Exhibit 2.1
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ASSET
PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 2003
by and among
NATIONAL TECHNICAL SYSTEMS, INC.,
NTS TECHNICAL SYSTEMS,
ROBERT WAKEFIELD,
RANDOLPH FAIRFIELD,
CALVIN MILAM,
E&C HOLDINGS, INC.
PETERSON BUILDERS, INC.
and
DTI HOLDINGS, LLC
ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (together with the Schedules and Exhibits
hereto, the "Agreement"), dated as of December 31, 2003, is entered into by and
among National Technical Systems, Inc., a California corporation ("Parent"), and
NTS Technical Systems, a California corporation and wholly-owned subsidiary of
Parent ("Purchaser"), Robert Wakefield, an individual ("Wakefield"), Randolph
Fairfield, an individual ("Fairfield"), Calvin Milam, an individual ("Milam"),
E&C Holdings, Inc., a Maryland corporation ("E&C") and Peterson Builders, Inc.,
a Wisconsin corporation ("Peterson") (each an "Interest Holder" and
collectively, the "Interest Holders"), and DTI Holdings LLC, a Maryland limited
liability company (the "Company"). E&C and Peterson are sometimes referred to
herein as the "Entity Interest Holders").
WHEREAS, the Interest Holders together own 100% of outstanding membership
interests of the Company (the "Company Membership Interests")
WHEREAS, the Company is engaged in the business of conducting underwater
shock and vibration tests for mission-critical equipment installed on U.S. Navy
combatants and the manufacture and sale of shock isolators (the "Business"); and
WHEREAS, Purchaser desires to purchase the Acquired Assets and the Company
desires to sell the Acquired Assets, and the Company desires to assign the
Assumed Liabilities and Purchaser desires to assume the Assumed Liabilities, all
on and subject to the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
Certain capitalized terms used herein are defined in Exhibit A.
ARTICLE I
SALE OF THE ACQUIRED ASSETS; CLOSING
Section 1.1 Purchase and Sale of the Acquired Assets.
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(a) On the Closing Date (as defined in Section 1.2 hereof), subject to the
terms set forth in this Agreement, the Company shall sell, convey, transfer,
assign and deliver to Purchaser and its successors and assigns, forever, and
Purchaser shall purchase and acquire from the Company, all of the Acquired
Assets, free and clear of all Encumbrances (other than Permitted Encumbrances
(as defined in Section 2.4 hereof)), for the purchase price specified in Section
1.1(b) hereof.
(b) The purchase price (the "Purchase Price") shall equal (i) $2,600,000 in
cash in U.S. Dollars, subject to adjustment as provided in Section 1.4 hereof
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(as initially so adjusted at the Closing, hereinafter referred to as the
"Closing Cash Consideration", and (ii) shares of Parent's Common Stock, no par
value, having a Closing Date aggregate Average Market Price of $1,000,000 (the
"NTS Shares") hereinafter referred to as the "Share Consideration" and (iii) the
assumption by the Purchaser of the Assumed Liabilities.
Section 1.2 Closing.
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(a) Subject to the terms and conditions of this Agreement, the closing of
the sale and purchase of the Acquired Assets (the "Closing") shall be effective
as of the close of business on December 31, 2003 (the "Closing Date").and, if
the closing has not occurred by that date, from and after January 1, 2004 the
business of the Company shall be operated for the sole and exclusive account and
benefit of the Purchaser. The closing shall take place at 10:00 a.m., local
time, on such date, no later than January 23, 2004 as may be mutually
satisfactory to Purchaser and the Company at the offices of Sheppard, Mullin,
Richter & Hampton, LLP, 333 South Hope Street, Suite 4800, Los Angeles, CA
90071.
(b) In addition to the other things required to be done hereby, at the
Closing, subject to the terms of this Agreement, the Company or the Interest
Holders, as the case may be, shall convey and deliver to Purchaser the
following: (i) bills of sale and instruments of assignment, in forms reasonably
satisfactory to Purchaser, to evidence the transfer to Purchaser of the Acquired
Assets in accordance herewith duly executed by the Company; (ii) consents to
transfer or assignment of all Contracts that require consents for transfer or
assignment, as set forth on Schedule 6.1(b); (iii) member resolutions evidencing
the authority of the Company to consummate the transactions contemplated by this
Agreement; (iv) all such other documents and instruments of conveyance as shall,
in the reasonable opinion of Purchaser, be necessary to transfer to Purchaser
the Acquired Assets in accordance herewith and, where necessary or desirable, in
recordable form; (v) good standing certificates requested by Purchaser; and (vi)
if not previously delivered to Purchaser, all other certificates and such other
instruments and documents required pursuant hereto to be delivered by or on
behalf of each of the Interest Holders or the Company, as the case may be, at or
prior to the Closing or otherwise required, or reasonably requested by
Purchaser, in connection herewith.
(c) In addition to the other things required to be done hereby, at the
Closing, subject to the terms of this Agreement, Purchaser shall deliver to the
Company, (i) an assumption agreement, in the form attached hereto as Exhibit B,
to evidence the assumption by Purchaser of the Assumed Liabilities in accordance
herewith, duly executed by Purchaser (the "Assumption Agreement"); (ii)
certified board resolutions evidencing the authority of Purchaser and Parent to
consummate the transactions contemplated by this Agreement; (iii) if not
previously delivered to the Company, all other certificates and such other
instruments and documents required pursuant hereto to be delivered by or on
behalf of Purchaser or Parent at or prior to the Closing or otherwise required,
or reasonably requested by the Company, in connection herewith.
Section 1.3 Payment.
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(a) Subject to the terms of this Agreement, at the Closing, Purchaser shall
deliver to the Company (i) the Closing Cash Consideration, less ten percent
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(10%) of the Closing Cash Consideration to be deposited into the Escrow referred
to in 1.3(b) below, which shall be paid by wire transfer of immediately
available funds to a bank account designated in writing by the Company and (ii)
(subject to Section 1.3(b) hereof) a duly executed stock certificate evidencing
the issuance to the NTS Shares.
(b) Subject to the terms of this Agreement, at the Closing, Purchaser shall
deliver the NTS Shares into an escrow (the "Escrow") to be disbursed pursuant to
the terms of an escrow agreement in substantially the form set forth in Exhibit
C (the "Escrow Agreement").
Section 1.4 Closing Net Worth Adjustment.
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(a) At least five Business Days prior to the Closing, the Company shall
deliver to Purchaser its good faith written estimate of the Closing Net Worth,
which Purchaser shall have the right to approve (the "Estimated Closing Net
Worth"). The Company shall make available to Purchaser all work papers and other
books and records utilized in preparing the Estimated Closing Net Worth and
shall make available to Purchaser the appropriate personnel involved in the
preparation of such estimate. If the Estimated Closing Net Worth is (i) less
than $1,756,116.11, the Closing Cash Consideration shall be decreased by the
amount of such deficiency (the "Deficiency") or (ii) if the Estimated Closing
Net Worth is greater than $1,756,116.11, the Closing Cash Consideration shall be
increased by the amount of such excess (the "Excess"). In all other cases, there
shall be no adjustment of the Closing Cash Consideration at the Closing.
(b) As promptly as practicable, but in no event later than sixty (60) days,
after the Closing, Purchaser shall notify the Company in writing of its
determination of Closing Net Worth ("Purchaser's Closing Schedule"), which
determination shall set forth in reasonable detail Purchaser's calculation of
Closing Net Worth. Purchaser's Closing Schedule shall also set forth, and
explain, in reasonable detail, any differences between Purchaser's calculation
of Closing Net Worth and the Estimated Closing Net Worth. A copy of all work
papers and other books and records utilized in the preparation of Purchaser's
Closing Schedule shall be made available to the Company at such time. The
Company will notify Purchaser in writing (the "Net Worth Dispute Notice") within
thirty (30) days after receiving Purchaser's Closing Schedule if the Company
disagrees with Purchaser's calculation of the Closing Net Worth as set forth in
Purchaser's Closing Schedule, which notice shall set forth in reasonable detail
the basis for such disagreement, the dollar amounts involved and the Company's
calculation of the Closing Net Worth. Purchaser will give the Company and its
representatives reasonable access during the normal business hours of Purchaser
to the personnel, books and records of the Business to assist the Company in the
preparation of the Net Worth Dispute Notice. If no Net Worth Dispute Notice is
received by Purchaser within such 30-day period, Purchaser's calculation of
Closing Net Worth as set forth in Purchaser's Closing Schedule shall be final
and binding upon the parties hereto.
(c) Upon receipt by Purchaser of the Net Worth Dispute Notice, the Company
and Purchaser shall negotiate in good faith to resolve any disagreement with
respect to Closing Net Worth set forth in the Net Worth Dispute Notice. To the
extent Purchaser and the Company are unable to agree with respect to Closing Net
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Worth within thirty (30) days after receipt by Purchaser of the Net Worth
Dispute Notice, Purchaser and the Company shall promptly submit their dispute to
KPMG LLP for a binding resolution. Closing Net Worth as agreed upon by the
Company and Purchaser, as deemed agreed upon pursuant to the last sentence of
Section 1.4(b) or as determined by KPMG LLP, in accordance herewith, shall be
termed the "Final Closing Net Worth". The fees and expenses of such accounting
firm shall be paid by the party hereto whose determination of Closing Net Worth,
as submitted to such accounting firm, is furthest away from the Final Closing
Net Worth.
(d) If the Final Closing Net Worth is greater than the Estimated Closing
Net Worth, Purchaser shall pay to the Company the Excess. If the Final Closing
Net Worth is less than the Estimated Closing Net Worth, the Deficiency shall
first be distributed to Purchaser from the Escrow with the balance, if any, of
the Deficiency to be paid by the Company to Purchaser. In the event that there
is no Deficiency, or the Deficiency is less than the cash in the Escrow, the
remaining cash shall be promptly paid to the Company following determination of
the Final Closing Net Worth and the completion of payments required as a result
thereof.
(e) The payment to be made pursuant to Section 1.4(d) shall be made by wire
transfer of immediately available funds to a bank account designated by the
Company or Purchaser, as payee as the case may be, within five (5) business days
after the Final Closing Net Worth becomes final and binding on the parties
hereto.
Section 1.5 Assumption of Assumed Liabilities.
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(a) Subject to the terms of this Agreement, at the Closing, Purchaser shall
assume the Company's liabilities and obligations (i) under the Contracts (other
than Excluded Contracts (as defined below)) listed on Schedule 2.16 hereto
arising exclusively from, and accruing exclusively with respect to, the period
after the Closing, (ii) for personal injuries and property damage occurring at
any time after the Closing Date caused by products manufactured by the Company
and (iii) as set forth on the Closing Date Balance Sheet (as defined below) (the
"Assumed Liabilities"). Purchaser shall assume no other liabilities of the
Company, except that, upon the prior written request of the Company, Purchaser
will repair or replace defective shock mounts at the Purchaser's cost and
expense.
(b) Notwithstanding anything to the contrary contained herein, Purchaser
shall not assume or be bound by or be obligated or responsible for any duties,
responsibilities, commitments, expenses, obligations or liabilities of the
Company or relating to the Acquired Assets or the Business (or which may be
asserted against or imposed upon Purchaser as a successor or transferee of the
Company or as an acquirer of the Acquired Assets or the Business or otherwise as
a matter of Law) of any kind or nature, whether fixed or contingent, known or
unknown, warranties, obligations or claims (collectively, the "Non-Assumed
Liabilities"), other than the Assumed Liabilities. Without limitation of the
foregoing, all of the following shall be considered Non-Assumed Liabilities for
the purposes of this Agreement:
(i) any liability or obligation arising out of any Contract that (A)
subject to Section 1.7 hereof, was not capable of being assigned to
Purchaser as of the Closing until such time that such Contract has
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effectively been assigned, or the benefits thereof made available, to
Purchaser, (B) is required by the terms thereof to be discharged on or
prior to the Closing, (C) relates to or arises out of a breach or default
by the Company on or prior to the Closing (including any event occurring at
or prior to the Closing that with the lapse of time or the giving of
notice, or both, would become a breach or default) under any Contract or to
any services or products provided or to be provided by the Company under
any such Contract arising out of or relating to any time on or prior to
December 31, 2003 or (D) is specified on Schedule 1.5(b) hereto (the
"Excluded Contracts");
(ii) any liability for Taxes;
(iii) any liability or obligation arising (whether arising before or
after the Closing) under or with respect to any Benefit Plan (as defined in
Section 2.7(b) hereof) or any other compensation or employee benefit plan,
policy or arrangement or collective bargaining agreement maintained,
contributed to or entered into at any time by the Company or any of its
Affiliates or with respect to the employment of any Employee, agent or
independent contractor by the Company or any of its Affiliates (whether or
not employed by Purchaser after the Closing), including any liability or
obligation with respect to workers compensation, unemployment insurance
premiums or any claims arising under any federal, state or local tax
withholding, employment, labor or discrimination Laws;
(iv) any liability or obligation relating to the operation of the
Company prior to the Closing arising by operation of Law under any common
Law or statutory doctrine (including successor liability or de facto
merger);
(v) any liability or obligation in respect of the Excluded Assets; and
(vi) any liabilities to Employees or others under any provisions
relating to changes of control or the like.
(c) The Company hereby irrevocably waives and releases, and has caused its
Affiliates to waive and release, Purchaser from all Non-Assumed Liabilities,
including any liabilities or obligations created or which arise by statute or
common Law.
Section 1.6 Stock Legend; Transfer.
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(a) The Company acknowledges and agrees that the NTS Shares acquired by it
pursuant to this Agreement may not be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of, and that it will not directly or indirectly
offer or sell any of the NTS Shares, other than in compliance with the
Securities Act of 1933 and all other applicable state or foreign securities
Laws. In addition, without the prior written consent of Parent, the Company
shall not, [except as contemplated by Section 7.1(a)], directly or indirectly,
offer, sell, solicit an offer to buy, make any short sale, hedge, pledge, grant
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any option to purchase, contract to sell, or otherwise dispose of or transfer
any of the NTS Shares, or in any manner, transfer all or a portion of the
economic consequences associated with the ownership of the NTS Shares
(including, without limitation, by way of equity swap, hedging, or any other
form of derivative transaction) (any of the foregoing, a "Transfer"), in each
case for a period of one year from the Closing Date; provided, however, that,
the Company may distribute any or all of the NTS Shares to the Interest Holders
at any time, provided (i) such distribution is exempt from the registration
requirements of the Securities Act of 1933 and (ii) at or prior to the time of
such Transfer, each Interest Holder receiving any NTS Shares has executed and
delivered to Parent an agreement to the foregoing effect. Parent may, with
respect to any of the NTS Shares, cause its transfer agent to note, during the
above period, stop transfer instructions with respect to the NTS Shares.
(b) The Common Stock delivered pursuant to this Agreement will contain the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, ANY SUCCESSOR LAW, THE SECURITIES LAWS OF
ANY STATE OR OTHER JURISDICTION WITHIN THE UNITED STATES AND ITS TERRITORIES,
POSSESSIONS OR THE SECURITIES LAWS OF ANY FOREIGN JURISDICTION. THESE SECURITIES
MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO NATIONAL TECHNICAL SYSTEMS, INC. IS
RECEIVED STATING THAT SUCH TRANSACTION IS NOT SUBJECT TO THE REGISTRATION AND/OR
PROSPECTUS DELIVERY REQUIREMENTS OF ANY SUCH JURISDICTION. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT NATIONAL TECHNICAL SYSTEMS,
INC. MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY SECTION 4(2) THEREUNDER.
Section 1.7 Consent of Third Parties.
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(a) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign any of the Contracts or
Permits or any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of a third
Person, would constitute a breach or other contravention thereof or in any way
adversely affect the rights of Purchaser thereunder. The Company will use its
reasonable best efforts to obtain the consent of each such Person for the
assignment to Purchaser of any such Contract or Permit. If such consent is not
obtained prior to the Closing, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of the Company thereunder so
that Purchaser would not in fact receive all such rights, the Company and
Purchaser will cooperate in a mutually agreeable arrangement under which
Purchaser would obtain the benefits and assume the obligations thereunder (but
only to the extent such obligations would have constituted Assumed Liabilities
if such assignment occurred on the Closing Date) from and after the Closing Date
in accordance with this Agreement, including subcontracting, sublicensing or
subleasing to Purchaser, or under which the Company would enforce for the
benefit of Purchaser, with Purchaser assuming the Company's obligations to the
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same extent as if it would have constituted an Assumed Liability and any and all
rights of the Company against a third Person thereto. The Company will pay
promptly to Purchaser when received all monies received by the Company after the
Closing Date under any of the Contracts or any claim or right or any benefit
arising thereunder to the extent that Purchaser would be entitled thereto
pursuant hereto.
