STOCK PURCHASE AGREEMENT
XXXXXXX RESEARCH CORPORATION
AND
XXXXX X. XXXXX, SOLE SHAREHOLDER OF
MNEMONIC SYSTEMS INCORPORATED
Dated: April 15, 1998
I N D E X
SECTION 1 - Purchase and Sale......................................... 1
1.1 Purchase of Stock................................................ 1
1.2 Purchase Price................................................... 1
1.3 Closing; Closing Date............................................ 1
1.4 Deliveries and Proceedings at the Closing........................ 2
1.4.1 Deliveries by Seller................................... 2
1.4.2 Deliveries by Xxxxxxx.................................. 2
1.4.3 Other Deliveries....................................... 2
1.5 Payment of Certain Taxes......................................... 2
1.6 Adjustment of Purchase Price..................................... 2
1.6.1 Closing Balance Sheet.................................. 2
1.6.2 Earn-Out............................................... 3
1.6.3 Rights Not Affected.................................... 4
SECTION 2 - Representations and Warranties of Seller.................. 4
2.1 Authorized and Outstanding Common Stock.......................... 4
2.2 Organization and Standing........................................ 5
2.3 No Violation..................................................... 5
2.4 Financial Statements............................................. 6
2.5 Liabilities...................................................... 6
2.6 Accounts Receivable.............................................. 6
2.7 Fixed Assets and Inventory....................................... 6
2.8 Contracts........................................................ 7
2.9 Corporate Actions................................................ 9
2.10 Intellectual Property Rights..................................... 9
2.11 Insurance Policies............................................... 9
2.12 Backlog......................................................... 10
2.13 Compensation.................................................... 10
2.14 Employee Benefits............................................... 10
2.15 Environmental Matters........................................... 11
2.16 Labor and Employment Matters.................................... 13
2.17 Title to Assets, Liens and Encumbrances......................... 15
2.18 Customer Claims and Complaints.................................. 16
2.19 Secrecy and Non-Competition Agreements.......................... 16
2.20 Governmental Approvals.......................................... 16
2.21 Orders, Decrees, Etc............................................ 16
2.22 Compliance with the Law......................................... 17
2.23 Actions Not in Ordinary Course and No Material Change......... 17
2.24 Litigation...................................................... 19
2.25 Taxes and Tax Returns........................................... 19
2.26 Bank Accounts................................................... 21
2.27 Disclosure...................................................... 21
2.28 Proprietary Rights.............................................. 21
2.29 Software and Information Systems................................ 22
2.30 Material Commitments............................................ 23
2.31 Estoppel Provisions............................................. 23
2.32 Change in Shareholdings......................................... 24
2.33 Transactions With Affiliates and Related Parties................ 24
2.34 Brokers and Finders............................................. 24
2.35 Year 2000 Compliance in Drugfire................................ 24
2.36 Incurred Cost Submission........................................ 24
SECTION 3 - Representations and Warranties of Xxxxxxx................ 25
3.1 Organization and Standing....................................... 25
3.2 Authorization................................................... 25
3.3 No Violation.................................................... 25
3.4 Brokers or Finders.............................................. 25
3.5 Investment Intent............................................... 25
3.6 Disclosure...................................................... 26
3.7 Top Secret Clearance............................................ 26
3.8 Disclosure Documents............................................ 26
SECTION 4 - Examination of the Business.............................. 26
SECTION 5 - Conditions to the Obligations of Xxxxxxx................. 26
5.1 No Inaccuracies................................................. 27
5.2 Compliance...................................................... 27
5.3 Delivery of Documents........................................... 27
5.4 Opinion of Counsel.............................................. 27
5.5 Resignation..................................................... 27
5.6 Consents........................................................ 27
5.7 Employment Agreement............................................ 28
5.8 Covenant Not to Compete and Consulting Agreement................ 28
5.9 UCC Searches.................................................... 28
5.10 No Adverse Change............................................... 28
5.11 No Interference................................................. 28
5.12 Form 8023-A..................................................... 28
5.13 Loans to Employees.............................................. 29
5.14 Automobile Lease................................................ 29
5.15 Obligations of Mnemonic......................................... 29
5.16 Amendment of Charter and Bylaws................................. 29
5.17 Receipts and Releases........................................... 29
5.18 Cooperation..................................................... 29
SECTION 6 - Conditions to the Obligations of the Seller......... 30
6.1 No Inaccuracies................................................. 30
6.2 Compliance...................................................... 30
6.3 Delivery of Documents........................................... 30
6.4 Opinion of Counsel.............................................. 30
6.5 Employment Agreement............................................ 30
6.6 Covenant Not to Compete and Consulting Agreement................ 31
6.7 No Adverse Change............................................... 31
6.8 No Interference................................................. 31
6.9 Consents........................................................ 31
6.10 Cooperation..................................................... 31
SECTION 7 - Certain Additional Covenants of the Parties......... 31
7.1 Conduct of Business............................................. 31
7.2 Preservation of Business and Goodwill........................... 32
7.3 Notification of Proceedings..................................... 32
7.4 Use of "Mnemonic" Name.......................................... 32
7.5 Records......................................................... 32
7.6 Further Assurances; Cooperation................................. 32
7.7 Employee Benefit Plans.......................................... 32
7.7.1 401(k) Plan........................................... 33
7.7.2 Termination of Plans.................................. 33
7.7.3 Other Benefits........................................ 33
7.7.4 Employee Stock Options................................ 33
7.8 Post-Closing Matters............................................ 33
7.8.1 Board of Directors.................................... 33
7.8.2 Officers.............................................. 33
7.8.3 1997 Incurred Cost Submission......................... 33
7.8.4 Short Period Tax Return............................... 33
7.9 Guarantee of Mnemonic Debt...................................... 34
SECTION 8 - Indemnification.......................................... 34
8.1 Definition...................................................... 34
8.2 Indemnification by Seller....................................... 34
8.3 Indemnification by Xxxxxxx...................................... 35
8.4 Procedure for Indemnification................................... 35
8.5 Escrow.......................................................... 36
8.6 Offsets......................................................... 36
8.7 Limitations on Indemnity........................................ 36
SECTION 9 - Survival of Representations and Warranties............... 36
SECTION 10 - Access to Information and Confidentiality............... 37
SECTION 11 - Press Releases.......................................... 37
SECTION 12 - Further Assurances...................................... 38
SECTION 13 - Successors and Assigns.................................. 38
SECTION 14 - Notices................................................ 38
SECTION 15 - Applicable Law; Dispute Resolution...................... 39
SECTION 16 - Headings and Construction............................... 39
SECTION 17 - Waivers and Amendments.................................. 40
SECTION 18 - Third Party Rights...................................... 40
SECTION 19 - Expenses................................................ 40
SECTION 20 - Illegality.............................................. 40
SECTION 21 - Entire Agreement........................................ 41
SECTION 22 - Counterparts............................................ 41
INDEX OF SCHEDULES TO
STOCK PURCHASE AGREEMENT
Schedule Title
------------------------------------------------------------------------
Schedule 2.1 Seller and Number of Shares on Closing Date 4
Schedule 2.4(a) Financial Statements 6
Schedule 2.4(b) Exceptions to Financial Statements 6
Schedule 2.5 Liabilities 6
Schedule 2.6 Letters of Credit 6
Schedule 2.7(a) Assets and Inventory Delivered to Xxxxxxx 6
Schedule 2.7(b) Defective or Unsatisfactory Services or Products
Claims 7
Schedule 2.8 Contracts Delivered to Xxxxxxx 7
Schedule 2.8(b) Mnemonic's Standard Agreements 7
Schedule 2.8(c) Contracts Not in the Ordinary Course of Business 7
Schedule 2.9(a) Affiliates of Mnemonic 9
Schedule 2.9(b) Directors and Officers of Mnemonic 9
Schedule 2.10 Intellectual Property Rights 9
Schedule 2.11 Insurance Policies and Claims 9
Schedule 2.13 Employee Compensation and Bonuses 10
Schedule 2.14(a) Employee Benefit Plans 10
Schedule 2.14(b) Plans Not In Compliance with ERISA 10
Schedule 2.15(d) Management Activities Regarding Hazardous Substances12
Schedule 2.15(e) PCBs or Asbestos Insulation Present at
Mnemonic Facilities 12
Schedule 2.15(f) Hazardous Substances Generated by Mnemonic 12
Schedule 2.15(g) Hazardous Substances Transported 12
Schedule 2.16(a) Written and Oral Employee Contracts With Mnemonic 13
Schedule 2.16(b) Written and Unwritten Employee Policies
and Practices 14
Schedule 2.16(c) Noncompliance With Federal, State, Local
or Other Applicable Laws 14
Schedule 2.16(d) Threatened or Pending Employment Practices
Litigation 14
Schedule 2.16(f) Threatened or Pending Discrimination Litigation 14
Schedule 2.17 Assets, Liens and Encumbrances of Mnemonic 15
Schedule 2.18 Customer Claims and Complaints 16
Schedule 2.19 Secrecy and Non-Competition Agreements 16
Schedule 2.20 Governmental Approvals 16
Schedule 2.21 Orders, Decrees, Etc. 16
Schedule 2.23 Actions Not in the Ordinary Course 17
Schedule 2.24 Litigation and Compliance 19
Schedule 2.25 Taxes 19
Schedule 2.26 Bank Accounts 21
Schedule 2.28 Proprietary Rights 21
Schedule 2.29 Software 22
Schedule 2.30 Project List 23
Schedule 2.33 Transactions With Affiliates and Related
Parties 24
Schedule 7.7 Employee Benefit Plan 32
Schedule 7.7.1 Section 401(k) Plan 33
Schedule 7.7.2 Employee Welfare Benefit Plans 33
LIST OF EXHIBITS
Exhibit Page
-------------------
Exhibit A Escrow Agreement
Exhibit B Organizational Structure of Mnemonic During
Earn-Out Period
Exhibit C Certificate of Seller
Exhibit D Opinion of Counsel for Seller
Exhibit E-1 Xxxxx X. Xxxxxx Employment Agreement
Exhibit E-2 Xxxxxx Xxxxxxx Employment Agreement
Exhibit E-3 Xxxxx X. XxXxxxxx, Xx. Employment Agreement
Exhibit E-4 Xxx Xxxx Employment Agreement
Exhibit F Covenant Not to Compete and Consulting Agreement
Exhibit G Certificate from Xxxxxxx
Exhibit H Opinion of Counsel for Xxxxxxx
Exhibit I Form of Release
Exhibit J Amendment to Charter and Bylaws
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into on this the 15th day of April, 1998, by and between
Xxxxxxx Research Corporation, a Delaware corporation ("Xxxxxxx")
and Xxxxx X. Xxxxx ("Seller"), the sole shareholder of Mnemonic
Systems Incorporated, a Virginia corporation ("Mnemonic").
W I T N E S S E T H:
Seller owns all of the issued and outstanding capital stock
of Mnemonic. Mnemonic is engaged principally in providing
systems integration services and technology-based products to
customers with an emphasis on services and products that assist
investigative and law enforcement agencies (the "Mnemonic
Business"). Xxxxxxx is engaged principally in the information
technology business. Seller desires to sell and Xxxxxxx desires
to purchase all of the issued and outstanding capital stock of
Mnemonic owned by Seller on the terms and conditions hereinafter
set forth. Upon closing of the transactions herein described,
Mnemonic will be a wholly owned subsidiary of Xxxxxxx.
THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
SECTION 1
Purchase and Sale
1.1 Purchase of Stock. At the closing referred to in
Section 1.3, and subject to the terms and conditions hereof,
Seller shall sell, assign, transfer and deliver to Xxxxxxx and
Xxxxxxx shall purchase, in exchange for the consideration set
forth in Section 1.2 below, all of the issued and outstanding
capital stock of Mnemonic (the "Shares").
1.2 Purchase Price. Xxxxxxx shall pay Seller, subject to
the terms and conditions hereinafter set forth, as full payment
for the transfer of the Shares to Xxxxxxx, the sum of Twelve
Million One Hundred Ninety-Eight Thousand Five Hundred Eighty-One
Dollars ($12,198,581) (the "Purchase Price"). The Purchase Price
shall be paid in immediately available funds. The Purchase Price
is subject to adjustment as set forth in Section 1.6.
1.3 Closing; Closing Date. The closing of the purchase and
sale provided for herein (the "Closing") shall take place on
April 15, 1998, or on such other date as the parties may agree
(the "Closing Date"), at the offices of Xxxx Xxxxx Xxxx & XxXxxx
LLP at 0000 X Xxxxxx, Xxxxx 0000 - East Tower, Washington, D. C.,
or at such other location as the parties may agree.
1.4 Deliveries and Proceedings at the Closing. At the
Closing:
1.4.1 Deliveries by Seller. Seller shall deliver
to Xxxxxxx certificates evidencing his Shares, duly endorsed for
transfer, in negotiable form, accompanied by stock powers duly
executed in blank or duly executed instruments of transfer, and
any other documents that are necessary to transfer to Xxxxxxx
good title to all of the Shares, free and clear of all liens,
claims, security interests, pledges, charges, equities, options,
restrictions and encumbrances of whatever nature.
1.4.2 Deliveries by Xxxxxxx. Xxxxxxx shall deliver
the Purchase Price to Seller in accordance with Section 1.2.
1.4.3 Other Deliveries. The Closing certificates,
opinions of counsel and other documents required to be delivered
pursuant to this Agreement shall be delivered by Seller and
Xxxxxxx. Seller shall deposit into escrow the sum of $1,600,000
at Closing to be held pursuant to the Escrow Agreement attached
hereto as Exhibit "A." In the event of a conflicting provision
between this Agreement and the Escrow Agreement, this Agreement
shall control as to the parties hereto.
