EXHIBIT 2.3
EXECUTION COPY
_____________________
MARKLAND TECHNOLOGIES, INC.
TECHNEST HOLDINGS, INC.
MTECH ACQUISITION, INC. AND
GENEX TECHNOLOGIES, INC.
AGREEMENT AND PLAN OF MERGER
_____________________
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 14, 2005 (the
"AGREEMENT"), by and among MARKLAND TECHNOLOGIES, INC., a Florida corporation
("MARKLAND"), TECHNEST HOLDINGS, INC., a Nevada corporation ("PARENT") and
partially owned subsidiary of Markland, MTECH ACQUISITION, INC., a Delaware
corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), GENEX
TECHNOLOGIES, INC., a Maryland corporation ("GENEX"), and JASON GENG, the sole
stockholder of Genex (the "GENEX STOCKHOLDER"). All of the aforementioned
parties to this Agreement may be referred to hereinafter collectively as the
"Parties" and each individually as a "Party".
WITNESSETH
WHEREAS, the Boards of Directors of Markland, Parent, Merger Sub and
Genex have determined that it is advisable and in the best interests of their
respective companies for Genex to merge with and into Merger Sub (the "MERGER");
WHEREAS, the stockholders of Merger Sub and Genex have approved and
adopted this Agreement and approved the Merger and the transactions contemplated
hereby (the "TRANSACTION");
WHEREAS, it is intended that the Transaction be accomplished, upon the
terms and subject to the conditions set forth in this Agreement, by the
conversion, pursuant to the merger of Merger Sub with and into Genex, of all
issued and outstanding shares of Genex Common Stock (as defined below) into the
right to receive cash and shares of common stock of Markland ("MARKLAND SHARES"
as further defined below in Section 2.1.7(a)) in the amounts and on the terms
specified herein; and
WHEREAS, as an inducement to each of the Parties to enter into this
Agreement and to consummate the Transaction contemplated hereby, the parties are
agreeing to make certain representations and warranties, perform certain
covenants and provide certain indemnities in connection herewith.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound hereby the
parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN MATTERS OF CONSTRUCTION. A reference to an article,
section, exhibit or schedule means an Article of, a Section in, or Exhibit or
Schedule to, this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement, which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." All terms defined
in this Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant to this Agreement unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument, law or regulation defined or referred to herein or in any agreement
or instrument that is referred to herein means such agreement, instrument or law
or regulation as from time to time amended, modified or supplemented, including,
in the case of agreements or instruments, by waiver or consent and, in the case
of laws and regulations, by succession of comparable successor laws or
regulations and references to all attachments thereto and instruments
incorporated therein. References to a Person are also to its permitted
successors and assigns.
1.2 CROSS REFERENCES. The following terms defined elsewhere in this Agreement in
the Sections set forth below shall have the respective meanings therein defined:
TERM DEFINITION
After Merger Stock Price............................Section 2.1.7(b)
Agreement...................................................Preamble
Cash Consideration Adjustment.......................Section 2.1.7(c)
Closing..................................................Section 2.2
Closing Date.............................................Section 2.2
DCAA.....................................................Section 7.2
DCAA Audit...............................................Section 7.2
DCAA Audit Determination Date..........................Section 2.1.8
DGCL...................................................Section 2.1.1
Earn Out Consideration.................................Section 2.1.7
Earnout Measurement Period.............................Exhibit 2.1.7
Employee List.........................................Section 3.12.2
Encumbrances..........................................Section 3.15.1
Escrow Agent...........................................Section 2.1.8
Excess Cash.........................................Section 2.1.7(d)
Expenses.................................................Section 7.1
Final Earnout Determination Date.......................Exhibit 2.1.7
Genex.......................................................Preamble
Genex Balance Sheet......................................Section 3.5
Genex Balance Sheet Date................................Section 3.5
Genex Benefit Plans.....................................Section 3.11
Genex Charter Documents..................................Section 3.3
Genex Common Stock.....................................Section 3.2.1
Genex Copyrights......................................Section 3.18.8
Genex Financial Statements...............................Section 3.5
Genex Insurance Contracts...............................Section 3.19
Genex Patents.........................................Section 3.18.7
Genex Stockholder.............................................Preamble
Genex Trademarks......................................Section 3.18.6
Geng Escrow Agreement..................................Section 2.1.9
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Geng Escrow Amount.....................................Section 2.1.9
Geng Escrow Fund.......................................Section 2.1.9
Governmental Entity....................................Section 3.4.2
Indemnification Claim..................................Section 7.2.1
Indemnified Parties....................................Section 7.2.1
Indemnifying Parties...................................Section 7.2.1
Indemnity Deductible ..................................Section 7.2.3
Indemnity Escrow Agreement.............................Section 2.1.8
Indemnity Escrow Amount................................Section 2.1.8
Indemnity Escrow Fund..................................Section 2.1.8
Itraoral Technologies...................................Section 7.12
Licensed Agreements...................................Section 3.18.2
Licensed IP...........................................Section 3.18.2
Markland....................................................Preamble
Markland Common Stock ................................Section 6.4.1
Markland Plan.......................................Section 2.1.7(e)
Markland Registration Rights.............................Section 2.3
Material Contracts ...................................Section 3.17.1
MGCL...................................................Section 2.1.1
Merger......................................................Recitals
Merger Certificates.........................................Preamble
Merger Consideration...................................Section 2.1.7
Merger Effective Time..................................Section 2.1.2
Merger Sub..................................................Preamble
New Option..........................................Section 2.1.7(e)
Note...................................................Section 2.1.7
Notice of Claim........................................Section 7.2.1
Parent......................................................Preamble
Permits..................................................Section 3.8
Purchase Price Adjustment...........................Section 2.1.7(b)
Share Consideration.................................Section 2.1.7(b)
Stock Price.........................................Section 2.1.7(b)
Surviving Corporation..................................Section 2.1.1
Technest Common Stock .................................Section 4.5.1
Technest Registration Rights Agreement..................Section 2.3
Third Party Claim......................................Section 7.2.2
Transaction.................................................Recitals
Welfare Plan..........................................Section 3.11.6
1.3 CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings:
AFFILIATE: with respect to a Person, any other Person which, directly
or indirectly, controls, is controlled by, or is under common control
with, such Person.
AFFILIATED GROUP: any affiliated group within the meaning of Code
Section 1504(a).
AICPA: American Institute of Certified Public Accountants.
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BUSINESS: The development of advanced three-dimensional imaging
systems, that Genex has conducted since its incorporation.
BUSINESS DAYS: shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in Maryland are
authorized by law or executive order or local proclamation to be
closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
CASH-ON-HAND: the amount of cash on hand in Genex bank accounts
immediately prior to the Closing.
COBRA: the provisions of Section 4980B of the Code and Part 6 of Title
I of ERISA.
CODE: the United States Internal Revenue Code of 1986, as amended.
COPYRIGHTS: registered and unregistered copyrights in both published
works and unpublished works, including applications for registrations.
ENVIRONMENTAL CLAIM: any actual notice received by a Person alleging
potential liability of such Person or a Subsidiary of such Person
(including, without limitation, potential liability for investigatory
costs, cleanup costs, response or remediation costs, natural resources
damages, property damages, personal injuries, fines or penalties)
arising out of, based on or resulting from (a) the presence or release
of any Material of Environmental Concern at any location or (b)
circumstances forming the basis of any violation or alleged violation
of any Environmental Laws.
ENVIRONMENTAL LAWS: any and all federal, state, local and foreign
statutes, regulations and ordinances relating to the protection of
public health, safety or the environment in effect on the Closing Date.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
ERISA AFFILIATE: any Person who is a member of a controlled group of
corporations, group of trades or businesses under common control or
affiliated service group (as defined for purposes of Sections 414(b),
(c) and (m) of the Code) of such Person.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, as the same may be in
effect from time to time.
GAAP: shall mean generally accepted accounting principles in the United
States applied on a consistent basis (a) as set forth in Opinions of
the Accounting Principles Board of the AICPA and/or in statements of
the Financial Accounting Standards Board that are applicable in the
circumstances as of the date in question, (b) when not inconsistent
with such opinions and statements, as set forth in other AICPA
publications and guidelines and/or (c) that otherwise arise by custom
for the particular industry. The requisite that such principles are
consistently applied means that the accounting principles in a current
period are comparable in all material respect to those applied in
preceding period. All accounting and financial terms used in this
Agreement and the compliance with each covenant contained in this
Agreement that relates to financial matters shall be determined in
accordance with GAAP as defined in this paragraph.
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GENEX LEASES: each lease, sublease or other agreement under which Genex
uses, occupies or has the right to occupy any real property or interest
therein that (a) provides for future minimum payments of $50,000 or
more (ignoring any right of cancellation or termination) or (b) the
cancellation or termination of which could have a Genex Material
Adverse Effect.
GENEX MATERIAL ADVERSE EFFECT: any event or events or any change in or
effect on Genex's financial condition, business, operations, assets,
properties, or results of operations that, when taken as a whole (i)
has materially interfered or is reasonably likely to materially
interfere with the ongoing operations of the Business or (ii) singly or
in the aggregate has resulted in, or is reasonably likely to have, a
material adverse effect on the ongoing conduct of the business of
Genex; provided, however, that any adverse effect arising out of or
resulting from (x) an event or series of events or circumstances
affecting the United States economy generally or the economy generally
of any other country in which Genex operates or (y) the entering into
of this Agreement or the consummation of the Transaction, shall be
excluded in determining whether a Genex Material Adverse Effect has
occurred.
INCOME TAX: any federal, state, local, or foreign income tax measured
by or imposed on net income, including any interest, penalty, or
addition thereto, whether disputed or not.
INTELLECTUAL PROPERTY: means all rights under patent, copyright,
trademark, trade secret or other intellectual property law regardless
whether arising under statutory or common law, including, without
limitation: Trademarks, Patents, Copyrights, and Trade Secrets.
KNOWLEDGE: means actual knowledge of the named individual(s), except
with respect to each of Genex, Markland, Parent or Merger Sub, shall
mean the actual knowledge of any officer or director of the named
entity.
LETTER OF INTENT: means that letter of intent from Markland to Genex
effective as of December 18, 2004.
LIABILITY: any liability or obligation, known or unknown, asserted or
unasserted, accrued or unaccrued, absolute or contingent, liquidated or
unliquidated, or otherwise, and whether due or to become due, including
any liability for Taxes.
LOSSES: the amount of any damages, Liabilities, obligations,
deficiencies, losses (including any actual diminution in value),
expenditures, costs or expenses (including reasonable attorneys' fees
and disbursements).
MARKLAND MATERIAL ADVERSE EFFECT: any event or events or any change in
or effect on Markland's financial condition, business, operations,
assets, properties, or results of operations that, when taken as a
whole, (i) has materially interfered or is reasonably likely to
materially interfere with the ongoing operations of the Markland's
business or (ii) singly or in the aggregate has resulted in, or is
reasonably likely to have, a material adverse effect on the ongoing
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conduct of the business of Markland; provided, however, that any
adverse effect arising out of or resulting from (x) an event or series
of events or circumstances affecting the United States economy
generally or the economy generally of any other country in which
Markland operates or (y) the entering into of this Agreement or the
consummation of the Transaction, shall be excluded in determining
whether a Markland Material Adverse Effect has occurred.
MATERIALS OF ENVIRONMENTAL CONCERN: petroleum and its by-products and
any and all other substances or constituents to the extent that they
are regulated by, or form the basis of liability under, any
Environmental Laws.
PARENT MATERIAL ADVERSE EFFECT: any event or events or any change in or
effect on Parent's financial condition, business, operations, assets,
properties, or results of operations that, when taken as a whole, (i)
has materially interfered or is reasonably likely to materially
interfere with the ongoing operations of the Parent's business or (ii)
singly or in the aggregate has resulted in, or is reasonably likely to
have, a material adverse effect on the ongoing conduct of the business
of Parent; provided, however, that any adverse effect arising out of or
resulting from (x) an event or series of events or circumstances
affecting the United States economy generally or the economy generally
of any other country in which Parent operates or (y) the entering into
of this Agreement or the consummation of the Transaction, shall be
excluded in determining whether a Parent Material Adverse Effect has
occurred.
PATENTS: patents and patent applications (including without limitation
any registrations, continuations, continuations-in-part, divisional,
reissues, reexaminations, extensions or renewals of, issuing from or
based upon any patent and patent application or the inventions claimed
therein whether in existence now or in the future and any foreign
equivalents thereof and renewals).
PERMITTED ENCUMBRANCES: (a) Security Interests for current taxes, water
and sewer charges and other statutory liens and trusts not yet due and
payable or that are being contested in good faith, (b) Security
Interests incurred in the ordinary course of business, such as
carriers', warehousemen's, landlords' and mechanics' liens and other
similar liens arising in the ordinary course of business, (c) Security
Interests on personal property leased under operating leases, (d)
Security Interests, pledges or deposits incurred or made in connection
with workmen's compensation, unemployment insurance and other social
security benefits, or securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed money),
statutory obligations, progress payments, surety and appeal bonds and
other obligations of like nature, in each case incurred in the ordinary
course of business, (e) pledges of or Security Interests in
manufactured products as security for any drafts or bills of exchange
drawn in connection with the importation of such manufactured products
in the ordinary course of business, (f) Security Interests or other
claims arising under Article 2 of the Uniform Commercial Code that are
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special property interests in goods identified as goods to which a
contract refers, (g) Security Interests arising under Article 9 of the
Uniform Commercial Code that are purchase money security interests and
(h) such Security Interests or other imperfections or minor defects of
title, easements, rights-of-way and other similar restrictions (if any)
as are insubstantial in character, amount or extent, do not materially
detract from the value or interfere with the present or proposed use of
the properties or assets of the Party subject thereto or affected
thereby, and do not otherwise materially adversely affect or impair the
business or operations of such Party.
PERSON: an individual, a corporation, an association, a partnership, an
estate, a trust or any other entity or organization.
SEC: the U.S. Securities and Exchange Commission.
SECURITIES ACT: the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be in
effect from time to time.
SECURITY INTEREST: any mortgage, pledge, lien, encumbrance, charge or
other security interest.
