EXHIBIT 2.2
Execution Copy
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STOCK PURCHASE AGREEMENT
By and Among
EDO CORPORATION
And
THE SHAREHOLDERS OF
IMPACT SCIENCE & TECHNOLOGY, INC.
Dated as of July 26, 2006
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Table of Contents
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ARTICLE I
Sale and Purchase of Shares.............................................. 1
Section 1.1 Sale and Purchase of the Shares.......................... 1
Section 1.2 Purchase Price; Payment of Purchase Price................ 1
Section 1.3 Closing.................................................. 1
Section 1.4 Purchase Price Adjustment................................ 3
ARTICLE II
Representations and Warranties of The Sellers............................ 6
Section 2.1 Organization............................................. 6
Section 2.2 Capitalization; Title to Shares.......................... 7
Section 2.3 Authorization............................................ 7
Section 2.4 No Conflicts............................................. 8
Section 2.5 Financial Statements; Internal Controls.................. 9
Section 2.6 No Undisclosed Liabilities............................... 9
Section 2.7 Absence of Certain Changes............................... 10
Section 2.8 Material Contracts; No Defaults.......................... 12
Section 2.9 Properties............................................... 17
Section 2.10 Intellectual Property.................................... 19
Section 2.11 Litigation............................................... 21
Section 2.12 Compliance with Laws..................................... 22
Section 2.13 Governmental Authorizations.............................. 22
Section 2.14 Environmental Matters.................................... 23
Section 2.15 Employees................................................ 24
Section 2.16 Labor Matters; Compliance................................ 25
Section 2.17 Employee Benefit Plans and Related Matters; ERISA........ 26
Section 2.18 Tax Matters.............................................. 28
Section 2.19 Insurance................................................ 30
Section 2.20 Accounts Receivable...................................... 31
Section 2.21 Inventory................................................ 32
Section 2.22 Customer and Supplier Relationships...................... 32
Section 2.23 Brokers or Finders....................................... 33
Section 2.24 Relationships with Related Persons....................... 33
Section 2.25 Certain Payments......................................... 33
Section 2.26 Products................................................. 34
Section 2.27 Backlog.................................................. 34
Section 2.28 Bank Accounts............................................ 34
Section 2.29 Books and Records........................................ 34
Section 2.30 Disclosure............................................... 35
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ARTICLE III
Representations and Warranties of The Buyer.............................. 35
Section 3.1 Organization............................................. 35
Section 3.2 Authorization............................................ 35
Section 3.3 No Conflicts............................................. 35
Section 3.4 Investment Intent........................................ 36
Section 3.5 Brokers or Finders....................................... 36
Section 3.6 No Litigation............................................ 36
Section 3.7 Payment of Purchase Price................................ 36
ARTICLE IV
Covenants of the PARTIES................................................. 37
Section 4.1 Conduct of the Business.................................. 37
Section 4.2 Notice of Certain Events................................. 38
Section 4.3 No Solicitation.......................................... 39
Section 4.4 Access to Information; Confidentiality................... 39
Section 4.5 Non-Competition; Non-Solicitation........................ 40
Section 4.6 Subsequent Financial Statements and Reports.............. 42
Section 4.7 Public Announcements..................................... 42
Section 4.8 Further Actions.......................................... 42
Section 4.9 Insurance................................................ 43
Section 4.10 Further Assurances....................................... 43
Section 4.11 Restricted Shares Agreements............................. 43
Section 4.12 Retention Agreements..................................... 43
Section 4.13 Restricted Stock......................................... 44
Section 4.14 Consulting Agreements.................................... 44
Section 4.15 ROFO Waiver.............................................. 44
ARTICLE V
Tax Matters.............................................................. 44
Section 5.1 Sellers' Responsibility for Taxes........................ 44
Section 5.2 Straddle Periods......................................... 45
Section 5.3 Tax Returns.............................................. 45
Section 5.4 Tax Contests............................................. 45
Section 5.5 Books and Records; Cooperation........................... 46
Section 5.6 Transfer Taxes........................................... 46
Section 5.7 Overlap.................................................. 46
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ARTICLE VI
Conditions Precedent..................................................... 46
Section 6.1 Conditions to the Obligations of Buyer and Sellers....... 46
Section 6.2 Conditions to Obligations of Buyer....................... 47
Section 6.3 Conditions to Obligations of Sellers..................... 48
Section 6.4 Conditions to the Obligations of the ESOP................ 49
ARTICLE VII
Termination.............................................................. 49
Section 7.1 Termination.............................................. 49
Section 7.2 Effect of Termination.................................... 50
ARTICLE VIII
Indemnification.......................................................... 51
Section 8.1 Survival................................................. 51
Section 8.2 Indemnification by Sellers............................... 51
Section 8.3 Indemnification by Buyer................................. 52
Section 8.4 Certain Limitations, etc................................. 52
Section 8.5 Third Party Claim Procedures............................. 54
Section 8.6 Escrow; Right of Set-Off................................. 55
ARTICLE IX
Definitions.............................................................. 55
Section 9.1 Certain Terms............................................ 55
Section 9.2 Construction............................................. 66
ARTICLE X
Miscellaneous............................................................ 67
Section 10.1 Notices.................................................. 67
Section 10.2 Amendment; Waivers, etc.................................. 68
Section 10.3 Expenses................................................. 69
Section 10.4 Governing Law, etc....................................... 69
Section 10.5 Binding Effect........................................... 70
Section 10.6 Sellers' Representative.................................. 70
Section 10.7 Assignment............................................... 71
Section 10.8 No Third Party Beneficiaries............................. 72
Section 10.9 Entire Agreement......................................... 72
Section 10.10 Severability............................................. 72
Section 10.11 Headings................................................. 72
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Section 10.12 Counterparts............................................. 72
Section 10.13 Specific Performance..................................... 72
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SCHEDULES AND EXHIBITS
Schedule I Sellers
Exhibit A Promissory Note
Exhibit B Escrow Agreement
Exhibit C Restricted Shares Agreement
Exhibit D Sellers' Release
Exhibit E Retention Agreement
Exhibit F ROFO Waiver
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of July 26, 2006 (this "Agreement"), by
and among EDO Corporation, a New York corporation (the "Buyer"), and each of the
parties listed on Schedule I attached hereto (each, a "Seller" and,
collectively, the "Sellers"). Capitalized terms used in this Agreement are
defined in Section 9.1.
WITNESSETH:
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Impact Science & Technology, Inc., a New Hampshire corporation
(the "Company"), consisting of 429,250 shares of Class A Common Stock, with no
par value (the "Class A Shares"), and 22,249 shares of Class B Convertible
Preferred Common Stock, with no par value (the "Class B Shares" and, together
with the Class A Shares, the "Shares");
WHEREAS, each of the Sellers wishes to sell to the Buyer, and the Buyer
wishes to purchase from each Seller, the Shares owned by such Seller, on the
terms and conditions and for the consideration described in this Agreement; and
WHEREAS, the Trustee has determined that the terms and conditions of the
transactions contemplated by this Agreement and the Ancillary Agreements are in
the best interest of the ESOP participants.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.1 Sale and Purchase of the Shares. Subject to the terms and
conditions hereof, at the Closing, each of the Sellers shall sell to the Buyer
the number of Shares set forth opposite such Seller's name in the column
entitled "Number of Shares" on Schedule I attached hereto, and the Buyer shall
purchase such Shares from each of the Sellers.
Section 1.2 Purchase Price; Payment of Purchase Price. The aggregate
purchase price payable by the Buyer to the Sellers for the Shares shall be
$123,720,000 (the "Purchase Price"), subject to adjustment as provided in
Section 1.4.
Section 1.3 Closing.
(a) The closing of the sale and purchase of the Shares (the "Closing")
shall take place at the offices of Debevoise & Xxxxxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx
Xxxx, at 10:00 a.m. on the date that is two Business Days after the conditions
set forth in Article VI have been satisfied or waived (other than conditions
that by their terms are to be satisfied at the Closing but subject to the
satisfaction or waiver of such conditions), or on such other date and at such
other time as the parties to this Agreement may agree to in writing (the
"Closing Date").
(b) At the Closing:
(i) Each Seller shall deliver to the Buyer, free and clear of any
Liens, one or more certificates representing the number of the Shares set
forth opposite such Seller's name on Schedule I attached hereto, duly
endorsed in blank for transfer or accompanied by duly executed blank stock
powers or other instruments of transfer duly executed in blank, and bearing
or accompanied by all requisite stock transfer stamps;
(ii) The Buyer shall pay the Purchase Price, as follows:
(A) the sum of $105,570,000 (the "Cash Consideration") shall be
payable to the Sellers in cash, by wire transfer of immediately
available funds to such account or accounts as the Sellers have
designated to the Buyer, in the manner specified herein for the
delivery of notices, at least three (3) Business Days prior to the
Closing Date, as follows:
(I) an amount equal to the Cash Consideration less (x) the
ESOP Amount, (y) Escrow Amount and (z) the Holdback Amount, if
any, shall be payable to the Sellers (other than the ESOP), pro
rata in accordance with their respective Individual Allocation
Percentages; and
(II) an amount equal to the ESOP Amount shall be payable to
the ESOP;
(B) the sum of $851,235 shall be payable to the ESOP in cash, by
wire transfer of immediately available funds to such account or
accounts as the ESOP has designated to the Buyer, in the manner
specified herein for the delivery of notices, at least three (3)
Business Days prior to the Closing Date; and
(C) by delivery to the Sellers (other than the ESOP) of a
purchase money promissory note, in registered form and substantially
in the form of Exhibit A attached hereto (the "Promissory Note"), in
the principal amount of $17,298,765;
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(iii) the Buyer and each of the Sellers (other than the ESOP) shall
enter into an escrow agreement with the Escrow Agent, substantially in the
form of Exhibit B attached hereto (the "Escrow Agreement"), and the Buyer
shall deliver to the Escrow Agent the sum of $10,000,000 (the "Escrow
Amount"), to be held in escrow (the "Escrow") pursuant to the terms of the
Escrow Agreement;
(iv) the Buyer and each of the persons identified in Section
1.3(b)(iv) of the Sellers' Disclosure Letter (collectively, the "Key
Employees") shall execute and deliver a Subscription and Restricted Shares
Vesting Agreement, substantially in the form of Exhibit C attached hereto
(each, a "Restricted Shares Agreement" and, collectively, the "Restricted
Shares Agreements"); and
(v) each of the Sellers (other than the ESOP) shall execute and
deliver to the Buyer a release in the form of Exhibit D attached hereto
(the "Sellers' Release").
Section 1.4 Purchase Price Adjustment.
(a) Closing of the Books on the Closing Date. In preparation for the
Closing, the Sellers shall use their commercially reasonable efforts to cause a
full balance sheet closing to take place at 11:59 p.m. on the day immediately
preceding the Closing Date as if it were the last day of a fiscal period for the
Company.
(b) Inventory Count. Prior to the Closing, the Sellers shall take or cause
to be taken a physical count of the quantities of inventory of the Company as at
11:59 p.m. on the day immediately preceding the Closing Date (the "Inventory
Count"). The Inventory Count shall be conducted in a manner that is consistent
with the method historically used by the Company to conduct a full physical
count of its inventory as conducted during the Company's year-end book closing
process. Representatives of the Buyer may observe the Inventory Count being
taken, and the Sellers agree to consult with the Buyer in the preparation of the
Inventory Count procedures and instructions. The Inventory Count shall be
completed on such day as the parties shall determine, but in any event not later
than two (2) Business Days before the Closing Date.
(c) Estimated Closing Statement. Immediately prior to the Closing, the
Sellers shall prepare or cause to be prepared and shall deliver to the Buyer a
statement (the "Estimated Closing Statement") consisting of (i) an estimated
consolidated balance sheet of the Company as of the Closing Date (the "Estimated
Closing Balance Sheet") and (ii) an estimated calculation in reasonable detail
of the Closing Book Value derived from the Estimated Closing Balance Sheet (the
"Estimated Closing Book Value"). The Estimated Closing Statement shall be
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied in a manner consistent with the application of GAAP in the
preparation of the audited balance sheet included in the Audited Financial
Statements as at and for the period ended December 31, 2005, except as set forth
in
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Section 1.4 of the Buyer Disclosure Letter. All items that constitute Sellers'
Expenses shall be reflected either as a reduction in cash or as a liability on
the Estimated Closing Balance Sheet, and the quantities and value of the
Company's inventory shall be reflected on the Estimated Closing Balance Sheet in
accordance with the results of the Inventory Count.
