative,
civil or criminal investigation or indictment or audit by any
Governmental Body with respect to any alleged act, irregularity,
misstatement or omission arising under or relating to any contract with
a Governmental Body. No material liability will result from audits of
any Company by the Defense Contract Audit Agency or other cognizant
agency for the years subject to audit. No Company nor any of its Board
Members, officers, agents or employees has paid any fines, penalties,
restitution or settlements to any Governmental Body with respect to any
violation or alleged violation arising under or relating to any
Government Contract or Government Subcontract. No Company has conducted
any internal investigation in connection with which such Company nor to
Sellers' Knowledge, have any Company's Board Members, officers, or
employees engaged any outside legal counsel, auditor, accountant or
investigator, or made any disclosure to any Governmental Body or other
customer or prime contractor or higher-tier subcontractor related to
any suspected, alleged or possible violation of a contract requirement
or violation of law or regulation with respect to any Government
Contract or Government Subcontract.
(d) No Company has been debarred or suspended from
participation in the award of contracts with any Governmental Body
(excluding for this purpose ineligibility to bid on certain contracts
due to Section 8(a), small business or hub zone status requirements)
and to Sellers' Knowledge, no such action has been threatened or
commenced. To Sellers' Knowledge, there exist no facts or circumstances
that would warrant the institution of suspension or debarment
proceedings or the finding of nonresponsibility or ineligibility
(excluding ineligibility to bid on contracts due to Section 8(a), small
business or hub zone status requirements) on the part of any Company,
or any of its Board Members, officers or employees. Each Company is a
responsible contractor with a satisfactory record of integrity and
business ethics.
(e) Each Company is in compliance with all national security
obligations applicable to it. Each Company maintains any required
security clearances needed to perform any classified contracts to which
it is a party. Each Company has filed, to the extent required by
applicable Laws, an Affirmative Action plan and all compliance reports
associated with that plan and
22
has made a good faith effort to implement the policies set forth in the
plan. No Company nor to Sellers' Knowledge, any of its Board Members,
officers, agents or employees has violated any legal, administrative or
contractual restriction concerning the employment of (or discussions
concerning possible employment with) current or former officials or
employees of a Governmental Body (regardless of the branch of
government), including (not limited to) the so-called "revolving door"
restrictions set forth at 18 U.S.C. Section 207. Each Company has made
representations and certifications to the federal government in
accordance with FAR 52.212-3.
(f) The Companies maintain systems of internal controls
(including, but not limited to, cost accounting systems, estimating
systems, purchasing systems, proposal systems, billing systems and
material management systems) that are in compliance in all material
respects with all requirements of all of the Government Contracts and
Government Subcontracts and applicable United States Laws and
regulations. Set forth on Schedule 2.21(f) are summaries of the Cost
Accounting Standards, 48 C.F.R. Part 99, currently applicable to each
Company and to Sellers' Knowledge any such revised accounting standards
that will be applicable to each Company within the next 12 months
(including as a result of the transactions contemplated hereby), and a
summary of the implementation plan and status thereof pertaining to
such revised accounting standards, if any. No Company has ever been
and, no Company is now subject to full and/or modified cost accounting
standards coverage. The cost accounting, estimating, property and
procurement systems relating to any Government Contract or Government
Subcontract are in compliance in all material respects with applicable
Laws and contract provisions, including any applicable cost principles
and applicable cost accounting standards. Such compliance includes, but
is not limited to, the following: (i) assumptions underlying the
recognition of revenue under the percentage of completion method on
fixed price contracts are considered reasonable and all forward losses,
if any, have been properly accounted for in the period that they have
become known; (ii) income and expense recognition practices used to
record income and expenses associated with contracts with the federal
government and/or that are being paid for with federal funds are
consistent with contract terms and, if applicable, with federal
regulatory requirements and the cost accounting standards; (iii)
incentives recognized in financial statements from contract incentive
clauses of Government Contracts and Government Subcontracts have been
calculated consistent with the contract terms and the provisions of
relevant federal regulations; (iv) for Government Contracts and
Government Subcontracts funded with federal funds, estimates have been
made consistent with terms contained in the contract and, to the extent
applicable, on a basis consistent with federal regulations; and (v) all
revenue has been recognized within funding limitations/provisions
within the contract. Except as set forth on Schedule 2.21(f), none of
the Government Contracts or Government Subcontracts has a currently
incurred or currently projected cost overrun. To Sellers' Knowledge,
there have been no material delivery or performance issues or
significant problems on the part of any Company under any Government
Contract or Government Subcontract.
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(g) Except as set forth on Schedule 2.21(g), the entering into
of the Seller Documents and the consummation of the transactions
contemplated by the Seller Documents, without notice to or consent or
approval of any Governmental Body or other Person, will not constitute
a breach of, violation of, or default under any provision of any
Government Contract or Government Subcontract or will not give rise to
a right to terminate any Government Contract or Government Subcontract.
Except as set forth on Schedule 2.21(g), to Sellers' Actual Knowledge
(as defined in Section 7.11), no Governmental Body intends to alter its
relationship with any Company as a result of or in connection with the
transactions contemplated by the Seller Documents. Except as set forth
on Schedule 2.21(g), to Sellers' Actual Knowledge, none of the
Companies' expected revenue, sales or orders will be lost, and the
Companies' customer relations will not be damaged, as a result of the
Buyer continuing the operations of the Companies as entities that do
not qualify as a small business concern or for Section 8(a) or other
special status.
(h) Except as set forth on Schedule 2.21(h), no Company has
been and no Company is now involved in a qui tam Whistleblower action
involving any Company or any of its Board Members, officers, agents or
employees. No Company has now, nor after the Closing will have, any
Liability with respect to the action described on Schedule 2.21(h).
(i) Each Company has obtained the insurance coverage required
by contract where such insurance coverage requirements were set forth
in individual Government Contracts or Government Subcontracts.
(j) All completed contracts or task orders of any Company with
any Governmental Body and all completed subcontracts of any Company and
a third party relating to a contract between such third party and a
Governmental Body were completed in all material respects in accordance
with the terms thereof and accepted by the customer. No Company has
pending or anticipated claims, requests for equitable adjustment or
requests for waiver or deviation from contract requirements with
respect to any Government Contract or Government Subcontract, and to
Sellers' Knowledge, there are no claims or anticipated claims against
any Company by any Governmental Body with respect to any Government
Contract or Government Subcontract.
(k) Schedule 2.21(k) sets forth all written warranties
provided by the Companies. Except for claims in the Ordinary Course of
Business, which are not material individually or in the aggregate, no
warranty claims are pending or, to Sellers' Knowledge, threatened, nor
to Sellers' Knowledge, is there any reasonable basis for any such
claim.
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2.22 Material Agreements.
(a) Schedule 2.22(a) lists each agreement, arrangement and
understanding (whether written or oral and including all amendments
thereto) relating to the business of the Companies to which any Company
is a party or a beneficiary or by which any Company or any Material
Asset is bound that is material to any Company's current or proposed
operations, excluding Government Contracts and Government Subcontracts
(collectively, the "Material Agreements"), including without limitation
the following: (i) agreements, pursuant to which any Company sells or
distributes any products or services or that are otherwise material to
any Company's current or proposed operations; (ii) real estate leases;
(iii) agreements evidencing, securing or otherwise relating to any
indebtedness for borrowed money for which any Company is, directly or
indirectly, liable; (iv) capital or operating leases or conditional
sales agreements relating to vehicles, equipment, or other Material
Assets having an aggregate value in excess of $25,000; (v) agreements
pursuant to which any Company is entitled or obligated to acquire any
capital assets from a third party; (vi) insurance policies, including
account numbers for State Workers' Compensation Insurance; (vii)
employment, consulting, non-competition, separation, collective
bargaining, union, or labor agreements or arrangements; (viii)
agreements with or for the benefit of any Stockholder, Board Member,
officer, employee, or consultant (or any Person that, to Sellers'
Knowledge, claims or has any basis to claim any rights as such) of any
Company or any affiliate or immediate family member of the foregoing;
(ix) supply agreements or arrangements pursuant to which any Company is
entitled or obligated to acquire any assets from a third party having
an aggregate value in excess of $25,000; (x) any partnership, joint
venture, consortium, or other similar arrangements or agreements; (xi)
noncompetition, confidentiality and non-disclosure agreements to which
any Company is a party or a beneficiary; and (xii) any other agreement
pursuant to which any Company could be required to make or entitled to
receive aggregate payments or other aggregate value in excess of
$25,000.
(b) Except as set forth in Schedule 2.22(b), the entering into
of the Seller Documents and the consummation of the transactions
contemplated by the Seller Documents, without notice to or consent or
approval of any Governmental Body or other Person, will not constitute
a breach of, violation of, or default under any provision of any
Material Agreement.
(c) Schedule 2.22(c) identifies any Material Agreements that
will be terminated or expire in accordance with its scheduled
termination date at or prior to the Closing.
(d) SCL has delivered or made available to Buyers a copy of
each written Material Agreement and a written summary of each oral
Material Agreement. Except as described in Schedule 2.22(d), (i) each
Material Agreement is valid, binding, and in full force and effect and
enforceable against the applicable Company and, to Sellers' Knowledge,
the other parties thereto in accordance with
25
its terms; (ii) each Company has performed all of its material
obligations under each of its Material Agreements, and there exists no
material breach or default (or event that with notice or lapse of time
would constitute a breach or default) on the part of any Company or, to
Sellers' Knowledge, on the part of any other party under any Material
Agreement; (iii) there has been no termination (whether for default, or
otherwise), investigation, notice of default, or, to Sellers' Actual
Knowledge, any threatened termination or investigation or basis for any
termination or investigation under any Material Agreement; (iv) no
party (including any Company) has terminated, cancelled or waived any
material term or condition of any Material Agreement and (v) to
Sellers' Actual Knowledge, no party to a Material Agreement intends to
alter its relationship with any Company as a result of or in connection
with the transactions contemplated by the Seller Documents or has been
threatened with bankruptcy or insolvency.
2.23 Customers. Set forth on Schedule 2.23 is a complete list of each
Company's customers by task order during the fiscal year ended December 31, 2001
and during the 11 months ended November 30, 2002 indicating the amount of
revenues attributable to each customer during each period. No such customer
listed by task order that accounted for more than $200,000 in revenues for
either of such periods (each, a "Material Customer") has threatened any
Principal Stockholder or officer of any Company to, or notified any Principal
Stockholder or Company of any intention to, terminate its relationship with such
Company prior to a scheduled termination date or materially alter its
relationship with such Company, and there has been no material dispute with a
Material Customer since January 1, 2001.
2.24 Intellectual Property Rights.
(a) Set forth on Schedule 2.24(a) are all the worldwide
intangible legal rights or interests evidenced by or embodied in (i)
any idea, design, concept, method, process, technique, apparatus,
Software (as defined in subsection (j) below), invention, discovery, or
improvement, including any patents, patent applications, trade secrets,
and know-how; (ii) any work of authorship, including any copyrights,
industrial designs, mask works or moral rights; (iii) any trademarks,
trade names, service marks, trade designations, trade dress and
associated goodwill; and (iv) any other proprietary technology or
materials in which similar rights exist, in each case that are material
to and used in the operations of any Company (clauses (i) through (iv)
are collectively, the "Intellectual Property").
(b) Except for commercial off-the-shelf software products, set
forth on Schedule 2.24(b) is all Intellectual Property that is used by
any Company pursuant to a written license from a third party (e.g.,
third party Software). The Companies have valid licenses or other valid
rights for all commercial off-the-shelf software products used by the
Companies. If any third-party Intellectual Property is used without a
written license, a description of such Intellectual Property and the
reason that a written license does not exist is set forth on Schedule
2.24(b).