SUBSIDIARY: with respect to any Person, any corporation, partnership,
joint venture or other legal entity of which such Person (either alone
or through or together with any other Subsidiary or Affiliate), owns,
directly or indirectly, at least a majority of the stock or other
equity interests, the holders of which are (i) generally entitled to
vote for the election of the board of directors or other governing body
of such legal entity or (ii) generally entitled to share in the profits
or capital of such legal entity.
TAX: any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
TAX RETURN: any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any
schedule or attachment thereto and including any amendment thereof,
required to be supplied to a Governmental Entity.
TRADEMARKS: trademarks, service marks, trade names, URLs and Internet
domain names, designs, slogans and general intangibles of like nature,
together with all goodwill related to the foregoing.
TREASURY REGULATION: a regulation promulgated by the United States
Treasury Department under one or more provisions of the Code.
TRADE SECRETS: computer software; databases; technology, trade secrets,
know-how, proprietary processes, formulae, algorithms, models, customer
lists, business plans, inventions, source code, object code,
methodologies and, with respect to all of the foregoing, related
documentation.
WORKING CAPITAL: current accounts receivable of Genex plus Cash-on-Hand
minus accounts payable of Genex, each as of the Closing Date.
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ARTICLE 2
THE MERGER AND THE CLOSING
2.1 THE MERGER.
2.1.1 THE MERGER. At the Merger Effective Time and upon the
terms and subject to the conditions of this Agreement and in accordance with
Section 252 of the General Corporation Law of the State of Delaware (the "DGCL")
and Section 3-105 of the Maryland General Corporations Law (the "MGCL"), Merger
Sub shall merge with and into Genex. Following the Merger, Genex shall continue
as the surviving corporation (the "SURVIVING CORPORATION") and the separate
corporate existence of Merger Sub shall cease.
2.1.2 MERGER EFFECTIVE TIME. Subject to the terms and
conditions set forth in this Agreement, on the Closing Date, a Certificate of
Merger substantially in the form of Exhibit 2.1.2 (a) (the "DELAWARE MERGER
CERTIFICATE") shall be duly executed and acknowledged by Genex and Merger Sub
and thereafter delivered to the Secretary of State of the State of Delaware for
filing pursuant to Section 252 of the DGCL and the Articles of Merger
substantially in the form of Exhibit 2.1.2(b) shall be duly executed and
acknowledged by Genex and Merger Sub and thereafter delivered to the Maryland
State Department of Assessments and Taxation for filing pursuant to Section
3-107 of the MGCL (the "MARYLAND MERGER Certificate" and together with the
Delaware Merger Certificate, the "MERGER CERTIFICATES"). The Merger shall become
effective at such time as properly executed copies of the Merger Certificates
are duly filed with the Secretary of State of the State of Delaware in
accordance with Section 252 of the DGCL and the Maryland State Department of
Assessments and Taxation in accordance with Section 3-109 of the MGCL or such
later time as Parent and Genex may agree upon and set forth in the Merger
Certificates (the time the Merger becomes effective being referred to herein as
the "MERGER EFFECTIVE TIME").
2.1.3 EFFECT OF THE MERGER. At the Effective Time, the Merger
shall have the effects set forth in this Agreement, the DGCL and the MGCL.
Without limiting the generality of the foregoing and subject thereto, at the
Merger Effective Time, all the properties, rights, privileges, powers and
franchises of Genex and Merger Sub shall vest in the Surviving Corporation and
all debts, liabilities and obligations of Genex and Merger Sub shall become the
debts, liabilities and obligations of the Surviving Corporation.
2.1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. At the Merger
Effective Time, the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated in its entirety in the form attached hereto as
Exhibit 2.1.4(a), until thereafter amended as provided by the DGCL and such
Certificate of Incorporation. At the Merger Effective Time the by-laws of the
Surviving Corporation shall be amended and restated in their entirety in the
form attached hereto as Exhibit 2.1.4(b) until thereafter amended.
2.1.5 DIRECTORS. The board of directors of the Surviving
Corporation shall consists of three seats, with two directors being appointed by
Parent, who shall initially be Robert Tarini and Joseph Mackin and the other
seat being filled by the Genex Stockholder, each to hold office in accordance
with the Certificate of Incorporation and by-laws of the Surviving Corporation.
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Parent agrees to vote its shares of capital stock of the Surviving Corporation
to elect the Genex Stockholder or his designee to the board of directors of the
Surviving Corporation for the period beginning on the date hereof and ending on
the last day of the third and final Earnout Measurement Period.
2.1.6 OFFICERS. The officers of the Surviving Corporation
shall be as follows: Robert Tarini shall be the Chief Executive Officer, Joseph
Mackin shall be the President, Gino Pereira shall be the Chief Financial
Officer, and Jason Geng shall be an Executive Vice President and the Chief
Scientist, each to hold office in accordance with the Certificate of
Incorporation and by-laws of the Surviving Corporation.
2.1.7 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS. On the terms and subject to the conditions of this
Agreement (including, without limitation, the Earn Out Terms and Conditions set
forth in Exhibit 2.1.7 and the escrow provisions set forth in Section 2.1.8), at
the Merger Effective Time, without any action on the part of Merger Sub, Genex
or the Genex Stockholder, the following shall occur:
(a) Genex Common Stock. Subject to Section 2.1.7(b), the
shares of Genex Common Stock issued and outstanding at the Merger
Effective Time, shall be automatically converted into the right to
receive in the aggregate (i) Three Million Dollars ($3,000,000) in cash
(the "CASH CONSIDERATION"); (ii) that number of shares of common stock,
par value $0.0001 per share, of Markland (the "MARKLAND SHARES") equal
to Seven Million Dollars ($7,000,000.00) (the "SHARE CONSIDERATION")
divided by the average volume-weighted closing price of the Markland
Common Stock on the OTC Bulletin Board for the twenty (20) trading days
prior to the day before the date of this Agreement (the "STOCK PRICE");
and (iii) if earned, the contingent payments described in the Earn Out
Terms and Conditions set forth in Exhibit 2.1.7, (the "EARN OUT
CONSIDERATION" and collectively with the Cash Consideration and the
Markland Shares, the "MERGER CONSIDERATION").
(b) Share Consideration Adjustment. Subject to the limitations
set forth below, if the average volume-weighted closing price of the
Markland Shares for the ten (10) trading days subsequent to the date of
this Agreement (the "AFTER-MERGER STOCK PRICE") is (i) less than the
Stock Price, then the number of Markland Shares shall be re-determined
using the After-Merger Stock Price, and Parent shall promptly deliver
to the Genex Stockholder the number of shares of Markland Common Stock
equal to (A) the Share Consideration divided by the After-Merger Stock
Price minus (B) the Share Consideration divided by the Stock Price,
(ii) greater than the Stock Price, then the number of Markland Shares
shall be re-determined using the After-Merger Stock Price, and the
Genex Stockholder shall promptly deliver to Parent the number of shares
of Markland Common Stock equal to (A) the Share Consideration divided
by the Stock Price minus (B) the Share Consideration divided by the
After-Merger Stock Price (the "PURCHASE PRICE ADJUSTMENT").
Notwithstanding the foregoing, for purposes of calculating the Purchase
Price Adjustment, (i) if the After-Merger Stock Price is greater than
the Stock Price plus $0.25, then the After-Merger Stock Price shall be
equal to the Stock Price plus $0.25 and (ii) if the After-Merger Stock
Price is less than the Stock Price minus $0.25, then the After-Merger
Stock Price shall be equal to the Stock Price minus $0.25.
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(c) Cash Consideration Adjustment. At the Closing Date, the
Surviving Corporation shall pay to the Genex Stockholder an amount
equal to the following:
(i) if the Working Capital is greater than or equal
to $800,000, and the Cash-on-Hand is greater than or equal to
$450,000, an amount equal to $550,000, to be paid as set forth
in Section 2.1.7(d) below; or
(ii) if the Working Capital is less than $800,000
(the "Working Capital Deficit") or the Cash-on-Hand is less
than $450,000 (the "Cash Deficit"), an amount equal to (A)
$550,000 minus (B) the sum of (x) in the case of the Working
Capital Deficit, the difference between $800,000 and the
Working Capital and (y) in the case of a Cash Deficit, the
difference between $450,000 and the Cash-on-Hand (such amount
as determined in accordance with this Section 2.1.7(c) shall
be referred to herein as the "CASH CONSIDERATION Adjustment");
provided that if the Working Capital Deficit is caused by the
Cash Deficit, then Cash Consideration Adjustment shall only be
adjusted to reflect the Cash Deficit.
(d) Payment of Cash Consideration Adjustment. The Cash
Consideration Adjustment shall be paid on the Closing Date as follows:
(i) the Surviving Corporation shall pay to the Genex
Stockholder an amount in cash (the "EXCESS CASH") equal to (A)
Cash-on-Hand minus (B) $450,000, if any; and
(ii) the Surviving Corporation shall issue a
promissory note to the Genex Stockholder in the form attached
hereto as Exhibit 2.1.7(c) for an amount equal to the
difference between the Cash Consideration Adjustment and the
Excess Cash.
(e) Genex Options. In accordance with Section 3(d) of the
Markland Technologies, Inc. 2004 Stock Incentive Plan (the "MARKLAND
PLAN"), at the Effective Time of the Merger, each option granted under
Genex Technologies, Inc. 2000 Stock Incentive Plan that remains
unexercised in whole or in part will be terminated and Markland will
issue options to the holders of Genex Options in accordance with this
Section 2.1.7 (the "NEW OPTIONS"). The number of shares of Markland
Common Stock purchasable under the New Option shall be equal to the
number of shares of Genex Common Stock that the holder of the option
being assumed would have received (without regard to any vesting
schedule) upon consummation of the Merger had such Genex option been
exercised in full immediately prior to consummation of the Merger and
the per share exercise price of such New Option shall be an amount
equal to the closing bid price of Markland Common Stock on the Closing
Date. Markland agrees to file a registration statement on Form S-8 with
respect to the shares of Markland Common Stock subject to the New
Options.
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(f) Stock of Merger Sub. Each outstanding share of the common
stock, $0.0001 par value per share, of Merger Sub shall be converted
into one share of the common stock, $1.00 par value per share, of the
Surviving Corporation.
2.1.8 INDEMNITY ESCROW AMOUNT. On the Closing Date, Markland,
Parent and the Genex Stockholder shall execute the escrow agreement in the form
attached hereto as Exhibit 2.1.8 (the "INDEMNITY ESCROW AGREEMENT") and Markland
shall deposit with Wilmington Trust Company (the "ESCROW AGENT"), for the
benefit and on behalf of the Genex Stockholder that number of Markland Shares
having a value of $2,000,000 (as determined based on the Stock Price and
adjusted in accordance with Section 2.1.7(b)) on the Closing Date (the
"INDEMNITY ESCROW AMOUNT"). The Indemnity Escrow Amount will be disbursed in
accordance with the terms of the Indemnity Escrow Agreement (such deposit being
referred to herein as the "INDEMNITY ESCROW FUND"). The Indemnity Escrow
Agreement shall provide, among other things, that (a) if the DCAA Audit (as
defined in Section 7.2) is completed prior to the first anniversary of the
Closing Date (the date of such completion referred to herein as the "DCAA AUDIT
DETERMINATION DATE")), then (i) fifty percent (50%) of the Markland Shares then
held in the Indemnity Escrow Fund, less reasonable reserves for asserted claims,
will be released to the Genex Stockholder promptly following the DCAA Audit
Determination Date and (ii) the balance of the Indemnity Escrow Fund, less
reasonable reserves for asserted claims, will be released to the Genex
Stockholder on the first anniversary of the Closing Date; and (b) if the DCAA
Audit Determination Date occurs on or after the first anniversary of the Closing
Date, then the Markland Shares then held in the Indemnity Escrow Fund, less
reasonable reserves for asserted claims, will be released to the Genex
Stockholder upon the earlier to occur of (i) DCAA Audit Determination Date and
(ii) the third anniversary of the Closing Date (as defined below). Any Markland
Shares withheld as reserves with respect to a claim that are ultimately not paid
with respect to such claim shall be released upon resolution of such claim. The
Indemnity Escrow Agreement shall also provide that for purpose of determining
the number of Markland Shares to be held in reserve or released to either Parent
or the Genex Stockholder, as the case may be, the value of such Markland Shares
shall be based on the average volume-weighted closing bid price of the Markland
Shares on the OTC Bulletin Board for the ten (10) trading days prior to the day
before the date of such calculation.
2.1.9 GENG ESCROW AMOUNT. On the Closing Date, Markland,
Parent and the Genex Stockholder shall execute the Geng Escrow Agreement in the
form attached hereto as Exhibit 2.1.9 (the "GENG ESCROW AGREEMENT") and Markland
shall deposit with the Escrow Agent, for the benefit and on behalf of the Genex
Stockholder that number of Markland Shares having a value of $3,000,000 (as
determined based on the Stock Price and adjusted in accordance with Section
2.1.7(b)) on the Closing Date (the "GENG ESCROW AMOUNT"). The Geng Escrow Amount
will be disbursed in accordance with the terms of the Geng Escrow Agreement
(such deposit being referred to herein as the "GENG ESCROW FUND"). The Geng
Escrow Agreement shall provide, among other things, that the shares held in the
Geng Escrow Fund shall be released to the Genex Stockholder on January 1, 2006.
2.2 CLOSING. The closing of the Transaction contemplated by this
Agreement (the "CLOSING") shall take place at a time and on a date (the "CLOSING
DATE") to be specified by the parties, which date shall be no later than the
first Business Day after satisfaction or waiver of the last to be satisfied or
waived of the conditions set forth in Article 8, unless another date is agreed
to by the Parties hereto.
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2.3 CLOSING DELIVERIES.
2.3.1 Merger Sub, Parent and/or Markland, as the case may be,
shall deliver to Genex or the Genex Stockholder, as the case may be, the
following at the Closing (unless expressly waived in writing by Genex or the
Genex Stockholder):
(a) an opinion of Foley Hoag LLP, counsel to Parent, in
substantially the form attached as Exhibit 2.3.1(a).
(b) a good standing certificate for Merger Sub and copy of the
certificate of incorporation of Merger Sub, in each case issued by the
Secretary of State of the State of incorporation of Merger Sub.
(c) a good standing certificate for the Parent issued by the
Secretary of State of the State of its incorporation and dated not more
than ten (10) days prior to the Closing Date.