(d) Holdback. At the Closing, the Buyer shall have the right to withhold
from the Cash Consideration an amount equal to the Holdback Amount, subject to
the provisions of Section 1.4(j).
(e) Closing Statement. Within 30 days following the Closing Date, the
Sellers shall prepare or cause to be prepared and delivered to the Buyer a
statement (the "Closing Statement") consisting of (i) a consolidated balance
sheet of the Company as of the Closing Date (but without giving effect to the
Closing) (the "Closing Balance Sheet"), (ii) a calculation in reasonable detail
of the Closing Book Value derived from the Closing Balance Sheet and (iii) a
calculation of the amount, if any, payable under clause (j) of this Section 1.4.
The Closing Statement shall be prepared in accordance with GAAP, applied in a
manner consistent with the application of GAAP in the preparation of the audited
balance sheet included in the Audited Financial Statements as at and for the
period ended December 31, 2005, except as set forth in Section 1.4 of the Buyer
Disclosure Letter. All items constituting Sellers' Expenses shall be reflected
either as a reduction in cash or as a liability on the Closing Balance Sheet,
and the quantities and value of the Company's inventory shall be reflected on
the Closing Balance Sheet in accordance with the results of the Inventory Count.
(f) Dispute Notice. The Closing Statement shall become final, binding and
conclusive upon the Sellers and the Buyer on the 30th day following the Buyer's
receipt of the Closing Statement, unless prior to such 30th day the Buyer
delivers to the Sellers a written notice (a "Dispute Notice") stating the
Buyer's objections to the Closing Statement and specifying in reasonable detail
each item disputed by the Buyer (a "Disputed Item") and the basis of the Buyer's
objection to such Disputed Item.
(g) Resolution Period. If the Buyer delivers to the Sellers a Dispute
Notice, then the Buyer and the Sellers shall seek in good faith to resolve the
Disputed Items during the 15-day period beginning on the date the Sellers
receive the Dispute Notice (the "Resolution Period"). If the Buyer and the
Sellers reach agreement with respect to any Disputed Items, the Sellers shall
cause the Closing Statement to be revised to reflect such agreement.
(h) Independent Accountant. If the Buyer and the Sellers are unable to
resolve all of the Disputed Items during the Resolution Period, then the Buyer
and the Sellers shall jointly engage and submit the unresolved Disputed Items
(the "Unresolved Items") for resolution to BDO Xxxxxxx, LLP, or if BDO Xxxxxxx,
LLP is unavailable, to another nationally recognized independent registered
public accounting firm, appointed by
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mutual agreement of the Buyer and the Sellers, that has not had a material
relationship with the Company, any of the Sellers or the Buyer within the
preceding two years (the "Independent Accountant"). If the Buyer and the Sellers
fail to appoint an Independent Accountant within ten days after the end of the
Resolution Period, they shall request the American Arbitration Association to
appoint as the Independent Accountant a nationally recognized independent
registered public accounting firm that has not had a material relationship with
the Company, any of the Sellers or the Buyer within the preceding two years, and
such appointment shall be final, binding and conclusive on the Buyer and the
Sellers. The Buyer and the Sellers shall use their commercially reasonable
efforts to cause the Independent Accountant to issue its written determination
regarding the Unresolved Items within 30 days after such items are submitted for
review. The Independent Accountant shall make a determination with respect to
the Unresolved Items only and in a manner consistent with this Section 1.4, and
in no event shall the Independent Accountant's determination of the Unresolved
Items be for an amount that is outside the range of the Buyer's and the Sellers'
disagreement. The engagement letter of the Independent Accountant shall specify
the procedures to be followed, consistent with this Section 1.4, by the
Independent Accountant in determining Unresolved Items. Each party shall use its
commercially reasonable efforts to furnish to the Independent Accountant such
work papers and other documents and information pertaining to the Unresolved
Items as the Independent Accountant may request. The determination of the
Independent Accountant shall be final, binding and conclusive on the Buyer and
the Sellers absent manifest error, and the Sellers shall cause the Closing
Statement to be revised to reflect such determination upon receipt thereof. The
fees, expenses and costs of the Independent Accountant shall be borne equally by
the Buyer and the Sellers.
(i) Access to Information. Each party shall use its commercially reasonable
efforts to provide promptly to the other party all information and reasonable
access to employees as such other party shall reasonably request in connection
with review of the Estimated Closing Statement, the Closing Statement or the
Dispute Notice, as the case may be, including all work papers of the accountants
who audited, compiled or reviewed such statements or notices, and shall
otherwise cooperate in good faith with such other party to arrive at a final
determination of the Closing Statement.
(j) Purchase Price Adjustment. Within thirty (30) days after the Closing
Statement is finalized pursuant to paragraphs (f), (g) or (h) of this Section
1.4:
(i) if the Closing Book Value exceeds the Baseline Book Value, the
Buyer shall pay (x) to the Sellers, pro rata in accordance with their
respective Allocation Percentages, the amount of such excess and (y) to the
Sellers (other than the ESOP), pro rata in accordance with their respective
Individual Allocation Percentages, the Holdback Amount;
(ii) if the Closing Book Value is less than the Baseline Book Value
and the amount of such shortfall is equal to or less than the Holdback
Amount, the
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Buyer shall pay to the Sellers (other than the ESOP), pro rata in
accordance with their respective Individual Allocation Percentages, an
amount equal to (x) the Holdback Amount less (y) the amount of such
shortfall; or
(iii) if the Closing Book Value is less than the Baseline Book Value
and the amount of such shortfall exceeds the Holdback Amount (the amount of
such excess, the "PPA Excess Amount"), at the Buyer's option, either (A) an
amount equal to the PPA Excess Amount shall be offset against the principal
balance of the Promissory Note, in accordance with the procedures set forth
therein, or (B) the Buyer and the Sellers (other than the ESOP) shall
jointly instruct the Escrow Agent to release from the Escrow and pay to the
Buyer an amount equal to the PPA Excess Amount; provided, however, that in
the event that the PPA Excess Amount is greater than $500,000, the Buyer
may, at its option, require that all or any portion of the PPA Excess
Amount be paid to the Buyer in cash by the Sellers (other than the ESOP),
pro rata in accordance with their respective Individual Allocation
Percentages.
(k) Method of Payment, Interest, etc. Any amount paid in respect of any
adjustments to the Purchase Price made pursuant this Section 1.4 shall be (i)
increased by simple interest on such amount at an interest rate equal to the
rate on U.S. Treasury Bills with a maturity of three months, as reported by The
Wall Street Journal on the Closing Date, from and after the Closing Date to and
including the date of payment, (ii) made by wire transfer of immediately
available funds to an account designated by the receiving party and (iii)
treated as an adjustment to the Purchase Price for tax purposes to the extent
permitted by applicable Law.
(l) Indemnification Not Affected. The Buyer's rights to indemnification
pursuant to Section 8.2 shall not be deemed to limit, supersede or otherwise
affect, or be limited, superseded or otherwise affected by, the Buyer's rights
under this Section 1.4, except to the extent any Loss is expressly taken into
account in the finalized Closing Statement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers (other than the ESOP), jointly and severally, represent and
warrant to the Buyer, as of the date hereof and as of the Closing Date, as
follows:
Section 2.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Hampshire and has all corporate power and authority to carry on the Business.
The Company is duly qualified to do business as a foreign corporation and is in
good standing in each of the jurisdictions specified in Section 2.1 of the
Sellers' Disclosure Letter, which includes each jurisdiction in which the nature
of the Business or the properties owned, leased or operated by the Company makes
such qualification necessary. The Sellers have delivered to the Buyer
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true and complete copies of the Organizational Documents of the Company as
currently in effect, and the Company is not in material violation of any
provision of such Organizational Documents. The Company has no subsidiaries.
Section 2.2 Capitalization; Title to Shares.
(a) The authorized capital stock of the Company consists of (i) 1,200,000
shares of Class A Common Stock, with no par value, of which only the Class A
Shares are issued and outstanding, and (ii) 1,200,000 shares of Class B
Convertible Preferred Common Stock, with no par value, of which only the Class B
Shares are issued and outstanding. All of the Shares have been duly authorized
and validly issued and are fully paid and non-assessable.
(b) Each of the Sellers owns the Shares set forth directly opposite such
Seller's name on Schedule I hereto, beneficially and of record, free and clear
of any Liens. Upon delivery of and payment for the Shares at the Closing, the
Buyer will acquire good and valid title to all of the Shares, free and clear of
any Liens.
(c) Except as set forth in Section 2.2(c) of the Sellers' Disclosure
Letter, there are no outstanding (i) shares of capital stock or other voting
securities of the Company, (ii) securities of the Company convertible into or
exercisable or exchangeable for shares of capital stock or other voting
securities of the Company, (iii) options or other rights or agreements,
commitments or understandings of any kind to acquire from the Company, or other
obligation of the Company to issue, transfer or sell any capital stock, other
voting securities or securities convertible into or exercisable or exchangeable
for capital stock or other voting securities of the Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities").
(d) Except as set forth in Section 2.2(d) of the Sellers' Disclosure
Letter, there are no outstanding (i) voting trusts, proxies or other similar
agreements or understandings to which the Company is a party or by which the
Company is bound with respect to any Company Securities, (ii) contractual
obligations or commitments of any character restricting the transfer of, or
requiring the registration for sale of, any Company Securities or (iii)
obligations of the Company to repurchase, redeem or otherwise acquire any
Company Securities.
Section 2.3 Authorization. Each Seller has full power and authority to
execute and deliver this Agreement and each of the Ancillary Agreements to which
such Seller is a party, to perform such Seller's obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by each Seller of this Agreement and each of the
Ancillary Agreements to which such Seller is a party, the performance of such
Seller's obligations hereunder and thereunder, and the consummation by such
Seller of the transactions contemplated hereby and thereby have been duly and
validly authorized by all requisite action of such Seller.
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Each Seller has duly executed and delivered this Agreement and on the Closing
Date will have duly executed and delivered each of the Ancillary Agreements to
which such Seller is a party. This Agreement constitutes, and each such
Ancillary Agreement when so executed and delivered will constitute, the legal,
valid and binding obligation of each Seller, enforceable against such Seller in
accordance with its terms.
Section 2.4 No Conflicts.
(a) Except as set forth in Section 2.4(a) of the Sellers' Disclosure
Letter, the execution, delivery and performance by each Seller of this Agreement
and any of the Ancillary Agreements to which such Seller is a party, and the
consummation of the transactions contemplated hereby and thereby, require no
action by or in respect of, or filing with, any Governmental Authority other
than (i) compliance with any applicable requirements of the HSR Act; (ii)
compliance with any applicable requirements of the Laws of the jurisdictions set
forth in Section 2.4(a) of the Sellers' Disclosure Letter; and (iii) any actions
or filings under any applicable Laws the absence of which would not,
individually or in the aggregate, be materially adverse to the Company or
materially impair the ability of such Seller to consummate the transactions
contemplated hereby or thereby or the ability of the Company to continue to
conduct the Business following the Closing.
(b) Except as set forth in Section 2.4(b) of the Sellers' Disclosure
Letter, the execution, delivery and performance by each Seller of this Agreement
and each of the Ancillary Agreements to which such Seller is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) contravene, conflict with, or result in any violation or breach of
any provision of (A) the Organizational Documents of the Company or (B) any
resolution adopted by the board of directors of the Company, (ii) assuming
compliance with the matters referred to in Section 2.4(a), contravene, conflict
with or result in a material violation or breach of any provision of any
applicable Law or give any Governmental Authority or other Person the right to
challenge any of the transactions contemplated by this Agreement or any
Ancillary Agreements, or to exercise any remedy or obtain any relief under any
applicable Law as a result of the consummation of the transactions contemplated
by this Agreement or any of the Ancillary Agreements; (iii) require any consent
or other action by any Person under, constitute a default or an event that, with
or without notice or lapse of time or both, would constitute a default under, or
cause or permit the termination, cancellation, acceleration or other change of
any right or obligation or the loss of any benefit to which the Company is
entitled under, any provision of any material agreement or other instrument to
which such Seller or the Company is a party or any material license, franchise,
permit, certificate, approval or other similar authorization affecting the
assets of the Company or the Business (including, without limitation, any
Material Contract) or (iv) result in the creation or imposition of any Lien
other than Permitted Liens on any assets of the Company.