Section 1.8 Allocation of Consideration.
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(a) The allocation of the Purchase Price among the Acquired Assets shall be
as set forth on Schedule 1.8 hereto (the "Allocation"). The parties hereto
covenant and agree that the Allocation shall be conclusive and final for all
purposes of this Agreement. Purchaser and the Company shall each report the
federal, state and local income and other tax consequences of the transactions
contemplated by this Agreement in a manner consistent with the Allocation and
cooperate in the preparation and filing of Form 8594 under Section 1060 of the
Code (or any successor form or successor provision of any future tax Law, or any
comparable provisions of state, or local tax Law), with their respective
federal, state and local income tax returns for the taxable year that includes
the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE INTEREST HOLDERS AND THE COMPANY
Each of the Interest Holders and the Company hereby severally, but not
jointly, represents and warrants to and for the benefit of Purchaser and Parent
as follows:
Section 2.1 Authorization: Formation; etc.
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(a) The Company has full requisite power and authority to execute, deliver
and perform this Agreement and the other instruments and documents contemplated
hereby to be executed and delivered by the Company, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The Company has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other instruments
and documents contemplated hereby to be executed and delivered by the Company.
The execution, delivery and performance by the Company of this Agreement and the
other instruments and documents contemplated hereby to be executed and delivered
by the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) violate or conflict with
or result in the breach of any provision of the Company's or either Entity
Interest Holder's formation document or operating agreements, (ii) except as set
forth on Schedule 2.1(a) hereto, (whether after the giving of notice or lapse of
time or both) violate or conflict with any provision of, or result in the
modification, cancellation, termination or acceleration of, any obligation
under, or result in the imposition or creation of any Encumbrances upon the
Company, any Interest Holder or the Acquired Assets pursuant to any agreement or
contract by which the Company, any Interest Holder or the Acquired Assets is
bound, with such exceptions as do not individually or in the aggregate have a
Material Adverse Effect, or (iii) violate or conflict with any Legal Requirement
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applicable to the Company, any Interest Holder or the Acquired Assets or by
which the Business or any of the Acquired Assets may be bound or affected, with
such exceptions as do not individually or in the aggregate have a Material
Adverse Effect. This Agreement has been, and the other instruments and documents
contemplated hereby to be executed and delivered by the Company at the Closing
will, at the Closing, have been, duly executed and delivered by the Company, and
constitute (or will constitute at the Closing, as applicable) legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other Laws
relating to or affecting the rights and remedies of creditors generally and to
general principles of equity (regardless of whether in equity or at Law).
(b) The Company (i) is a limited liability company duly formed, validly
existing and in good standing under the Laws of Maryland, (ii) has all requisite
power and authority to own and operate the Acquired Assets and conduct the
Business as they are now being operated and conducted, (iii) is in good standing
and is duly qualified to transact business in Virginia and in each other
jurisdiction in which the Company's ownership or use of the Acquired Assets or
the conduct of the Business requires it to be so qualified, with such exceptions
as do not individually or in the aggregate have a Material Adverse Effect. The
Company has previously delivered or made available to Purchaser true and correct
copies of the formation and operating documents of the Company and all
amendments thereto. The Company has no Subsidiaries or any investments in, or
joint venture arrangements with, any other Person.
(c) Each Entity Interest Holder (i) is a corporation duly formed, validly
existing and in good standing under the Laws of the state of their formation,
(ii) has all requisite power and authority to own and operate its assets and
conduct its business as they are now being operated and conducted, (iii) is in
good standing and is duly qualified to transact business in each jurisdiction in
which the Entity Interest Holder's ownership or the conduct of its business
requires it to be so qualified.
Section 2.2 Absence of Litigation.
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(a) There is no Action pending or, to the Knowledge of the Company,
threatened against the Company or any Interest Holder in his or its capacity as
a holder of equity interests in the Company, at Law or in equity, before or by
any court, arbitrator, panel or other Government Authority. The Company is not
currently operating under or subject to any order, award, stipulation, judgment,
writ, decree, determination or injunction of any arbitrator or Government
Authority. There is not pending against the Company or any Interest Holder any
Action (i) seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, (ii) seeking to prohibit or limit the ownership
or operation by Purchaser of any portion of the Acquired Assets, or (iii) which
otherwise could reasonably individually or in the aggregate be expected to have
a Material Adverse Effect.
Section 2.3 Compliance with Laws: Permits; Consents.
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(a) The Company and each Interest Holder, in his or its capacity as a
holder of an equity interest in the Company, is in compliance with all
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applicable Laws, except for such non-compliance as would not individually or in
the aggregate reasonably be likely to have a Material Adverse Effect.
(b) The Company owns, or has full rights under, all franchises, licenses,
permits, consents, approvals and authorizations of any Government Authority
which are necessary for the conduct of the Business as currently conducted, all
of which are listed on Schedule 2.3(b) hereto. Each of the foregoing is in full
force and effect, and the Company and each Interest Holder is in compliance with
all of its obligations with respect thereto, and no event has occurred which
permits, or upon the giving of notice or lapse of time or otherwise would
permit, revocation or early termination of any of the foregoing, with such
exceptions as do not individually or in the aggregate have a Material Adverse
Effect.
(c) Except as set forth in Schedule 2.3(c) hereto, no filing, consent,
waiver, approval or authorization of any Government Authority or of any third
party is required to be made or obtained on the part of the Company or any
Interest Holder in connection with the execution, delivery and performance by
the Company and each Interest Holder of this Agreement or the consummation by
the Company and each Interest Holder of the transactions contemplated hereby.
Section 2.4 Acquired Assets; Title.
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(a) Schedule 2.4(a) hereto contains descriptions of all items of tangible
personal property of every kind or description owned by the Company having a
current net book value in excess of $10,000.
(b) Schedule 2.4(b) hereto contains a description of all real property
owned or leased by the Company and a description of the principal terms of all
such leases.
(c) Except for the Excluded Assets, the Acquired Assets (including any
assets, properties and rights subject to any Contract included in the Acquired
Assets) constitute all the assets, properties and rights owned, used, or held
for use in connection with, or that are otherwise related to or required for the
conduct of, the Business as currently conducted by the Company on the date of
this Agreement. Except as set forth in Section 2.4(c), the Company has good and
marketable title to, or holds by valid and existing leases or licenses for, all
of the Acquired Assets free and clear of all Encumbrances, except for (i) liens
for Taxes, assessments and other governmental charges which are not due and
payable and which may thereafter be paid without penalty, (ii) the title and
other interests of lessor under a capital or operating lease or of a licensor
under a license or royalty agreement, (iii) Encumbrances arising by or through
Purchaser, (iv) Encumbrances listed on Schedule 2.4(c) hereto and (v) such minor
imperfections in title as do not detract in any material respect from the value
or utility of the subject property in the operation of the Business
(collectively, "Permitted Encumbrances"). Except as set forth in Schedule
2.4(c), there is no financing statement under the UCC or any security agreement
authorizing any secured party to file any such financing statement with respect
to any of the Acquired Assets. At the Closing, the Company will convey to
Purchaser good title to all of the Acquired Assets (except those which the
Company holds by valid and existing leases or licenses), free and clear of all
Encumbrances other than Permitted Encumbrances. Except as set forth in Schedule
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2.4(c), the tangible assets (a) included in the Acquired Assets or (b) subject
to any Contract included in the Acquired Assets, are in good operating condition
and repair, reasonable wear and tear excepted.
Section 2.5 Intellectual Property.
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(a) Schedule 2.5 hereto contains a true, accurate and complete list of all
patents, trademarks, trade names and trade dress, whether or not registered, and
trade secrets, service marks and copyrights, and corresponding registrations and
applications for registrations thereof, worldwide, which are now owned, used or
held for use by the Company. Except as set forth in Schedule 2.5, the Company,
to its Knowledge, has good legal title to all of the Intellectual Property free
and clear of Encumbrances (including any rights or claims of present or former
Employees, consultants, officers and directors of the Company or any other
Persons), except Permitted Encumbrances, and of any obligations to pay royalties
or other remuneration to any Person. Schedule 2.5(a) hereto further sets forth a
true, accurate and complete list of all Outstanding IP Licenses, identifying the
other parties thereto and the subject matter and date thereof, any royalty or
other payment obligations, the term thereof, and any exclusivity obligations. No
Outstanding IP License requires any payment of any nature, cash or non-cash or
approval from, any past or present officer, director, member or Affiliate of the
Company.
(b) To the Knowledge of the Company, except as set forth in Schedule 2.5(b)
hereto, the Company has (i) has sufficient title, ownership or IP Licenses of
Intellectual Property (whether or not listed in Schedule 2.5 hereto or 2.5(a))
necessary for the Business as now conducted without any conflict with or
infringement of the rights of others, and (ii) such rights will not be adversely
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(c) Except as set forth in Schedule 2.5(c) hereto, (i) the Company, to its
Knowledge, has not been nor is it now interfering with, infringing upon,
misappropriating, or otherwise in conflict with or violating any Intellectual
Property Rights of other Persons, (ii) the Company has not received, and has no
Knowledge of, any communications alleging that the Company has violated or, by
conducting the Business, would violate any of the Intellectual Property Rights
of any other Person and (iii) to the Knowledge of the Company, there is no basis
for the making of any such allegation.
(d) There is not pending, nor to the Knowledge of the Company, has there
been threatened, any Action to contest, oppose, cancel or otherwise challenge
the validity, ownership or enforceability of any of the Company's Intellectual
Property.
(e) To the Knowledge of the Company, except as set forth in Schedule
2.5(e), no Person is infringing any of the Company's Intellectual Property, with
such exceptions as do not individually or in the aggregate have a Material
Adverse Effect.
(f) To the Knowledge of the Company, none of the Employees is obligated
under any contract (including IP Licenses, Licenses, covenants or commitments of
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any nature) or other agreement, or subject to any judgment, decree or order of
any Government Authority, that would interfere with the reasonable best efforts
of such Employee to promote the interests of the Company or that would conflict
with the Business as currently conducted. To the Knowledge of the Company, none
of its consultants is obligated under any contract (including IP Licenses,
Licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any Government Authority, that would
interfere with such consultant's performance of its contractual obligations or
other currently contemplated duties to the Company. Neither the execution nor
delivery of this Agreement or the consummation of the transactions contemplated
hereby, nor the carrying on of the Business by the Employees and the consultants
to the Company, nor the conduct of the Business, will, to the Knowledge of the
Company, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any Law, contract, covenant or
instrument to or under which any of such employees or consultants is now subject
to or obligated. To the Knowledge of the Company, it will not be necessary to
utilize any inventions of any Interest Holders, Employees or any consultants to
the Company (or Persons it currently intends to hire or retain as consultants)
that are not included in the Intellectual Property of the Company.
(g) Schedule 2.5(g) hereto sets forth a complete list of all Domain Names
now used by the Company. All such Domain Names are currently registered and in
good standing, and the Company is shown on the records of the registrar thereof
as the sole owner thereof. The Company has not received and has no Knowledge of
any notice or communication stating that any Person is challenging the right of
the Company to use any such Domain Name.
(h) All Software which has been used and which is now being used by the
Company has and is being used in compliance with all applicable IP License
requirements, with such exceptions as do not individually or in the aggregate
have a Material Adverse Effect.
Section 2.6 Customers and Suppliers.
------------------------
(a) Schedule 2.6(a) hereto sets forth a list of each customer of the
Company which accounted for more than 5% of the net sales of the Company in any
of the calendar years 2002 or 2003.
(b) Schedule 2.6(b) lists the top 10 suppliers and vendors of goods to the
Company during the period from January 1, 2003 to December 31, 2003 (based on
invoice price) and the value of goods supplied to the Company in such period
(based on invoice price). To the Knowledge of the Company, no event, occurrence,
or fact has occurred which would lead it to believe that any of such suppliers
or vendors will not continue to supply the current level and type of goods
currently being provided to the Company on similar terms and conditions.
Section 2.7 Labor: Employee Benefits.
-------------------------
(a) Schedule 2.7(a) hereto sets forth a complete and correct list of the
name, job title, base salary or wage rate and bonus entitlement of each of the
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Company's current Employees and whether or not each Employee is actively at work
and, if not, the reason that such Employee is not actively at work.
(b) Schedule 2.7(b) hereto sets forth a complete and correct list of (i)
each "employee benefit plan" within the meaning of Section 3(3) of ERISA, (ii)
each other employee benefit plan, arrangement or policy, including without
limitation, any stock option, stock purchase, stock award, deferred
compensation, profit sharing, incentive compensation, bonus, health, life
insurance, cafeteria, flexible spending, dependent care, fringe benefit,
vacation pay, holiday pay, disability, sick pay, workers compensation,
unemployment, severance pay, employee loan, educational assistance plan, policy
or arrangement, and (iii) any employment, indemnification, consulting or
severance agreement, whether or not written, which, in the case of clauses (i),
(ii) or (iii), is sponsored or maintained by the Company or any of its
Affiliates, or to which the Company or any of its Affiliates contributes or is
required to contribute on behalf of current or former Employees, directors or
consultants of the Company or their beneficiaries or dependents ("Benefit
Plans").
(c) The Disclosure Schedule contains complete and correct copies of (i)
with respect to each Benefit Plan, (A) the plan document, including any
amendments (or a written description of any unwritten plan) and (B) any summary
plan description; and (ii) any employee handbook, administrative or personnel
manual applicable to Employees.
(d) There is currently no audit or investigation by any Government
Authority or any claim (other than routine claims for benefits in the ordinary
course), action, suit or proceeding against or involving any Benefit Plan.
(e) Each Benefit Plan that is a "group health plan" (as such term is
defined in Section 5000(b)(l) of the Code) complies in all material respects
with the applicable requirements of Section 4980B(f) of the Code or any other
similar Legal Requirements providing for continuation coverage.
(f) No event has occurred and no condition exists with respect to any
Benefit Plan, any employee benefit plan maintained by an ERISA Affiliate of the
Company or any employee benefit plan previously maintained by the Company or any
of its ERISA Affiliates which could subject Purchaser, or any of its officers,
directors, employees, agents or Affiliates, directly or indirectly to any Tax,
penalty, fine or other liability.
(g) All contributions and premium payments required to have been paid under
or with respect to any Benefit Plan have been timely paid.
(h) No Employees are represented by a union or other labor organization or
association, and to the Knowledge of the Company, no such organizing efforts are
now being conducted with respect to the Employees. The Company has not, at any
time during the preceding three years, had a strike, work stoppage or work
slowdown, nor, to the Knowledge of the Company, is any such action threatened.
The Company is not involved in nor, to the Knowledge of the Company, threatened
with, any labor dispute, arbitration, Lawsuit or administrative proceeding
relating to labor matters involving the Employees.
-12-
Section 2.8 No Brokerage.
-------------
(a) Except for Mertz Associates, Inc., whose fees shall be the sole
responsibility of the Company and the Interest Holders, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement, the other documents contemplated
by this transaction or the transactions contemplated hereby or thereby based
upon any agreements, written or oral, made by or on behalf of the Company or the
Interest Holders.
Section 2.9 Environmental Matters.
----------------------
Except as set forth in Phase One Environmental Report included in the
Disclosure Schedule 2.9:
(a) The Company is, and at all times has been, in material compliance with,
and has not been and is not in material violation of our liable under, any
Environmental Law. Neither the Company nor the Interest Holders have any basis
to expect, nor have they or any other Person for whose conduct the Company is or
may be held to be responsible received, any actual or threatened Order, notice
or other communication from (i) any Governmental Authority or private citizen
acting in the public interest, or (ii) the current or prior owner or operator of
any Facility, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health and Safety Liabilities with respect
to any Facility or other property or asset (whether real, personal or mixed) in
which the Company has or had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used or processed by the Company or any other
Person for whose conduct it is or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
(b) There are no pending or, to the Knowledge of the Company or the
Interest Holders, threatened claims, Liens, or other restrictions of any nature
resulting from any Environmental, Health and Safety Liabilities or arising under
or pursuant to any Environmental Law with respect to or affecting any Facility
or any other property or asset (whether real, personal or mixed) in which the
Company has or had an interest.
(c) The Company and the Interest Holders have no Knowledge of or any basis
to expect, nor have they, or any other Person for whose conduct the Company is
or may be held responsible, received, any citation, directive, inquiry, notice,
Order, summons, warning or other communication that relates to Hazardous
Activity, Hazardous Materials, or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any Environmental Health
and Safety Liabilities with respect to any Facility or property or asset
(whether real, personal or mixed) in which the Company has or had an interest,
or with respect to any property or Facility to which Hazardous Materials
generated, manufactured, refined, transferred, imported, used or processed by
the Company or any other Person for whose conduct the Company is or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled or received.