(d) a good standing certificate for Markland issued by the
Secretary of State of the State of its incorporation and dated not more
than ten (10) days prior to the Closing Date.
(e) The Employment Agreement in the form of Exhibit 2.3.1(e)
hereto (the "EMPLOYMENT AGREEMENT") for the Genex Stockholder, executed
by the Surviving Corporation.
(f) The Cash Consideration and the Markland Shares to the
Genex Stockholder, less the Indemnity Escrow Amount and the Geng Escrow
Amount.
(g) The Indemnity Escrow Agreement and the Geng Escrow
Agreement executed by the Escrow Agent, Parent and Markland and the
Indemnity Escrow Amount and the Geng Escrow Amount to the Escrow Agent.
(h) Executed Merger Certificates.
(i) The Markland Registration Rights Agreement executed by
Markland and the Technest Registration Rights Agreement (each as
defined in Section 2.3.2) executed by Parent.
(j) A Stock Option Agreement in the form of Exhibit 2.3.1(j)
hereto to each person identified in Schedule 2.3.1(j).
(k) A certificate of the Secretary or any Assistant Secretary
of each of Merger Sub, Parent and Markland, each dated as of the
Closing Date and certifying as to (i) the signing authority, incumbency
and specimen signature of the signatories of this Agreement and other
documents signed on behalf of Markland, Parent and Merger Sub,
respectively, in connection herewith, (ii) the resolutions adopted by
the boards of directors of Markland, Parent and Merger Sub,
respectively, authorizing and approving the execution, delivery and
12
performance of this Agreement and the other documents executed in
connection herewith and the consummation of the Transaction
contemplated hereby and thereby and state that such resolutions have
not been modified, amended, revoked or rescinded and remain in full
force and effect, (iii) the resolutions adopted by the stockholders of
Merger Sub authorizing the Transaction contemplated hereby and state
that such resolutions have not been modified, amended, revoked or
rescinded and remain in full force and effect, and (iv) the Articles of
Incorporation (or applicable other charter document) and by-laws of
each of Markland, Parent and Merger Sub.
(l) Any other certificates and documents as the Company or the
Genex Stockholder and his counsel shall reasonably require in order to
facilitate the consummation of the Transaction.
2.3.2 Genex or the Genex Stockholder, as the case may be,
shall deliver to Merger Sub, Parent and/or Markland, as the case may be, at the
Closing the following (unless expressly waived in writing by any of the
recipient parties):
(a) All necessary consents and approvals, each such consent,
approval or termination (i) shall be in form and substance satisfactory
to Merger Sub in its sole discretion, (ii) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and
(iii) shall be in full force and effect.
(b) The resignations of all directors and officers of Genex
effective as of the Merger Effective Time.
(c) An opinion of Dickstein, Shapiro, Morin & Oshinsky LLP,
counsel to Genex, in substantially the form attached hereto as Exhibit
8.2.3.
(d) The Registration Rights Agreement in the form attached
hereto as Exhibit 2.3.2(d), (the "MARKLAND REGISTRATION RIGHTS
AGREEMENT") executed by the Genex Stockholder.
(e) The Registration Rights Agreement in the form attached
hereto as Exhibit 2.3.2(e) (the "TECHNEST REGISTRATION RIGHTS
AGREEMENT") executed by the Genex Stockholder.
(f) A good standing certificate for Genex and a copy of the
certificate of incorporation of Genex, in each case issued by the
Maryland Department of Assessments and Taxation and dated not more than
ten (10) Business Days prior to the Agreement Date.
(g) The Employment Agreement executed by the Genex
Stockholder.
(h) Executed Merger Certificates.
(i) The stock certificate(s) representing all of the Genex
Common Stock, together with stock powers executed in blank for each
certificate.
13
(j) The Indemnity Escrow Agreement and the Geng Escrow
Agreement executed by Genex Stockholder.
(k) The Lock-up Agreement in the form attached hereto as
Exhibit 2.3.2(k) executed by the Genex Stockholder.
(l) A certificate of the Secretary or any Assistant Secretary
of Genex, dated as of the Closing Date, certifying as to (a) the
signing authority, incumbency and specimen signature of the signatories
of this Agreement and other documents signed on behalf of Genex in
connection herewith, (b) the resolutions adopted by the board of
directors of Genex authorizing and approving the execution, delivery
and performance of this Agreement and the other documents executed in
connection herewith and the consummation of the Transaction
contemplated hereby and thereby and state that such resolutions have
not been modified, amended, revoked or rescinded and remain in full
force and effect, (c) the resolutions adopted by the Genex Stockholder
authorizing the consummation of the Transaction contemplated hereby and
stating that such resolutions have not been modified, amended, revoked
or rescinded and remain in full force and effect, and (d) Genex Charter
Documents (as defined in Section 3.3).
(m) Any other certificates and documents as Parent, Merger
Sub, Markland or their counsel may reasonably require in order to
facilitate the Transaction contemplated by this Agreement.
2.4 ADDITIONAL ACTIONS. If, at any time after the Closing, any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest, perfect or confirm in the Surviving Corporation title to or ownership
or possession of any property, right, privilege, power, franchise or other asset
of Genex, acquired or to be acquired by reason of, or as a result of, the
Merger, the officers and directors of Parent and the Surviving Corporation are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is consistent with this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF GENEX
Genex and the Genex Stockholder jointly and severally represent and
warrant to Markland, Parent and Merger Sub as follows:
3.1 CORPORATE STATUS. Genex (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized, with the requisite corporate power to own, operate and
lease its properties and to carry on its business as now being conducted; and
(ii) is duly qualified or licensed to do business as a foreign corporation and
is in good standing in each state in which the nature of the business conducted
or property owned by it makes such qualification necessary except where the
failure to be so qualified could not, individually or in the aggregate,
reasonably be expected to have a Genex Material Adverse Effect. Genex has no
Subsidiaries.
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3.2 CAPITAL STOCK.
3.2.1 AUTHORIZED STOCK OF GENEX. The authorized capital stock
of Genex consists of 20,000,000 shares of common stock, $.001 par value per
share (the "GENEX COMMON STOCK"). Of the Genex Common Stock, 10,000,000 shares
are issued and outstanding, no shares are held in treasury, and 10,000,000
shares are reserved for issuance pursuant to the Genex Technologies Inc. 2000
Stock Incentive Plan, of which options for 317,000 shares have been granted and
remain outstanding. All of the issued and outstanding shares of Genex Common
Stock have been duly authorized and validly issued, were not issued in violation
of the securities laws of the United States or any state or any person's
preemptive rights and are fully paid and nonassessable. The Genex Stockholder
owns 10,000,000 shares of Genex Common Stock and is the sole stockholder of
Genex. Other than the shares issued to the Genex Stockholder, as of the date
hereof, there are no outstanding shares of Genex Common Stock.
3.2.2 OPTIONS AND CONVERTIBLE SECURITIES OF GENEX. Except as
set forth on Schedule 3.2.2, as of the date hereof, there are no outstanding
subscriptions, options, warrants, conversion rights or other rights, securities,
agreements or commitments obligating Genex to issue, sell or otherwise dispose
of shares of its capital stock, or any securities or obligations convertible
into, or exercisable or exchangeable for, any shares of its capital stock.
Except as set forth on Schedule 3.2.2, as of the date hereof, there are no
voting trusts or other agreements or understandings with respect to the voting
of the shares of Genex Common Stock. Except as set forth on Schedule 3.2.2, as
of the date hereof, Genex is neither a party to, nor bound by, any outstanding
restrictions, options or other obligations, agreements or commitments to sell,
repurchase, redeem or acquire any outstanding shares of Genex Common Stock or
any other securities of Genex. Termination of the options granted under the
Genex Technologies, Inc. 2000 Stock Option Plan will not result in a withholding
obligation for Genex or any Tax to an option holder under Section 409A of the
Code in accordance with the provisions of Treasury Notice 2005-1.
3.3 SUBSIDIARIES
(a) Genex owns no capital stock of, or any equity interest of
any nature in, any corporation, partnership, joint venture arrangement
or other business entity. Genex has not agreed nor is Genex obligated
to make, or bound by any written or oral agreement, contract, lease,
instrument, note, option, warranty, purchase order, license, insurance
policy, benefit plan or legally binding commitment or undertaking of
any nature, as in effect as of the date hereof or as may hereinafter be
in effect under which it may become obligated to make any future
investment in or capital contribution to any other entity. Genex has
not, at any time, been a general partner of any general partnership,
limited partnership or other entity.
(b) Genex has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of Genex
(collectively, the "GENEX CHARTER DOCUMENTS").
3.4 AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
3.4.1 AUTHORITY. Genex has the corporate power and authority
to enter into this Agreement and to consummate the Transaction contemplated
hereby to the extent of its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the Transaction contemplated hereby, to
the extent of Genex's obligations hereunder, have been duly and validly
15
authorized by the board of directors of Genex and no other corporate proceedings
on the part of Genex are necessary to authorize the execution and delivery of
this Agreement and, other than the vote of the holders of Genex Common Stock,
the consummation of the Transaction contemplated hereby, to the extent of
Genex's obligations hereunder. This Agreement and the other agreements
contemplated hereby to be signed by Genex have been duly executed and delivered
by Genex and constitute valid and binding obligations of Genex, enforceable
against Genex in accordance with their terms, subject to the requirement of the
aforementioned vote of the holders of the Genex Common Stock and the
qualifications that enforcement of the rights and remedies created hereby and
thereby is subject to (a) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws of general application affecting the
rights and remedies of creditors and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). The Genex Stockholder does not have the right to assert or claim any
appraisal or dissenter's rights with respect to the Merger.
3.4.2 NO CONFLICT. None of the execution, delivery or
performance of this Agreement and the agreements referenced herein by Genex, nor
the consummation by Genex of the Transaction contemplated hereby or thereby will
(a) conflict with or result in a violation of any provision of the Genex Charter
Documents, (b) with or without the giving of notice or the lapse of time, or
both, conflict with, or result in any violation or breach of, or constitute a
default under, or result in any right to accelerate or result in the creation of
any lien, charge or encumbrance pursuant to, or right of termination under, any
provision of any note, mortgage, indenture, lease, instrument or other
agreement, contract,permit, concession, grant, franchise, license, judgment,
order or decree, to which Genex is a party or by which Genex or any of its
assets or properties are bound or which is applicable to Genex or any of its
assets or properties, except where such violation, breach, default, etc. could
not, individually or in the aggregate, reasonably be expected to result in a
Genex Material Adverse Effect. Except to the extent novation is required as
further described in Section 7.10 below, no authorization, consent or approval
of, or filing with or notice to, any United States or foreign governmental or
public body or authority (each a "GOVERNMENTAL ENTITY") is necessary for the
execution and delivery of this Agreement by Genex or the consummation by Genex
of the Transaction contemplated hereby and except for such consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a Genex Material Adverse Effect.
3.5 FINANCIAL STATEMENTS. Genex has previously furnished Parent with
accurate and complete copies of Genex's balance sheets as of December 31, 2004,
2003 and 2002 and Genex's statements of operations, cash flows and changes in
stockholders' equity for the years then ended. Collectively, the financial
statements referred to in the immediately preceding sentence are sometimes
referred to herein as the "GENEX FINANCIAL STATEMENTS" and Genex's balance sheet
as of December 31, 2004 is referred to herein as the "GENEX BALANCE SHEET." Each
of the balance sheets included in the Genex Financial Statements (including any
related notes) fairly presents in all material respects Genex's financial
position as of its respective dates, and the other statements included in the
Genex Financial Statements (including any related notes) fairly present in all
material respects Genex's results of operations, cash flows and stockholders'
equity, as the case may be, for the periods therein set forth, in each case in
accordance with GAAP consistently applied, except as otherwise noted thereon,
and subject, in the case of the Genex Balance Sheet, to normal year-end
adjustments (all except as otherwise stated therein) and the lack of related
notes otherwise required by GAAP.
16
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
Schedule 3.6, since the Genex Balance Sheet Date, Genex has not suffered any
Genex Material Adverse Effect. Except as set forth on Schedule 3.6, since the
Genex Balance Sheet Date, there have been no dividends or other distributions
declared or paid in respect of, or any repurchase or redemption by Genex of, any
of the shares of Genex Common Stock, or any commitment relating to any of the
foregoing.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
3.7, Genex has no Liabilities that are not fully reflected or provided for on,
or disclosed in the notes to, the balance sheets included in the Genex Financial
Statements, except (a) Liabilities incurred in the ordinary course of business
since the Genex Balance Sheet Date, none of which has had or will have a Genex
Material Adverse Effect, (b) Liabilities arising under any agreement, contract,
commitment or lease entered into in connection with this agreement and the
transactions contemplated hereby and (c) Liabilities disclosed on the Schedules
delivered hereunder, arising under any agreement, contract, commitment or lease.
3.8 COMPLIANCE WITH APPLICABLE LAW. Genex has all requisite licenses,
permits and certificates from all Governmental Entities ("PERMITS") necessary to
conduct its Business as currently conducted, and to own, lease and operate its
properties in the manner currently held and operated and except for any Permits
the absence of which do not or could not, individually or in the aggregate,
reasonably be expected to have a Genex Material Adverse Effect or prevent or
materially delay the consummation of the Transaction. All of such Permits are in
full force and effect. Genex is in compliance in all material respects with all
the terms and conditions related to such Permits. There are no proceedings in
progress, pending or, to the Knowledge of Genex, threatened, which may result in
revocation, cancellation, suspension, or any materially adverse modification of
any of such Permits. The Business is not being conducted in violation of any
applicable law, statute, ordinance, regulation, rule, judgment, decree, order,
Permit, concession, grant or other authorization of any Governmental Entity,
which violations could reasonably be expected to have a Genex Material Adverse
Effect or prevent or delay the consummation of the Transaction.
3.9 LITIGATION AND AUDITS. Except as set forth on Schedule 3.9, (a)
Genex has not received notice that there is any investigation by any
Governmental Entity with respect to Genex pending, and, to the Knowledge of
Genex, no investigation by any Governmental Entity with respect to Genex is
threatened; (b) there are no claims, actions, suits, arbitrations or proceedings
pending or, to the Knowledge of Genex, threatened against or involving Genex or
any of its assets or properties, at law or in equity, or before any arbitrator
or Governmental Entity; and (c) there are no judgments, decrees, injunctions or
orders of any Governmental Entity or arbitrator outstanding against Genex.