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Section 2.5 Financial Statements; Internal Controls.
(a) The Sellers have delivered to the Buyer true and complete copies of (i)
audited consolidated financial statements of the Company at and for the periods
ended December 31, 2003, December 31, 2004 and December 31, 2005, respectively,
together with the report of the Company's independent auditors thereon (the
"Audited Financial Statements"), and (ii) unaudited interim financial statements
of the Company (the "Unaudited Financial Statements") at and for the period
ended March 31, 2006 (the "Balance Sheet Date"), including in each of clauses
(i) and (ii) a balance sheet and statements of income or operations and retained
earnings or shareholders' equity and, in the case of the Audited Financial
Statements, a statement of cash flows (the Audited Financial Statements and the
Unaudited Financial Statements, collectively, the "Financial Statements").
Except as set forth in Section 2.5 of the Sellers' Disclosure Letter, (A) the
Audited Financial Statements have been prepared in accordance with GAAP applied
on a consistent basis (except as may be indicated in the notes thereto) and (B)
the Unaudited Financial Statements have been prepared in a manner consistent
with the Company's historical accounting principles, practices and
methodologies, which, except as set forth in Section 2.5 of the Sellers'
Disclosure Letter, are consistent with GAAP. Except as set forth in Section 2.5
of the Sellers' Disclosure Letter, the Financial Statements present fairly the
financial position, results of operations and, in the case of the Audited
Financial Statements, cash flows of the Company at and for the respective
periods indicated (subject, in the case of the Unaudited Financial Statements,
to normal year-end audit adjustments that will not be material to the Company).
(b) To the Knowledge of the Sellers, the Company has devised and maintained
a system of internal controls over financial reporting with respect to the
Business sufficient to provide reasonable assurances that (i) all transactions
are executed in accordance with management's general or specific authorization,
(ii) all transactions are recorded as necessary to permit the preparation of
financial statements in conformity with GAAP and to maintain proper
accountability for items, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for items is compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any differences. There
are no material off-balance sheet transactions, arrangements, obligations
(including contingent obligations).
Section 2.6 No Undisclosed Liabilities. The Company has no liabilities or
obligations, whether known, unknown, absolute, accrued, contingent or otherwise
and whether due or to become due, except (a) as set forth in Section 2.6 of the
Sellers' Disclosure Letter, (b) liabilities and obligations disclosed or
reserved against in the Balance Sheet or specifically disclosed in the notes
thereto, (c) for liabilities and obligations not disclosed or reserved against
in the Balance Sheet solely because they are not, individually or in the
aggregate, material to the Company and (d) for liabilities and obligations that
were incurred after the Balance Sheet Date in the Ordinary Course of
9
Business and that individually and in the aggregate are not and would not
reasonably be expected to be materially adverse to the Company.
Section 2.7 Absence of Certain Changes. Except as set forth in Section 2.7
of the Sellers' Disclosure Letter, since the Balance Sheet Date, the Company has
conducted the Business in the Ordinary Course of Business and there has not
been:
(a) any event, development or state of circumstances that has had or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(b) any change in any of the Company Securities, any issuance of any
Company Securities or any grant of any option or other right to purchase
any Company Securities, any grant of any phantom or similar rights that
give any Person any interest in any portion of the revenue or earnings of
the Company, any grant of any registration rights with respect to any
Company Securities, or any purchase, redemption or other acquisition by the
Company of any Company Securities;
(c) any declaration, setting aside or payment of any dividend or other
distribution with respect to any Company Securities;
(d) any amendment or modification of the Organizational Documents;
(e) any incurrence of any Indebtedness by the Company;
(f) any sale, transfer, lease, license or other disposition of any
material assets, properties or rights of the Company other than in the
Ordinary Course of Business, including, without limitation, the sale,
transfer, lease, license or other disposition of any Intellectual Property,
or any creation or other incurrence by the Company of any Lien (other than
Permitted Liens) on any material assets, properties or rights of the
Company;
(g) any acquisition by the Company of a material amount of the stock
or assets of any other Person (other than in the Ordinary Course of
Business);
(h) any making by the Company of any loan, advance or capital
contribution to or investment in any Person;
(i) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the Business or any material assets of the
Company;
(j) any change in any method of accounting or accounting principles or
practice by the Company, except for any such change required by reason of a
10
concurrent change in GAAP, or any revaluation of any material assets of the
Company;
(k) any (i) grant of any severance or termination pay to (or amendment
to any existing arrangement with) any shareholder, director, officer or
employee of the Company, (ii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements,
(iii) entering into any employment, deferred compensation, severance or
other similar agreement or arrangement (or any amendment to any such
existing agreement or arrangement) with any director, officer or employee
of the Company, (iv) establishment, adoption, amendment, renewal or
termination (except as required by applicable Law) of any collective
bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred
compensation, severance, compensation, stock option, restricted stock or
other benefit plan, policy, agreement or arrangement covering any current
or former director, officer or employee of the Company or (v) increase in
compensation, bonus or other benefits payable to any director, officer or
employee of the Company;
(l) any retirement, resignation or other termination of the employment
of any of the employees of the Company listed in Section 2.7(l) of the
Sellers' Disclosure Letter (each, a "Significant Employee" and,
collectively, the "Significant Employees"), or any notice or notification
regarding any intended retirement, resignation or other termination of the
employment of any of the Significant Employees of the Company;
(m) any entry into, termination of, or receipt of formal or informal
notice of termination of any Material Contract or any agreement or
arrangement involving a total remaining commitment by or to the Company of
at least $250,000;
(n) any capital expenditures, or commitments for capital expenditures,
in an amount in excess of $250,000 in the aggregate;
(o) any material payments, discount activity or any other
consideration to customers or suppliers, other than in the Ordinary Course
of Business;
(p) any cancellation or waiver of any claims or rights by or of the
Company with a value to the Company in excess of $250,000 in the aggregate;
(q) any failure to pay or satisfy when due any liability of the
Company in an amount in excess of $100,000;
(r) any material Tax election changed, any material Tax election made,
to the extent inconsistent with most recent practice, any annual Tax
11
accounting period changed, any method of Tax accounting adopted or changed,
any material amended Tax Returns or claims for material Tax refunds filed,
any material closing agreement entered into, any material proposed Tax
adjustments or assessments, any material Tax claim, audit or assessment
settled, or any right to claim a material Tax refund, offset or other
reduction in Tax liability surrendered; or
(s) any agreement or commitment, whether oral or written and whether
formal or informal, by the Company to do any of the foregoing, or any
action or omission that would result in any of the foregoing.
Section 2.8 Material Contracts; No Defaults.
(a) Except for the Government Contracts and Government Subcontracts,
Section 2.8(a) of the Sellers' Disclosure Letter contains a complete and
accurate list, and the Sellers have delivered or made available to the Buyer
true and complete copies, of all of the following contracts, agreements,
commitments, arrangements or plans (including all amendments, supplements and
modifications thereto, whether written or oral) (x) to which the Company is a
party, (y) under which the Company has or may acquire any rights or has or may
become subject to any obligations or liabilities or (z) by which the Company or
any of its assets, properties or rights are or may become bound or subject:
(i) each agreement or series of related agreements intended to be
treated as one agreement for the purchase of materials, supplies, goods,
services, equipment or other assets providing for aggregate payments by the
Company over the remaining term of such agreement or related agreements of
$250,000 or more;
(ii) each sales, distribution, agency or other similar agreement
providing for the sale by the Company of materials, supplies, goods,
services, equipment or other assets that provides for aggregate payments to
the Company over the remaining term of the agreement of $250,000 or more;
(iii) each agreement relating to Indebtedness (in either case, whether
incurred, assumed, guaranteed or secured by any asset);
(iv) each joint venture, partnership, limited liability company or
other agreements or arrangements involving a sharing of profits, losses,
costs or liabilities by the Company with any other Person;
(v) each agreement or series of related agreements intended to be
treated as one agreement, including any option agreements, relating to the
acquisition or disposition of any business, a material amount of stock or
assets of any other Person or any material real property (whether by
merger, sale of stock, sale of assets or otherwise);
12
(vi) each agreement that (A) limits the freedom of the Company to
compete in any line of business or with any Person or in any area or which
would so limit the freedom of the Buyer, any member of the EDO Group or the
Company after the Closing or (B) contains exclusivity obligations or
restrictions binding on the Company or that would be binding on the Buyer
or any member of the EDO Group after the Closing;
(vii) each agreement relating to any interest rate, currency or
commodity derivatives or hedging transaction;
(viii) each agreement (including any "take-or-pay" or keepwell
agreement) under which (A) any Person has directly or indirectly guaranteed
any liabilities or obligations of the Company or (B) the Company has
directly or indirectly guaranteed liabilities or obligations of any other
Person (in each case other than endorsements for the purpose of collection
in the Ordinary Course of Business);
(ix) each agreement for capital expenditures in excess of $250,000;
(x) each agreement that contains or provides for an express
undertaking by the Company to be responsible for consequential damages;
(xi) each agreement, commitment or arrangement providing for
commission or royalty payments to any Person based on sales, purchases or
profits (as opposed to direct payments for goods or services);
(xii) each powers of attorney issued by or on behalf of the Company
that is currently in effect;
(xiii) each IP Contract; and
(xiv) all other agreements, commitments, arrangements or plans that
are (A) not made in the Ordinary Course of Business or (B) material to the
Company.
(b) Each agreement, commitment, arrangement or plan disclosed in the
Sellers' Disclosure Letter or required to be disclosed thereon pursuant to this
Section or Sections 2.9, 2.10, 2.15, 2.17 or 2.24 hereof (each a "Material
Contract") is a valid, binding and enforceable agreement of the Company and is
in full force and effect. Except as set forth in Section 2.8(b) of the Sellers'
Disclosure Letter:
(i) the Company is, and at all times since the date of the respective
Material Contract (including any Material Contracts that have been
superseded by the Material Contracts currently in effect), (A) has been in
full compliance with all material terms and material requirements of each
Material Contract, (B) has
13
complied in all material respects with all requirements of applicable Law
pertaining to each Material Contract, and (C) any representations,
warranties and certifications executed, acknowledged, contained or set
forth in each Material Contract were true, correct and complete in all
material respects as of their effective date;
(ii) to the Knowledge of the Sellers, each other Person that has or
had any obligation or liability under any Material Contract under which the
Company has or had any rights is, and at all times since the conclusion of
such Material Contract has been, in full compliance with all applicable
material terms and requirements of such Material Contract, and none of such
Persons is in default or breach in any material respect under (or is
alleged to be in default or breach in any material respect under) any of
the terms of such Material Contract;
(iii) no event or circumstance has occurred that, with or without
notice or lapse of time or both, would constitute any event of default
under any Material Contract or result in a termination thereof or would
cause or permit the acceleration or other changes of any right or
obligation or the loss of any benefit thereunder;
(iv) since the date of any particular Material Contract (including any
Material Contracts that have been superseded by the Material Contracts
currently in effect), the Company has not given to or received from any
other Person any notice regarding any actual, alleged, possible or
potential violation or breach of, or default under, any such Material
Contract or any intention to terminate any such Material Contract; and
(v) there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate in any material respect any Material
Contract (including, without limitation, any material amounts paid or
payable to or by the Company under any current or completed Material
Contracts), and no Person has made written demand for such renegotiation.
