Exhibit 10.2
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
ANTEON CORPORATION,
TM ACQUISITION CORP.,
TECHMATICS, INC.,
CERTAIN SHAREHOLDERS OF TECHMATICS, INC.,
SIGNATORIES HERETO,
and
JOSEPH MAURELLI,
individually and as Sellers' Representative.
Dated May 13, 1998
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER.......................................................3
1.1 The Merger..............................................3
1.2 Closing; Effective Time.................................3
1.3 Articles of Incorporation...............................4
1.4 Bylaws..................................................4
1.5 Directors and Officers..................................4
ARTICLE II
CONVERSION OF SECURITIES FOR CASH................................5
2.1 Purchase Price..........................................5
2.2 Price Per Share.........................................5
2.3 Payment.................................................6
2.4 Options.................................................7
2.5 Merger Sub Common Stock.................................8
2.6 Exchange of Common Stock and Option Payments............9
2.7 Withholding: Net Payments.............................11
2.8 Determination and Payment of Contingent Consideration..11
ARTICLE III
REPRESENTATIONS AND WARRANTIES..................................16
3.1 Representations and Warranties of the Company and the
Sellers................................................16
(A) Organization and Qualification of the Company......17
(B) Authority to Execute and Perform Agreement.........18
(C) Capital Stock......................................20
(D) Vote Required......................................21
(E) Financial Statements...............................22
(F) Absence of Certain Changes or Events...............23
(G) Litigation and Liabilities.........................26
(H) Title to Properties; Absence of Liens, etc.........26
(I) Licenses and Registrations; Compliance with
Laws, etc..........................................27
(J) Intangible Property................................28
(K) Non-Contravention..................................29
(L) Consent and Approvals..............................31
(M) Employee Benefit Plans; ERISA......................32
(N) Insurance Policies.................................36
(O) Agreements.........................................37
(P) Validity of Agreements.............................39
(Q) Taxes..............................................41
Page
----
(R) Additional Representations.........................45
(S) Accounts and Notes Receivable......................47
(T) Potential Conflicts of Interest....................47
(U) Liabilities........................................48
(V) Real Estate........................................49
(W) Labor Matters......................................51
(X) Management Reserves................................51
(Y) Working Capital and Outstanding Debt...............52
3.2 Representations and Warranties of the Parent and the
Merger Sub.............................................52
(A) Organization.......................................52
(B) Authority to Execute and Perform Agreement.........52
(C) Consents and Approvals.............................53
(D) Non-Contravention..................................53
(E) Parent Material Adverse Effect.....................54
(F) Parent Litigation..................................55
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES............................55
4.1 Taxes; Section 338(h)(10) Election.....................55
4.2 Tax Return Filing......................................58
4.3 Further Assurances.....................................59
4.4 Access to Records......................................59
4.5 Preservation of Records................................61
4.6 Confidentiality........................................62
4.7 Efforts; Consents......................................63
4.8 Return of Information and Confidentiality..............63
4.9 Ordinary Course of Business............................64
4.10 Insurance Proceeds, Litigation Rights..................64
4.11 Benefit Plans and Employee Matters.....................65
4.12 Preservation of Business...............................67
4.13 Litigation.............................................67
4.14 Agreements.............................................68
4.15 Continued Effectiveness of Representations and
Warranties.............................................68
4.16 Satisfaction of Conditions Precedent...................69
4.17 Exclusivity............................................69
4.18 Allocation of Certain Expenses of Parent...............70
4.19 Certain Covenants of the Parent........................70
4.20 Shareholder Approval...................................73
ARTICLE V
CONDITIONS TO CLOSING...........................................74
5.1 Conditions to Obligations of the Company...............74
(A) Regulatory Authorizations..........................74
ii
Page
----
(B) Representations and Warranties; Covenants..........74
(C) Certificates.......................................75
(D) Opinions of Counsel to the Parent and the Merger
Sub................................................75
(E) Expiration of Required Notice Period...............75
5.2 Conditions to Obligations of the Parent and the
Merger Sub.............................................75
(A) Regulatory and other Authorizations................75
(B) Representations and Warranties; Covenants..........76
(C) Governmental Permits and Approvals.................76
(D) Third Party Consents...............................76
(E) Opinion of Counsel to the Company and the Sellers..77
(F) Non-Competition....................................77
(G) Certificate........................................77
(H) Payoff Letter......................................77
(I) VEBA Funding.......................................77
ARTICLE VI
FEES RELATING TO THIS TRANSACTION...............................78
ARTICLE VII
TERMINATION.....................................................79
7.1 Termination............................................79
7.2 Effect of Termination; Expenses........................80
ARTICLE VIII
INDEMNIFICATION.................................................81
8.1 Indemnification by the Sellers.........................81
8.2 Indemnification by the Parent and the Merger Sub.......82
8.3 ERISA, Tax and Contract Supplemental Indemnification
by Each Seller.........................................82
8.4 Survival of Representations and Warranties of the
Sellers................................................84
8.5 Certain Limitations on Indemnification Obligations.....86
8.6 Defense of Claims......................................88
8.7 Non-Third Party Claims.................................90
8.8 Set-off Rights.........................................90
ARTICLE IX
MISCELLANEOUS...................................................91
9.1 Certain Definitions....................................91
9.2 Sellers' Representative................................96
9.3 Expenses...............................................98
iii
Page
----
9.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies...............................99
9.5 Public Disclosure.....................................100
9.6 GOVERNING LAW. ......................................100
9.7 Notices...............................................102
9.8 Section Headings......................................103
9.9 Counterparts..........................................103
9.10 Assignments...........................................103
9.11 Entire Agreement, Enforceability and Miscellaneous....103
Schedules
Schedule 2.2 Price Per Share Illustration
Schedule 2.3(c) Deferred Tax Liability Calculation
Schedule 3.1(A) Organization and Qualification of the Company
Schedule 3.1(C) Capitalization
Schedule 3.1(F) Absence of Certain Changes or Events
Schedule 3.1(G) Litigation and Liabilities
Schedule 3.1(H) Permitted Liens
Schedule 3.1(I) Compliance with Laws
Schedule 3.1(J) Intangible Property
Schedule 3.1(K) Non-Contravention
Schedule 3.1(L) Consents and Approvals
Schedule 3.1(M) Employee Benefit Plans; ERISA
Schedule 3.1(O) Agreements
Schedule 3.1(P) Validity of Agreements
Schedule 3.1(Q) Groups
Schedule 3.1(R) Additional Representations
Schedule 3.1(T) Potential Conflicts of Interest
Schedule 3.1(U) Liabilities
Schedule 3.1(V) Real Property
Schedule 6.0 Certain Fees Relating to this Transaction
Exhibits
Exhibit I Articles of Merger
Exhibit II Subordinated Promissory Note
Exhibit III Option Cancellation Agreement
Exhibit IV Form of Opinion of Counsel to the Parent
Exhibit V Form of Opinion of Counsel to the Company and the Sellers
Exhibit VI Form of Non-Compete and Non-Disclosure Agreement
Exhibit VII Certain Level of Effort Contracts
iv
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated May 13,
1998, by and among Anteon Corporation, a Virginia corporation (the "PARENT"), TM
Acquisition Corp., a Virginia corporation and a wholly owned subsidiary of the
Parent (the "MERGER SUB"), TECHMATICS, Inc., a Virginia corporation (the
"COMPANY"), each of the individuals designated on the signature pages hereof as
a Seller (each a "SELLER" and collectively, the "SELLERS") and Joseph Maurelli,
as a Seller and in his capacity as the representative of the Sellers (the
"SELLERS' REPRESENTATIVE"). The Merger Sub and the Company are sometimes
collectively referred to herein as the "CONSTITUENT CORPORATIONS."
W I T N E S S E T H :
WHEREAS, the respective boards of directors of the Parent, the
Merger Sub and the Company have approved this Agreement pursuant to which, among
other things, the Merger Sub will be merged with and into the Company (the
"MERGER") on the terms and conditions contained herein and in accordance with
the Virginia Stock Corporation Act (the "VSCA");
WHEREAS, Sellers are hereby consenting to the adoption of this
Agreement and the Merger and are agreeing to vote for and approve this Agreement
and the Merger in accordance with the articles of incorporation and bylaws of
the Company and the VSCA;
WHEREAS, the execution of this Agreement by the Sellers, the
execution of a unanimous written consent by all holders of the Company's Class A
Common Stock delivered to the Secretary of the Company on April 17, 1998 (the
2
"UNANIMOUS WRITTEN CONSENT") and the execution of a second unanimous consent by
all holders of the Company's Class A Common Stock delivered to the Secretary of
the Company on the date hereof and to be effective at the Effective Time (the
"EFFECTIVE TIME UNANIMOUS CONSENT"), constitute the only actions necessary to be
taken by shareholders of the Company ("SHAREHOLDERS") in order to adopt this
Agreement under the Company's articles of incorporation and bylaws and the VSCA;
WHEREAS, the Sellers are the beneficial and record owners of 100%
of the issued and outstanding shares of the Company's Class A Common Stock,
60.5% of the Company's Class A Nonvoting Common Stock, and 87.7% of the combined
Common Stock of the Company (the Class A Common Stock and the Class A Nonvoting
Common Stock are referred to together as the "COMMON STOCK");
WHEREAS, the waiting period required for this Merger pursuant to
the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, expired on March 15, 1998; and
WHEREAS, the Parent, the Merger Sub, the Sellers and the Company
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger and to prescribe various conditions to the Merger.
NOW THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
3
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) and in
accordance with the VSCA, the Merger Sub shall be merged with and into the
Company, which shall be the surviving corporation in the Merger (the "SURVIVING
CORPORATION"). At the Effective Time, the separate existence of the Merger Sub
shall cease and the other effects of the Merger shall be as set forth in Section
13.1-721 of the VSCA.
1.2 Closing; Effective Time. Subject to the provisions of Article
VII, the closing of the Merger (the "CLOSING") shall take place at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, Washington, D.C.
20036- 5694, at 10:00 a.m. Washington, D.C., time on May 29, 1998, or on such
later date thereafter on which each of the conditions set forth in Article V
have been satisfied or waived by the party or parties entitled to the benefit of
such conditions, or at such other place, at such other time or on such other
date as the Parent, the Merger Sub and the Company may mutually agree. The date
on which the Closing actually occurs is hereinafter referred to as the "CLOSING
DATE." At the Closing, the Parent, the Merger Sub and the Company shall cause
the articles of merger (the "ARTICLES OF MERGER") attached hereto as Exhibit I
to be executed and filed with the State Corporation Commission of the
Commonwealth of Virginia (the "COMMISSION") in accordance with the VSCA. The
Merger shall become effective as of the date and time (the "EFFECTIVE TIME") a
certificate of merger is issued by the Commission with
4
respect to the Merger, unless a later date and time is specified in the Articles
of Merger pursuant to the VSCA.
1.3 Articles of Incorporation. The articles of incorporation of the
Merger Sub, as in effect immediately prior to the Effective Time, shall become,
from and after the Effective Time, the articles of incorporation of the
Surviving Corporation, until thereafter altered, amended or repealed as provided
therein and in accordance with applicable law, except that the name of the
Surviving Corporation shall be "TECHMATICS, Inc."
1.4 Bylaws. The bylaws of the Merger Sub, as in effect immediately
prior to the Effective Time, shall become, from and after the Effective time,
the by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided therein and in accordance with applicable law.
1.5 Directors and Officers. The directors and officers of the
Merger Sub immediately prior to the Effective Time shall become, from and after
the Effective Time, the directors and officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualify or
their earlier resignation or removal. In addition, Joseph Maurelli shall be a
director of the Surviving Corporation following the Effective Time for a period
of not less than two years following the Effective Time so long as he remains an
executive officer of the Surviving Corporation and Michael B. Maraghy shall be a
director of the Surviving Corporation immediately following the Effective Time.
5
ARTICLE II
CONVERSION OF SECURITIES FOR CASH
2.1 Purchase Price. The Parent agrees to pay or cause to be paid,
an aggregate consideration of (a) Thirty-Seven Million Dollars ($37,000,000)
(the "AGGREGATE CONSIDERATION"), plus (b) any amounts payable under Sections
2.3(b) and (c), plus (c) any sum or sums due hereunder pursuant to Section 2.8,
subject to any right of set-off the Parent may have pursuant to Section 8.8 (the
"CONTINGENT CONSIDERATION") (the Aggregate Consideration and the Contingent
Consideration being hereinafter referred to collectively as the "PURCHASE
PRICE"), in order to acquire all of the shares of Common Stock outstanding at
the Effective Time and to cause the rights of Option Holders (as defined in
Section 2.4) to acquire Common Stock to be extinguished as of the Effective
Time. The parties will accomplish the foregoing by means of the Merger and the
amount, timing, and form of consideration to be payable to the Shareholders and
Option Holders and the manner of payment is set forth in this Article II.
2.2 Price Per Share. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive, at the times and subject to the other provisions of
this Agreement, a per share amount (the "PER SHARE AMOUNT") equal to the sum of
(1) the quotient obtained by dividing (a) the sum of (i) the Purchase Price
multiplied by a fraction the numerator of which is the number of shares of
Common Stock issued and outstanding immediately prior to the Effective Time
("N") and the denominator of which is the
6
sum of N PLUS the aggregate number of shares of Common Stock covered by Options
(as defined in Section 2.4) outstanding immediately prior to the Effective Time
("S"), PLUS (ii) the aggregate exercise price of the Options outstanding
immediately prior to the Effective Time ("EP"), by (b) N, PLUS (2) the amounts
payable under Sections 2.3 (b) and (c). Schedule 2.2 sets forth for illustration
an example of the calculations contemplated by Sections 2.2, 2.3 and 2.4.
2.3 Payment. The Per Share Amount shall be paid as follows:
(a) Three days subsequent to the Effective Time, the Parent
shall pay or cause the Surviving Corporation to pay to each Shareholder entitled
to receive a payment under Section 2.2 an amount for each share of Common Stock
held at the Effective Time (the "PER SHARE CLOSING AMOUNT") equal to the
quotient obtained by dividing (a) the sum of (i) Twenty-seven Million Dollars
($27,000,000) multiplied by a fraction the numerator of which is N and the
denominator of which is the sum of N plus S, PLUS (ii) EP multiplied by the
fraction obtained by dividing 27 by 37, by (b) N.
(b) On December 15, 1998, for each share of Common Stock held
by such Shareholder, the Parent shall pay or cause the Surviving Corporation to
pay to each Shareholder entitled to receive a payment under Section 2.2 the
quotient of One Million Dollars ($1,000,000) divided by N, as partial
reimbursement of the estimated Deferred Tax Liability (as defined in Section
9.1) .
(c) On April 1, 1999, the Parent shall pay or cause the
Surviving Corporation to pay to each Shareholder entitled to receive a payment
under Section 2.2, the quotient of Three Million Dollars ($3,000,000) divided by
N for each
7
share of Common Stock held by such Shareholder, as partial reimbursement of the
estimated Deferred Tax Liability.
(d) At the Closing, the Parent shall deliver to each
Shareholder entitled to receive a payment under Section 2.2, a subordinated
promissory note due May 31, 2000 (the "NOTES"), in substantially the form of
Exhibit II, in principal amount equal to the quotient obtained by dividing (a)
the sum of (i) Ten Million Dollars ($10,000,000) multiplied by a fraction the
numerator of which is N and the denominator of which is the sum of N plus S,
plus (ii) EP multiplied by the fraction obtained by dividing 10 by 37, by (b) N,
for each share of Common Stock held by such Shareholder at the Effective Time.
(e) The Contingent Consideration to be paid pursuant to this
Agreement, if any, shall be paid by the Parent in accordance with the terms of
Section 2.8, subject to any set-off right the Parent may have pursuant to
Section 8.8.
2.4 Options. On or prior to the Closing Date, the Company shall
cause each holder (an "OPTION HOLDER") of an option obligating the Company to
issue any shares of Common Stock (each, an "OPTION") to enter into an agreement
with the Company in the form of Exhibit III providing that each holder of an
Option outstanding immediately prior to the Effective Time, whether or not then
exercisable, shall be entitled to receive in full settlement and cancellation of
such Option, and in return for a waiver of all rights associated with such
Option under the terms of any of the Company's option plans, the following
consideration at the following times:
(a) At the Closing, the Parent shall pay or cause the Merger
Sub to pay to each Person who is an Option Holder at the Effective Time an
amount
8
in cash for each Option held equal to the remainder of (i) Twenty-seven Million
Dollars ($27,000,000) MULTIPLIED by a fraction the numerator of which is the
number of shares of Common Stock covered by such Option ("OS") and the
denominator of which is the sum of N plus S, MINUS (ii) the exercise price of
such Option ("OEP") MULTIPLIED by OS MULTIPLIED by the fraction obtained by
dividing 27 by 37.
(b) At the Closing, the Parent shall deliver to the Company
for delivery to each Person who is an Option Holder at the Effective Time a Note
in principal amount for each Option held equal to the remainder of (i) Ten
Million Dollars ($10,000,000) MULTIPLIED by a fraction the numerator of which is
OS and the denominator of which is the sum of N plus S, MINUS (ii) OEP
MULTIPLIED by OS MULTIPLIED by the fraction obtained by dividing 10 by 37.
(c) The Contingent Consideration to be paid pursuant to this
Agreement, if any, shall be paid by the Parent in accordance with the terms of
Section 2.8, subject to any set-off right the Parent may have pursuant to
Section 8.8.
If any Option Holder shall fail to enter into an agreement
referred to in the first paragraph of this Section 2.4, then the Company shall
promptly exercise all its rights and give all required notice under its option
plans so that the Option will be accelerated, vested and converted at the
Effective Time into the consideration provided for in this Section 2.4, and the
Closing Date and any termination rights under this Agreement will be tolled for
a reasonable period not to exceed 45 days to permit the Company to take such
actions.
2.5 Merger Sub Common Stock. Each share of common stock of the
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
9
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of common stock of the Surviving
Corporation.