1.5 Payment of Certain Taxes. At or prior to the Closing,
Seller shall pay or cause to be paid any and all state or local
transfer, document recording and other similar transactional
taxes or duties (including all stock transfer taxes), if any,
payable as a result of the sale or transfer of the Shares.
1.6 Adjustment of Purchase Price.
1.6.1 Closing Balance Sheet. As soon as
practicable, but in any event within thirty (30) days after the
Closing Date, Mnemonic shall, with the cooperation of the
accountants for Xxxxxxx, prepare and deliver to Seller a balance
sheet of Mnemonic as of the close of business on the Closing Date
(the "Closing Balance Sheet"). The Closing Balance Sheet shall
be prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied by Mnemonic. Within ten
(10) days after receipt by Seller of the Closing Balance Sheet,
Seller or Xxxxxxx shall notify the other party of disagreement,
if any, with any amount included therein or omitted therefrom; in
which case, if the parties are unable to resolve the disputed
items within fifteen (15) days after such notice of disagreement,
such items will be submitted to and determined by the accounting
firm of Coopers & Xxxxxxx, L.L.P. ("Coopers & Xxxxxxx"), whose
determination shall be final and binding for all purposes. The
fees and disbursements of Coopers & Xxxxxxx shall be prorated
between Xxxxxxx and Seller based upon the percentage of change in
the allowance or disallowance with respect to the disputed item.
In the event any change is made in the Closing Balance Sheet in
accordance with this Section, such balance sheet as so changed
shall be the "Closing Balance Sheet" for the purposes of this
Agreement. The Closing Balance Sheet shall be final either (i)
ten (10) days after the Closing Balance Sheet is received by
Seller and Xxxxxxx, in the event of no dispute or (ii) the
resolution of any dispute in accordance with this Section. The
Purchase Price payable to Seller shall be decreased by the
amount, if any, by which the difference of the net assets minus
liabilities reflected on the Closing Balance Sheet is less than
Four Hundred Seventy-Five Thousand Five Hundred Eighty-One
Dollars ($475,581). Within ten (10) business days after the
Closing Balance Sheet becomes final, any such decrease in the
Purchase Price shall be paid by Seller to Xxxxxxx.
1.6.2 Earn-Out. For the twelve (12) month period
after the Closing (the "Earn-Out Period"), Seller shall be
eligible to receive additional purchase consideration up to a
maximum of $6,000,000 if certain Net Income Before Taxes ("NIBT")
results are achieved during such period. Buyer covenants to
conduct Mnemonic's business in the ordinary course in a manner
consistent with its historic practices and as provided in Exhibit
"B" except as the parties may otherwise agree in writing. If
during the Earn-Out Period Mnemonic achieves NIBT less than
$3,170,000 (the "Minimum Target"), no additional purchase
consideration shall be paid. If during the Earn-Out Period
Mnemonic achieves NIBT equal to or greater than $5,443,000 (the
"Maximum Target"), additional purchase consideration of
$6,000,000 shall be paid. If during the Earn-Out Period Mnemonic
achieves NIBT equal to or more than the Minimum Target and less
than the Maximum Target, additional purchase consideration shall
be paid in accordance with the following formula:
E = 2.42 (NIBT - $3,170,000) + $500,000; where
E = additional purchase consideration
NIBT = net income before taxes. The
minimum value for NIBT is $3,170,000; for any
lesser value, "E" shall be zero. The maximum
value for NIBT is $5,443,000; for any greater
value, "E" shall be $6,000,000.
For example, if NIBT for the Earn-Out Period is $4,823,000, the
amount of the additional purchase consideration would be
$4,500,260, calculated as follows:
E = 2.42 ($4,823,000 - $3,170,000)
+ $500,000 = $4,500,260
Notwithstanding the foregoing, if a judgment has been entered in
either the Xxxx Xxxxx Litigation, as hereinafter defined under
Section 2.24, or the EEOC Claim, as hereinafter defined and
disclosed on Schedule 2.16(f), Threatened or Pending
Discrimination Litigation, and such judgment is unpaid prior to
payment of the amount, if any, due Seller under this Section,
Seller shall deposit with the escrow agent the lesser of (a) the
amount due under this Section or (b) an amount equal to the
difference between the amount held in escrow under the Escrow
Agreement and the judgment amount. Such amount, if any, shall be
deposited on the payment date with the Escrow Agent and held by
the Escrow Agent as security for the indemnification obligations
of Seller under Section 8.2(ix) hereof with respect to the Xxxx
Xxxxx Litigation or the EEOC Claim pursuant to the terms and
conditions of the Escrow Agreement attached hereto as Exhibit
"A." For purposes of this Section 1.6.2, NIBT shall not be
reduced by an expense incurred to the extent that Mnemonic is
indemnified and held harmless by Seller with respect to such
incurred expense pursuant to Section 8 hereof.
Xxxxxxx shall keep Mnemonic as an independent subsidiary during
the Earn-Out Period. Mnemonic shall maintain its books and
records in accordance with GAAP, and it shall employ a mutually
acceptable Big 6 accounting firm to provide audited financial
statements during such Earn-Out Period. If after the first six
months following the Closing Mnemonic's operating revenues or
NIBT for its year-to-date period are less than sixty percent
(60%) of the operating revenues or NIBT for the comparable year-
to-date period during the fiscal year ended December 31, 1997,
Xxxxxxx may elect not to treat Mnemonic as an independent
subsidiary. If Xxxxxxx elects not to treat Mnemonic as an
independent subsidiary during the Earn-Out Period there shall be
no earn-out. Mnemonic shall be charged a corporate general and
administrative allocation by Xxxxxxx which will not exceed 2.5%
of the revenues of Mnemonic during the Earn-Out Period. Mnemonic
may purchase corporate support items from Xxxxxxx at rates
mutually agreed to by Mnemonic and Xxxxxxx.
1.6.3 Rights Not Affected. Nothing contained in
this Section 1.6 or any other action on the part of Xxxxxxx
pursuant to the provisions of this Section shall in any way
prejudice, or constitute a waiver of, any of the rights of
Xxxxxxx with respect to the representations and warranties of
Seller contained in Section 2 hereof, the covenants of Section 7
hereof, or the indemnifications contained in Section 8 hereof.
SECTION 2
Representations and Warranties of Seller
Seller represents and warrants to Xxxxxxx as follows:
2.1 Authorized and Outstanding Common Stock. As of the
date hereof and as of the Closing, the issued and outstanding
capital stock of Mnemonic and the number of shares of authorized
capital stock of Mnemonic are and will be as follows:
Designation Number Number Number
of Shares of Shares of Shares
Authorized Issued and Subject to
Outstanding Options
------------------------------------------------------
Common Stock 000 000 -0-
All of the issued and outstanding Shares are validly issued,
fully paid and non-assessable. Set forth on Schedule 2.1, Seller
and Number of Shares on Closing Date, are the number of Shares
held by Seller on the date hereof and as of the Closing Date.
Mnemonic has and at Closing will have no other authorized, issued
or outstanding shares of capital stock nor any outstanding
securities, bonds, convertible securities, subscription
agreements, warrants, options, buy-sell agreements, or other
liens, agreements or commitments relating to Mnemonic's capital
stock.
2.2 Organization and Standing. Mnemonic is and will be at
Closing a corporation duly organized, validly existing and in
good standing under the laws of the State of Virginia, and will
be at Closing duly qualified to do business in and in good
standing as a foreign corporation in all other states where the
nature of its business or operations or the ownership of its
property requires such qualification, except where the lack of
such qualification would not have a material adverse effect on
the financial condition of Mnemonic taken as a whole. No
jurisdiction where it is not presently qualified as a foreign
corporation has made any assertion to Mnemonic that its business
or operations or ownership of property makes qualification as a
foreign corporation in such jurisdiction necessary. Mnemonic has
all requisite corporate power and authority to own, lease and
operate its properties and carry on its business as and where it
is now being conducted. A copy of Mnemonic's Articles of
Incorporation and all amendments thereto as of the date hereof
and a copy of its Bylaws, as amended to the date hereof (both
certified by the Secretary), have been furnished to Xxxxxxx and
are true, accurate and complete as of the date hereof. Mnemonic
owns no stock or securities of any other corporation or entity,
except as shown on Schedule 2.9(a), Affiliates of Mnemonic.
2.3 No Violation. To the knowledge of Seller, the
execution, delivery and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereunder
will not, with or without the giving of notice or the passage of
time or both, (i) violate, conflict with, or constitute a default
(or cause an acceleration) under Mnemonic's Articles of
Incorporation or Bylaws or any contract, note, lien, security
agreement, license, permit, or instrument to which Mnemonic is a
party or by which Mnemonic or Seller is bound or which may affect
any of the assets, business or operations of Mnemonic, (ii)
result in the creation or imposition of any lien, claim, charge
or encumbrance upon any of Mnemonic's properties or assets, or
(iii) constitute a violation of any statute, ordinance, judgment,
order, decree, regulation, rule or law of any court, government,
authority or arbitrator applicable to or relating to Mnemonic or
any of the assets, business or operations of Mnemonic. This
Agreement and all other agreements and obligations entered into
and undertaken in connection with the transactions contemplated
hereby to which Seller and Mnemonic are parties constitute the
valid and legally binding obligations of Seller and Mnemonic
enforceable against each of them in accordance with their
respective terms, except as such enforceability may be limited by
bankruptcy laws and equitable principles. To the knowledge of
Seller, there are no consents, waivers or approvals of persons or
authorities required in connection with the consummation of the
transactions contemplated by this Agreement and the other
agreements referenced herein and no other consents, waivers or
approvals will be required in connection with such consummation.
2.4 Financial Statements.
(a) Annexed hereto as Schedule 2.4(a), Financial
Statements, are financial statements of Mnemonic (the "Financial
Statements") consisting of: (i) the unaudited balance sheet of
Mnemonic at February 28, 1998 (the "Interim Balance Sheet"),
together with the related statements of income and stockholder's
equity for the two (2) month period ended February 28, 1998, and
(ii) the audited balance sheets of Mnemonic at December 31, 1995,
December 31, 1996, and December 31, 1997, together with the
audited and related statements of income, stockholder's equity
and cash flows for the fiscal years of Mnemonic for such periods.
(b) Except as disclosed in Schedule 2.4(b), Exceptions
to Financial Statements, all of the foregoing Financial
Statements, in each case, have been prepared in conformity with
GAAP applied on a consistent basis throughout the periods
involved and with prior periods except as otherwise expressly
stated therein and fairly present the assets, liabilities and
financial condition and results of operations of Mnemonic at, or
for the periods ended at, the dates thereof, and are true,
complete and accurate; provided, however, that the Interim
Balance Sheet and the related statements of income, stockholder's
equity and cash flows are subject to normal year-end adjustments
and lack footnotes and other presentation items.
2.5 Liabilities. To the knowledge of Seller, there are no
material debts, liens, security interests, claims, liabilities or
obligations of Mnemonic, whether accrued, contingent, absolute,
direct or indirect, or matured or unmatured, including, but not
limited to, liabilities for taxes, interest and penalties, except
(i) as and to the extent reflected or reserved against in the
Interim Balance Sheet; and (ii) those disclosed on Schedule 2.5,
Liabilities.
2.6 Accounts Receivable. All of the accounts receivable of
Mnemonic are actual bona fide receivables representing
obligations for the total dollar amount thereof as shown on the
Financial Statements and books of Mnemonic which resulted from
the ordinary course of business of Mnemonic, and are stated on
the Financial Statements net of an appropriate reserve for bad
debt and noncollectible accounts. To the knowledge of Seller,
the accounts receivable of Mnemonic as of the Closing will be
fully collectible, less an appropriate reserve for uncollectible
accounts consistent with past practice. All existing letters of
credit in favor of Mnemonic are shown on Schedule 2.6, Letters of
Credit.
2.7 Fixed Assets and Inventory.
(a) The dollar amount of the fixed assets owned by
Mnemonic as shown on the Interim Balance Sheet and as acquired
thereafter and treated on the books of Mnemonic as an asset does
not exceed the cost of same, less depreciation determined in
accordance with GAAP consistently applied, and Mnemonic has not
written up the value of any such fixed assets. The fixed assets
and inventory of Mnemonic as of the date of the Interim Balance
Sheet, include those items set forth in Schedule 2.7(a), Assets
and Inventory Delivered to Xxxxxxx, hereto, and, at Closing, such
fixed assets and inventory shall be in existence. The fixed
assets of Mnemonic are in good working order, reasonable wear and
tear excepted.
(b) Mnemonic is not under any liability or obligation
with respect to the return of payments or inventory in the
possession of customers and, for the twelve month period
immediately prior to the Closing, Mnemonic has not experienced
any claims with respect to defective or unsatisfactory services
or products except as specifically set forth on Schedule 2.7(b),
Defective or Unsatisfactory Services or Products Claims. The
inventory of Mnemonic existing on the Closing Date shall have
been acquired in the ordinary course of Mnemonic's business.