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(d) Neither the Company nor any other Person for whose conduct it is or may
be held responsible has any Environmental, Health and Safety Liabilities with
respect to any Facility or, to the Knowledge of the Company and the Interest
Holders, with respect to any other property or asset (whether real, personal or
mixed) in which the Company (or any predecessor) has or had an interest or at
any property geologically or hydrologically adjoining any Facility or any such
other property or asset.
(e) There are no Hazardous Materials present on or in the Environment at
any Facility or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, aboveground or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
movable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facility or
such adjoining property, or incorporated into any structure therein or thereon.
Neither the Company nor any Person whose conduct it is or may be held
responsible, or to the Knowledge of the Company and the Interest Holders, any
other Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to any Facility or any other property or assets (whether
real, personal or mixed) in which the Company has or had an interest except in
full compliance with all applicable Environmental Laws.
(f) There has been no Release or, to the Knowledge of the Company and the
Interest Holders, Threat of Release, of any Hazardous Materials at or from any
Facility or at any other location where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed from
or by any Facility, or from any other property or asset (whether real, personal
or mixed) in which the Company has or had an interest, or to the Knowledge of
the Company and the Interest Holders any geologically or hydrologically
adjoining property, whether by the Company or any other Person.
(g) The Company has delivered to Purchaser true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by the Company or the Interest Holders pertaining to Hazardous
Materials or Hazardous Activities in, on, or under the Facilities, or concerning
compliance, by the Company or any other Person for whose conduct it is or may be
held responsible, with Environmental Laws.
Section 2.10 Securities Act of 1933 Matters.
-------------------------------
(a) The Company is acquiring the Common Stock under this Agreement for its
own account and not with a view to any distribution thereof in violation of the
Securities Act of 1933 or any state securities Laws. The Company acknowledges
and agrees that the Common Stock acquired by it pursuant to this Agreement has
not been and will not be registered under the Securities Act of 1933 (or any
state or foreign securities Laws), except to the extent such registration may be
effected pursuant to Article VII hereof, and may not be transferred in the
absence of a registration under the Securities Act of 1933 or unless an opinion
of counsel reasonably satisfactory to Purchaser is received stating that such
transaction is not subject to the registration and/or prospectus delivery
requirements of any applicable jurisdiction.
(b) The senior management of the Company (i) has had an opportunity to
discuss Parent's business, management and financial affairs with Parent's
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management and to conduct a complete business, legal and technical due diligence
to their satisfaction and (ii) have sufficient knowledge and experience in
investing in companies similar to Parent's so as to be able to evaluate the
risks and merits of an investment in Purchaser.
Section 2.11 Financial Statements.
---------------------
(a) Attached hereto as Schedule 2.11(a) are true and complete copies of (i)
unaudited balance sheets of the Company as of December 31, 2001 and December 31,
2002 and the related unaudited statements of income and cash flows for the
Company for the years then ended (the "Base Unaudited Financial Statements"),
and (ii) the unaudited balance sheet of the Company as of September 30, 2003,
and the related unaudited statement of income and cash flows for the Company for
the nine-month period then ended. The foregoing financial statements are
collectively referred to as the "Financial Statements".
(b) The Financial Statements (which, for purposes of this Section 2.11(b),
shall include the financial statements referred to in Section 5.5 hereof) are in
accordance with the books and records of the Company in all material respects.
Except as set forth on Schedule 2.11(b) hereto, the Base Unaudited Financial
Statements have been prepared in accordance with GAAP and present fairly in all
material respects, in accordance with GAAP, the financial position and results
of operations of the Company as of the dates and for the periods indicated,
except that they lack the footnotes required under GAAP.
Section 2.12 Absence of Certain Changes. Except as set forth on Schedule
2.12 hereto, since December 31, 2003, the Company has conducted its business
only in the Ordinary Course of Business consistent with past practices and there
has been no:
(a) event or occurrence that individually or in the aggregate has caused or
is reasonably likely to cause a Material Adverse Effect;
(b) physical damage, destruction or loss in an amount exceeding $25,000 in
the aggregate affecting the Acquired Assets which is not covered by insurance or
remedied within thirty (30) days;
(c) increase in compensation payable or to become payable to any Employee,
independent contractor, consultant or director of the Company, or any bonus
payment made or promised to any Employee, independent contractor, consultant or
director of the Company, or any material change in personnel policies, insurance
benefits, Benefit Plans or other compensation arrangements affecting the
employees, independent contractors, consultants or directors of the Company
(other than increases in wages and salaries or bonus payments made in the
Ordinary Course of Business);
(d) waiver of any rights of the Company under any Contract;
(e) mortgage, pledge or subjection to any Encumbrance (other than Permitted
Encumbrances) of any of the Acquired Assets;
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(f) sale or transfer of the Acquired Assets (including Intellectual
Property) except, in each case, in the Ordinary Course of Business and
consistent with past practice;
(g) change in any method of accounting or accounting practice for financial
reporting purposes or reporting to any third Person.
(h) entrance into any material transaction other than in the Ordinary
Course of Business and consistent with past practice;
(i) any labor union organizing activity, any actual or threatened employee
strikes, work stoppages, slow-downs or other labor disputes or disturbances or
any adverse change in relations with Employees;
(j) material Tax election or change in Tax accounting by the Company;
(k) except for dividends payable solely in cash, the declaration or payment
of any dividend or other distribution by the Company in respect of or the
redemption by the Company of any equity interest in the Company; or
(l) any authorization, approval, agreement or commitment to do any of the
foregoing.
Section 2.13 Taxes.
------
(a) The Company has timely filed all material Returns which are required to
be filed by it, which returns and reports are true, correct and complete in all
material respects, and paid all Taxes that are required to be paid by the
Company or (except for Taxes that are Permitted Encumbrances) to which the
Acquired Assets are or may be subject.
(b) There are no material actions or suits now pending, nor, to the
Knowledge of the Company or the Interest Holders, except as set forth on
Schedule 2.13, are there any material Actions, suits, proceedings,
investigations or claims pending or proposed against the Company, nor are there
any pending audits by, the IRS or other Government Authority relating to any
Taxes or assessments, or any claims or deficiencies asserted with respect
thereto, that could result in a lien on the Acquired Assets.
(c) The Company has duly and timely complied with all applicable Laws,
rules and regulations with respect to the withholding of Taxes, remittance to
Taxing Authorities of withheld Taxes, and reporting in respect of Employee wages
and other payments to Employees and other Persons for all periods.
(d) The Company is not a foreign Person subject to withholding under
Section 1445 of the code and the regulations promulgated thereunder and will
provide certification to that effect to Purchaser at the Closing.
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(e) Parent and Purchaser will not, as a result of the consummation of the
transactions contemplated by this Agreement, be required to withhold or remit to
any Taxing Authority any Taxes, nor, as a result of the consummation of such
transactions, will the Acquired Assets, Purchaser or Parent be subject to any
Taxes imposed upon or that are the obligation of the Company or any Interest
Holder to pay.
Section 2.14 Insurance. Schedule 2.14 hereto lists all insurance policies
owned or held by the Company. All such policies are in full force and effect,
all premiums with respect thereto have been paid to the extent due, and no
notice of cancellation or termination has been received with respect to any such
policy.
Section 2.15 Contracts.
----------
(a) Schedule 2.15 hereto sets forth a list of all written, and a
description of all oral, Contracts, agreements and understandings to which the
Company is a party. The Disclosure Schedule contains true and complete copies of
all written, and accurate summaries of all oral Contracts listed on Schedule
2.15. With such exceptions as would not individually or in the aggregate have a
Material Adverse Effect:
(i) All of the Contracts are valid and binding on and enforceable
against the Company in accordance with their terms and on and against the
other parties thereto, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization or other
similar Laws affecting the enforcement of creditors' rights generally and
except to the extent that injunctive or other equitable relief is within
the discretion of a court of competent jurisdiction;
(ii) Neither the Company nor, to the Knowledge of the Company, any
other party to any Contract, is in breach or default under any Contract;
(iii) The Company has not waived any right under any Contract;
(iv) No event has occurred that, with the giving of notice or the lapse
of time or both, would constitute a breach or default under any Contract;
and
(v) There are no unresolved disputes under any of the Contracts.
(b) There are no Contracts or agreements to which any Interest Holder or
the Company is a party or under which any Interest Holder or the Company or the
Acquired Assets are in any way bound or that in any way excludes or restricts
the Company, or would exclude or restrict Purchaser or any of its Affiliates
upon consummation of the transactions contemplated hereby, from competing in any
form of business or other activity or in any geographic area.
-17-
Section 2.16 Transactions with Affiliates. Schedule 2.16 hereto sets forth
a true, complete and accurate (a) list of all Contracts, agreements, leases,
arrangements, understandings, or commitments to which the Interest Holders, or
any Associates or Relatives (the "Insiders"), on the one hand, and the Company,
on the other hand, is a party and (b) description of all transactions which are
not the subject of the agreements described in clause (a) above (the "Insider
Transactions") between the Company, on one hand, and any Insider, on the other
hand, that have existed since December 31, 2001.
Section 2.17 OSHA Matters. The Company is in compliance with the
requirements of the Occupational Safety and Health Act and the regulations
promulgated thereunder and any similar Laws or regulations of any state or local
jurisdiction ("OSHA"), except for such noncompliance as would not individually
or in the aggregate have a Material Adverse Effect. The Company has not received
any citation from and Government Authority, including without limitation the
Occupational Safety and Health Administration ("OSHA Administration") or any
Government Authority inspector setting forth any respect in which the facilities
or operations of the Company are not in compliance with OSHA, or the regulations
under such act, which non-compliance has not been corrected or remedied to the
satisfaction of any Government Authority or inspector. Schedule 2.17 hereto sets
forth a list of all citations heretofore issued to the Company under OSHA and
correspondence from and to any Government Authority and any Government Authority
inspectors during the past five years.
Section 2.18 Powers of Attorney; Guarantees. Except as set forth in
Schedule 2.18, the Company is not a principal and has no obligation to act under
any outstanding power of attorney or any obligation or liability, either
accrued, accruing or contingent, as guarantor, surety, consignor, endorser
(other than for purposes of collection of amounts owed to the Company in the
Ordinary Course of Business of the Company ), co maker or indemnitor in respect
of the obligation of any person, corporation, partnership, joint venture,
association, organization or other entity.
Section 2.19 Relations with Suppliers. No supplier has canceled any
Contract or order for provisions of, and there has been no threat by any
supplier not to provide, products, supplies, or services (including utilities)
to the Company within the twelve (12) months prior to the date of this
Agreement. To the Company's Knowledge, the Company's relationships with its
suppliers, are good, and the Company's not aware of anything that would lead it
to conclude that any such relationship may be in jeopardy.
Section 2.20 Absence of Certain Business Practices. Neither the Company nor
any manager, officer, Employee, agent or Affiliate of the Company, acting on its
behalf has, directly or indirectly, (a) since December 31, 2000 given any gift
or similar benefit to any customer, supplier, competitor or Employee or official
of any Governmental Authority which would subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding and
which would have a Material Adverse Effect on the Company, or (b) acted in any
other unlawful manner with, to, or in connection with the Company's customers,
suppliers, or competitors which would have a Material Adverse Effect on the
Company.
-18-
Section 2.21 Condition of Tangible Assets and Inventories.
--------------------------------------------
(a) Except as set forth in Schedule 2.21 and except for ordinary wear and
tear, to the Knowledge of the Company, all items of machinery, equipment, and
other tangible assets included in the Acquired Assets are in good operational
condition, have been regularly and properly serviced and maintained in a manner
that would not void or limit the coverage of any warranty thereon, other than
items currently under, or scheduled for, repair or construction, and are
adequate and fit to be used for the purposes for which they are currently used
in the manner they are currently used.
(b) Except as set forth in Schedule 2.21, the Inventory consist of items of
merchantable quality and quantity usable or salable in the Ordinary Course of
Business, and are salable at prevailing market prices not damaged or defective.
Section 2.22 Full Disclosure. No representation, warranty, statement or
disclosure schedule to this Agreement or other schedule furnished by the Company
and/or the Interest Holders to Purchaser in this Agreement or in connection with
the transactions contemplated hereby contains any untrue statement of material
fact or omits to state any material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF EACH OF THE INTEREST HOLDERS
Each of the Interest Holders hereby represents and warrants severally, but
not jointly, to and for the benefit of Purchaser and Parent as follows, with
respect to such Interest Holder, but not as to any other Interest Holder:
Section 3.1 Authorization, Enforceability. Such Interest Holder has full
power and authority and is legally competent to execute, deliver and perform
this Agreement and the other instruments and documents contemplated hereby to be
executed by such Interest Holder, to perform such Interest Holder's obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by such Interest Holder of
this Agreement and the other instruments and documents contemplated hereby to be
executed by such Interest Holder, and the consummation by such Interest Holder
of the transactions contemplated hereby and thereby do not and will not (i)
(whether after the giving of notice or lapse of time or both) violate or
conflict with any provision of, or result in the modification, cancellation,
termination or acceleration of, any obligation under, or result in the
imposition or creation of any Encumbrances upon such Interest Holder pursuant to
any agreement or contract by which such Interest Holder or his, her or its
assets is bound or (ii) violate or conflict with any Legal Requirement
applicable to such Interest Holder or any other restriction of any kind or
character to which such Interest Holder is subject. This Agreement has been, and
the other instruments and documents contemplated hereby to be executed by such
Interest Holder at the Closing will, at the Closing, have been, duly executed
and delivered by such Interest Holder, and constitute (or will constitute at the
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Closing, as applicable) legal, valid and binding obligations of such Interest
Holder enforceable against such Interest Holder in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other Laws relating to or
affecting the rights and remedies of creditors generally and to general
principles of equity (regardless of whether in equity or at Law).
Section 3.2 Consents, etc. Except as set forth on Schedule 3.2, no filing,
consent, waiver, approval or authorization of any Government Authority or of any
third Person on the part of such Interest Holder is required to be obtained or
made by such Interest Holder in connection with the execution, delivery and
performance by such Interest Holder of this Agreement or the other documents
contemplated by this Agreement to which such Interest Holder is a party or the
consummation by such Interest Holder of any of the transactions contemplated
hereby or thereby.
Section 3.3 Brokers. Finders. etc. Except for Mertz Associates, Inc., whose
fees shall be the sole responsibility of the Company and/or the Interest
Holders, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with this Agreement, the other
documents contemplated by this transaction or the transactions contemplated
hereby or thereby based upon any agreements, written or oral, made by or on
behalf of such Interest Holder.
Section 3.4 Membership Interests. Such Interest Holder is the legal and
beneficial owner of all of the equity interests of the Company set forth after
his or its name in Schedule 3.4.
Section 3.5 Status. Each Interest Holder that is a corporation (i) is a
corporation duly formed, validly existing and in good standing under the Laws of
the state of its formation (ii) has all requisite power and authority to own and
operate the Acquired Assets.
Section 3.6 Access. Such Interest Holder (i) has had an opportunity to
discuss Parent's business, management and financial affairs with Parent's
management and to conduct a complete business, legal and technical due diligence
to their satisfaction and (ii) has sufficient knowledge and experience in
investing in companies similar to Parent's so as to be able to evaluate the
risks and merits of an investment in Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby severally, but not jointly, represent and
warrant to and for the benefit of each of the Interest Holders and the Company
as follows:
Section 4.1 Incorporation: Authorization.
-----------------------------
(a) Each of Purchaser and Parent is a corporation duly incorporated,
validly existing and in good standing under the Laws of the state of its
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formation. Each of Purchaser and Parent has all requisite corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted.
(b) Each of Purchaser and Parent has full power and authority (corporate or
otherwise) to execute, deliver and perform this Agreement and the other
instruments and documents contemplated hereby to be executed by Purchaser or
Parent and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by each of Purchaser and Parent of this
Agreement and the other instruments and documents contemplated hereby to be
executed by Purchaser or Parent have been duly authorized by all necessary
action (corporate or otherwise) on the part of Purchaser or Parent (as the case
may be). This Agreement has been, and the other instruments and documents
contemplated hereby to be executed by Purchaser or Parent at the Closing will,
at the Closing, have been, duly executed and delivered by Purchaser or Parent as
the case may be. This Agreement constitutes, and each other instrument and
document contemplated hereby to be executed by Purchaser or Parent at the
Closing will, at the Closing, constitute, a legal, valid and binding obligation
of Purchaser or Parent (as the case may be) enforceable against each of them in
accordance with its terms, except as such enforceability may be limited by
applicable Laws relating to bankruptcy, insolvency, fraudulent conveyance,
reorganization or affecting creditors' rights generally and except to the extent
that injunctive or other equitable relief is within the discretion of a court.