(c) Each of the Material Contracts relating to the sale, design,
manufacture or provision of products or services by the Company have been
entered into in the Ordinary Course of Business and without the commission of
any act alone or in concert with any other Person, and without any consideration
having been paid or promised that is or would be in violation of any applicable
Law. To the Knowledge of the Sellers, all active orders under each such Material
Contract can be completed at a profit (it being understood that whether any such
order is completed at a profit shall be determined without giving effect to the
transactions contemplated by this Agreement), within the time specified therein,
without significant increase in personnel currently employed by or assets
currently owned by the Company.
14
(d) Except as set forth in Section 2.8(d) of the Sellers' Disclosure
Letter:
(i) None of the Sellers (and no Related Person of any Seller) has or
may acquire any rights, or has or may become subject to any obligation or
liability, under any Material Contract, or any of the assets owned or used
by the Company; and
(ii) no shareholder, director, officer or employee of the Company nor,
to the Knowledge of the Sellers, any agent, consultant or contractor of the
Company, is bound by any Material Contract that purports to limit the
ability of such shareholder, director, officer, agent, employee, consultant
or contractor to (A) engage in or continue any conduct, activity, or
practice relating to the Business or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery.
(e) Section 2.8(e) of the Sellers' Disclosure Letter contains a true and
complete list (in the case of classified Government Contracts or Government
Subcontracts, without specifying the counterparty thereto), and the Sellers have
delivered or made available to the Buyer (or, in the case of classified
Government Contracts or Government Subcontracts, made available to the Buyer's
personnel with appropriate security clearances) true and complete copies, of all
Government Contracts (including, without limitation, options) and Government
Subcontracts currently in force. Except as set forth in Section 2.8(e) of the
Sellers' Disclosure Letter,
(i) (A) the Company has complied with all material terms and
conditions of each Government Contract or Government Subcontract, (B) the
Company has complied in all material respects with all requirements of any
applicable Law and the terms of any agreements pertaining to each
Government Contract or Government Subcontract and (C) all representations,
warranties and certifications executed, acknowledged, contained or set
forth in each Government Contract or Government Subcontract were true,
complete and correct in all material respects as of their effective date,
and the Company has complied in all respects with all such representations,
warranties and certifications;
(ii) (A) neither the U.S. Government nor any prime contractor,
subcontractor or other Person has notified the Company in writing or, to
the Knowledge of the Sellers, orally, that the Company has breached or
violated any requirement of any applicable Law or any certification,
representation, clause, provision or other requirement pertaining to any
Government Contract or Government Subcontract, (B) no termination for
convenience, termination for default, cure notice or show cause notice is
currently in effect pertaining to any Government Contract or Government
Subcontract, (C) no material cost incurred by the Company pertaining to
any Government Contract or Government Subcontract has been questioned or
challenged by representatives of the
15
Administrative Contracting Officer or the Defense Contract Audit Agency,
has been disallowed by the U.S. Government, or has been or now is, the
subject of any investigation, and (D) no amount of money due to the Company
in connection with any Government Contract or Government Subcontract has
been withheld or set off, nor has any claim been made to withhold or set
off money, and the Company is entitled to all progress payments received
with respect thereto;
(iii) (A) neither the Company, nor any of its shareholders, directors,
officers or employees, nor, to the Knowledge of the Sellers, any of its
consultants or agents, is or during the past three years has been under
administrative, civil or criminal investigation or indictment by any
Governmental Authority with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government
Contract or Government Subcontract, and (B) during the past five (5) years,
the Company has not conducted or initiated any internal investigation or
made a voluntary disclosure to any Governmental Authority with respect to
any alleged irregularity, misstatement or omission arising under or
relating to a Government Contract or Government Subcontract;
(iv) The Company has not received notice of (A) any outstanding claims
against the Company, either by any Governmental Authority or by any prime
contractor, subcontractor or vendor, arising under or relating to any
Government Contract or Government Subcontract or (B) any material disputes
between the Company and any Governmental Authority under the Contract
Disputes Act or any other federal statute or regulation or between the
Company and any prime contractor, subcontractor or vendor arising under or
relating to any Government Contract or Government Subcontract;
(v) the Company has no interest in any pending or, to the Knowledge of
the Sellers, potential claim against any Governmental Authority or any
prime contractor, subcontractor or vendor arising under or relating to any
Government Contract or Government Subcontract, and Section 2.8(e) of the
Sellers' Disclosure Letter lists each Government Contract or Government
Subcontract which is currently under audit by any Governmental Authority or
any other person that is a party to such Government Contract or Government
Subcontract;
(vi) the Company has not been debarred or suspended from participation
in the award of contracts with any Governmental Authority (excluding for
this purpose ineligibility to bid on certain contracts due to generally
applicable bidding requirements), there exist no facts or circumstances
that would warrant suspension or debarment or the finding of
non-responsibility or ineligibility on the part of the Company, no payment
has been made by the Company or by any Person on behalf of the Company in
connection with any Governmental Contract or Governmental Subcontract in
violation of any requirements of applicable Law relating to procurement or
in violation of, or requiring disclosure pursuant to, the
16
Foreign Corrupt Practices Act, and the Company's cost accounting and
procurement systems and the associated entries reflected in the Company's
financial records with respect to the Government Contracts and Government
Subcontracts are in compliance in all material respects with all
requirements of any applicable Law;
(vii) neither the Company, nor any of its shareholders, directors,
officers or employees, nor, to the Knowledge of the Sellers, any of its
consultants or agents, has committed (or taken any action to promote or
conceal) any violation of the Arms Export Control Act, the International
Traffic in Arms Regulations, as amended, the Atomic Energy Act of 1954, as
amended, Executive Order 12958 (April 17, 1995), Executive Order 12829
(January 6, 1993), Executive Order 13292 (March 25, 2003), or any
directives and policies issued pursuant thereto, including, without
limitation, the National Industrial Security Program Operating Manual
(NISPOM); and
(viii) all representations, certifications and statements executed,
acknowledged or submitted by or on behalf of the Company to any
Governmental Authority, prime contractor, subcontractor or vendor in
connection with any Government Contract or any Government Subcontract (or
any change or modification thereto) at any time, including but not limited
to any statements made in connection with the Procurement Integrity Law, 41
U.S.C. Section 423, the Lobbying Disclosure Act of 1995, 2 U.S.C. Section
1601-1612, the Xxxx Amendment, 31 U.S.C. Section 1352, and their associated
implementing regulations, contract clauses, representations or
certifications, are true, complete and correct in all respects, and the
Company has complied in all respects with all such representations,
certifications and statements.
Section 2.9 Properties.
(a) Title to Assets, etc. The Company has good and valid (and, in the case
of Owned Real Property, good, valid and marketable fee simple) title to, or
otherwise have the right to use pursuant to a valid and enforceable lease,
sublease, license or similar contractual arrangement, all of the assets,
properties and rights (real and personal, tangible and intangible) that are used
or held for use in connection with the Business or are reflected on the Balance
Sheet or acquired after the Balance Sheet Date (collectively, the "Assets"),
except as may be disposed of in the ordinary course of business consistent with
past practice after the date hereof and in accordance with this Agreement, in
each case free and clear of any Lien other than Permitted Liens.
(b) Sufficiency of Assets, Etc. The Assets constitute all of the assets,
properties and rights reasonably required for the conduct of the Business as
currently conducted and as conducted as of the Closing Date. The plants,
buildings, structures and material equipment included in the Assets are in
working order, condition and repair, subject only
17
to ordinary wear and tear, and are reasonably adequate and suitable for the
purposes for which they are presently being used or held for use. To the
Knowledge of the Sellers, and subject to the Buyer obtaining all necessary
permits, there are no facts or conditions affecting any material Assets which
would reasonably be expected, individually or in the aggregate, to interfere
with the current use, occupancy or operation of such Assets or with the use,
occupancy or operation of such Assets by the Buyer following the Closing.
(c) Owned Real Property. Section 2.9(c) of the Sellers' Disclosure Letter
lists all real property owned by the Company (which real property, together with
all improvements and fixtures presently or hereafter located thereon or attached
or appurtenant thereto or owned by the Company and located on Leased Real
Property, and all easements, licenses, rights and appurtenances relating to the
foregoing, the "Owned Real Property"), including the address and legal
description of each parcel of Owned Real Property, and describes all
improvements thereon.
(d) Leased Real Property. Section 2.9(d) of the Sellers' Disclosure Letter
lists all of the real property leased by the Company (the "Leases", and all
interests leased pursuant to the Leases, the "Leased Real Property") and sets
forth the address, landlord and tenant for each Lease. The Sellers have
delivered to the Buyer complete copies of each Lease. Except as set forth in
Section 2.9(d) of the Sellers' Disclosure Letter, the Company is not a sublessor
or grantor under any sublease or other instrument granting to another Person any
right to the possession, lease, occupancy or enjoyment of the Leased Real
Property.
(e) Current Use. The use and operation of the Owned Real Property and the
Leased Real Property in the conduct of the Business do not violate in any
material respect any applicable Laws, covenant, condition, restriction,
easement, license, permit or agreement or order of any Governmental Authority.
No material improvements constituting a part of the Owned Real Property or the
Leased Real Property encroach on real property not owned or leased by the
Company to the extent that removal of such encroachment would materially impair
the manner and extent of the current use, occupancy and operation of such
improvements.
(f) Customer-Furnished Property. Section 2.9(f) of the Sellers' Disclosure
Letter contains a complete and correct list of all tangible and intangible
personal property and assets provided to the Company by a customer
("Customer-Furnished Property"). The Company is currently in possession of all
of its Customer-Furnished Property, except such Customer-Furnished Property that
has been returned to the customer or that is in the possession of a qualified
subcontractor. The Company has the right to use all of its Customer-Furnished
Property, and the Customer-Furnished Property held by the Company constitutes
all customer-furnished tangible and intangible personal property and assets
necessary for the operation of the Business. All material tangible
Customer-Furnished Property held by the Company is in working order, condition
and repair (reasonable wear and tear excepted) and suitable for the conduct of
the Business and, to
18
the Knowledge of the Sellers, no material expenditures are presently required to
maintain such condition and state or repair or replace such Customer-Furnished
Property. The Company will continue to have the right to use all
Customer-Furnished Property set forth in Section 2.9(f) of the Sellers'
Disclosure Letter immediately following the Closing, subject to the customer's
right to revoke or terminate the Company's right to use such Customer-Furnished
Property at any time.
Section 2.10 Intellectual Property.
(a) Owned Intellectual Property. Section 2.10(a) of the Sellers' Disclosure
Letter lists all Intellectual Property owned by the Company (the "Owned
Intellectual Property") that is registered or subject to an application for
registration or that is otherwise material to the Business, other than Trade
Secrets. The Company is the exclusive owner of the Owned Intellectual Property
set forth in Section 2.10(a) of the Sellers' Disclosure Letter and the absolute
(but not necessarily exclusive) owner of the Trade Secrets owned by the Company,
free and clear of any Liens other than Permitted Liens. The Owned Intellectual
Property, together with the Intellectual Property used pursuant to the
agreements set forth in Section 2.10(b) of the Sellers' Disclosure Letter,
constitute all of the material Intellectual Property used or held for use in
connection with the Business and required for the conduct of the Business.
(b) Licenses and Other Agreements. Section 2.10(b) of the Sellers'
Disclosure Letter sets forth all agreements to which the Company is a party or
by which it is otherwise bound that relate to Intellectual Property (except for
any license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs licensed under shrink-wrap licenses under
which the Company is the licensee), including: (i) licenses of Intellectual
Property to the Company by any other Person; (ii) licenses of Intellectual
Property to any other Person by the Company; (iii) agreements otherwise granting
or restricting the right to use Intellectual Property; and (iv) agreements
transferring, assigning, indemnifying with respect to or otherwise relating to
Intellectual Property used or held for use in the Business, in each case to the
extent material to the Business (collectively, the "IP Contracts"). There are no
outstanding and, to the Knowledge of the Sellers, no threatened disputes with
respect to any such agreement. The Company has complied in all material respects
with all license agreements relating to each material Software program used by
the Company in connection with the Business, and the Company has obtained the
appropriate number of licenses for all computers and workstations on which such
Software is loaded or used. Except for commonly available Software licensed in
the Ordinary Course of Business, there are no royalties, honoraria, fees or
other fixed or contingent amounts or payments payable by the Company to any
Person with respect to any Intellectual Property used by the Company in
connection with the Business.