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(c) Set forth on Schedule 2.24(c) is all Intellectual Property
that is proprietary to any Company and is licensed in writing by such
Company to a third party. If, to Sellers' Knowledge, a third party uses
or has access to Intellectual Property without a written license, a
description of such Intellectual Property and the reason that a written
license does not exist is set forth on Schedule 2.24(c).
(d) The Companies own, or hold valid licenses to, all
Intellectual Property required to conduct their business as currently
conducted, including all Intellectual Property described on Schedule
2.24(a) and Schedule 2.24(b).
(e) All Software, systems, designs, schematics, algorithms,
architecture or other materials developed by any independent
contractors on behalf of any Company are owned by such Company, and all
Software, systems, designs, schematics, algorithms, architecture or
other materials developed by any employee of a Company and used by such
Company was developed within such employee's scope of work at such
Company.
(f) The Companies do not own any proprietary Software
programs.
(g) All applicable maintenance fees, royalties, honoraria,
development fees or other fees with respect to the use and/or ownership
of the Intellectual Property by any Company have been paid in full.
(h) The existence or use of the Intellectual Property by any
Company and the operation of any Company does not infringe on the
rights of any Person and to Sellers' Knowledge, no Person is infringing
on the Intellectual Property owned by any Company. The Companies have
taken commercially reasonable steps to ensure the continued proprietary
nature of the Intellectual Property of each Company and nothing has
transpired that would compromise or call into question that proprietary
nature.
(i) No Governmental Body has obtained by contract or
otherwise, rights in the Intellectual Property that will affect the
commercial value thereof. Any rights of a Governmental Body in the
Intellectual Property are described on Schedule 2.24(i).
(j) As used in this Agreement, "Software" means computer
software programs together with the source code, object code,
executable code, routines, algorithms, class files, object files and
other program listings, user manuals, technical manuals and supporting
material, and other printed and electronic information.
2.25 Competing Interests. Except for the ownership of less than one
percent of the capital stock or other securities of one or more public companies
and as set forth on Schedule 2.25, no Principal Stockholder nor any Board Member
or officer of any Company
27
nor, to Sellers' Knowledge, any immediate family member of any of the foregoing
(a) owns, directly or indirectly, an interest in any Person that is a
competitor, customer, or supplier of any Company or that otherwise has material
business dealings with any Company or (b) is a party to, or otherwise has any
direct or indirect interest opposed to any Company under, any Material Agreement
or other business relationship or arrangement.
2.26 Accounts Receivable. All accounts receivable reflected on the
Latest Balance Sheet and all accounts receivable arising since the Latest
Balance Sheet Date constitute bona fide, valid, binding and to Sellers'
Knowledge, collectible claims (net of reserves set forth on the Latest Balance
Sheet) arising in the Ordinary Course of Business out of arms length
transactions with third parties unrelated to any Principal Stockholder or
Company. To Sellers' Knowledge, there is no circumstance or condition (including
the transactions contemplated by this Agreement), which after the Closing would
result in an increase in uncollectible accounts receivables or pattern
materially inconsistent with historical experience with regards to the
collection of uncollectible or doubtful accounts.
2.27 Exclusivity. Since November 5, 2002, no Seller has initiated,
solicited, or encouraged (including by way of furnishing information or
assistance), or taken any other action to facilitate, any inquiries or the
making of any proposal relating to, or that may reasonably be expected to lead
to, any Competing Transaction (as defined in Section 4.11), or entered into
discussions or negotiate with any Person in furtherance of such inquiries, or
endorsed or agreed to endorse any Competing Transaction, or authorized or
permitted any of the officers, directors, managers or employees of any Company
or any investment banker, financial advisor, attorney, accountant, or other
representative retained by a Seller or any of their affiliates, to take any such
action.
2.28 Regulated Payments. No Principal Stockholder, Board Member,
officer, agent or employee of any Company, or, to Sellers' Knowledge, any
affiliate or immediate family member of any of the foregoing has (a) used any
funds of any Company for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity, (b) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (c) violated any applicable
procurement laws or regulations, or (d) made any other unlawful gift,
contribution or payment.
2.29 Interested Party Transactions. Since the Latest Balance Sheet
Date, except as set forth on Schedule 2.29, there have not been any business
dealings or transactions between any Company and any Stockholder or any
affiliate or family member of any Stockholder, other than transactions between
the Companies, as employer, and such Person, as employee, in the usual, regular
and Ordinary Course of Business.
2.30 No Misrepresentations. In connection with the acquisition of the
Shares, no Principal Stockholder nor SCL has made any untrue statement of a
material fact or knowingly omitted any material fact necessary to make any such
representation, warranty, or statement, under the circumstances in which it is
made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYERS
PSC and PSGS, jointly and severally, represent and warrant to Sellers
as follows:
3.1 Organization. PSC is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware. PSGS is a corporation
duly organized, validly existing and in good standing under the laws of
Virginia.
3.2 Authority. Each Buyer has all requisite power and authority to
execute, deliver, and perform under this Agreement and the other agreements,
documents, certificates, and instruments to be executed by Buyers in connection
with or pursuant to this Agreement (together with this Agreement, the "Buyer
Documents"). The execution, delivery, and performance by each Buyer of each
Buyer Document to which it is a party have been duly authorized by all necessary
action, corporate or otherwise, on the part of each Buyer. This Agreement has
been, and at the Closing the other Buyer Documents will be, duly executed and
delivered by PSC and PSGS, to the extent each is a party thereto. This Agreement
is, and upon execution and delivery, each of the other Buyer Documents will be,
a legal, valid, and binding agreement of PSC and PSGS, as the case may be,
enforceable against PSC and PSGS in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the enforcement of creditors' rights generally, and except that the
availability of the remedy of specific performance or other equitable relief is
subject to the discretion of the court before which any proceeding therefore may
be brought.
3.3 Stock Validity. The shares of PSC Common Stock that may be issued,
in PSC's sole discretion, as payment for up to 70% of the aggregate amount of
Contingent Payments, whether paid or earned and payable (the "PSC Shares") are
duly authorized shares of PSC's Class A Common Stock, $.01 par value per share,
have been duly authorized for issuance under this Agreement, and if and when
issued as contemplated by this Agreement will be validly issued, fully paid and
non-assessable and free of statutory preemptive rights with respect thereto.
Upon issuance in accordance with this Agreement, the Stockholders will receive
good and valid title to the PSC Shares free and clear of any Liens. The PSC
Shares will be registered with the SEC and listed for trading on the Exchange as
set forth in Section 4.14. All issued and outstanding shares of capital stock of
PSGS are owned by PSC.
3.4 No Violation. The execution, delivery, and performance of the Buyer
Documents by Buyers will not conflict with or result in the breach of any term
or provision of, or violate, or constitute a default under any charter
provision, bylaw or regulation or under any material agreement, instrument,
order, law, or regulation to which either of them is a party or by which either
of them is in any way bound or obligated.
29
3.5 Consents. Except as required by the HSR Act or State securities
laws and the listing of the PSC Shares on the Exchange, no consent, approval,
order, or authorization of, or registration, qualification, designation,
declaration, or filing with, any Governmental Body or any other Person is
required on the part of either Buyer in connection with the transactions
contemplated by the Seller Documents.
3.6 Litigation. There are no pending or, to the knowledge of Buyers,
threatened, lawsuits, administrative proceedings, arbitrations, reviews, or
formal or informal complaints or investigations by any Person that in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement.
3.7 Available Funds. PSGS has, and on the Closing Date and on any other
date on which a portion of the Purchase Price is payable, will have, sufficient
funds to enable it to consummate the transactions contemplated hereby.
3.8 SEC Reports. There is available on SEC's EDGAR database a copy of
each report, proxy statement or information statement filed by PSC since January
1, 1999, each in the form (including exhibits and any amendments thereto and all
documents incorporated by reference therein) (collectively, the "SEC Documents")
filed with the SEC under the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
the applicable rules and regulations of the SEC thereunder, and none of the SEC
Documents contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements made therein, under the circumstances in which
they were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC prior to the date hereof. PSC is current in its
filings with the SEC.
3.9 Government Relations. To Buyers' Actual Knowledge (as defined in
Section 7.11), there is no basis for the Environmental Protection Agency to
terminate or cancel any Government Contract or Government Subcontract prior to
such contracts' scheduled termination date as a result of PSC being a party to
this Agreement, other than for termination or cancellation based on the
Companies' not qualifying for Section 8(a) or small business status.
3.10 No Misrepresentations. In connection with the acquisition of the
Shares, no Buyer has made any untrue statement of a material fact or knowingly
omitted any material fact necessary to make any such representation, warranty,
or statement, under the circumstances in which it is made, not misleading.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Conduct of Business. During the period commencing on the date of
this Agreement and ending on the earlier to occur of the Closing or the
termination of this
30
Agreement in accordance with its terms (the "Interim Period"), unless Buyers
otherwise consent in writing, which consent will not be unreasonably delayed or
withheld, and except as otherwise specifically contemplated by this Agreement or
as set forth on Schedule 4.1, SCL will, and the Stockholders and SCL will cause
the other Companies to, (a) operate in the Ordinary Course of Business and use
commercially reasonable efforts to preserve the goodwill of the Companies and of
their employees, customers, suppliers, Governmental Bodies and others having
business dealings with the Companies; (b) not engage in any transaction outside
the Ordinary Course of Business, including without limitation by making any
material expenditure, investment, or commitment or arrangement of any kind; (c)
not increase the compensation of any employee or officer or make any bonus
payments or other distributions except in the Ordinary Course of Business; (d)
maintain all insurance policies and all Permits that are required for the
Companies to carry on their business; (e) maintain books of account and records
in the usual, regular, and ordinary manner and consistent with past practices;
and (f) not take any action that would result in a breach of any of the
representations and warranties set forth in Article II.
4.2 Access and Information. During the Interim Period, SCL will permit
Buyers and their representatives to have reasonable access to the Companies'
Board Members, officers, employees, agents, assets, and properties and all
relevant books, records, and documents of or relating to the business and assets
of the Companies during normal business hours upon reasonable advance notice and
will furnish to Buyers such information, financial records, and other documents
relating to the Companies and their operations and businesses as Buyers may
reasonably request. SCL will permit Buyers and their representatives reasonable
access to the Companies' accountants, auditors, customers, and suppliers for
consultation or verification of any information obtained by Buyers and will use
their best efforts to cause such Persons to cooperate with Buyers and their
representatives in such consultations and in verifying such information.
4.3 Supplemental Disclosure. During the Interim Period, Sellers may
supplement or amend in writing each of the Schedules to this Agreement with
respect only to matters that any Seller becomes aware of that arise or are
discovered after the date of this Agreement and that, if existing or known at
the date of this Agreement, would have been required to be set forth or listed
in the Schedules to this Agreement; provided that, for purposes of determining
whether the conditions to the obligations of Buyers set forth in Section 5.1(a)
have been fulfilled, any such supplemental or amended disclosure will be deemed
not to have been made or included in any Schedule to this Agreement unless
Buyers otherwise expressly consent in writing.