(c) The execution, delivery and performance by Purchaser and Parent of this
Agreement, and the other documents contemplated by this Agreement to which
Purchaser or Parent is a party, and the consummation by Purchaser and Parent of
the transactions contemplated hereby and thereby, do not and will not (i)
violate, conflict with or result in the breach of any provision of the
certificate or articles of incorporation or by-laws of Purchaser or Parent or
(ii) violate or conflict with any Legal Requirement applicable to Purchaser or
Parent or any other restriction of any kind or character to which Purchaser or
Parent is subject
(d) The NTS shares to be delivered to the Company in accordance with this
Agreement have been duly authorized and, when so delivered in accordance with
the terms of this Agreement, will have been duly authorized, validly issued,
fully paid and non-assessable, will not have been issued in violation of any
preemptive rights or, assuming that neither the Company nor the Interest Holders
are in breach of the representations and warranties contained in Sections 2.10
and 3.6 hereof, of any U.S. federal or state securities Laws.
-21-
Section 4.2 Absence of Litigation. (a) Except as set forth in Schedule 4.2
there is no Action pending or, to the Knowledge of Purchaser and Parent,
threatened against Purchaser or Parent, at Law or in equity, before or by any
court, arbitrator, panel or other Government Authority. Neither Purchaser nor
Parent is currently operating under or subject to any order, award, stipulation,
judgment, writ, decree, determination or injunction of any arbitrator or
Government Authority. There is not pending against the Purchaser or Parent any
Action (i) seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, (ii) seeking to prohibit or limit the ownership
or operation by Purchaser of any portion of the Acquired Assets, or (iii) which
otherwise could reasonably individually or in the aggregate be expected to have
a material adverse effect on the business, results of operations or financial
condition of Purchaser and Parent, taken as a whole (an "NTS MAC").
Section 4.3 Compliance with Laws: Permits; Consents.
----------------------------------------
(a) Each of Purchaser and Parent is in compliance with all applicable Laws,
except for such non-compliance as would not individually or in the aggregate
reasonably be likely to have an NTS MAC.
(b) Each of Purchaser and Parent owns, or has full rights under, all
franchises, licenses, permits, consents, approvals and authorizations of any
Government Authority which are necessary for the conduct of its business as
currently conducted. Each of the foregoing is in full force and effect, and each
of Purchaser and Parent is in compliance with all of its obligations with
respect thereto, and no event has occurred which permits, or upon the giving of
notice or lapse of time or otherwise would permit, revocation or early
termination of any of the foregoing, with such exceptions as do not individually
or in the aggregate have an NTS MAC.
(c) Except as set forth in Schedule 4.3(c) hereto, no filing, consent,
waiver, approval or authorization of any Government Authority or of any third
party is required to be made or obtained on the part of Purchaser or Parent in
connection with the execution, delivery and performance by Purchaser or Parent
of this Agreement or the consummation by Purchaser or Parent of the transactions
contemplated hereby other than such filings as may be required by NASDAQ, the
Securities Exchange Act of 1934, as amended (including any Form 8-K) or the
Securities Act of 1933, as amended.
Section 4.4 Environmental Matters.
----------------------
(a) Each of Purchaser and Parent is, and at all times has been, in material
compliance with, and has not been and is not in material violation of or liable
under, any Environmental Law. Neither Purchaser or Parent has any basis to
expect, nor have they or any other Person for whose conduct Purchaser or Parent
is or may be held to be responsible received, any actual or threatened Order,
notice or other communication from (i) any Governmental Authority or private
citizen acting in the public interest, or (ii) the current or prior owner or
operator of any real property or leasehold or other interest in real property
currently or formerly owned or operated by Purchaser or Parent (an "NTS
Facility"), of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health and Safety Liabilities with respect
to any NTS Facility or other property or asset (whether real, personal or mixed)
in which Purchaser or Parent has or had an interest, or with respect to any
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property or NTS Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used or processed by Purchaser or
Parent or any other Person for whose conduct either Purchaser or Parent may be
held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled or received.
(b) There are no pending or, to the Knowledge of Purchaser and Parent,
threatened claims, Liens, or other restrictions of any nature resulting from any
Environmental, Health and Safety Liabilities or arising under or pursuant to any
Environmental Law with respect to or affecting any NTS Facility or any other
property or asset (whether real, personal or mixed) in which either Purchaser or
Parent has or had an interest.
(c) Neither Purchaser nor Parent has Knowledge of or any basis to expect,
nor have either of them, or any other Person for whose conduct either Purchaser
or Parent is or may be held responsible, received, any citation, directive,
inquiry, notice, Order, summons, warning or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental Health and Safety Liabilities with respect to any NTS Facility or
property or asset (whether real, personal or mixed) in which either Purchaser or
Parent has or had an interest, or with respect to any property or NTS Facility
to which Hazardous Materials generated, manufactured, refined, transferred,
imported, used or processed by either Purchaser or Parent or any other Person
for whose conduct either Purchaser or Parent is or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed, recycled or
received.
(d) Neither Purchaser nor Parent nor any other Person for whose conduct it
is or may be held responsible has any Environmental, Health and Safety
Liabilities with respect to any NTS Facility or, to the Knowledge of Purchaser
and Parent, with respect to any other property or asset (whether real, personal
or mixed) in which either Purchaser or Parent (or any predecessor) has or had an
interest or at any property geologically or hydrologically adjoining any NTS
Facility or any such other property or asset.
(e) There are no Hazardous Materials present on or in the Environment at
any NTS Facility or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, aboveground or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
movable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the NTS
Facility or such adjoining property, or incorporated into any structure therein
or thereon. Neither Purchaser nor Parent, nor any Person whose conduct either
Parent or Purchaser may be held responsible, or to the Knowledge of Purchaser
and Parent, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to any NTS Facility or any other
property or assets (whether real, personal or mixed) in which either Purchaser
or Parent has or had an interest except in full compliance with all applicable
Environmental Laws.
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(f) There has been no Release or, to the Knowledge of the Purchaser and
Parent, Threat of Release, of any Hazardous Materials at or from any NTS
Facility or at any other location where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed from
or by any NTS Facility, or from any other property or asset (whether real,
personal or mixed) in which either Purchaser or Parent has or had an interest,
or to the Knowledge of Purchaser and Parent any geologically or hydrologically
adjoining property, whether by Purchaser or Parent or any other Person.
(g) Purchaser and Parent have delivered to the Company and the Interest
Holders true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by the Purchaser or Parent
pertaining to Hazardous Materials or Hazardous Activities in, on, or under the
NTS Facilities, or concerning compliance, by Purchaser or Parent or any other
Person for whose conduct Purchaser or Parent may be held responsible, with
Environmental Laws.
Section 4.5 Absence of Certain Changes. Except as set forth on Schedule 4.6
hereto, since October 31, 2003, Purchaser and Parent have conducted their
respective businesses only in the Ordinary Course of Business consistent with
past practices and there has been no:
(a) event or occurrence that individually or in the aggregate has caused or
is reasonably likely to cause an NTS MAC;
(b) physical damage, destruction or loss in an amount exceeding $500,000 in
the aggregate which is not covered by insurance or remedied within thirty (30)
days;
(c) mortgage, pledge or subjection to any Encumbrance (other than Permitted
Encumbrances) of any of the Acquired Assets;
(d) sale or transfer of a material amount of assets (including Intellectual
Property) except, in each case, in the Ordinary Course of Business and
consistent with past practice;
(e) change in any method of accounting or accounting practice for financial
reporting purposes or reporting to any third Person.
(f) entrance into any material transaction other than in the Ordinary
Course of Business and consistent with past practice;
(g) any labor union organizing activity, any actual or threatened employee
strikes, work stoppages, slow-downs or other labor disputes or disturbances or
any adverse change in relations with Employees;
(h) material Tax election or change in Tax accounting by the Company;
(i) any authorization, approval, agreement or commitment to do any of the
foregoing.
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Section 4.6 Taxes.
-----
(a) Each of Purchaser and Parent has timely filed all material Returns
which are required to be filed by it, which returns and reports are true,
correct and complete in all material respects, and paid all Taxes that are
required to be paid by the Company or (except for Taxes that are Permitted
Encumbrances) to which the Acquired Assets are or may be subject.
(b) There are no material actions or suits now pending, nor, to the
Knowledge of Purchaser and Parent, except as set forth on Schedule 4.7, are
there any material Actions, suits, proceedings, investigations or claims pending
or proposed against Purchaser or Parent, nor are there any pending audits by,
the IRS or other Government Authority relating to any Taxes or assessments, or
any claims or deficiencies asserted with respect thereto, that could result in a
lien on the Acquired Assets.
(c) Each of Purchaser and Parent has duly and timely complied with all
applicable Laws, rules and regulations with respect to the withholding of Taxes,
remittance to Taxing Authorities of withheld Taxes, and reporting in respect of
employee wages and other payments to employees and other Persons for all
periods.
Section 4.7 OSHA Matters. Each of Purchaser and Parent is in compliance
with the requirements of the Occupational Safety and Health Act and the
regulations promulgated thereunder and any similar Laws or regulations of any
state or local jurisdiction ("OSHA"), except for such noncompliance as would not
individually or in the aggregate have an NTS MAC. The Company has not received
any citation from and Government Authority, including without limitation the
Occupational Safety and Health Administration ("OSHA Administration") or any
Government Authority inspector setting forth any respect in which the facilities
or operations of either Purchaser or Parent are not in compliance with OSHA, or
the regulations under such act, which non-compliance has not been corrected or
remedied to the satisfaction of any Government Authority or inspector.
Section 4.8 Absence of Certain Business Practices. Neither Purchaser or
Parent or any manager, officer, employee, agent or Affiliate of Purchaser or
Parent, acting on its behalf has, directly or indirectly, (a) since December 31,
2000 given any gift or similar benefit to any customer, supplier, competitor or
employee or official of any Governmental Authority which would subject Purchaser
or Parent to any damage or penalty in any civil, criminal or governmental
litigation or proceeding and which would have an NTS MAC, or (b) acted in any
other unlawful manner with, to, or in connection with the customers, suppliers,
or competitors of Purchaser or Parent which would have an NTS MAC.
Section 4.9 SEC Documents. Parent has made available to the Company a true
and complete copy of (i) Parent's annual report on Form 10-K for the fiscal year
ended January 31, 2003, (ii) all of Parent's current reports on Form 8-K filed
since January 31, 2003, (iii) Parent's definitive proxy statement mailed to
Parent's stockholders on May 27, 2003, and (iv) Parent's quarterly report on
Form 10-Q for the quarters ended April 30, 2003, July 31, 2003 and October 31,
2003 (collectively, the "SEC Documents"). The SEC Documents were prepared in all
material respects in accordance with the requirements of the Exchange Act and
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the rules and regulations thereunder. As of their respective dates, the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 4.10 Brokers, Finders. etc. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement, the other documents contemplated by this Agreement or the
transactions contemplated hereby and thereby based upon any agreements, written
or oral, made by or on behalf of Parent or any of its Affiliates (including
Purchaser) or by or on behalf of any director, officer, employee, agent or
Parent or any of its Affiliates.
Section 4.11 Full Disclosure. No representation, warranty, statement or
disclosure schedule to this Agreement or other schedule furnished by Purchaser
or Parent to the Company and the Interest Holders in this Agreement or in
connection with the transactions contemplated hereby contains any untrue
statement of material fact or omits to state any material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business. Except (i) as otherwise specifically
permitted by this Agreement or (ii) with the prior written consent of Purchaser,
from and after the date of this Agreement and until the Closing Date, each
Interest Holder and the Company agrees that:
(a) the Company shall conduct the Business as currently conducted and only
in the Ordinary Course of Business consistent with past practice;
(b) the Company shall use its reasonable best efforts to preserve the
business organization of the Company intact, to keep available to Purchaser the
services of the Employees, to preserve for Purchaser the goodwill of the
suppliers, distributors, customers and others having business relationships with
the Business and to continue in full force and effect without material
modification any existing policies or binders of insurance currently maintained
by the Company;
(c) the Company shall promptly inform Parent in writing of any specific
event or circumstance of which it has or obtains Knowledge, that has or is
reasonably likely to have, individually or in the aggregate, taken together with
the other events or circumstances, a Material Adverse Effect;
(d) the Company shall not:
(i) change or modify in any respect existing inventory management or
credit and collection policies, procedures and practices with respect to
accounts receivable;
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(ii) enter into any contract or commitment, waive any right or enter
into any other transaction which is reasonably likely to have a Material
Adverse Effect;
(iii) mortgage, pledge or subject to any Encumbrance (other than
Permitted Encumbrances) any of the Acquired Assets;
(iv) except as set forth on Schedule 5.l(d)(iv), change any
compensation or benefits or grant any new compensation or benefits payable
to or in respect of any Employee (except, for regularly scheduled merit
increases in the Ordinary Course of Business consistent with past
practice);
(v) sell, lease or otherwise transfer any assets necessary in, or
otherwise material to the conduct of, the Business which would otherwise
constitute Acquired Assets;
(vi) change the Company's method of accounting or keeping its books of
account or accounting practices, except as required by GAAP;
(vii) engage in any practice or take or omit to take any action which
if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties of the Company or any
Interest Holder contained herein;
(viii) enter into any Contract which would constitute an Acquired Asset
or an Assumed Liability which together with all other Contracts entered
into after the date hereof could result in annual liability to Purchaser in
excess of $25,000 in the aggregate under all such Contracts; or
(ix) enter into, amend or exercise an extension or renewal option for
any lease of real property.
Section 5.2 Further Assurances. Each party hereto covenants from the date
of this Agreement to the Closing Date (and subject to the other terms of this
Agreement):
(a) to cooperate with each other in determining whether filings are
required to be made with or consents required to be obtained from any Government
Authority in any jurisdiction in connection with the consummation of the
transactions contemplated by this Agreement and in making or causing to be made
any such filings promptly and to obtain timely any such consents (each party
hereto shall furnish to the other and to the other's counsel all such
information as may be reasonably required in order to effectuate the foregoing
action);
(b) to keep the other parties informed of any material communications
received by such party from, or given by such party to, any Government Authority
and to consult with the other parties in advance of any meeting or conference
with any Government Authority;
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(c) to use reasonable best efforts and cooperate with the other parties
hereto to obtain all consents required from third Persons, whose consent or
approval is required pursuant to any Contract or otherwise to consummate the
transactions contemplated hereby; and
(d) without limiting the specific obligations of any party hereto under any
covenant or agreement hereunder, to use reasonable best efforts to take all
action and do all things necessary in order to promptly consummate the
transactions contemplated hereby, including, without limitation, satisfaction,
but not waiver, of the Closing conditions set forth in Article VI.
Section 5.3 Public Announcements. None of the Interest Holders nor the
Company shall issue, or permit any of their agents or Affiliates to issue, any
press releases or otherwise make, or permit any of their respective agents or
Affiliates to make, any public or other statements, with respect to this
Agreement and the transactions contemplated hereby without the prior written
consent of Purchaser.
Section 5.4 Covenant Not to Compete: Non-Solicitation.
-----------------------------------------
(a) For a period of sixty (60) months beginning on the Closing Date,
neither of the Interest Holders nor the Company shall, directly or indirectly
engage (whether as owner, operator, equity holder, manager, consultant, agent
Affiliate or employee) in any business similar to or competitive with the
Business (a "Competing Business") except in any Interest Holder's employment by
Purchaser or its successors. For the purposes of the foregoing, no Interest
Holder or the Company shall be in breach of this Section 5.4 by reason of his,
her or its beneficial ownership, together with that of the other Interest
Holders, of less than 1% of a Competing Business' voting capital stock if (i)
such Competing Business is publicly traded and (ii) such Interest Holder,
individually or together with the other Interest Holders, does not control the
operation or management of such Competing Business. The noncompetition covenants
in this Agreement shall be deemed to apply to each State of the United States,
each county within each State, and each other geographic area separately and
shall be severable as to each such State, county or other geographic area. It is
the desire and intent of the parties that the provisions of this Section 5.4
shall be enforced to the fullest extent permitted under the Laws and public
policies of each jurisdiction in which enforcement is sought. If any court
determines that any provision of this Section 5.4 is unenforceable, such court
shall have the power to reduce the duration or scope of such provision, as the
case may be, or terminate such provision and, in reduced form, such provision
shall be enforceable; it is the intention of the parties that the foregoing
restrictions shall not be terminated, unless so terminated by a court, but shall
be deemed amended to the extent required to render them valid and enforceable,
such amendment to apply only with respect to the operation of this Section 5.4
in the jurisdiction of the court that has made the adjudication. The Company and
the Interest Holders acknowledge and agree the customers and potential customers
of the Business reside in every State.