(c) Trade Secrets. To the Knowledge of the Sellers, the Trade Secrets are
not part of the public knowledge or literature, have not been used, divulged or
appropriated
19
either for the benefit of any Person other than the Company or to the detriment
of the Company, and no Trade Secret owned by the Company is subject to any
adverse claim or has been challenged or, to the Knowledge of the Sellers,
threatened to be challenged. With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate, and sufficient
in detail and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any individual.
(d) Web Sites. Section 2.10(d) of the Sellers' Disclosure Letter contains a
complete and accurate list of all of the Company's Web Sites. The Company is the
owner or registrant of all its Web Sites, and, to the Knowledge of the Sellers,
no action or proceeding has been commenced or threatened with respect to any of
the Company's Web Sites. The Company does not collect any private data or
conduct any commerce through its Web Sites.
(e) No Infringement. The conduct of the Business does not infringe or
otherwise conflict with the rights of any Person in respect of any Intellectual
Property. Except as set forth in Section 2.10(e) of the Sellers' Disclosure
Letter, no third party has asserted in writing or, to the Knowledge of the
Sellers, orally any claim that any of the Intellectual Property used or held for
use in the Business infringes on the rights of such third party or any claim for
compensation for use by the Company of any Intellectual Property. Except as set
forth in Section 2.10(e) of the Sellers' Disclosure Letter, to the Knowledge of
the Sellers, none of the Intellectual Property used or held for use in the
Business is being infringed or otherwise used or being made available for use by
any Person without a license or permission from the Company.
(f) Protection of Intellectual Property. The Company has taken all actions
reasonably necessary to ensure full protection of the Owned Intellectual
Property under any applicable Law (including making and maintaining in full
force and effect all necessary filings, registrations and issuances). The
Company has taken all actions reasonably necessary to maintain the secrecy of
all confidential Intellectual Property used or held for use in the Business
(including requiring the execution of valid and enforceable agreements by
employees or any other Person to whom such confidential Intellectual Property is
made available). To the Knowledge of the Sellers, the Company has not used or
enforced any Owned Intellectual Property in a manner that would reasonably be
expected to result in the cancellation or unenforceability of such Owned
Intellectual Property.
(g) Contracts with Employees. Except as set forth in Section 2.10(g) of the
Sellers' Disclosure Letter, the Owned Intellectual Property was created and
developed by current or former employees of the Company. Section 2.10(g) of the
Sellers' Disclosure Letter contains a complete and accurate list of all former
and current employees of the Company who have entered into any contracts,
agreements or arrangements with the Company that assign to the Company any
rights, title or interest to or in any inventions,
20
improvements, discoveries, or information relating to the Business, and true and
complete copies of all such contracts, agreements or arrangements have been
provided to the Buyer. No employee of the Company has entered into any contract,
agreement or arrangement that restricts or limits in any way the scope or type
of work in which such employee may be engaged or that requires such employee to
transfer, assign, or disclose information concerning his or her work to anyone
other than the Company.
Section 2.11 Litigation.
(a) Except as set forth in Section 2.11(a) of the Sellers' Disclosure
Letter, (i) there is no Litigation pending before any Governmental Authority or,
to the Knowledge of the Sellers, threatened (A) against or affecting the
Company, the Business or any assets owned by the Company or used or held for use
in the Business, or (B) challenging, or that could reasonably be expected to
have the effect of preventing, substantially delaying, making illegal or
otherwise substantially interfering with any of the transactions contemplated by
this Agreement or any of the Ancillary Agreements, and (ii) to the Knowledge of
the Sellers, no event has occurred or circumstance exists that could reasonably
be expected to give rise to or serve as a basis for the commencement of any
Litigation before any Governmental Authority. The Sellers have delivered to the
Buyer true and complete copies of, or have provided the Buyer with access to,
all pleadings, correspondence and other documents relating to each Litigation
listed in Section 2.11(a) of the Sellers' Disclosure Letter.
(b) Except as set forth in Section 2.11(b) of the Sellers' Disclosure
Letter, (i) the Company is not a party or subject to any settlement agreements
or similar written agreements with any Governmental Authority affecting or
relating to the Business, (ii) there are no outstanding Orders against the
Company and (iii) no shareholder, director, officer or employee of the Company,
nor, to the Knowledge of the Sellers, any agent of the Company is subject to any
Order that prohibits such shareholder, director, officer, employee or agent from
engaging in or continuing any conduct, activity, or practice relating to the
Business.
(c) Except as set forth in Section 2.11(c) of the Sellers' Disclosure
Letter, (i) the Company is, and at all times has been, in full compliance with
all of the terms and requirements of each Order to which it, or any of the
assets, properties or rights owned or used by it, is or has been subject, (ii)
no event has occurred or circumstance exists that could reasonably be expected
to constitute or result in (with or without notice or lapse of time) a violation
of or failure to comply with any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is subject, and
(iii) the Company has not received at any time any written notice or other
communication or, to the Knowledge of the Sellers, any oral notice or other
communication from any Governmental Authority or any other Person regarding any
actual, alleged, possible, or potential violation of, or failure to comply with,
any term or requirement of any Order to
21
which the Company, or any of the assets owned or used by the Company, is or has
been subject.
Section 2.12 Compliance with Laws. Except as set forth in Section 2.12 of
the Sellers' Disclosure Letter:
(a) the Company is, and at all times has been, in compliance in all
material respects with all applicable laws, statutes, ordinances, rules,
regulations, administrative orders, decrees, directives or treaties
(collectively, "Laws");
(b) no event has occurred or circumstance exists that (with or without
notice or lapse of time) could reasonably be expected to constitute or
result in a material violation by the Company of, or a failure on the part
of the Company to comply with, any applicable Law; and
(c) the Company is not under investigation with respect to, to the
Knowledge of the Sellers, has not been threatened to be charged with, and
has not received any notice or other communication (whether written or
oral) from any Governmental Authority or any other Person regarding, (i)
any actual, alleged, possible or potential material violation of any
applicable Law or (ii) any actual or alleged obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any
corrective action of any nature and the Company is not subject to any
material liability or obligation with respect to any such corrective
action.
Section 2.13 Governmental Authorizations.
(a) Section 2.13(a) of the Sellers' Disclosure Letter sets forth each
Governmental Authorization held by the Company, together with the name of the
Governmental Authority issuing such Governmental Authorization. Each
Governmental Authorization listed or required to be listed in Section 2.13(a) of
the Sellers' Disclosure Letter is valid and in full force and effect. Except as
set forth in Section 2.13(a) of the Sellers' Disclosure Letter:
(i) the Company is, and at all times has been, in compliance in all
material respects with all of the terms and requirements of each
Governmental Authorization;
(ii) no event has occurred or condition or circumstance exists that
(with or without notice or lapse of time or both) would (A) constitute or
result directly or indirectly in a violation of or a failure to comply with
any term or requirement of any Governmental Authorization or (B) result in
the revocation, withdrawal, suspension, cancellation, termination or other
material impairment of any Governmental Authorization;
22
(iii) the Company has not received at any time any written or, to the
Knowledge of the Sellers, oral notice or other communication from any
Governmental Authority or any other Person regarding (A) any actual,
alleged or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization or (B) any actual, proposed
or potential revocation, withdrawal, suspension, cancellation, termination
of, or modification to any Governmental Authorization;
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations have been duly filed on a timely basis with
the appropriate Governmental Authorities, and all other filings required to
have been made with respect to such Governmental Authorizations have been
duly made on a timely basis with the appropriate Governmental Authorities;
and
(v) none of the Governmental Authorizations will be terminated or
impaired or become terminable, in whole or in part, as a result of the
transactions contemplated by this Agreement or any of the Ancillary
Agreements.
(b) The Governmental Authorization listed in Section 2.13(a) of the
Sellers' Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct the Business
as currently conducted and as conducted as of the Closing Date and to permit the
Company to own and use its assets as currently used and as used as of the
Closing Date.
Section 2.14 Environmental Matters.
(a) Except as set forth in Section 2.14(a) of the Sellers' Disclosure
Letter:
(i) the Company has complied and is in material compliance with all
applicable Environmental Laws and has obtained and is in full compliance
with all applicable Environmental Permits;
(ii) no notice of violation, notification of liability or request for
information has been received by the Company, and no Litigation is pending
or, to the Knowledge of the Sellers, threatened by any Person involving the
Company relating to or arising out of any Environmental Law;
(iii) the Company is not subject to any judgment, decree or judicial
order, nor has the Company entered into or agreed to any consent decree or
order, relating to compliance with Environmental Laws, Environmental
Permits or the investigation, sampling, monitoring, treatment, remediation,
removal or cleanup of Hazardous Substances and, to the Knowledge of the
Sellers, no action or proceeding is pending or threatened with respect
thereto;
23
(iv) no penalty or fine involving the Company has been assessed
relating to or arising out of any Environmental Law or relating to
compliance with any Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous
Substances;
(v) the Company is not an indemnitor in connection with any threatened
or asserted claim by any third-party indemnitee for any liability under any
Environmental Law or relating to any Hazardous Substances;
(vi) no Hazardous Substances are located, and, to the Knowledge of the
Sellers, no Releases of Hazardous Substances have occurred at, on, above,
under or from any properties currently or formerly owned, leased, operated
or used by the Company that has resulted in or, to the Knowledge of the
Sellers, would reasonably be expected to result in any material cost,
liability or obligation of the Company under any Environmental Law;
(vii) neither the Company nor, to the Knowledge of the Sellers, any
other Person, has caused or taken any action that would reasonably be
expected to result in any material liability or obligation to the Company
relating to (A) the environmental conditions at, on, above, under, or about
any properties or assets currently or formerly owned, leased, operated or
used by the Company or any predecessors in interest, or (B) the past or
present use, management, handling, transport, treatment, generation,
storage, disposal, Release or threatened Release of Hazardous Substances.
(b) Section 2.14(b) of the Sellers' Disclosure Letter contains a list of
all environmental site assessments, audits, investigations and studies in the
possession, custody or control of the Sellers or the Company, relating to
properties or assets currently or formerly owned, leased, operated or used by
the Company.
Section 2.15 Employees.
(a) Section 2.15(a) of the Sellers' Disclosure Letter contains a complete
and accurate list of each employee of the Company (including each employee on
leave of absence or in layoff status), including the following information for
each employee: name and job title. The Sellers have made available to the Buyer
the following information for each employee: security clearance, if any; current
compensation paid or payable; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the Company's Benefit
Plans.
(b) Except as set forth in Section 2.15(b) of the Sellers' Disclosure
Letter, no director, officer or employee of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
non-competition or proprietary rights agreement, between such director, officer
or employee and any other Person that
24
would reasonably be expected to adversely affect, whether prior to or after the
Closing, his or her ability (i) to perform his or her duties as a director,
officer or employee of the Company or (ii) to engage in or continue to engage in
any conduct, activity or practice relating to the Business or (iii) to assign to
the Company or any other Person any rights to any invention, improvement or
discovery. To the Knowledge of Sellers, no director, officer or Significant
Employee of the Company intends to terminate his or her employment with the
Company.
(c) Except as set forth in Section 2.15(c) of the Sellers' Disclosure
Letter, all former and current employees of the Company have executed written
confidentiality agreements with the Company. Except as set forth in Section
2.15(c) of the Sellers' Disclosure Letter, each such confidentiality agreement
is in full force and effect and is valid and enforceable in accordance with its
terms. The form or forms of such confidentiality agreements have been provided
to the Buyer.
(d) The Company and each director, officer and employee of the Company have
the security clearances required for the Company to conduct the Business, and no
fact or circumstance has arisen that might adversely affect the security
clearances of the Company or, to the Knowledge of the Sellers, any director,
officer or employee of the Company, since the date of the Company's last Defense
Security Service audit.
(e) Except as set forth in Section 2.15(e) of the Sellers' Disclosure
Letter and subject to any applicable requirements under the Worker Adjustment
and Retraining Notification Act (29 USCS Sections 2101 et seq.) or similar state
laws, all employees of the Company are employed by the Company on an "at will"
basis and may be terminated at any time without notice or payment of
consideration or penalty by the Company.