2.6 Exchange of Common Stock and Option Payments.
(a) Not later than three Business Days prior to the Closing,
the Company shall mail to each Shareholder and to each Option Holder a notice
and, as applicable, a transmittal form and/or an option cancellation and
settlement form (in form and substance reasonably satisfactory to the Parent)
advising such Shareholder and Option Holder of the procedure for delivering
certificates to the Company and effecting payments for Options in accordance
with Sections 2.3 and 2.4. At the Closing, the Company shall deliver to the
Merger Sub all of the certificates that the Company shall have theretofore
received, together with duly executed transmittal forms and option cancellation
and settlement forms received by the Company from the Shareholders and Option
Holders.
Thereafter, each holder of a certificate representing a share
of Common Stock not delivered to the Merger Sub, may surrender to the Surviving
Corporation such certificate together with an executed transmittal form, and
receive from the Surviving Corporation in exchange therefor the payment or
payments called for under Section 2.3, and each Option Holder may deliver an
option cancellation and settlement form and receive from the Surviving
Corporation in exchange therefor the amount payable under Section 2.4, in each
case without interest. Upon surrender of any such certificates, such
certificates shall be canceled. The Surviving Corporation may set off any amount
owed by a Shareholder or Option Holder to the Company or
10
any of the Subsidiaries immediately prior to the Effective Time against any
payment due under this Agreement.
(b) If the consideration payable for any share of Common Stock
is to be delivered to a person other than the person in whose name the
certificate representing such shares is registered, it shall be a condition of
such delivery that the certificate so surrendered shall be properly endorsed or
accompanied by appropriate stock powers, in either case signed as the name of
the record holder appears on such certificate, and shall otherwise be in proper
form for transfer, and that the person requesting such delivery shall pay to the
Surviving Corporation any transfer or other taxes required by law as a result of
such delivery to a person other than the record holder of the certificate
surrendered, or shall establish to the Surviving Corporation's satisfaction that
such tax has been paid or is not payable.
(c) Any amounts remaining unclaimed by holders of shares of
Common Stock immediately prior to such time as such amounts would otherwise
escheat to or become property of any governmental entity shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation
free and clear of any claims or interest of any Person previously entitled
thereto.
(d) Each Shareholder shall cease at the Effective Time to have
any rights as a Shareholder of the Company or the Surviving Corporation (other
than rights to receive the payments provided for in Section 2.3) and each Option
Holder shall cease to have any rights under the Option Plan or the option
agreements pursuant to which it acquired its Options (other than to receive the
payments provided
11
for in Section 2.4), and no transfer of shares of the Company's capital stock
shall thereafter be made on the stock transfer books of the Surviving
Corporation.
2.7 Withholding: Net Payments. Notwithstanding anything in this
Agreement to the contrary, any amount paid pursuant to this Agreement or the
Notes to Option Holders, including without limitation the payments to Option
Holders under Section 2.4, or to Shareholders that are not United States
Persons, as defined in Section 7701(a)(30) of the Code (as defined below in
Section 3.1(M)(ii)), shall be net of all applicable federal, state and local
withholding taxes, as determined by the Surviving Corporation and agreed to by
the Sellers' Representative. The Surviving Corporation shall withhold and remit
to the appropriate taxing authority all such withholding taxes due in connection
with the payments made by it, and such remittance shall be deemed a payment of
amounts owed to any person entitled to payment pursuant to this Agreement. Any
payment to non-employee Option Holders shall be at the minimum withholding
amount required by applicable law. Prior to the Effective Time, the Company
shall use its reasonable efforts to take such actions as shall be necessary to
allow for compliance with this Section 2.7.
2.8 Determination and Payment of Contingent Consideration.
(a) The Parent shall, at its sole cost and expense, cause the
Accountant to deliver to the Parent and the Sellers' Representative not later
than September 30, 1999, a statement of Operating Profit (as defined in Section
9.1) for the Company for the fiscal year 1999 (July 1, 1998 - June 30, 1999) in
accordance with GAAP applied on a consistent basis (the "STATEMENT OF OPERATING
PROFIT"). Notwithstanding the foregoing, the Parent may elect to modify the
Company's actual
12
financial reporting to conform to a calendar year basis consistent with the
Parent's fiscal year, in which event the Parent shall cause the Statement of
Operating Profit to be delivered by April 1, 2000, and shall pay interest at the
rate of six percent per annum commencing September 30, 1999, increasing to seven
and one-half percent per annum commencing April 1, 2000, on the amount of any
Contingent Consideration subsequently determined to have been earned in
accordance with this Section 2.8; PROVIDED, HOWEVER, that the Parent shall
nevertheless continue to separately track, through its automated financial
reporting system, the performance of contracts comprising the Company's business
as if the Company had continued to operate on a June 30, 1999 fiscal year basis.
Concurrent with the delivery of the Statement of Operating Profit, the
Accountant shall certify to the Parent that the Statement of Operating Profit
was calculated in accordance with the provisions of this Agreement (and the
Parent shall use its reasonable efforts to cause the Accountant to allow access
to the Accountant's workpapers prepared in connection with the Statement of
Operating Profit to the Sellers' Representative in order to assist the Sellers'
Representative to determine whether the Statement of Operating Profit was
calculated in accordance with the provisions of this Agreement, if the Sellers'
Representative executes and delivers on behalf of himself and the Sellers the
Accountant's customary agreement for indemnification and release of liability
(an "INDEMNIFICATION AGREEMENT") in a form acceptable to the Accountant).
(b) The Sellers' Representative and his agents shall have
reasonable access to all personnel of the Company and shall have the right to
review all books, accounting records and other materials of the Company and the
Subsidiaries
13
relevant to the preparation of the Statement of Operating Profit that the
Sellers' Representative or his agents may reasonably request. In addition, the
Parent shall use its reasonable efforts to cause the Sellers' Representative and
his agents, after execution and delivery by the Seller's Representative and such
agents of the Indemnification Agreement with respect to the Statement of
Operating Profit, to have reasonable access to all personnel of the Accountant
involved in the preparation of the Statement of Operating Profit and to be
permitted to review the Accountant's audit work papers with respect thereto. In
the event that the Parent and/or the Sellers' Representative disagree(s) in any
respect with the Statement of Operating Profit, the Sellers' Representative
and/or the Parent shall deliver to the other, within twenty-one (21) days after
delivery by the Accountant of such Statement of Operating Profit, a written
notice (an "OBJECTION NOTICE") specifying the matters to which it objects and
the basis for such disagreement (together with any authority or documentation
supporting its position). Any Objection Notice may include disagreements with
respect to any adjustments in the calculation of Operating Profit made pursuant
to Section 4.19(A) of this Agreement, such disagreement to be resolved in
accordance with the methodology provided in this Section 2.8 of this Agreement.
The Parent and the Sellers' Representative shall thereupon endeavor in good
faith to resolve any disagreement or dispute arising out of the Objection
Notice. In the event such parties do so, such parties shall promptly execute a
document which sets forth the resolution of such disagreement or dispute.
(c) In the event that the Parent or the Sellers'
Representative timely receives an Objection Notice and the Sellers'
Representative and the Parent are
14
unable to resolve the disagreement specified in the Objection Notice within ten
(10) Business Days after receipt of the Objection Notice, the disagreement shall
be submitted to a nationally recognized firm of independent public accountants
(other than the Accountant) chosen by the Parent and the Sellers' Representative
(the "CONTINGENCY ACCOUNTANT"); PROVIDED that if the Parent and the Sellers'
Representative are unable to agree on such accountants within fourteen (14) days
following the end of such ten (10) Business Day period, then the Parent and the
Sellers' Representative will within seven (7) days following the end of such
fourteen (14) day period jointly request that the president of the American
Arbitration Association (the "AAA") select an accountant, such accountant to be
associated with a nationally recognized accounting firm other than the
Accountant (such AAA-appointed accountant to be deemed the "CONTINGENCY
ACCOUNTANT" for purposes of this Agreement). Upon delivery to the Parent and the
Sellers' Representative of a statement in writing setting forth the conclusion
of the Contingency Accountant's opinion of the disputed item or items and the
effect of such conclusion on the Statement of Operating Profit, such
determination shall be final and binding upon the Parent and the Sellers without
any further right of appeal.
(d) The Contingency Accountant shall have reasonable access to
all personnel of the Company and shall have the right to review all books,
accounting records and other materials pertaining to the Statement of Operating
Profit that the Contingency Accountant shall request. The Contingency Accountant
shall render its determination on the disagreement submitted to it within sixty
(60) days of submission of the disagreement by the Parent and the Sellers'
Representative. The
15
Statement of Operating Profit will be deemed to be final, binding and not
subject to appeal (the "FINAL STATEMENT OF OPERATING PROFIT"), on and as of the
first to occur of the following: (i) the expiration of the twenty-one (21) day
period referred to in Section 2.8(b) without the delivery of an Objection Notice
respecting the Statement of Operating Profit; (ii) the execution of a document
pursuant to Section 2.8(b), setting forth the resolution of any dispute
described in any Objection Notice respecting the Statement of Operating Profit,
by the Sellers' Representative and the Parent; and (iii) the date that the
Contingency Accountant delivers the relevant determination to the Parent and the
Sellers' Representative pursuant to Section 2.8(c), it being understood that the
Final Statement of Operating Profit shall mean a Statement of Operating Profit
as modified by any such resolution or determination.
(e) Payment of Contingent Consideration. The Shareholders and
the Option Holders shall be entitled to receive $3.75 million of aggregate
Contingent Consideration if the Company's Operating Profit as set forth on the
Final Statement of Operating Profit (the "FINAL OPERATING PROFIT") is $5.4
million or greater, but less than $5.7 million. Alternatively, the Shareholders
and the Option Holders shall be entitled to receive $4.375 million of aggregate
Contingent Consideration if the Company's Final Operating Profit is $5.7 million
or greater, but less than $6.0 million. Alternatively, the Shareholders and the
Option Holders shall be entitled to receive $5.0 million if the Company's Final
Operating Profit is $6.0 million or greater, but less than $6.6 million.
Alternatively, the Shareholders and the Option Holders shall be entitled to
receive $5.625 million of aggregate Contingent Consideration if the Company's
Final Operating Profit is $6.6 million or greater, but
16
less than $7.2 million. Alternatively, the Shareholders and the Option Holders
shall be entitled to receive $6.25 million of aggregate Contingent Consideration
if the Company's Final Operating Profit is $7.2 million or greater. The Parent
shall pay or cause to be paid to each Shareholder and the Parent shall pay or
cause the Surviving Corporation to pay to each Option Holder the aggregate
Contingent Consideration payable hereunder divided by the sum of N plus S for
each share of Common Stock held or covered by Options held by such Person at the
Effective Time. Any payment required to be made under this Section 2.8 shall be
made not later than the tenth (10th) Business Day after the Statement of
Operating Profit is deemed to be the Final Statement of Operating Profit.
(f) Fees and expenses, if any, of the Contingency Accountant
with respect to the Statement of Operating Profit shall be paid by the Company,
except that such fees and expenses shall be paid by the Shareholders and Option
Holders pro rata by number of shares of Common Stock owned or covered by Options
held at the Effective Time if the Sellers' Representative delivers an Objection
Notice with respect to the Statement of Operating Profit which does not result
in an increase in the Contingent Consideration payable under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company and the Sellers.
Each of the Sellers represents and warrants (it being understood that as to the
matters set forth in Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D), 3.1(K)(i) and
3.1(T) each Seller is
17
making such representation and warranty with respect to such Seller only), and
the Company represents and warrants (except as to the matters set forth in
Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D) and 3.1(K)(i), as to which no
representation or warranty is made by the Company), to the Parent and Merger Sub
that:
(A) Organization and Qualification of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as now being or heretofore conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its property or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not have a Company Material Adverse Effect (as defined
below). "COMPANY MATERIAL ADVERSE EFFECT," as used in this Agreement, shall mean
any event, change or effect that is or could reasonably be expected to be
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations, results of operations, or reasonably
anticipated prospects of the Company and its Subsidiaries taken as a whole. The
copies of the Certificates of Incorporation and By-Laws (or comparable
instruments) of the Company and each of the Subsidiaries previously delivered to
the Parent or its counsel, in each case as amended, are complete and correct.
Schedule 3.1(A) sets forth the name and jurisdiction of organization of each
corporation or other entity which the Company directly or indirectly controls
(each, a "SUBSIDIARY," and collectively, "SUBSIDIARIES") and each other
corporation or other entity in which
18
the Company directly or indirectly owns or has the power to vote capital stock
or other ownership interests. The Company does not directly or indirectly own
any interest in any other person or entity. Each of the Subsidiaries is an
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all requisite power and authority to
own, lease and operate its properties and assets and to carry on its business as
now being and as heretofore conducted. The respective minute books, or
comparable records, of the Company and each of the Subsidiaries contain true and
complete records of all meetings and consents in lieu of meetings of their
Boards of Directors or similar governing bodies (and any committees thereof) and
of their stockholders (or partners or members) since the times of their
respective incorporation or formation, and accurately reflect all transactions
referred to in such minutes and consents in lieu of meeting in all material
respects. The stock books (or analogous ownership records) of the Company and
each of the Subsidiaries are true and complete.
(B) Authority to Execute and Perform Agreement.
(i) Each Seller has all requisite power and all
authority and approvals required to enter into, execute and deliver this
Agreement and each and every agreement and instrument contemplated hereby to
which it is or will be a party (and, if applicable, a Non-Compete and
Non-Disclosure Agreement) and to perform fully such Seller's obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
each Seller, and on the Closing Date, each and every agreement and instrument
contemplated hereby to which such Seller is a party on the Closing Date
(including, if applicable, a Non-Compete and Non-
19
Disclosure Agreement) will be duly executed and delivered by such Seller.
Assuming due execution and delivery hereof and thereof by the Parent, this
Agreement and each such other agreement and instrument will be valid and binding
obligations of such Seller, enforceable against such Seller in accordance with
their respective terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally, and (ii) general
equitable principles.
(ii) The Company has full right and power and all
authority and approvals required to enter into, execute and deliver this
Agreement and each and every agreement and instrument contemplated hereby to
which it is or will be a party and to perform fully its obligations hereunder
and thereunder. The Board of Directors, at a meeting duly called and convened,
has unanimously adopted a resolution approving and adopting this Agreement and
the Merger. This Agreement has been duly authorized, executed and delivered by
the Company, and on the Closing Date, each and every agreement and instrument
contemplated hereby to which the Company is a party on the Closing Date will be
duly executed and delivered by the Company. Assuming due execution and delivery
hereof and thereof by the Parent, this Agreement and each such other agreement
and instrument will be valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally, and (ii) general equitable principles.
20
(iii) The Sellers' Representative has all requisite
power and authority and approvals required to enter into, execute and deliver
this Agreement and each and every agreement and instrument contemplated hereby
to which he is or will be a party and to perform fully his obligations hereunder
and thereunder. This Agreement has been duly executed and delivered by the
Sellers' Representative, and on the Closing Date, each and every agreement and
instrument contemplated hereby to which the Sellers' Representative is a party
on the Closing Date will be duly executed and delivered by the Sellers'
Representative. Assuming due execution and delivery hereof and thereof by the
Parent, this Agreement and each such other agreement and instrument will be
valid and binding obligations of the Sellers' Representative enforceable against
the Sellers' Representative, in accordance with their respective terms, except
that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally, and (ii) general equitable principles.
(C) Capital Stock. The authorized capital stock of the Company
consists of 10,000,000 shares of common stock, with a par value of $0.01 each,
of which 2,500,000 shares are denominated Class A Common Stock, and 7,500,000
shares are denominated Class A Nonvoting Common Stock. Of the 10,000,000 shares,
1,463,334 of the Class A Common Stock shares and 658,066 of the Class A
Nonvoting Common Stock shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable, and are owned beneficially and of
record by the Shareholders, in the respective amounts set forth on Schedule
3.1(C), free and clear of any pledges, liens, charges, encumbrances, voting or
transfer restrictions,
21
security interests, restrictions and claims of any kind ("LIENS"). The Company
has no other authorized, issued or outstanding class of capital stock. The
entire interest in each of the Subsidiaries that is owned by the Company, is
owned by the Company in the amounts set forth on Schedule 3.1(C), free and clear
of any Liens. Except for options granted under the Option Plan, the amounts and
exercise prices of which are as set forth on Schedule 3.1(C), there are no
existing options, rights, subscriptions, warrants, unsatisfied preemptive
rights, calls or commitments of any character relating to (i) the authorized and
unissued capital stock of the Company or any of the Subsidiaries, or (ii) any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from the Company or any of the
Subsidiaries any shares of capital stock of the Company or any of the
Subsidiaries, and no such convertible or exchangeable securities or obligations
are outstanding. The Shareholders are the lawful owners, beneficially and of
record, of all of the Common Stock of the Company, free and clear of all Liens.
Immediately after giving effect to the Merger, Parent will own free and clear of
any Liens all of the outstanding capital stock of the Surviving Corporation
(except for Liens that may attach by reason of the Parent's ownership thereof)
and no Option shall be outstanding.
(D) Vote Required. The execution and delivery of this
Agreement, the Unanimous Written Consent and the Effective Time Unanimous
Consent constitutes the only vote, consent or approval of the holders of any
class or series of capital stock of the Company necessary to approve the Merger
and no
22
further action of the Shareholders or Option Holders is necessary to consummate
the transactions contemplated by this Agreement.
(E) Financial Statements. The consolidated balance sheets of
the Company and the Subsidiaries as of June 30, 1997, and June 30, 1996, and the
related consolidated statements of income, shareholders' equity and changes in
financial position for the years then ended, including the footnotes thereto,
audited by Grant Thornton LLP, independent certified public accountants, which
have been delivered to the Parent, fairly present, in all material respects, the
consolidated financial position of the Company and the Subsidiaries as at such
dates, and the consolidated results of operations and changes in financial
position, as the case may be, of the Company and the Subsidiaries for such
respective periods, in each case in accordance with GAAP consistently applied.
(The foregoing consolidated financial statements of the Company and the
Subsidiaries as of June 30, 1997, and for the year then ended are sometimes
herein called the "AUDITED FINANCIALS." The foregoing balance sheet included in
the Audited Financials is sometimes herein called the "BALANCE SHEET.") The
unaudited balance sheet of the Company as of March 31, 1998, and the related
statements of income, shareholders' equity and changes in financial position for
the nine months then ended, including the footnotes thereto, which have been
delivered to the Parent, fairly present, in all material respects, the financial
position of the Company as of such dates and the results of operations of the
Company for the nine months then ended, in each case in conformity with GAAP,
applied on a basis consistent with that of the Audited Financials (subject to
the normal year-end audit adjustments, none of which will be material).