4.4 Notification of Certain Matters. Sellers will give prompt notice to
Buyers of (a) the occurrence, or failure to occur, of any event that to Sellers'
Knowledge, could cause any Seller's representations or warranties contained in
this Agreement to be untrue or inaccurate at any time during the Interim Period,
and (b) any failure of any Seller to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
31
4.5 Assistance with Permits, Filings and Consents. During the Interim
Period, Sellers will furnish Buyers with all information concerning the
Companies or the Stockholders that is required for inclusion in any application
or filing made by Buyers to any Governmental Body or other Person in connection
with the transactions contemplated by this Agreement. Sellers will fully
cooperate with and assist Buyers (a) in filing the Notification and Report Form
required by the HSR Act with the Federal Trade Commission and the Antitrust
Division of the Department of Justice, (b) in seeking approval from any
Governmental Body with regard to certain employees of Buyers or any of their
affiliates obtaining access to classified documents, (c) in seeking approval
from any Governmental Body to enable Buyers or any of their affiliates to store
classified data and documents, (d) in obtaining any Permits, or (e) with any
consents to change in ownership, including execution of novation agreements or
change-of-name agreements, that Buyers determine in their reasonable judgment
will be required in connection with the operation of the Companies' business
after the Closing.
4.6 Fulfillment of Conditions by Sellers. Sellers agree not to take any
action that would cause the conditions on the obligations of the parties to
effect the transactions contemplated by this Agreement and the Seller Documents
not to be fulfilled, including without limitation, by taking or causing to be
taken any action that would cause the representations and warranties made by
Sellers in Article II of this Agreement not to be true and correct as of the
Closing. Sellers will take all reasonable steps within their power to cause to
be fulfilled the conditions precedent to Buyers' obligations to consummate the
transactions contemplated by this Agreement that are dependent on the actions of
Sellers provided, however, that no Seller nor any of their affiliates will be
required to make any material monetary expenditure, commence or be a plaintiff
in any litigation or offer or grant any material accommodation (financial or
otherwise) to any third Person, including, without limitation, the offer for
sale of any business or assets to any Person.
4.7 Fulfillment of Conditions by Buyers. Buyers agree not to take any
action that would cause the conditions on the obligations of the parties to
effect the transactions contemplated by this Agreement not to be fulfilled,
including without limitation by taking or causing to be taken any action that
would cause the representations and warranties made by Buyers in this Agreement
not to be true and correct as of the Closing. Buyers will take all reasonable
steps within their power to cause to be fulfilled the conditions precedent to
the obligations of Sellers to consummate the transactions contemplated by this
Agreement that are dependent on the actions of Buyers; provided, however, that
neither Buyer nor any of their affiliates will be required to make any material
monetary expenditure, commence or be a plaintiff in any litigation or offer or
grant any material accommodation (financial or otherwise) to any third Person,
including, without limitation, the offer for sale of any business or assets to
any Person.
4.8 Publicity. Prior to the Closing, Buyers and the Stockholders will,
and the Stockholders will cause the Companies to, maintain the confidentiality
of the transactions contemplated by this Agreement and no such party will issue
or make, or allow to have issued or made, any press release or public
announcement concerning the transactions contemplated by this Agreement, except
as required by applicable Law or stock market
32
requirements. Buyers and the Stockholders will cooperate with each other in the
development and distribution of all news releases and other public disclosures
relating to the announcement promptly after the Closing of the transactions
contemplated by this Agreement. Neither Buyers nor the Stockholders will issue
or make, or allow to have issued or made, any press release or public
announcement concerning the announcement of the transactions contemplated by
this Agreement without giving the other party a reasonable opportunity to
comment on such release or announcement in advance, and any such public
announcement will be consistent with applicable Law and stock market
requirements.
4.9 Transaction Costs. Buyers will pay all transaction costs and
expenses (including legal, accounting, and other professional fees) that they
incur in connection with the negotiation, execution, and performance of this
Agreement and the transactions contemplated by this Agreement. The Stockholders
will pay all transaction costs and expenses (including legal, accounting,
broker, finders and other professional fees) incurred by any Stockholder,
whether prior to, on or after the Closing, or prior to or at the Closing by any
Company, in connection with the negotiation, execution, and performance of this
Agreement and the transactions contemplated by this Agreement, including any
transfer or stamp taxes associated with the transfer of the Shares to PSGS but
excluding the professional and broker fees not exceeding $35,000 in the
aggregate set forth on Schedule 1.3(a) that have been expensed and paid by SCL
prior to the date hereof. Notwithstanding the foregoing, (a) Seller Transaction
Costs may be paid by SCL or on SCL's behalf by Buyers to the extent such Seller
Transaction Costs are incurred prior to the Closing Date and are included in the
calculation of the Purchase Price pursuant to Section 1.3 and (b) Buyers, on the
one hand, and the Stockholders, on the other hand, each will pay one-half of the
filing fees required under the HSR Act and incurred in connection with the sale
of the Shares to Buyers.
4.10 Bonuses. Prior to the Closing Date, SCL will have expensed and
accrued an aggregate amount of * for bonuses to be paid following the Closing to
certain employees and Board Members of SCL (the "Performance Bonus"). The amount
of the Performance Bonus to be paid will be equal to *. Buyers will cause SCL to
pay the Performance Bonus to the employees and Board Members of SCL set forth on
Schedule 4.10, and in the pro rata amount set forth for each such individual on
Schedule 4.10, within ten days after the Stockholders notify Buyers in writing
of their election to accept or reject Buyers' Closing Balance Sheet and any
Purchase Price Adjustment resulting therefrom pursuant to Section 1.4(e).
Notwithstanding the foregoing, if at the time of payment there is any dispute
concerning Buyers' Closing Balance Sheet and the Deficiency Amount resulting
therefrom and such dispute affects the amount of the Performance Bonus, then at
such time Buyers will cause SCL to pay only that portion of the Performance
Bonus that is not subject to change based on the resolution of the dispute, and
Buyers will cause SCL to pay the remaining amount, if any, promptly after
finalization of the Deficiency Amount.
- ----------
*Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission.
33
4.11 No-Shop Provisions. All times during the Interim Period no Seller
will, and no Seller will permit any of its affiliates to, initiate, solicit, or
encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal
relating to, or that may reasonably be expected to lead to, any Competing
Transaction (as defined below), or enter into discussions or negotiate with any
Person in furtherance of such inquiries or to obtain a Competing Transaction, or
endorse or agree to endorse any Competing Transaction, or authorize or permit
any of the Board Members, officers, directors, managers or employees of any
Company or any investment banker, financial advisor, attorney, accountant, or
other representative retained by any Principal Stockholder or Company, or any of
their affiliates to take any such action. For purposes of this Agreement,
"Competing Transaction" means any of the following (other than the transactions
contemplated by this Agreement) involving any Company: (a) any merger,
consolidation, share exchange, business combination, or similar transaction; (b)
any sale, lease, exchange, mortgage, pledge, transfer, or other disposition of
five percent or more of the assets used in the business of the Companies; or (c)
any offer for five percent or more of the outstanding shares of capital stock of
any Company.
4.12 Nondisclosure. The parties hereto acknowledge and agree that all
customer, prospect, and marketing lists, sales data, intellectual property,
proprietary information, trade secrets, and other confidential information of
the Companies (collectively, "Confidential Information") are valuable, special
and unique assets of the Companies and are, and following the Closing, will
continue to be owned exclusively by the Companies. Each party hereto agrees to,
and agrees to use reasonable efforts to cause its representatives to, treat the
Confidential Information, together with any other confidential information
furnished to the Stockholders and the Companies by Buyers on the one hand, or to
Buyers by the Stockholders and the Companies, on the other hand, as confidential
and not to make use of such information for its own purposes or for the benefit
of any other Person (other than the Companies and after the Closing, Buyers).
Without limiting the generality of the foregoing, the parties expressly
acknowledge and agree that the material terms of this Agreement (including,
without limitation, the amount of the Purchase Price) constitute Confidential
Information, and, in any event, unless otherwise publicly disclosed by Buyers,
each party hereby agrees not to, and agrees to use reasonable efforts to cause
its representatives not to, disclose such terms to any Person, except to the
extent required by law, in which case the non-disclosing parties will be given
as much advance notice as reasonably possible with respect to the nature of such
required disclosure.
4.13 Filing and Authorizations. As promptly as practicable, Buyers and
Sellers will make, or cause to be made, such filings and submissions under laws,
rules and regulations applicable to it, including the HSR Act, as may be
required to consummate the transactions contemplated herein, and will use
commercially reasonable efforts to obtain, or cause to be obtained, all
authorizations, approvals, consents and waivers from all Governmental Bodies
necessary to be obtained by Buyers and Sellers, respectively. Buyers and Sellers
will seek early termination of any waiting period applicable to the consummation
of the transactions contemplated hereby under the HSR Act.
34
4.14 Registration Statement.
(a) PSC has filed a registration statement on Form S-4 (the
"Registration Statement") with the SEC in connection with the issuance
of shares of PSC Common Stock in transactions such as those
contemplated by this Agreement. The PSC Shares will be registered
pursuant to the Registration Statement. PSC will use all reasonable
efforts to cause the Registration Statement to remain effective under
the Securities Act of 1933, as amended (the "Securities Act") to the
extent necessary to permit resale of the PSC Shares. In the event that
any Stockholder is unable to resell any PSC Shares under the
Registration Statement or, is unable to resell all of the PSC Shares
without limitation on volume under the provisions of Rule 145 of the
Securities Act, (without considering any other shares of PSC Common
Stock that any Stockholder may acquire other than under this
Agreement), then PSC, at its cost and expense, will promptly upon
request by a Stockholder cause such PSC Shares to be registered under
the Securities Act, and will maintain such registration until such time
as such Stockholder is able to resell such PSC Shares without
limitation on volume under the Securities Act. PSC also agrees to use
all reasonable efforts to obtain all necessary state securities law or
"Blue Sky" permits and approvals required to issue the PSC Shares. The
Stockholders will furnish to PSC all information concerning the
Stockholders as may be necessary in connection with the foregoing.
(b) PSC will advise the Stockholders, promptly after PSC
receives notice thereof, of the time when any supplement or amendment
to the Registration Statement has been filed, of the issuance of any
stop order or the suspension of the qualification of the PSC Shares for
offering or sale in any jurisdiction, of the initiation or threat known
to PSC of any proceeding for any such purpose, or of any request by the
SEC for the amendment or supplement of the Registration Statement or
for additional information.
(c) At or prior to the issuance of any PSC Shares, PSC will
cause such PSC Shares to be listed on the Exchange.
4.15 Release by Stockholders. In consideration of the Purchase Price
and other good and valuable consideration, the sufficiency of which is hereby
acknowledged, effective upon the Closing, each Stockholder, for itself and its
heirs, executors, administrators, successors and assigns, hereby fully,
unconditionally and knowingly releases and forever discharges and holds harmless
each Company and its respective employees, officers, Board Members, successors
and assigns from any and all claims, demands, losses, costs, expenses (including
reasonable attorneys' fees and expenses), obligations, liabilities and/or
damages of every kind and nature whatsoever, whether now existing or known,
arising out of the operation or conduct of the Companies' business or a
transaction or circumstance occurring or existing or related to the period of
time prior to the Closing, relating in any way, directly or indirectly, to any
35
Company, this Agreement or the transactions contemplated hereby, that such
Stockholder may now have or may hereafter claim to have against any Company or
any of such employees, officers, Board Members, successors or assigns; provided,
however, the foregoing release will not affect any obligations of Buyers to the
Stockholders under this Agreement or any other Buyer Document nor will it apply
to any claim brought by a Stockholder against Buyer for a breach of any
representation or warranty made by Buyer under this Agreement or any of the
other Buyer Documents or under federal or state securities laws in connection
with disclosures contained in (or omissions from) the Buyer SEC Documents or the
Registration Statement.