3.10 TAX MATTERS.
17
3.10.1 FILING OF RETURNS. Genex has timely filed all Tax
Returns required to be filed by or on behalf of Genex and has paid all Taxes
owing (whether or not shown on any Tax Return). Genex is not currently the
beneficiary of any extension of time within which to file any Tax Return.
Neither Genex nor the Genex Stockholder has been put on notice by an authority
in a jurisdiction where Genex does not file Tax Returns that Genex is or may be
subject to taxation by that jurisdiction. There are no liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of Genex. Genex has
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
3.10.2 ASSESSMENTS OR AUDITS. No foreign, federal, state, or
local tax audits or administrative or judicial Tax proceedings are active or
pending with respect to Genex. There is no material dispute or claim concerning
any Tax liability of Genex pending, or to the Knowledge of Genex threatened by
any Governmental Entity. Schedule 3.10.2 lists all Tax Returns filed with
respect to Genex for taxable periods ended on or after December 31, 2001,
indicates those Tax Returns that have been audited or are currently the subject
of an audit. Genex has made available to Markland and/or Parent correct and
complete copies of all federal Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by Genex since December 31, 2001.
3.10.3 WAIVER OF STATUTE OF LIMITATIONS. Genex has not waived
any statute of limitations in respect of any Tax or agreed to any extension of
time with respect to a Tax assessment or deficiency.
3.10.4 GOLDEN PARACHUTES, REAL PROPERTY HOLDING CORPORATIONS.
Genex has not filed a consent under Code section 341(f) concerning collapsible
corporations. Genex has not made any payments, and is not obligated to make any
payments and is not a party to any agreement that under certain circumstances
could obligate it to make any payments, that will not be deductible under Code
section 280G. Genex has not been a United States real property holding
corporation within the meaning of Code section 897(c)(2) during the applicable
period specified in Code section 897(c)(1)(A)(ii). Genex is not a party to any
Tax allocation or sharing agreement.
3.10.5 NO CHANGES IN ACCOUNTING, CLOSING AGREEMENT,
INSTALLMENT SALE. Genex will not be required to include any item of income in,
or 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 (a) change in
method of accounting 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); (b) "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; (c)
installment sale or open transaction disposition made on or prior to the Closing
Date; or (d) prepaid amount received on or prior to the Closing Date.
3.10.6 Other Transactions. Genex has not distributed stock of
another person, or had its stock distributed by another person, in a transaction
that was purported or intended to be governed in whole or in part by Code
section 355 or Code section 361.
3.10.7 S Corp Status. Genex has been a validly electing S
Corporation within the meanings of Sections 1361 and 1362 of the Code at all
times from January 1, 1996 until the Closing Date.
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3.11 EMPLOYEE BENEFIT PLANS.
3.11.1 LIST OF PLANS. Schedule 3.11 contains a
correct and complete list of all pension, profit sharing, retirement, deferred
compensation, welfare, legal services, medical, dental or other employee benefit
or health insurance plans, life insurance or other death benefit plans,
disability, stock option, stock purchase, stock compensation, bonus, vacation
pay, severance pay and other similar plans, programs or agreements, and every
material written personnel policy, relating to any persons employed by Genex or
in which any person employed by Genex is eligible to participate and which is
currently maintained or that was maintained at any time during the last three
calendar years by Genex or any ERISA Affiliate of Genex (collectively, the
"GENEX PLANS"). Genex has delivered to Parent (a) accurate and complete copies
of all Genex Plan documents and all other material documents relating thereto,
including (if applicable) all documents establishing or constituting any related
trust, annuity contract, insurance contract or other funding instruments, and
summary plan descriptions relating to said Genex Plans, (b) accurate and
complete copies of the most recent financial statements and actuarial reports
with respect to all Genex Plans for which financial statements or actuarial
reports are required or have been prepared, and (c) accurate and complete copies
of all annual reports and summary annual reports for all Genex Plans for which
annual reports are required. Genex has also delivered to Parent complete copies
of other current plan summaries, employee booklets, personnel manuals and other
material documents or written materials concerning the Genex Plans that are in
possession of Genex as of the date of this Agreement. Genex has no "defined
benefit plans" as defined in Section 3(35) of ERISA. Genex has no current or
contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA). Schedule 3.11 identifies each Genex Plan which is
subject to new Section 409A of the Code. Each Genex Plan subject to Section 409A
has been operated in good faith compliance with the provisions of Section 409A
and Treasury Notice 2005-1.
3.11.2 ERISA. None of Genex, any of its subsidiaries
nor any ERISA Affiliate of Genex has incurred any "withdrawal liability"
calculated under Section 4211 of ERISA and there has been no event or
circumstance which would cause any of them to incur any such liability. Neither
Genex nor any ERISA Affiliate of Genex has terminated a defined benefit pension
plan which was subject to ERISA; no proceedings to terminate any such plan have
been instituted within the meaning of Subtitle C of Title IV of ERISA; and no
reportable event within the meaning of Section 4043 of said Subtitle C of Title
IV of ERISA with respect to which the requirement to file a notice with the
Pension Benefit Guaranty Corporation has not been waived has occurred with
respect to any such Genex Plan, and no liability to the Pension Benefit Guaranty
Corporation has been incurred by Genex, any of its subsidiaries or any ERISA
Affiliate of Genex. With respect to all Genex Plans, Genex and Genex's ERISA
Affiliates are in compliance with all requirements prescribed by all statutes,
regulations, orders or rules currently in effect, and have performed all
obligations required to be performed by them, except where the failure to so
comply or perform individually or in the aggregate could not result in a Genex
Material Adverse Effect. All returns, reports and disclosure statements required
to be made under ERISA and the Code with respect to all Genex Plans have been
timely filed or delivered. Neither Genex nor any ERISA Affiliate of Genex, nor
any of their directors, officers, employees or agents, nor any trustee or
administrator of any trust created under the Genex Plans, has engaged in or been
19
a party to any "prohibited transaction" as defined in Section 4975 of the Code
and Section 406 of ERISA which could subject Genex or any ERISA Affiliate of
Genex, or any director or employee of any Genex Plan or any trust relating to
any Genex Plan, or any party dealing with any Genex Plan or trust relating
thereto to any tax or penalty on "prohibited transactions" imposed by Section
4975 of the Code. Neither the Genex Plans nor the trusts created thereunder have
incurred any "accumulated funding deficiency," as such term is defined in
Section 412 of the Code and regulations issued thereunder, whether or not
waived.
3.11.3 PLAN DETERMINATIONS. Each Genex Plan intended
to qualify under Section 401(a) of the Code has been determined by the Internal
Revenue Service to so qualify, and the trusts created thereunder have been
determined to be exempt from tax under Section 501(a) of the Code; copies of all
determination letters have been delivered to Parent, and nothing has occurred
since the date of such determination letters which might cause the loss of such
qualification or exemption, or result in the imposition of any excise tax or
income tax on unrelated business income under the Code or ERISA with respect to
any Genex Plan. With respect to each Genex Plan which is a qualified profit
sharing plan, all employer matching contributions accrued for payroll periods
ending prior to the Closing under Genex Plan terms and applicable law have been
made.
3.11.4 FUNDING. Except as set forth on Schedule 3.11:
(a) all contributions, premiums or other payments due
or required to be made to Genex Plans as of the date of this Agreement
have been made as of the date of this Agreement or are properly
reflected on Genex Balance Sheet;
(b) there are no actions, liens, suits or claims
(other than routine claims for benefits) pending or, to the Knowledge
of Genex, threatened, with respect to any Genex Plan, nor is any Genex
Plan the subject of any pending (or to the Knowledge of Genex, any
threatened) investigation or audit by the Internal Revenue Service,
Department of Labor or the Pension Benefit Guaranty Corporation;
(c) no event has occurred which presents a risk of a
partial termination (within the meaning of Section 411(d)(3) of the
Code) of any Genex Plan;
(d) with respect to any Genex Plan that is qualified
under Section 401(k) of the Code, no event has occurred with which
Genex could be subject to any liability (except liability for benefits
claims and funding obligations payable in the ordinary course) that is
reasonably likely to have a Genex Material Adverse Effect under ERISA,
the Code or any other applicable law.
3.11.5 CERTAIN OTHER MATTERS. Except as reserved for
on the Genex Balance Sheet, to Genex's Knowledge, Genex has no liability or
potential liability in any form whatsoever, and Genex will not have liability or
potential liability in any form whatsoever, with regard to any Genex Plan, as a
result of the any failure to perform non-discrimination testing on a Genex Plan
or any failure to amend a Genex Plan pursuant to the legislation commonly known
as "GUST" or the legislation commonly known as "EGTRRA." All employee
contributions, including elective deferrals, to Genex's 401(k) plan(s) have been
segregated from Genex's general assets and deposited into the trust(s)
established pursuant to the 401(k) plan(s) in a timely manner in accordance with
the "plan asset" regulations of the Department of Labor.
20
3.11.6 WELFARE PLANS. With respect to any Genex Plan
that is an employee welfare benefit plan (within the meaning of Section 3(1) of
ERISA) (a "GENEX WELFARE PLAN") and except as set forth on Schedule 3.11, (a)
each Genex Welfare Plan for which contributions are claimed by Genex as
deductions under any provision of the Code is in compliance with all applicable
requirements pertaining to such deduction, (b) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a Genex
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (c) any Genex Plan that is a group health plan (within the
meaning of Section 4980B(g)(2) of the Code) complies, and in each and every case
has complied, with all of the applicable requirements of COBRA, the Family
Medical Leave Act of 1993, the Health Insurance and Portability and
Accountability Act of 1996, the Women's Health and Cancer Rights Act of 1996,
the Newborns' and Mothers' Health Protection Act of 1996, and any similar
provisions of state law or foreign law applicable to employees of Genex or any
ERISA Affiliate of Genex, except, with respect to clauses (a) and (c) above,
where any failure to comply could not, individually or in the aggregate,
reasonably be expected to result in a Genex Material Adverse Effect.
3.11.7 Additional Benefits. Except as specifically
set forth in Schedule 3.11, no employee or former employee of Genex will become
entitled to any material bonus, severance or similar benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
Transaction.
3.12 EMPLOYMENT-RELATED MATTERS.
3.12.1 LABOR RELATIONS. Except to the extent set
forth on Schedule 3.12 (a) Genex is not a party to any collective bargaining
agreement or other contract or agreement with any labor organization or other
representative of employees of Genex or any of its subsidiaries; (b) there is no
labor strike, dispute, slowdown, work stoppage or lockout that is pending or, to
the Knowledge of Genex, threatened against or otherwise affecting Genex, and
Genex has not experienced the same; (c) Genex has not closed any plant or
facility, effectuated any layoffs of employees or implemented any early
retirement or separation program in the last three years, and Genex has not
planned or announced any such action or program for the future with respect to
which Genex has any liability; and (d) all salaries, wages, vacation pay,
bonuses, commissions and other compensation due from Genex before the Genex
Balance Sheet Date have been paid or accrued as of the Balance Sheet Date.
3.12.2 EMPLOYEE LIST. Genex has heretofore delivered
to Parent a list (the "EMPLOYEE LIST"), dated as of the date hereof, containing
the name of each person employed by Genex and each such employee's position,
starting employment date and annual salary. The Employee List is correct and
complete as of the date hereof. Each person on the Employee List is and since
such person's first date of employment at Genex, has been employed by Genex in
accordance with all applicable immigration laws.
3.13 ENVIRONMENTAL MATTERS.
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3.13.1 ENVIRONMENTAL LAWS. Except as set forth on
Schedule 3.13, (a) Genex and each of its subsidiaries is in compliance with all
applicable Environmental Laws in effect on the date of this Agreement; (b) Genex
has not received any written communication that alleges that it is or was not in
compliance with all applicable Environmental Laws in effect on the date; and (c)
the management, handling, storage, transportation, treatment, and disposal by
Genex and each of its subsidiaries of all Materials of Environmental Concern is
and has been in compliance with all applicable Environmental Laws.
3.13.2 ENVIRONMENTAL CLAIMS. There is no
Environmental Claim pending or, to the Knowledge of Genex, threatened, against
or involving Genex or against any Person whose liability for any Environmental
Claim Genex has or may have retained or assumed either contractually or by
operation of law.
3.13.3 NO BASIS FOR CLAIMS. Genex has not placed,
deposited or released any Material of Environmental Concern upon or under any
property now or previously leased, or occupied by Genex, except in compliance
with Environmental Laws; without limiting the generality of the foregoing, Genex
has not received any notices, demands, requests for information, investigations
pertaining to compliance with or liability under Environmental Laws with respect
to Materials of Environmental Concern, nor, to the Knowledge of Genex, are any
such notices, demands, requests for information or investigations threatened.
3.13.4 DISCLOSURE OF INFORMATION. Genex has made, and
during the period between the date of this Agreement and the Closing Date will
continue to make, available to Parent all environmental investigations, studies,
audits, tests, reviews and other analyses conducted in relation to Environmental
Laws or Materials of Environmental Concern pertaining to Genex or any of its
subsidiaries or any property or facility now or previously owned, leased or
operated by Genex that are in the possession, custody, or control of Genex.
3.13.5 LIENS. No lien imposed relating to or in
connection with any Environmental Claim, Environmental Laws, or Materials of
Environmental Concern has been filed or has been attached to any of the property
or assets which are owned, leased or operated by Genex.
3.14 NO BROKER'S OR FINDER'S FEES. Except as set forth in
Schedule 3.14, Genex has not paid nor become obligated to pay any fee or
commission to any broker, finder, financial advisor or intermediary in
connection with the Transaction contemplated by this Agreement.
3.15 ASSETS OTHER THAN REAL PROPERTY.
3.15.1 TITLE. Genex has good and marketable title to all of
the tangible assets shown on the Genex Balance Sheet, and such title is in each
case free and clear of any mortgage, pledge, lien, security interest, lease or
other encumbrance (collectively, "ENCUMBRANCES"), except for (a) assets disposed
of since the date of the Genex Balance Sheet in the ordinary course of business
and in a manner consistent with past practices, (b) Liabilities, obligations and
Encumbrances reflected in the Genex Balance Sheet or otherwise in the Genex
Financial Statements or in the notes to the Genex Financial Statements, and (c)
Permitted Encumbrances.