Section 2.16 Labor Matters; Compliance.
(a) The Company is not a party to or bound by any collective bargaining
agreements, and there are no labor unions or other organizations or groups
representing, purporting to represent or attempting to represent any employees
employed by the Company. Since January 1, 2001, there has not occurred or, to
the Knowledge of the Sellers, been threatened any strike, slowdown, picketing,
work stoppage, concerted refusal to work overtime or other similar labor
activity with respect to any employees of the Company. Except as set forth on
Section 2.16(a) of the Sellers' Disclosure Letter, there has not been, there is
not presently pending or existing and, to the Knowledge of the Sellers, there is
not threatened any (i) labor dispute currently subject to any grievance
procedure, arbitration or litigation or, with respect to any employee of the
Company; (ii) proceeding against the Company relating to the alleged violation
of any applicable Law pertaining to labor relations or employment matters,
including any charge or complaint filed by any employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission or
any comparable Governmental Authority, (iii) organizational activity or other
labor or employment dispute against or affecting the
25
Company or its premises or (iv) application for certification of a collective
bargaining agent. There is no lockout of any employees by the Company, and no
such action is contemplated by the Company. No event has occurred or
circumstance exists that could reasonably be expected to provide the basis for
any work stoppage or other labor dispute.
(b) The Company has complied in all material respects with all applicable
Laws relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar Taxes, occupational safety and health, and plant
closing. The Company is not liable for the payment of any compensation, damages,
Taxes, fines, penalties, or other amounts, however designated, for failure to
comply with any applicable Law relating to employment.
Section 2.17 Employee Benefit Plans and Related Matters; ERISA.
(a) Disclosure. Section 2.17(a) of the Sellers' Disclosure Letter sets
forth a true and complete list of the Company Benefit Plans (including a
description of any oral Company Benefit Plans). With respect to each such
Company Benefit Plan, the Sellers have provided or made available to the Buyer,
to the extent applicable, (i) all plan documents, trust agreements, insurance
contracts or other funding arrangements, (ii) the two most recent Forms 5500
with all attachments required to have been filed with the IRS or the Department
of Labor or any similar reports filed with any comparable governmental authority
in any non-U.S. jurisdiction having jurisdiction over any Company Benefit Plan,
and all schedules thereto, (iii) the most recent IRS determination letter for
ESOP and the Company's prototype 401(k) plan, (iv) all current summary plan
descriptions, (v) all material communications received from or sent to the IRS,
the Pension Benefit Guaranty Corporation, the Department of Labor or any other
Governmental Authority (including a written description of any oral
communication), (vi) any actuarial study of any pension, disability,
post-employment life or medical benefits provided under any such Company Benefit
Plan, (vii) all current employee handbooks and manuals, (viii) statements or
other communications regarding withdrawal or other multiemployer plan
liabilities (or similar liabilities pertaining to any non-U.S. employee benefit
plan sponsored by the Company, if any), and (ix) all amendments and
modifications to any such Company Benefit Plan or related document. The Company
has not communicated to any current or former employee thereof any intention or
commitment to amend or modify any Company Benefit Plan or to establish or
implement any other employee or retiree benefit or compensation plan or
arrangement.
(b) Qualification. Except as set forth in Section 2.17(b) of the Sellers'
Disclosure Letter, when applicable, each Company Benefit Plan intended to be
qualified under section 401(a) of the Code, and the trust (if any) forming a
part thereof, is so qualified in form and as administered. The ESOP and has
received a favorable determination letter from the IRS, and the IRS has issued a
favorable determination letter approving the form of the Company's prototype
401(k) plan, and no event has occurred since the respective
26
dates of such determination letters that could adversely affect the qualified
status of the ESOP or the 401(k) plan. All amendments and actions required to
bring each Company Benefit Plan into conformity with the applicable provisions
of ERISA, the Code, and other applicable Law have been made or taken, except to
the extent such amendments or actions are not required by law to be made or
taken until after the Closing Date. Except as set forth in Section 2.17(b) of
the Sellers' Disclosure Letter, each Company Benefit Plan has been operated in
all material respects in accordance with applicable Law, and no non-exempt
prohibited transaction has occurred with respect to any such plan.
(c) ESOP. The ESOP qualifies as an "employee stock ownership plan" within
the meaning of section 4975(e)(7) of the Code.
(d) Liability; Compliance.
(i) Neither the Company nor any Company Related Person has been
involved in any transaction that could cause the Company or, following the
Closing Date, the Buyer or any of their respective Affiliates to be subject
to liability under section 4069 or 4212 of ERISA. Neither the Company nor
any Company Related Person has incurred (either directly or indirectly,
including as a result of an indemnification obligation) any liability under
or pursuant to Title I or IV of ERISA or the penalty, excise Tax or joint
and several liability provisions of the Code relating to employee benefit
plans, and no event, transaction or condition has occurred or exists that
could result in any such liability to the Company, any Company Related
Person or, following the Closing Date, the Buyer or any of its Affiliates.
Except as set forth in Section 2.17(d)(i) of the Sellers' Disclosure
Letter, all contributions and premiums required to have been paid by the
Company or any Company Related Person to any Company Benefit Plan under the
terms of any such plan or its related trust, insurance contract or other
funding arrangement, or pursuant to any applicable Law (including ERISA and
the Code) or collective bargaining agreement have been paid within the time
prescribed by any such plan, agreement or applicable Law. For purposes of
this section, the term "Company Related Person" means the Company and any
person or entity that would be or, over the past six years, would have been
treated as a single employer with the Company for purposes of Section
414(b), (c), (m) or (o) of the Code.
(ii) There are no pending or, to the Knowledge of the Sellers,
threatened claims by or on behalf of any participant in any of the Company
Benefit Plans, or otherwise involving any such Company Benefit Plan or the
assets of any Company Benefit Plan that individually or in the aggregate
would not reasonably be expected to be materially adverse to the Company.
Except as set forth in Section 2.17(d)(ii) of the Sellers' Disclosure
Letter, the Company Benefit Plans are not presently under audit or
examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other
27
Governmental Authority, domestic or foreign, and no matters are pending
with respect to a Company Benefit Plan under the IRS's Voluntary Compliance
Resolution program, its Closing Agreement Program, or other similar
programs.
(iii) No Company Benefit Plan is a defined benefit plan (as defined in
section 3(35) of ERISA), a multiemployer plan (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" within the meaning of
section 4063 or 4064 of ERISA. The Company does not have any withdrawal
liability in respect of any such plan.
(iv) The Company does not have any liability in respect of any
post-retirement health, medical or life insurance benefits for retired,
former or current employees of the Company, except as required to avoid
excise tax under section 4980B of the Code.
(e) Section 280G. The execution, delivery, and performance of this
Agreement or any of the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby will not (alone or in combination
with any other event) result in an increase in the amount of compensation or
benefits or the acceleration of the vesting or timing of payment of any
compensation or benefits payable to or in respect of any current or former
employee, officer, director or independent contractor of the Company or any
increased or accelerated funding obligation with respect to any Company Benefit
Plan. No payment or deemed payment by the Company will arise or be made as a
result (alone or in combination with any other event) of the execution, delivery
and performance of this Agreement or any of the Ancillary Agreements, or the
consummation of the transactions contemplated hereby or thereby, that would not
be deductible pursuant to section 4999 of the Code.
Section 2.18 Tax Matters. Except as set forth on Section 2.18 of the
Sellers' Disclosure Letter:
(a) Filing and Payment. All Tax Returns required to be filed with
respect to the Company have been duly and timely filed and are complete and
correct in all material respects. Section 2.18(a) of the Sellers'
Disclosure Letter lists all of the states, territories and jurisdictions in
which such income, franchise, sales or use Tax Return with respect to the
Company were filed for the calendar years beginning after December 31,
2000, and complete copies of all such Tax Returns have been made available
to the Buyer. All Taxes (whether or not reflected on such Tax Returns)
required to be paid with respect to, or that could give rise to a Lien on
the Assets of, the Company have been duly and timely paid. All Taxes
required to be withheld by the Company have been duly and timely withheld,
and such withheld Taxes have been either duly and timely paid to the proper
Governmental Authority or properly set aside in accounts for such purpose.
28
(b) Financial Records. All accounting entries (including but not
limited to, charges and accruals) for current Taxes with respect to the
Company reflected on the books of the Company are adequate to cover any
current Tax liabilities accruing through the end of the last period for
which the Company ordinarily records items on its books. Since the end of
the last period for which the Company ordinarily records items on its
books, the Company has not engaged in any transaction, or taken any other
action, other than in the Ordinary Course of Business, that would
reasonably be expected to result in a materially increased current Tax
liability. All accounting entries for deferred Tax liabilities with respect
to the Company accurately reflect the differences between the treatment of
items for accounting and income Tax purposes. All necessary valuations
allowances have been properly recorded. Since December 31, 2005, the
Company has not engaged in any transaction, or taken any other action,
other than in the Ordinary Course of Business, that would reasonably be
expected to result in a materially increased deferred Tax liability or a
materially decreased deferred Tax asset.
(c) Procedure and Compliance. No written agreement or other document
waiving or extending or, to the Knowledge of the Sellers, having the effect
of waiving or extending, the statute of limitations or the period of
assessment or collection of any Taxes with respect to the Company, and no
written power of attorney with respect to any such Taxes has been filed or
entered into with any Governmental Authority (except for the power of
attorney filed in connection with the ESOP's determination letter
application with the IRS). The time for filing any Tax Return with respect
to the Company has not been extended to a date later than the date of this
Agreement. No Taxes with respect to the Company are currently under audit,
examination or investigation by any Governmental Authority. No Governmental
Authority has asserted or, to the Knowledge of the Sellers, threatened to
assert any deficiency, claim or issue with respect to Taxes or any
adjustment to Taxes against the Company with respect to any taxable period
for which the period of assessment or collection remains open. No
adjustment that would materially increase any current or deferred Tax
liability or materially reduce any Tax asset of the Company has been made
or, to the Knowledge of the Sellers, proposed or threatened by any
Governmental Authority during any audit of any taxable period which would
reasonably be expected to be made, proposed or threatened in an audit of
any subsequent taxable period. No material elections for Tax purposes
(including any entity classification elections) have been made with respect
to the Company that are currently in force or by which the Company is
bound. The Company has never been an "S corporation" within the meaning of
section 1361 of the Code.
(d) Tax Sharing, Consolidation and Similar Arrangements. The Company
(i) has not received or applied for a Tax ruling or entered into a closing
29
agreement pursuant to Section 7121 of the Code (or any predecessor
provision or any similar provision of state or local law), in either case
that would be binding upon the Company after the Closing Date, (ii) is or
has been a member of any affiliated, consolidated, combined or unitary
group for purposes of filing Tax Returns or paying Taxes or (iii) has any
liability for the Taxes of any person (whether under Treasury Regulation
Section 1.1502-6 or any similar provision of state, local or foreign law,
as a transferee or successor, pursuant to any tax sharing or indemnity
agreement or other contractual agreements, or otherwise).
(e) Certain Transactions. Except as set forth in Section 2.18(e) of
the Sellers' Disclosure Letter, the Company will not be required to include
any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing
Date, as a result of (i) any change in method of accounting for a taxable
period ending on or prior to the Closing Date under Section 481 of the Code
(or any corresponding provision of state, local or foreign income Tax law);
(ii) installment sale or open transaction disposition made on or prior to
the Closing Date; or (iii) prepaid amount received on or prior to the
Closing Date. The Company has not participated in a listed transaction
within the meaning of Treasury Regulations Section 1.6011-4 or any
predecessor provision or any similar provision of state or local law. The
Company does not have any industrial revenue bonds or similar financing
outstanding.
Section 2.19 Insurance.