4.16 Uncollected Accounts Receivable.
(a) Promptly after the determination thereof, Buyers will
cause the Companies to assign, transfer and convey jointly to the
Stockholders their rights, title and interest in the billed accounts
receivable of the Companies outstanding as of the Closing that remain
outstanding more than 180 days from the Closing Date, to the extent the
aggregate amount of such billed receivables exceed the reserve for
doubtful billed accounts receivable reflected on the Closing Balance
Sheet. The Stockholders will furnish to the Companies and Buyers such
information relating to the collection of such billed accounts
receivable as the Companies or Buyers may reasonably request, including
third-party collection efforts or litigation with customers of any
Company.
(b) If any unbilled accounts receivable included in the final
Closing Balance Sheet are not collected by the Companies within 300
days from the Closing Date in the Ordinary Course of Business, without
resort to third-party collection efforts or litigation (the "Unbilled
Receivables"), then an amount equal to the aggregate face amount of
such Unbilled Receivables, in excess of any reserves for uncollectible
unbilled accounts receivable on the Closing Balance Sheet, if any will
be due and owing to PSC. Such amount will be deducted first from the
Holdback Amount and distributed to PSC in accordance with the Escrow
Agreement, and to the extent the Holdback Amount is insufficient to
satisfy such payment obligation in full, the Principal Stockholders,
jointly and severally, will pay the balance thereof to PSC in cash
within ten days after determination of the amount due from the
Principal Stockholders. Buyers' calculation of Unbilled Receivables
will be in reasonable detail as may be necessary to evaluate the
accuracy thereof. Simultaneously with the full payment for Unbilled
Receivables to PSC, Buyers will cause the Companies to assign transfer
and convey jointly to the Stockholders their rights, title and interest
in the Unbilled Receivables, to the extent the aggregate amount of such
Unbilled Receivables exceed the reserve for doubtful unbilled accounts
receivable reflected on the Closing Balance Sheet. The Stockholders
will furnish to the Companies and Buyers such information relating to
the collection of such Unbilled Receivables as the Companies or Buyers
may reasonably request, including third-party collection efforts or
litigation with customers of any Company.
36
(c) Buyers will cause the Companies to use commercially
reasonable efforts to bill and collect all accounts receivable included
in the Closing Balance Sheet; provided, that, such commercially
reasonable efforts will not be deemed to be more than the Companies'
historical practices.
4.17 Tax Matters.
(a) The Principal Stockholders, jointly and severally, will
indemnify Buyers for any liability of the Companies for Tax allocable
to any taxable period (or any portion thereof) ending on or before the
Closing Date which is reflected in a Post-Closing Return (as defined in
subsection (b) below), to the extent that such Tax has not been
included as a liability on the Closing Balance Sheet, or deducted from
the Purchase Price pursuant to Section 1.3(c)(i), (ii), or (iii), or
constitutes a Seller Transaction Cost. For purposes of all
indemnification obligations of the Principal Stockholders for Taxes
under this Agreement, Taxes will be computed as if the Post-Closing
Returns included no deductions in connection with the exercise of the
Options or any sales of Shares pursuant to this Agreement that
constitute disqualifying dispositions of Shares acquired by the
exercise of incentive stock options (together, the "Option Exercise")
or the payment of the Performance Bonus.
(b) SCL will have the right, but will not be obligated, to
prepare and file the Tax returns for the taxable period ended December
31, 2002 (the "2002 Tax Year") prior to the Closing Date. If SCL
prepares and files returns for the 2002 Tax Year, all such returns will
be prepared in a manner consistent with SCL's prior practices and
legally permissible and, as to any matters for which there is not a
prior practice, will be prepared utilizing positions that have a
realistic possibility of being sustained on their merits, as defined in
Treas. Reg. Section 1.6694-2(b). Buyers will properly and accurately
prepare (or cause to be prepared) and file (or cause to be filed) each
Tax return required to be initially filed by each Company after the
Closing Date for a taxable period beginning before the Closing Date and
not prepared and filed by SCL (a "Post-Closing Return"). The parties
agree that the income tax returns for the taxable period ending on the
Closing Date will include deductions in connection with the Option
Exercise and that, unless otherwise determined by Buyers in their sole
discretion, such Tax returns will include elections to carry back to
prior taxable periods any net operating losses reflected on such
returns. All Post-Closing Returns will be prepared in a manner
consistent with SCL's prior practices and legally permissible and, as
to any matter for which there is not a prior practice, will be prepared
utilizing positions that have a realistic possibility of being
sustained on their merits, as defined in Treas. Reg. Section
1.6694-2(b). Any such Tax return will be provided to the Stockholders
30 days prior to the due date for filing such Tax return (or, if
required to be filed within 30 days of the Closing, as soon as
reasonably possible following the Closing). The Stockholders will have
the right to review and comment on such Tax return. Buyers (or the
Companies) will timely pay the Tax shown as due on each such Tax
return, subject to any indemnification by the Principal Stockholders
pursuant to Section 4.17(a).
37
(c) The parties shall, unless prohibited by applicable law,
cause the taxable period of each Company to end as of the close of the
Closing Date. Buyers will not permit any Company to take any actions
after Closing on the Closing Date that are out of the ordinary course
of business, except as contemplated by this Agreement. For purposes of
this Agreement, Company Taxes incurred with respect to a taxable period
that includes but does not end on the Closing Date, will be allocated
to the portion of the period ending on the Closing Date (i) except as
provided clauses (ii) and (iii) below, to the extent feasible, on a
specific identification basis, according to the date of the event or
transaction giving rise to the Tax, and (ii) except as provided in
clause (iii) below, with respect to periodically assessed ad valorem
Taxes and Taxes not otherwise feasibly allocable to specific
transactions or events, in proportion to the number of days in such
period occurring on or before the Closing Date in such period compared
to the total number of days in such period, and (iii) in the case of
any Tax based upon or related to income or receipts, in an amount equal
to the Tax which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that
begins before and ends after the Closing Date will be taken into
account as though the relevant taxable period ended on the Closing
Date. All determinations necessary to give effect to the foregoing
allocations will be made in a manner consistent with prior practices of
the Companies.
(d) The parties agree that Buyers will be entitled to file
amended Tax returns of the Companies for taxable periods ending prior
to the Closing Date to reflect carrybacks of net operating losses from
the taxable period ending on the Closing Date and, if applicable, from
the 2002 Tax Year ("Buyer Carryback Returns"). The Buyers will not file
any other amended Tax returns of the Companies for taxable periods
ending prior to the Closing Date without the consent of the
Stockholders, which consent may be withheld in the Stockholders' sole
discretion. Buyers will, upon request by the Stockholders, either (1)
cooperate in the preparation of and submission to the proper taxing
authority of any amended Tax return which is required to cause such Tax
return to be consistent with adjustments to the Tax returns of the
Companies for any other taxable period proposed by any taxing authority
("Seller Directed Amended Returns") or (2) release the Principal
Stockholders from their indemnity liability for Taxes under this
Agreement to the extent that such Taxes would not have been incurred by
the Companies had the Tax liabilities of the Companies been computed as
reflected in the amended return requested by the Stockholders to be
submitted.
(e) Buyers will be entitled to retain all refunds, credits of
Taxes and interest resulting from Buyer Carryback Returns. To the
extent that (i) any Seller Directed Amended Return or (ii) any audit or
examination of a taxable period ending on or before, or including any
time period before, the Closing Date results in any refund or credit of
Taxes paid attributable to any period (or portion
38
thereof) that ends on or before the Closing Date, Buyer will promptly
pay any such refund (to the extent paid by the Companies before the
Closing Date or for which any Principal Stockholders paid pursuant to
the indemnities under this Agreement), and the interest actually
received thereon, to Sellers' Representative on behalf of the
Stockholders upon receipt thereof by any Company or Buyers, except to
the extent that the Companies' entitlement to such refund or credit was
taken into account as an asset on the Closing Balance Sheet. Any
payments made to the Sellers' Representative under this Section 4.17(e)
will be net of any Taxes payable with respect to the receipt by any
Company or the Buyer of such refund, credit or interest thereon, and
any Taxes for which a Buyer Party is entitled to indemnity under
Section 4.17(a) or Article VI.
(f) Any party who receives any notice of a pending or
threatened Tax audit, assessment, or adjustment against or with respect
to a Company which may give rise to liability of other parties hereto,
will promptly notify such other parties of the receipt of such notice
without reasonably avoidable delay and in all events within such a
period as will permit effective participation in the response to such
notice by such other parties. The parties each agree to consult with
and to keep the other parties hereto informed on a regular basis
regarding the status of any Tax audit or proceeding to the extent that
such audit or proceeding could affect a liability of such other parties
(including indemnity obligations hereunder). The Stockholders will have
the right to control and represent each Company's interests in any Tax
audit or administrative or judicial proceeding and to employ counsel of
their choice, but reasonably satisfactory to Buyers, but only to the
extent that such audit or other proceeding pertains (i) to taxable
periods beginning before the Closing Date or (ii) to the availability
of a net operating loss carryover from such a taxable period, to the
extent that the issues of such availability may result in
indemnification obligations on the part of the Stockholders pursuant to
this Agreement, and provided that the Stockholders will not settle any
such proceeding on behalf of any Company without PSC's consent if such
settlement would increase the Tax liabilities of the Companies or
Buyers for which Buyers would not be indemnified under this Agreement,
which consent will not be unreasonably withheld or delayed. For this
purpose, PSC's withholding of timely approval of such a settlement will
be deemed reasonable only if the Companies in the responsible
management of their affairs would not take such a position in the
absence of the change in control of SCL contemplated by this Agreement
and in the absence of any indemnification or reimbursement for Taxes
pursuant to this Agreement. PSC will have the right to participate in
such proceeding at its own expense, and, notwithstanding the foregoing,
will be entitled to control the disposition of any issue on behalf of
the Companies involved in such proceeding if either (i) the resolution
of the issue would not affect a potential liability of the Stockholders
(taking into account their indemnity obligations under this Agreement),
or (ii) Buyers release the Principal Stockholders from their
indemnification obligations under this Agreement for Taxes associated
with the disposition of such issue. To the extent that the
39
settlement of any such audit or proceeding (1) results in an
indemnification liability of the Principal Stockholders and (2) results
in a tax benefit to the Companies or Buyers in any taxable years, the
Companies or Buyers will repay the Principal Stockholders, up to the
amount paid by them as a result of such settlement, solely from such
resulting tax benefits actually realized by the Companies or Buyers in
such taxable years, as and when realized. Any claim for indemnity under
this Section 4.17(a) will be treated as a Claim with respect to a Loss
within the meaning of Article VI, and, only to the extent not provided
for in this Section 4.17, the provisions of Article VI will govern
manner in which Tax claims are resolved and paid.
(g) Each party will cooperate as and to the extent reasonably
requested by any other party hereto in connection the preparation and
filing of Tax returns as provided herein and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation will include
the provision of records and information which are reasonably relevant
to any such Tax return, audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. Each party agrees (i) to retain all books and records with
respect to Company Taxes (including Tax returns) relating to any
taxable period beginning before the Closing Date until the expiration
of the statute of limitations for assessment of Taxes for such
respective taxable period, and (ii) to give any other party reasonable
written notice prior to transferring, destroying or discarding any such
books and records and, if another party so requests, will allow the
other party to take possession of such books and records.