2.8 Contracts.
(a) Except as provided in 2.8(d) below, Schedule 2.8,
Contracts Delivered to Xxxxxxx, contains a list of all material
verbal or written (i) leases, (ii) contracts (including
employment and independent contractor and professional
contracts), (iii) agencies, (iv) purchase orders, (v) marketing
or referral agreements, (vi) software agreements (including
software license agreements), (vii) maintenance or support
agreements, (viii) training agreements, (ix) royalty agreements,
(x) employee benefit, bonus or compensation agreements, (xi)
bids, (xii) government contracts, (xiii) computer software
agreements, (xiv) contracts for the furnishing of all services,
(xv) all contracts for referrals, (xvi) all contracts to obtain
supplies or services, (xvii) subcontracts, (xviii) teaming
agreements, and (xix) all other agreements or understandings
between Mnemonic and any other party or person (collectively,
"Contracts"), which are not otherwise attached to any other
Schedules of this Agreement. Such list includes completed
Contracts where the services have been performed but the obligor
has not paid. True, correct and complete copies of all of the
written Contracts listed on Schedule 2.8, Contracts Delivered to
Xxxxxxx, have been made available for inspection and copying by
Xxxxxxx.
(b) Mnemonic's standard agreements identified on
Schedule 2.8(b), Mnemonic's Standard Agreements, have been made
available to Xxxxxxx for copying and inspection.
(c) Since the Interim Balance Sheet, Mnemonic has not
entered into any Contracts not in the ordinary course of business
except as listed in Schedule 2.8(c), Contracts Not in the
Ordinary Course of Business. None of the Contracts to which
Mnemonic is a party or to which it is subject or by which it is
bound requires the consent of any other person for the execution
and delivery of this Agreement or the consummation of the
transactions contemplated hereby. To the knowledge of Seller,
each of the Contracts to which Mnemonic is a party or to which it
is subject or by which it is bound, to the extent not otherwise
already fully performed by Mnemonic, is a valid and existing
contract of all of the parties thereto in full force and effect
without modification and there are no pending or threatened
disputes thereunder, and all will continue to be binding (except
as to which the enforceability is limited by bankruptcy laws and
equitable principles) in accordance with their terms after
consummation of the transactions contemplated hereby and each is
with unrelated and unaffiliated third parties and was entered
into on an arms-length basis in the ordinary course of business,
except as to agreements with Seller listed in Schedule 2.8,
Contracts Delivered to Xxxxxxx. Except as disclosed in Schedule
2.8, Contracts Delivered to Xxxxxxx, to the Seller's knowledge,
Mnemonic has timely performed all obligations required to be
performed by it and is not in default under any verbal or written
Contract to which it is a party or to which it is subject or by
which it is bound and no event has occurred which, with or
without the lapse of time or the giving of notice, or both, or
action by a third party, could result in a default under any of
the forgoing. To the Seller's knowledge, no other party is in
default under any such Contract. None of the Contracts are
materially in excess of the normal, ordinary and usual
requirements of Mnemonic's operations.
(d) Mnemonic has certain classified government
contracts. Prior to the date hereof, Xxxxxxx and its
representatives have not been given access to such classified
government contracts. Because of government security
restrictions, all or some of these contracts may not have been
listed on Schedule 2.8, Contracts Delivered to Xxxxxxx.
Nevertheless, all of the representations and warranties contained
herein apply to such classified contracts insofar as such
application is consistent with the aforesaid security
restriction.
(e) Mnemonic has received a determination letter from
GSA Federal Corporate Acquisition Center, which is attached to
Schedule 2.8, Contracts Delivered to Xxxxxxx, which states that
it does not have an organizational conflict of interest, as
defined at Federal Acquisition Regulation Subpart 9.5, in
providing information technology services for the Federal Bureau
of Investigation ("FBI"), specifically in connection with, and
for purposes of, submitting a proposal in response to an
anticipated FBI procurement known as "FEDCAC Project 18,
Information Sharing Initiative."
(f) On October 9, 1997 Mnemonic was awarded General
Services Administration Schedule Contract GS-35F-4756H (the "GSA
Schedule Contract"). The General Services Administration ("GSA")
Contracting Officer has provided written verification by letter
dated April 10, 1998, a copy of which is attached to Schedule
2.8, Contracts Delivered to Xxxxxxx, that Mnemonic and Xxxxxxx
shall retain their respective schedule contracts, a copy of which
is attached to Schedule 2.8, Contracts Delivered to Xxxxxxx. The
FBI currently is obtaining the services of Mnemonic under the GSA
Schedule Contract and by letter dated December 18, 1997, a copy
of which is attached to Schedule 2.8, Contracts Delivered to
Xxxxxxx, the FBI has stated its intention to continue issuing
task orders to Mnemonic thereunder in satisfying requirements
during fiscal year 1998. A copy of Purchase Order Number
A8G8023370 dated April 7, 1998, is attached to Schedule 2.8,
Contracts Delivered to Xxxxxxx. While certain services are not
procured under the GSA Schedule Contract from Mnemonic because of
the limited availability of labor categories, Mnemonic has
initiated and is pursuing action to insure prompt modification of
the GSA Schedule Contract. Such modification will provide for
the availability of additional labor categories so as to permit
Mnemonic to perform all of the requirements of each United States
Government customer currently procuring Mnemonic's services under
a contract awarded under Section 8(a) of the Small Business Act.
2.9 Corporate Actions. The minute books of Mnemonic
contain appropriate corporate minutes and authorizations for all
corporate actions taken by Mnemonic's Board of Directors, its
officers, and Seller. Mnemonic does not own any stock or
otherwise possess ownership rights in any other corporation or
organization and has no affiliates (other than Seller), except as
disclosed in Schedule 2.9(a), Affiliates of Mnemonic. Attached
hereto as Schedule 2.9(b), Directors and Officers of Mnemonic, is
a list of directors and officers of Mnemonic.
2.10 Intellectual Property Rights. Schedule 2.10,
Intellectual Property Rights, hereto sets forth a true and
materially complete list of all trademarks, service marks, trade
name, patents, patent applications, copyrights, and copyright
applications heretofore or presently used or required to be used
by Mnemonic in connection with its business (collectively
"Intellectual Property Rights"). All Intellectual Property
Rights are owned by Mnemonic and, except as set forth on Schedule
2.10, Intellectual Property Rights, and to the knowledge of the
Seller, are not subject to any license, lien, royalty arrangement
or pending or threatened dispute. Except as disclosed in
Schedule 2.10, Intellectual Property Rights, and to the best
knowledge of the Seller, no product or service marketed,
manufactured, sold or licensed, and no marketing, service or
process used by Mnemonic infringes any Intellectual Property
Rights of others and no product or service marketed, or process
used by any other person, firm, corporation or other entity
infringes any Intellectual Property Rights heretofore or
presently used or required to be used by Mnemonic. Except as set
forth on Schedule 2.10, Intellectual Property Rights, and to the
knowledge of the Seller, Mnemonic has not received notification
of infringement by Mnemonic or the Seller of any Intellectual
Property Right of others. To the knowledge of the Seller, no
trademark, service xxxx or trade name used by Mnemonic infringes
any trademark, service xxxx or trade name of others in the United
States of America or any foreign country.
2.11 Insurance Policies. Schedule 2.11, Insurance Policies
and Claims, hereto, sets forth a list of all business, insurance
policies held or owned by Mnemonic or which name Mnemonic as
beneficiaries, and true and correct copies of all such policies
have heretofore been delivered to Xxxxxxx. To the knowledge of
Seller, all such insurance binders and policies of Mnemonic are
valid, outstanding and enforceable and all premiums due thereon
prior to the Closing have been paid. All the insurance policies
listed in Schedule 2.11, Insurance Policies and Claims, contain
provisions and will remain in full force and effect during the
period immediately following the Closing. To the knowledge of
the Seller, there are no pending material claims under such
insurance policies. Schedule 2.11, Insurance Policies and Claims,
also sets forth all claims filed during the past twelve (12)
months with respect to insurance policies maintained by Mnemonic.
2.12 Backlog. The backlog of orders, sales and service
commitments of Mnemonic, together with all Contracts to which
Mnemonic is a party, consist of contracts for services of
Mnemonic which are typical of the types of services heretofore
marketed, sold or rendered by Mnemonic and which do not require
the development or application of any materially new or
materially more advanced technology or service than that utilized
by Mnemonic in the past. No purchase or expansion of property
(other than purchases of inventory consistent with Mnemonic's
past ordinary course of business), plant, equipment or capacity
is needed to timely fill the current backlog and current
Contracts.
2.13 Compensation. Set forth on Schedule 2.13, Employee
Compensation and Bonuses, is a list of the names, age, title,
total annual compensation, date of last salary or hourly rate
adjustment and amount thereof, and length of time in current
position of all employees of Mnemonic, including a list of
accrued vacation and sick leave benefits and a list of all other
benefits provided to each such employee as of April 14, 1998.
Mnemonic has not entered into any commitments or understandings
with any employee concerning future compensation, bonuses and
benefits of a material nature to be paid after March 31, 1998,
except as set forth on Schedule 2.13, Employee Compensation and
Bonuses, and there are no employment agreements, written or
verbal, except as set forth on Schedules 2.8, Contracts Delivered
to Xxxxxxx and/or 2.16(a), Written and Oral Employee Contracts
with Mnemonic and except for the employment contracts delivered
with this Agreement. All employees of Mnemonic are "at will" and
may be terminated at any time by Mnemonic, except as set forth on
Schedule 2.16(a), Written and Oral Employee Contracts with
Mnemonic.
2.14 Employee Benefits.
(a) Set forth on Schedule 2.14(a), Employee Benefit
Plans, is a materially accurate and complete list of all material
employee benefit plans ("Plans") within the meaning of Section
3(3) of the Employee Retirement Income Security Act ("ERISA"),
whether or not any such Plans are otherwise exempt from all or
part of the provisions of ERISA, established, maintained or
contributed to for the benefit of Mnemonic's employees, and a
list of Pension Plans terminated prior to the date hereof.
(b) Except as set forth in Schedule 2.14(b), Plans Not
In Compliance with ERISA, Mnemonic does not maintain, cause to be
maintained or contribute to any Plan subject to ERISA which is
not, or in the past has not been, to the knowledge of the Seller,
in substantial compliance with ERISA or the Internal Revenue Code
of 1986 (the "Code"), or which has incurred any accumulated
funding deficiency within the meaning of Section 412 or 418(b) of
the Code, or which has applied for or obtained a waiver from the
Internal Revenue Service of any minimum funding requirement under
Section 412 of the Code. Except as set forth on Schedule
2.14(b), Plans Not In Compliance with ERISA, to the knowledge of
Seller, Mnemonic has not incurred any liability to the Pension
Benefit Guaranty Corporation ("PBGC") in connection with any Plan
covering any employees of Mnemonic.
(c) Mnemonic has caused the "group health plan," as
such term is defined in Section 162(i)(3) of the Code, to be
maintained, administered and operated in all material respects in
compliance with the applicable requirements of Section 601 of
ERISA and Section 162(k) of the Code, and to the Seller's
knowledge, Mnemonic has no liability, including, but not limited
to, additional contributions, fines, penalties or loss of tax
deduction as a result of such administration and operation.
Mnemonic does not maintain any Plan (whether qualified or
nonqualified within the meaning of Section 401(a) of the Code)
providing for retiree health and/or life benefits.
(d) Benefits under all Plans are as represented and
have not been and will not be amended subsequent to the date as
of which copies thereof have been provided to Xxxxxxx and prior
to Closing except as required by law.
(e) Each Plan intended to be qualified under Section
401(a) of the Code has been determined to be so qualified by the
Internal Revenue Service and to the knowledge of Seller nothing
has occurred since the date of the last such determination which
resulted or is likely to result in the revocation of such
determination.
(f) The execution of, and consummation of the
transactions contemplated by this Agreement, do not constitute a
triggering event under any Plan, policy, arrangement, statement,
commitment or agreement, which (either alone or upon the
occurrence of any additional or subsequent event) will or may
result in any payment (whether of severance pay or otherwise),
acceleration, vesting or increase in benefits to any employee or
former employee or director of Mnemonic.
(g) Mnemonic has made available for inspection and
copying by Xxxxxxx true and complete copies of (i) all Plans as
now in effect, together with all amendments thereto which will
become effective at a later date, and (ii) Form 5500 for the most
recent completed fiscal year for each Plan required to file such
form.
2.15 Environmental Matters.
(a) To the Seller's knowledge, Mnemonic holds and is
in substantial compliance with all environmental permits,
certificates, licenses, approvals, registrations and
authorizations ("Permits") required under all applicable
environmental laws, rules and regulations in connection with its
business as currently operated, and all of such Permits are in
full force and effect. To the Seller's knowledge, Mnemonic has
complied with all, and is not in violation of any, applicable
environmental statutes, rules, regulations, ordinances and orders
of any authority, including, those relating to Hazardous
Substances (as defined below).
(b) No notice, citation, summons or order has been
issued, no complaint has been filed, no penalty has been assessed
and, to the Seller's knowledge, no investigation or review is
pending or threatened by any authority with respect to (i) any
alleged violation by Mnemonic of any environmental statute,
ordinance, rule, regulation or order of any authority; or (ii)
any alleged failure by Mnemonic to have any environmental Permit,
certificate, license approval, registration or authorization
required in connection with its business; or (iii) any use,
generation, treatment, storage, recycling, transportation or
disposal (collectively, "Management Activities" with respect to
Hazardous Substances) of any hazardous substance, hazardous
waste, hazardous materials, toxic substance, pollutants or
contaminants as defined in federal, state or local laws,
ordinances or regulations and including petroleum products and
radioactive materials generated or used (collectively, "Hazardous
Substances") by Mnemonic.
(c) Mnemonic has not received any request for
information, notice of claim, demand or notification that it is
or may be potentially responsible with respect to any
investigation or clean-up of any threatened or actual release of
any Hazardous Substance.