(a) Section 2.19(a) of the Sellers' Disclosure Letter lists, and the
Sellers have furnished to the Buyer, true and complete copies of, (i) all
insurance policies (including fidelity bonds and other similar instruments) to
which the Company is a party or that relate to the assets of the Company, the
Business or the employees, officers or directors of the Company, (ii) all
pending applications for such policies of insurance and (iii) any statement by
the Company's auditors with respect to the sufficiency of coverage or adequacy
of reserves for claims.
(b) Except as set forth in Section 2.19(b) of the Sellers' Disclosure
Letter:
(i) there is no claim by or with respect to the Company pending under
any of such policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or in respect of which such
underwriters have reserved their rights;
(ii) all premiums payable under such policies have been timely paid,
and the Sellers and the Company have otherwise complied in all material
respects with the terms and conditions of such policies;
30
(iii) such policies (or other policies providing substantially similar
insurance coverage) (A) have been in effect continuously since January 1 of
the third calendar year preceding the Balance Sheet Date and remain in full
force and effect, (B) are sufficient for compliance with all requirements
of applicable Laws and contracts, agreements and arrangements to which the
Company is a party or by which it is bound, (C) do not provide for any
retroactive premium adjustments or other chargebacks for which the Company
could be liable and (D) will continue in full force and effect immediately
following the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements;
(iv) to the Knowledge of the Sellers, such policies are of the type
and in amounts customarily carried by Persons conducting businesses similar
to those of the Company; and
(v) the Sellers have no Knowledge of any threatened termination of,
premium increase with respect to, or alteration of coverage under, any of
such policies.
(c) Section 2.19(c) of the Sellers' Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder; and
(ii) all obligations of the Company to third parties with respect to
insurance (including such obligations under leases and service agreements)
and identifies the policy under which such coverage is provided.
Section 2.20 Accounts Receivable. All accounts receivable of the Company
that are reflected on the Balance Sheet or on the Closing Balance Sheet
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date valid, genuine,
current and fully collectible in the aggregate amount thereof, without any
set-off, within 180 days after the day on which it first becomes due and
payable, subject to normal and customary trade discounts, net of any reserves
for doubtful account reflected on the Balance Sheet or on the Closing Balance
Sheet (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the Accounts Receivable as of the Closing Date than the
reserves reflected in the Balance Sheet represent of the Accounts Receivable
reflected therein, and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging). There is no contest,
claim or right of set-off, other than returns in the Ordinary Course of
Business, under any agreement or arrangement with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
Section 2.20 of the Sellers' Disclosure
31
Letter contains a complete and accurate list of all Accounts Receivable as of
March 31, 2006, including the aging of such Accounts Receivable.
Section 2.21 Inventory. All inventory of the Company, whether or not
reflected on the Balance Sheet, consists of a quality and quantity usable and
salable in the Ordinary Course of Business, except for obsolete items and items
of below-standard quality or as otherwise characterized pursuant to the
Inventory Count, all of which have been written off or written down to net
realizable value on the Balance Sheet or the Closing Balance Sheet, as the case
may be. All inventories not written off have been priced at the lower of cost or
market value, on a first in, first out basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are
consistent with past practices of the Company and reasonable in the present
circumstances of the Company.
Section 2.22 Customer and Supplier Relationships.
(a) The Sellers have disclosed to the Buyer (or, with respect to classified
information, to the Buyer's personnel with appropriate security clearances) all
of (i) the names and addresses of each customer that ordered products or
services from the Company with an aggregate purchase price that accounted for 3%
or more of the total revenues of the Company in each of the last two (2) fiscal
years of the Company and in the last fiscal period included in the Financial
Statements and (ii) the total amount of revenues derived from each such customer
during each such fiscal period.
(b) The Sellers have disclosed to the Buyer (i) the names and addresses of
each of the ten suppliers from which the Company ordered the most raw materials,
supplies or other products or services during each of the last two (2) fiscal
years of the Company and (ii) the amount of purchases made by the Company from
each such supplier during each such fiscal period.
(c) Since the Balance Sheet Date, the Company has not suffered any loss of
good will or an adverse change in the relationship with any suppliers,
customers, creditors, agents or others having business relationships with the
Company, in each case, that materially and adversely affects the business
operations or prospects of the Company. Except as set forth in Section 2.22(c)
of the Sellers' Disclosure Letter, the Company has not been involved in any
material controversy with any of its customers or suppliers. The Company has not
been advised by any of its customers or suppliers that such customer or supplier
was or is intending to terminate its relationship with the Company or would not
continue to purchase supplies or services for future periods on account of any
dissatisfaction with the Company's performance or due to the transactions
contemplated hereby.
(d) All business placed by all employees or other agents of the Company in
such capacity as employees or other agents of the Company has been placed in the
name of the
32
Company, and all fees and compensation on such business have been paid to and
are the property of the Company.
Section 2.23 Brokers or Finders. Other than Xxxxxxx Ball & Xxxxxx, whose
fees and expenses will be paid by the Company, no investment banker, broker,
finder or other intermediary has been retained by or is authorized to act on
behalf of the Company or any of the Sellers or is entitled to any fee or
commission from the Company or any of the Sellers in connection with the
transactions contemplated by this Agreement.
Section 2.24 Relationships with Related Persons.
(a) Section 2.24(a) of the Sellers' Disclosure Letter lists all agreements,
arrangements and other commitments or transactions to or by which the Company,
on the one hand, and any of the Sellers or any of their respective Related
Persons (other than the Company), on the other hand, are or have been a party or
otherwise bound or affected and that (i) were entered into since January 1,
2003, (ii) are currently pending or in effect or (iii) involve continuing
liabilities or obligations that, individually or in the aggregate, have been or
will be material to the Company (each, an "Related Party Transaction"). Each
Related Party Transaction was on terms and conditions as favorable to the
Company as would have been obtainable by it at the time in a comparable
arm's-length transaction with a Person other than the Seller or any of its
Related Person.
(b) No stockholder, officer, director or employee of the Company, or any
Related Person of any such stockholder, officer, director or employee, (i) owns,
directly or indirectly, any interest in (A) any asset or other property used in
or held for use in the Business or (B) any Person that is a supplier, customer
or competitor of the Company, (ii) serves as an officer, director or employee of
any Person that is a supplier, customer or competitor of the Company or (iii) is
a debtor or creditor of the Company.
(c) For purposes of this Section 2.24, and without limitation, Related
Persons of any Seller shall be deemed to include, with respect to any Seller
that is an individual, (A) any Person directly or indirectly beneficially owning
or controlling 5% or more of the outstanding voting securities of such Seller or
any of its Related Persons, (B) any Person 5% or more of whose outstanding
voting securities are directly or indirectly beneficially owned or controlled by
such Seller or any of its Related Persons or (C) any current or former director,
officer or trustee of such Seller or any of such Seller's Related Persons or any
"associates" or members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the 0000 Xxx) of any such
director or officer.
Section 2.25 Certain Payments. Neither the Company nor any director,
officer or employee of the Company, nor to the Knowledge of the Sellers, any
agent of the Company or any other Person associated with or acting for or on
behalf of the Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback or other payment to any
Person, private or public, regardless of form,
33
whether in money, property or services, (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business obtained,
for or in respect of the Company, or (iii) in violation of any applicable Law,
or (b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
Section 2.26 Products.
(a) Warranties. The Sellers have delivered to the Buyer complete and
correct copies of the standard terms and conditions of sale, lease or license
for each of the products or services of the Company (containing applicable
guaranty, warranty and indemnity provisions). Except as required by law or as
set forth in Section 2.26(a) of the Sellers' Disclosure Letter, no product
manufactured, sold, leased, licensed or delivered by, or service rendered by or
on behalf of, the Company is subject to any guaranty, warranty or other
indemnity, express or implied, beyond such standard terms and conditions.
(b) Product Liability. The Company has no liability or obligation of any
nature (whether known or unknown, accrued, absolute, contingent or otherwise,
and whether due or to become due), whether based on strict liability,
negligence, breach of warranty (express or implied), breach of contract or
otherwise, in respect of any product, component or other item manufactured,
sold, designed or produced prior to the Closing by, or service rendered prior to
the Closing by or on behalf of, the Company or any predecessor thereto, that (i)
is not fully and adequately covered by policies of insurance or by indemnity,
contribution, cost sharing or similar agreements or arrangements by or with
other Persons, and (ii) is not otherwise fully and adequately reserved against
as reflected in the Balance Sheet and (iii) will not otherwise be fully and
adequately reserved against as reflected in the Closing Balance Sheet.
Section 2.27 Backlog. Section 2.27 of the Sellers' Disclosure Letter
accurately describes all order backlog of the Company as of the Balance Sheet
Date. The Company's order backlog has been accurately accounted for in the books
and records of the Company in accordance with the Company's past practices. The
orders comprising the backlog of the Company reflect bona fide transactions
entered into in the Ordinary Course of Business consistent with standard
industry practice.
Section 2.28 Bank Accounts. Section 2.28 of the Sellers' Disclosure Letter
sets forth a complete and correct list containing the names set forth of each
bank in which the Company has an account or safe deposit or lock box, the
account or box number, as the case may be, and the name of every person
authorized to draw thereon or having access thereto.
Section 2.29 Books and Records. The books of account, minute books, stock
record books and other records of the Company, all of which have been made
available to the Buyer, are complete and correct and have been maintained in all
material respects in
34
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the board of directors and committees of the board
of directors of the Company, and no such meeting of the stockholders, board of
directors or any committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of the
books and records of the Company will be in the possession of the Company.
Section 2.30 Disclosure. No representation or warranty made by the Sellers
in this Article II contains any untrue statement of a material fact or omits a
material fact necessary in order to make such representation or warranty not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers, as of the date hereof and
as of the Closing Date, as follows:
Section 3.1 Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
with full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it purports to own
or use, and to perform all its obligations under this Agreement and each of the
Ancillary Agreements.
Section 3.2 Authorization. The Buyer has full corporate power and authority
to execute and deliver this Agreement and each of the Ancillary Agreements, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and each of the Ancillary Agreements, the performance of its
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action of the Buyer. The Buyer has duly executed and delivered this
Agreement and on the Closing Date will have duly executed and delivered each of
the Ancillary Agreements. This Agreement constitutes, and each of the Ancillary
Agreements when so executed and delivered by the Buyer will constitute, the
legal, valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms.
Section 3.3 No Conflicts.
(a) Except as set forth in Section 3.3(a) of the Buyer Disclosure Letter,
the execution, delivery and performance of this Agreement and the Ancillary
Agreements by the Buyer, and the consummation of the transactions contemplated
hereby and thereby, require no action by or in respect of, or filing with, any
Governmental Authority other
35
than (i) compliance with any applicable requirements of the HSR Act; (ii)
compliance with any applicable requirements of the Laws of the jurisdictions set
forth in Section 3.3(a) of the Buyer Disclosure Letter; and (iii) any actions or
filings under any applicable Laws the absence of which would not, individually
or in the aggregate, impair the ability of the Buyer to consummate the
transactions contemplated hereby or thereby.
(b) Except as set forth in Section 3.3(b) of the Buyer Disclosure Letter,
the execution, delivery and performance by the Buyer of this Agreement and any
of the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby do not and will not (i) contravene, conflict
with, or result in any violation or breach of any provision of any of (A) the
Organizational Documents of the Buyer or (B) any resolution adopted by the board
of directors of the Buyer, (ii) assuming compliance with the matters referred to
in Section 3.3(a), contravene, conflict with or result in a violation or breach
of any provision of any applicable Law or give any Governmental Authority or
other Person the right to challenge any of the transactions contemplated by this
Agreement or any Ancillary Agreements; or (iii) require any consent or other
action by any Person under any provision of any material agreement or other
instrument to which Buyer is a party.
Section 3.4 Investment Intent. The Shares to be acquired by the Buyer under
the terms of this Agreement will be acquired by the Buyer for investment for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the 1933 Act.
Section 3.5 Brokers or Finders. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of the
Buyer or is entitled to any fee or commission from the Buyer in connection with
the transactions contemplated by this Agreement.
Section 3.6 No Litigation. There is no Litigation pending before any
Governmental Authority or, to the Knowledge of the Buyer, threatened, against
the Buyer that (i) could reasonably be expected to have the effect of
preventing, substantially delaying, making illegal or otherwise substantially
interfering with the transactions contemplated by this Agreement or any of the
Ancillary Agreements, or (ii) individually or in the aggregate, would reasonably
be expected to be materially adverse to the Buyer.