(b) For a period of sixty (60) months beginning on the Closing Date, the
Company nor any Interest Holder shall, directly or indirectly, solicit for
employment or hire, neither as an employee or a consultant, any Employee or
independent contractor of Purchaser who was an employee or independent
contractor of the Company as of the Closing Date or induce any such Employee or
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independent contractor to become an employee or consultant or otherwise provide
services to any Competing Business.
(c) The parties acknowledge and agree that the restrictions contained in
Sections 5.4(a) and (b) are a reasonable and necessary protection of the
immediate interests of Purchaser and Parent, and any violation of these
restrictions would cause substantial injury to Purchaser and Parent and that
Purchaser and Parent would not have entered into this Agreement without
receiving the additional consideration offered by each of the Interest Holders
and the Company in binding such Interest Holder and itself to these
restrictions. In the event of a breach or a threatened breach by any of the
Interest Holders or the Company or any affiliated entities of these
restrictions, Purchaser and Parent shall be entitled to an injunction
restraining each of the Interest Holders and the Company and any affiliated
entity from such breach or threatened breach without having to establish
monetary damage or post a bond or other security; provided, however, that the
right to injunctive relief shall not be construed as prohibiting Purchaser and
Parent from pursuing any other available remedies for such breach or threatened
breach.
Section 5.5 Financial Statements. The Company shall deliver to Purchaser
and Parent as promptly as practicable, audited balance sheets of the Company as
of December 31, 2002 and December 31, 2003 and the related audited statements of
income and cash flows for the Company for the years then ended, together with an
unqualified opinion thereon by the Company's independent certified public
accountants. The Company shall provide to Parent, within forty-five (45) days
after Parent's request therefor, all other audited and unaudited financial
statements requested in connection with the preparation and filing of any
registration statement or periodic report of Parent pursuant to the Securities
Act of 1933 or the Securities Exchange Act of 1934. Purchaser and the Company /
Interest Holders, as a group, shall share the cost of the audit on a 50-50
basis.
Section 5.6 Company Name. On and after the Closing Date, neither the
Company nor the Interest Holders shall not have any right, title or interest in
any trade names, trademarks, identifying logos or service marks employing the
words "Dynamic Testing" or "DTI Holdings," or any variation thereof (the
"Names") or any other trademarks, service marks, product line names, trade dress
or other Intellectual Property included in Acquired Assets or confusingly
similar thereto. The Company and each of the Interest Holders agree that,
without the prior written consent of Purchaser, neither they nor any of their
Affiliates shall make any use of either of the Names from and after the Closing
Date. The Company shall provide to Purchaser at Closing a certified copy of
actions taken in effectuating a name change (which change shall be complete
within fifteen (15) days following the Closing Date) as well as a fully executed
amendment to the Company's certificate of formation. Purchaser shall be
authorized to file such amendment on the Company's behalf following the Closing.
The Company shall also provide Purchaser with such assistance as reasonably
requested by Purchaser in order to effectuate the transfer of the Domain Names
within forty-five (45) days following the Closing Date.
Section 5.7 Investigation. From the date hereof until the Closing, the
Company and the Interest Holders shall give Purchaser and its representatives
(including Purchaser's accountants, consultants, counsel, employees and
authorized agents), upon reasonable notice and during normal business hours,
full access to the properties, Contracts Employees, books, records and affairs
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of the Company, and shall cause its officers, directors, managers, Employees,
agents, representatives, accountants and counsel to furnish to Purchaser all
documents, records and information (and copies thereof), as Purchaser may
reasonably request. No investigation or receipt of information by Purchaser
pursuant to, or in connection with, this Agreement, shall diminish or obviate
any of the representations, warranties, covenants or agreements of the Company
and Interest Holders under this Agreement or the conditions to the obligations
of Purchaser and Parent under this Agreement.
Section 5.8 Taxes. The Company and the Interest Holders, on the one hand,
and the Purchaser and the Parent, on the other hand, shall each (a) each provide
the other with such assistance and information as may reasonably be requested in
connection with the preparation of any Tax return, any audit or other
examination by any Taxing Authority or any judicial or administrative proceeding
with respect to Taxes, (b) each retain and provide the other with any records or
other information which may be relevant to such return, audit, examination or
proceeding (including without limitation such information concerning research
expenses paid or incurred by the Company during periods before the Closing for
the purposes of enabling Purchaser and Parent to comply with Section 41(f)(3)(A)
of the Code), and (c) each provide the other with any final determination of any
such audit or examination, proceeding or determination that affects any amount
required to be shown on any Tax return of the Company for any period.
Section 5.9 Confidentiality. The Company and the Interest Holders will
treat as confidential and keep secret the affairs of Purchaser and its
Affiliates (including, without limitation, information about processes,
procedures, techniques, know-how, pricing and other similar proprietary and
confidential information) and, at any time before or after the Closing Date,
will not, without the prior written consent of Purchaser or such Affiliate, as
the case may be, disclose, furnish or make known or accessible to or use for the
benefit of anyone, any information of any confidential nature relating in any
way to the business of Purchaser or any Affiliate, unless such information is
otherwise publicly available or except as may be required by any Law, to which
the Company or the Interest Holders are bound or subject. Notwithstanding the
foregoing, the Company and the Interest Holders shall be free to disclose any
such information or data to their representatives or in order to establish the
Company's or the Interest Holders' position in any legal proceeding based upon
or in connection with the subject matter of this Agreement, including, without
limitation, the failure of the transactions contemplated hereby to be
consummated. Prior to any disclosure pursuant to the preceding sentence, the
Company or the Interest Holders shall give reasonable prior notice to Purchaser
of such intended disclosure and if requested by Purchaser, shall use reasonable
efforts to obtain a protective order or similar protection for Purchaser and its
Affiliates.
Section 5.10 Tax Disclosure. The obligations of confidentiality contained
in any provision of any of the Agreements, as they relate to the Transaction,
shall not apply to the Tax structure or Tax treatment of the Transaction, and
each party to the Agreements (and any employee, representative or agent of any
party to the Agreements) may disclose to any and all Persons, without limitation
of any kind, the Tax structure and Tax treatment of the Transaction, (ii) the
Agreements shall not limit in any way, at any time, the ability of any party to
the Agreements (or any employee, representative or agent of any party to the
Agreements) to consult any Tax advisor (including a Tax advisor independent from
all other entities involved in the Transaction) regarding the Tax treatment or
Tax structure of the Transaction, and (iii) each party to the Agreements
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acknowledges that it has no proprietary or exclusive rights to the tax structure
of the Transaction or any Tax matter or Tax idea related to the Transaction (the
foregoing provisions of this sentence are referred to herein as the "Permitted
Disclosure Exception"). The Permitted Disclosure Exception is intended by the
parties to cause the Transaction to be treated as not having been offered under
conditions of confidentiality for purposes of Section 1.6011-4(b)(3) of the
Treasury Regulations promulgated under Section 6011 of the Code (or any
successor provision and any similar provisions of state, local or foreign Law
now or hereafter in effect), and the Permitted Disclosure Exception shall be
construed and interpreted in a manner so as to apply only to the extent
necessary to result in the Transaction being so treated Without limiting in any
way the right of any party to the Agreements (or any employee, representative or
agent thereof) to consult any tax advisor (including a tax advisor independent
from all other entities involved in the Transaction) regarding the tax treatment
or tax structure of the Transaction, the parties, further acknowledge and agree
as follows:
(i) Consistent with Treasury Regulations Section 1.6011 4(b)(3)(ii)(A),
the Permitted Disclosure Exception does not permit (and shall not be
construed or interpreted to permit) any party to the Agreements (or any
employee, representative or agent thereof) to disclose any information to
the extent such disclosure would result in a violation of any federal or
state securities Law.
(ii) Consistent with Treasury Regulations Section 1.6011
4(b)(3)(ii)(A), the Permitted Disclosure Exception does not permit (and
shall not be construed or interpreted to permit) any party to the
Agreements (or any employee, representative or agent thereof) to disclose
any information earlier than the first to occur of (1) the date of the
public announcement of discussions relating to the Transaction, (2) the
date of the public announcement of the Transaction, or (3) the date of the
execution of an agreement (with or without conditions) to enter into the
Transaction. In this connection, the parties acknowledge that it is
intended that the Transaction, if any, will involve a taxable or Tax-free
acquisition of historic assets of a corporation (other than an investment
company, as defined in Code Section 351(e), that is not publicly traded)
that constitute an active trade or business the acquirer intends to
continue, or a proposed taxable or Tax-free acquisition of more than 50
percent of the stock of a corporation (other than an investment company, as
defined in Code Section 351(e), that is not publicly traded) that owns
historic assets used in an active trade or business the acquirer intends to
continue.
The Permitted Disclosure Exception does not permit (and shall not be construed
or interpreted to permit) any party to the Agreements (or any employee,
representative or agent thereof) to disclose or use, in a manner otherwise
restricted by the Agreements, either (A) any trade secret and similar
confidential and proprietary information in existence before any communication
between or among the parties to the Agreements concerning the Transaction or
proposals relating to the Transaction or (B) any such information developed or
acquired at the time of or after the first such communication in the Ordinary
Course of Business independently of the Transaction or proposals relating to the
Transaction.
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Section 5.11 Negotiations. From the date hereof until the termination of
this Agreement in accordance with its terms, the Company and each of the
Interest Holders agrees that the Company and its Affiliates and such Interest
Holder will negotiate exclusively and in good faith with Purchaser and Parent
with respect to any transaction involving the sale, transfer or other
disposition of the Acquired Assets or the Business; and none of the Company nor
its Affiliates nor any Interest Holder nor any of their respective officers,
directors, employees, lenders, investment banking firms, advisors or other
agents, or any Person acting on their behalf will solicit any inquiries or
proposals by, or engage in any discussions or negotiations with, or furnish any
nonpublic information to or enter into any agreement with any Person other than
Purchaser and Parent concerning the sale or other disposition of the Acquired
Assets or the Business or the merger, consolidation, sale of securities or other
transaction involving the Company or any Interest Holder.
Section 5.12 Escrow Agreement. At or prior to the Closing, Purchaser and
the Company shall enter into the Escrow Agreement with the escrow holder
thereunder.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions Precedent to Obligations of Purchaser and Parent.
The obligations of Purchaser and Parent, as applicable, to purchase the Acquired
Assets and assume the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Purchaser and Parent in their
sole discretion):
(a) Representations, Warranties and Covenants. Each of the representations
and warranties of the Company and the Interest Holders contained in this
Agreement or in any certificate, document or instrument delivered in connection
herewith shall be true and correct in all material respects on and as of the
date of this Agreement and at and as of the Closing with the same effect as
though such representations and warranties had been made at and as of the
Closing, except for representations and warranties that speak as of a specific
date or time other than the Closing (which need only be true and correct in all
material respects as of such date or time); provided, however, that if any
portion of any such representation or warranty is already qualified by
materiality, for purposes of determining whether this condition has been
satisfied with respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified shall be true and
correct in all respects. The Company and the Interest Holders shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by such
party at or prior to the Closing. The Company and each Interest Holder shall
furnish Purchaser with a certificate dated the Closing Date and signed by a
senior executive officer of the Company or by such Interest Holder, as the case
may be, to the effect that the conditions set forth in this Section 6.1(a) have
been satisfied.
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(b) Required Consents. The Company and the Interest Holders shall have
obtained, each in form and substance reasonably satisfactory to Purchaser in its
sole and absolute discretion, all statutory and regulatory consents and
approvals which are required under any applicable Laws in order to consummate
the transactions contemplated hereby and to permit Purchaser to conduct the
Business as conducted as of the date of this Agreement and all other necessary
consents and approvals of third Persons to the transactions contemplated hereby,
which are listed on Schedule 6.1(b).
(c) Injunction: Litigation: Legislation. (i) None of the Company, the
Interest Holders, Parent or Purchaser shall be subject to any order or
injunction restraining or prohibiting the consummation of the transactions
contemplated hereby, (ii) no action or proceeding shall have been instituted
before any court or Government Authority to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto shall have received
written notice from any Government Authority of (A) its intention to institute
any action or proceeding to restrain, enjoin or nullify this Agreement or the
transactions contemplated hereby, or to commence any investigation (other than a
routine letter of inquiry, including a routine civil investigative demand) into
the consummation of the transactions contemplated hereby or (B) the actual
commencement of such investigation, (iv) there shall not be any pending or
threatened litigation, suit, action or proceeding by any Person which would
reasonably be expected to limit or affect Purchaser's ownership of the Acquired
Assets and (v) no statute, rule or regulation shall have been promulgated or
enacted by any Government Authority, which would prevent or make illegal the
consummation of the transactions contemplated hereby.
(d) Documents. The Company shall have delivered to Purchaser and Parent at
the Closing such other documents and instruments as shall be reasonably
necessary to transfer to Purchaser the Acquired Assets as contemplated by this
Agreement. The Company and the Interest Holders shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by each such person hereunder.
(e) Escrow Agreement. The Company and Interest Holders shall have entered
into the Escrow Agreement.
(f) Corporate Name. The Company shall have delivered to Purchaser at the
Closing a certified copy of an amendment to its [certificate/articles of
formation] to be duly filed with the applicable Maryland and Virginia
authorities upon and subject to the Closing, pursuant to which the Company will
change its name from DTI Holdings, LLC to another name not utilizing the letters
"DTI" or the words "Dynamic Testing."
(g) UCC Termination. The secured party under that certain UCC-1 Financing
Statements, UCC#0009197095 and UCC#0009197096 on file in the State of Virginia
and UCC#0000000181061704 and UCC#0000000181061705 on file in the State of
Maryland, in favor of Baylake Bank, shall have filed a UCC Termination Statement
with respect thereto, and such security interest shall be terminated.
Section 6.2 Conditions Precedent to Obligations of the Company and Interest
Holders. The obligations of the Company to sell the Acquired Assets and of the
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Company and Interest Holders to consummate the other transactions contemplated
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions (any one or more of which may be waived in writing
in whole or in part by the Company in its sole discretion):
(a) Representations. Warranties and Covenants. Each of the representations
and warranties of Purchaser and Parent contained in this Agreement or in any
certificate, document or other instrument delivered in connection herewith shall
be true and correct in all material respects on and as of the date of this
Agreement and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing, except
for representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all material
respects as of such date or time); provided, however, that if any portion of any
such representation or warranty is already qualified by materiality, for
purposes of determining whether this condition has been satisfied with respect
to such portion of such representation or warranty, such portion of such
representation or warranty as so qualified shall be true and correct in all
respects. Purchaser and Parent shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed and complied with by them at or prior to the Closing. Purchaser and
Parent shall furnish the Company and the Interest Holders with a certificate
dated the Closing Date and signed by a senior executive officer of each of
Purchaser and Parent to the effect that the conditions set forth in this Section
6.2(a) have been satisfied.
(b) Injunction: Litigation: Legislation. None of the Company or the
Interest Holders shall be subject to any order or injunction restraining or
prohibiting the consummation of the transactions contemplated hereby, (ii) no
action or proceeding shall have been instituted before any court or Government
Authority to restrain or prohibit, or to obtain substantial damages from the
Company or the Interest Holders in respect of, the consummation of the
transactions contemplated hereby, (iii) none of the parties hereto shall have
received written notice from any Government Authority of (A) its intention to
institute any action or proceeding to restrain, enjoin or nullify this Agreement
or the transactions contemplated hereby, or to commence any investigation (other
than a routine letter of inquiry, including a routine civil investigative
demand) into the consummation of the transactions contemplated hereby or (B) the
actual commencement of such investigation, and (iv) no statute, rule or
regulation shall have been promulgated or enacted by any Government Authority,
which would prevent or make illegal the consummation of the transactions
contemplated hereby.
(c) Documents. Purchaser and Parent shall have delivered to the Company at
the Closing such other documents and instruments as shall be reasonably
necessary for the assumption by Purchaser of the Assumed Liabilities as
contemplated by this Agreement. Purchaser and Parent shall have delivered all
the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder.
(d) Escrow Agreement. Parent and Purchaser shall have entered into the
Escrow Agreement.
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ARTICLE VII
REGISTRATION RIGHTS SUBJECT TO FURTHER COMMENT
Section 7.1 Piggy-Back Rights.