4.18 Post-Closing Operation of Companies.
(a) Buyers agree that during the period from the day
immediately following the Closing to and including December 31, 2004
(the "Earnout Period"), Buyers will not, without the prior written
consent of the Stockholders, take or permit to be taken any action that
would result in any Company not being a subsidiary, division or
separate business unit of PSGS unless such Company is placed in a
bankruptcy or insolvency proceeding or is merged into or consolidated
with another Company. Buyers further agree that during the Earnout
Period, Buyers or SCL (or any successor in interest to SCL) (i) will
not terminate any of James Goodridge ("Goodridge"), Michael Phillips
("Phillips") or Amy Fadida ("Fadida") from employment unless such
termination is for "Cause" or (ii) will not take any action that
permits any of Goodridge, Phillips or Fadida to terminate their
employment for "Good Reason," as those terms are defined in the
Goodridge Agreement, the Phillips Agreement and the Fadida Agreement
(as such terms are defined in Sections 5.1(g), (h) and (i),
respectively). So long as they are employed by SCL during the Earnout
Period, (1) Phillips and Goodridge will report to the Chief Operating
Officer of PSGS, (2) Fadida will report to the Chief Executive Officer
of PSGS, (3) each of Phillips, Goodridge and Fadida will have similar
duties and responsibilities as officers of PSGS similarly situated and
there will be no significant
40
change in their duties and responsibilities as in effect as of the
Closing, and (4) none of Fadida, Phillips or Goodridge will be eligible
for or receive any other bonus from the Companies or Buyers until such
individual has earned the maximum bonus amount for the applicable
period as set forth in the Goodridge Agreement, the Phillips Agreement
and the Fadida Agreement, as applicable, and (5) subject to approval by
PSC or PSGS, they may determine the compensation of the Companies'
employees.
(b) Buyers agree and acknowledge that the Contingent Payments
will be calculated in accordance with the methodology and procedures
(including the dispute resolution procedures) set forth on Exhibit A.
If during the Earnout Period, any business opportunity arises that
could reasonably be allocated either to PSGS or the Companies, PSGS
will give due consideration to the interests of the Companies and the
Stockholders and will allocate the opportunity in a manner that is
reasonable and fair to all parties. Buyers will maintain separate books
and records for the Companies as are necessary for determining Gross
Profit during the Earnout Period. For each fiscal quarter during the
Earnout Period, Buyers will deliver to the Stockholders a consolidated
balance sheet of the Companies as of the last day of the applicable
fiscal quarter and the related statement of income for the fiscal
quarter then ended (the "Quarterly Financial Statements"). The
Stockholders agree and acknowledge that (i) the Quarterly Financial
Statements will not be reviewed or audited, will be subject to
adjustment and modification and may not be consistent with GAAP or
consistently applied, (ii) the Quarterly Financial Statements will be
without representation or warranty, express or implied, by Buyers,
(iii) Buyers have no responsibility for the accuracy or adequacy of the
Quarterly Financial Statements, (iv) no Stockholder will have any claim
against either Buyer with respect to the Quarterly Financial
Statements, and (v) the Quarterly Financial Statements constitute
Confidential Information.
(c) During the Earnout Period, Buyers will use commercially
reasonable efforts to comply with all applicable security requirements
of Governmental Bodies that are customers of Buyers or the Companies.
Buyers are currently in compliance and, during the Earnout Period will
take all commercially reasonable steps to remain in compliance with,
the U.S. federal government's policies regarding information accessible
to employees who are not U.S. citizens or are considered foreign
persons.
4.19 Stockholder Notes. All amounts for borrowed money and accrued but
unpaid interest thereon owed by any Stockholder to SCL will have been paid in
full by such Stockholder, whether by setoff against such Stockholders' Pro Rata
Portion of the Closing Payment or otherwise, at or before the Closing.
4.20 Company 401(k) Plan.
(a) SCL will cause to be adopted prior to the Closing,
resolutions of SCL's Board of Directors to terminate the Soza &
Company, Ltd. 401(k) Profit
41
Sharing Plan (the "Company 401(k) Plan") at least one day prior to the
Closing. Following the date of such termination, no contributions will
be made to the Company 401(k) Plan other than (i) contributions that
have been accrued on behalf of participants prior to the termination,
and (ii) contributions made on behalf of participants in the Company
401(k) Plan that are based on compensation earned before the
termination. Such resolutions will provide (to the extent required
under Section 411 of the Code) that all participants be fully vested in
their account balances under the Company 401(k) Plan. Such resolutions
will also authorize distributions of Company 401(k) Plan balances to
participants as soon as practicable following the Closing and following
the Company's receipt from the Internal Revenue Service of a favorable
determination letter regarding the tax-qualified status of the Company
401(k) Plan following its termination.
(b) Buyer will (i) during the period beginning on the Closing
Date and ending on the date of each participant's distribution of
vested benefits from the Company 401(k) Plan (or a blackout date
commencing a reasonable period of time prior to such distribution
date), permit participants to exercise all rights with respect to their
accounts in the Company 401(k) Plan as in existence on the date of
termination of such plan, including, but not limited to, direction of
investments, receiving loans, receiving distributions, and repaying
outstanding loans by payroll deduction; (ii) as soon as practicable
after the Closing, cause an application for favorable determination
letter to be filed with respect to the termination of the Company
401(k) Plan and cause such actions to be taken as are necessary to
obtain such determination letter; (iii) prior to the earlier of
September 15, 2003 or the commencement of distributions from the
Company 401(k) Plan by reason of the termination of the Company 401(k)
Plan, cause a contribution to be made to the Company 401(k) Plan in an
amount equal to SCL's discretionary matching contribution for the plan
year ending December 31, 2002 as accrued on the Closing Balance Sheet;
(iv) cause a tax-qualified defined contribution plan maintained by
Buyer or a subsidiary of Buyer (the "Buyer 401(k) Plan") to accept
rollovers (including direct rollovers) from the Company 401(k) Plan
with respect to distributions made on account of the transactions
contemplated by this Agreement, and (v) allow loan balances of
participants who have borrowed from the Company 401(k) Plan, if any, to
be rolled over to the Buyer 401(k) Plan without requiring that the
participant first repay the loan and by such method as will not result
in a loan payment default and taxable deemed distribution of such
participant loans. After the Closing, each plan, program, policy and
arrangement of Buyers will credit each employee of the Companies for
his or her length of service with the Companies prior to the Closing
for all purposes.
42
ARTICLE V
CLOSING CONDITIONS
5.1 Conditions to Obligations of Buyers. The obligations of Buyers
under this Agreement are subject to the satisfaction at or prior to the Closing
of the following conditions, but Buyers may waive compliance with any such
conditions in writing:
(a) All representations and warranties of Sellers contained in
this Agreement will be true and correct in all material respects (if
not qualified by materiality) or in all respects (if qualified by
materiality) at and as of the Closing with the same effect as though
such representations and warranties were made at and as of the Closing,
except for those representations and warranties which address matters
only as a particular date (which will be true and correct only as of
such date) and Buyers will have received a certificate to such effect,
in form and substance reasonably satisfactory to Buyers, executed on
behalf of SCL by an executive officer of SCL and by the Principal
Stockholders.
(b) Sellers will have performed and complied in all material
respects with all the covenants and agreements required by this
Agreement to be performed or complied with by them at or prior to the
Closing, including without limitation the delivery of all items
required to be delivered by them pursuant to Section 1.7, and Buyers
will have received a certificate to such effect, in form and substance
reasonably satisfactory to Buyers, executed on behalf of SCL by an
executive officer of SCL and by the Principal Stockholders.
(c) All required contractual and governmental consents,
approvals, orders, licenses, bonds or authorizations, set forth on
Schedule 5.1(c)(i), will have been obtained and all necessary
contractual or governmental notices, set forth on Schedule 5.1(c)(ii),
will have been given.
(d) All filings pursuant to the HSR Act will have been made by
Sellers and their respective affiliates and the required waiting period
under the HSR Act will have expired or been terminated without any
threat or commencement of antitrust proceedings with respect to the
transactions contemplated by this Agreement.
(e) There will be no pending or threatened litigation in any
court or any proceeding before or by any Governmental Body to restrain
or prohibit or obtain damages or other relief with respect to this
Agreement or the other Seller Documents or the consummation of the
transactions contemplated by this Agreement or as a result of which
Buyers could be required to dispose of any assets or operations of
Buyers or their affiliates (including any material assets or operations
to be acquired) or to comply with any material restriction on the
manner in which Buyers or their affiliates conduct their operations
(including the operations of the Companies).
43
(f) All Liens on the assets of any Company or the Shares,
other than Liens on assets identified on Schedule 2.6(b) to remain
after Closing, will have been released and Sellers will have delivered
to Buyers executed UCC-3 termination statements or other releases
satisfactory to Buyers to evidence such releases.
(g) The Associate Employment Agreement attached as Exhibit C-1
that was executed by Goodridge on or prior to the date hereof (the
"Goodridge Agreement"), will be in full force and effect.
(h) The Associate Employment Agreement attached as Exhibit C-2
that was executed by Phillips on or prior to the date hereof (the
"Phillips Agreement"), will be in full force and effect.
(i) The Associate Employment Agreement attached as Exhibit C-3
that was executed by Fadida on or prior to the date hereof (the "Fadida
Agreement"), will be in full force and effect.
(j) Sellers will have delivered the Associate Employment
Agreements to Buyers, substantially in the form of Exhibit C-4,
executed by the executive officers of the Companies set forth on
Schedule 5.1(j).
(k) Sellers will have delivered the Noncompetition Agreements
to Buyers, substantially in the form of Exhibit D-1, executed by the
Stockholders set forth on Schedule 5.1(k).
(l) Sellers will have delivered the Noncompetition Agreement
to Buyers, substantially in the form of Exhibit D-2, executed by
Goodrich.
(m) Sellers will have delivered the Noncompetition Agreements
to Buyers, substantially in the form of Exhibit D-3, executed by each
of Phillips and Fadida.
(n) Sellers will have delivered to Buyers a legal opinion of
Sellers' counsel in the form of Exhibit E.
(o) Sellers will have delivered to Buyers (i) receipts from
each service provider the expenses of which are included in Seller
Transaction Costs evidencing payment in full of all Seller Transaction
Costs, (ii) written approvals from the Stockholders approving the
payment in full of all amounts included in Seller Transaction Costs and
(iii) releases from such service providers releasing Buyers and the
Companies in full from all Seller Transaction Costs or any other
obligations of the Companies or the Stockholders to such service
providers for services rendered in connection with the transactions
contemplated by this Agreement, all of which will be in form and
substance reasonably satisfactory to Buyers.
44
(p) Sellers will have delivered to Buyers the lease amendment
for the real property located on Arlington Blvd., Fairfax, Virginia,
substantially in the form of Exhibit F-1, executed by the parties named
therein.
(q) Sellers will have delivered to Buyers the lease amendment
for the real property located on Little River Turnpike, Annandale,
Virginia, substantially in the form of Exhibit F-2, executed by the
parties named therein.
(r) The Companies will have purchased a three-year extended
reporting period on the Companies' current policy that covers
directors' and officers' insurance and indemnification, employment
practices liability and fiduciary liability insurance and errors and
omissions insurance.
(s) All Stockholders who are not Principal Stockholders will
have entered into joinder agreements, in the form of Exhibit G, to
become signatories to this Agreement and be bound by the terms of this
Agreement as a Stockholder as if such Persons were original signatories
hereto. If any such joinder agreement is delivered after ten business
days of the date of this Agreement, Buyers will have three business
days to assert that the failure to tender such joinder agreement within
such ten-day period constitutes a failure of this condition and to
terminate this Agreement pursuant to Section 7.1(b).
(t) All of the Options set forth on Schedule 2.4 will have
been exercised or terminated, and if exercised, SCL will have received
cash or a promissory note for the exercise price thereof.