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3.15.2 ACCOUNTS RECEIVABLE. Except as set forth on Schedule
3.15, all Genex accounts receivable and unbilled accounts receivable, as well as
all other receivables shown on the Genex Balance Sheet or accrued by Genex since
the date of the Genex Balance Sheet, arose in the ordinary course of business,
consistent with past practice, have been collected or are collectible in the
aggregate amount shown, less any allowances for doubtful accounts reflected
therein, and, in the case of receivables arising since the Genex Balance Sheet
Date, any additional allowance in respect thereof is consistent with the
allowance reflected in the Genex Balance Sheet. Allowances for doubtful accounts
have been prepared in accordance with GAAP consistently applied and in
accordance with Genex's past practices.
3.15.3 CONDITION. All facilities, equipment and personal
property owned by Genex and regularly used in its business are in good operating
condition and repair, ordinary wear and tear excepted, and all such wear and
tear is not material to Genex and does not affect Genex's obligations to perform
hereunder.
3.16 REAL PROPERTY.
3.16.1 GENEX REAL PROPERTY. Genex neither owns nor has owned
any real property.
3.16.2 GENEX LEASES. Schedule 3.16 lists all Genex Leases.
Genex has made available complete copies of the Genex Leases and all material
amendments thereto (which are identified on Schedule 3.16) to Parent. The Genex
Leases grant leasehold estates free and clear of all Encumbrances (except
Permitted Encumbrances) and no Encumbrances (except Permitted Encumbrances) have
been granted by or caused by the actions of Genex. The Genex Leases are in full
force and effect and are binding and enforceable against each of the parties
thereto in accordance with their respective terms subject to (a) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other laws of
general application affecting the rights and remedies of creditors and (b)
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law). Genex is not in breach of or default under
any Genex Lease, nor has there occurred any event that with the passage of time
or the giving of notice or both would constitute a breach or default by Genex
under any Genex Lease. Genex has not received any notice of breach or default of
any Genex Lease nor, to the Knowledge of Genex, has any other party to a Genex
Lease committed a breach or default under any Genex Lease, nor, to the Knowledge
of Genex, has there occurred any event that with the passage of time or the
giving of notice or both would constitute such a breach or default. Schedule
3.16 correctly identifies each Genex Lease the provisions of which would be
materially and adversely affected by the Transaction contemplated hereby and
each Genex Lease that requires the consent of any third party in connection with
the Transaction contemplated hereby. Except as set forth on Schedule 3.16, no
Genex Lease has an unexpired term which including any renewal or extensions of
such term provided for in such Genex Lease could exceed ten years.
3.16.3 CONDITION. All buildings, structures, leasehold
improvements and fixtures, or parts thereof, used by Genex in the conduct of
their business are in good operating condition and repair, ordinary wear and
tear excepted.
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3.17 AGREEMENTS, CONTRACTS AND COMMITMENTS.
3.17.1 GENEX AGREEMENTS. Schedule 3.17 lists all of the
following types of agreements to which Genex is a party (the "Material
Contracts"):
(a) any bonus, deferred compensation, pension,
severance, profit-sharing, stock option, employee stock purchase or
retirement plan, contract or arrangement or other employee benefit plan
or arrangement;
(b) any employment agreement with any present
employee, officer, director or consultant (or former employees,
officers, directors and consultants to the extent there remain at the
date of this Agreement obligations to be performed by Genex);
(c) any agreement for personal services;
(d) any agreement of guarantee or indemnification
other than those entered into in the ordinary course of business;
(e) any agreement or commitment containing a covenant
limiting or purporting to limit the freedom of Genex to compete with
any person in any geographic area or to engage in any line of business;
(f) any lease other than Genex Leases under which
Genex is lessee that involves, in the aggregate, payments of $50,000 or
more per annum or is material to the conduct of the business of Genex;
(g) any joint venture or profit-sharing agreement;
(h) except for trade indebtedness incurred in the
ordinary course of business and equipment leases entered into in the
ordinary course of business, any loan or credit agreements providing
for the extension of credit to Genex or any instrument evidencing or
related in any way to indebtedness incurred in the acquisition of
companies or other entities or indebtedness for borrowed money by way
of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee, or otherwise that individually is in the
amount of $50,000 or more;
(i) any license agreement, either as licensor or
licensee, involving payments (including past payments) of $50,000 in
the aggregate or more, or any distributor, dealer, reseller, franchise,
manufacturer's representative, or sales agency or any other similar
material contract or commitment;
(j) any agreement granting exclusive rights to, or
providing for the sale of, all or any portion of the Licensed IP or
Intellectual Property of Genex;
(k) any agreement or arrangement providing for the
payment of any commission based on sales other than to employees of
Genex;
(l) any agreement for the sale by Genex of materials,
products, services or supplies that involves future payments to Genex
of more than $50,000;
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(m) any agreement for the purchase by Genex of any
materials, equipment, services, or supplies, that either (i) involves a
binding commitment by Genex to make future payments in excess of
$50,000 and cannot be terminated by it without penalty upon less than
three months' notice or (ii) was not entered into in the ordinary
course of business;
(n) any agreement or arrangement with any third party
for such third party to develop any intellectual property or other
asset in the business of Genex;
(o) any agreement or commitment for the acquisition,
construction or sale of fixed assets owned or to be owned by Genex that
involves future payments by it of more than $50,000;
(p) any agreement not described above (ignoring,
solely for this purpose, any dollar amount thresholds in those
descriptions) involving the payment or receipt by Genex of more than
$50,000, other than Genex Leases;
(q) any agreement not described above that was not
made in the ordinary course of business and that is material to the
financial condition, business, operations, assets, results of
operations or prospects of Genex;
(r) any agreement that provides for any continuing or
future obligation of Genex, involving liability to Genex of more than
$50,000, actual or contingent, including but not limited to any
continuing representation or warranty and any indemnification
obligation, in connection with the disposition of any business or
assets of Genex; or
(s) any agreement with a Governmental Entity.
3.17.2 VALIDITY. Except as set forth on Schedule 3.17, all
contracts, leases, instruments, licenses and other agreements required to be set
forth on Schedule 3.17 are valid and in full force and effect; Genex has not
breached any provision of or defaulted under the terms of, nor, to the Knowledge
of Genex, has any other party thereto, breached any provision of, or defaulted
under the terms of, any such contract, lease, instrument, license or other
agreement, except for any breaches or defaults that would not be expected to
have a Genex Material Adverse Effect or have been cured or waived; and Genex has
not received any notice of any such breach or default or a "notice to cure" or a
similar notice from any person requesting performance under any contract,
instrument or other agreement between Genex and such person.
3.17.3 THIRD-PARTY CONSENTS. Schedule 3.17 identifies each
contract and other document set forth on Schedule 3.17 that requires the consent
of a third party in connection with the Transaction.
3.18 INTELLECTUAL PROPERTY.
3.18.1 GENEX OWNED INTELLECTUAL PROPERTY. Schedule 3.18.1 sets
forth, for the Intellectual Property owned by the Genex, a list of all United
States and foreign (a) issued Patents and patent applications; (b) Trademark
registrations and applications therefore; (c) Copyright registrations and
applications therefore; (d) Internet domain name registrations and applications
therefore, indicating for each (a), (b) (c) and (d), the applicable
jurisdiction, title, registration number (or application number), and date
issued (or date filed if an application). Genex exclusively owns, free and clear
of liens, orders, arbitration awards and other encumbrances, all such
Intellectual Property.
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3.18.2 LICENSED INTELLECTUAL PROPERTY. Schedule 3.18.2 sets
forth a complete and accurate list of all agreements pursuant to which Genex is
a licensee of Intellectual Property, excluding licenses for publicly available
commercial software with a value of less than $20,000 under which Genex is a
licensee, indicating for each the title, date executed, the parties thereto, and
any royalty or similar payment obligations and a copy of each such agreement has
been delivered to Parent. Such agreements are the "LICENSE AGREEMENTS", and the
Intellectual Property licensed to Genex is "LICENSED IP". Genex is in compliance
with the terms of the License Agreements, and to the Knowledge of Genex, the
other parties to the License Agreements are in compliance with the terms of the
License Agreements. Genex has valid and enforceable rights to use all of the
Licensed IP. Genex owns or licenses all Intellectual Property that is material
to the conduct of its businesses as currently conducted and proposed to be
conducted.
3.18.3 PROTECTION OF INTELLECTUAL PROPERTY. Except as set
forth on Schedule 3.18.3, the Genex Stockholder and all former and current
employees, consultants and contractors of Genex have executed agreements with
Genex that (i) assign to Genex all rights to any inventions, improvements,
information and Intellectual Property rights that relate to the business of
Genex and (ii) require that Trade Secrets of Genex not be disclosed or used
other than for the benefit of Genex. Genex has provided copies of such
agreements to Parent or its representatives. To the Knowledge of Genex, there
have been no breaches of such agreements.
3.18.4 CHALLENGES TO INTELLECTUAL PROPERTY. To the Knowledge
of Genex or the Genex Stockholder, no third party has misappropriated,
infringed, diluted, or violated any Intellectual Property owned by Genex or
licensed to Genex. No claims for such actions have been brought or threatened
against any third party by Genex. No third party has commenced any litigation,
arbitration or other proceeding against Genex, or brought or, to the Knowledge
of Genex, threatened any claim against Genex, (i) alleging that Genex's
activities or the conduct of their businesses infringes upon, violates, or
constitutes the unauthorized use of Intellectual Property or (ii) challenging
the ownership, use, validity or enforceability of any Intellectual Property
owned by Genex or that is the subject of the License Agreements.
3.18.5 EFFECT OF AGREEMENT. The execution, delivery and
performance by Genex or the Genex Stockholder of this Agreement, and the
consummation of the Transaction contemplated hereby, will not result in the loss
or impairment of, or give rise to any right of any third party to terminate, any
of Genex's rights to own any of its Intellectual Property or its rights under
the License Agreements, nor require the consent of any governmental authority or
third party in respect of any such Intellectual Property or License Agreements.
3.18.6 TRADEMARKS. All of the registered Trademarks owned by
Genex ("GENEX TRADEMARKS") are valid and enforceable, and are not subject to any
maintenance fees, taxes or actions due within ninety (90) days of the Closing
Date. No Genex Trademark is the subject of any opposition, invalidation or
cancellation proceeding, and to the Knowledge of Genex or the Genex Stockholder,
no such action is threatened.
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3.18.7 PATENTS. All the issued Patents that are owned by Genex
("GENEX PATENTS") are valid and enforceable, and are not subject to any
maintenance fees, taxes, actions or annuities due within ninety (90) days of the
closing date (excluding any extensions of time for due dates that may be
available). There are no proceedings pending or, to the Knowledge of Genex or
the Genex Stockholder, threatened which challenge validity or enforceability of
the Genex Patents.
3.18.8 COPYRIGHTS. All of the registered Copyrights owned by
Genex ("GENEX COPYRIGHTS") are valid and enforceable, and are not subject to any
maintenance fees, taxes or actions due within ninety (90) days of the closing
date.
3.18.9 TRADE SECRETS. Genex has diligently protected Genex's
rights in Trade Secrets of Genex. Except under written, valid and binding
confidentiality obligations, to the Knowledge of Genex or the Genex Stockholder
there has been no disclosure of Genex Trade Secrets.
3.19 INSURANCE CONTRACTS. Schedule 3.19 lists all contracts of
insurance and indemnity in force at the date of this Agreement with respect to
Genex (collectively, the "GENEX INSURANCE CONTRACTS"). All of the Genex
Insurance Contracts are in full force and effect, with no default thereunder by
Genex which, could permit the insurer to deny payment of claims thereunder. All
premiums due and payable thereon have been paid and Genex has not received
notice from any of its insurance carriers that any insurance premiums will be
materially increased in the future or that any insurance coverage provided under
any of the Genex Insurance Contracts will not be available in the future on
substantially the same terms as now in effect. Genex has not received or given a
notice of cancellation with respect to any of the Genex Insurance Contracts.
Genex has given proper notice of the Transaction if and as required by any of
the Genex Insurance Contracts to ensure that there is no disruption in the
insurance coverage under such Genex Insurance Contracts.
3.20 BANKING RELATIONSHIPS. Schedule 3.20 shows the names and locations
of all banks and trust companies in which Genex has accounts, lines of credit or
safety deposit boxes and, with respect to each account, line of credit or safety
deposit box, the names of all persons authorized to draw thereon or to have
access thereto.
3.21 ABSENCE OF CERTAIN RELATIONSHIPS. Except as set forth on Schedule
3.21, none of (a) Genex, (b) any officer, director, stockholder or employee of
Genex or Genex's subsidiaries, or (c) any member of the immediate family of the
persons listed in (a) or (b) of this sentence, has any financial or employment
interest in any subcontractor, supplier, or customer of Genex (other than
holdings in publicly held companies of less than two percent (2%) of the
outstanding capital stock of any such publicly held company).
3.22 FOREIGN CORRUPT PRACTICES. None of Genex, any subsidiary of Genex,
any Affiliate of Genex, nor any other Person associated with or acting for or on
behalf of the any of the foregoing, has directly or indirectly taken any action
which would cause Genex to be in violation of the United States Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder. None
of Genex, any subsidiary of Genex, any Affiliate of Genex, nor any other Person
associated with or acting for or on behalf of any of the foregoing, has directly
27
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kick-back, or other payment to any Person, private or public,
regardless of form, whether in money, property or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of Genex, or any Affiliate of
Genex, or (iv) in violation of any law or regulation, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of Genex.
3.23 FULL DISCLOSURE. Neither this Agreement (including the disclosure
schedules hereto) nor any certificate or other document furnished by Genex or
the Genex Stockholder at the Closing contains any untrue statement by Genex or
the Genex Stockholder of a material fact or omits a material fact necessary to
be stated to make the statements by Genex or the Genex Stockholder contained
herein not false or misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Genex as follows:
4.1 CORPORATE STATUS OF PARENT. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
with the requisite corporate power to own, operate and lease its properties and
to carry on its business as now being conducted.