23
(F) Absence of Certain Changes or Events. Except as described
herein or in Schedule 3.1(F), from June 30, 1997, there has been no change in
the business, properties, assets, reasonably anticipated prospects, operations
or condition (financial or otherwise) of the Company or any of the Subsidiaries
which has resulted or reasonably could be expected to result in or which the
Sellers, the Company or any Subsidiary has reason to believe could reasonably be
expected to result in a Company Material Adverse Effect, and none of the
Sellers, the Company or any of the Subsidiaries knows of any such change that is
threatened, nor has there been any damage, destruction or loss affecting the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Company or any of the Subsidiaries,
whether or not covered by insurance which has resulted or reasonably could be
expected to result in or which the Sellers, the Company or any Subsidiary has
reason to believe could reasonably be expected to result in a Company Material
Adverse Effect. Except as set forth on Schedule 3.1(F), from June 30, 1997,
neither the Company nor any of the Subsidiaries has: (i) purchased, agreed to
purchase, retired, redeemed or called for redemption any of its outstanding
shares, issued or sold or purchased any options, warrants, shares, bonds or
other securities, interests or rights to acquire any of its securities or
interests, or declared or paid any dividend or distribution on or authorized or
effected any split up or recapitalization of any such securities; (ii) made or
authorized any change in its certificate of incorporation or bylaws (or
comparable instruments); (iii) made or contracted for any capital expenditures
in excess of $10,000 per item and $50,000 in the aggregate, or made any other
commitments or
24
disbursement or incurred or paid any liabilities or obligations, except in the
usual and ordinary course of business consistent with past practice (the
"ORDINARY COURSE OF BUSINESS"); (iv) sold, leased, abandoned, or otherwise
transferred (or contracted to sell, lease or otherwise transfer) any of its
assets or properties, except in the Ordinary Course of Business, or mortgaged,
pledged or subjected to any Lien any of its assets; (v) canceled any debts or
claims or waived any rights in excess of $10,000 in the aggregate; (vi)
transferred or granted any material right under any lease, license, agreement,
or other valuable asset; (vii) merged with or into or consolidated with any
other person, subdivided or in any way reclassified any shares of its capital
stock or changed or agreed to change in any manner the rights of its outstanding
capital stock or the character of its business; (viii) entered into or amended
any employment agreement, entered into or amended any agreement with any labor
union or association representing any employee, adopted, entered into, or
amended any employee benefit plan, program, agreement or arrangement, or made
any change in the actuarial methods or assumptions used in funding any defined
benefit pension plan, or made any change in the assumptions or factors used in
determining benefit equivalencies thereunder; (ix) except for short-term bank
borrowings in the Ordinary Course of Business, incurred any indebtedness for
borrowed money; (x) made any change in its accounting methods or practices or
made any change in depreciation or amortization policies or lives adopted by it,
except concurrently with changes in GAAP; (xi) made any wage or salary increase
or bonus, or increase in any other direct or indirect compensation, for or to
any of its officers, directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or
25
agreement to make or pay the same, other than those made in the Ordinary Course
of Business; (xii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other representatives
(other than travel advances made in the Ordinary Course of Business), or made
any other loan or advance otherwise than in the Ordinary Course of Business;
(xiii) made any payment or commitment to pay any severance or termination pay to
any of its officers, directors, employees, consultants, agents or other
representatives, other than payments made in the Ordinary Course of Business to
persons other than its officers or directors; (xiv) except in the Ordinary
Course of Business, entered into or materially amended any contract or other
agreement to which it is a party, or by or to which it or its assets or
properties are bound or subject, in each case, calling for an aggregate purchase
or sale price or payments of more than $50,000, or pursuant to which it agreed
to indemnify any party or to refrain from competing with any party; (xv) except
in the Ordinary Course of Business and in amounts less than $10,000 in each
case, incurred, guaranteed or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and payable); (xvi)
except for inventory or equipment acquired in the Ordinary Course of Business,
made any acquisition of all or any part of the assets (except for purchases of
assets held for sale in the Ordinary Course of Business for less than $10,000 in
the aggregate), properties, capital stock or business of any other person;
(xvii) paid, directly or indirectly, any of its material liabilities before the
same became due in accordance with its terms or otherwise than in the Ordinary
Course of Business; (xviii) suffered or incurred any damage, destruction or loss
(whether or not covered by insurance)
26
materially adversely affecting the assets, properties, business, reasonably
anticipated prospects, operations or condition (financial or otherwise) of the
Company or any of the Subsidiaries; (xix) terminated or failed to renew, or
received any written threat (that was not subsequently withdrawn) to terminate
or fail to renew, any contract or other agreement that is or was material to the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Company or any of the Subsidiaries; or
(xx) agreed, whether in writing or otherwise, to take any action described in
this Section 3.1(F).
(G) Litigation and Liabilities. Except as listed on Schedule
3.1(G) hereto and subject to Section 8.5(a)(ii), there are no actions, suits,
demands, or claims or legal, administrative or arbitral proceedings, hearings or
investigations pending or, to the Knowledge of the Company, any of the
Subsidiaries or any of the Sellers, threatened against or involving the Company
or any of the Subsidiaries or any of their respective property or assets. Except
as set forth on Schedule 3.1(G) and subject to Section 8.5(a)(ii), there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or involving the
Company or any of the Subsidiaries.
(H) Title to Properties; Absence of Liens, etc. The Company
and each of the Subsidiaries has good title to all of its properties and assets,
real, personal and fixed, free and clear of any Liens, except (i) for Liens for
Taxes (as defined herein) not yet due and payable, (ii) as reflected in the
Balance Sheet, (iii) for such properties and assets as may have been sold since
the date hereof in the
27
Ordinary Course of Business, (iv) Liens not securing debt that do not materially
detract or interfere with the value of the property, and (v) Liens set forth on
Schedule 3.1(H) hereto ("PERMITTED LIENS"). All of the Company's and each
Subsidiary's properties and assets are, in all material respects, in good
operating condition and repair, subject to ordinary wear and tear, unless
surplus to the Company's prudent and reasonable business needs.
(I) Licenses and Registrations; Compliance with Laws, etc. The
Company and each of the Subsidiaries has all permits, authorizations, licenses,
orders, registrations and approvals of, and has made all required registrations
with, any government or political subdivision thereof, whether Federal, state,
local or foreign, or any agency or instrumentality of any such government or
political subdivision, or any insurance company or fire rating and any other
similar board or organization or other non-governmental regulating body (to the
extent that the rules, regulations or orders of such body have the force of law)
or any court or arbitrator (each a "GOVERNMENTAL BODY," and collectively,
"GOVERNMENTAL BODIES") which are material to or necessary for the Company and
each of the Subsidiaries to carry on their respective businesses as presently
conducted or material to the intended use of any properties of the Company or
any of the Subsidiaries (collectively, "PERMITS"). Such Permits are in full
force and effect; subject to Section 8.5(a)(ii) no violations are or have been
recorded in respect of any Permit; and no proceeding is pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened to revoke or limit any Permit. The Company and each of the
Subsidiaries is in compliance in all material respects with the terms of such
Permits. Except as
28
listed on Schedule 3.1(I) hereto and subject to Section 8.5(a)(ii), the
businesses of the Company and each Subsidiary are not being conducted in
conflict with, violation of or default under any law, rule, decree, regulation,
ordinance or order applicable to their businesses, properties, assets and
operations (including, without limitation, those relating to wages and hours,
occupational health and safety, record keeping, customs, environmental matters,
export control, hazardous waste disposal, pollution control, possession of
classified information or zoning), and the Company has filed with the proper
authorities all statements and reports required by all applicable laws, rules,
decrees, regulations, judgments, injunctions, awards, ordinances and orders. The
Company and each of the Subsidiaries has at all times complied with the
provisions of The Foreign Corrupt Practices Act of 1977, as amended. Neither the
Company nor any of the Subsidiaries has made any illegal payment to officers or
employees of any governmental or regulatory body, or made any payment to
customers for the sharing of fees or to customers or suppliers for rebating of
charges, or engaged in any other reciprocal practices, or made any illegal
payment or given any other illegal consideration to purchasing agents or other
representatives of customers in respect of the sales made or to be made by the
Company or any of the Subsidiaries.
(J) Intangible Property. Schedule 3.1(J) sets forth a list of
all patents, trademarks, copyrights, service marks, trade names and franchises,
all applications for any of the foregoing, and all permits, grants and licenses
or other rights running to or from the Company or any of the Subsidiaries
relating to any of the foregoing (collectively, "INTELLECTUAL PROPERTY RIGHTS").
Except as disclosed on Schedule 3.1(J), (i) the use and registration of such
Intellectual Property Rights do not
29
conflict with the intellectual property rights of any other person, firm or
corporation and to the Knowledge of the Company, the Subsidiaries or any of the
Sellers, no other person's, firm's or corporation's operations conflict with the
use and registration of the Intellectual Property Rights; (ii) there are not now
any suits pending or, to the Knowledge of any of the Sellers, the Company or any
of the Subsidiaries, threatened against or by the Company or any of the
Subsidiaries claiming a conflict by the Company or any of the Subsidiaries with
the Intellectual Property Rights; (iii) none of the Sellers, the Company or any
of the Subsidiaries has notice of any adversely held patent, invention,
copyright, trademark, service mark or trade name of any other person or notice
of any claim of any other person relating to any of the Intellectual Property
Rights listed on Schedule 3.1(J), and none of the Company, any of the
Subsidiaries or any of the Sellers knows of any reasonable basis for any such
charge or claim; and (iv) the Intellectual Property Rights are owned by the
Company or its Subsidiaries free and clear of all liens, claims, charges,
mortgages, pledges, security interests and other encumbrances of any nature
whatsoever.
(K) Non-Contravention.
(i) The execution and delivery of this Agreement
by each Seller and the execution of each and every other agreement and
instrument contemplated hereby by or on behalf of, and the consummation of the
transactions contemplated hereby and thereby and the performance by such Seller
of this Agreement and each such other agreement and instrument in accordance
with their respective terms will not (a) violate any provision of the
Certificate of Incorporation
30
or By-Laws (or comparable instruments) of the Company or any of the
Subsidiaries, (b) except as set forth on Schedule 3.1(K), violate, conflict with
or result in the breach of any material provision of, or result in a material
modification of or otherwise entitle any party to terminate, or constitute
(whether after the filing of notice or lapse of time or both) a material default
(by way of substitution, novation or otherwise) under, any contract, agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise, commitment or other binding arrangement
(collectively, the "CONTRACTS") to which the Company or any of the Subsidiaries
is a party or by or to which any of the Company's or any Subsidiary's assets or
properties may be bound or subject and which is required to be disclosed under
this Agreement, (c) result in the creation or imposition of any material Lien
upon any of the property or assets of the Company or any of the Subsidiaries
pursuant to any provision of, any Contract or Lien, (d) subject to Section
8.5(a)(ii), violate any law, regulation, statute, injunction, order, arbitration
award, judgment or decree applicable to, against, or binding upon, the Company
or any of the Subsidiaries or by which any of the Company's or any Subsidiary's
securities, business or property is bound, or (e) subject to Section 8.5(a)(ii),
violate or result in the revocation or suspension of any Permit.
(ii) The execution and delivery of this Agreement
by the Company and each and every other agreement and instrument contemplated
hereby, and the consummation of the transactions contemplated hereby and thereby
and the performance by the Company of this Agreement and each such other
agreement and instrument in accordance with their respective terms will not
31
(a) violate any provision of the Articles of Incorporation or By-Laws (or
comparable instruments) of the Company or any of the Subsidiaries, (b) except as
set forth on Schedule 3.1(K), violate, conflict with or result in the breach of
any material provision of, or result in a material modification of or otherwise
entitle any party to terminate, or constitute (whether after the filing of
notice or lapse of time or both) a material default (by way of substitution,
novation or otherwise) under, any Contract to which the Company or any of the
Subsidiaries is a party or by or to which any of the Company's or any of the
Subsidiaries' assets or properties may be bound or subject and which is required
to be disclosed under this Agreement, (c) result in the creation or imposition
of any material Lien upon any of the property or assets of the Company or any of
the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) subject
to Section 8.5(a)(ii), violate any law, regulation, statute, injunction, order,
arbitration award, judgment or decree applicable to, against, or binding upon,
such Seller, the Company or any of the Subsidiaries or by which any of such
Seller's, the Company's or any Subsidiary's securities, business or property is
bound or (e) subject to Section 8.5(a)(ii), violate or result in the revocation
or suspension of any Permit.
(L) Consent and Approvals. Except as set forth on Schedule
3.1(L), none of the execution and delivery of this Agreement and each and every
other agreement and instrument contemplated hereby by the Company, the Sellers
and/or the Sellers' Representative, the consummation by the Company, the Sellers
and/or the Sellers' Representative of the transactions contemplated hereby or
thereby or compliance by the Company, any Seller and/or the Sellers'
Representative
32
with any of the provisions hereof or thereof will require any consent, approval
or action of, or make any filing with or give notice to, any Governmental Body.
(M) Employee Benefit Plans; ERISA. Set forth on Schedule
3.1(M) is a true and complete list of each deferred compensation, executive
compensation, incentive compensation, stock purchase or other stock-based
compensation plan, severance or termination pay, holiday, vacation or other
bonus plan or practice, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement, commitment or arrangement, and each other
employee benefit plan, program, agreement or arrangement, including, without
limitation, each "employee benefit plan" as such term is defined under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to or required to be contributed to by the
Company or any of the Subsidiaries for the benefit of any employee or terminated
employee of the Company or any of the Subsidiaries, or with respect to which the
Company or any of the Subsidiaries has any liability, whether direct or
indirect, actual or contingent, whether formal or informal, and whether legally
binding or not (the "PLANS").
(i) Except as disclosed on Schedule 3.1(M), with
respect to each Plan, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations that have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Audited Financials. Except as set forth on Schedule 3.1(M), the Company
and each of the Subsidiaries is
33
not and has not in the past been a member of a "controlled group" for purposes
of Section 414(c) of ERISA, nor does the Company or any of the Subsidiaries have
any liability with respect to any collectively-bargained for plans subject to
the provisions of ERISA.
(ii) Except as disclosed on Schedule 3.1(M), each
Plan is in compliance with all applicable laws, including, without limitation,
ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"). Each Plan
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code (a) has been determined by the Internal Revenue Service (the "IRS") to be
so qualified and neither the Company nor any of the Subsidiaries, nor any of the
Sellers has any Knowledge that any Plan has been operated in a manner that would
jeopardize such qualification and (b) its related trust has been determined to
be exempt from taxation under Code Section 501(a) or the Company or the relevant
Subsidiary, as the case may be, has requested an initial favorable IRS
determination of qualification and/or exemption. None of the Company nor any of
the Subsidiaries or any of the Sellers knows of any fact which would adversely
affect the qualified status of such Plans or the exempt status of such trusts,
and the Company and each of the Subsidiaries has received a favorable IRS
determination as to the qualified status of each such Plan with respect to the
Tax Reform Act of 1986 and has been operated in conformity with all applicable
laws.
(iii) Except as disclosed on Schedule 3.1(M), with
respect to each Plan which covers any current or former officer, director,
consultant or employee (or beneficiary thereof) of the Company or any of the
Subsidiaries, the
34
Sellers have delivered or made available, (or have caused the Company and each
of the Subsidiaries heretofore to have delivered or made available) to the
Parent accurate and complete copies, if applicable, of: (a) all Plan texts and
agreements and related trust agreements or annuity contracts, (b) all summary
plan descriptions and material modifications thereto and all other material
employee communications, (c) the most recent Forms 5500, if applicable, and
annual report, including all schedules thereto, (d) the most recent annual and
periodic accounting of plan assets, (e) the most recent determination letter
received from the IRS, (f) the most recent actuarial valuation, and (g) all
material communications with any Governmental Body.
(iv) With respect to each Plan: (i) such Plan has
been administered and enforced in accordance with its terms; (ii) no breach of
fiduciary duty has occurred; (iii) no dispute is pending, or to the Knowledge of
any of the Sellers, the Company or any of the Subsidiaries, threatened; (iv) no
prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred, excluding transactions effected pursuant to a statutory
or administration exemption; (v) all contributions and premiums due have been
fully accrued on the Company's and each of the Subsidiary's financial statements
and have been made on a timely basis. There are no unfunded benefit obligations
which are not accounted for by reserves or otherwise properly footnoted in
accordance with GAAP on the Company's or a Subsidiary's financial statements.
(v) No Plan is a "defined benefit pension plan" (as
defined in Code Section 414(j)), a "multiemployer plan" (as defined in ERISA
Section 3(37)) or a "multiple employer plan" (as described in Code Section
413(c))
35
nor do the Company or any of the Subsidiaries have any liability to contribute
(or have at any time contributed or had an obligation to contribute) to any
multiemployer plan. No Plan will become a multiple employer plan with respect to
the Company or any of the Subsidiaries immediately after the Closing Date.
(vi) There is no arrangement under any Plan with
respect to any employee that would result in the payment of any amount that by
operation of Code Section 280(G) or 162(m) would not be deductible by the
Company or any of the Subsidiaries.
(vii) With respect to each Plan which is a "welfare
plan" (as described in ERISA Section 3(1)): (i) no such plan provides medical or
death benefits, nor shall the Company or any of the Subsidiaries be liable or
obligated for any expenses, with respect to current or former employees of the
Company or any of the Subsidiaries for periods beyond their termination of
employment (other than coverage mandated by law), and (ii) there are no
reserves, assets, surplus or prepaid premiums under any such plan referred to in
subsection (i) of this paragraph.