(d) Except as set forth on Schedule 2.15(d),
Management Activities Regarding Hazardous Substances, to the
Seller's knowledge, Mnemonic has not conducted any Management
Activities, whatsoever, with respect to any Hazardous Substances
on its properties, identified on Schedule 2.17, Assets, Liens and
Encumbrances of Mnemonic, or the properties of another nor, to
Seller's knowledge, has anyone else conducted any Management
Activities, whatsoever, on the respective properties of Mnemonic.
(e) Except as set forth on Schedule 2.15(e), PCBs or
Asbestos Insulation Present at Mnemonic Facilities, hereto and to
the Seller's knowledge, no PCBs or asbestos insulation is or has
been present at the facilities of Mnemonic.
(f) Hazardous Substances, if any, for which Mnemonic
performs Management Activities (if any) are listed on Schedule
2.15(f), Hazardous Substances Generated by Mnemonic, and to the
Seller's knowledge, any Hazardous Substances listed on Schedule
2.15(f), Hazardous Substances Generated by Mnemonic, have been
generated by Mnemonic in regulated quantities and have been
recycled, treated, stored, disposed of or transported in full
compliance with all applicable laws.
(g) Except as set forth on Schedule 2.15(g), Hazardous
Substances Transported, and to the Seller's knowledge, Mnemonic
has not transported any Hazardous Substances or arranged for the
transportation of such substances to any location which is listed
or proposed for listing under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C.
9601-9657 ("CERCLA"), or on any similar state list, or which is
the subject of federal, state or local enforcement actions or
other investigations which may lead to claims against Mnemonic or
Xxxxxxx for clean-up costs, remedial work, damages to natural
resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
(h) To the Seller's knowledge, no Hazardous Substance
has been released, spilled, leaked, discharged, disposed of,
pumped, poured, emitted, emptied, injected, leached, dumped or
allowed to escape ("Releases") by Mnemonic or any other person
from, at, on or under the properties of Mnemonic.
(i) No oral or written notification of a Release or
threat of Release of a Hazardous Substance has been filed by or
on behalf of Mnemonic, or to the Seller's knowledge, any other
person in relation to any properties now or previously owned,
operated or leased by Mnemonic. To the Seller's knowledge, no
such properties are listed or proposed for listing on the
National Priority List promulgated pursuant to CERCLA, or on any
similar state list of sites requiring investigation or clean-up.
(j) There are no environmental liens on the properties
of Mnemonic, and no government actions have been taken or are in
process, or to the Seller's knowledge, pending which could
subject Mnemonic's properties to such liens. Mnemonic or any
other person would not be required to place any notice or
restriction relating to the presence of Hazardous Substance in
the deed to any properties owned by or leased to Mnemonic.
(k) In respect of environmental matters, no consent,
approval or authorization of, or registration or filing, with any
person or authority is required in connection with the execution
and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(l) There have been no environmental inspections,
investigations, studies, audits, tests, reviews or other analyses
conducted in relation to Mnemonic's properties or operations.
(m) To the Seller's knowledge, there are no facts or
circumstances related to environmental matters concerning the
properties or businesses of Mnemonic that could lead to any
future environmental claims, liabilities or responsibilities of
Xxxxxxx or Mnemonic.
2.16 Labor and Employment Matters.
(a) Schedule 2.16(a), Written and Oral Employee
Contracts With Mnemonic, hereto contains a complete and correct
list and summary description of all written and oral contracts
with employees of Mnemonic (inclusive of officers and directors)
together with all bonus, stock option, and other incentive
arrangements, pension and retirement plans, profit sharing plans,
group or individual medical, health, dental, accident, life and
other employee benefit insurance and other employee compensation
or benefit plans, arrangements, understandings or policies
(whether written or oral), except as otherwise disclosed pursuant
to Sections 2.08, 2.13 or 2.14 hereto, affecting employees of
Mnemonic and to Seller's knowledge Mnemonic is not in default
under any of the foregoing. There have been no claims of default
under any of the foregoing and there are, to the Seller's
knowledge, no facts or conditions which, with or without the
passage of time or the giving of notice or both, would constitute
or result in a default under any of the foregoing. True and
complete copies of all the foregoing have heretofore been
delivered by Mnemonic to Xxxxxxx.
(b) Schedule 2.16(b), Written and Unwritten Employee
Policies and Practices, identifies all written and unwritten
policies and practices describing employment practices,
generally, and termination payments and benefits to terminated
employees of Mnemonic.
(c) Except as set forth on Schedule 2.16(c),
Noncompliance With Federal, State, Local or Other Applicable
Laws, to Seller's knowledge Mnemonic is in compliance with all
federal, state, local or other applicable laws or requirements of
any governmental, regulatory or administrative authority or court
respecting preemployment and employment practices, terms and
conditions of employment and wages and hours and occupational
safety and health, including, but not limited to, the National
Labor Relations Act, the Fair Labor Standards Act (including the
Equal Pay Act), Title VII of the Civil Rights Act of 1964, the
Occupational Safety and Health Act of 1970, the Service Contract
Act, the Contract for Work Hours and Safety Standards Act, the
Rehabilitation Act of 1973, the Vietnam ERA Veterans Readjustment
Assistance Act of 1974, Executive Order 11246, the Employees
Retirement Income Security Act of 1974, and state and local
employment, unemployment and worker's compensation statutes, and
Mnemonic is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act.
Mnemonic is not party to any collective bargaining agreement and
no union organizational efforts are currently in progress.
(d) Except as disclosed in Schedule 2.16(d),
Threatened or Pending Employment Practices Litigation and
Schedule 2.24, Litigation and Compliance, there is no
administrative or private claim, charge, complaint, dispute,
action, grievance, suit, administrative, arbitration or other
proceeding or investigation, pending, or to the Seller's
knowledge, threatened against Mnemonic relating to any of the
items or matters referenced in subparagraph (c) directly above,
or with regard to any allegedly accrued or vested employee
benefits or any other common or statutory law claim involving
tort, contract, or equity, and to the Seller's knowledge, no
basis or facts exist for any such claim, charge, complaint,
dispute, grievance, action, suit or legal, administrative,
arbitration or other proceeding or governmental investigation.
(e) There is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against Mnemonic, and no
such strike, dispute, slowdown, or stoppage has been experienced
by Mnemonic since the date of Mnemonic's incorporation.
(f) Except as disclosed on Schedule 2.16(f),
Threatened or Pending Discrimination Litigation, there are no
charges, administrative proceedings, investigations or formal
complaints of discrimination pending or, to the Seller's
knowledge, threatened before the Equal Employment Opportunity
Commission ("EEOC") or any federal, state or local agency or
court. To the Seller's knowledge, there are no pending or
threatened audits of the equal employment opportunity practices
of Mnemonic and no basis for any equal employment opportunity
claim exists, except for a charge of discrimination filed with
the EEOC by Xxxxx Xxxxxxx (the "EEOC Claim"), a copy of which is
attached to Schedule 2.16(f), Threatened or Pending
Discrimination Litigation.
2.17 Title to Assets, Liens and Encumbrances.
(a) Mnemonic is the owner of, and has good and
marketable title to, free and clear of all security interests,
mortgages, pledges, liens, claims, restrictions, equities,
easements, rights-of-way, rights of first refusal and any other
encumbrances and charges whatsoever, or is the lessee of, all of
its respective property and assets, except as set forth on
Schedule 2.17, Assets, Liens and Encumbrances of Mnemonic hereto.
Mnemonic owns or leases all of the assets used by it in the
operation and conduct of its business or required by Mnemonic for
the normal conduct of its business.
(b) Schedule 2.17, Assets, Liens and Encumbrances of
Mnemonic, sets forth a true and complete list and description of
all real property, land, buildings and improvements leased by
Mnemonic as of the Closing. True and correct copies of all
leases with respect to the property listed on Schedule 2.17,
Assets, Liens and Encumbrances of Mnemonic, have heretofore been
made available to Xxxxxxx for inspection and copying. Except as
disclosed in Schedule 2.17, Assets, Liens and Encumbrances of
Mnemonic, all such real property, land and buildings used or
leased by Mnemonic as of the Closing are used by or useful to
Mnemonic in the ordinary course of business, and the use and
occupancy by Mnemonic conforms in all material respects with all
applicable laws to the Seller's knowledge and to the Seller's
knowledge are in good operating condition and in a good state of
maintenance and repair. Mnemonic owns no real property, land,
buildings or improvements.
(c) Except as set forth on Schedule 2.17, Assets,
Liens and Encumbrances of Mnemonic, Mnemonic has not received any
notices of violations of law, governmental orders, ordinances or
requirements issued by any national, federal, state, municipal or
other governmental, department or authority or corresponding
foreign governmental instrumentality or any fire department or
insurance carrier, that would have a material adverse effect or
purport to have a material adverse effect on use and occupancy of
the real property used or leased by Mnemonic. All real property
leases are full service leases without any liability of Mnemonic
to pay for utilities, sewer, water, taxes and building insurance.
All real property used or leased and the use or lease thereof to
the Seller's knowledge conforms in all material respects with
private covenants and restrictions and all applicable building,
zoning, environmental, land use, and other laws, ordinances,
codes, orders and regulations.
(d) To the Seller's knowledge, the leases described in
Schedules 2.8, Contracts Delivered to Xxxxxxx or 2.17, Assets,
Liens and Encumbrances of Mnemonic, are in full force and effect
on the Closing without any material default or breach by Mnemonic
or any lessor.
(e) Mnemonic has not received any notice of any
requirements or recommendations by any insurance company which
has issued a policy covering any part of the real property used
or leased by Mnemonic or by any board of fire underwriters or
other body or authority exercising similar functions, requiring
or recommending any repairs or work to be done on any part of
said real property.
(f) Schedule 2.17, Assets, Liens and Encumbrances of
Mnemonic also lists all personal property leased by Mnemonic.
The Seller makes the same representations and warranties about
the personal property leases as made in the other subparagraphs
of this Section 2.17.
2.18 Customer Claims and Complaints. Except as disclosed on
Schedule 2.18, Customer Claims and Complaints, and the Financial
Statements, to the Seller's knowledge, Mnemonic has no liability
or obligation with respect to the return of any funds because of
products or services provided by it and has not experienced any
unusual or excessive claims with respect to products or services
during the thirty-six (36) months immediately preceding the
execution of this Agreement. No customer, client, or contracting
party has requested that performance under any contract or other
agreement be canceled or delayed for any period of time. No
customer liability claim is presently pending or to the Seller's
knowledge threatened or imminent against Mnemonic, or any other
person with respect to Mnemonic. Mnemonic has not experienced
any warranty claims for products or services in the past three
(3) years, except as disclosed on Schedule 2.18, Customer Claims
and Complaints.
2.19 Secrecy and Non-Competition Agreements. Seller and
Mnemonic have not entered into any secrecy or non-competition
agreements with any person with respect to the Mnemonic Business
except as disclosed on Schedule 2.19, Secrecy and Non-Competition
Agreements.
2.20 Governmental Approvals. Except as disclosed on
Schedule 2.20, Governmental Approvals, to Seller's knowledge no
authorization, novation, approval, order, license, permit,
franchise, or consent and no registration, declaration or filing
by Mnemonic with any governmental authority is required in
connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. Listed
on Schedule 2.20, Governmental Approvals, are all contracts
awarded to Mnemonic pursuant to Section 8(a) of the Small
Business Act that may be terminated by the United States
Government pursuant to 13 C.F.R. 124.317 upon execution or
Closing of this Agreement.
2.21 Orders, Decrees, Etc. Except as set out in Schedule
2.21, Orders, Decrees, Etc., there are no orders, writs, decrees,
injunctions, or rulings of any court, authority, arbitration
tribunal, or any governmental department, commission, board,
agency or instrumentality, domestic or foreign, issued, or to the
best knowledge of the Seller, pending or threatened against, nor
consents binding on, Mnemonic or the Seller, any officer,
director or employee of Mnemonic, which do or may affect, limit
or control Mnemonic or any of its assets or Mnemonic's method or
manner of doing business.
2.22 Compliance with the Law. Except as otherwise disclosed
in the Schedules hereto, to the Seller's knowledge, Mnemonic is
in material compliance with all foreign, federal, state and local
laws, rules, orders and regulations, including, but not limited
to those relating to zoning, building codes, the Code, antitrust,
occupational safety and health, environmental protection, water
or air pollution, ERISA, toxic and hazardous waste and controlled
substances, consumer product safety, product liability,
employment and employment practices, term and conditions of
employment, bidding and contracting procedures, dealings with
federal, state, governmental, municipal or local authorities,
hiring, wages, hours, employee benefit plans and programs,
collective bargaining and withholding and social security taxes,
and have received no notices of alleged violations thereof. To
Seller's knowledge, no governmental authorities are presently
conducting proceedings against Mnemonic, and no such
investigation or proceeding is threatened. To Seller's
knowledge, Mnemonic has obtained all permits, licenses and
authorizations required for the conduct of its affairs as
currently conducted and as is contemplated will be conducted
immediately following consummation of the transactions
contemplated hereby, and all of such permits, licenses and
authorizations will remain in full force and effect following
such consummation. True, complete and correct copies of the
foregoing permits, licenses and authorizations, if any, have been
delivered to Xxxxxxx. To Seller's knowledge, no employee of
Mnemonic in the course of his or her employment has been exposed
to any chemical or other Hazardous Substance or material produced
by Mnemonic which could give rise to a claim against Mnemonic.