4.2 AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
4.2.1 AUTHORITY. Parent has the corporate power and authority
to enter into this Agreement and to consummate the Transaction contemplated
hereby to the extent of its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the Transaction contemplated hereby, to
the extent of Parent's obligations hereunder, have been duly and validly
authorized by the board of directors of Parent and no other corporate
proceedings on the part of Parent are necessary to authorize the execution and
delivery of this Agreement and the consummation of the Transaction contemplated
hereby, to the extent of Parent's obligations hereunder. This Agreement and the
other agreements contemplated hereby to be signed by Parent have been duly
executed and delivered by Parent and constitute valid and binding obligations of
Parent, enforceable against Parent in accordance with their terms, subject to
the qualifications that enforcement of the rights and remedies created hereby
and thereby is subject to (a) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws of general application affecting the
rights and remedies of creditors and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
4.2.2 NO CONFLICT. None of the execution, delivery or
performance of this Agreement and the agreements referenced herein by Parent,
nor the consummation by Parent of the Transaction contemplated hereby or thereby
will (a) conflict with or result in a violation of any provision of Parent's
charter documents or by-laws, (b) with or without the giving of notice or the
28
lapse of time, or both, conflict with, or result in any violation or breach of,
or constitute a default under, or result in any right to accelerate or result in
the creation of any lien, charge or encumbrance pursuant to, or right of
termination under, any provision of any note, mortgage, indenture, lease,
instrument or other agreement, contract, permit, concession, grant, franchise,
license, judgment, order, decree, statute, ordinance, rule or regulation to
which Parent is a party or by which Parent or any of its assets or properties
are bound or which is applicable to Parent or any of its assets or properties.
No authorization, consent or approval of, or filing with or notice to, any
Governmental Entity is necessary for the execution and delivery of this
Agreement by Parent or the consummation by Parent of the Transaction, and except
for the filing of the Merger Certificates and such consents, authorizations,
filings, approvals and registrations, which if not obtained or made would not,
prevent or materially delay the consummation of the Transaction by Parent or
Merger Sub.
4.3 SEC STATEMENTS, REPORTS AND DOCUMENTS.
4.3.1 SEC REPORTS OF PARENT. Except as set forth on Schedule
4.3.1, Parent has filed all required forms, reports, statements and documents
with the SEC since December 31, 2003 ("PARENT'S SEC REPORTS"). The documents so
filed by Parent and available in the public records of the SEC include (a) its
Annual Reports on Form 10-KSB for its fiscal year ended December 31, 2003, (b)
its Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31,
2004, June 30, 2004 and September 30, 2004, (c) all other forms, reports,
statements and documents filed or required to be filed by it with the SEC since
December 31, 2003, and (d) all amendments and supplements to all such reports
and registration statements filed by Parent with the SEC.
4.3.2 FINANCIAL STATEMENTS OF PARENT. Except as set forth on
Schedule 4.3.1, the consolidated balance sheets and the related consolidated
statements of income, stockholders' equity (deficit) and cash flows (including
the related notes thereto) of Parent included in Parent's SEC Reports
(collectively, "PARENT FINANCIAL STATEMENTS") comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP applied on a basis consistent throughout the periods involved (except
as otherwise noted therein or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-QSB under the Exchange
Act), and present fairly in all material respects the financial position of
Parent as of their respective dates, and the results of its operations and cash
flows for the periods presented therein (subject, in the case of the unaudited
interim financial statements, to normal and recurring year-end adjustments).
Since September 30, 2004, there has not been any material change by Parent in
accounting principles, methods or policies for financial accounting purposes
except as required by concurrent changes in GAAP.
4.4 FINANCING. Parent has sufficient funds available to satisfy, among
other things, the obligation to pay the Cash Consideration, and all expenses
incurred by the Parent in connection with the Transaction.
4.5 CAPITALIZATION OF PARENT.
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4.5.1 AUTHORIZED STOCK OF PARENT . The authorized capital
stock of Parent consists of 495,000,000 shares of common stock, $0.001 par value
per share (the "TECHNEST COMMON STOCK") of which, 442,059,447 shares are issued
and outstanding, no shares are held in treasury and an aggregate of 10,500,000
shares are reserved for issuance under the Technest 2001 Stock Option Plan, 2000
Stock Option Plan and 1998 Stock Option Plan, of which options for 662,770 have
been granted and remain outstanding; 150 shares of Series A Preferred Stock, par
value $.001 per share (the "TECHNEST SERIES A PREFERRED STOCK"), of which
124.325 shares are issued and outstanding; 1,149,425 shares of Series B
Preferred Stock par value $.001 per share (the "TECHNEST SERIES B PREFERRED
STOCK"), of which 1,149,425 shares are issued and outstanding; and 1,149,425
shares of Series C Preferred Stock, par value $0.001 per share, (the "TECHNEST
SERIES C PREFERRED STOCK") and collectively with the Technest Series A Preferred
Stock and the Technest Series B Preferred Stock , the "TECHNEST PREFERRED
STOCK"), of which 1,149,425 shares are issued and outstanding. All of the issued
and outstanding shares of Technest Common Stock and Technest Preferred Stock
have been duly authorized and validly issued, were not issued in violation of
the securities laws of the United States or any state or any person's preemptive
rights and are fully paid and nonassessable.
4.5.2 OPTIONS AND CONVERTIBLE SECURITIES OF PARENT. Except as
set forth in Parent's SEC Reports, as qualified by Schedule 4.3.1 or Schedule
4.5.2 or as contemplated by the Transaction, (a) there are no outstanding
subscriptions, options, warrants, conversion rights or other rights, securities,
agreements or commitments obligating Parent to issue, sell or otherwise dispose
of shares of its capital stock, or any securities or obligations convertible
into, or exercisable or exchangeable for, any shares of its capital stock; (b)
there are no voting trusts or other agreements or understandings with respect to
the voting of the shares of Technest Common Stock; and (c) Parent is neither a
party to, nor bound by, any outstanding restrictions, options or other
obligations, agreements or commitments to sell, repurchase, redeem or acquire
any outstanding shares of Technest Common Stock or any other securities of
Parent.
4.6 LITIGATION AND AUDITS. Except as set forth in Parent's SEC Reports
or as qualified by Schedule 4.3.1, (a) Parent has not received notice that there
is any investigation by any Governmental Entity with respect to Parent pending,
and, to the Knowledge of Parent, no investigation by any Governmental Entity
with respect to Parent is threatened; (b) there are no claims, actions, suits,
arbitrations or proceedings pending or, to the Knowledge of Parent, threatened
against or involving Parent or any of its assets or properties, at law or in
equity, or before any arbitrator or Governmental Entity which could reasonably
be expected to result in a Technest Material Adverse Effect; and (c) there are
no judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator outstanding against Parent.
4.7 SOPHISTICATED INVESTOR. Parent acknowledges and agrees that it is
sophisticated and was advised by experienced counsel and, to the extent it
deemed necessary, other advisors in connection with this Agreement.
4.8 FULL DISCLOSURE. Neither this Agreement (including the disclosure
schedules hereto) nor any certificate or other document furnished by Parent at
the Closing contains any untrue statement by Parent of a material fact or omits
a material fact necessary to be stated to make the statements by Parent
contained herein not false or misleading.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to Genex as follows:
5.1 CORPORATE STATUS. Such corporation is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 OWNERSHIP. All of the outstanding capital stock of such corporation
is held by Parent.
5.3 LIMITED HISTORY AND PURPOSE. Such corporation was incorporated on
February 10, 2005 for the purpose of effecting the Transaction described in this
Agreement. Such corporation never has had any operations, and has no assets.
Other than pursuant to this Agreement, such corporation has no Liabilities of
any kind.
5.4 AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
5.4.1 AUTHORITY. Merger Sub has the corporate power and
authority to enter into this Agreement and to consummate the Transaction
contemplated hereby to the extent of its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the Transaction
contemplated hereby, to the extent of Merger Sub's obligations hereunder, have
been duly and validly authorized by the board of directors and stockholders of
Merger Sub and no other corporate proceedings on the part of Merger Sub are
necessary to authorize the execution and delivery of this Agreement and the
consummation of the Transaction contemplated hereby, to the Merger Sub's
obligations hereunder. This Agreement and the other agreements contemplated
hereby to be signed by Merger Sub have been duly executed and delivered and
constitute valid and binding obligations of Merger Sub, enforceable against
Merger Sub in accordance with their terms, subject to the qualifications that
enforcement of the rights and remedies created hereby and thereby is subject to
(a) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and other laws of general application affecting the rights and remedies of
creditors and (b) general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
5.4.2 NO CONFLICT. None of the execution, delivery or
performance of this Agreement and the agreements referenced herein by Merger
Sub, nor the consummation by Merger Sub of the transaction contemplated hereby
or thereby will (a) conflict with or result in a violation of any provision of
Merger Sub's charter documents or by-laws, (b) with or without the giving of
notice or the lapse of time, or both, conflict with, or result in any violation
or breach of, or result in the creation of any lien or encumbrance pursuant to,
any provision of any judgment, order, decree, statute, ordinance, rule or
regulation to which or by which Merger Sub is bound or which is applicable to
Merger Sub. No authorization, consent or approval of, or filing with or notice
to, any Governmental Entity is necessary for the execution and delivery of this
Agreement by Merger Sub or the consummation by Merger Sub of the Transaction
except for the filing of the Merger Certificates and such consents,
authorizations, filings, approvals and registrations, which if not obtained or
made would not, prevent or materially delay the consummation of the Transaction
by Parent or Merger Sub.
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5.5 SOPHISTICATED INVESTOR. Merger Sub acknowledges and agrees that it
is sophisticated and was advised by experienced counsel and, to the extent it
deemed necessary, other advisors in connection with this Agreement.
5.6 FULL DISCLOSURE. Neither this Agreement (including the disclosure
schedules hereto) nor any certificate or other document furnished by Merger Sub
at the Closing contains any untrue statement by Merger Sub of a material fact or
omits a material fact necessary to be stated to make the statements by Merger
Sub contained herein not false or misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MARKLAND
6.1 CORPORATE STATUS OF MARKLAND. Markland is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, with the requisite corporate power to own, operate and lease its
properties and to carry on its business as now being conducted.
6.2 AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
6.2.1 AUTHORITY. Markland has the corporate power and
authority to enter into this Agreement and to consummate the Transaction
contemplated hereby to the extent of its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the Transaction
contemplated hereby, to the extent of Markland's obligations hereunder, have
been duly and validly authorized by the Board of Directors of Markland and no
other corporate proceedings on the part of Markland are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
Transaction contemplated hereby, to the extent of Markland's obligations
hereunder. This Agreement and the other agreements contemplated hereby to be
signed by Markland have been duly executed and delivered by Markland and
constitute valid and binding obligations of Markland, enforceable against
Markland in accordance with their terms, subject to the qualifications that
enforcement of the rights and remedies created hereby and thereby is subject to
(a) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and other laws of general application affecting the rights and remedies of
creditors and (b) general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
6.2.2 NO CONFLICT. None of the execution, delivery or
performance of this Agreement and the agreements referenced herein by Markland,
nor the consummation by Markland of the Transaction contemplated hereby or
thereby will (a) conflict with or result in a violation of any provision of
Markland's charter documents or by-laws, (b) with or without the giving of
notice or the lapse of time, or both, conflict with, or result in any violation
or breach of, or constitute a default under, or result in any right to
accelerate or result in the creation of any lien, charge or encumbrance pursuant
to, or right of termination under, any provision of any note, mortgage,
indenture, lease, instrument or other agreement, contract, permit, concession,
32
grant, franchise, license, judgment, order, decree, statute, ordinance, rule or
regulation to which Markland is a party or by which Markland or any of its
assets or properties are bound or which is applicable to Markland or any of its
assets or properties. No authorization, consent or approval of, or filing with
or notice to, any Governmental Entity is necessary for the execution and
delivery of this Agreement by Markland or the consummation by Markland of the
Transaction, and except for the filing of the Merger Certificates and such
consents, authorizations, filings, approvals and registrations, which if not
obtained or made would not, prevent or materially delay the consummation of the
Transaction by Markland or Merger Sub.
6.3 SEC STATEMENTS, REPORTS AND DOCUMENTS.
6.3.1 SEC REPORTS MARKLAND. Markland has filed all required
forms, reports, statements and documents with the SEC since June 30, 2004
("MARKLAND'S SEC REPORTS"). The documents so filed by Parent and available in
the public records of the SEC include (a) its Annual Reports on Form 10-KSB for
its fiscal year ended June 30, 2004, (b) its Quarterly Reports on Form 10-QSB
for its fiscal quarters ended September 30, 2004, December 31, 2004, (c) all
other forms, reports, statements and documents filed or required to be filed by
it with the SEC since June 30, 2004, and (d) all amendments and supplements to
all such reports and registration statements filed by Markland with the SEC.
6.3.2 FINANCIAL STATEMENTS OF MARKLAND. The consolidated
balance sheets and the related consolidated statements of income, stockholders'
equity (deficit) and cash flows (including the related notes thereto) of
Markland included in the Markland's SEC Reports (collectively, "MARKLAND
FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP applied
on a basis consistent throughout the periods involved (except as otherwise noted
therein or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-QSB under the Exchange Act), and present fairly
in all material respects the consolidated financial position of Markland and its
consolidated subsidiaries as of their respective dates, and the consolidated
results of their operations and their cash flows for the periods presented
therein (subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments). Since September 30, 2004, there has
not been any material change, by Markland or any of its subsidiaries, in
accounting principles, methods or policies for financial accounting purposes
except as required by concurrent changes in generally accepted accounting
principles.
6.4 CAPITALIZATION OF MARKLAND.
6.4.1 AUTHORIZED STOCK OF MARKLAND. The authorized capital
stock of Markland consists of (a) 500,000,000 shares of common stock, $.0001 par
value per share (the "MARKLAND COMMON STOCK"), of which [_______] shares are
issued and outstanding, no shares are held in treasury, and 25,000,000 shares
are reserved for issuance pursuant to the Markland Technologies Inc. 2004 Stock
Incentive Plan, of which options for [6,336,163] shares have been granted and
remain outstanding, (b) 30,000 shares of Series A Preferred Stock, $.0001 par
value per share, of which 30,000 shares are issued and outstanding (c) 10 shares
of Series B Preferred Stock $.0001 par value per share, of which no shares are
issued and outstanding, (d) 8,000 shares of Series C Preferred Stock $.0001 par
value per share, of which no shares are issued and outstanding and (e) 40,000
shares of Series D Preferred Stock $.0001 par value per share, of which 15,455
shares are issued and outstanding (the Markland Common Stock, Series A Preferred
Stock Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock referred to as the "MARKLAND CAPITAL STOCK"). All of the issued and
outstanding shares of Markland Capital Stock have been duly authorized and
validly issued, were not issued in violation of the securities laws of the
United States or any state or any person's preemptive rights and are fully paid
and nonassessable.