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(a) From the Closing Date until the second anniversary of the Closing Date,
each time Parent shall determine to proceed with the actual preparation and
filing of a registration statement under the Securities Act of 1933 in
connection with the proposed offer and sale for money of any shares of Common
Stock (other than a registration statement on Form S-4 or Form S-8), Parent will
give written notice of its determination to the Company. Upon the written
request of the Company given within five (5) days after receipt of any such
notice from Parent, Parent will, except as herein provided, use its reasonable
best efforts to cause all Registrable Shares of which the Company has so
requested registration to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the Company of the
shares of Common Stock to be so registered; provided, however, that (i) nothing
herein shall prevent Parent from, at any time, abandoning or delaying any such
registration initiated by it; (ii) if Parent, in its sole discretion, determines
not to proceed with a registration after the registration statement has been
filed with the SEC, Parent shall complete the registration for the benefit of
the Company if the Company wishes to proceed with a public offering of its
shares of Common Stock and agrees to bear all expenses incurred by Parent as the
result of such registration after Parent has decided not to proceed; (iii)
Parent's obligations under this Section 7.1 shall only apply to the Share
Consideration; and (iv) for purposes of this sentence, the use by Parent of
reasonable best efforts shall not require Parent to reduce the amount or sale
price of the securities it proposes to distribute for its own account. If any
registration pursuant to this Section 7.1 shall be underwritten in whole or in
part, Parent may require that the shares of Common Stock requested for inclusion
pursuant to this Section 7.1 be included in the underwriting on the same terms
and conditions as the shares of Common Stock otherwise being sold through the
underwriters.
(b) In connection with any underwritten registration under this Section
7.1, Parent may enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by Parent.
Notwithstanding any other provision of this Section 7.1, if in the opinion of
the managing underwriter the inclusion of shares of Common Stock owned by the
Company in a registration statement would reduce the amount or sale price of the
other securities to be included in such registration, after excluding all shares
of Common Stock which are not (i) being offered by Parent for its own account or
(ii) subject to a contractual registration right, the underwriter may, in its
sole discretion, limit the number of shares of Common Stock to be included by
the Company in the registration and underwriting under this Section 7.1;
provided that shares of Common Stock subject to registration under this Section
7.1 may be excluded from registration only on a pro rata basis with all other
shares of Common Stock subject to contractual registration rights, and no shares
of Common Stock being offered by Parent for its own account may be excluded.
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Section 7.2 Registration Provisions.
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(a) If and whenever Parent is required by the provisions of Section 7.1(a)
to effect the registration of shares of Common Stock owned by the Company under
the Securities Act of 1933, Parent will:
(i) subject to the terms and conditions of this Article VII, prepare
and file with the SEC a registration statement with respect to such shares
of Common Stock, and use its reasonable best efforts to cause such
registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such shares of Common
Stock, not to exceed six (6) months;
(ii) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for such period as
may be reasonably necessary to effect the sale of such shares of Common
Stock, not to exceed six (6) months;
(iii) furnish to the Company such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and such
other documents as the Company may reasonably request in order to
facilitate the public offering of such shares of Common Stock;
(iv) prepare and promptly file with the SEC and promptly notify the
Company of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omission if, at the time when a prospectus relating to such shares of
Common Stock is required to be delivered under the Securities Act of 1933,
any event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading; and
(v) advise the Company, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Securities and Exchange Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding
for that purpose and promptly use its reasonable best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such stop
order should be issued.
The Company, upon receipt of any notice from Parent of the happening of any
event of the kind described in Section 7.2(a)(iv) or (v), will forthwith
discontinue disposition of the shares of Common Stock until the Company's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 7.2(a)(iv) or until it is advised in writing by Parent that the use of
the prospectus may be resumed and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus. If
so directed by Parent, the Company will deliver to Parent all copies, other than
permanent file copies then in the Company's possession, of the prospectus
required to be supplemented or amended.
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(b) Notwithstanding anything to the contrary in this Agreement, if at any
time after the filing of a registration statement or after it is declared
effective by the Securities and Exchange Commission, Parent determines, in its
sole discretion that such registration and the offering of shares of Common
Stock covered by such registration would interfere with or otherwise adversely
affect any financing, acquisition, corporate reorganization or other material
transaction or development involving Parent or any of its Affiliates or require
Parent to disclose material matters that otherwise would not be required to be
disclosed at such time, then Parent may require the suspension of the
distribution of any shares of Common Stock (a "Blackout Period") by giving
notice to the Company; provided, however, that Parent may require such
suspension only if the distribution of all other shares of Common Stock proposed
by Parent to be distributed in such registration is also suspended. Any such
notice need not specify the reasons for such suspension if Parent determines, in
its sole discretion, faith business judgment, that doing so would interfere with
or adversely affect such transaction or development or would result in the
disclosure of material nonpublic information. In the event that such notice is
given, then until Parent has determined, in its sole discretion, that such
registration and distribution would no longer materially interfere with the
matters described in the preceding sentence and has given notice thereof to the
Company, Parent's obligations under Section 7.1 and this Section 7.2 will be
suspended.
(c) Parent's obligations under Article VII to the Company will be
conditioned on the Company's compliance with the following:
(i) The Company will cooperate with Parent in connection with the
preparation of the applicable registration statement, and for so long as
Parent is obligated to keep such registration statement effective, the
Company will provide to Parent, in writing in a timely manner, for use in
such registration statement (and expressly identified in writing as such),
all information regarding the Company, the Interest Holders and such other
information as may be necessary and required by applicable Law to enable
Parent to prepare such registration statement and the related prospectus
covering the applicable shares of Common Stock owned by the Company and to
maintain the currency and effectiveness thereof;
(ii) The Company and the Interest Holders will permit Parent, its
representatives and agents to examine such documents and records and will
supply in a timely manner any information as they may reasonably request in
connection with the offering or other distribution in which the Company
proposes to participate;
(iii) The Company, and if required, the Interest Holders, will enter
into such agreements with Parent and any broker-dealer or similar
securities industry professional containing representations, warranties,
indemnities and agreements as are customarily entered into and made by a
seller of securities and such seller's controlling Interest Holders with
respect to secondary distributions under similar circumstances, and the
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Company will use its reasonable best efforts to cause its counsel to give
any legal opinions customarily given, in connection with secondary
distributions under similar circumstances;
(iv) During such time as the Company may be engaged in a distribution
of the shares, the Company will comply with all applicable Laws, including
Regulation M promulgated under the Securities Exchange Act of 1934, and, to
the extent required by such Laws, will, among other things: (A) not engage
in any stabilization activity in connection with the securities of Parent
in contravention of such rules; (B) distribute the Share Consideration
solely in the manner described in the applicable registration statement;
(C) if required by applicable Law, rules or regulations, cause to be
furnished to each agent or brokerdealer to or through whom the Share
Consideration may be offered, or to the offeree if an offer is made
directly by the Company, such copies of the applicable prospectus (as
amended and supplemented to such date) and documents incorporated by
reference therein as may be required by such agent, broker-dealer or
offeree, provided that Parent shall provide the Company with an adequate
number of copies thereof; and (D) not bid for or purchase any securities of
Parent; and
(v) On notice from Parent of the happening of any of the events
specified in Section 7.2(a)(iv) or (v), or that, as set forth in Section
7.2(b), it requires the suspension by the Company of the distribution of
any of the shares of Common Stock owned by the Company, then the Company
will cease offering or distributing the shares of Common Stock owned by the
Company until the offering and distribution of the shares of Common Stock
owned by the Company may recommence in accordance with the terms hereof and
applicable Law.
Section 7.3 Costs and Expenses. Except as otherwise provided in Section 7.1
with respect to registrations terminated by Parent, Parent shall bear the
following fees, costs and expenses in connection with its obligations under this
Article VII: all registration, filing and NASD fees, printing expenses, all
internal Parent expenses, the premiums and other costs of policies of insurance
against liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
Laws of any jurisdiction in which shares of Common Stock to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
the Company, underwriting discounts and commissions and transfer taxes for the
Company and any other expenses incurred by the Company not expressly included
above shall be borne by the Company.
Section 7.4 Indemnification.
----------------
(a) Parent shall indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Securities Act of 1933,
and the Permitted Assigns, from and against any and all loss, damage, liability,
cost and expenses to which the Company or any such controlling person may become
subject under the Securities Act of 1933 or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue statement or
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alleged untrue statement of any material fact contained in any registration
statement filed by Parent pursuant to Section 7.1 which covers the resale of
shares of Common Stock owned by the Company, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Parent shall not be liable in any such case to the extent that any such
loss, damage, liability, costs or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such the Company or such
controlling person.
(b) The Interest Holders and the Company shall jointly and severally
indemnify and hold harmless Parent and any underwriter (as defined in the
Securities Act of 1933) for Parent, and each person, if any, who controls Parent
or such underwriter within the meaning of the Securities Act of 1933 from and
against any loss, damage, liability, cost or expense to which Parent or any such
underwriter or controlling person may become subject under the Securities Act of
1933 or otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue or alleged untrue statement of any material
fact contained in any registration statement filed by Parent pursuant to Section
7.1 which covers the resale of shares of Common Stock owned by the Company, any
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information furnished by the
Company or Interest Holders for inclusion in such registration statement,
prospectus or amendment or supplement thereto.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) and (b) of this Section 7.4 of notice of
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof,
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party, except to the extent
that the indemnifying party is materially prejudiced by the failure to give such
prompt notice. In the case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate therein, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal fees or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.
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Section 7.5 No Assignment. The registration rights granted to the Company
pursuant to this Article VII are not assignable to any Person other than the
Permitted Assigns. Any assignment shall be null and void ab initio.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
Section 8.1 Survival. All of the representations, warranties, covenants and
agreements of the parties contained in this Agreement or in any certificate,
document or other instrument delivered in connection with this Agreement shall
survive (and not be affected in any respect by) the Closing and any
investigation conducted by any party hereto and any information which any party
may receive (including, without limitation, as contemplated by Section 2.10).
Notwithstanding the foregoing, the representations and warranties contained in
or made pursuant to this Agreement and the related indemnity obligations set
forth in Sections 8.2(a)(i) and 8.2(b)(i) hereof shall terminate on, and no
claim or Action with respect thereto may be brought, after the two (2) year
period immediately subsequent to the Closing Date; provided, however, that (a)
the representations and warranties contained in Sections 2.1, the fourth
sentence of Section 2.4(c), clauses (d) through (g) of Section 2.7, Sections
2.10, 2.13, 3.1 and 4.1, and the indemnity obligations for breach of such
representations and warranties contained in Sections 8.2(a)(i) and 8.2(b)(i)
shall survive indefinitely. The representations and warranties which terminate
at a specified date and the liability of any party with respect to any breach
thereof shall not terminate with respect to any claim, whether or not fixed as
to liability or liquidated as to amount, with respect to which such party has
been given written notice setting forth the facts upon which the claim for
indemnification is based and, if possible, a reasonable estimate of the amount
of the claims, prior to the date two (2) years immediately subsequent to the
Closing Date.
Section 8.2 Indemnification. The Interest Holders and the Company shall
severally, but not jointly, indemnify Purchaser and Parent, and Purchaser and
Parent shall jointly and severally indemnify the Interest Holders and the
Company, as set forth below. As used herein "severally, but not jointly" as it
pertains to the Interest Holders, shall mean on a pro-rata basis proportionate
to the Interest Holders ownership of the Company as of the Closing Date.
(a) Subject to Section 8.1 and to this Section 8.2, each of the Interest
Holders arid the Company hereby agrees severally, and not jointly, indemnify and
hold harmless Purchaser and Parent and their respective directors, officers,
employees, agents and Affiliates (collectively, the "Purchaser Indemnified
Persons") for, from, and against all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, disbursements and expenses
(including any reasonable Legal Expenses) (collectively, "Losses") based upon,
arising out of, asserted against, resulting from, imposed on, or otherwise in
respect of (i) the breach of any representation or warranty of any of the
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Interest Holders or the Company contained in or made pursuant to this Agreement
(notwithstanding anything to the contrary contained in this Agreement, to
determine if there had been an inaccuracy or breach of a representation or
warranty of any of the Interest Holders or the Company and the Losses arising
from such inaccuracy or breach, such representation and warranty shall be read
as if it were not qualified by materiality, including, without limitation,
qualifications indicating accuracy in all material respects, or accuracy except
to the extent the inaccuracy will not have a Material Adverse Effect), (ii) the
breach by any of the Interest Holders or the Company of, or the failure by any
of the Interest Holders or the Company to perform, any of his, her or its
covenants or other agreements contained in this Agreement, (iii) the Non-Assumed
Liabilities, and (iv) the failure to comply with any provision of applicable
bulk sales or similar Laws in connection with the transactions contemplated
hereby.
Notwithstanding any other provision herein to the contrary, except with
respect to a breach of the representations and warranties contained in Sections
2.1, 2.4(c), 2.7, 2.8, 2.9 and 2.13 as to which no limitations shall apply, (i)
the Company and the Interest Holders shall not be required, pursuant to Section
8.2(a)(i), to indemnify and hold harmless Purchaser and/or Parent until the
aggregate amount of their Losses under Section 8.2(a)(i) exceed $50,000, after
which the Company and the Interest Holders shall be severally, but not jointly,
obligated for all Losses in excess of $50,000 and (ii) the cumulative aggregate
indemnity obligations of the Company and the Interest Holders under Section
8.2(a)(i) shall in no event exceed $1,000,000 in the aggregate. Notwithstanding
anything to the contrary contained herein, any Losses claimed by Purchaser
and/or Parent shall first be satisfied out the escrow established by the Escrow
Agreement before indemnification for any Losses by Purchaser and/or Parent may
be asserted directly against the Company and/or the Interest Holders.
(b) Subject to Section 8.1 and to this Section 8.2, Purchaser and Parent
hereby agree jointly and severally to indemnify and hold harmless the Interest
Holders, the Company and its officers, directors, employees, agents and
Affiliates (collectively, the "Company Indemnified Persons") for, from and
against any Losses based upon, arising out of, asserted against, resulting from,
imposed on, or otherwise in respect of (i) the breach of any representation or
warranty of Purchaser or Parent contained in or made pursuant to this Agreement,
(ii) the breach by Purchaser or Parent of, or failure by Purchaser or Parent to
perform, any of its covenants or other agreements contained in this Agreement or
(iii) the Assumed Liabilities.
Notwithstanding any other provision herein to the contrary, except with
respect to a breach of the representations and warranties contained in Section
4.1 and 4.10, as to which no limitations shall apply (i) Parent and Purchaser
shall not be required, pursuant to Section 8.2(b)(i), to indemnify and hold
harmless the Company and the Interest Holders until the aggregate amount of the
Company's and the Interest Holders' Losses under Section 8.2(b)(i) exceeds
$50,000, after which the Parent and Purchaser shall be jointly and severally
obligated for all Losses in excess of $50,000 and (ii) the cumulative aggregate
indemnity obligations of the Parent and Purchaser under Section 8.2(b)(i) shall
in no event exceed $1,000,000 in the aggregate.
(c) In the event of a claim, a potential claim or the commencement of any
Action by a third Person which could give rise to an obligation to provide
indemnification pursuant to this Article VIII (the "Third Party Indemnification
Claim"), the Indemnified Party will give the Indemnifying Party prompt written
notice thereof, but in any event not later than fifteen (15) calendar days after
receipt of notice of the Third Party Claim; provided, however, that the failure
of the Indemnified Party to so notify the Indemnifying Party within such 15-day
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period shall not prevent any Indemnified Party from being indemnified for any
Losses, except to the extent that the failure to so promptly notify the
Indemnifying Party, and then only to the extent of such actual damage, actually
damages the Indemnifying Party or materially prejudices the Indemnifying Party's
ability to defend against such claim.