2.23 Actions Not in Ordinary Course and No Material Change.
Except as set forth on Schedule 2.13, Employee Compensation and
Bonuses, since the date of the Interim Balance Sheet to the date
hereof, Mnemonic has conducted its business in a consistent
manner without change of policy or procedure including, without
limitation, its practices in connection with the treatment of
expenses, burdens, accounts receivable, liabilities, valuation of
inventory and selling and purchasing policies. Since the Interim
Balance Sheet to the date hereof, the business of Mnemonic has
been operated only in the regular and ordinary course and there
has been no materially adverse change in the financial condition
or business of Mnemonic. Except as set forth in Schedule 2.23,
Actions Not in the Ordinary Course and as otherwise required by
the terms and provisions of this Agreement, since the Interim
Balance Sheet, Mnemonic has not:
(a) Except in the usual and ordinary course of its
businesses, consistent with past practice, incurred any
indebtedness or other liabilities (whether accrued, absolute,
contingent or otherwise), guaranteed any indebtedness or sold any
of its assets;
(b) Suffered any damage, destruction or loss, whether
or not covered by insurance;
(c) Except as disclosed pursuant to Section 2.13, and
except for the award of employee bonuses consistent with past
Mnemonic compensation practices, increased the regular rate of
compensation payable by it to any employee, or increased such
compensation by bonus, percentage, compensation service award or
similar or other arrangement theretofore or thereafter in effect
for the benefit of any of its employees, and no such increase is
required;
(d) Established or agreed to establish any pension,
retirement or welfare plan for the benefit of its employees not
heretofore in effect;
(e) Suffered any change in its financial condition,
assets, liabilities or business or suffered any other event or
condition of any character which individually or in the aggregate
has had a material adverse effect on Mnemonic, and the Seller has
no knowledge of any fact or event unique to Mnemonic which he
believes will, or reasonably may be expected to, give rise to any
such change;
(f) Experienced any labor organizational efforts or
complaints or entered into any collective bargaining agreements
with any union;
(g) Made any single capital expenditure which exceeded
$25,000 or made any capital expenditures in the aggregate which
exceed $100,000;
(h) Permitted or allowed any of the assets (real,
personal or mixed, tangible or intangible) of Mnemonic to be
subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind;
(i) Written down the value of any assets or written
off as uncollectible any notes or accounts receivable or
contracts, except for write-downs and write-offs in the ordinary
course of business and consistent with past practice;
(j) Paid, discharged or satisfied any claims,
liabilities or obligations other than in the usual and ordinary
course of business;
(k) Canceled any debts or claims or waived any claims
or rights, except in the usual and ordinary course of business
and except as required by the Agreement;
(l) Paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement
or arrangement with the Seller or any of the officers or
directors of Mnemonic, except for reimbursement of ordinary and
reasonable business expenses related to the business of Mnemonic;
(m) Amended or terminated any contract, agreement or
license of significant value, to which Mnemonic is a party,
except in the ordinary course of business;
(n) Made any change in any method of accounting or
accounting practice;
(o) Canceled or failed to continue insurance coverage,
other than key man life insurance;
(p) Acquired, whether by merger, purchase of stock or
purchase of assets, all or substantially all of the business or
assets of any other business or entity, or engaged in
negotiations of any sort concerning such acquisition or acquired
assets;
(q) Issued any stock, an option to acquire stock or
other securities, or taken any action with respect thereto, or
declared or paid any dividends, or made or authorized any other
distributions to the Seller with respect to his Shares;
(r) Amended or repealed its Articles of Incorporation
or Bylaws;
(s) Agreed, whether in writing or otherwise, to take
any action described in this Section 2.23.
2.24 Litigation. Mnemonic and Seller are defendants in an
action pending in the United States District Court for District
of Columbia (Washington) captioned Xxxx X. Xxxxx and Xxxxxxx
Xxxxx v. Mnemonic Systems Incorporated and Xxxxx Xxxxx, Case
Number 1:97cv988, wherein Xxxx X. Xxxxx and Xxxxxxx Xxxxx have
alleged, among other matters, breach of contract, promissory
estoppel, fraud, negligence and misrepresentation (the "Xxxx
Xxxxx Litigation"). Except for the Xxxx Xxxxx Litigation and the
EEOC Claim, and except as set forth on Schedule 2.24, Litigation
and Compliance hereto, there is no litigation, proceeding,
arbitration, governmental claim or investigation instituted, or
to the Seller's knowledge, pending or threatened, against or
affecting Mnemonic or the assets of Mnemonic or which questions
or challenges the validity of this Agreement or any action taken
or to be taken pursuant to this Agreement. The Seller has no
knowledge or information, nor has he received any notice from any
authority, agency, corporation, or person of any threatened or
pending action of eminent domain that would condemn or encroach
upon the assets or stop or inhibit the use of the assets of
Mnemonic for any purpose.
2.25 Taxes and Tax Returns.
(a) Mnemonic's federal and state income, franchise,
share and ad valorem tax returns for the fiscal years ended
December 31, 1995 and December 31, 1996, have been provided to
Xxxxxxx. Mnemonic does not currently owe any taxes not reflected
on the Interim Balance Sheet or incurred thereafter in the
ordinary course of business.
(b) Since its incorporation, Mnemonic has been and
will be at Closing, an "S Corporation" within the meaning of the
Code.
(c) Except as set forth on Schedule 2.25, Taxes
attached hereto:
(i) Within the times and in the manner prescribed
by law Mnemonic has filed all federal, state and local tax
returns and extensions and all tax returns for other governing
bodies having jurisdiction to levy taxes which are required to be
filed;
(ii) Mnemonic has paid all taxes, interest,
penalties, assessments and deficiencies which have been shown on
such returns to be due, or which have been claimed to be due or
which were due prior to Closing;
(iii) All tax returns or extensions, if any,
filed by Mnemonic constitute complete and accurate
representations of the tax liabilities of Mnemonic for the
periods covered thereunder and accurately set forth all items (to
the extent required to be included or reflected in such returns)
relevant to Mnemonic's past and future tax liabilities;
(iv) Mnemonic has not waived or extended any
applicable statute of limitations relating to the assessment of
federal, state, local or foreign taxes;
(v) No examinations of the federal, state, local
or foreign tax returns of Mnemonic are currently in progress or
threatened and no deficiencies have been asserted or assessed as
a result of any audit by the Internal Revenue Service or any
state or local taxing authority and no deficiency has been
proposed or threatened;
(vi) The charges, accruals and reserves for taxes
due by Mnemonic or accrued but not yet due from Mnemonic,
relating to the income, properties or operations of Mnemonic for
any periods ending on or before the Closing or the portion of any
period that ends on and includes the Closing as reflected on
Mnemonic's Interim Balance Sheet are adequate to cover any such
taxes payable by Mnemonic and with respect to charges, accruals
and reserves for taxes arising after the Interim Balance Sheet;
(vii) There is no action, suit, proceeding,
audit or claim to the Seller's knowledge pending or threatened
regarding any taxes of Mnemonic;
(viii) All taxes which Mnemonic are required by
law to withhold and collect have been duly withheld and
collected, and have been timely paid over to the proper
authorities to the extent due and payable;
(ix) To the Seller's knowledge, there are not any
facts which would constitute the basis for the proposal or
assertion of any tax deficiencies for any unexamined year or
period or any year or period for which the applicable statute of
limitations has not expired; and
(x) There are no liens for any tax on Mnemonic or
the assets of Mnemonic, except for ad valorem taxes accrued but
not yet due or payable.
(d) The general ledgers and books of account of
Mnemonic and all federal, state and local income, franchise,
property and other tax returns filed by Mnemonic are in all
respects complete and correct and all records of Mnemonic have
been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and
regulations.
2.26 Bank Accounts. Schedule 2.26, Bank Accounts, is a true
and complete list as of the date hereof of all banking
institutions in which Mnemonic has accounts or safety deposit
boxes, plus the numbers thereof and the name of the persons
authorized to make withdrawals therefrom or have access thereto.
2.27 Disclosure. No representations and warranties by the
Seller in this Agreement or any document or certificate furnished
or to be furnished to Xxxxxxx pursuant hereto contains or will
contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
2.28 Proprietary Rights. Schedule 2.28, Proprietary Rights,
sets forth a list of material inventions, trade secrets,
processes, proprietary rights, product specifications,
blueprints, drawings, technical data, engineering information,
other proprietary knowledge and know-how, patents, trademarks,
service marks, trade name, copyrights, marks, symbols, logos, and
all material documentation related thereto, and all licenses and
agreements in respect thereof and applications therefor
(collectively, "Proprietary Rights") used or related to
Mnemonic's Business, except for software and information systems
as defined in Section 2.29. The Proprietary Rights described on
Schedule 2.28, Proprietary Rights, include all of the material
Proprietary Rights necessary for the operation of Mnemonic's
business; provided that all trade secrets, processes, product
specifications, blueprints, drawings, technical data and
engineering information may be too numerous to list and may be
deleted. Except as set forth on Schedule 2.28, Proprietary
Rights, which includes a listing of material contracts or
material licenses pursuant to which Mnemonic uses the
intellectual property of third parties, with respect to the
Proprietary Rights, (a) Mnemonic is the sole and exclusive owner
of and has the sole and exclusive right to use its Proprietary
Rights; (b) no action, suit, arbitration, or other proceeding or
investigation is, to the Seller's knowledge, pending or
threatened which involves any Proprietary Rights, (c) to the
Seller's knowledge, none of the Proprietary Rights infringes
upon, conflicts with, or otherwise violates the rights of others
or is being infringed upon by others, (d) none of the Proprietary
Rights is subject to any outstanding order, decree, judgment,
stipulation, or charge, (e) there are no royalty, commission, or
similar arrangements and no licenses, sublicenses, or agreements
relating to any of the Proprietary Rights, (f) Mnemonic has not
received any notice of interference or infringement of or by the
Proprietary Rights, (g) Mnemonic has not agreed to indemnify any
person or entity for or against any infringement of or by the
Proprietary Rights, (h) no other material Proprietary Rights not
owned by Mnemonic are necessary for the conduct of Mnemonic's
Business, and (i) to the Seller's knowledge, no other party is
operating a business or otherwise acting in violation or
infringement of, Mnemonic's Proprietary Rights. Except as set
forth on Schedule 2.28, Proprietary Rights, Mnemonic has good and
marketable title to the Proprietary Rights listed on Schedule
2.28, Proprietary Rights, free and clear of all security
interests, liens, pledges, encumbrances and restrictions. Except
as set forth on Schedule 2.28, Proprietary Rights, all rights of
Mnemonic in and to its Proprietary Rights will not be adversely
affected by the purchase of all of Mnemonic's capital stock and
to Seller's knowledge such purchase does not require the consent
or approval of any third party. Mnemonic is not subject to any
judgment, order, writ, injunction, or decree of any court,
arbitrator, or governmental agency or instrumentality, domestic
or foreign, and is not party to any agreement, which restricts or
impairs the use of any Proprietary Rights.
2.29 Software and Information Systems.
(a) The software described on Schedule 2.29, Software,
includes all information systems, programs and software, other
than non-exclusive commercial software, used in or related to
Mnemonic's Business or necessary for the operation of such
business. Schedule 2.29, Software lists all such software and
identifies (a) software which is owned by Mnemonic, (b) software
which is licensed to Mnemonic, and (c) any other software in
which Mnemonic has any use, possessory, or proprietary rights and
which is used in or related to its business and not otherwise
disclosed in Schedule 2.28, Proprietary Rights. Except as set
forth on Schedule 2.29, Software, Mnemonic has the sole and
exclusive right, title, and interest in and to all software
listed on Schedule 2.29, Software. Except as set forth on
Schedule 2.29, Software, Mnemonic has good and marketable title
to the software listed, free and clear of all security interests,
liens, pledges, encumbrances and restrictions. Except as set
forth on Schedule 2.29, Software, all of the software which is
owned by Mnemonic, including all related source codes and
documentation, is owned solely by Mnemonic and the source code
has not been disclosed to any unaffiliated entity or person. To
the Seller's knowledge, the Mnemonic proprietary software
substantially performs in accordance with published
specifications for such software, subject to normal software
defects which may be cured without extraordinary effort or cost.
(b) Schedule 2.29, Software, incorporates by reference
manuals (copies of which have been made available to and
furnished to Xxxxxxx) which describe the functions of all
proprietary information systems, programs and software of
Mnemonic. Mnemonic has documentation in reasonable detail
relating to all such proprietary information systems, programs
and software. Schedule 2.29, Software, identifies each person or
entity to whom Mnemonic has licensed or granted any other rights
to any other proprietary information systems, programs and
software. No source code or object code of Mnemonic is escrowed
for the benefit of any third party. To the Seller's knowledge,
none of the information systems, programs and software of
Mnemonic infringe on any patents, trademarks, copyrights or other
rights or intellectual property rights of any third persons. To
the Seller's knowledge, no information systems, programs and
software used or owned by any third person or entity infringe on
any rights of Mnemonic in and to the information systems,
programs and software of Mnemonic. Mnemonic has taken reasonable
measures necessary to maintain and protect the information
systems, programs and software of Mnemonic and no claims have
been asserted by any person or entity to the use of the same or
challenging or questioning the validity or effectiveness of the
same, and, to the knowledge of the Seller, there is no valid
basis to any such claim.
(c) Schedule 2.29, Software, also contains a list of
the current software development and consulting activities and
projects of Mnemonic. Mnemonic has described such projects and
developments to Xxxxxxx. Mnemonic knows of no impediments to
fully developing and exploiting the information systems, programs
and software currently under development or to performing its
currently pending consulting contracts.