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6.4.2 OPTIONS AND CONVERTIBLE SECURITIES OF MARKLAND. Except
as set forth in Markland's SEC Reports or as contemplated by the Transaction,
(a) there are no outstanding subscriptions, options, warrants, conversion rights
or other rights, securities, agreements or commitments obligating Markland to
issue, sell or otherwise dispose of shares of its capital stock, or any
securities or obligations convertible into, or exercisable or exchangeable for,
any shares of its capital stock; (b) there are no voting trusts or other
agreements or understandings with respect to the voting of the shares of
Markland Common Stock; and (c) Markland is neither a party to, nor bound by, any
outstanding restrictions, options or other obligations, agreements or
commitments to sell, repurchase, redeem or acquire any outstanding shares of
Markland Common Stock or any other securities of Markland. The Markland Plan has
been duly authorized and adopted by the Board of Directors of Markland and the
Markland Plan in compliance with all applicable state corporate and state and
federal securities Laws.
6.5 LITIGATION AND AUDITS. Except as set forth in Markland's SEC
Reports, (a) Markland has not received notice that there is any investigation by
any Governmental Entity with respect to Markland pending, and, to the Knowledge
of Markland, no investigation by any Governmental Entity with respect to
Markland is threatened; (b) there are no claims, actions, suits, arbitrations or
proceedings pending or, to the Knowledge of Markland, threatened against or
involving Markland or any of its assets or properties, at law or in equity, or
before any arbitrator or Governmental Entity which could reasonably be expected
to result in a Markland Material Adverse Effect; and (c) there are no judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator
outstanding against Markland.
6.6 SOPHISTICATED INVESTOR. Merger Sub acknowledges and agrees that it
is sophisticated and was advised by experienced counsel and, to the extent it
deemed necessary, other advisors in connection with this Agreement.
6.7 FULL DISCLOSURE. Neither this Agreement (including the disclosure
schedules hereto) nor any certificate furnished by Markland at the Closing
contains any untrue statement by Markland of a material fact or omits a material
fact necessary to be stated to make the statements by Markland contained herein
not false or misleading.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 EXPENSES. Except as provided in this Section 7.1, Markland and
Parent shall be responsible for their own costs and expenses in connection with
the Transaction, including fees and disbursements of consultants, brokers,
finders, investment bankers and other financial advisors, counsel and
accountants ("EXPENSES") and the Genex Stockholder shall be responsible for its
Expenses as well as the Expenses of Genex incurred prior to or in connection
with the Closing. Notwithstanding the foregoing, the Genex Stockholder shall be
responsible for all expenses incurred in connection with the Geng Escrow
Agreement whether incurred prior to or after the Closing Date. For purposes of
Section 2.1.7(c), Working Capital shall be determined after payment of these
expenses.
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7.2 GENERAL INDEMNIFICATION. The Genex Stockholder, on the one hand, or
Markland, Parent and Merger Sub severally, on the other hand, shall indemnify
(subject to the limitations set forth in Section 7.2.3) Markland, Parent and
Merger Sub and their respective Representatives and Affiliates (the "MARKLAND
PARTIES") or the Genex Stockholder and his respective successors and assigns
(the "GENEX PARTIES"), as the case may be, in respect of, and hold each harmless
from and against, any and all Losses suffered, incurred or sustained by any of
them or to which any of them becomes subject, resulting from, arising out of or
relating to (i) any breach of representation or warranty on the part of such
Party contained in this Agreement, (ii) any nonfulfillment of or failure to
perform any covenant or agreement on the part of such Party contained in this
Agreement and (iii) solely with respect to the Genex Stockholder, any amount
(including fines and penalties) owed to any Governmental Entity, arising out of
that certain audit and investigation of Genex by the Defense Contract Audit
Agency ("DCAA") initiated by that certain letter from the DCAA to Genex dated
April 4, 2004 and related actions including those set forth on Schedule 3.9,
which is ongoing and known to all Parties hereto as of the date of this
Agreement (the "DCAA AUDIT"). Any legal and accounting fees or other expenses
incurred by Genex or Merger Sub in connection with its response to the DCAA
Audit are expressly excluded from and shall not be a part of any Indemnification
Claim. For the purpose of determining the presence of a breach and the magnitude
of a Loss suffered, incurred or paid, each representation, warranty and covenant
contained herein shall read as if all qualifications as to materiality have been
deleted therefrom.
7.2.1 CLAIMS FOR INDEMNIFICATION. Upon obtaining Knowledge of
any facts, claim or demand which has given rise to, or could reasonably give
rise to, a claim for indemnification hereunder (referred to herein as an
"INDEMNIFICATION CLAIM"), a party entitled to indemnification hereunder (an
"INDEMNIFIED PARTY") shall promptly give written notice of such facts, claim or
demand ("NOTICE OF CLAIM") to a party responsible for providing indemnification
hereunder (the "INDEMNIFYING PARTY"). So long as the Notice of Claim is given by
the Indemnified Party during the Claims Period specified in Section 7.2.4, no
failure or delay by the Indemnified Party in the giving of a Notice of Claim
shall reduce or otherwise affect the Indemnified Party's right to
indemnification except to the extent that the Indemnifying Party has been
prejudiced thereby.
7.2.2 DEFENSE BY INDEMNIFYING PARTY. In the event of a claim
or demand asserted by a third party (a "THIRD PARTY Claim"), the Indemnifying
Party shall have the right, but not the obligation, exercisable by written
notice to the Indemnified Party within 10 Business Days of the date of the
Notice of Claim concerning the commencement or assertion of any Third Party
Claim, to control the defense of such Third Party Claim. If the Indemnifying
Party gives such notice of intent to defend, the Indemnifying Party shall assume
the defense thereof as follows: (a) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel compensated by and chosen by
the Indemnifying Party, which choice of counsel shall be subject to the
reasonable satisfaction of the Indemnified Party; (b) the Indemnified Party may
retain separate co-counsel at the sole cost and expense of the Indemnified
35
Party; (c) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the matter without the written
consent of the Indemnifying Party; and (d) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement that does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all liability with
respect thereto, without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld or delayed. If, however the
Indemnifying Party does not notify the Indemnified Party within 10 Business Days
after the Indemnified Party has given notice of the matter, that the
Indemnifying Party is assuming the defense thereof, then the Indemnified Party
may defend against the matter; however, the Indemnified Party shall neither
consent to the entry of any judgment nor settle any such Third Party Claim
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
7.2.3 LIMITATION ON LIABILITY FOR INDEMNITY.
(a) An Indemnified Party shall not be entitled to
indemnification from any Indemnifying Party pursuant to this Section
7.2 until the aggregate amount of all Losses suffered by the
Indemnified Party exceeds one hundred thousand dollars ($100,000) (the
"INDEMNITY DEDUCTIBLE") whereupon the Indemnified Party shall be
entitled to indemnification hereunder for the aggregate amount of such
Losses in excess of the Indemnity Deductible suffered by the
Indemnified Party; PROVIDED, HOWEVER, THAT the Indemnity Deductible
shall not apply to Losses suffered by the Markland Parties as a result
of the DCAA Audit.
(b) Except as set forth in Section 7.2.3(c) below, neither the
Markland Parties nor the Genex Parties' aggregate liability for
indemnification under this Section 7.2 for all claims shall exceed the
value of the Markland Shares held in the Indemnity Escrow Fund.
(c) Anything in this Section 7.2.3 to the contrary
notwithstanding, the Genex Parties agree to indemnify the Markland
Parties in full for all Losses occasioned or caused by, resulting from
or arising out of matter relating to title to the Genex Common Stock,
Taxes, ERISA, Environmental Claims and Intellectual Property; provided
that the Genex Parties' aggregate liability for indemnification under
this Section 7.2.3(c) for all claims shall not exceed an amount equal
to the Merger Consideration.
7.2.4 CLAIMS PERIOD. Except as set forth below, any
Indemnification Claim under this Section 7.2 must be asserted by written notice
on or before the first anniversary of the Closing Date. Any Indemnification
Claim (a) relating to title to the Genex Common Stock, Taxes, ERISA or
Environmental Claims must be asserted by written notice to the applicable party
prior to the termination of the applicable statute of limitations and (b)
relating to Intellectual Property matters or the DCAA Audit must be asserted by
written notice to the applicable party before the third anniversary of the
Closing Date.
7.2.5 SUBROGATION. Upon making an indemnity payment pursuant
to this Agreement as a result of a Third Party Claim, the Indemnifying Party
will have a right of subrogation with respect to the Indemnified Party's rights
in regard to such Third Party Claim against the third party or parties asserting
such Third Party Claim. Without limiting the generality of any other provision,
the Indemnifying Party or Parties and each such Indemnified Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above described subrogation rights.
36
7.2.6 NO DOUBLE RECOVERY. Notwithstanding anything herein to
the contrary, no Party shall be entitled to indemnification or reimbursement
under any provision of this Agreement for any amount to the extent such Party or
its Affiliate has been indemnified or reimbursed for such amount under any other
provision of this Agreement, the Exhibits or Schedules, any document executed in
connection with this Agreement or otherwise.
7.2.7 TREATMENT OF INDEMNITY PAYMENTS BETWEEN THE PARTIES.
Unless otherwise required by applicable law, all indemnification payments shall
constitute adjustments to the consideration paid hereunder for all Tax purposes,
and no Party shall take any position inconsistent with such characterization.
7.2.8 DUTY TO MITIGATE. Each Party to this Agreement agrees to
use commercially reasonable efforts to mitigate any damages which form the basis
of any claim hereunder.
7.2.9 SOLE AND EXCLUSIVE REMEDY. This Section 7.2 shall be the
sole and exclusive remedy of all Indemnified Parties for all claims (a) based
on, arising out of or in connection with any breach or alleged breach of any of
the representations, warranties or covenants in this Agreement or (b) except for
fraud, in connection with this Agreement.
7.3 DCAA AUDIT. Without limiting the provisions set forth in Section
7.2, the Genex Stockholder agrees that if at any time following the Closing
Date, the DCAA or any Governmental Entity informs Genex or the Surviving
Corporation that any portion of the invoices which are the subject of the DCAA
Audit will not be paid or is disputed by the DCAA or the relevant Governmental
Entity (such amount being referred to herein as the "BAD DEBT") and such dispute
is not resolved by payment in full within 90 days of the notice of such dispute,
the Genex Stockholder shall promptly pay to the Surviving Corporation an amount
in cash equal to the Bad Debt. Upon receipt of such payment, Parent shall
release to the Genex Stockholder the number of shares of Markland Common Stock
held in the Indemnity Escrow Fund having a value (based on the average
volume-weighted closing price of the Markland Common Stock for the ten (10)
trading days prior to the DCAA Audit Determination Date) equal to the Bad Debt.
7.4 PUBLIC DISCLOSURE. Immediately following the Closing, Parent shall
disseminate the press release attached as Exhibit 7.4 Except as otherwise
required by law, Parent shall make no other public disclosure of information
regarding the Transaction contemplated herein prior to the Closing without the
consent of Genex, which consent shall not be unreasonably withheld or delayed.
Genex and Parent agree that each Party's confidentiality obligations set forth
in Section 7.5 hereof shall remain in full force and effect in accordance with
the terms thereof.
7.5 CONFIDENTIALITY. The parties acknowledge that Genex and Markland
have previously executed that certain Confidentiality Agreement dated as of
November 2, 2004 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
37
7.6 FURTHER ASSURANCES. Subject to terms and conditions herein provided
and to the fiduciary duties of the board of directors and officers or
representatives of any Party, each of the Parties agrees to use commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective this Agreement and the Transaction
contemplated hereby. In case at any time any further action, including, without
limitation, the obtaining of waivers and consents under any Material Contracts
and the execution and delivery of any licenses or sublicenses for any software,
is necessary, proper or advisable to carry out the purposes of this Agreement,
the proper officers and directors or representatives of each Party to this
Agreement are hereby directed and authorized to use commercially reasonable
efforts to effectuate all required action.
7.7 TAX MATTERS.
7.7.1 ELECTIONS, ETC.
(a) Prior to the Closing, (i) neither Genex nor the Genex
Stockholder will revoke Genex's election to be taxed as an S corporation within
the meaning of Code section 1361 and 1362 and (ii) Genex and the Genex
Stockholder shall not take or allow any action (other than the sale of Genex
stock pursuant to this Agreement) that would result in the termination of
Genex's status as a validly electing S corporation within the meaning of Code
sections 1361 and 1362.
(b) Without the prior written consent of Markland (which
consent shall not be unreasonably withheld), neither Genex nor the Genex
Stockholder, prior to the Closing, shall make or change any other election,
change an annual accounting period, adopt or change any accounting method, file
any amended Tax Return, enter into any closing agreement, settle any Tax claim
or assessment, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to Genex, or take any other similar action relating to the
filing of any Tax Return or the payment of any Tax, if such election, adoption,
change, amendment, agreement, settlement, surrender, consent or other action
would have the effect of increasing the Tax liability of Genex for any period
(or portion thereof) ending after the Closing Date or decreasing any Tax
attribute of Target existing on the Closing Date.
(c) Without the prior written consent of the Genex Stockholder
(which consent shall not be unreasonably withheld), none of Genex, Markland, or
any Affiliate of Markland shall, after the Closing Date, make or change any
other election, change an annual accounting period, adopt or change any
accounting method, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any right to claim a
refund of Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to Genex, or take any other
similar action relating to the filing of any Tax Return or the payment of any
Tax, if such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action would have the effect of increasing the Tax
liability of Genex for any period ending after the Closing Date or decreasing
any Tax attribute of Genex ending on or before the Closing Date.
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7.7.2 COOPERATION ON TAX MATTERS; PREPARATION OF RETURNS; ETC.