5.2 Conditions to Obligations of Stockholders. The obligations of the
Stockholders under this Agreement are subject to the satisfaction at or prior to
the Closing of the following conditions, but the Stockholders may waive
compliance with any such conditions in writing:
(a) All representations and warranties of Buyers contained in
this Agreement will be true and correct in all material respects (if
not qualified by materiality) or in all respects (if qualified by
materiality) at and as of the Closing with the same effect as though
such representations and warranties were made at and as of the Closing,
except for the representations and warranties that address matters only
as a particular date (which will be true and correct only as of such
date) and Sellers will have received a certificate to such effect in
form and substance reasonably satisfactory to Sellers executed on
behalf of each Buyer by an executive officer of each Buyer.
(b) Buyers will have performed and complied in all material
respects with all the covenants and agreements required by this
Agreement to be performed or complied with by them at or prior to the
Closing, including without limitation the delivery of all items
required to be delivered by them pursuant to Section 1.7, and
45
Sellers will have received a certificate to such effect in form and
substance reasonably satisfactory to Sellers executed on behalf of each
Buyer by an executive officer of each Buyer.
(c) All filings pursuant to the HSR Act have been made by
Buyers and their respective affiliates and the required waiting period
under the HSR Act has expired or been terminated without any threat or
commencement of antitrust proceedings with respect to the transactions
contemplated by this Agreement.
(d) Buyers have delivered to Sellers a legal opinion of
Buyers' counsel in the form of Exhibit H.
(e) Buyers will have delivered each of the Goodridge
Agreement, the Phillips Agreement and the Fadida Agreement, executed by
SCL or Buyers, as applicable.
(f) There will be no pending litigation in any court or any
proceeding before any Governmental Body to restrain or prohibit this
Agreement or the consummation of the transactions contemplated hereby
that has been brought by a non-affiliate of any party to this
Agreement.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification of Buyers. Subject to the other provisions of this
Article VI and in the case of Tax claims, Section 4.17, the Principal
Stockholders, jointly and severally, will indemnify and hold Buyers, their
affiliates (including the Companies) and their respective Board Members,
officers, employees, and agents (collectively, the "Buyer Parties") harmless
from any and all Liabilities, obligations, claims, losses, contingencies,
damages, costs, and expenses, including all court costs and reasonable
attorneys' fees (collectively, "Losses"), that any Buyer Party actually suffers
or incurs as a result of or relating to:
(a) the breach or inaccuracy of any representation or warranty
made by any Stockholder or Company in this Agreement or any other
Seller Document or any allegation by a third party that, if true, would
constitute such a breach or inaccuracy; or
(b) the breach of any covenant or agreement made by any
Stockholder or Company in this Agreement or any other Seller Document
or any allegation by a third party that, if true, would constitute such
a breach.
For purposes of indemnification pursuant to this Section 6.1, except
for the materiality qualification set forth in the last sentence of Section 2.10
(Financial Statements), all materiality and Company Material Adverse Effect
qualifications will be excluded from and given no effect in each representation,
warranty, covenant and agreement by any Stockholder or Company set forth in this
Agreement.
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6.2 Indemnification of Stockholders. Subject to the other provisions of
this Article VI, PSC and PSGS, jointly and severally, will indemnify and hold
the Stockholders, their affiliates and their respective agents (collectively,
the "Stockholder Parties") harmless from any and all Losses that any Stockholder
Party suffers or incurs as a result of or relating to:
(a) the breach of any representation or warranty made by a
Buyer in this Agreement or any other Buyer Document or any allegation
by a third party that, if true, would constitute such a breach; or
(b) the breach of any covenant or agreement made by a Buyer in
this Agreement or any other Buyer Document or any allegation by a third
party that, if true, would constitute such a breach.
For purposes of indemnification pursuant to this Section 6.2, all
materiality qualifications will be excluded from and given no effect in each
representation, warranty, covenant and agreement by any Buyer set forth in this
Agreement.
6.3 Limitations on Indemnification.
(a) Notwithstanding any contrary provisions of Section 6.1,
except as set forth in the following sentence, (i) the Principal
Stockholders will not be liable for any Losses thereunder unless and
solely to the extent that the aggregate amount of Losses the Principal
Stockholders are liable for thereunder exceeds * (the "Indemnification
Threshold"), and in such event, the Principal Stockholders will be
liable only for the amount by which such Losses exceed the
Indemnification Threshold, (ii) the total aggregate liability of the
Principal Stockholders for Losses thereunder will not exceed * of the
Purchase Price paid (or otherwise credited) to the Stockholders,
whether prior to or after the assertion of any such Losses (the
"Indemnification Cap"), and (iii) the Principal Stockholders will not
be liable for any Losses that have been included in the calculation of
the Purchase Price or any Purchase Price Adjustment, whether by
inclusion on the Closing Balance Sheet, pursuant to Section 1.3(c)(i),
(ii) or (iii) or otherwise. Notwithstanding the foregoing, neither the
Indemnification Threshold nor the Indemnification Cap will apply to any
Losses arising out of Section 2.4 (Capitalization), Section 2.5 (Title
to Shares), Section 2.14 (Tax Matters), Section 2.21(h) (Government
Contracts and Subcontracts, qui tam Whistleblower), Section 2.24
(Intellectual Property Rights), Article I (Purchase of Shares), Section
4.9 (Transaction Costs), Section 4.10 (Bonuses), Section 4.12
(Nondisclosure), Section 4.15 (Release by Stockholders), Section 4.16
(Uncollected Accounts Receivable), Section 4.17 (Tax Matters), Section
4.19 (Stockholder Notes), Section 7.3 (Attorney's Fees and Costs) and
Section 7.5 (Brokers).
- ----------
*Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission.
47
(b) Notwithstanding any contrary provisions of Section 6.2,
(i) Buyers will not be liable for any Losses thereunder unless and
solely to the extent that the aggregate amount of Losses Buyers are
liable for thereunder exceeds the Indemnification Threshold, and in
such event, Buyers will be liable only for the amount by which such
Losses exceed the Indemnification Threshold, and (ii) the total
aggregate liability of Buyers for Losses thereunder will not exceed the
Indemnification Cap. Notwithstanding the foregoing, neither the
Indemnification Threshold nor the Indemnification Cap will apply to any
Losses arising out of Article I (Purchase of Shares), Section 3.3
(Stock Validity), Section 3.7 (Available Funds), Section 4.9
(Transaction Costs), Section 4.10 (Bonuses), Section 4.14 (Registration
Statement), Section 4.16 (Uncollected Accounts Receivable), Section
4.17 (Tax Matters), Section 4.18 (Post-Closing Operation of Companies)
and Section 7.3 (Attorneys Fees and Costs).
(c) Indemnification under this Article VI and Sections 4.17
and 7.5 will constitute the sole and exclusive remedy for Losses
suffered or incurred by the parties in connection with the transactions
contemplated hereby, except that the foregoing will in no way limit the
rights of an Indemnified Party (as defined in Section 6.5) for any
claims based on fraud or intentional misconduct by a party in
connection with this Agreement, the documents executed in connection
herewith or the transactions contemplated hereby.
6.4 Survival. Notwithstanding any investigation or contrary knowledge
by Buyers, the representations and warranties of the Stockholders and the
Companies and Buyers made in or pursuant to this Agreement and the other
documents delivered at the Closing, and the respective parties' indemnification
obligations with respect thereto, will survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement until the second year anniversary of the Closing Date, except for the
representations and warranties set forth in (a) Section 2.14 (Tax Matters),
Section 2.20 (Employee Benefit Plans) and Section 2.24 (Intellectual Property
Rights) and the indemnification obligations with respect thereto, which will
survive until 60 days after the expiration of the applicable period of
limitations, and (b) Section 2.4 (Capitalization) and Section 2.5 (Title to
Shares), and the indemnification obligations with respect thereto, which will
survive indefinitely. Notwithstanding the foregoing, any representation or
warranty the violation of which is made the basis of a claim for indemnification
pursuant to Section 6.1 or Section 6.2 will survive, but only for purposes of
such pending claim, until such claim is finally resolved if the Indemnified
Party notifies the Indemnifying Party of such claim in reasonable detail prior
to the date on which such representation or warranty and respective
indemnification obligation would otherwise expire under this Agreement.
6.5 Notice. Any party entitled to receive indemnification under this
Article VI (the "Indemnified Party") agrees to give prompt written notice to the
party or parties required to provide such indemnification (the "Indemnifying
Parties") upon the occurrence of any indemnifiable Loss or the assertion of any
claim or the
48
commencement of any action or proceeding in respect of which such a
Loss may reasonably be expected to occur (a "Claim"), but the Indemnified
Party's failure to give such notice will not affect the obligations of the
Indemnifying Party under this Article VI except to the extent that the
Indemnifying Party is prejudiced thereby. Such written notice will include a
reference to the event or events forming the basis of such Loss or Claim and the
amount involved, unless such amount is uncertain or contingent, in which event
the Indemnified Party will give a later written notice when the amount becomes
fixed.
6.6 Defense of Claims. The Indemnifying Party may elect to assume and
control the defense of any Claim, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of expenses related to
such Claim, if (a) the Indemnifying Party acknowledges its obligation to
indemnify the Indemnified Party for any Losses resulting from such Claim and
provides reasonable evidence to the Indemnified Party of its financial ability
to satisfy such obligation; (b) the Claim does not seek to impose any liability
or obligation on the Indemnified Party other than for money damages; and (c) the
Claim is not of a nature or amount that in the good faith opinion of the
Indemnified Party, its prosecution could reasonably be expected to have a
material and adverse effect on the Indemnified Party's relationship with any
significant customer. If such conditions are satisfied and the Indemnifying
Party elects to assume and control the defense of a Claim, then (i) the
Indemnifying Party will not be liable for any settlement of such Claim effected
without its consent, which consent will not be unreasonably withheld; (ii) the
Indemnifying Party may settle such Claim without the consent of the Indemnified
Party; and (iii) the Indemnified Party may employ separate counsel and
participate in the defense of such Claim, but the Indemnified Party will be
responsible for the fees and expenses of such counsel unless (A) the
Indemnifying Party has failed to adequately assume the defense of such Claim or
to employ counsel with respect thereto or (B) in the reasonable opinion of the
Indemnified Party a conflict of interest exists between the interests of the
Indemnified Party and the Indemnifying Party that requires representation by
separate counsel, in which case the fees and expenses of such separate counsel
will be paid by the Indemnifying Party. If such conditions are not satisfied,
the Indemnified Party may assume and control the defense of the Claim; provided,
that, the Indemnifying Party will not be liable for any settlement of such Claim
effected without its consent, which consent will not be unreasonably withheld or
delayed, unless the Indemnifying Party has not established to the reasonable
satisfaction of the Indemnified Party that it is financially capable of paying
the entire Claim.
6.7 Holdback Amount; Right of Setoff. All finally determined due and
owing Claims Buyers have under this Article VI and rights to indemnity under
Section 4.17 will first be deducted from the Holdback Amount and distributed to
Buyers in accordance with the Escrow Agreement. To the extent the amount owed
any Buyer for a Claim or pursuant to the rights to indemnity under Section 4.17
is more than the Holdback Amount, the Principal Stockholders, jointly and
severally, will pay the balance of such Claim or Tax indemnity to PSC in
immediately available funds within the ten days after final determination of the
amount due; provided, however, solely at Buyers' option, Buyers' may apply the
balance against any Contingent Payments if such Contingent Payment amount is due
and owing at such time.