(d) Any Indemnification Claim or Third Party Indemnification Claim shall
describe the claim in reasonable detail. If the Indemnifying Party confirms in
writing to the Indemnified Party within fifteen (15) days after receipt of the
Third Party Indemnification Claim the Indemnifying Party's responsibility to
indemnify and hold harmless the Indemnifying Party therefor and within such
15-day period demonstrates to the Indemnified Party's reasonable satisfaction
that, as of such time, the Indemnifying Party has sufficient financial resources
in order to indemnify for the full amount of any potential liability in
connection with such claim, the Indemnifying Party may elect to compromise or
defend, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, which counsel shall be reasonably satisfactory to the
Indemnified Party, any Third Party Indemnification Claim. If the Indemnifying
Party elects to compromise or defend any Third Party Indemnification Claim, the
Indemnifying Party shall within fifteen (15) days (or sooner, if the nature of
the Third Party Indemnification Claim so requires) notify the Indemnified Party
of the Indemnifying Party's intent to do so, and the Indemnified Party shall
cooperate, at the expense of the Indemnifying Party, in the compromise of, or
defense against, the such Third Party Claim; provided, however, that (i) the
Indemnified Party may, if the Indemnified Party so desires, employ counsel at
the Indemnified Party's own expense to assist in the handling (but not control
the defense) of any Third Party Indemnification Claim, (ii) the Indemnifying
Party shall keep the Indemnified Party advised of all material events with
respect to the Third Party Indemnification Claim, (iii) the Indemnifying Party
shall obtain the prior written approval of the Indemnified Party before ceasing
to defend against the Third Party Indemnification Claim or entering into any
settlement, adjustment or compromise of the Third Party Indemnification Claim
involving injunctive or similar equitable relief being asserted against any
Indemnified Party or any of his, her or their Affiliates and (iv) no
Indemnifying Party will, without the prior written consent of each Indemnified
Party, settle or compromise or consent to the entry of any judgment in any
pending or threatened Action in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Party is a party to the Action),
unless such settlement, compromise or consent by its terms obligates the
Indemnifying Party to pay the full amount of the liability in connection with
the Third Party Indemnification Claim and includes an unconditional release of
all Indemnified Parties from all liability arising out of the Third Party
Indemnification Claim. Notwithstanding anything contained herein to the
contrary, the Indemnifying Party shall not be entitled to have sole control over
(and if he, she or it so desires, the Indemnified Party shall have sole control
over) the defense, settlement, adjustment or compromise of (i) any non-monetary
Third Party Indemnification Claim that seeks an order, injunction or other
equitable relief against any Indemnified Party or its Affiliates which, if
successful, is reasonably likely to interfere with the business, assets,
liabilities, obligations, prospects, financial condition or results of
operations of the Indemnified Party or any of its Affiliates and (ii) any matter
relating to Taxes of the Purchaser or any of its Affiliates. If the Indemnifying
Party elects not to compromise or defend against the asserted liability, or
fails to notify the Indemnified Party of his, her or its election as herein
provided, the Indemnified Party may, at the Indemnifying Party's expense, pay,
compromise or defend against such asserted liability. In connection with any
defense of a Third Party Indemnification Claim (whether by the Indemnifying
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Parties or the Indemnified Parties), all of the parties shall, and shall cause
their respective Affiliates to, cooperate in the defense or prosecution thereof
and to in good faith retain and furnish such records, information and testimony,
and attend such conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested by a party hereto in connection
therewith.
(e) If any Indemnified Party becomes entitled to any indemnification from
an Indemnifying Party pursuant to this Agreement, such indemnification payment
shall be made in cash upon demand; provided, however, that the Company and the
Interest Holders may satisfy all or part of an indemnification claim by
delivering to Parent shares of the Common Stock free and clear of all Liens,
with stock powers executed in blank, in an amount equal to such claim or portion
of claim, valued based on the Average Market Price of Common Stock over the ten
(10) trading days prior to January 17, 2004 of the shares of the Common Stock to
Parent.
(f) Any indemnification payment made by an party pursuant to this Article
VIII shall be deemed an adjustment to the Purchase Price.
Section 8.3 Sole and Exclusive Remedy. Except for a Claim based on actual
fraud, in which case none of the limitations contained in Sections 8.1 or 8.2
shall apply, from and after the Closing, except as set forth in Section 5.4 of
this Agreement, the indemnification rights set forth in this Article VIII shall
be the sole and exclusive remedy of the parties.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by a party
and delivered to the other parties. Copies of executed counterparts transmitted
by telecopy, telefax or other electronic transmission service shall be
considered original executed counterparts for purposes of this Section 9.1,
provided that receipt of copies of such counterparts is confirmed.
Section 9.2 Governing Law.
--------------
(a) This Agreement shall be governed by and construed in accordance with
the Laws of the State of Delaware without regard to the choice of Law principles
thereof.
(b) Any Action or proceeding with respect to this Agreement and the other
instruments and documents contemplated hereby to be executed and delivered by
any of the parties hereto, or any matters arising out of or in connection with
this Agreement and the other instruments and documents contemplated hereby to be
executed and delivered by any of the parties hereto, or otherwise, and any
action for enforcement of any judgment in respect thereof shall be brought
exclusively in the courts of the State of California, the United States of
America for the Central District of California and, by execution and delivery of
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this Agreement, each of the Interest Holders, the Company, Purchaser and Parent
each hereby accepts for himself, herself or itself, as the case may be, and in
respect of such Person's property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts and appellate courts thereof. Each of the
Interest Holders, the Company, Purchaser and Parent each irrevocably consents to
service of process in any Action in any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by certified mail, postage
prepaid, or by recognized overnight delivery service, to each of the Interest
Holders, the Company, Purchaser and Parent at their respective addresses
referred to in Section 9.5. Each of the Interest Holders, the Company, Purchaser
and Parent each hereby irrevocably waives any objection which such Person may
now or hereafter have to the laying of venue of any of the aforesaid Actions or
proceedings arising out of or in connection with this Agreement and the other
instruments and documents contemplated hereby to be executed and delivered by
any of the parties hereto, or otherwise brought in the courts referred to above
and hereby further irrevocably waives and agrees, to the extent permitted by
applicable Law, not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of any party hereto to serve process in
any other manner permitted by Law. The foregoing consents to jurisdiction and
appointments of agents to receive service of process shall not constitute
general consents to service of process in the State of California for any
purpose except as provided above and shall not be deemed to confer rights on any
Person other than the respective parties to this Agreement.
(c) To the extent that any of the Interest Holders, the Company, Purchaser
or Parent has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to himself, herself or itself, as the case may be, or to such Person's
property, each of the Interest Holders, the Company, Purchaser and Parent hereby
irrevocably waives such immunity in respect of such Person's obligations with
respect to this Agreement.
Section 9.3 Entire Agreement; No Third Party Beneficiary. Except for the
Confidentiality Agreement, this Agreement, the Assumption Agreement and the
Escrow Agreement contain the entire agreement between the parties with respect
to the subject matter hereof and all prior negotiations, writings and
understandings relating to the subject matter of this Agreement are merged in
and are superseded and canceled by, this Agreement, the Assumption Agreement,
and the Escrow Agreement, including the letter of intent dated November 6, 2003.
This Agreement is not intended to confer upon any Person not a party hereto (and
their successors and assigns permitted hereby), other than the Indemnified
Parties under Article VIII, any rights or remedies hereunder.
Section 9.4 Expenses. Whether or not the purchase and sale of the Acquired
Assets are consummated, all Legal Expenses, investment banking fees and all
other costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses; provided, however, that all such costs and expenses incurred by
the Company shall be paid by the Interest Holders.
Section 9.5 Notices. All notices and other communications hereunder shall
be in writing and given by certified mail, overnight delivery service such as
DHL or Federal Express, telecopy (or like transmission) or personal delivery
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against receipt to the party to whom it is given at such party's address or
telecopier number set forth below or such other address or telecopier number as
such party may hereafter specify by notice to the other parties hereto given in
accordance herewith. Any such notice or other communication shall be deemed to
have been given as of the date so personally delivered or transmitted by
telecopy or like transmission, on the next business day when sent by overnight
delivery service or five days after the date so mailed.
If to the Interest Holders:
Robert Wakefield
1113 Spy Glass Drive
Arnold, MD 21012
Fax: (410) 269-9391
Randolph Fairfield
2554 Crockett Road
Forest, VA 24551
Fax: (434) 846-2197
Calvin Milam
300 Trents Ferry Road
Lynchburg, VA 24503
Fax: (434) 846-2197
E&C Holdings, Inc.
41 North 3rd Avenue
Sturgeon Bay, WI 54235
Fax: (920) 743-6089
Peterson Builders, Inc.
41 North 3rd Avenue
Sturgeon Bay, WI 54235
Fax: (920) 743-6089
If to the Company:
DTI Holdings, LLC
3915 Sunnymeade Road
Rustburg, Virginia 24588
Fax: (434) 846-2197
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With a copy (not constituting notice) to:
Whyte Hirschboeck Dudek S.C.
555 East Wells Street
Suite 1900
Milwaukee, WI 53202-3819
Fax: (414) 223-5000
Attention: James A. Feddersen
If to Purchaser or Parent:
National Technical Systems, Inc.
24007 Ventura Blvd., #200
Calabasas, CA 91302
Fax: (818) 591-0899
Attention: Chief Financial Officer
with a copy (not constituting notice) to:
Sheppard, Mullin, Richter & Hampton, LLP
333 South Hope Street
Suite 4800
Los Angeles, CA 90071
Fax: (213) 620-1398
Attention: James J. Slaby
Section 9.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns; provided, however, that no party hereto may assign his,
her or its rights or delegate his, her or its obligations, in whole or in part,
under this Agreement without the prior written consent of the other parties
hereto, except that Purchaser may assign any or all of its rights and
obligations under this Agreement to any of its Affiliates; provided that such
assignment shall not relieve the Purchaser of its obligations hereunder. Any
assignment in violation of this Agreement shall be null and void ab initio.
Section 9.7 Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement.
Section 9.8 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by all of the
parties hereto. Any party hereto may, only by an instrument in writing, waive
compliance by any other parties hereto with any term or provision hereof on the
part of such other party or parties hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision hereof shall not
be construed as a waiver of any subsequent breach
-46-
Section 9.9 Interpretation; Absence of Presumption.
---------------------------------------
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Exhibit and Schedule references are
to the Articles, Sections, paragraphs, Exhibits, and Schedules to this Agreement
unless otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without limitation,"
unless the context~ otherwise requires or unless otherwise specified, (iv) the
word "or" shall not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions. Items or information may be
disclosed in the Schedules hereto which the Company or the Interest Holders are
not required to disclose under the Agreement; disclosure of such items or
information shall not affect (directly or indirectly) the interpretation of the
Agreement or the scope of the disclosure obligation under the Agreement. In
addition, inclusion of such information herein shall not be construed as an
admission that such information is "material" for any purpose.
(b) With regard to each and every term and condition of this Agreement and
any and all agreements and instruments subject to the terms hereof, the parties
hereto understand and agree that the same have or has been mutually negotiated,
prepared and drafted, and if at any time the parties hereto desire or are
required to interpret or construe any such term or condition or any agreement or
instrument subject hereto, no consideration shall be given to the issue of which
party hereto actually prepared, drafted or requested any term or condition of
this Agreement or any agreement or instrument subject hereto.
(c) Information provided in any one Schedule provided pursuant to Article
II shall suffice, without repetition or cross-reference, as a disclosure of such
information in any other Schedule provided or to be provided pursuant to Article
II if the disclosure in the first such Schedule is sufficient on its face
without further inquiry to reasonably inform Parent and Purchaser of the
information required to be disclosed in such other such Schedule in order to
avoid a breach under the Agreement.
Section 9.10 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective only to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof,
provided, however, that the parties shall attempt in good faith to reform this
Agreement in a manner consistent with the intent of any such ineffective
provision for the purpose of carrying out such intent.
Section 9.11 Specific Performance. Each of the parties hereto acknowledges
that Purchaser and Parent would not have an adequate remedy at Law for money
damages in the event that any of the covenants or agreements set forth in this
Agreement were not performed by each of the Interest Holders or the Company in
accordance with its terms and therefore each of the Interest Holders and the
Company agree that Purchaser and Parent shall be entitled to specific
performance, injunctive and other equitable relief in addition to any other
-47-
remedy to which it may be entitled at Law or in equity (without the necessity of
proving the inadequacy as a remedy of money damages or posting aboard).
Section 9.12 Further Assurances.
-------------------
(a) From time to time after the Closing Date upon the reasonable request of
Purchaser or Parent, each of the Interest Holders and the Company shall execute
and deliver or cause to be executed and delivered such further instruments of
conveyance, assignment and transfer and take such further action as Purchaser
may reasonably request in order more effectively to sell, assign, convey,
transfer, reduce to possession and record title to the Acquired Assets or the
Assumed Liabilities, as the case may be. Each of the Interest Holders and the
Company agree to cooperate with Purchaser and Parent in all reasonable respects
to assure to Purchaser the continued title to and possession of the Acquired
Assets in the condition and manner contemplated by this Agreement.
(b) From time to time after the Closing Date, upon the reasonable request
of the Company, Purchaser shall execute and deliver or cause to be executed and
delivered such further instruments of assumption and take such further action as
the Company may reasonably request in order more effectively to effectuate
Purchaser's assumption of the Assumed Liabilities in accordance herewith.
Section 9.13 Business Days. If any date provided for in this Agreement
shall fall on a day which is not a Business Day, the date provided for shall be
deemed to refer to the next Business Day.
Section 9.14 Bulk Transfer. The parties hereto hereby waive compliance with
the provisions of any applicable bulk sales Law of any jurisdiction in
connection with the transactions contemplated hereby and no representation,
warranty or covenant contained in this Agreement shall be deemed to have been
breached as a result of such non-compliance.
Section 9.15 Transfer and Other Taxes. Any and all sales and use, transfer,
conveyance, recordation and filing fees, Taxes or assessments (other than income
Taxes), including fees in connection with the recordation of instruments related
thereto, applicable to imposed upon or arising out of the sale, assignment,
conveyance and transfer to Purchaser of the Business and the Acquired Assets as
contemplated by this Agreement, shall be borne by the Company, and the parties
agree to cooperate in securing any available exemptions from any such transfer
Taxes.
Section 9.16 Termination. This Agreement may be terminated at any time
prior to the Closing by:
(a) the written agreement of the Purchaser, Parent, the Company and the
Interest Holders upon such terms and conditions as they shall agree upon;
(b) Purchaser and Parent, if (i) there shall occur a Material Adverse
Change or (ii) any of the conditions set forth in Section 6.1 hereof becomes
incapable of fulfillment (other than as a result of a breach by Purchaser or
Parent of this Agreement) and is not waived by Purchase and Parent;
-48-
(c) The Company and the Interest Holders, if (i) there shall occur with
regard to Parent as material adverse change or (ii) any of the conditions set
forth in Section 6.2 hereof becomes incapable of fulfillment (other than as a
result of a breach by the Company or the Interest Holders of this Agreement) and
is not waived by the Purchaser and Parent;
(d) Upon any termination of this Agreement pursuant to the foregoing
provisions of this Section 9.16, no party hereto shall thereafter have any
further liability or obligation hereunder except for the obligations under
Section 5.11 and Section 9.4 which shall continue through and until the date
that is two (2) years subsequent to the date hereof; provided, however, that no
such termination shall relieve any party hereto of any liability for any breach
of this Agreement prior to the date of such termination; or
(e) Either Purchaser or the Company by written notice to the other party if
the transactions contemplated hereby shall not have been consummated by 5:00
p.m. Pacific Standard Time on January 31, 2004, unless such date shall be
extended by the mutual written consent of Purchaser and the Company.
Section 9.17 Covenant of Interest Holders. The Interest Holders will cause
the Company to perform its obligations under this Agreement.
Section 9.18 Covenant of Parent. Parent will cause Purchaser to perform its
obligations under this Agreement.
Section 9.19 Personal Guarantees. Parent and Purchaser will cooperate
reasonably with Interest Holders in attempting to have Interest Holders released
from the obligations arising after the Closing under the guarantees listed on
Schedule 9.19; provided, however, that neither Parent nor Purchaser shall be
required to incur any expense, post any letter of credit or make any guarantee
in connection with its performance of, the obligations under this Section 9.19.
Section 9.20 Dissolution. The Company may be dissolved after the Closing
only if the Interest Holders expressly assume in writing all of its liabilities
and obligations at the time of such dissolution.
Section 9.21 Access. Parent and Purchaser were provided access to certain
books, records and other information of the Company; however, neither Parent nor
Purchaser makes any representation, warranty, agreement or acknowledgement as to
the adequacy or sufficiency of such access, and neither Parent nor Purchaser
waives or in any way diminishes its rights and remedies at Law and in equity,
under this Agreement or otherwise, as a result of such access or as a result of
such books, records and other information.
Section 9.22 Agreement Among Interest Holders. The Interest Holders hereby
agree among themselves as follows (i) in the event of the breach or violation of
any representation, warranty or covenant by the Company which results in the
Purchaser being entitled to indemnification pursuant to Article VIII, regardless
of who makes the indemnification payment, each Interest Holder shall bear a
share of such indemnity burden equal to his, her or its proportionate ownership
of the Company as of the Closing Date and shall so indemnify each other Interest
-49-
Holder and (ii) in the event of the breach or violation of any representation,
warranty or covenant by an Interest Holder which results in the Purchaser being
entitled to indemnification pursuant to Article VIII, regardless of who makes
the indemnification payment, the Interest Holder who breached or violated the
representation, warranty or covenant shall be solely responsible for the same
and shall indemnify all other Interest Holders with respect thereto. The
provisions of this Section 9.22 constitute an agreement among only the Interest
Holders and shall not apply to the Purchaser or Parent or alter or impact any of
the rights of the Purchaser or Parent under this Agreement.
[Remainder of this page is blank]
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties as of the day first above written.