(viii) Except as disclosed on Schedule 3.1(M), the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay, unemployment compensation or other
benefits or compensation, (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due, or in respect of, any individual,
(iii) result in or satisfy a condition to the payment of compensation that
would, in combination with any other payment, result in an "excess parachute
payment" within the meaning of Code Sec tion 280G(b)(1); or (iv) constitute or
involve a prohibited transaction (as defined in
36
ERISA Section 406 or Code Section 4975), constitute or involve a breach of
fiduciary responsibility within the meaning of ERISA section 502(l) or otherwise
violate Part 4 of Subtitle B of Title I of ERISA.
(N) Insurance Policies. True and complete copies of all
policies of fire, casualty, liability, product liability, burglary, fidelity,
worker's compensation, life, vehicular and other forms of insurance held by or
on behalf of the Company or the Subsidiaries have been made available to the
Parent or its representatives. All premiums due and payable for such insurance
have been duly paid, and such policies, or extensions, renewals or replacements
(on comparable terms to the extent available) thereof, in such amounts will be
outstanding and in full force and effect without interruption up to the Closing
Date. Such policies insure against all risks and liabilities to an extent and in
a manner customarily insured against by persons operating comparable properties,
assets or businesses in the same geographic locations. The Company has made
available to the Parent a brief description (specifying the insurer and the
policy number or covering note number with respect to binders, describing each
pending claim thereunder of more than $25,000, setting forth the aggregate
amounts paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder) of all policies
or binders of fire, liability, worker's compensation, vehicular and other
insurance held by or on behalf of the Company or any of the Subsidiaries. The
Company has made available to the Parent with respect to each policy a list and
brief description of all claims in excess of $25,000 (exclusive of claims under
medical and dental policies) made by the Company or any of the Subsidiaries
during the
37
Company's past two fiscal years and the amount paid out under each policy with
respect to such claims. None of the Company, any of the Subsidiaries or any of
the Sellers has any Knowledge of any facts or of the occurrence of any event
that is reasonably likely to form the basis for any material claim against the
Company or any of the Subsidiaries which will not be fully covered by such
policies. Neither the Company nor any of the Subsidiaries has received any
written notice from any of its insurance carriers that any insurance premiums
will be materially increased in the future.
(O) Agreements. Schedule 3.1(O) hereto lists all of the
following contracts and other agreements to which the Company or any of the
Subsidiaries is a party or by or to which any of them or any of their assets or
properties are bound or subject: (i) contracts and other agreements with any
current or former officer, director, shareholder, employee, consultant, agent or
other representative or with an entity in which any of the foregoing is a
contracting person; (ii) contracts and other agreements with any labor union or
association representing any employee; (iii) contracts and other agreements,
including teaming agreements, that the Company has, or intends to have, with
TECHMATICS Next Century Integration, L.L.C. ("TNCI") or TECHMATICS Information
Alliance and Communications, L.L.C. ("TIAC") (or with any Person affiliated or
associated with TNCI or TIAC) for the performance or pursuit of business
opportunities of mutual interest; (iv) contracts and other agreements calling
for an aggregate purchase or sale price or payments of more than $100,000 in any
one case (or in the aggregate, in the case of any related series of contracts
and other agreements) for the purchase or sale
38
of materials, supplies, equipment, merchandise or services that contain an
escalation, renegotiation or redetermination clause; (v) contracts and other
agreements calling for an aggregate purchase or sale price or payments of more
than $50,000 in any one case (or in the aggregate, in the case of any related
series of contracts and other agreements) for the sale of any of its assets or
properties other than in the Ordinary Course of Business or for the grant to any
person of any preferential rights to purchase any of its assets or properties;
(vi) joint venture agreements; (vii) contracts or other agreements under which
the Company or any of its Subsidiaries agrees to indemnify any party or to share
tax liability of any party; (vii) contracts and other agreements calling for an
aggregate purchase or sale price or payments of more than $50,000 in any one
case (or in the aggregate, in the case of any related series of contracts and
other agreements) that cannot be canceled by the Company or any of the
Subsidiaries with less than ninety days' notice without incurring liability,
premium or penalty; (viii) contracts and other agreements with customers or
suppliers for the sharing of fees, the rebating of charges or other similar
arrangements; (ix) contracts and other agreements containing obligations or
liabilities of any kind to holders of the Company's or any of the Subsidiaries'
securities as such (including, without limitation, an obligation to register any
of such securities under any federal or state securities laws); (x) contracts
and other agreements containing covenants of the Company or any of the
Subsidiaries not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company or any of the Subsidiaries in any line of business or in any
geographical area; (xi) contracts and other agreements relating to the
acquisition by
39
the Company or any of the Subsidiaries of any operating business or the capital
stock of any other person; (xii) options for the purchase of any asset, tangible
or intangible, requiring the payment to any person of a commission or fee;
(xiii) contracts and other agreements for the payment of fees or other
consideration to any officer or director of the Company or any of the
Subsidiaries or to any other entity in which any of the foregoing has an
interest; (xiv) contracts and other agreements relating to the borrowing of
money except for such contracts and agreements involving a principal amount of
not more than $10,000 in the aggregate; (xv) contracts with any of the Sellers
or any corporation in which any of such Sellers, individually or in the
aggregate, owns a controlling interest (other than the Company or any of the
Subsidiaries) or in which any Seller is a director, officer or employee; and
(xvi) any other contract or other agreement calling for an aggregate purchase
price or sale price or payments of more than $25,000 in any one case (or in the
aggregate, in the case of any related series of contracts and other agreements)
whether or not made in the Ordinary Course of Business. True and complete copies
of all of the foregoing, in each case as amended to date, have been delivered
to, or, to the extent not requested to be delivered, have been made available
for inspection by, the Parent.
(P) Validity of Agreements. All contracts, leases, commitments
and other agreements described or listed in Schedule 3.1(O) constitute legal,
valid and binding obligations of the Company and each of the Subsidiaries, as
the case may be, are in full force and effect, and are enforceable in accordance
with their respective terms except as enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar
40
laws affecting creditors' rights generally and (ii) general principles of
equity. The Company and each of the Subsidiaries have paid in full all amounts
due thereunder which are due and payable or accrued in accordance with GAAP, all
amounts due to others thereunder (and have properly recognized revenues due from
others thereunder), and have satisfied in full or provided for all of their
liabilities and obligations thereunder which are due and payable, except amounts
or liabilities disputed in good faith by the Company or any of the Subsidiaries
for which adequate reserves have been set aside. Neither the Company nor any of
the Subsidiaries is in default under any of such contracts or agreements, nor to
the Knowledge of the Company, the Subsidiaries or any of the Sellers, does any
condition exist that, with notice or lapse of time or both, would constitute a
default thereunder. To the Knowledge of each of the Sellers, the Company and
each of the Subsidiaries, no other party to any such contract or other agreement
is in default thereunder, nor does any condition exist that with notice or lapse
of time or both would constitute a default thereunder. None of the Company, any
of the Subsidiaries or any of the Sellers has knowledge that any person intends
to terminate (whether for cause or convenience) or default under any contract or
other agreement listed on Schedule 3.1(O) before its stated term, if any. Except
as set forth on Schedule 3.1(P), none of the Sellers, the Company or any of the
Subsidiaries has any Knowledge of a claim, actual or pending, by any
Governmental Body under any contract or agreement set forth on Schedule 3.1(O).
Except as separately identified on Schedule 3.1(P), no approval or consent of
any person is needed in order that the contracts and other agreements set
41
forth on Schedule 3.1(O) or on any other Schedule continue in full force and
effect following the consummation of the transactions contemplated by this
Agreement.
(Q) Taxes.
(i) All United States federal income Tax Returns
(as defined in Section 9.1) of or with respect to the Company and the
Subsidiaries, required by law to be filed (including extensions of time to file)
on or before the Closing Date have been duly filed. All such Tax Returns are
accurate and complete in all material respects, and all taxes shown on such
returns have been timely paid.
(ii) All other Tax Returns of or with respect to the
Company and the Subsidiaries required to be filed (including extensions of time
to file) on or before the Closing Date pursuant to applicable federal, foreign,
state, local or other law have been filed. All such Tax Returns are accurate and
complete in all material respects. The Company and the Subsidiaries have paid or
withheld (or caused to be paid or withheld) all Taxes shown on such Tax Returns
as due and payable and all other Taxes due or claimed to be due, whether by
proposed assessment or otherwise, by any taxing authority have been timely paid,
except for such Taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided in accordance with GAAP.
(iii) The charges, accruals and reserves on the books
of the Company and each of the Subsidiaries in respect of any liability for
Taxes (x) based on or measured by net income for any years not finally
determined, (y) with respect to which the applicable statute of limitations has
not expired or (z) that has been previously deferred, are adequate to satisfy
any assessment for such Taxes for
42
any such years. Neither the Company nor any of the Subsidiaries has any
liability for Taxes of any person or entity other than the Company and/or the
Subsidiaries.
(iv) With respect to any period for which Tax
Returns have not yet been filed, or with respect to which Taxes are not yet due
or owing, the Company and each of the Subsidiaries have made sufficient current
accruals, provisions and reserves for such Taxes in accordance with GAAP.
(v) The Company and each of the Subsidiaries have
made all required estimated Tax payments sufficient to avoid any underpayment
penalties. To the Knowledge of the Company, the Subsidiaries or any of the
Sellers, the Tax Returns of the Company and each of the Subsidiaries are not
currently nor have been in the past under audit or examination by the IRS.
(vi) Neither the Company nor any of the
Subsidiaries is a member of any affiliated, consolidated, combined or unitary
group as defined in Section 1504 of the Code, and the Treasury regulations
promulgated thereunder.
(vii) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to the Company or any of the Subsidiaries for any taxable period.
(viii) Neither the Company nor any of the Subsidiaries
(nor their predecessors) will have any liability on or after the Closing Date
under any tax sharing agreement to which it has been a party on or before the
Closing Date, and all such tax sharing agreements shall terminate and be of no
further force and effect as of the Closing Date.
43
(ix) No closing agreement pursuant to Section 7121
of the Code (or any predecessor provision) or any similar provision of any
state, local or foreign law that could affect the Taxes of the Company or any of
the Subsidiaries, for periods ending after the Closing Date has been entered
into by or with respect to the Company or any of the Subsidiaries.
(x) Except as set forth in Schedule 3.1(Q), to the
Knowledge of the Company, the Subsidiaries or any of the Sellers, no audit or
other proceeding by any court, governmental or regulatory authority or similar
authority is pending, and none of the Company or any of the Subsidiaries has
received any notification that such an audit or proceeding may be commenced,
with respect to any Taxes due from the Company or any of the Subsidiaries.
(xi) Neither the Company nor any of the Subsidiaries has
agreed to or is required to make any adjustment with respect to taxable periods
ending after the Closing Date pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of the
Company or any of the Subsidiaries, there is no application pending with any
taxing authority requesting permission for any such change in any accounting
method of the Company or any of the Subsidiaries and the IRS has not proposed
any such adjustment or change in accounting method.
(xii) Except as set forth in Section 3.1(Q), neither the
Company nor any of the Subsidiaries is, has received any notice that it is or
has been, in violation (or with notice will be in violation) of any applicable
law relating to the payment or withholding of Taxes. The Company and each of the
Subsidiaries has
44
duly and timely withheld from employee salaries, wages, and other compensation,
and has paid over to the appropriate taxing authorities all material amounts
required to be so withheld and paid over for all periods under all applicable
laws.
(xiii) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company or
any of the Subsidiaries by reason of Section 280G of the Code. Further, the
Company complies with the small business exemption under Section 280G(b)(5) of
the Code.
(xiv) Except as disclosed on Schedule 3.1(Q), the
Company has properly elected under Section 1362(a) of the Code to be treated as
an S Corporation, within the meaning of Section 1361(a) of the Code, for all of
its taxable years beginning with the taxable year ended June 30, 1983, and will
continue to qualify as an S Corporation within the meaning of such subsection at
all times through its taxable year ending on the Closing Date and, accordingly,
has and will have no liability for federal income taxes or state income taxes in
Virginia, California, Mississippi, Kansas, Maine, Maryland, New Jersey and
Pennsylvania, where the Company receives S Corporation treatment for state tax
purposes, with respect to any taxable period beginning with its first taxable
year and through its taxable year ending on the Closing Date, including as a
result of the Section 338(h)(10) Election (as defined in Section 4.1(B) below).
(xv) The Shareholders will take any and all actions
required, for federal purposes and for purposes of each state listed in
subsection (xiv)
45
above, to maintain the Company's status as an S corporation through its taxable
year ending on the Closing Date.
(xvi) The Company has not filed, and will not file
through the Closing Date, any state or local Tax Returns on a unitary or
combined basis with any other person.
(xvii) No Transfer Taxes (as defined in Section 9.1
below) will be due and payable in connection with this Agreement and the
transactions contemplated by this Agreement.
(R) Additional Representations.
(a) No representation or warranty made by the Company or
any Seller in this Agreement, and no statement made in any certificate,
document, exhibit or schedule prepared by or on behalf of the Company, any of
the Subsidiaries, or any Seller, which is furnished or to be furnished in
connection with the transactions herein contemplated, contains any untrue
statement of a material fact or omits to state, when read in conjunction with
all of the information contained in this Agreement and the Schedules and in
light of the circumstances when made, any material fact necessary to make such
representation, warranty or statement not misleading in any material respect;
PROVIDED, that no representation or warranty is made regarding projections with
respect to revenues from government contracts of the Company or any Subsidiary
heretofore provided to the Parent.
(b) (i) Except as disclosed on Schedule 3.1(R), there
are no past or present events, conditions, circumstances, activities, practices,
incidents, agreements, actions or plans (relating to actions or omissions by the
46
Company or the Subsidiaries or any of their contractors, sub-contractors or
agents acting on the Company's or any Subsidiary's behalf, or, to the Knowledge
of the Company, the Subsidiaries or any of the Sellers, by any other person)
which have given rise to or will give rise to any liability on the part of the
Company or any of the Subsidiaries under any Environmental Law (as defined
below) or principles of common law relating to pollution, protection of the
environment or health and safety; (ii) to the Knowledge of the Company, the
Subsidiaries or any of the Sellers, no real property currently or formerly owned
or operated by the Company or any of the Subsidiaries is contaminated with any
Hazardous Substances as defined below to an extent or in a manner or condition
now requiring remediation under any Environmental Law; (iii) no judicial or
administrative proceeding is pending or, to the Knowledge of any of the Sellers,
the Company or any of the Subsidiaries, threatened relating to liability of the
Company or any of the Subsidiaries for any off-site disposal or contamination;
and (iv) neither the Company nor any of the Subsidiaries has received any claims
or notices alleging liability under any Environmental Law (as defined below) and
none of the Company, any of the Sellers or any of the Subsidiaries has any
Knowledge of any circumstances that could result in such claims. Schedule 3.1(R)
lists all contracts and agreements which involve the use, handling, storage,
transport or disposal of any Hazardous Substance. "ENVIRONMENTAL LAW" means any
applicable federal, state, foreign or local law, regulation, code, order,
decree, judgment, injunction or judicial opinion or other agency requirement
having the force and effect of law and relating to pollution, health and safety,
noise, odor, Hazardous Substance or the protection of the environment.
47
"HAZARDOUS SUBSTANCE" means any toxic or hazardous substance that is regulated
by or under authority of any Environmental Law, including any petroleum
products, asbestos or polychlorinated biphenyls.
(S) Accounts and Notes Receivable. All accounts and notes
receivable reflected on the Balance Sheet, and all accounts and notes receivable
arising subsequent to June 30, 1997, (i) have arisen in the Ordinary Course of
Business of the Company or the Subsidiaries and represent valid obligations due
to the Company or the Subsidiaries and (ii) subject only to a reserve for bad
debts of $100,000, have been computed in a manner consistent with past practice
and reasonably estimated to reflect the probable results of collection and have
been collected or are collectible in the Ordinary Course of Business of the
Company or the Subsidiaries (as the case may be) in the aggregate recorded
amounts thereof in accordance with their terms.
(T) Potential Conflicts of Interest. Except as set forth on
Schedule 3.1(T), (a) no Seller, (b) no officer, director (excluding outside
directors as to whom no representation or warranty is made) or affiliate of the
Company or any of the Subsidiaries, (c) no immediate family member of any such
officer, director or affiliate, or of a Seller, and (d) no entity controlled by
any one or more of the foregoing: (i) owns, directly or indirectly, any interest
in (excepting not more than 5% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any person or entity which is, or is engaged in
business as, a competitor, lessor, lessee, customer, distributor, sales agent,
or supplier of the Company or any of the Subsidiaries;
48
(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property that the Company or any of the Subsidiaries uses or the use
of which is necessary or desirable for the conduct of their respective
businesses; (iii) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company or any of the Subsidiaries, except for claims in
the Ordinary Course of Business, such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof; or (iv) on behalf of the Company or any of the
Subsidiaries, has made any payment or commitment to pay any commission, fee or
other amount to, or purchase or obtain or otherwise contract to purchase or
obtain any goods or services from, any corporation or other person of which any
officer or director of the Company or any of the Subsidiaries, or an immediate
family member of the foregoing, is a partner or stockholder (excepting stock
holdings solely for investment purposes in securities of publicly held and
traded companies).
(U) Liabilities. Except as set forth on Schedule 3.1(G) or as
reflected in the Balance Sheet, none of the Company or any of the Subsidiaries
had any direct or indirect indebtedness, liability, claim, loss, damage,
deficiency or obligation or responsibility, known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, whether or not of a kind required by GAAP to
be set forth on a financial statement or in the notes thereto ("LIABILITIES"),
that were not fully and adequately reflected or reserved against on the Balance
Sheet or described on any Schedule or in the notes to the Audited Financials,
including, without limitation, those relating to
49
environmental and occupational safety and health matters, that, alone or in the
aggregate, could result in claims against, obligations of or liabilities to the
Company or any of the Subsidiaries which are reasonably likely to have a Company
Material Adverse Effect. None of the Company, the Subsidiaries or the Sellers
has any Knowledge of any circumstance, condition, event or arrangement that may
hereafter give rise to any Liabilities of the Company or any of the
Subsidiaries, or any successor to their respective businesses except in the
Ordinary Course of Business or as otherwise set forth on Schedule 3.1(U) or
which are reasonably likely to have a Company Material Adverse Effect.
(V) Real Estate.