49
6.8 Losses Net of Insurance. The amount of any Losses for which
indemnification is provided under this Article VI will be net of any amounts
recovered by the Indemnified Party under insurance policies with respect to such
Losses. Each Indemnified Party will use commercially reasonable efforts to
pursue all potential claims under applicable insurance policies with respect to
any Losses; provided, however, any Losses incurred by an Indemnified Party will
include any economic effect incurred by such party as a result of such pursuit,
including, without limitation, any increases in premium amounts.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement and the transactions contemplated by
this Agreement may be terminated and abandoned (a) at any time prior to the
Closing by mutual written consent of Buyers and Sellers; or (b) by either
Buyers, on the one hand, or Sellers, on the other hand, if a condition to
performance by the terminating party under this Agreement has not been satisfied
or waived prior to February 28, 2003; or (c) by Buyers, on the one hand, or
Sellers, on the other hand, at any time, if there is pending litigation in any
court or any proceeding before any Governmental Body brought by any
non-affiliate to the parties to this Agreement to restrain or prohibit or obtain
damages or other relief with respect to this Agreement or the consummation of
the transactions contemplated by this Agreement or as a result of which Buyers
could be required to dispose of any assets or operations of Buyers (including
the operations of the Companies) or their affiliates or to comply with any
restriction on the manner in which Buyers or their affiliates conduct their
operations (including any operations of the Companies); provided, that, (i)
Buyers may not terminate this Agreement if the Closing has not occurred because
of Buyers' failure to perform or observe any of its covenants or agreements set
forth in this Agreement or if Buyers are, at such time, in breach of this
Agreement, and (ii) Sellers may not terminate this Agreement if the Closing has
not occurred because of Sellers' failure to perform or observe any of their
respective covenants or agreements set forth in this Agreement or if any of
Sellers is, at such time, in breach of this Agreement; or (d) by either Buyer,
on the one hand, or Sellers, on the other hand, if the Closing has not occurred
on or prior to the six month anniversary of the date of this Agreement.
7.2 Notices. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by facsimile or by
registered or certified mail, postage prepaid, to the parties at the following
addresses (or to the attention of such other Person or such other address as any
party may provide to the other parties by notice in accordance with this Section
7.2):
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if to Buyers: with copies to:
- ------------ --------------
Perot Systems Corporation Perot Systems Corporation
2300 Plano Parkway 2300 Plano Parkway
Plano, Texas 75026 Plano, Texas 75026
Attn: John Harper Attn: Peter Altabef
Facsimile: (972) 577-6100 Facsimile: (972) 577-6085
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Glen J. Hettinger
Facsimile: (214) 939-5849
if to Sellers: with copies to:
- ------------- --------------
William Soza Shaw Pittman, LLP
c/o Soza Associates PC 1650 Tysons Blvd., Suite 1400
7535 Little River Turnpike McLean, Virginia 22102
Annandale, Virginia 22003 Attn: Craig E. Chason
Facsimile: (703) -813-5908 Facsimile: (703) 770-7901
Any such notice or other communication will be deemed to have been given and
received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or sent by
facsimile or, if mailed, when actually received.
7.3 Attorneys' Fees and Costs. If attorneys' fees or other costs are
incurred to secure performance of any obligations under this Agreement, or to
establish damages for the breach thereof or to obtain any other appropriate
relief, whether by way of prosecution or defense, the Prevailing Party (as
defined below) will be entitled to recover reasonable attorneys' fees and costs
incurred in connection therewith. A party will be considered the "Prevailing
Party" if (a) it initiated the litigation and substantially obtained the relief
it sought, either through a judgment or arbitration award or the losing party's
voluntary action before arbitration, trial, or judgment, (b) the other party
withdraws its action without substantially obtaining the relief it sought, or
(c) such party did not initiate the litigation and judgment is entered into for
any party, but without substantially granting the relief sought by the
initiating party or granting more substantial relief to the non-initiating party
with respect to any counterclaim asserted by the non-initiating party in
connection with such litigation.
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7.4 Further Assurances. Each party agrees to execute any and all
documents and to perform such other acts as may be necessary or expedient to
further the purposes of this Agreement and the transactions contemplated by this
Agreement. Without limiting the foregoing, each Stockholder will execute and
deliver to Buyers such further instruments of conveyance and transfer as Buyers
may reasonably request in order more effectively to convey and transfer the
Shares to PSGS and to put Buyers in operational control of the business of the
Companies.
7.5 Brokers. Except for any fees owing to Legg Mason Wood Walker, Inc.
(the "Sellers' Broker") by the Stockholders, each party to this Agreement
represents to the other parties that it has not incurred and will not incur any
liability for brokers' or finders' fees or agents' commissions in connection
with this Agreement or the transactions contemplated by this Agreement. Each
party to this Agreement agrees that it will indemnify and hold harmless the
other parties, without regard to the limitations set forth in Article VI,
against any claim for brokerage and finders' fees or agents' commissions in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement, including, the Stockholders holding Buyers and the Companies
harmless for the fees owing to the Sellers' Broker.
7.6 Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties, all of which together will
constitute one and the same instrument.
7.7 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and will not in any way affect the meaning or interpretation of
this Agreement. References in this Agreement to Articles, Sections, Exhibits,
and Schedules are to the Articles, Sections, Exhibits, and Schedules of this
Agreement unless the context requires otherwise.
7.8 Successors and Assigns; Assignment. This Agreement will bind and
inure to the benefit of the parties named in this Agreement and their respective
successors and assigns. Neither this Agreement nor any of the rights, interests,
or obligations under this Agreement may be assigned or delegated by any
Stockholder, Company or Buyers without the prior written consent of the other
parties and any purported assignment or delegation will be null and void, except
that PSGS may assign its rights under this Agreement to PSC or any direct or
indirect subsidiary of PSC; provided, that, PSC fully guarantees the obligations
of the assignee under this Agreement. This Agreement is not intended to confer
any rights or benefits on any Person other than the parties to this Agreement,
and to the extent provided in Article VI, the Buyer Parties and the Stockholder
Parties.
7.9 Entire Agreement. This Agreement, the Buyer Documents, the Seller
Documents, the related documents contained as Exhibits and Schedules to this
Agreement or expressly contemplated by this Agreement and the confidentiality
agreements entered into by or on behalf of Buyers and SCL in respect of the
transactions
52
contemplated hereby, dated April 10, 2002 and October 1, 2002, respectively,
contain the entire understanding of the parties relating to the subject matter
of this Agreement and supersede all prior written or oral and all
contemporaneous oral agreements and understandings relating to the subject
matter of this Agreement. This Agreement may not be modified or amended except
in writing signed by the party against whom enforcement is sought. The Exhibits
and Schedules to this Agreement are hereby incorporated by reference into and
made a part of this Agreement for all purposes. Unless otherwise expressly
stated in this Agreement, no right or remedy described or provided in this
Agreement is intended to be exclusive or to preclude a party from pursuing other
rights and remedies to the extent available under this Agreement, at law, or in
equity.
7.10 Specific Performance. Notwithstanding any contrary provisions set
forth in this Agreement, the parties hereby acknowledge and agree that the
failure of any party to perform its agreements and covenants under this
Agreement or any other Seller Document or Buyer Document, including its failure
to take all required actions on its part necessary to consummate the
transactions contemplated by this Agreement, will cause irreparable injury to
the other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations under this Agreement or any other Seller Document
or Buyer Document.
7.11 Knowledge. As used in this Agreement, (a) "Sellers' Actual
Knowledge" means only the information actually known to any Principal
Stockholder, (b) "Sellers' Knowledge" means only the information actually or
constructively known to any Principal Stockholder, Board Member or officer of
any Company each as listed on Schedule 7.11(b) and (c) "Buyers' Actual
Knowledge" means only the information actually known to any executive officer of
PSC or J. Gregory Bedner. A person has constructive knowledge of those matters
which the individual involved reasonably could be expected to have as a result
of undertaking an investigation of such a scope and extent as a reasonably
prudent person would undertake concerning the particular subject matter.
7.12 Governing Law. This Agreement will be governed by and construed
and interpreted in accordance with the substantive laws of the State of
Delaware, without giving effect to any conflicts of law rule or principle that
might require the application of the laws of another jurisdiction.
7.13 Drafting. Neither this Agreement nor any provision contained in
this Agreement will be interpreted in favor of or against any party hereto
because such party or its legal counsel drafted this Agreement or such
provision.
7.14 Usage. Whenever the plural form of a word is used in this
Agreement, that word will include the singular form of that word. Whenever the
singular form of a word is used in this Agreement, that word will include the
plural form of that word. The term "or" will not be interpreted as excluding any
of the items described. The term "include" or any derivative of such term does
not mean that the items following such term are the only types of such items.
53
7.15 Dispute Resolution. Except as specifically provided in Sections
1.4, 5.1 and 7.10 and Exhibit A hereto, the parties agree that instead of
seeking relief from a court, they will attempt in good faith to resolve any
dispute or controversy that arises out of this Agreement or any of the other
Seller Documents, or the performance, breach, validity, interpretation or
enforcement thereof (any such dispute or controversy, a "Dispute") first among
themselves through informal negotiation and then, if unsuccessful, through
binding arbitration, in accordance with the following procedures.
(a) The party believing a Dispute to exist will give the other parties
prompt written notice thereof, setting forth in reasonable detail the nature of
the Dispute and a proposal for resolving the Dispute. Within 20 days after
receipt of such notice, each party against whom relief is sought in connection
with the Dispute will deliver a written response, setting forth in reasonable
detail its views of the facts alleged to give rise to the Dispute and, if
necessary, a counterproposal for resolving the Dispute. If the parties do not
agree on the manner in which the Dispute should be resolved, they will arrange
to hold a meeting within ten days after delivery of the response described above
or another mutually agreeable date. Each party will have in attendance at such
meeting a representative with the authority to resolve the Dispute. At the
meeting (and any adjournments thereof), the parties will negotiate in good faith
in an attempt to agree as to whether a Dispute exists, the exact nature of the
Dispute and the manner in which the Dispute should be resolved. Any resolution
of the Dispute will be evidenced by a written agreement setting forth in
reasonable detail the actions to be taken by each party.
(b) If, after following the procedures set forth in subsection (a)
above, any party reaches the conclusion that the Dispute cannot be resolved by
unassisted negotiations, then, upon notice by any party to the other affected
parties, the Dispute will be finally settled by arbitration conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect on the date of this Agreement. Notwithstanding any
provision of the American Arbitration Association Commercial Arbitration Rules,
any such arbitration will be conducted before and decided by one arbitrator. In
selecting an arbitrator, the parties will first attempt to agree on an
arbitrator. If the parties cannot mutually agree on an arbitrator, then the
parties to the arbitration will request that the American Arbitration
Association provide the parties with a list of five potential arbitrators, none
of whom will be affiliated with, or otherwise have any personal, professional or
business relationship with, either Buyers or any Stockholder or Company. With
the Stockholders striking first, each party will then strike from the list one
name after another until one name is left. After the rights to strike are
exercised, the individual remaining on the list will be the arbitrator. Any such
arbitration will take place in the City of Wilmington, Delaware unless the
parties agree otherwise. The arbitrator in any such arbitration will apply the
laws of the State of Delaware and the United States of America. In any
arbitration under this Agreement, this Agreement will
54
be deemed to have been made in, and will be governed by and construed under the
laws of, the State of Delaware and the United States of America. Any decision
rendered by the arbitrator will be final and binding and judgment thereon may be
entered in any court having jurisdiction or application may be made to such
court for an order of enforcement as the case may require. The parties intend
that this agreement to arbitrate be irrevocable. Except as described in Section
1.4(f) and Exhibit A, if arbitration is invoked in accordance with the
provisions of this Agreement, the Prevailing Party in the arbitration will be
entitled to recover from the other parties all costs, fees, and expenses
pertaining or attributable to such arbitration, including reasonable attorneys'
fees.