(a) Each Party hereto shall cooperate fully, as and to the
extent reasonably requested by any other Party, in connection with the filing of
Tax Returns and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon any other Party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Genex agrees (i) to retain all books and
records with respect to Tax matters pertinent to Genex relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations relating thereto and any extensions thereof, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give each other Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the Surviving
Corporation so requests, allow the Surviving Corporation to take possession of
such books and records.
(b) Except as set forth in Section 7.7.3(c), Parent shall
prepare or cause to be prepared and Surviving Corporation shall file or cause to
be filed all Tax Returns for Genex for all period ending on or prior to the
Closing Date and that are filed after the Closing Date. All such Tax Returns
will be prepared in accordance with the past custom and practice of Genex.
Parent shall permit the Genex Stockholder to review and comment on each such Tax
Return described in the preceding sentences prior to filing, and will make such
revisions to such Tax Returns that Genex Stockholder reasonably requests. To the
extent permitted by applicable law, Genex Stockholder shall include any income,
gain, loss, deduction, or other Tax item for such periods on his Tax Returns in
a manner consistent with the Schedule K-1s furnished by Genex for such periods.
7.7.3 CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration taxes and fees (including any penalties and interest)
incurred in connection with this Agreement shall be paid by the Parent when due,
and the Parent will, at its own expense, prepare and file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration taxes and fees. All other Taxes shall be paid by
the Person upon whom the incidence of tax falls.
7.7.4 TAX AUDITS. Except as provided in Section 7.2 the Person
on whom the incidence of a Tax falls shall control, at its own expense, any
audit by a governmental authority with respect to such Tax. Any Person receiving
notice of an audit that it does not control pursuant to the preceding sentence
shall promptly provide such notice to the controlling Person and shall take any
other action as may be required to vest control of the audit in such controlling
Person.
7.8 ACCOUNTS RECEIVABLE. Effective as of the Closing, Genex hereby
irrevocably constitutes and appoints the Surviving Corporation its true and
lawful attorney-in-fact, with full power of substitution, in its name, place and
stead to endorse the name of Genex on any checks and other remittances received
on account of its accounts receivable and to perform all other acts necessary or
desirable to collect the such accounts receivable for the account of the
Surviving Corporation.
39
7.9 CONSENTS. Each of the parties shall use commercially reasonable
efforts to obtain the consents listed on Schedule 3.17.
7.10 NOVATION OF CONTRACTS. Each Party agrees to use commercially
reasonable efforts to effect the novation of each contract with a Governmental
Entity that may require novation under its terms or under applicable laws or
regulations, and further agrees to provide all documentation necessary to effect
each such novation, including, without limitation, all instruments,
certifications, requests, legal opinions, audited financial statements, and
other documents required by Part 42 of the Federal Acquisition Regulation to
effect a novation of any contract with the Government of the United States. In
particular and without limiting the generality of the foregoing, Genex shall
continue to communicate with responsible officers of the Government of the
United States from time to time as may be appropriate and permissible, to
request speedy action on any and all requests for consent to novation.
7.11 MARKLAND OPTIONS AND S-8 REGISTRATION STATEMENT. Options for
300,000 shares in the aggregate will be issued to the individuals and in the
amounts mutually agreed by Markland and the Genex Stockholder promptly following
the Closing Date pursuant to the Markland Plan. Markland shall file and use
commercially reasonable efforts to cause there to be effective within 75 days of
the Closing Date a registration statement on Form S-8 (or any successor form) or
other appropriate forms, with respect to shares of Markland Common Stock subject
to New Options and to additional options issued under the Markland Plan, if any,
and shall use commercially reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
options issued under the Markland Plan remain outstanding.
7.12 INTRAORAL TECHNOLOGIES. The Parties agree that Genex Intraoral
Technologies (as defined below) may have significant commercial application and
that, in the event that the Intraoral Technologies owned by Genex prior to
Closing are commercialized, the Genex Stockholder shall be entitled to fifty
percent (50%) of all profits generated from the Intraoral Technologies used in
medical and dental applications for a period of five years following the Closing
Date. The Parties further agree that Markland, Parent and/or the Surviving
Corporation shall use commercially reasonable efforts to promote the sale of all
products using the Intraoral Technologies. Notwithstanding the foregoing, any
revenue resulting from the Intraoral Technologies shall be excluded from the
calculation of the Earn Out Consideration. "INTRAORAL TECHNOLOGIES" shall mean
those intraoral technologies described on Exhibit 7.12 hereto and any
improvements thereto, but excluding any new technology or products.
7.13 POTENTIAL CLAIM BY GENEX. The Parties acknowledge their mutual
understanding that Genex may have claims against a specific agreed manufacturer
which, if successful may yield a significant recovery. In the event the
Surviving Corporation determines, in its reasonable discretion, to pursue these
claims, 50% of any recovery, net of expenses, will be paid to the Genex
Stockholder.
7.14 NO PRIOR ACTIVITY OF MERGER SUB. Prior to the Merger Effective
Time, Merger Sub shall not conduct any business or make any investments other
than as specifically contemplated by this Agreement and will not have any assets
(other than a de minimis amount of cash paid to merger Sub for the issuance of
its stock to Parent) or liabilities.
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7.15 SEC REPORTING. Parent will take commercially reasonable steps to
get into compliance with all reporting and other requirements of the SEC
applicable to Parent and to cure any past deficiencies in such reporting and
other requirements.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Parties hereto to effect the Transaction contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing of the
following conditions, any of which conditions may be waived in writing prior to
Closing by the Party for whose benefit such condition is imposed:
8.1.1 NO ILLEGALITY; CONSENTS. There shall not have been any
action taken, and no statute, rule or regulation shall have been enacted, by any
state, federal or other government agency that would prohibit or materially
restrict the Transaction.
8.1.2 Third Party Consents; Government Consents. All filings
with and notifications to, and all approvals and authorizations of, third
parties (including, without limitation, Governmental Entities) required for the
consummation of the Transaction and the other material transactions contemplated
hereby shall have been made or obtained and all such approvals and
authorizations obtained shall be effective and shall not have been suspended,
revoked or stayed by action of any Governmental Entity.
8.1.3 GENEX STOCKHOLDER APPROVAL. Genex shall have obtained
all necessary authorizations and approvals from the holders of Genex Common
Stock required for the consummation of the Transaction.
8.1.4 NO INJUNCTION. No injunction or restraining or other
order issued by a court of competent jurisdiction that prohibits or materially
restricts the consummation of the Transaction shall be in effect (each Party
agreeing to use all reasonable efforts to have any injunction or other order
immediately lifted), and no action or proceeding shall have been commenced or
threatened in writing seeking any injunction or restraining or other order that
seeks to prohibit, restrain, invalidate or set aside consummation of the
Transaction; PROVIDED, that to the extent a Governmental Entity is not a party
to such suit, action or proceeding, Parent or Genex believes that such suit,
action or proceeding has a reasonable likelihood of success.
8.2 CONDITIONS PRECEDENT TO OBLIGATION OF PARENT AND MERGER SUB TO
CONSUMMATE THE TRANSACTION. The obligation of Markland, Parent and Merger Sub to
consummate the Transaction shall be subject to the fulfillment at or prior to
the Closing of the following additional conditions, any of which conditions may
be waived in writing by Parent or Merger Sub prior to Closing:
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8.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Genex and the Genex Stockholder set forth in this Agreement shall
have been true and correct as of the date when made and as of the Closing as
though made on and as of such date, except for those representations and
warranties that were made as of a particular date, which shall have been true
and correct as of such date; and Genex shall have delivered to Parent a
certificate to that effect, dated the Closing Date and signed on behalf of Genex
by the President of Genex.
8.2.2 AGREEMENTS AND COVENANTS. Genex shall have performed in
all material respects all of its agreements and covenants set forth herein that
are required to be performed at or prior to the Closing, such that the Surviving
Corporation's ability to assume the business previously operated by Genex as of
the Closing date shall not be impaired in any material respect.
8.2.3 CLOSING DOCUMENTS. Genex shall have delivered to Merger
Sub the closing deliverables as set forth in Section 2.3.2.
8.3 CONDITIONS TO OBLIGATIONS OF GENEX TO CONSUMMATE THE TRANSACTION.
The obligation of Genex to consummate the Transaction shall be subject to the
fulfillment at or prior to the Closing of the following additional conditions,
any of which may be waived in writing by Genex prior to Closing:
8.3.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of Markland, Parent and Merger Sub set forth in this
Agreement shall have been true and correct as of the date when made and as of
the Closing as though made on and as of such date.
8.3.2 AGREEMENTS AND COVENANTS. Each of Markland, Parent and
Merger Sub shall have performed in all material respects all of their agreements
and covenants set forth herein that are required to be performed at or prior to
the Closing.
8.3.3 CLOSING DOCUMENTS. Markland, Parent and Merger Sub shall
have delivered to Genex Closing Deliverables of Markland, Parent and Merger Sub
set forth in Section 2.3.1.
8.3.4 PAYMENTS. Merger Sub shall have made to the Genex
Stockholder, payment of the Merger Consideration.
ARTICLE 9
MISCELLANEOUS TERMS AND CONDITIONS
9.1 SURVIVAL. All representations, warranties and covenants made in
this Agreement, or any certificate or other writing delivered pursuant hereto or
in connection herewith shall survive until the end of the twelve-month period
following the date of this Agreement.
9.2 NOTICES. All notices and other communications hereunder to any
Party shall be contained in a written instrument addressed to such Party at the
address set forth below or such other address as may hereafter be designated in
writing by the addressee to the addressor listing all parties and shall be
deemed given (a) when delivered in person or duly sent by confirmed facsimile or
electronic mail to a facsimile number or electronic mail address furnished by
the addressee for the purpose of receiving notices and other communications or
(b) two Business Days after being duly sent by Federal Express or other
recognized express courier service:
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TO MARKLAND, PARENT, MERGER SUB AND THE SURVIVING CORPORATION:
Markland Technologies, Inc.
88 Royal Little Drive
Providence, RI 02904
Fax:
Attention: Robert Tarini
with a copy to:
David A. Broadwin, Esq.
Foley Hoag LLP
155 Seaport Boulevard
Boston, MA 02210
Fax: (617) 832-7000
TO GENEX:
Genex Technologies, Inc.
10605 Concord Street, Suite 500
Kensington, Maryland 20895
Fax: 301-962-6565
Attention: President
TO THE GENEX STOCKHOLDER:
Jason Geng
c/o Dickstein, Shapiro, Morin & Oshinsky LLP
2101 L Street NW
Washington, DC 20037
Attn: Alan Schaefer, Esq.
9.3 ENTIRE AGREEMENT. Unless otherwise herein specifically provided,
this Agreement and the documents and instruments and other agreements among the
Parties to this Agreement comprising the Transaction as contemplated by or
referred to herein constitute the entire agreement among the parties with
respect to the subject matter of this Agreement and supersede all other prior
agreements, arrangements and understandings, both written and oral, between the
parties with respect to the subject matter, including the Letter of Intent. Each
Party to this Agreement acknowledges that, in entering this Agreement and
completing the Transaction contemplated hereby, such Party is not relying on any
representation, warranty, covenant or agreement not expressly stated in this
Agreement or in the other written agreements entered into by and among the
parties as expressly contemplated by or referred to herein; and, except for such
representations, warranties, covenants and agreements specifically set forth in
this Agreement or in such other written agreements, the Parties expressly
disclaim all other representations and warranties of any kind or nature
expressed or implied.
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9.4 ASSIGNABILITY. This Agreement is not intended to confer upon any
person other than the parties any rights or remedies hereunder, except as
otherwise expressly provided herein. Neither this Agreement nor any of the
rights and obligations of the parties hereunder shall be assigned or delegated,
whether by operation of law or otherwise, without the written consent of all
parties.
9.5 VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
9.6 SPECIFIC PERFORMANCE. The Parties to this Agreement acknowledge
that damages alone may not adequately compensate a Party for violation by
another Party to this Agreement. Accordingly, in addition to all other remedies
that may be available hereunder or under applicable law, any Party shall have
the right to any equitable relief that may be appropriate to remedy a breach or
threatened breach by any other Party hereunder, including the right to enforce
specifically the terms of this Agreement by obtaining injunctive relief in
respect of any violation or non-performance.
9.7 GOVERNING LAW This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Maryland, without
regard to its principles of conflicts of laws.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same agreement.
9.9 NO WAIVER. Unless otherwise specifically agreed in writing to the
contrary; (a) the failure of any Party at any time to require performance by the
other of any provision of this Agreement shall not affect such Party's right
thereafter to enforce the same; (b) no waiver by any Party of any default by any
other shall be valid unless in writing and acknowledged by an authorized
representative of the non-defaulting Party, and no such waiver shall be taken or
held to be a waiver by such Party of any other preceding or subsequent default;
and (c) no extension of time granted by any Party for the performance of any
obligation or act by any other Party shall be deemed to be an extension of time
for the performance of any other obligation or act hereunder.
9.10 GENERAL RELEASE. In consideration of the benefits that the Genex
Stockholder will realize, directly or indirectly, as a result of this Agreement
and the Transaction contemplated hereby, effective from and after the Closing,
the Genex Stockholder hereby releases and forever discharges Genex from all
debts, demands, actions, causes of action, suits, dues, royalties, sums of
money, accounts, reckonings, bonds, specialties, covenants, contracts,
agreements and liabilities and any and all other claims of every kind, nature
and description whatsoever, at law, in equity or otherwise, which the Genex
Stockholder or its successors or other legal representatives now has or ever has
had from the beginning of the world to Closing. The Genex Stockholder also
waives any right of contribution or other recourse against Genex with respect to
representations, warranties or covenants made by Genex pursuant to this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[SIGNATURE PAGE TO MERGER AGREEMENT]
IN WITNESS WHEREOF, the parties have duly executed this Merger
Agreement under seal as of the date first above written.
MARKLAND TECHNOLOGIES, INC.
By: _____________________________________
Name: Robert J. Tarini
Title: President and Chief Executive
Officer
TECHNEST HOLDINGS, INC.
By: _____________________________________
Name: Mark Allen
Title: Director
MTECH ACQUISITION, INC.
By: _____________________________________
Name: Robert J. Tarini
Title: President
GENEX TECHNOLOGIES, INC.
By: _____________________________________
Name: Jason Geng
Title: President
__________________________________________
Jason Geng
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