(i) Ownership of Premises. Each of the Company and the
Subsidiaries is the owner of good, marketable and insurable fee title to the
land described on Schedule 3.1(V)(i)(a) and to all of the buildings, structures
and other improvements located thereon (collectively, the "OWNED REAL PROPERTY")
free and clear of all Title Defects (as defined in this Section) except as
listed on Schedule 3.1(V)(i)(b) or covered by a valid title insurance policy.
The Owned Real Property constitutes all of the real property owned by the
Company and the Subsidiaries on the date hereof. For purposes of this Agreement,
"TITLE DEFECTS" shall mean and include any mortgage, deed of trust, Lien,
pledge, security interest, claim, lease, charge, option, right of first refusal,
easement, restrictive covenant, encroachment or other survey defect, encumbrance
or other restriction or limitation whatsoever.
50
(ii) Leased Real Properties. Schedule 3.1(V)(ii)
identifies all of the real property which the Company or any of the Subsidiaries
leases, has agreed to lease or has an obligation to lease in connection with its
business. Such leased real property is hereinafter referred to as the "LEASED
REAL PROPERTY."
(iii) Entire Premises. All of the land, buildings,
structures, plants, facilities and other improvements used by the Company and
the Subsidiaries in the conduct of their respective businesses are included in
the Owned Real Property and the Leased Real Property. The Leased Real Property
and the Owned Real Property are collectively referred to herein as the "Real
Property."
(iv) There are no adverse parties in possession of the
Real Property or any portion or portions thereof, and on the Closing Date the
Company and the Subsidiaries' interests in the Real Property will be free and
clear of any and all leases, licensees, occupants or tenants except as set forth
in Schedule 3.1(V)(iv). The Company has not received notice that there are any
pending or, to the Knowledge of the Company, any of the Subsidiaries or any of
the Sellers, threatened condemnation, eminent domain or similar proceedings
affecting the Real Property, any improvements thereon or any portion thereof.
The Company has not received notice that there are any pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the Sellers,
threatened requests, applications or pro ceedings to alter or restrict any
zoning or other use restrictions applicable to the Real Property or any
improvements thereon which would interfere with the conduct of the
51
business of the Company or any of the Subsidiaries or the use of their
respective assets consistent with past practice.
(W) Labor Matters. The Company and each of the Subsidiaries is
not now, and has not been in the last five years, bound by or party to any
collective bargaining agreement and, to the Knowledge of each of the Sellers,
the Company and each of the Subsidiaries, no application for certification of a
collective bargaining agent is pending. Subject to Section 8.5(a)(ii), the
Company and each of the Subsidiaries is in compliance with all applicable laws
affecting employment practices and terms and conditions of employment. As of the
Closing Date neither the Company nor any of the Subsidiaries has incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act, as it may be amended from time to time, or similar applicable state law;
nor has the Company or any of the Subsidiaries taken any action prior to the
Closing Date which could result in any such liability or obligation to the
Company or any of the Subsidiaries within the six-month period immediately
following the Closing Date if, during such six-month period, only terminations
of employment in the normal course of operations occur. The Company and each of
the Subsidiaries do not employ and have not employed any illegal aliens.
(X) Management Reserves. As of the date hereof, the Company's
overall level of management reserves equals $925,000, and from January 15, 1998,
through to the date hereof, the Company and the Subsidiaries have complied with
GAAP and have maintained any and all reserves necessary to comply with GAAP and
to meet the overall reasonable business needs of the Company and the
Subsidiaries during such period.
52
(Y) Working Capital and Outstanding Debt. As of March 31,
1998, the amount of Working Capital (as defined in Section 9.1) of the Company
was $10.3 million, and the amount of outstanding Debt (as defined in Section
9.1) of the Company and the Subsidiaries was $1,150,000, net of cash on hand.
The amount of Working Capital of the Company as of the Closing Date shall be no
less than $10 million, and the amount of outstanding Debt of the Company and the
Subsidiaries shall be no more than $1.2 million.
3.2 Representations and Warranties of the Parent and the Merger
SUB. The Parent and the Merger Sub represent and warrant to the Company and the
Sellers as follows:
(A) Organization. Each of the Parent and the Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia. The Merger Sub is a newly formed, wholly owned
subsidiary of the Parent and, except for activities incident to the acquisition
of the Company, the Merger Sub has not engaged in any business activities of any
type or kind whatsoever. The Parent has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being or heretofore conducted.
(B) Authority to Execute and Perform Agreement. Each of the
Parent and the Merger Sub has full right and power and all authority and
approvals required to enter into, execute and deliver this Agreement and each
and every agreement and instrument contemplated hereby to which it is or will be
a party and to perform fully its obligations hereunder and thereunder. This
Agreement has
53
been duly executed and delivered by the Parent and the Merger Sub, and on the
Closing Date, each and every agreement and instrument contemplated hereby to
which the Parent or Merger Sub is a party on the Closing Date will be duly
executed and delivered by the Parent or Merger Sub. Assuming due execution and
delivery hereof and thereof by the Company, the Sellers and the Sellers'
Representative, this Agreement and each such other agreement and instrument will
be valid and binding obligations of the Parent and the Merger Sub enforceable
against the Parent and the Merger Sub in accordance with their respective terms,
except that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally, and (ii) general equitable principles.
(C) Consents and Approvals. None of the execution and delivery
of this Agreement and each and every other agreement and instrument contemplated
hereby by the Parent and the Merger Sub, the consummation by the Parent and the
Merger Sub of the transactions contemplated hereby or thereby or compliance by
the Parent and the Merger Sub with any of the provisions hereof or thereof will
require any consent, approval or action of, or any filing with or notice to, any
Governmental Body.
(D) Non-Contravention. The execution and delivery of this
Agreement by the Parent and the Merger Sub and the execution of each and every
other agreement and instrument contemplated hereby by or on behalf of, and the
consummation of the transactions contemplated hereby and thereby and the
performance by the Parent and the Merger Sub of this Agreement and each such
other
54
agreement and instrument in accordance with their respective terms will not (a)
violate any provision of the Articles of Incorporation or By-Laws (or comparable
instruments) of the Parent or the Merger Sub, (b) violate any law, regulation,
statute, injunction, order, arbitration award, judgment or decree applicable to,
against, or binding upon, the Parent or the Merger Sub's or by which any of the
Parent or the Merger Sub's securities, business or property is bound, or (c)
violate or result in the revocation or suspension of any of the Parent or the
Merger Sub's permits.
(E) Parent Material Adverse Effect. From January 1, 1998,
there has been no change in the business, properties, assets, reasonably
anticipated prospects, operations or condition (financial or otherwise) of the
Parent or the Merger Sub which has resulted or reasonably could be expected to
result in or which the Parent or the Merger Sub has reason to believe could
reasonably be expected to result in a Parent Material Adverse Effect (as defined
below), and neither the Parent nor the Merger Sub knows of any such change that
is threatened, nor has there been any damage, destruction or loss affecting the
assets, properties, business, reasonably anticipated prospects, operations or
condition (financial or otherwise) of the Parent or the Merger Sub, whether or
not covered by insurance which has resulted or reasonably could be expected to
result in or which Parent or Merger Sub has reason to believe could reasonably
be expected to result in a Parent Material Adverse Effect. "PARENT MATERIAL
ADVERSE EFFECT," as used in this Agreement, shall mean any event, change or
effect that is or could reasonably be expected to be materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
55
operations, results of operations, or reasonably anticipated prospects of the
Parent and the Merger Sub taken as a whole.
(F) Parent Litigation. There are no actions, suits, demands,
or claims or legal, administrative or arbitral proceedings, hearings or
investigations pending or, to the knowledge of the executive officers of the
Parent or the Merger Sub (after making due inquiry of such employees of the
Parent or Merger Sub who customarily would have knowledge of such matters),
threatened against or involving the Parent or the Merger Sub, or any outstanding
orders, judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving the Parent or the
Merger Sub which could have a Parent Material Adverse Effect.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Taxes; Section 338(h)(10) Election.
(A) As the shareholders of an S corporation, the Shareholders
will pay and discharge and be responsible for any and all Taxes due or payable
by the Shareholders and by the Company for any taxable year or taxable period
ending on or before the Closing Date including, without limitation, any
liability that the Shareholders may owe as individuals in any jurisdiction in
which the Company is treated as an S corporation. In addition, the Shareholders
will pay and discharge and be responsible for any State taxes (including,
without limitation, excise and franchise taxes) due or payable by the Company
for any taxable year or taxable period ending
56
on or before the Closing Date, including, without limitation, any liability that
the Shareholders may owe as individuals in any jurisdiction in which the company
is treated as an S corporation. Any excise and franchise taxes due or payable as
a result of the Election (as hereinafter defined) shall be borne by the
Shareholders. For purposes of this Section 4.1, and as required in connection
with the Election, the current fiscal year of the Company will be treated as two
separate tax years, one beginning on January 1, 1998 and ending on the Closing
Date and the other beginning on the date after the Closing Date and ending at
the end of the 1998 fiscal year of the Company. The books and records of the
Company will be closed at the close of business on the Closing Date.
(B) The Parent, the Merger Sub, the Shareholders and the
Company agree to make a timely election under Section 338(h)(10) of the Code and
similar provisions of state and local law, where allowable, in respect of the
Merger (the "ELECTION"), thereby causing such Merger to be treated as a purchase
or sale of assets of the Company for federal purposes and to the extent allowed
by state, local and foreign tax laws. On all returns relating to Income Taxes,
the Shareholders and the Parent will report the transfers under this Agreement
consistent with the Election. Neither the Shareholders, the Parent nor the
Company will take a position on a return relating to Income Taxes contrary to
the Election unless required to do so by applicable state, local or foreign tax
laws or pursuant to a determination as defined in Section 1313(a) of the Code.
Each of the parties shall take any action required to effect state, local and
foreign tax law conformity with application of the Election to the extent
allowed by law.
57
(C) The Parent and the Merger Sub, the Shareholders and the
Company acknowledge and agree that the Purchase Price (as defined in Section 2.1
above) reflects the fact that the Shareholders will incur substantial tax
obligations as a result of the Merger, and the tax treatment of such Merger as a
deemed sale of all of the assets of the Company; other than as defined in this
Section 4.1, the Parent and the Merger Sub shall have no further obligations and
make no further payments to the Company relating to any and all tax liabilities
incurred by the Company or the Shareholders as a result of the Merger, or the
Election, or relating to any current or deferred tax liabilities of the Company
or the Shareholders arising on or prior to the Closing Date.
(D) In connection with the Election, not later than 150 days
after the Closing Date, the Parent and the Sellers' Representative shall act
together in good faith to (i) determine and jointly agree upon the "MODIFIED
AGGREGATE DEEMED SALES PRICE" of the assets of the Company (within the meaning
of, and in accordance with, Treasury Regulations Section 1.338(h)(10)-1(f) or
comparable provisions for state, local and foreign law) (the "MADSP
DETERMINATION"), and (ii) determine and jointly agree upon the allocations of
the "MODIFIED AGGREGATE DEEMED SALES PRICE" in accordance with Section 338(b)(5)
of the Code and Treasury Regulations Section 1.338(b)-2T promulgated thereunder
(and comparable provisions for state, local and foreign law) (the "MADSP
ALLOCATIONS"). If the parties are unable to agree within such period, the MADSP
Determination and MADSP Allocations provided for under clauses (i) and (ii)
shall be determined within 30 days thereafter by an independent qualified
appraiser selected by the Parent and reasonably acceptable to the Seller's
58
Representative (the "APPRAISER"), the costs of which shall be borne by the
Parent. The Parent, the Sellers and the Shareholders shall (w) be bound by the
joint MADSP Determination and MADSP Allocations (whether agreed upon or
determined by the Appraiser) for purposes of determining any Taxes, (x) prepare
and file their Tax Returns on a basis consistent with such MADSP Determination
and MADSP Allocations, (y) take no position inconsistent with such MADSP
Determination and MADSP Allocations on any applicable Tax Return, in any
proceeding before any taxing authority or otherwise and (z) immediately
following the MADSP Determination and MADSP Allocations (whether agreed upon or
determined by the Appraiser), exchange completed and duly executed copies of
Internal Revenue Service Form 8023, required schedules thereto, and any similar
state, local or foreign forms computed to reflect such MADSP Determination and
MADSP Allocations (whether agreed upon or determined by the Appraiser).
4.2 Tax Return Filing. (a) The Company and the Shareholders shall
cause the Company and each of the Subsidiaries to prepare, in a manner
consistent with past practices, and timely file (including extensions of time to
file) all Tax Returns required to be filed by the Company and each of the
Subsidiaries, the due date of which (without extensions) occurs on or before the
Closing Date and pay all Taxes due with respect to any such Tax Returns.
(b) The Surviving Corporation will prepare any Tax Returns due
to be filed by the Company after the Closing Date but relating to periods of
time prior to the Closing Date, with the understanding that such Tax Returns
will be subject to the approval of the Parent and the Sellers' Representative
prior to filing.
59
(c) The Shareholders will take whatever action is necessary to
maintain the S status of the Company for federal purposes and for the purposes
of the states listed in Section 3.1(Q)(xiv) above through the Closing Date,
including as a result of the Election.
(d) Except in connection with the Election, the Shareholders
will not cause the Company to make any additional federal tax elections under
the Code with respect to the Company for any tax period ending after the Closing
Date.
4.3 Further Assurances. At any time and from time to time after the
Closing, each of the parties agree to cooperate with each other and to execute
and deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereunder.
4.4 Access to Records. Prior to the Closing Date, each of the
Parent and the Merger Sub shall be entitled, through its employees and
representatives, including, without limitation, Paul, Weiss, Rifkind, Wharton &
Garrison and accountants, to make such investigation of the assets, properties,
business and operations of the Company and the Subsidiaries, and such
examination of the books, records and financial condition of the Company and the
Subsidiaries as the Parent or Merger Sub wishes. Any such investigation and
examination shall be conducted at reasonable times after providing reasonable
prior notice and under reasonable circumstances and the Company and each Seller
shall, and shall cause the Company and each of the Subsidiaries to, cooperate
reasonably therewith. No investigation by the Parent or Merger Sub shall
diminish or obviate any of the
60
representations, warranties, covenants or agreements of the Company and each
Seller contained in this Agreement. In order that the Parent and the Merger Sub
may have the opportunity to make such business, accounting and legal review,
examination or investigation as they may wish of the business and affairs of the
Company and the Subsidiaries, the Company and the Sellers shall furnish and
shall cause the Company and the Subsidiaries to furnish the representatives of
the Parent and the Merger Sub during such period with all such information and
copies of such documents concerning the affairs of the Company and the
Subsidiaries as such representatives may reasonably request, shall make
available, or cause the Company and the Subsidiaries to make available, such
officers and employees of the Company as such representatives reasonably
request, and shall cause its officers and employees to, and use reasonable
efforts to cause its consultants, agents, accountants and attorneys to cooperate
fully with such representatives in connection with such review and examination
and to make full disclosure to the Parent and the Merger Sub of all material
facts affecting the financial condition and business operations of the Company
and the Subsidiaries. Following the Closing, each party shall afford the other
and its authorized representatives access, during regular business hours after
providing reasonable prior notice, to any books and records of the Company and
the Subsidiaries to the extent they relate to a period prior to the Closing Date
that such party shall from time to time reasonably request. From the date
hereof, at the Parent or Merger Sub's request, each Seller shall give the Parent
or Merger Sub and its authorized representatives reasonable access, during
regular business hours after providing reasonable prior notice, to such Seller's
records related to the Company
61
and/or the Subsidiaries located other than in the possession of the Company or
the Subsidiaries, and shall permit the Parent or Merger Sub to make a copy at
its expense of any such documents as the Parent or Merger Sub shall designate.
Notwithstanding anything to the contrary in this Section 4.4, neither the
Company nor any of the Subsidiaries shall be required to disclose any classified
information in violation of any applicable law.
4.5 Preservation of Records. Each of the Parent and the Merger Sub
agrees that it shall at its sole expense preserve and keep the records of the
Sellers, the Company and the Subsidiaries (including any successors thereto)
delivered to it hereunder for a period of no less than six years after the
close-out of each government contract or for such longer period as may be
required by any governmental agency or on account of on-going litigation, but
for no less than one year from the Closing Date and shall make such records
available to the Company and the Sellers as may be reasonably required by the
Company and the Sellers in connection with any legal proceedings against or
governmental investigations of the Company and the Sellers or in connection with
any tax examination of the Company and the Sellers. In the event the Parent or
the Merger Sub wishes to destroy such records after that time, it shall first
give thirty (30) days' prior written notice to the Sellers' Representative and
the Sellers' Representative shall have the right at its option, upon prior
written notice given to the Parent or the Merger Sub within said thirty (30) day
period, to take possession of said records within sixty (60) days after the date
of the Sellers' Representative's notice to the Parent and the Merger Sub
hereunder. If the Sellers' Representative fails to take possession of said
records
62
within such sixty (60) day period, the Parent or Merger Sub may destroy such
records.
4.6 Confidentiality. From and after the date of this Agreement
until the fifth anniversary of the Closing Date, in the event of the
consummation of the transaction contemplated hereby, each Seller shall keep any
and all information relat ing to the Company and the Subsidiaries, their
business operations and prospects (including, but not limited to, customer lists
and related information), services and know-how confidential and shall not
disclose such to any person; PROVIDED, HOWEVER, that such Seller may disclose
such information that (i) is or becomes publicly available other than by
disclosure by any Seller, the Sellers' Representative or any agent thereof, (ii)
such Seller is required to disclose by law, government regulation or court order
or in order to enforce the terms of this Agreement, but such Seller will give
the Parent and the Merger Sub adequate advance notice so that the Parent and the
Merger Sub may seek a protective order or take other reasonable actions to
preserve the confidentiality of such information, or (iii) is required in the
ordinary course of such Seller's duties as director, officer or employee of the
Company or the Surviving Corporation. In the event that the transactions
contemplated hereby are not consummated, the terms of the Confidentiality
Agreement, dated December 17, 1997, between the Company and the Parent (the
"CONFIDENTIALITY AGREEMENT") shall continue to apply in full force and effect
for a period of five years subsequent to the date thereof.