7.16 Partial Invalidity. Wherever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained in this
Agreement will, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such provision will be ineffective to the extent, but only to
the extent, of such invalidity, illegality, or unenforceability without
invalidating the remainder of such invalid, illegal, or unenforceable provision
or provisions or any other provisions of this Agreement, unless such a
construction would be unreasonable.
7.17 Sellers' Representative. Upon the signing of this Agreement, the
Stockholders hereby appoint Soza as the representative for all Stockholders
(including, without limitation, all Principal Stockholders) in connection with
the transactions contemplated by this Agreement (in such capacity, the "Sellers'
Representative"). The Sellers' Representative will represent the Stockholders
under this Agreement (including, without limitation, with respect to Tax matters
in Section 4.17, the closing conditions in Section 5.2, the Contingent Payments,
the Closing Balance Sheet, any Purchase Price Adjustment or Purchase Price
repayments and any Claims for indemnification pursuant to Article VI) until all
Stockholders' duties under this Agreement are discharged. The Sellers'
Representative will have full and irrevocable power and authority to act for and
in the name of and as agent for the Stockholders under this Agreement and all
Stockholders will be bound by the Sellers' Representative's agreements and
decisions with respect hereto. The Sellers' Representative will provide Buyer
with a true, correct and complete list of the Stockholders and their respective
addresses and account information (the "Stockholders' List") and will update the
Stockholders' List in writing as is necessary to keep the Stockholders' List
current, complete and accurate. Buyers may rely on any document (including,
without limitation, the Stockholders' List) believed by them to have been signed
or presented by the Sellers' Representative. Buyers will have no obligation to
investigate any fact or matter set forth in any such document and all
Stockholders will be bound by any such document delivered by the Sellers'
Representative to Buyers. In the event Soza resigns, dies or becomes
incapacitated, the holders of a majority of the issued and outstanding Shares
immediately prior to the Closing will appoint a successor Sellers'
Representative, notwithstanding the absence of a quorum. The Stockholders will
give Buyers written notice of any change in the Sellers' Representative and
until such written notice is received by Buyers, such change in Sellers'
Representative will not be effective or binding on Buyers. The Sellers'
55
Representative will not be liable to any Stockholder for any act done or omitted
hereunder as Sellers' Representative while acting in good faith and in the
exercise of reasonable judgment. The Stockholders will severally indemnify the
Sellers' Representative and hold the Sellers' Representative harmless against
any loss, liability or expense incurred without negligence or bad faith on the
part of the Sellers' Representative and arising out of or in connection with the
acceptance or administration of the Sellers' Representative's duties hereunder.
[SIGNATURE PAGE FOLLOWS]
56
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BUYERS:
PEROT SYSTEMS CORPORATION
By: /s/ John E. Harper
-----------------------------------------
Name: John E. Harper
Title: Vice President
PEROT SYSTEMS GOVERNMENT
SERVICES, INC.
By: /s/ J. Gregory Bedner
-----------------------------------------
Name: J. Gregory Bedner
Title: President
SELLERS:
SOZA & COMPANY, LTD.
By: /s/ William Soza
-----------------------------------------
Name: William Soza
Title: Chairman and Chief Executive Officer
/s/ William Soza
--------------------------------------------
William Soza, in his individual capacity
/s/ John Larmer II
--------------------------------------------
John Larmer II, in his individual capacity
/s/ Kurt Pfluger
--------------------------------------------
Kurt Pfluger, in his individual capacity
/s/ Ralph West
--------------------------------------------
Ralph West, in his individual capacity
57
EXHIBITS AND SCHEDULES TO THE STOCK PURCHASE AGREEMENT
<Table>
<Caption>
Exhibits (forms of):
- --------
A Contingent Payment Calculation
B Escrow Agreement
C-1 Goodridge Employment Agreement
C-2 Phillips Employment Agreement
C-3 Fadida Employment Agreement
C-4 Form of Associate Employment Agreement
D-1 Form of Noncompetition Agreement (Five Year)
D-2 Goodridge Noncompetition Agreement (Three Year)
D-3 Form of Noncompetition Agreement (Two Year)
E Legal Opinion of Sellers' Counsel
F-1 Lease Amendment (Arlington Blvd.)
F-2 Lease Amendment (Little River)
G Joinder Agreement
H Legal Opinion of Buyers' Counsel
</Table>
<Table>
1.3(a) Fees and Expenses
1.3(c) Expected Pro Rata Portion of Closing Payment
2.1 Organization
2.4 Capitalization and Options
2.6(a) Real Property
2.6(b) Liens
2.6(b)(ii) Liens to Remain After Closing
2.6(d) Inventory
2.7 Insurance Policies
2.8 Violations
2.9 Governmental Consents
2.10(a) Financial Statements
2.10(b) Nonrecurring Items
2.10(c) Inconsistent Expense Items
2.11 Limitation on Liabilities; Undisclosed Liabilities
2.13 Material Adverse Change
2.14 Taxes
2.15 Litigation
2.17 Permits
2.18 Environmental Matters
2.19(a) Employees
2.19(b) Employee Claims
2.19(d) List to Employees
2.20(a)(i) Employee Benefit Plans
2.20(a)(ii) Acceleration
2.20(b) Controlled Group Plans Matters
2.21(a) Government Contracts/Subcontracts
2.21(f) Cost Accounting Standards
2.21(g) Termination
2.21(h) Whistleblower Actions
2.21(k) Written Warranties
2.22(a) Material Agreements
2.22(b) Material Agreement Violations
2.22(c) Material Agreements-Terminated
2.22(d) Exceptions to Material Agreements
</Table>
<Table>
2.23 Material Customers
2.24(a) Intellectual Property Rights
2.24(b) Intellectual Property Rights Owned by Others
2.24(c) Intellectual Property Rights Licensed to Others
2.24(e) Exceptions to Written Assignment Agreements
2.24(i) Govt. Rights in Intellectual Property
2.25 Competing Interests
2.29 Interested Party Transactions
4.1 Conduct of Business
5.1(c)(i) Contractual and Governmental Consents
5.1(c)(ii) Contractual and Governmental Notices
5.1(j) Associate Employment Agreements
5.1(k) Noncompetition Agreements Executed by Stockholders
7.11(b) Knowledge
</Table>
EXHIBIT A
TO
STOCK PURCHASE AGREEMENT
1. Defined Terms. Unless otherwise defined herein, capitalized terms used in
this Exhibit A have the meanings given to such terms in the Stock Purchase
Agreement, dated February 4, 2003, by and among Perot Systems Corporation, Perot
Systems Government Services, Inc., Soza & Company, Ltd. and the Stockholders
named therein (as may be amended, the "Agreement"). In addition, the following
terms have the meanings indicated:
"Base Amount" means for each applicable period shown below:
Interim Period *
*
Twelve months ending December 31, 2004
"Contingent Payment" means any of the First Year Contingent Payment, the
Second Year Contingent Payment and the Final Contingent Payment.
"Cumulative Base Amount" means the sum of the two Base Amounts.
"Gross Profit" means *
"Interim Period" means the period beginning on the day immediately
following the Closing and ending on December 31, 2003.
"Maximum Aggregate Earnout Amount" means $32,000,000.
"Maximum Earnout Amount" means for each applicable period shown below, the
following amount:
Interim Period *
Twelve months ending December 31, 2004 *
"Pro Rata Amount" means, for any Contingent Payment for which it is
determined, a dollar amount equal to the product of (a) the Maximum Earnout
Amount multiplied by (b) (i) the difference between Gross Profit minus the Base
Amount, divided by (ii) the difference between the Target Amount minus the Base
Amount.
* Indicates confidential text omitted and filed separately with the
Securities and Exchange Commission
"Pro Rata Multiplier" means a fraction, the numerator of which is the
number of calendar days elapsed in 2003 prior to and including the Closing Date
and the denominator of which is 360.
"Target Amount" means for each applicable period shown below, the following
amounts:
Interim Period *
Twelve months ending December 31, 2004 *
2. Contingent Payment Calculations. The Contingent Payments will be determined
as follows:
(a) The "First Year Contingent Payment" will be applicable for the
Interim Period, and will be a dollar amount equal to: *.
(b) The "Second Year Contingent Payment" will be applicable for the
12-month period ending December 31, 2004. No Second Year Contingent Payment
will be payable unless aggregate Gross Profit for the Interim Period plus
the 12 months ended December 31, 2004 equals or exceeds the Cumulative Base
Amount. If aggregate Gross Profit for such aggregate period equals or
exceeds the Cumulative Base Amount, then the Second Year Contingent Payment
will be a dollar amount equal to: *.
(c) The "Final Contingent Payment" will be applicable for the Interim
Period plus the 12 month period ending December 31, 2004 and will be a
dollar amount equal to: *.
Notwithstanding the foregoing clauses (a) through (c):
(d) *
(e) *
(f) In no event will the aggregate amount of the Contingent Payments
exceed the Maximum Aggregate Earnout Amount.
3. Procedures.
(a) As promptly as reasonably practical for each of the periods ending
December 31, 2003 and December 31, 2004, as applicable, PSC will cause to
be prepared and delivered to the Stockholders a statement setting forth the
Gross Profit and the amount of the Contingent Payment for such period,
together with reasonable details for the basis of its determination. Such
statements will be final and binding on the parties unless the Stockholders
deliver a notice of disagreement setting forth in reasonable detail the
disputed amount of the Contingent Payment and the
* Indicates confidential text omitted and filed separately with the Securities
and Exchange Commission
specific bases of disagreement to PSC within 30 days of the delivery of the
statement. In the event PSC receives no such written notice during such
30-day period, PSC's calculation of the applicable Contingent Payment will
be deemed accepted by the Stockholders and final on the parties. In the
event the Stockholders timely reject any Contingent Payment calculation,
PSC and the Stockholders will negotiate in good faith for 20 days to
resolve the differences stated in the notice. Any resolution regarding the
disputed amount of the Contingent Payment reached by PSC and the
Stockholders will be final and binding on all parties to the Agreement. In
the event that no such resolution is reached, such matter will be finally
settled in accordance with the dispute resolution procedures set forth in
Section 1.4(f) of the Agreement. Notwithstanding anything to the contrary
set forth in the Agreement, the fees, costs and expenses incurred by the
parties in connection with any such dispute resolution will be paid as
follows: (i) if the Stockholders receive more than 50% of the disputed
amount of the Contingent Payment, the Buyers, jointly and severally, will
pay all of the Stockholders' attorney, accountant, arbitration and other
out-of-pocket fees, costs and expenses reasonably incurred by the
Stockholders in connection with such dispute, (ii) if the Stockholders do
not receive more than 50% of the disputed amount of the Contingent Payment,
the Principal Stockholders, jointly and severally, will pay all of Buyers'
attorney, accountant, arbitration and other out-of-pocket fees, costs and
expenses reasonably incurred by Buyers in connection with such dispute, and
(iii) if the Stockholders receive exactly 50% of the disputed amount of the
Contingent Payment, the parties will pay their own attorney, accountant,
arbitration and other out-of-pocket fees, costs and expenses incurred by
such party in connection with such dispute. If any such amounts are due and
owing Buyers, Buyers may, at their sole option, apply such amounts against
any Contingent Payment due and owing at such time. Buyers will permit the
Stockholders and their representatives reasonable access to the Companies'
relevant books, records and other financial information relating to the
calculation of the Contingent Payments.
(b) The Contingent Payments, if any, will be paid as set forth in the
Agreement. Any Stockholder's Pro Rata Portion of any Contingent Payment
will be paid to such Stockholder net of any Taxes required to be withheld
or paid by SCL or Buyers as set forth in Section 1.3 of the Agreement.