2.30 Material Commitments. As used in this Section 2.30,
the term "Material Commitments" means each Contract of Mnemonic
which obligates Mnemonic to sell, license, distribute, deliver or
provide products or services (including, without limitation,
consulting services) for a consideration in excess of $100,000
and over a period of more than one (1) month. Schedule 2.30,
Project List, sets forth a "Project List" with respect to each
Material Commitment. The Project List sets forth Mnemonic's
production schedule or performance schedule, and budget, with
regard to each Material Commitment. Except as described in the
Project List, the performance of Mnemonic or any other party
involved with each Material Commitment is on schedule and within
budget, and no practical or technological problems have been
encountered that might reasonably be expected to impede
completion or materially increase the cost of Mnemonic's
performance with a corresponding detriment to profit. Each
Material Commitment was made on a basis calculated to produce a
profit under the circumstances prevailing when it was made, and
Mnemonic is not aware of any circumstances that might reasonably
be expected to prevent the realization of a profit. Except as
set forth on the Project List, to the Seller's knowledge, no
Material Commitment involves the development of any product or
technology that would infringe on the proprietary rights of any
other party. Mnemonic is not bound by any Material Commitments
for the performance of services or delivery of products in excess
of its current ability to provide such services or deliver such
products during the time available to satisfy such commitments;
and all outstanding Material Commitments for the performance or
delivery of products were made on a basis calculated to produce a
profit under the circumstances prevailing when such commitments
were made. Copies of outstanding commitments have been
previously made available to Xxxxxxx and in all material respects
contain the complete and correct terms and conditions of same.
2.31 Estoppel Provisions. As of the Closing, the Seller
acknowledges that he has no right, title, claim, demand,
interest, action or cause of action in, to or against Mnemonic in
any capacity whatsoever (whether as a shareholder, officer,
director or creditor), except in respect of his status as an
employee of Mnemonic, and then only to the extent of accrued and
unpaid salary, benefits and reimbursable expenses under Mnemonic
policy up to the date of Closing. This Section 2.31 shall be
construed to constitute a release and waiver by the Seller of any
and all of the foregoing. Upon the Closing, the Seller shall
have no option, warrant or other right to acquire any of the
capital stock of Mnemonic.
2.32 Change in Shareholdings. Since the date of the Interim
Balance Sheet, Seller has not exchanged, sold, or otherwise
affected his shareholdings of Mnemonic.
2.33 Transactions With Affiliates and Related Parties.
Except as disclosed on Schedule 2.33, Transactions With
Affiliates and Related Parties hereto, neither the Seller nor any
officer, director, employee, family members (whether related by
blood or marriage) or any affiliates or relatives of the
foregoing, has
(a) Borrowed money from or loaned money to Mnemonic
which remains outstanding;
(b) Had any contractual or other claim, express or
implied, of any kind whatsoever against Mnemonic;
(c) Had any interest in any property or assets used by
Mnemonic in its businesses; or
(d) Engaged in any other transaction with Mnemonic
(other than employment relationships).
2.34 Brokers and Finders. No broker or finder has been
involved in this transaction on behalf of Seller or Mnemonic, and
neither Mnemonic, Xxxxxxx nor Seller will be obligated to pay any
brokers' or finders' fees as a consequence of any brokerage
agreement entered into by Seller or Mnemonic, except that Seller
shall be responsible for, and shall pay to Xxxxx Xxxx & Company,
Inc. its broker's fee. Seller shall indemnify and hold Xxxxxxx
and Mnemonic harmless with respect to any liability for any
broker's fee, consulting fee or finder's fee or any other such
fee as a consequence of any brokerage, consulting, finder's or
other agreement entered into by Seller or Mnemonic.
2.35 Year 2000 Compliance in Drugfire. Mnemonic's Drugfire
software program is year 2000 compliant, meaning that such
software shall perform correctly every date-related or
date-dependent operation without human intervention other than
entry of the original date and without regard to whether any date
involved in the operation is on or after January 1, 2000.
2.36 Incurred Cost Submission. The Incurred Cost Submission
of Mnemonic for 1996 has been submitted to the United States
Government and is a true and accurate representation of costs
reimbursable under Mnemonic's government contracts. The Incurred
Cost Submission of Mnemonic for 1997 is currently being prepared
and will be a true and accurate representation of cost
reimbursable under Mnemonic's government contracts.
SECTION 3
Representations and Warranties of Xxxxxxx
Xxxxxxx represents and warrants to Seller as follows:
3.1 Organization and Standing. Xxxxxxx is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. All of its issued and outstanding
shares are validly issued, fully paid and non-assessable.
3.2 Authorization. The Company has all necessary corporate
power and authority under the laws of the State of Delaware and
all other applicable provisions of law to execute and deliver
this Agreement. All corporate action on the part of the Board of
Directors of Xxxxxxx required for the lawful execution and
delivery of this Agreement has been duly and effectively taken.
Upon execution and delivery, this Agreement will be a valid and
binding obligation of Xxxxxxx except as enforcement may be
limited by bankruptcy, moratorium and other creditors' rights and
by the availability of equitable remedies.
3.3 No Violation. The execution, delivery and performance
of this Agreement by Xxxxxxx and the consummation of the
transactions contemplated hereunder will not, with or without the
giving of notice or the passage of time or both, (i) violate,
conflict with, or constitute a default (or cause an acceleration)
under Xxxxxxx' Certificate of Incorporation or Bylaws or any
contract, note, lien, security agreement, license, permit, or
instrument to which Xxxxxxx is a party or by which Xxxxxxx is
bound or which may affect any of the assets, business or
operations of Xxxxxxx, (ii) result in the creation or imposition
of any lien, claim, charge or encumbrance upon any of Xxxxxxx'
properties or assets, or (iii) constitute a violation of any
statute, ordinance, judgment, order, decree, regulation, rule or
law of any court, government, authority or arbitrator applicable
to or relating to Xxxxxxx or any of the assets, business or
operations of Xxxxxxx. This Agreement and all other agreements
and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which Xxxxxxx is a party
constitute the valid and legally binding obligations of Xxxxxxx
enforceable against it in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy laws
and equitable principles. To the knowledge of Xxxxxxx, there are
no consents, waivers or approvals of persons or authorities
required in connection with the consummation of the transactions
contemplated by this Agreement and the other agreements
referenced herein and no other consents, waivers or approvals
will be required in connection with such consummation.
3.4 Brokers or Finders. No broker or finder has been
involved in this transaction on behalf of Xxxxxxx, and neither
Xxxxxxx, Mnemonic nor Seller will be obligated to pay any
brokers' or finders' fees as a consequence of any action or
inaction on Xxxxxxx' part.
3.5 Investment Intent. Xxxxxxx is acquiring the Shares for
investment for its own account with the intention of holding such
Shares for investment, without any present intention of
participating directly or indirectly in any distribution of all
or any part of the Shares. The certificates evidencing the
Shares purchased by Xxxxxxx shall bear a restrictive legend to
the effect that the Shares may not be sold unless registered or
exempt from registration under applicable securities laws.
3.6 Disclosure. No representations and warranties by
Xxxxxxx to Seller in this Agreement or any document or
certificate furnished or to be furnished to Seller pursuant
hereto contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein and
therein not misleading.
3.7 Top Secret Clearance. After the Closing, the directors
elected by Xxxxxxx to the Mnemonic Board of Directors will have
top secret clearance.
3.8 Disclosure Documents. Prior to execution of this
Agreement Xxxxxxx furnished the following information to the
Seller: (i) Xxxxxxx' Annual Report on Form 10-K for the fiscal
year ended August 31, 1997, including the 1997 Annual Report to
Shareholders and the Proxy Statement prepared in connection with
the annual meeting of shareholders held January 8, 1998; and (ii)
Xxxxxxx' Quarterly Reports on Form 10-Q for the fiscal quarters
ended November 30, 1997, and February 28, 1998.
SECTION 4
Examination of the Business
Before Closing, attorneys, accountants and any other
employees or consultants representing Xxxxxxx shall have, subject
to the provisions of Section 10 below, complete access to all the
properties, books, contracts, tax returns, commitments, records,
employees, officers, accountants, and offices of Mnemonic with
respect to the business of Mnemonic and Seller will furnish to
Xxxxxxx all such documents and all the information with respect
to the business of Mnemonic as Xxxxxxx may reasonably request.
In no event shall any such examination operate as a waiver of
Seller's representations and warranties or relieve Seller of any
of his obligations under this Agreement.
SECTION 5
Conditions to the Obligations of Xxxxxxx
Xxxxxxx' obligations to effect the transaction contemplated
hereby are subject to the satisfaction of the following
conditions and, notwithstanding anything to the contrary
elsewhere herein contained, Xxxxxxx shall have the right to
terminate this Agreement upon written notice (in which event
neither party shall have any further obligation or responsibility
to proceed to Closing under or by reason of this Agreement)
unless the conditions set out in this Section shall have been
satisfied at or before the Closing. By Closing hereunder, Xxxxxxx
shall be deemed to have waived any of the following conditions
which were not fulfilled as of the Closing, unless otherwise
specified in writing executed by the parties hereto:
5.1 No Inaccuracies. Xxxxxxx' examination of Mnemonic
shall not have disclosed any material inaccuracy in the
representations and warranties of Seller set forth in this
Agreement and the Schedules attached hereto; such representations
and warranties shall be materially true and correct in all
material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties
had been made on, as of and with reference to such date, and
Xxxxxxx shall have received a certificate to such effect, signed
by the Seller substantially in the form set forth in Exhibit "C,"
which shall constitute further representations and warranties in
favor of Xxxxxxx.
5.2 Compliance. Seller shall have performed and complied
in all material respects with and shall not have defaulted in any
material respect in any agreement, covenant, condition or
obligation contained in or required by this Agreement to be
performed or complied with by him prior to or at Closing, and
Xxxxxxx shall have received a certificate to such effect signed
by the Seller substantially in the form set forth in Exhibit "C,"
which shall constitute further representations and warranties in
favor of Xxxxxxx.
5.3 Delivery of Documents. Xxxxxxx shall have received the
executed documents required to be delivered to it pursuant to
this Agreement, which executed documents shall comply in all
material respects with this Agreement and shall be in
substantially the respective forms of the Exhibits attached
hereto. Seller shall deposit into escrow the sum of $1,600,000
at Closing to be held pursuant to the Escrow Agreement attached
hereto as Exhibit "A."
5.4 Opinion of Counsel. Xxxxxxx shall have received the
opinion of counsel for Seller dated the Closing Date, in
substantially the form set forth in Exhibit "D" hereto.
5.5 Resignation. Xxxxxxx shall have received the written
resignation of the directors and officers of Mnemonic and of the
trustees, plan administrators and fiduciaries of any benefit plan
of Mnemonic as may be requested by Xxxxxxx. Seller in his
resignation shall waive the right to indemnification by Mnemonic
under the corporate charter or bylaws, and any matter made
subject of indemnification under Section 8.2 of this Agreement.
5.6 Consents. Seller will deliver (or cause to be
delivered) to Xxxxxxx all consents, novations and approvals of
third parties, including governmental agencies or authorities,
required, or as Xxxxxxx may deem necessary or appropriate, to
give full effect to the transactions contemplated hereby and to
allow Mnemonic to carry on its business following the Closing.
5.7 Employment Agreement. At the Closing, Xxxxx X. Xxxxxx,
Xxxxx X. XxXxxxxx, Xx., Xxxxxx Xxxxxxx and Xxx X. Xxxx shall have
executed and delivered the Employment Agreements attached as
Exhibits "E-1," "E-2," "E-3," and "E-4" respectively.
5.8 Covenant Not to Compete and Consulting Agreement. At
the Closing, Seller shall have executed and delivered the
Covenant Not to Compete and Consulting Agreement substantially in
the form set forth in Exhibit "F."
5.9 UCC Searches. Xxxxxxx shall have received from Seller
prior to Closing: (i) all of the disclosure Schedules referred to
herein and documents and other materials and information required
to be delivered in connection therewith under this Agreement all
of which shall be in form and substance reasonably acceptable to
Xxxxxxx; and (ii) Uniform Commercial Code lien searches under the
names of Mnemonic and Seller as debtors. Such searches shall
have been performed at office of the central place for filing for
the District of Columbia and the States of Maryland and Virginia.
In the event such lien searches reveal the existence of liens or
security interests held by anyone in the Shares which are the
subject of this Agreement, such liens and security interests
shall be terminated by Seller at his expense at or prior to
Closing.
5.10 No Adverse Change. There shall not have been any
material adverse change in the business or the assets of
Mnemonic. For the purposes of this Agreement, a "material
adverse change" shall mean any development or discovery of any
fact, occurrence, contingency or liability, which individually or
in the aggregate has a material adverse effect on the financial
condition, operations or prospects of the business as a whole.
5.11 No Interference. No order of any court or
administrative agency shall be in effect which restrains or
prohibits the transactions contemplated hereby or which would
limit or adversely affect Xxxxxxx' ownership or control of
Mnemonic or the business of Mnemonic, and there shall not have
been threatened, nor shall there be pending, any action or
proceeding by or before any court of governmental agency or other
regulatory or administrative agency or commission, (i)
challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the
consummation of such transactions or (ii) by any present or
former owner of any capital stock or equity interest in Mnemonic
(whether through a derivative action or otherwise) against
Mnemonic or any officer, director or shareholder of Mnemonic in
his capacity as such or (iii) which might have an adverse effect
on the business, prospect or condition (financial or otherwise)
of Mnemonic, except as disclosed in Section 2.24.
5.12 Form 8023-A. Seller shall execute and deliver IRS Form
8023-A promulgated by the Treasury Department and such other
documents as may be necessary to make an election under Code
338(h)(10).