63
4.7 Efforts; Consents. The Parent, the Merger Sub, the Company and
each Seller agree to use all reasonable efforts to take or cause to be taken all
actions necessary, proper or advisable to consummate the transactions
contemplated in this Agreement. The Parent, the Merger Sub, each Seller and the
Company also agree to make a good faith effort to consummate and close the
transactions contemplated in this Agreement by June 1, 1998. Without limiting
the generality of the foregoing, each of the parties hereto shall use all
reasonable efforts to obtain the authorizations, consents, orders and approvals
of federal, state, and local regulatory bodies and officials that may be or
become necessary for the performance of its obligations pursuant to this
Agreement and the consummation of the transactions contemplated hereby and will
cooperate fully in promptly seeking to obtain such authorizations, consents,
order and approvals as may be necessary for the performance of their respective
obligations pursuant to this Agreement. Each of the Parent and the Merger Sub
will not take any action which will have the effect of delaying, impairing or
impeding the receipt of any required regulatory approvals and will use its best
efforts to secure such approvals as promptly as possible.
4.8 Return of Information and Confidentiality. The terms of the
Confidentiality Agreement are herewith incorporated by reference and shall
continue in full force and effect until the Closing. In the event the Closing
under this Agreement does not occur in accordance with the terms hereof for any
reason, the Parent and the Merger Sub shall immediately return to the Company
all written information (and all copies thereof) regarding the Company and the
Subsidiaries, obtained from the Company or the Sellers by the Parent and the
Merger Sub in the
64
course of investigating the Merger, or negotiating this Agreement or delivered
to them pursuant to this Agreement, and the terms of the Confidentiality
Agreement shall continue to apply in full force and effect for a period of five
years subsequent to the date thereof.
4.9 Ordinary Course of Business. From the date hereof until the
Closing Date, unless otherwise agreed to by the Parent and the Merger Sub, the
Company and each Seller agree that they shall cause the Company and each of the
Subsidiaries to conduct their business and operations in the ordinary course and
in substantially the same manner in which the same have heretofore been
conducted and not to undertake any of the actions specified in Section 3.1(F).
4.10 Insurance Proceeds, Litigation Rights. In the event that any
pro perty owned or leased by the Company or any of the Subsidiaries suffers any
material damage, destruction or other casualty loss, and the Closing occurs in
accordance with the terms hereof, the Shareholders shall surrender to the
Company, the Subsidiaries, the Parent and the Merger Sub (i) all insurance
proceeds received by any of the Shareholders with respect to such damage or loss
and (ii) all rights of the Shareholders with respect to any causes of action,
whether or not litigation has commenced on the Closing Date, in connection with
such damage or loss. Nothing in this Section 4.10 shall be construed to limit or
prejudice the Parent or the Merger Sub's rights and remedies under this
Agreement, including, without limitation, the Parent or the Merger Sub's right
not to consummate the transactions contemplated hereby if all of the conditions
set forth in Section 5.2 are not satisfied or waived, in the sole discretion of
the Parent and the Merger Sub.
65
4.11 Benefit Plans and Employee Matters. (A) From and after the
Closing Date, the Parent shall cause the Surviving Corporation and each of the
Subsidiaries to (i) provide all salaried employees of the Company and each of
the Subsidiaries as of the Closing Date ("COMPANY EMPLOYEES") with service
credit for all periods of employment with the Company or the Subsidiaries prior
to the Closing Date for purposes of satisfying any service requirements for
early retirement under any defined contribution plan in effect on the date
hereof or under any substantially similar replacement plan adopted by Parent,
the Surviving Corporation, the Subsidiaries or any of their affiliates (or any
successor entity to any of the foregoing) with respect to Company Employees and
(ii) waive any pre-existing condition of any Company Employee for purposes of
determining eligibility for, and the terms upon which they participate in, any
welfare plan with respect to which Company Employees participate (other than
conditions that are already in effect with respect to such employees under the
Company's or the Subsidiaries' welfare plans that have not been satisfied as of
the Closing Date).
(B) The Parent hereby agrees that from and after the Closing Date,
it will cause the Surviving Corporation and the Subsidiaries to continue in full
force and effect all the Plans (as defined in Section 3.1(M) above and as set
forth on Schedule 3.1(M) hereto), until such date as it will convert or
transition such Plans to its own benefit programs, which date will be on or
before January 1, 1999. Prior to such conversion or transition, the Parent will
contribute (or cause the Surviving Corporation and the Subsidiaries to continue
to contribute) all required contributions and pay all required premiums under
such Plans; PROVIDED, HOWEVER, that nothing in
66
this Agreement shall be construed to limit the ability of the Parent or the
Surviving Corporation to modify, amend or terminate any benefits of any
individual, or terminate the employment of any individual, at any time after the
Closing Date or, after January 1, 1999, any Plan.
(C) Joseph Maurelli and other members of the senior management of
the Company shall during their employment by the Surviving Corporation be
entitled to participate in the Parent's or the Surviving Corporation's
management incentive programs (including the annual incentive compensation
program) on the same basis as other senior executives of the Parent and its
subsidiaries, subject (except as set forth below) to the discretion of the board
of directors of the Parent (the "PARENT'S BOARD"). The Parent shall, at the next
regular meeting of the Parent's Board, which is currently scheduled to occur no
later than July 24, 1998, grant options under and subject to the Anteon
Corporation Omnibus Stock Plan (the "PARENT OPTION PLAN") to purchase at least
fifty thousand shares, in the aggregate, of the Parent's common stock to Joseph
Maurelli and other members of the Company's senior management to be designated
by the Company on or before the Closing Date subject to the execution by the
grantees of the Parent's customary option agreement, it being the understanding
that such grants shall be made on terms consistent in all material respects with
the Parent's past practice.
(D) The chief executive officer of the Parent shall recommend to
the Board of Directors of the Parent (or an appropriate committee thereof) that
the Parent grant under the Parent Option Plan, to employees of the Surviving
Corporation other than Joseph Maurelli, options to purchase at least 12,500
shares of Parent's common
67
stock no later than the first anniversary of the Closing Date and 12,500 shares
of Parent's common stock no later than the second anniversary of the Closing
Date, it being understood that such issuance and the terms of issuance are
subject to the discretion of the Parent's Board (or an appropriate committee
thereof).
(E) The Parent agrees that Joseph Maurelli shall be elected a
member of the Parent's Board, to serve at the pleasure of the Parent's
shareholders, at the first regular meeting of the Parent's Board after the
Closing Date which is currently scheduled to occur no later than July 24, 1998.
4.12 Preservation of Business. From the date hereof through the
earlier of the Closing Date or the termination of this Agreement in accordance
with its terms, the Company and the Sellers shall use reasonable efforts to
cause the Company and the Subsidiaries to preserve their respective business
organizations intact, keep available the services of their respective present
officers, employees, consultants and agents, maintain their respective present
suppliers and customers.
4.13 Litigation. From the date hereof through the Closing Date, the
Company and the Sellers shall cause the Company to notify promptly the Parent
and the Merger Sub of any actions or proceedings of the type described in
Section 3.1(G) that from the date hereof are commenced or, to the Knowledge of
any Seller, the Company or any of the Subsidiaries, threatened against the
Company or any of the Subsidiaries, against any officer, director, employee,
consultant, agent, shareholder or other representative of the Company or any of
the Subsidiaries with respect to their affairs. From the date hereof to the
Closing Date, the Parent shall promptly notify
68
the Company of any litigation that could be reasonably expected to cause a
Parent Material Adverse Effect.
4.14 Agreements. From the date hereof through the Closing Date, the
Company and the Sellers shall cause the Company and the Subsidiaries to notify
the Parent and the Merger Sub promptly of any evidence that any party to a
contract or other agreement listed in Schedule 3.1(O) has terminated or failed
to renew or intends to terminate or fail to renew any such contract or agreement
or that any party has asserted or intends to assert any claim under any such
contract or agreement.
4.15 Continued Effectiveness of Representations and Warranties.
From the date hereof through the Closing Date, the Company and the Sellers shall
cause the Company and each of the Subsidiaries to conduct their businesses in
such a manner so that the representations and warranties contained in Section
3.1 shall continue to be true and correct to the extent required to satisfy
Section 5.2(B) on and as of the Closing Date as if made on and as of the Closing
Date, and each of the Parent and the Merger Sub shall conduct its respective
business in such a manner so that the representations and warranties contained
in Section 3.2 shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date, and all of the Sellers shall
conduct their affairs in such a manner so that the representations and
warranties contained in Section 3.1 shall continue to be true and correct on and
as of the Closing Date as if made on and as of the Closing Date, and each party
shall promptly give notice to the other parties of any event, condition or
circumstance occurring from the date hereof through the Closing Date that would
constitute a violation or breach by it or the other parties hereto of this
Agreement.
69
4.16 Satisfaction of Conditions Precedent. During the term of the
Agreement, the parties hereto will use reasonable efforts to satisfy (or cause
to be satisfied) all the conditions precedent to their respective obligations.
4.17 Exclusivity. As an inducement to the Parent and the Merger Sub
to enter into this Agreement, and in consideration of the time and expense which
they have devoted and will devote to the transactions contemplated hereby during
such period, subsequent to the execution of this Agreement and until the earlier
of (i) the Closing Date; and (ii) the termination of this Agreement in
accordance with Article VII, none of the Sellers nor the Company nor any of
their respective representatives (including, without limitation, any investment
banker, attorney or accountant retained or acting on behalf of the Company, any
Seller or any Shareholder, director, officer or employee of the Company) will,
directly or indirectly, (i) initiate, solicit, encourage or respond to any
inquiry or proposal with respect to a merger, consolidation, share exchange,
business combination, liquidation, dissolution or sale of all or a portion of
the assets of the Company or any of the Subsidiaries outside the Ordinary Course
of Business or any purchase of any of the outstanding shares of its capital
stock (an "ACQUISITION PROPOSAL"), or (ii) enter into any discussions,
negotiations or agreements concerning an Acquisition Proposal with, or disclose
any information concerning the Company or any of the Subsidiaries, their
businesses or properties or afford any access to their properties, books and
records to, or otherwise assist or facilitate any effort relating to an
Acquisition Proposal, by any corporation, individual, partnership, company,
association, trust, person or other entity or group (a "PERSON"). The Sellers,
the Company and the Subsidiaries will
70
immediately cease any existing discussions with any Persons concerning any
Acquisition Proposal.
4.18 Allocation of Certain Expenses of Parent. The Parent, the
Company and the Sellers acknowledge and agree that following the Closing, the
Parent will allocate a portion of its home office general and administrative and
overhead expenses to the Company (the "HOME OFFICE EXPENSE ALLOCATION"). The
Home Office Expense Allocation will be calculated in accordance with the
Parent's past practice in conformity with applicable regulations and is
currently anticipated to be approximately $2,000,000, subject to possible
adjustment in accordance with all applicable facts and circumstances and
Parent's cost accounting practices as disclosed to the federal government. The
Parent will consult with the appropriate personnel of the Surviving Corporation
in preparing applicable cost accounting disclosure statements to be furnished by
Parent to the federal government. The Company and the Parent anticipate that
such Home Office Expense Allocation will be passed through to the customers of
the Surviving Corporation and/or offset by indirect cost reductions from the
Surviving Corporation, subject to applicable government cost accounting
standards.
4.19 Certain Covenants of the Parent.
(A) The Parent agrees that from and after the Closing Date
until June 30, 1999, the Parent shall cause the Surviving Corporation to
maintain a financial reporting system that will be sufficient to permit a firm
of independent accountants to determine the Operating Profit of the Company and
its Subsidiaries, and consequently, the amount of Contingent Consideration
payable, if any, pursuant
71
to Section 2.8. If after the Closing Date until June 30, 1999, any contracts of
the Company or its Subsidiaries are transferred, assigned, or otherwise
allocated or attributed, for financial reporting purposes, to the Parent or any
of its other subsidiaries (other than the Company and/or its Subsidiaries), then
equitable and reasonable adjustments shall be made in calculating the Operating
Profit of the Company and its Subsidiaries, and consequently, the amount of
Contingent Consideration payable, if any, to eliminate the effect of any
transfer, assignment, allocation or attribution, and no such transfer,
assignment, allocation or attribution shall be made unless the financial
reporting system referred to in the immediately preceding sentence is capable of
tracking the performance of distinct contracts in a manner that will permit such
determination of the Operating Profit of the Company and its Subsidiaries, and
consequently, of the amount of Contingent Consideration payable pursuant to the
terms of this Agreement. If after the Closing Date until June 30, 1999, any
contracts of the Parent or its subsidiaries (other than the Company and its
Subsidiaries) are transferred, assigned, or otherwise allocated or attributed,
for financial reporting purposes, to the Company or its Subsidiaries, then
equitable and reasonable adjustments shall be made in calculating the Operating
Profit of the Company and its Subsidiaries, and consequently, the amount of
Contingent Consideration payable, if any, to eliminate the effect of any
transfer, assignment, allocation or attribution and no such transfer,
assignment, allocation or attribution shall be made unless the financial
reporting system referred to in the immediately preceding sentence is capable of
tracking the performance of distinct contracts in a manner that will permit such
determination of the Operating Profit of the Company
72
and its Subsidiaries, and consequently, of the amount of Contingent
Consideration payable pursuant to the terms of this Agreement. All actions taken
by the Parent during the period covered by this Section 4.19(A) shall be in good
faith and not for the purpose of reducing the amount of Contingent Consideration
payable pursuant to the terms of this Agreement.
(B) The Company and the Sellers acknowledge that from and
after the date hereof until June 30, 1999, the Parent intends to (i) continue to
maintain management reserves of the Surviving Corporation and the Subsidiaries
where probable liabilities exist; (ii) cause the Surviving Corporation to comply
with GAAP consistent with the Company's past practices; and (iii) cause the
Surviving Corporation continue to maintain any and all reserves necessary to
comply with GAAP consistent with the Company's past practices, and to meet the
overall reasonable business needs of the Surviving Corporation and the
Subsidiaries during such period.
(C) The Parent shall cause the Surviving Corporation to be
operated as a wholly-owned subsidiary until June 30, 1999, at the earliest. The
Parent agrees that from the Closing Date until June 30, 1999, it shall not
terminate or permit the Surviving Corporation to terminate the employment of
Joseph Maurelli unless such termination is made for cause as defined in his
current employment agreement with the Company, without regard to the future
efficacy of such agreement.
(D) The Parent agrees that from the Closing Date until
December 31, 1998, it will allow to continue in effect the Executive Employment
73
Agreements in effect on the Closing Date of the following employees of the
Company: Joseph Maurelli, Walter S. Szczypinski, Jr., Deborah Alderson, William
Reese, William Baker, James Sullivan, Michael Maraghy, Michael McMillan, Jeremy
Nittle, Jack Youngworth and Edward Masso (letter agreement).
(E) Obligations of Merger Sub. The Parent will take all action
necessary to cause the Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
4.20 Shareholder Approval. Each Seller hereby consents to the
Merger and agrees that at any meeting (whether annual or special, and whether or
not an adjourned or postponed meeting) of the Shareholders, however called, or
in connection with any written consent of the Shareholders, each Seller shall
vote (or cause to be voted) all shares of Common Stock owned or controlled by
such Seller: (i) in favor of the Merger, the execution and delivery by the
Company of this Agreement and the approval and adoption of the Merger and the
terms thereof and each of the other actions contemplated by this Agreement and
any actions required in furtherance hereof and (ii) against any action or
agreement that would impede, interfere with, or prevent the Merger. No Seller
shall enter into any agreement, arrangement or understanding with any Person the
effect of which would be inconsistent or violative of the provisions and
agreements contained herein.
74
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger hereunder are, at its option, subject to
the fulfillment or waiver, prior to or on the Closing Date, of each of the
following conditions:
(A) Regulatory Authorizations. All authorizations, consents,
orders and approvals of federal and state regulatory bodies and officials
necessary for the consummation by the Company of the Merger hereunder shall have
been obtained, and there shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transaction contemplated herein, or
any of them, not be consummated (collectively, an "ORDER").
(B) Representations and Warranties; Covenants. The
representations and warranties of the Parent and the Merger Sub contained in
this Agreement and in any certificate delivered by any officer of the Parent or
the Merger Sub pursuant hereto that are not qualified by materiality or a Parent
Material Adverse Effect requirement shall be true and correct in all material
respects and the representations and warranties that are qualified by
materiality or a Parent Material Adverse Effect requirement (or similar
concepts) shall be true and correct; in each case, at the date hereof and at and
as of the Closing Date, with the same force and effect as if made at and as of
the Closing Date; and the Parent and the Merger Sub shall have performed or
complied with the agreements and covenants required by this
75
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(C) Certificates. The Parent and the Merger Sub shall have
delivered to the Company and the Sellers certificates, dated the Closing Date,
of officers of the Parent and the Merger Sub to the effect that the conditions
specified in paragraphs (A) and (B) of this Section 5.1 have been satisfied.
(D) Opinions of Counsel to the Parent and the Merger Sub. The
Company and the Sellers' Representative shall have received the opinions of
Curtis L. Schehr and Paul, Weiss, Rifkind, Wharton & Garrison, general counsel
and special counsel, respectively, to the Parent and the Merger Sub, dated the
date of the Closing, addressed to the Company and the Sellers, in the form of
Exhibit IV.
(E) Expiration of Required Notice Period. Any notice period
required to be provided to holders of the Company's nonvoting Common Stock under
the VSCA shall have expired.
5.2 Conditions to Obligations of the Parent and the Merger Sub. The
obligations of the Parent and the Merger Sub to consummate the Merger hereunder
are subject, at their option, to the fulfillment or waiver, prior to or on the
Closing Date, of each of the following conditions:
(A) Regulatory and other Authorizations. All authorizations,
consents, orders and approvals of federal and state and regulatory bodies and
officials necessary for the performance by the Parent and the Merger Sub of this
Agreement and the consummation of the Merger hereunder shall have been obtained
and there shall be no Order in effect.