PARENT:
NATIONAL TECHNICAL SYSTEMS, INC.,
a California corporation
By: __________________________________
Name:
Title:
PURCHASER:
NTS TECHNICAL SYSTEMS,
a California corporation
By: _________________________________
Name:
Title:
INTEREST HOLDERS:
-------------------------------------
Robert Wakefield
-------------------------------------
Randolph Fairfield
-------------------------------------
Calvin Milam
E&C HOLDINGS, INC.,
a Maryland corporation
By: _________________________________
Name:
Title:
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PETERSON BUILDERS, INC.,
a Wisconsin corporation
By: _________________________________
Name:
Title:
COMPANY:
DTI HOLDINGS, LLC.,
a Maryland limited liability company
By: _________________________________
Name:
Title:
-52-
Exhibit A
Definitions
"Acquired Assets" means all of the assets, properties, privileges, claims
and rights that are owned, used or held for use in connection with, or that are
otherwise related to or required for the conduct of, the Company's business of
every kind, nature and description (other than the Excluded Assets), whether
such assets, properties and rights are real, personal or mixed, tangible or
intangible, wherever located, whether or not any of such assets, properties,
privileges, claims and rights have any value for accounting purposes or are
carried or reflected on or specifically referred to in the Company's books or
financial statements, including without limitation the following:
(a) all tangible assets and properties owned, used or held for use
by the Company, including machinery and equipment, tools, furniture, office
equipment, furnishings and fixtures and machinery and equipment under order or
construction;
(b) all inventories, including finished goods, work-in-progress,
raw materials, accessories, packaging, manufacturing, administrative and other
supplies on hand, goods held for sale or to be furnished under the Contracts and
other inventories owned, used or held for use by the Company;
(c) all billed and unbilled accounts receivable and all notes
receivable of the Company;
(d) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and deposits owned, used or held for use by the
Company;
(e) all Intellectual Property;
(f) all Domain Names of the Company, including each of the Domain
Names set forth in Schedule 2.5(g) hereto;
(g) the Company's website(s) and all related property technologies
and other related assets;
(h) subject to Section 1.7 hereof, and except for the Excluded
Contracts, the contracts listed on Schedule 2.16 hereto (the "Contracts");
(i) subject to Section 1.7 hereof, all franchises, approvals,
permits, authorizations, licenses, orders, registrations, certificates,
variances, and other similar permits or rights obtained by the Company from any
Government Authority and all pending applications therefor (the "Permits");
(j) all of the Company's books, records, ledgers, files, documents
(including originally executed copies of written contracts, customer and
supplier lists (past, present or future), correspondence, memoranda, forms,
lists, plats, architectural plans, drawings and specifications, copies of
documents evidencing Intellectual Property, new product development materials,
-1-
creative materials, advertising and promotional materials, studies, reports,
sales and purchase correspondence, books of account and records relating to the
employees, photographs, quality control records and procedures, equipment
maintenance records, manuals and warranty information, research and development
files, in each case, whether in hard copy or magnetic format;
(k) all rights or choses in action arising out of occurrences
before or after the Closing Date, including third party warranties and
guarantees and all related claims, credits, rights of recovery and set-off and
other similar contractual rights, as to third parties held by or in favor of the
Company; and
(l) all rights to insurance and condemnation proceeds relating to
the damage, destruction, taking or other impairment of the Acquired Assets or
the Business.
"Action" shall mean any actual or threatened action (at Law or in
equity), suit, arbitration~ review, inquiry, proceeding or investigation.
"Affiliate" (and, with a correlative meaning, "Affiliated") shall mean,
with respect to any Person, any other Person that directly, or through one or
more intermediaries, controls or is controlled by or is under common control
with such first Person. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Associate" of a specified Person shall mean (a) a corporation or other
organization of which such Person is a director, officer or partner or is,
directly or indirectly, the beneficial owner of 5% or more of any class of
equity securities, (b) any trust or other estate in which such Person has such a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity and (c) any Relative of such Person who has the same home
as such Person.
"Average Market Price" of Common Stock for any day shall mean the
average closing price for such security on the principal exchange or quotation
system on which such security is listed or traded for the last ten (10) trading
days prior to such day. In the event that no such report or quotation is
available within such ten (10) trading-day period, the board of directors of
Parent shall be entitled to determine the Average Market Price on the basis of
such reports as it reasonably considers appropriate.
"Business Day" shall mean a day other than Saturday, Sunday or any
other day which commercial banks in Los Angeles, California are authorized or
required by Law to close.
"Closing" shall mean the consummation of the purchase and sale of the
Acquired Assets and the assumption of the Assumed Liabilities as described in
Article I.
"Closing Net Worth" shall mean, as of December 31, 2003 the total
assets of the Company including the Acquired Assets minus the total liabilities
of the Company including the Assumed Liabilities, in each case determined in
accordance with GAAP, applied consistently with the audited financial statements
-2-
of the Company for the year ended December 31, 2002, except that: (i) inventory
shall be reflected thereon at the Company's current cost and (ii) there shall be
an accrual for payroll and vacation pay through December 31, 2003. BOB WAKEFIELD
AND LLOYD BLONDER TO ADD ANY OTHER CHANGES FROM PRIOR FINANCIAL STATEMENTS.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"Contract" shall have the meaning set forth in the definition of
"Acquired Assets."
"Domain Names" shall mean computer addresses for a reserved site on the
Internet.
"Employee" shall mean all current employee, former employee and retired
employee of the Company.
"Encumbrances" shall mean mortgages, liens, pledges, encumbrances
(legal or equitable), claims, charges, security interests, voting and other
restrictions, rights-of-way, easements, options, encroachments and any other
similar matters affecting title.
"Environment" means all soil, land, surface or subsurface strata,
surface waters (including navigable waters and ocean waters), ground waters,
drinking water supply, stream sediments, ambient air (including indoor air),
plant and animal life and any other environmental medium or natural resource.
"Environmental, Health and Safety Liabilities" means any cost, damages,
expense, liability, obligation or other responsibility arising from or under any
Environmental Law or Occupational Safety and Health Law, including those
consisting of or relating to:
(i) any environmental, health or safety matter or condition (including
on-site or off-site contamination, occupational safety and health and regulation
of any chemical substance or product);
(ii) any fine, penalty, judgment, award, settlement, legal or
administrative proceeding, damage, loss, claim, demand or response, remedial or
inspection cost or expense arising under any Environmental Law or Occupational
Safety and Health Law;
(iii) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any cleanup, removal, containment or other remediation or response
actions ("Cleanup") required by any Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Authority or any other Person) and for any natural resource
damages; or
(iv) any other compliance, corrective or remedial measure required
under any Environmental Law or Occupational Safety and Health Law.
-3-
The terms "removal," "remedial" and "response action" include the types of
activities covered by CERCLA.
"Environmental Law" means any Law that requires or relates to:
(i) advising appropriate authorities, employees or the public of
intended or actual Releases of pollutants or hazardous substances or materials,
violations of discharge limits or other prohibitions and the commencement of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(ii) preventing or reducing to acceptable levels the Release of
pollutants or hazardous substances or materials into the Environment;
(iii) reducing the quantities, preventing the Release or minimizing the
hazardous characteristics of wastes that are generated;
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor thereto.
"ERISA Affiliate" shall mean any entity which is treated as a single
employer with the Company under Section 414(b), (c), (m) or (o) of the Code.
"Excluded Assets" shall mean:
(i) the Purchase Price and all rights of the Company under this
Agreement and any claims in respect thereof;
(ii) duplicate copies of all books and records transferred to
Purchaser;
(iii) any and all contracts, agreements, instruments, written or oral,
to which the Company is a party, other than the Contracts;
(iv) the minute books and membership interest transfer books of the
Company;
(v) Income Tax refunds and related rights and claims;
(vi) cash and cash equivalents; and
(vii) the personal property described on Schedule A hereto.
"Facilities" means any real property, leasehold or other interest in
real property currently or formerly owned or operated by the Company, including
the tangible personal property used or operated by the Company at the respective
locations of such real property.
"GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
-4-
"Government Authority" shall mean any foreign or United States federal
or state (or any subdivision thereof), agency, authority, bureau, commission,
department or similar body or instrumentality thereof, or any governmental court
or tribunal.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Material in, on, under,
about or from any of the Facilities or any part thereof and any other act,
business, operation or thing that violates any Environmental Law, or increases
the danger, or risk of danger, or poses an unreasonable risk of harm, to Persons
or property on or off the Facilities.
"Hazardous Material" means any substance, material or waste which is or
will foreseeably be regulated by any Governmental Authority, including any
material, substance or waste which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste," "restricted
hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law, including lead paint, petroleum, petroleum
products, asbestos, presumed asbestos-containing material or asbestos-containing
material, urea formaldehyde and polychlorinated biphenyls.
"Hazardous Materials" shall mean all pollutants, contaminants,
chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive,
flammable, explosive, toxic, radioactive or otherwise hazardous substances or
materials (whether solids, liquids or gases) subject to regulation, control or
remediation under Environmental Law; including, by way of example only,
petroleum, petroleum products, crude oil or any fraction thereof, urea
formaldehyde, PCBs, pesticides, herbicides, asbestos, slag, acids, metals,
solvents, and waste water.
"HSR Act" shall mean the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and rules and regulations promulgated
thereunder.
"Intellectual Property" shall mean the Intellectual Property Rights
identified in Schedule 2.5 hereto, together with all other Intellectual Property
Rights owned, used or held for use by the Company.
"Intellectual Property Rights" shall mean (i) all patents, copyrights,
trademarks, service marks, trade identification, trade dress, trade names,
copyrights, formulae, processes, procedures, designs, ideas, strategic and other
business plans, research records, inventions, records of inventions, test
information, technical information, engineering data, trade secrets, know-how,
proprietary information (including without limitation proprietary software
algorithms and designs), mask work rights, database rights, publicity rights,
privacy rights and other rights of a similar nature for which legal protection,
statutory, common Law or otherwise, may be obtained, in the United States and/or
any other country or jurisdiction together with all related manuals, books,
files, journals, models, instructions, patterns, drawings, blueprints, plans,
designs, specifications, equipment lists, parts lists, descriptions, data, art
work, Software, computer programs and source code data related thereto including
all current and historical data bases; (ii) all pending applications to register
or otherwise obtain legal protection for any of the foregoing; (iii) all rights
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to make application in the future to register or otherwise obtain legal
protection for any of the foregoing; (iv) all rights of priority under national
Laws and international conventions with respect to any of the foregoing; (v) all
continuations, continuations-in-part, divisions, renewals, extensions, patents
of addition, reexaminations, or reissues of any of the foregoing and all related
applications therefor; (vii) all goodwill associated with any of said
trademarks, service marks, trade identification, trade dress and trade names;
and (vii) all rights to sue with respect to past and future infringements of any
of the foregoing.
"IP License" shall mean any option, license, or agreement of any kind
relating to the exercise, use, non-use, registration,' enforcement,
non-enforcement of or remuneration for any Intellectual Property or Software.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" (i) when used with respect to the Company, shall mean the
actual and constructive (based on what a reasonable person in the applicable
position of the Company should know) knowledge of any Interest Holder, Bob
Wakefield, Randy Fairfield, Calvin Milam or Tim Nogosky and (ii) when used with
respect to Purchaser or Parent, shall mean the actual and constructive (based on
what a reasonable person in the applicable position of Purchaser or Parent
should know) knowledge of Jack Lin or Lloyd Blonder.
"Law" or "Laws" shall mean all statutes, codes, ordinances, decrees,
rules, regulations, municipal by-Laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, policies, or any provisions or interpretations of the foregoing,
including genera! principles of common and civil Law and equity, binding on or
affecting the Person referred to in the context in which such word is used.
"Legal Expenses" shall mean the fees, costs and expenses of any kind
incurred by any Person indemnified herein and its counsel in investigating,
preparing for, defending against or providing evidence, producing documents or
taking other action with respect to any threatened or asserted claim.
"Legal Requirement" shall mean any Law, statute, ordinance, code, rule,
regulation, standard, judgment, decree, writ, ruling, arbitration award,
injunction, order or other requirement of any Government Authority.
"License" shall mean any option, license, or agreement of any kind
relating to the exercise, use, non-use, registration, enforcement,
non-enforcement or remuneration for any Intellectual Property Right or Software.
"Material Adverse Effect" or "Material Adverse Change" shall mean a
material adverse effect on or change to the (i) business, results of operations,
financial condition or prospects of the Company, the Business or the Acquired
Assets, taken as a whole or (ii) ability of the Company to perform its
obligations under this Agreement.
"NTS MAC" shall mean a material adverse effect on or change to (i) the
business, results of operations , financial condition or prospects of Purchaser
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and Parent, taken as a whole or (ii) the ability of Purchaser or Parent to
perform their respective obligations under this Agreement.
"Ordinary Course of Business" has the following meaning: an action
taken by a Person will be deemed to have been taken in the Ordinary Course of
Business only if that action:
(i) is consistent in nature, scope and magnitude with the past
practices of such Person and is taken in the ordinary course of the normal,
day-to-day operations of such Person;
(ii) does not require authorization by the board of directors or
shareholders of such Person (or by any Person or group of Persons exercising
similar authority, such as managers or members of a limited liability company)
and does not require any other separate or special authorization of any nature;
and
(iii) is similar in nature, scope and magnitude to actions customarily
taken, without any separate or special authorization, in the ordinary course of
the normal, day-to-day operations of other Persons that are in the same line of
business as such Person.
"Outstanding IP License" shall mean any IP License by or to the Company
or to which the Company is, otherwise a party, or by which the Company or any of
its Intellectual Property, Software or other property is subject or bound.
"Permits" means any consent, approval, ratification, waiver or other
authorization, license, registration or permit issued, granted, given or
otherwise made available by or under the authority of any Governmental Authority
or pursuant to any Law.
"Permitted Assigns" shall mean either or both Interest Holders.
"Person" shall mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization, limited liability company, other
form of business or legal entity or Government Authority.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., as its prime rate in effect at its principal
office in the City of New York.
"Registrable Shares" shall mean, in each case only as relates to Common
Stock acquired hereunder, (i) as of any date between 90 and 199 days following
the Closing, 25% of the shares of Common Stock held by the Company or the
Interest Holders, (ii) as of any date between 180 and 269 days following the
Closing, 50% of the shares of Common Stock held by the Company or the Interest
Holders, (iii) as of any date between 270 and 364 days following the Closing,
75% of the shares of Common Stock held by the Company or the Interest Holders
and (iv) as of the first anniversary of the Closing, all shares of Common Stock
acquired by the Company pursuant to this Agreement.
"Relative" of a Person shall mean such Person's spouse, such Person's
parents, sisters, brothers, children and the spouses of the foregoing and any
member of the immediate household of such Person.
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"Release" means any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching or migration on or into the Environment or into or out of any property.
"Remedial Action" means all actions, including any capital
expenditures, required or voluntarily undertaken (i) to clean up, remove, treat
or in any other way address any Hazardous Material or other substance, (ii) to
prevent the Release or Threat of Release or to minimize the further Release of
any Hazardous Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the Environment, (iii) to
perform pre-remedial studies and investigations or post-remedial monitoring and
care, or (iv) to bring all Facilities and the operations conducted thereon into
compliance with Environmental Laws and environmental Permits.
"Returns" shall mean all returns, declarations, statements, forms or
other documents required to be filed with or supplied to any Taxing Authority.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act of 1933" shall mean the United States Securities Act of
1933, as amended, or any successor Law, and regulations and rules issued by the
SEC pursuant to that act or any successor Law.
"Securities Exchange Act of 1934" shall mean the United States
Securities Exchange Act of 1934, as amended, or any successor Law, and
regulations and rules issued by the SEC pursuant to that act or any successor
Law.
"Software" shall mean source or object code instructions for
controlling the operation of a central processing unit or computer, and computer
files containing data.
"Subsidiary," as it relates to any Person, shall mean any Person of
which such Person (a) directly or indirectly through one or more Subsidiaries,
beneficially owns capital stock or other equity interests having in the
aggregate 50% or more of the total combined voting power, without giving effect
to any contingent voting rights, in the election of directors (or Persons
fulfilling similar functions or duties) of such owned Person or (b) is a general
partner.
"Tax" or "Taxes" shall mean (a) all taxes (whether federal, state,
county or local), fees, levies, customs duties, assessments or charges of any
kind whatsoever, including gross income, net income, gross receipts, profits,
windfall profits, sales, use, occupation, value added, ad valorem, transfer,
license, franchise, withholding, payroll, employment, excise, estimated, stamp,
premium, capital stock, production, net worth, alternative or add-on minimum,
environmental, business and occupation, disability, severance, or real or
personal property taxes imposed by any Taxing Authority together with any
interest, penalties, or additions to tax imposed with respect thereto and (b)
any obligations under any tax sharing, tax allocation, or tax indemnity
agreements or arrangements with respect to any Taxes described in clause (a)
above.
"Taxing Authority" shall mean any Government Authority having
jurisdiction over the assessment, determination, collection, or other imposition
of any Tax.
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"Threat of Release" means a reasonable likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"UCC" shall mean the Uniform Commercial Code, as amended, and any
successor thereto.
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