5.13 Loans to Employees. At Closing, the following loans
made by Mnemonic to its employees shall be either (i) paid in
full or (ii) assigned to Seller and the amount of the
indebtedness reduced from the Closing Balance Sheet:
(a) Loan to Xxxxx X. Xxxxx in the approximate amount of
$412,393.66;
(b) Loan to Xxxxx X. Xxxxx in the approximate amount of
$20,000 for membership at Avenel Country Club;
(c) Loan to Xxxxx X. Xxxxx in the approximate amount of
$10,000 evidenced by promissory note dated May 28, 1997; and
(d) Loan to Xxxx X. Xxxxx in the approximate amount of
$32,133.25 evidenced by promissory note dated December 18, 1995.
5.14 Automobile Lease. The lease between Mnemonic, as
lessee, and Euro Motorcars, Inc., as lessor, for the 1995
Mercedes Benz S600V, vehicle identification number
WDBGA57ESA201181, shall be assigned to Seller and Seller shall
assume such lease and all obligations thereunder, including, but
not limited to, payments to lessor.
5.15 Obligations of Mnemonic. At Closing, the obligation or
indebtedness of Mnemonic to Xxxxx X. Xxxxxxxx in the approximate
amount of $320,000 shall be paid in full.
5.16 Amendment of Charter and Bylaws. At Closing, Xxxxxxx
shall receive the amendment executed by the Board of Directors of
Mnemonic, in substantially the form set forth in Exhibit "J"
hereto, to the corporate bylaws of Mnemonic deleting
indemnification with respect to the Seller and any matter under
Section 8.2 of this Agreement and amending the number of
directors of Mnemonic to four (4) from one (1).
5.17 Receipts and Releases. At Closing, the following
persons each shall have executed and delivered the release
attached hereto as Exhibit "I": Xxxxx Xxxx & Company, Inc., Xxxx
Xxxxxx, Xxxxx X. Xxxxxx, Xxxxx X. XxXxxxxx, Xx., Xxxxxx Xxxxxxx
and Xxx X. Xxxx.
5.18 Cooperation. The Seller shall (so far as he is able)
cause the conditions stated above in this Section to be
fulfilled.
SECTION 6
Conditions to the Obligations of the Seller
The obligation of Seller to effect the transactions
contemplated hereby is subject to the satisfaction of the
following conditions, and notwithstanding anything to the
contrary elsewhere herein contained, Seller shall have the right
to terminate this Agreement upon written notice (in which event
neither party shall have any further obligation or responsibility
to proceed to Closing under or by reason of this Agreement)
unless the conditions set out in this Section shall have been
satisfied at or before the Closing. By Closing hereunder, Seller
shall be deemed to have waived any of the following conditions
which were not fulfilled as of the Closing, unless otherwise
specified in writing executed by the parties hereto:
6.1 No Inaccuracies. All of the representations and
warranties of Xxxxxxx set forth in this Agreement shall be
materially true and correct in all respects on and as of the
Closing Date, with the same force and effect as though such
representations and warranties had been made on, as of and with
reference to such date and Seller shall have received a
certificate signed by an officer of Xxxxxxx to that effect,
substantially in the form attached hereto as Exhibit "G," which
shall constitute further representations and warranties in favor
of Seller.
6.2 Compliance. Xxxxxxx shall have performed and complied
in all respects with and shall not have defaulted in any respect
in any agreement, covenant, condition or obligation contained in
or required by this Agreement to be performed or complied with by
it prior to or at Closing, and Seller shall have received a
certificate signed by an officer of Xxxxxxx to that effect,
substantially in the form attached hereto as Exhibit "G," which
shall constitute further representations and warranties in favor
of Seller.
6.3 Delivery of Documents. Seller shall have received the
executed documents required to be delivered to him pursuant to
the Agreement, which executed documents shall comply in all
material respects with this Agreement and shall be in
substantially the forms of the respective Exhibits attached
hereto.
6.4 Opinion of Counsel. Seller shall have received the
opinion of counsel for Xxxxxxx, dated as of the Closing Date, in
substantially the form and substance as set forth in Exhibit "H"
hereto.
6.5 Employment Agreement. At the Closing, Mnemonic and
Xxxxxxx shall have executed and delivered the Employment
Agreements attached hereto as Exhibits "E-1," "E-2." "E-3" and
"E-4." Xxxxxxx shall cause Mnemonic to execute and deliver
Exhibits "E-1," "E-2," "E-3" and "E-4"
6.6 Covenant Not to Compete and Consulting Agreement. At
the Closing, Xxxxxxx and Mnemonic shall have executed and
delivered the Covenant Not to Compete and Consulting Agreement
attached as Exhibit "F."
6.7 No Adverse Change. There shall not have been any
material adverse change in the business or the assets of Xxxxxxx.
For the purposes of this Agreement, a "material adverse change"
shall include, without limitation, any development or discovery
of any fact, occurrence, contingency or liability, which
individually or in the aggregate has a material adverse effect on
the financial condition, operations or prospects of the business
as a whole.
6.8 No Interference. No order of any court or
administrative agency shall be in effect which restrains or
prohibits the transactions contemplated hereby or which would
limit or adversely affect Xxxxxxx' ownership or control of
Mnemonic or the business of Mnemonic, and there shall not have
been threatened, nor shall there be pending, any action or
proceeding by or before any court of governmental agency or other
regulatory or administrative agency or commission, (i)
challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the
consummation of such transactions or (ii) by any present or
former owner of any capital stock or equity interest in Xxxxxxx
(whether through a derivative action or otherwise) against
Xxxxxxx or any officer, director or shareholder of Xxxxxxx in his
capacity as such or (iii) which might have an adverse effect on
the business, prospect or condition (financial or otherwise) of
Xxxxxxx.
6.9 Consents. Xxxxxxx will deliver (or cause to be
delivered) to Mnemonic all consents, novations and approvals of
third parties, including governmental agencies or authorities,
required, or as Seller may deem necessary or appropriate, to give
full effect to the transactions contemplated hereby and to allow
Mnemonic to carry on its business following the Closing.
6.10 Cooperation. Xxxxxxx shall (so far as it is able)
cause the conditions stated above in this Section to be
fulfilled.
SECTION 7
Certain Additional Covenants of the Parties
7.1 Conduct of Business. Seller covenants that between the
date hereof and the Closing Date, the Mnemonic Business will be
operated only in the regular and ordinary course with no material
adverse change in the financial conditions or business of
Mnemonic, and Mnemonic shall not have taken or permitted any of
the actions or changes described in Section 2.23(a) through (s)
without the prior written consent of Xxxxxxx. Seller shall not
transfer any of his Shares prior to the Closing.
7.2 Preservation of Business and Goodwill. Seller shall
use his best efforts between the date hereof and the Closing Date
(without making any commitment on Xxxxxxx' behalf) to preserve
the business of Mnemonic and to preserve the goodwill of
Mnemonic's suppliers, customers and others having business
relationships with Mnemonic.
7.3 Notification of Proceedings. Seller shall immediately
notify Xxxxxxx, in writing, of any claims, actions, lawsuits,
investigations or proceedings filed, initiated, or to Seller's
knowledge, threatened, on or prior to the Closing Date, against
the Seller or Mnemonic related to the Mnemonic Business, or the
consummation of the transactions contemplated by this Agreement,
and shall immediately notify Xxxxxxx, in writing, of all liens,
judgments, orders, deficiencies, assessments or claims entered,
asserted, threatened, or assessed against the Seller, Mnemonic or
the consummation of such transactions.
7.4 Use of "Mnemonic" Name. After the Closing, Seller
shall not use or cause to be used the name "Mnemonic Systems
Incorporated" or "Mnemonic" including any variations thereof and
shall not interfere with or object to the exclusive use by
Xxxxxxx or any of its successors or assigns of such name or any
variant thereof, either separately or in conjunction with
Xxxxxxx' name, in any form(s) whatsoever after the Closing.
7.5 Records. For a period of five (5) years (or such
longer period as may be required by law or as may be reasonably
necessary as a result of audits and tax contests) from the
Closing Date, neither Xxxxxxx nor Seller shall dispose of or
destroy any of their respective business records and files to the
extent they relate primarily to the Mnemonic Business without
first offering to turn over possession thereof to the other
party, by written notice to such party at least 60 days prior to
the proposed date of such disposition or destruction.
7.6 Further Assurances; Cooperation. At and after the
Closing, the parties hereto will execute and deliver, or cause to
be executed and delivered, such further instruments of conveyance
and transfer and take such further action as the other party may
reasonably request to vest in Xxxxxxx good, valid and marketable
title in and to the Shares and otherwise to carry out the
provisions of this Agreement within a reasonable period after
such request and without further cost or expense to the
requesting party.
7.7 Employee Benefit Plans. Mnemonic (prior to Closing)
and Seller shall cooperate and use their best efforts to obtain
the cooperation of the trustees, administrators, investment
advisors, and any other ERISA fiduciary, to assist Xxxxxxx in the
amendment, termination, merger and distribution of assets (if
applicable) from the employee benefit plans listed in Schedule
7.7, Employee Benefit Plan. Employees of Mnemonic will be given
service credits for service with Mnemonic with respect to any
employee benefit plans maintained by Xxxxxxx in which such
employees are eligible to participate.
7.7.1 401(k) Plan.
(i) Xxxxxxx and Mnemonic will merge the
Mnemonic Section 401(k) Plan listed in Schedule 7.7.1, Section
401(k) Plan into the Xxxxxxx Profit Sharing/401(k) Plan as soon
as reasonably practicable after the Closing Date and the features
and benefits of the 401(k) Plan offered the employees by Mnemonic
will be determined by Xxxxxxx, and
(ii) Mnemonic will notify all plan
participants and the appropriate government agencies (as required
under ERISA and the Code), if any, of the cessation of further
benefit accrual under the Mnemonic 401(k) Plan.
(iii) After the Closing Date if
requested, Seller will cooperate to obtain a determination from
the IRS regarding the merger of Mnemonic's Section 401(k) Plan.
7.7.2 Termination of Plans. Seller shall cooperate
in terminating each of the Plans listed on Schedule 7.7.2,
Employee Welfare Benefit Plans.
7.7.3 Other Benefits. The employees of Mnemonic
will be entitled to participate in other benefit plans sponsored
by Xxxxxxx as Xxxxxxx may reasonably determine.
7.7.4 Employee Stock Options. A total of 24,000
shares of Xxxxxxx stock will be reserved for issuance of stock
options to employees of Mnemonic after Closing pursuant to the
terms of the Xxxxxxx Stock Option Plan.
7.8 Post-Closing Matters.
7.8.1 Board of Directors. After Closing, the Board
of Directors of Mnemonics shall be elected as follows: Xxxxxxx
X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxx X. Xxxxx and Xxxxx X. Xxxxxx.
Such directors shall serve until their death, resignation or
removal from office.
7.8.2 Officers. After Closing, the officers of
Mnemonics shall be elected by the Board of Directors of
Mnemonics.
7.8.3 1997 Incurred Cost Submission. Seller shall
sign and submit Mnemonic's Incurred Cost Submissions for 1997
within 30 days after the Closing. For this purpose, Seller may
be appointed a vice president of Mnemonic if necessary in
connection with Seller's signature on the 1997 Incurred Cost
Submission.
7.8.4 Short Period Tax Return. Seller shall
prepare or cause to be prepared and file or cause to be filed all
Tax Returns for Mnemonic for all periods ending on or prior to
the Closing which are filed after Closing. Seller shall permit
Xxxxxxx to review and comment on each such Tax Return described
in the preceding sentence prior to filing. To the extent
permitted by applicable law, Seller shall include any income,
gain, loss, deduction or other tax items for such periods on his
Tax Returns in a manner consistent with the Schedule K-1 prepared
by Seller for such periods.
7.9 Guarantee of Mnemonic Debt. Xxxxxxx shall cause any
guarantees of Seller or his wife on Mnemonic's debt as described
in the Closing Balance Sheet remaining after Closing to be
extinguished.
SECTION 8
Indemnification
8.1 Definition. As used herein, "Damages" shall mean any
obligations, security interests, liens, claims, charges,
encumbrances, pledges, liabilities, indemnities, causes of
action, judgments, settlements, compromises, levies, executions,
garnishments, debts, interest, penalties, fines, remediation
costs, clean-up costs, statutory damages, punitive damages,
damages, losses, costs, and expenses (including without
limitation attorney's fees and other costs and expenses incident
to and paid by the indemnified party in connection with the
investigation, preparation, discovery, trial, compromise or
settlement of any claim, cause of action, demand, suit, action or
proceeding or otherwise) incurred, suffered or sustained or paid
or required to be paid by the indemnified party.
8.2 Indemnification by Seller. Subject to the limitations
of Section 8.7, after Closing Seller agrees to and shall pay,
defend and promptly indemnify Xxxxxxx and Mnemonic and the
officers, directors and employees of the foregoing (except
Seller) against, and save and hold Xxxxxxx and Mnemonic (and
their respective officers, directors and employees, except
Seller) harmless from any and all Damages resulting from, arising
out of or connected with (i) any material breach or inaccuracy of
any of the representations and warranties made by Seller in or
pursuant to this Agreement, the certificates and documents
executed by Seller in connection herewith; (ii) the
nonfulfillment of any agreement or covenant made by Seller in or
pursuant to this Agreement or any other agreement to which he is
a party; (iii) any liabilities not disclosed on the Closing
Balance Sheet arising with respect to events or omissions on or
prior to the Closing Date even though such liabilities were
known, contingent or unknown; (iv) all Damages suffered by
Xxxxxxx or Mnemonic in attempting to collect excess liabilities
from the Seller; (v) with respect to all contracts of Mnemonic,
whether or not disclosed on the Schedules attached hereto, any
Damages arising thereunder due to events or omissions on or prior
to the Closing Date; (vi) all Damages arising in any way from any
product or service of Mnemonic prior to the Closing Date; (vii)
all Damages arising out of claims that those products or services
of Mnemonic sold, used, licensed or leased prior to the date of
Closing infringe upon the Intellectual Property Rights of others;
(viii) all Damages with respect to acts or omissions which
occurred with respect to Mnemonic or Seller on or prior to the
Closing Date; and (ix) all Damages resulting from the litigation
described in Schedule 2.24, Litigation and Compliance and the
EEOC Claim described in Schedule 2.16(f), Threatened or Pending
Discrimination Litigation hereto, including, but not limited to,
all Damages arising out of or connected with the Xxxx Xxxxx
Litigation and the EEOC Claim, including attorneys' fees and
costs related thereto.