76
(B) Representations and Warranties; Covenants. The
representations and warranties of the Company and each Seller contained in this
Agreement and in any certificate delivered by any officer of the Company or any
Seller pursuant hereto that are not qualified by materiality or a Company
Material Adverse Effect requirement shall be true and correct in all material
respects and the representations and warranties that are qualified by
materiality or a Company Material Adverse Effect requirement (or similar
concepts) shall be true and correct, in each case, at the date hereof and at and
as of the Closing Date, with the same force and effect as if made at and as of
the Closing Date, and the Company and the Sellers shall have performed or
complied with the agreements and covenants required by this Agreement (including
without limitation the agreements set forth in Section 2.4) to be performed or
complied with by them on or prior to the Closing Date.
(C) Governmental Permits and Approvals. All Permits required
for the lawful consummation of the Closing shall have been obtained and be in
full force and effect, and the Parent and the Merger Sub shall have been
furnished with evidence reasonably satisfactory to them that such Permits have
been granted and obtained.
(D) Third Party Consents. All consents, permits and approvals
from parties to contracts or other agreements with the Company, the Subsidiaries
or with any Seller that may be required in connection with the performance by
the Company and any Seller of their obligations under this Agreement or the
continuance of such contracts or other agreements with the Company or the
Subsidiaries after the Closing shall have been obtained and be in full force and
effect,
77
and the Parent and the Merger Sub shall have been furnished with evidence
reasonably satisfactory to them that such consents, permits and approvals have
been granted and obtained.
(E) Opinion of Counsel to the Company and the Sellers. The
Parent and the Merger Sub shall have received the opinion of Venable, Baetjer
and Howard, LLP, counsel to the Company and the Sellers, dated the date of the
Closing, addressed to the Parent and the Merger Sub, in the form attached as
Exhibit V.
(F) Non-Competition. At the Closing, each of the following
Sellers shall have executed and delivered a non-compete and non-disclosure
agreement in substantially the form attached as Exhibit VII: Joseph Maurelli,
Deborah Alderson, James Sullivan and Michael McMillan.
(G) Certificate. The Company and the Sellers shall have
delivered to the Parent and the Merger Sub a certificate, dated the Closing
Date, to the effect that the conditions specified in paragraphs (A) through (D)
of this Section 5.2 have been satisfied.
(H) Payoff Letter. The Company and the Sellers shall have
delivered payoff letters or other documentation from First Virginia Bank ("FVB")
(and any other holder of Debt of the Company or the Subsidiaries) reasonably
satisfactory to the Parent evidencing the termination of the Company's line of
credit facility with FVB and the release of liens thereunder against payment of
the Debt.
(I) VEBA Funding. The Company shall have delivered evidence
reasonably satisfactory to the Parent demonstrating that the Company's
78
VEBA trust has been fully funded as of the Closing Date consistent with the
Company's past practice and contains not less that $300,000 in cash reserves.
ARTICLE VI
FEES RELATING TO THIS TRANSACTION
Except for the commission and fees of the persons set forth on
Schedule 6.0 which, subject to Section 9.3, will be paid by the Shareholders and
the Option Holders through pro rata reduction of the Purchase Price and amounts
payable under Sections 2.3 and 2.4, the Company and the Sellers represent and
warrant to the Parent and the Merger Sub that no broker, finder, agent or
similar intermediary has acted on behalf of the Company, any of the Subsidiaries
or any Shareholder in connection with this Agreement or the transactions
contemplated hereby, and that there are no brokerage commissions, finders' fees
or similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with the Company, any of the
Subsidiaries or any Shareholder, or any action taken by the Company, any of the
Subsidiaries or any Shareholder. The Parent and the Merger Sub represent and
warrant to the Sellers that no broker, finder, agent or similar intermediary has
acted on behalf of the Parent or the Merger Sub in connection with this
Agreement or the transactions contemplated hereby, and that there are no
brokerage commissions, finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding with
the Parent or the Merger Sub or any action taken by the Parent or the Merger
Sub. Each such party (the Parent and the Merger Sub on the one hand
79
and the Company and each Seller on the other) agrees to indemnify and save the
other harmless from any claim or demand for commission or other compensation by
any broker, finder, agent or similar intermediary claiming to have been employed
by or on behalf of the Parent and the Merger Sub, on the one hand, or the
Company, any of the Subsidiaries or any Shareholder, on the other, and to bear
the cost of legal expenses incurred in defending against any such claim.
ARTICLE VII
TERMINATION
7.1 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated prior to the Closing as follows:
(a) by the mutual written consent of the parties to this
Agreement;
(b) by the Company or the Parent, by notice to the other, if,
for any reason, the Closing has not occurred prior to the close of business on
June 5, 1998;
(c) at the election of the Company, if the Parent or the
Merger Sub has breached any representation, warranty, covenant or agreement
contained in this Agreement that is qualified by materiality or a Parent
Material Adverse Effect requirement (or similar concepts), or if the Parent or
the Merger Sub has breached in any material respect any representation,
warranty, covenant or agreement contained in this Agreement that is not so
qualified, which breach has not
80
been cured on or prior to thirty (30) days following delivery of written notice
of such breach by the Company to the Parent or the Merger Sub;
(d) at the election of the Parent or the Merger Sub, if any
Seller or the Company has breached any representation, warranty, covenant or
agreement contained in this Agreement that is qualified by materiality or a
Company Material Adverse Effect requirement (or similar concepts), or if any
Seller or the Company has breached in any material respect any representation,
warranty, covenant or agreement contained in this Agreement that is not so
qualified, which breach has not been cured on or prior to thirty (30) days
following delivery of written notice of such breach by the Parent or the Merger
Sub to the Sellers' Representative;
(e) at the election of the Company on the one hand or the
Parent or the Merger Sub on the other, if any legal proceeding is commenced or
threatened by any Governmental Body directed against the consummation of the
Closing or any other transaction contemplated under this Agreement and the
Company or the Parent or the Merger Sub (as the case may be) reasonably and in
good faith deems it impractical or inadvisable to proceed in view of such legal
proceeding or threat thereof.
If this Agreement so terminates, it shall become null and void and
have no further force or effect except as provided in Section 7.2.
7.2 Effect of Termination; Expenses. In the event of the
termination of this Agreement pursuant to Section 7.1, this Agreement shall
thereafter become void and have no further force or effect except as provided in
Sections 4.6 and 4.8. Except as provided herein, none of the parties hereto
shall have any liability
81
in respect of the termination of this Agreement except to the extent that
failure to satisfy the conditions of Section 5 results from the violation of the
representations, warranties, covenants or agreements of such party under this
Agreement, in which case the termination of this Agreement will not prejudice
any legal rights of any party whether those rights arise under this Agreement or
otherwise.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Sellers. The Sellers agree to indemnify,
defend and hold harmless in the manner and subject to the limitations and
qualifications set forth in this Article VIII the Parent, the Merger Sub and the
Surviving Corporation (and their respective directors, officers, employees,
affiliates, successors and assigns) (collectively, the "PURCHASER PARTIES")
against and hold the Purchaser Parties harmless from and in respect of any and
all losses, liabilities, damages, deficiencies, costs, expenses (including,
without limitation, expenses of investigation and defense and reasonable fees,
disbursements and expenses of counsel incurred by the Purchaser Parties in any
action or proceeding between the Purchaser Parties and the Sellers or between
the Purchaser Parties and any third party or otherwise), claims, liens or other
obligations of any nature whatsoever (collectively, "LOSSES") based upon,
arising out of, or otherwise in respect of or which may be incurred by virtue of
or result from (a) the inaccuracy in or breach of any representation, warranty,
covenant or agreement made by or on behalf of the Sellers or the Company in this
Agreement or in any document or instrument delivered at the
82
Closing pursuant hereto, (b) any claim of any nature, including, without
limitation, any claim for appraisal or dissenters' rights, by any Shareholder or
Option Holder arising out of or in connection with this Agreement or the Merger
(other than claims for payments under Article II of this Agreement); or (c)
enforcing the indemnification provided for hereunder. The Sellers shall have no
right to seek contribution from the Company or any of the Subsidiaries with
respect to all or any part of any of the Sellers' indemnification obligations
under this Section 8.1.
8.2 Indemnification by the Parent and the Merger Sub. The Parent
and the Merger Sub agree to indemnify the Sellers against and hold each Seller
harmless from and in respect of any and all Losses which may be incurred by
virtue of or result from (a) the inaccuracy in or breach of any representation,
warranty, covenant or agreement made by or on behalf of the Parent or the Merger
Sub in this Agreement or in any document or instrument delivered at the Closing
pursuant hereto, excluding, in all events, the representations and warranties
set forth in Section 3.2(E) and (F), which shall not survive the Closing, (b)
the conduct of the Company and the Subsidiaries after the Closing or (c)
enforcing the indemnification provided for hereunder.
8.3 ERISA, Tax and Contract Supplemental Indemnification by Each
Seller.
(a) Supplemental ERISA Indemnification. Each Seller agrees to
indemnify and hold harmless the Purchaser Parties with respect to any Losses
incurred by any of the Purchaser Parties arising out of or otherwise in respect
of any Plan that is not disclosed in Schedule 3.1(M). Notwithstanding anything
to the
83
contrary in Section 8.4, all indemnification obligations in this Section 8.3(a)
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, and shall not be subject to any time or
dollar limitation.
(b) Supplemental Tax Indemnification. Each Seller shall
indemnify the Purchaser Parties for all Taxes which the Sellers are responsible
to pay pursuant to Section 4.1 hereof and for any liability for any Taxes
imposed on the Company or the Subsidiaries pursuant to federal, state, local or
foreign law attributable to any periods ending on or before the Closing Date (or
for the portion of any period up through the Closing Date to the extent a period
does not close on such date). Any indemnity payments to or from the Sellers or
to or from the Parent and the Merger Sub pursuant to this Agreement, whether
under this Section 8.3(b) or otherwise, shall be treated by the Parent and the
Merger Sub and the Sellers as purchase price adjustments for all tax purposes.
All indemnification obligations set forth in this Section 8.3(b) shall be
treated as Tax Claims for purposes of the survival provisions of Section 8.4 and
shall not be subject to any dollar limitation.
(c) Supplemental Contract Indemnification. Each Seller agrees
to indemnify and hold harmless the Purchaser Parties, from and with respect to
any and all Losses in excess of a reserve of $825,000 in the aggregate incurred
by any of the Purchaser Parties arising out of, or otherwise in respect of, (i)
any government disallowance of incurred Direct Contract Costs and/or Indirect
Costs including, without limitation, any Losses arising out of Defense Contract
Audit Agency incurred cost audits of the Company for fiscal years 1989 through
1997;
84
(ii) Losses arising out of any contract listed in Exhibit VII, which Losses
relate to the reduction of fee as a result of the Company failing to deliver to
the other contracting party the number of labor hours specified in such
contract; and (iii) Losses arising out of or relating to the NCIS investigation
disclosed on Schedule 3.1(G). All indemnification obligations in this Section
8.3(c) shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby until the fourth
anniversary of the Closing Date and shall be subject to the limitations on
indemnification set forth in Section 8.5(c).
8.4 Survival of Representations and Warranties of the Sellers.
Notwithstanding any right of the Parent and the Merger Sub to investigate the
affairs of the Company and the Subsidiaries and notwithstanding any knowledge of
facts determined or determinable by the Parent and the Merger Sub pursuant to
such investigation or right of investigation, the Parent and the Merger Sub have
the right to rely fully upon the representations and warranties of each of the
Sellers contained in this Agreement. All representations and warranties of the
parties hereto contained in this Agreement shall survive the execution and
delivery hereof and the Closing hereunder, and except for (a) the
representations and warranties made in Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D),
3.2(A) and 3.2(B), which shall survive until the expiration of the applicable
statute of limitations with respect to any claim arising from any inaccuracy in
or breach thereof, (b) the representations and warranties set forth in Sections
3.1(M) and 3.1(Q) which shall constitute Tax Claims under this Section 8.4, (c)
the representations and warranties set forth in Section 3.1(R)(b) which shall
constitute Environmental Claims and (d) the representations and warranties in
85
Sections 3.2(E) and 3.2(F) which shall not survive the Closing, (i) shall
thereafter terminate and expire twenty-four months following the Closing Date,
with respect to any General Claim (as hereinafter defined) based upon, arising
out of or otherwise in respect of any fact, circumstance, action or proceeding
of which the party asserting such claim shall have given no notice on or prior
to the expiration of such twenty-four month period, to the party against which
such General Claim is asserted, (ii) with respect to any Tax Claim (as herein
defined), on the later of (a) the date upon which the liability to which any
such Tax Claim may relate is barred by all applicable statutes of limitation and
(b) the date upon which any claim for refund or credit related to such Tax Claim
is barred by all applicable statutes of limitations, and (iii) with respect to
any Environmental Claim (as herein defined), on the fourth anniversary of the
Closing Date. As used in this Agreement, the following terms have the following
meanings: (i) "GENERAL CLAIM" means any claim (other than a Tax Claim or an
Environmental Claim) based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation or warranty of any Seller
contained in this Agreement, (ii) "TAX CLAIM" means any claim based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of any Seller contained in this Agreement related to
Taxes or any Plan (as defined in Section 3.1(M) hereof) and (iii) "ENVIRONMENTAL
CLAIM" means any claim based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation or warranty of any Seller
contained in Sections 3.1(G), 3.1(I), 3.1(K) or 3.1(R)(b) concerning
Environmental Law or principles of common law relating to pollution, protection
of the environment or
86
health and safety. Except as otherwise expressly provided herein, the covenants
and agreements contained in this Agreement shall survive the execution and
delivery hereof and the consummation of the transactions contemplated hereby.
8.5 Certain Limitations on Indemnification Obligations.
(a) The Parent and the Merger Sub shall not be entitled to
receive any indemnification payments under Section 8.1 with respect to any
inaccuracy in or breach of any representation or warranty, except those based
upon, arising out of or otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C),
3.1(D), 3.1(M), 3.1(Q) and 3.1(S), (the "BASKET EXCLUSIONS"), until the
aggregate indemnification payments, exclusive of the Basket Exclusions, equal
$350,000 (the "BASKET AMOUNT"), whereupon the Parent and the Merger Sub shall be
entitled to receive in full indemnity payments in excess of the Basket Amount;
PROVIDED, HOWEVER, that (i) solely for purposes of determining whether the
amount of the Sellers' indemnification obligations exceed $350,000 in the
aggregate, a breach of the Sellers' representations or warranties (other than
the representations and warranties contained in Sections 3.1(F) (absence of
certain changes or events) and 3.1(R)(a) (Additional Representations)) shall be
determined without regard to any limitation or qualification as to materiality
set forth in such representation or warranty and (ii) the representations and
warranties in this Agreement respecting compliance with laws and Permits set
forth in Sections 3.1(I), 3.1(G), 3.1(K)(i)(d), 3.1(K)(i)(e), 3.1(K)(ii)(d),
3.1(K)(ii)(e) and 3.1(W) shall not be deemed to be inaccurate or breached with
respect to matters involving Losses under such Sections, taken as a whole, not
exceeding $10,000 individually unless such Losses exceed $50,000 in the
aggregate.
87
(b) The Parent and the Merger Sub shall be entitled to receive
any indemnification payments in respect of the Basket Exclusions without regard
to the individual or aggregate amounts thereof and without regard to whether the
aggregate of all other indemnification payments shall have exceeded, in the
aggregate, the Basket Amount.
(c) The maximum amount of indemnification payments under (i)
under Section 8.1 with respect to any inaccuracy in or breach of a
representation or warranty (excluding those based upon, arising out of or
otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D), or 3.1(Q)),
(ii) under Section 8.1(c), and (iii) under Section 8.3(c), shall not exceed in
the aggregate, with respect to claims asserted on or prior to the second
anniversary of the Closing Date the aggregate amounts owed but until then not
due to be paid under the Notes and Section 2.8 and after the second anniversary
of the Closing Date shall not exceed $6,000,000. The amount of indemnification
payments under Section 8.1 based upon, arising out of or otherwise in respect of
breaches of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D) or 3.1(Q) shall not exceed
the Purchase Price.
(d) The Parent and Merger Sub agree to first collect any
indemnification through set-off on a several basis against any amounts owed but
not paid under the Notes or Section 2.8 of this Agreement. All indemnification
obligations under this Article VIII or any other provision of this Agreement
shall be joint and several with respect to the Parent and the Merger Sub and
shall be several, but not joint, with respect to the Sellers; it being
understood that with respect to the Sellers, the term "several" means that each
Seller's indemnification obligation shall be
88
limited to such Seller's pro rata share of the indemnification obligation of the
Sellers, with the understanding that pro rata shall be determined by the
respective amount of consideration payable to holders of Common Stock and
Options under Sections 2.3(a), (d), (e) and 2.4(b). Each holder of Common Stock
and Options who is not a Seller hereunder shall be responsible to provide
indemnification under this Agreement to the same extent as if such holder were a
Seller hereunder.
8.6 Defense of Claims. In the case of any claim for indemnification
under Section 8.1, 8.2 or 8.3 arising from a claim of a third party, an
indemnified party shall give prompt written notice to the indemnifying party of
any claim, suit or demand of which such indemnified party has knowledge and as
to which it may request indemnification hereunder. The failure to give such
notice shall not, however, relieve the indemnifying party of its indemnification
obligations except to the extent that the indemnifying party is actually harmed
thereby. The indemnifying party shall have the right to defend and to direct the
defense against any such claim, suit or demand, in its name and at its expense,
and with counsel selected by the indemnifying party unless such claim, suit or
demand seeks an injunction or other equitable relief against the indemnified
party; PROVIDED, HOWEVER, the indemnifying party shall not have the right to
defend or direct the defense of any such claim, suit or demand if it refuses to
acknowledge fully its obligations to the indemnified party or contests, in whole
or in part, its indemnification obligations therefor. If the indemnifying party
elects and is entitled to compromise or defend such claim, it shall within 30
days (or sooner, if the nature of the claim so requires) notify the indemnified
party of its intent to do so, and the indemnified party shall, at the
89
expense of the indemnifying party, cooperate in the defense of such claim, suit
or demand. If the indemnifying party elects not to compromise or defend such
claim, fails to notify the indemnified party of its election as herein provided
or refuses to acknowledge or contests its obligation to indemnify under this
Agreement, the indemnified party may pay, compromise or defend such claim.
Except as set forth in the immediately preceding sentence, the indemnifying
party shall have no indemnification obligations with respect to any such claim,
suit or demand which shall be settled by the indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed); PROVIDED, HOWEVER, that notwithstanding the
foregoing, the indemnified party shall not be required to refrain from paying
any claim which has matured by a court judgment or decree, unless an appeal is
duly taken therefrom and exercise thereof has been stayed, nor shall it be
required to refrain from paying any claim where the delay in paying such claim
would result in the foreclosure of a lien upon any of the property or assets
then held by the indemnified party or where any delay in payment would cause the
indemnified party material economic loss. The indemnifying party's right to
direct the defense shall include the right to compromise or enter into an
agreement settling any claim by a third party; PROVIDED that no such compromise
or settlement shall obligate the indemnified party to agree to any settlement
which requires the taking of any action by the indemnified party other than the
delivery of a release. Notwithstanding the indemnifying party's right to
compromise or settle in accordance with the immediately preceding sentence, the
indemnifying party may not settle or compromise any claim over the objection of
the other; provided, however, that
90
consent to settlement or compromise shall not be unreasonably withheld. The
indemnified party shall have the right to participate in the defense of any
claim, suit or demand with counsel selected by it subject to the indemnifying
party's right to direct the defense. The fees and disbursements of such counsel
shall be at the expense of the indemnified party; PROVIDED, HOWEVER, that, in
the case of any claim, suit or demand which seeks injunctive or other equitable
relief against the indemnified party as to which the indemnifying party shall
not in fact have employed counsel to assume the defense of such claim, suit or
demand, the fees and disbursements of such counsel shall be at the expense of
the indemnifying party.
8.7 Non-Third Party Claims. Any claim which does not result in a
third party claim shall be asserted by a written notice to the other party or
parties. The recipient of such notice shall have a period of thirty days after
receipt of such notice within which to respond thereto. If the recipient does
not respond within such thirty days, the recipient shall be deemed to have
accepted responsibility for the Losses set forth in such notice and shall have
no further right to contest the validity of such notice. If the recipient
responds within such thirty days after the receipt of the notice and rejects
such claim in whole or in part, the party delivering shall be free to pursue
such remedies as may be available to it under contract or applicable law.
8.8 Set-off Rights. Each of the Sellers agrees that the Parent and
the Merger Sub shall have the right, but not the obligation (except as set forth
in Section 8.5(d)), to set-off against their payment obligations under Section
2.8 of this Agreement or the Notes the full amount of any Losses required to be
paid by such Seller pursuant to this Article VIII if such Losses are not
otherwise paid within 30
91
days after the Parent or the Merger Sub has requested payment. If the Parent or
the Merger Sub elects to exercise its set-off rights hereunder against any
payment due to the Sellers under this Agreement, it will give to the Sellers'
Representative written notice of such election which includes the amount to be
set-off, and upon giving of such notice, the amount of cash payable by the
Parent, the Merger Sub or the Surviving Corporation to the Sellers under this
Agreement shall automatically be reduced by the amount set forth in such notice.
In the event there is a final deter mination by a court of competent
jurisdiction that the Parent, the Merger Sub or the Surviving Corporation was
not entitled to indemnification under this Article VIII with respect to the
set-off amount, the Parent, the Merger Sub or the Surviving Corporation shall
promptly thereafter repay to the Sellers all such amounts which are so
determined to have been incorrectly set-off, plus interest thereon at a rate per
annum equal to 7.5%, on the basis of a twelve-month year of thirty days each,
and which shall accrue from the date the Parent or the Merger Sub exercised its
right of set-off hereunder to the date of such repayment.
ARTICLE IX
MISCELLANEOUS
9.1 Certain Definitions. As used herein, the following terms shall
have the meanings herein specified (to be equally applicable to both the
singular and plural forms of the terms defined):
92
"Business Day" means any day other than Saturday or Sunday or
any other day on which banks in the Commonwealth of Virginia are permitted or
obligated to be closed for business.
"Debt" means, as of any date, (without duplication) with
respect to any Person, any indebtedness outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute trade payables) and shall also include, to the extent not otherwise
included (i) any capital lease obligations determined in accordance with GAAP,
(ii) obligations of Persons other than such Person secured by a lien to which
the property or assets owned or held by such Person is subject, whether or not
the obligation or obligations secured thereby shall have been incurred or
assumed by such Person, (iii) all indebtedness of others of the types described
in the other clauses of this definition (including all dividends of other
Persons) the payment of which is guaranteed, directly or indirectly, by such
Person or that is otherwise its legal liability or which such Person has agreed
to purchase or repurchase or in respect of which such Person has agreed
contingently to supply or advance funds (whether or not such items would appear
upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligation or on any letter of credit, banker's acceptance
or similar credit transaction, and (v) and obligations under any currency or
interest rate swap, hedge or similar protection device of any such Person.
93
The amount of Debt of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations referred to in clause (iii) above, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
PROVIDED, HOWEVER, that (i) the amount outstanding at any time of any Debt
issued with original issue discount is the principal amount of such Debt less
the remaining unamortized portion of the original issue discount of such Debt at
such time as determined in conformity with GAAP, and (ii) Debt shall not include
any liability for federal, state, local or other taxes. Notwithstanding any
other provision of the foregoing definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the Ordinary Course
of Business shall not be deemed to be "Debt" for purposes of this definition.
"Deferred Tax Liability" means an amount equal to (x) the aggregate
amount of income that would have been recognized by the Parent for periods
beginning after the Closing Date pursuant to adjustments under Section 481 of
the Code arising from a change in the Company's accounting method and that is
instead recognized by the Shareholders in each case as a result of the Section
338(h)(10) Election, multiplied by (y) the highest rate applicable to an
individual resident in Fairfax County, Commonwealth of Virginia. The parties
have agreed that for purposes of Sections 2.3(b) and (c) of this Agreement, the
Deferred Tax Liability shall be deemed to be $4,000,000, regardless of whatever
the Deferred Tax Liability is ultimately determined to be.
94
"Direct Contract Costs" means, with respect to any period, the
aggregate amounts of labor and other direct expenses, including, without
limitation, expenses for materials, subcontracts, consultants and travel.
"GAAP" means generally accepted accounting principles, as in
effect as of the date hereof, applied in a manner consistent with the Company's
past practices, except that the Parent Home Office Expense Allocation and other
costs and expenses of the Parent shall be determined in a manner consistent with
the Parent's past practices.
"Indirect Cost" means any fringe benefits, general and
administrative expenses and overhead expenses.
"Knowledge" means the actual knowledge of any of the
individuals listed on Schedule 9.1.
"Operating Profit" means, with respect to any period, (x)
Revenue MINUS (y) Direct Contract Costs minus (z) Indirect Costs. In determining
Operating Profit no deduction shall be made for unallowables, interest expense,
Taxes and any allocations of costs or expenses by the Parent to the Company,
including the Parent Home Office Expense Allocation referred to in Section 4.18;
however, deduction shall be made for costs and expenses related to certain
corporate functions of the Company assumed by the Parent following the Closing,
including, but not limited to, insurance, audit and treasury costs that the
Company would otherwise have incurred, but for the consummation of the
transactions contemplated by this Agreement. For purposes of calculating the
Operating Profit, no more than $350,000 of management reserves of the Company
existing as of the Closing Date may be
95
included in determining Revenue or any other constituent of the Operating
Profit, except if the Parent requests that such reserves be altered.
"Person" means any individual, corporation, partnership,
limited liability company or partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government (including
any agency or political subdivision thereof).
"Revenue" means, with respect to any period, revenues
determined in accordance with GAAP, consistently applied.
"Tax" or "Taxes" means all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all net income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, transfer gains, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, real or personal property, and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, together with any interest
and any penalties, fines, additions to tax or additional amounts thereon,
imposed by any taxing authority (federal, state, local or foreign) and shall
include any transferee liability in respect of Taxes.
"Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect to
any Taxes.
"Transfer Taxes" means all stamp, transfer, documentary,
sales, use, registration and other such Taxes and fees (including, without
limitation, any penalties and interest) incurred in connection with this
Agreement and the transactions contemplated by this Agreement.
96
"Working Capital" means the difference of (x) the consolidated
current assets of the Company, MINUS (y) the consolidated current liabilities of
the Company, determined in accordance with GAAP applied on a consistent basis.
9.2 Sellers' Representative.
(i) Each Seller hereby irrevocably appoints and each other
Shareholder and Option Holder by its execution and delivery of a letter of
transmittal or option cancellation and settlement form shall irrevocably appoint
Joseph Maurelli to act as such Seller's attorney-in-fact and representative (the
"SELLERS' REPRESENTATIVE"), to do any and all things and to execute any and all
documents, in such Shareholder's or Option Holder's name, place and stead, in
any way which such Shareholder or Option Holder could do if personally present,
in connection with this Agreement, and the transactions contemplated hereby and
thereby, including to accept on such Shareholder's or Option Holder's behalf any
amount payable to such Shareholder or Option Holder under this Agreement, or to
amend, cancel or extend, or waive the terms of, this Agreement. The Parent and
the Merger Sub shall be entitled to rely, as being binding upon such Shareholder
or Option Holder, upon any document or other paper believed by the Parent and
the Merger Sub to be genuine and correct and to have been signed by the Sellers'
Representative, and the Parent and the Merger Sub shall not be liable to any
Shareholder or Option Holder for any action taken or omitted to be taken by the
Parent and the Merger Sub in such reliance. The Sellers' Representative shall
have the sole and exclusive right on behalf of the Shareholder or Option Holder
to take any action or provide any waiver pursuant to
97
Section 5.1, 9.4 or Article VII or VIII and to settle any claim or controversy
arising under this Agreement.
(ii) The Sellers' Representative may resign at any time by
giving written notice of resignation to the Parent and the Merger Sub and the
Sellers and may be removed at any time with or without cause by the Sellers who
held a majority of the outstanding Common Stock of the Company at the time of
the Closing. Upon any such resignation or removal, such Sellers shall have the
right to appoint, with the consent of the Parent and the Merger Sub, a successor
Sellers' Representative. If no successor Sellers' Representative shall have been
so appointed by such Sellers, and shall have accepted such appointment, within
30 days after the retiring Sellers' Representative's giving of notice of
resignation or the Sellers' removal of the retiring Sellers' Representative,
then the retiring Sellers' Representative may, on behalf of the Shareholders and
Option Holders, appoint a successor Sellers' Representative, which shall be
acceptable to the Parent and the Merger Sub (which shall not unreasonably
withhold or delay their approval). Upon the acceptance of any appointment as
Sellers' Representative thereunder by a successor Sellers' Representative, such
successor Sellers' Representative shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Sellers'
Representative, and the retiring Sellers' Representative shall be discharged
from its duties and obligations as Sellers' Representative under this Agreement.
After any retiring Sellers' Representative's resignation or removal hereunder as
Sellers' Representative, the provisions of this Section 9.2 shall inure to
98
its benefit as to any actions taken or omitted to be taken by it while it was
Sellers' Representative.
(iii) The grant of authority provided for in this Section 9.2:
(a) is coupled with an interest and shall be irrevocable and survive the death,
incompetency, bankruptcy or liquidation of any Shareholder or Option Holder and
shall be binding on any successor thereto; and (b) shall survive the delivery of
an assignment by a Shareholder or Option Holder of the whole or any fraction of
its interest in any payment due to it under this Agreement.
9.3 Expenses. Unless otherwise specifically provided herein, the
parties shall bear their own respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and consummation of the
transactions contemplated hereby. Notwithstanding the foregoing, the Parent and
the Merger Sub agree that if the Closing occurs and the transactions
contemplated by this Agreement are consummated, the Parent and the Merger Sub
will pay transaction expenses incurred by the Company, the Subsidiaries and the
Shareholders in respect of their outside legal, financial and accounting
advisors, up to $300,000; it being agreed by the parties hereto that any
accounting, legal and/or other expenses of the Company, the Subsidiaries and the
Sellers in excess of such specified amounts, and any other transaction expenses
of the Company, the Subsidiaries and the Sellers shall be paid solely by the
Shareholders and the Option Holders pro rata from their respective proceeds of
the transaction contemplated hereunder, and shall not be otherwise charged or
expensed to the Company.
99
9.4 Waivers and Amendments; Non-Contractual Remedies; PRESERVATION
OF REMEDIES. Subject to the provisions of Section 13.1-718I of the VSCA, this
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the Parent
and the Merger Sub and the Sellers or the Sellers' Representative or, in the
case of a waiver, by or on behalf of the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The indemnification
provisions of Article VIII are the exclusive remedy for breaches of this
Agreement, except for equitable relief following willful failure to consummate
this Agreement. The rights and remedies herein provided are cumulative. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement or any document delivered pursuant to
this Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement or any document
delivered pursuant to this Agreement (or in any other agreement between the
parties) as to which there is no inaccuracy or breach. The information provided
100
in any particular Disclosure Schedule to this Agreement is deemed disclosed for
all purposes of this Agreement.
9.5 Public Disclosure. Each of the parties to this Agreement hereby
agrees with the other party that, except as may be required to comply with the
requirements of applicable law, no press release or similar public announcement
or communication will be made or caused to be made concerning the execution or
performance of this Agreement or the transactions contemplated hereunder unless
specifically approved in advance by both parties, such approval not to be
unreasonably withheld, conditioned or delayed. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND
IN ALL RESPECTS SHALL BE INTER PRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND EACH SELLER
AND THE PARENT IRREVOCABLY AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT LOCATED IN FAIRFAX COUNTY, COMMONWEALTH OF VIRGINIA OR ANY FEDERAL COURT
LOCATED IN THE EASTERN DISTRICT OF VIRGINIA AND EACH PARTY AGREES
101
NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH ACTION,
SUIT OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER
OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY
SUCH COURT. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY PARTY IF GIVEN
PERSONALLY OR BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY
ANY OTHER MEANS OF MAIL THAT REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID. NOTHING
HEREIN CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY PARTY TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY JURISDICTION OTHER THAN
VIRGINIA. NOTWITHSTANDING THE FOREGOING UNLESS THE SELLERS' REPRESENTATIVE AND
THE PARENT SHALL OTHERWISE AGREE, ALL CLAIMS RESPECTING INDEMNIFICATION UNDER
ARTICLE VIII SHALL BE REFERRED FOR BINDING RESOLUTION THROUGH ARBITRATION, NOT
SUBJECT TO APPEAL, BEFORE A
102
SINGLE ARBITRATOR IN FAIRFAX COUNTY, VIRGINIA UNDER THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.
9.7 Notices. Any notices or other communications required under
this Agreement shall be in writing and be effective upon delivery if given by
hand delivery or facsimile transmission or on the next day after given if
delivered by overnight courier, and shall be given at the addresses or facsimile
numbers set forth below, with copies provided as follows:
(a) if to the Company or the Sellers, to the Sellers'
Representative addressed to:
Joseph Maurelli
TECHMATICS, Inc.
12450 Fair Lakes Circle
Fairfax, VA 22033
Fax: 703-802-2348
with a copy to:
Venable, Baetjer and Howard, LLP
2010 Corporate Ridge Road, Suite 400
McLean, VA 22101
Attn: William L. Walsh, Jr., Esq.
Fax: 703-821-8949
(b) if to the Parent or the Merger Sub, addressed to:
Anteon Corporation
3211 Jermantown Road
Fairfax, VA 22030-2801
Attn: Curtis L. Schehr, Esq.
Vice President and General Counsel
Fax: 703-246-0629
103
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn: Carl L. Reisner, Esq.
Fax: 212-757-3990
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties to this Agreement in the manner herein
proved.
9.8 Section Headings. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. A reference to a Section
or an Exhibit or Schedule will mean a Section in, or Exhibits or Schedule to,
this Agreement unless otherwise explicitly set forth.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.10 Assignments. This Agreement may not be assigned, by operation
of law or otherwise, except that the Parent or the Merger Sub may assign for
collateral purposes their rights under this Agreement to their financing
sources. This Agreement shall be binding upon and inure to the benefit of
successors and legal representatives of the parties hereto.
9.11 Entire Agreement, Enforceability and Miscellaneous. This
Agreement, including the Exhibits and Schedules attached hereto, (a) constitutes
the entire agreement among the parties with respect to the transactions
contemplated hereby and, except as set forth herein at Sections 4.6 and 4.8,
supersedes all prior
104
agreements and understandings, both written and oral, among the parties, with
respect to the subject matter hereof; (b) shall be binding upon, and is solely
for the benefit of, each of the parties herein and nothing in this Agreement
except Sections 8.1 and 8.2 is intended to confer upon any other persons any
rights or remedies of any nature whatsoever hereunder or by reason of this
Agreement; and (c) in case any provision in this Agreement shall be or shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
105
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
ANTEON CORPORATION
By: /s/ JOSEPH M. KAMPF
--------------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive Officer
TECHMATICS, INC.
By: /s/ J. MAURELLI
--------------------------------------------
Name: J. Maurelli
Title: President and Chief Executive Officer
TM ACQUISITION CORP.
By: /s/ JOSEPH M. KAMPF
--------------------------------------------
Name: Joseph M. Kampf
Title: President and Chief Executive Officer
106
SELLERS
/s/ JOSEPH MAURELLI
--------------------------------------------
Joseph Maurelli
/s/ KENT E. MAGGARD
--------------------------------------------
Kent E. Maggard
/s/ WALTER S. SZCZYPINSKI, JR.
--------------------------------------------
Walter S. Szczypinski, Jr.
/s/ GARRY L. MILLER
--------------------------------------------
Garry L. Miller
/s/ JAMES A. FLEMING, JR.
--------------------------------------------
James A. Fleming, Jr.
/s/ CHARLES T. DERICK
--------------------------------------------
Charles T. Derick
/s/ DEBORAH H. ALDERSON
--------------------------------------------
Deborah H. Alderson
/s/ JOSEPH MAURELLI
--------------------------------------------
Joseph Maurelli, as Trustee
under the Joseph Maurelli revocable trust,
dated February 15, 1995
/s/ WALTER S. SZCZYPINSKI, JR.
--------------------------------------------
Walter S. Szczypinski, Jr., as Trustee
under the Walter S. Szczypinski, Jr. revocable trust,
dated October 24, 1994