8.3 Indemnification by Xxxxxxx. Subject to the limitations
of Section 8.7, after Closing Xxxxxxx agrees to and shall pay,
defend and promptly indemnify Seller against, and save and hold
Seller harmless from, any and all Damages incurred, suffered or
required to be paid by Seller resulting from, arising out of or
connected with (i) any material breach or inaccuracy of any of
the representations and warranties made by Xxxxxxx in this
Agreement, or in the certificates and documents executed by
Xxxxxxx in connection with the consummation of the transactions
contemplated hereby and thereby; (ii) the non-fulfillment of any
agreement or covenant made by Xxxxxxx in or pursuant to this
Agreement or any other agreement to which Xxxxxxx is a party;
(iii) with respect to contracts of Mnemonic which were disclosed
to Xxxxxxx on the Schedules attached hereto, any Damages arising
thereunder from acts or omissions after the Closing Date, unless
caused by Seller as an employee of Xxxxxxx or Mnemonic; and (iv)
all Damages with respect to any acts or omissions which occurred
with respect to Mnemonic after the Closing, unless caused by
Seller or unless the result of matters arising on or prior to the
Closing.
8.4 Procedure for Indemnification. Any party seeking
indemnification (the "Indemnified Party") with respect to a third
party claim (as opposed to a claim between the parties, only)
shall give written notice (the "Notice") to the party from whom
indemnification is sought (the "Indemnifying Party") of the facts
and circumstances giving rise to the claim for indemnification.
Upon receipt of a Notice respecting a third party claim, the
Indemnifying Party shall have the obligation to either pay or,
subject to the rights of or duties to any insurer having
liability therefor, defend the third party claim, with attorneys
reasonably acceptable to the Indemnified Party, provided that (i)
the Indemnifying Party agrees in writing to be bound by and to
promptly pay the full amount of any final judgment or settlement,
(ii) the Indemnified Party is reasonably assured of the
Indemnifying Party's ability to satisfy such agreement, and (iii)
no settlement or compromise of any matter shall be made without
the consent of the Indemnified Party, which consent shall not be
unreasonably withheld. In addition, the Indemnified Party may
also participate at its expense in such contest or defense. Such
options shall be exercised by the giving of notice by the
exercising party to the other parties within ten (10) days of
receipt of a Notice. Upon a failure of Indemnifying Party to pay
or assume the defense of the matter or if the Indemnified Party
reasonably rejects the tender of such defense, the Indemnified
Party may proceed to pay, settle, compromise or otherwise handle
the matter and seek indemnification as provided for herein. The
parties acknowledge that pursuant to this Section 8.4 Seller, as
"Indemnifying Party," has agreed to undertake the defense of the
Xxxx Xxxxx Litigation and the EEOC Claim, and the other matters
listed in Schedule 2.16(f), Threatened or Pending Discrimination
Litigation and Schedule 2.24, Litigation and Compliance, and has
agreed to the provisions of the second sentence of this Section
8.4 with respect thereto.
8.5 Escrow. Each party's indemnification rights hereunder
shall be in addition to and not in lieu of all other rights and
remedies of the parties at law or equity or under any other
agreements executed by the parties, including rights under the
Escrow Agreement attached as Exhibit "A."
8.6 Offsets. It shall not be necessary for an Indemnified
Party to first attempt to recover its Damages from a third party
before seeking indemnity hereunder. The Damages which an
Indemnifying Party is liable to, for or on behalf of the
Indemnified Party pursuant to this Section 8, shall be reduced
(including, without limitation, retroactively) through subsequent
repayment as described below by an amount equal to any insurance
proceeds or government cost reimbursements actually received by
or on behalf of such Indemnified Party relating to the Damages.
If an Indemnified Party shall have received or shall have paid on
its behalf an indemnity payment in respect of any Damages and
insurance proceeds or government cost reimbursements in respect
of such Damages are also received by the Indemnified Party, then
such Indemnified Party shall pay Indemnifying Party the lesser of
(i) the amount of such insurance proceeds or governmental cost
reimbursement, or (ii) the amount of such indemnity payment. The
Indemnified Party covenants and agrees to use all reasonable
efforts to collect all such sums as are available to it under its
existing insurance policies or under government cost
reimbursement rules and regulations which would be applicable to
any such Damages.
8.7 Limitations on Indemnity. An Indemnified Party may
make no claim against an Indemnifying Party under this Section 8
unless and until the aggregate monetary amount of all such claims
on a cumulative basis exceeds One Hundred Thousand Dollars
($100,000.00) (the "Threshold Amount"), in which event the
Indemnified Party may claim indemnification for all Damages,
including the Threshold Amount, provided further, however, the
maximum indemnifiable liability for Damages (except for the Xxxx
Xxxxx Litigation and the EEOC Claim) shall not exceed Eight
Million Dollars ($8,000,000) plus two-thirds (2/3) of the
earn-out amount, if any, under Section 1.6.2 and provided further
that this limit shall not apply to fraud by Seller.
Notwithstanding the preceding sentence, all Damages with respect
to the Xxxx Xxxxx Litigation and the EEOC Claim shall be
recoverable by Xxxxxxx or Mnemonic as the Indemnified Party even
though such Damages may be less than the Threshold Amount or more
than the maximum amount under the preceding sentence, and any
Xxxx Xxxxx Litigation Damages and EEOC Claim Damages shall not
count against the Threshold Amount with respect to other claims.
Furthermore, the obligation of the Seller pursuant to Section
5.14 shall not be subject to limitation under the Threshold
Amount.
SECTION 9
Survival of Representations and Warranties
All representations, warranties, covenants, conditions and
agreements contained herein or in any instrument or other
document delivered pursuant to this Agreement or in connection
with the transactions contemplated hereby shall survive the
execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and any investigation or audit
conducted by either party hereto for a period of five (5) years
after the Closing or the applicable statute of limitation
applicable to such matter, whichever is longer, except that the
limitation period shall be two (2) years with respect to Sections
2.3, 2.4, 2.6, 2.7(a), 2.9, 2.11, 2.12, 2.13, 2.15, 2.17, 2.20,
2.21, 2.23, 2.26, 2.30, and 2.32. The Xxxx Xxxxx Litigation and
the EEOC Claim and any indemnification claim pending under
Section 8 hereof shall not be affected by the limitations set
forth herein.
SECTION 10
Access to Information and Confidentiality
Seller and Xxxxxxx will hold and cause their respective
representatives to hold in strict confidence, unless compelled to
disclose by judicial or administrative process, or in the opinion
of its counsel, by other requirements of law, all documents and
information concerning Mnemonic furnished to Xxxxxxx and all
documents and information concerning Xxxxxxx furnished to Seller
in connection with the transactions contemplated by this
Agreement, except, in connection with the foregoing, to the
extent that such information can be shown to have been (i)
previously known by Xxxxxxx prior to its disclosure to Xxxxxxx by
Seller, (ii) previously known by Seller prior to his disclosure
to Seller by Xxxxxxx, (iii) in the public domain through no fault
of either Seller or Xxxxxxx, or (iv) later lawfully acquired by
either Seller or Xxxxxxx from other sources. Neither party will
release or disclose such information to any other person, except
in connection with this Agreement to its auditors, financial
advisors, other consultants and advisors. However, the foregoing
provisions of this Section 10 shall not bind or apply to Xxxxxxx
upon the expiration of 120 days after Closing, but shall continue
to be binding on Seller. With respect to any classified
government contracts, Seller will exert his best efforts to
enable Xxxxxxx and its authorized representatives to obtain
permission from appropriate government agencies to conduct such
due diligence investigations as may be deemed reasonable.
SECTION 11
Press Releases
Except as required by law, any public announcements
regarding the transactions contemplated hereby shall be made only
with the mutual consent of Seller and Xxxxxxx, which shall not be
unreasonably withheld.
SECTION 12
Further Assurances
Each party hereto agrees to execute and deliver from time to
time such additional instruments or documents reasonably
requested by the other party to effectuate the transactions
contemplated by this Agreement.
SECTION 13
Successors and Assigns
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. No assignment of this Agreement shall relieve the
assigning party of its representations, warranties, covenants and
agreements hereunder and no assignment or delegation of the other
agreements referenced herein shall be permitted except as
authorized under such other agreements.
SECTION 14
Notices
All notices, requests, demands and other communications
under or in connection with this Agreement shall be in writing,
shall be delivered by hand or sent by next day air or by
certified, return receipt requested, to the following addresses:
If to Seller: Xxxxx X. Xxxxx
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
With a Copy to: Xxx Xxxxxx, Esquire
Xxxx Xxxxx Xxxx & XxXxxx
Suite 1100 - East Tower
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
If to Xxxxxxx: Xxxxxxx Research Corporation
0000 Xxxxx Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
With a Copy to: Xxxx X. Xxxx, Esquire
Xxxxxx Xxxx Xxxxxx & Xxxxx P.C.
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxx 00000
Any of the names and addresses given above may be changed by
notice given as provided above. Notices by hand delivery shall
be deemed received on the date of delivery, provided that notices
by hand delivery must be made to an executive officer of Xxxxxxx.
Notices sent by next-day air shall be deemed received on the next
business day and notices sent by certified mail shall be deemed
received on the third business day after posting, even if such
next-day air or certified mail is unsuccessful because of an
uncommunicated change of address, unclaimed, or refused.
SECTION 15
Applicable Law; Dispute Resolution
(a) Delaware Law. The validity, interpretation and legal
effect of this Agreement shall be governed by the internal
substantive laws and not the choice of law rules of the State of
Delaware.
(b) Venue. Any judicial proceeding brought against Seller
or Xxxxxxx with respect to this Agreement or any other agreements
referenced herein may be brought in any court of competent
jurisdiction in Delaware and, by execution and delivery of this
Agreement, the Seller and Xxxxxxx (i) accepts generally and
unconditionally, the personal and subject matter jurisdiction of
such courts and any related appellate court and irrevocably
agrees to be bound by any judgment rendered thereby in connection
with this Agreement or any other agreement referenced herein and
(ii) irrevocably waives any objection as to the venue of any such
suit, action or proceeding brought in such a court or that such
court is an inconvenient forum.
SECTION 16
Headings and Construction
The headings in this Agreement are for convenience of
reference only and are not part of the substance of this
Agreement. Pronouns used in one gender or number shall include
pronouns of other genders or numbers when context so requires.
As used herein, the term "Seller's knowledge," and
variations of such phrase where knowledge is used to qualify the
representation or other matters shall mean knowledge of the
Seller after reasonable inquiry and investigations concerning the
referenced matter.
As used herein, the word "material" or "materially" when
used to qualify a statement, representation or warranty shall
mean an amount involving more than $17,500 in the aggregate with
respect to all matters qualified by such word.
SECTION 17
Waivers and Amendments
This Agreement or any term hereof may be amended, waived,
discharged or terminated only in writing signed by the parties
hereto or their respective successors and permitted assigns. A
waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement must be in writing and shall not in
any way affect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or
condition of this Agreement, including the provision(s) that were
waived on any prior occasion.
SECTION 18
Third Party Rights
Notwithstanding any other provision of this Agreement, this
Agreement shall not create benefits on behalf of any employee,
third party or any other affiliate or unaffiliated person, and
this Agreement shall be effective only as between the parties
hereto, their successors and permitted assigns, except that
Mnemonic shall be a third party beneficiary of the indemnity
rights under Section 8 hereof after the Closing.
SECTION 19
Expenses
Each party shall pay all expenses incurred by him or it in
connection with this Agreement and the transactions hereunder.
Seller shall be responsible for all fees and expenses due Xxxxx
Xxxx & Company, Inc. In no event shall Mnemonic be responsible
for any of the fees and expenses of Seller related to the
transactions under this Agreement, including any fees or expenses
due Xxxxx Xxxx & Company, Inc..
SECTION 20
Illegality
In the event that any one or more of the provisions
contained in this Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in
every other respect and the remaining provisions of this
Agreement shall not, in any way, be impaired. The invalid
provision shall be deemed amended to reflect as closely as
possible the intent of the parties as such intent is expressed in
this Agreement.
SECTION 21
Entire Agreement
This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior or contemporaneous representations, warranties and
agreements relating to such subject matter. This Agreement shall
be construed in conjunction with the other agreements referenced
herein.
SECTION 22
Counterparts
This Agreement may be executed in more than one counterpart,
all of which shall, together, constitute one and the same
instrument and shall become effective when one or more
counterparts have been signed by Xxxxxxx and delivered to Seller
and one or more counterparts have been signed by Seller and
delivered to Xxxxxxx.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first
appearing above.
XXXXXXX RESEARCH CORPORATION
By: /s/ Xxxxx X. Xxxxxx
-------------------
Its: Vice President
/s/ Xxxxx X. Xxxxx
__________________________________________
Xxxxx X. Xxxxx, sole shareholder of
Mnemonic Systems Incorporated
NOTE: Schedules available upon request.