Section 3.7 Payment of Purchase Price. To the Knowledge of the Buyer, there
are no circumstances that could reasonably be expected to have the effect of
preventing or delaying the Buyer's ability to make any payments of the Purchase
Price when due pursuant to this Agreement or any of the Ancillary Agreements.
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ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.1 Conduct of the Business. From the date hereof until the
Closing, the Sellers shall cause the Company to conduct the Business in the
Ordinary Course of Business, to use its commercially reasonable efforts to
preserve intact the Business, the assets of the Company and the relationships of
the Company with its customers, suppliers and others having business dealings
with it, and to keep available the services of its present officers and
significant employees. Without limiting the generality of the foregoing, from
the date hereof until the Closing, except as otherwise required by this
Agreement or as set forth on Section 4.1 of the Sellers' Disclosure Letter, the
Sellers shall cause the Company not to:
(a) issue, sell or grant options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of, any of the capital stock of the Company or other
Company Securities, or any rights or obligations convertible into or
exchangeable for any shares of capital stock of the Company or other
Company Securities, or make any changes (by combination, reorganization or
otherwise) in the capital structure of the Company;
(b) merge or consolidate with any other Person;
(c) enter into, assume or amend any Material Contract or any agreement
that would be a Material Contract, other than Material Contracts entered
into in the Ordinary Course of Business and providing for payments over the
term of such agreements of no more than $250,000 with respect to any single
agreement and $1,000,000 in the aggregate;
(d) incur any Indebtedness, other than trade accounts payable and
short-term working capital financing, in each case, incurred in the
Ordinary Course of Business;
(e) make any capital expenditures, or commitments for capital
expenditures in excess of $250,000 in the aggregate, except as contemplated
by the Company's 2006 capital expenditure budget;
(f) forgive, cancel or compromise any debt or claim, or waive or
release any right of material value;
(g) fail to pay or satisfy when due any material liability of the
Company (other than any such liability that is being contested in good
faith);
(h) settle or compromise any material Litigation;
37
(i) sell, transfer, lease, license or otherwise dispose of any assets,
properties or rights of the Company (except for inventory sold in the
Ordinary Course of Business), including, without limitation, the sale,
transfer, lease, license or other disposition of any Intellectual Property,
or any creation or other incurrence by the Company of any Lien (other than
Permitted Liens) on any material assets, properties or rights of the
Company;
(j) take any action or omit to take any action if, as a result of such
action or omission, any representation and warranty of the Sellers
contained herein would become inaccurate in any material respect at, or as
of any time prior to, the Closing; and
(k) change any Tax election, make any material Tax election to the
extent inconsistent with most recent practice, change any annual Tax
accounting period or method of Tax accounting (unless required by Law),
amend or file any amended Tax Returns or claims for Tax refunds, enter into
any closing agreement, settle any Tax claim, audit or assessment, or
surrender any right to claim a Tax refund, offset or other reduction in Tax
liability;
(l) take any action or omit to take any action that would have made
untrue any of the representations and warranties of the Sellers set forth
in Section 2.7 if such action had been taken prior to the date hereof; or
(m) agree or commit to do any of the foregoing.
Section 4.2 Notice of Certain Events. From the date hereof until the
Closing, the Sellers (other than the ESOP) shall promptly notify the Buyer in
writing of: (a) any circumstance, event or action the existence, occurrence or
taking of which (i) has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (ii) has resulted
in or would reasonably be expected to result in any representation or warranty
made by the Sellers in this Agreement or any of the Ancillary Agreements not
being true and correct or (iii) could reasonably be expected to result in the
failure of any of the conditions set forth in Article VI to be satisfied; (b)
any notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the transactions
contemplated by this Agreement or any of the Ancillary Agreements; (c) any
notice or other communication from any Governmental Authority in connection with
the transactions contemplated by this Agreement or any of the Ancillary
Agreements; and (d) any Litigation commenced or, to the Knowledge of the
Sellers, threatened against, relating to or involving or otherwise affecting any
of the Sellers or the Company that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 2.11 or that
relates to the consummation of the transactions contemplated by this Agreement
or any of the Ancillary Agreements. The Buyer's receipt of information pursuant
to this Section 4.2 or otherwise shall not operate as a waiver or otherwise
affect any
38
representation, warranty, indemnification, closing condition or agreement given
or made by the Sellers in this Agreement or any of the Ancillary Agreements.
From the date hereof until the Closing, the Buyer shall promptly notify the
Sellers in writing if it learns of any circumstance, event or action the
existence, occurrence or taking of which has resulted in or would reasonably be
expected to result in any representation or warranty made by the Sellers in this
Agreement or any of the Ancillary Agreements not being true and correct. Upon
receipt of such notice, the Sellers shall be given the opportunity to cure, at
their own expense, such inaccuracy or breach of representation and warranty
until the End Date.
Section 4.3 No Solicitation. From the date hereof until the Closing, the
Sellers shall not, and shall not authorize or permit the Company or any of its
officers, directors, employees, investment bankers, attorneys, accountants,
consultants or other agents or advisors to, directly or indirectly, (i) take any
action to solicit, initiate or encourage the submission of any Acquisition
Proposal, (ii) engage in any discussions or negotiations with, furnish any
nonpublic information relating to the Company or afford access to the
properties, assets, books or records of the Company to, otherwise cooperate in
any way with, or knowingly assist, participate in, facilitate or encourage any
effort by any third party that is seeking to make, or has made, an Acquisition
Proposal or a modification of a previously received Acquisition Proposal or
(iii) enter into any agreement with respect to an Acquisition Proposal.
Section 4.4 Access to Information; Confidentiality.
(a) From the date hereof until the Closing, the Sellers shall, and shall
cause the Company to, (i) give the Buyer, its counsel, financial advisors,
auditors and other authorized representatives reasonable access to the offices,
properties, books and records of the Company and to the books and records
relating to the Company, (ii) furnish to Buyer, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information relating to the Company as such Persons may reasonably
request and (iii) instruct the employees, counsel and financial advisors of the
Company to cooperate with the Buyer in its investigation of the Company;
provided, however, that in the case of a classified Government Contract or
Government Subcontract or any other classified documents or information, such
access shall be provided only to the Buyer's personnel or representatives with
appropriate security clearance. Any investigation pursuant to this Section
4.4(a) shall be conducted in such manner as not to interfere unreasonably with
the conduct of the Business. No investigation by the Buyer or other information
received by the Buyer shall operate as a waiver or otherwise affect any
representation, warranty or agreement given or made by the Sellers in this
Agreement or any of the Ancillary Agreements.
(b) Each Seller acknowledges and agrees that all Confidential Information
known or obtained by such Seller, whether before or after the date hereof, is
the property of the Company or the Buyer, as applicable. Each Seller agrees that
he or she will not, and will
39
cause his or her Related Persons, employees, accountants, counsel, consultants,
advisors and agents not to, at any time, disclose or cause to be disclosed to
any unauthorized Persons or use or cause to be used for such Seller's own
account or for the account of any of such Seller's Related Persons, or for the
benefit of any other Person (other than the Company), any Confidential
Information, whether such Seller has such information in such Seller's memory or
embodied in writing or other physical form or any computer readable format,
without the Buyer's written consent, unless and to the extent that the
information (i) is or becomes generally known to and available for use by the
public other than as a result of any Seller's fault or the fault of any other
Person bound by a duty of confidentiality to the Buyer or the Company, (ii)
becomes available to such Seller on a non-confidential basis, from a source
(other than the Company or any of its employees) that is entitled to disclose
such information without breach of confidentiality to the Company, or (iii) to
the extent that disclosure is compelled by judicial or administrative process or
by other requirements of Law (in which event the Sellers shall give the Buyer as
much notice of such disclosure as is practicable and permitted by law and shall
cooperate with the Buyer, at the Buyer's expense, to obtain appropriate
protective orders).
(c) Following the execution of this Agreement and prior to the Closing,
each Seller agrees to make available to the Buyer for review, at the Buyer's
request, any documents, memoranda, notes, plans, records, reports, summaries and
other documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form, relating to the businesses, operations, or
affairs of the Company and any other Confidential Information that such Seller
may then possess or have under such Seller's control. All such requests shall be
made by the Buyer to the Sellers with reasonable notice, and all reviews of such
information shall be conducted by the Buyer's personnel with appropriate
security clearances and in such a manner as not to interfere unreasonably with
the Sellers' duties. Except as set forth in Section 4.4 of the Sellers'
Disclosure Letter, on or prior to the Closing Date, the Sellers shall deliver to
the Company any documents or information memorialized in tangible or electronic
form described in the first sentence of this Section 4.4(c) that is used or held
for use in connection with and material to the Business.
Section 4.5 Non-Competition; Non-Solicitation.
(a) During the period commencing on the Closing Date and ending on the
fifth anniversary thereof (the "Non-Compete Period"), none of the Sellers will,
anywhere in the world, either directly or indirectly, whether as shareholder,
owner, member, partner, director, officer, employee, agent, consultant or
contractor, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control of,
be employed by, associated with, or in any manner connected with, lend such
Seller's name or any similar name to, lend such Seller's credit to, or render
services or advice to, any Person whose products, services or activities
40
compete with the products, services or activities that comprise any material
part of (i) the Business or (ii) the signal intelligence (SIGINT) and force
protection business of the Buyer; provided, however, that the foregoing shall
not prohibit any Seller from (A) purchasing or otherwise acquiring any
securities of the Buyer or up to (but not more than) 2% of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
1934 Act or (B) being employed by any Person whose products, services or
activities compete with the products, services or activities that comprise any
material part of the Business or any material part of the signal intelligence
(SIGINT) and force protection business of the Buyer, as long as such Seller does
not, directly or indirectly, (x) participate in the provision by such Person of
such competitive products, services or activities or (y) supervise or direct
others in the performance of such Person's competitive activities. Each Seller
agrees that the covenant set forth in this Section 4.5(a) is reasonable with
respect to its duration, geographical area, and scope.
(b) During the Non-Compete Period, none of the Sellers will, directly or
indirectly, whether on behalf of such Seller or any other Person, (i) induce or
attempt to induce any employee of the Company or the Buyer to leave the employ
of the Company or the Buyer, (ii) in any way interfere with the relationship
between the Company or the Buyer and any employee of the Company or the Buyer,
(iii) employ, or otherwise engage as an employee, independent contractor, or
otherwise, any individual who is an employee of Company on the date of this
Agreement or becomes an employee during the Non-Compete Period, whether or not
such employment or engagement is solicited by such Seller, within six months of
the termination of such individual's employment with the Company or the Buyer,
or (iv) induce or attempt to induce any customer, supplier, licensee, or
business relation of the Company or the Buyer to cease doing, or decrease,
business with Company, or in any way interfere with the relationship between the
Company and any client or customer, supplier, licensee, or business relation of
the Company; provided, however, that nothing herein shall limit the right of any
Seller or any other Person to publish notices for or advertisements of available
employment in newspapers, on the internet or in other publications or media of
general circulation.
(c) None of the Sellers will, at any time prior to the Closing, disparage
the Buyer or Company, any of their shareholders, directors, officers, employees
or agents, or any products or services provided by the Buyer or the Company;
provided, however, that the Sellers will not be prohibited by this Section
4.5(c) from testifying truthfully before any Governmental Authority.
(d) Each of the Sellers will, during the Non-Compete Period, within ten
(10) days after accepting any employment, advise the Buyer of the identity of
any employer of such Seller. The Buyer or the Company may serve notice upon each
such employer that such
41
Seller is bound by this Agreement and furnish each such employer with a copy of
this Section 4.5.
Section 4.6 Subsequent Financial Statements and Reports. From the date
hereof until the Closing, the Sellers shall cause the Company to (i) provide to
the Buyer a monthly management report in scope and detail consistent with those
management reports that have been historically prepared by the Company, and (ii)
timely prepare, and promptly deliver to the Buyer, monthly financial statements,
to be in scope and detail consistent with the monthly financial statements that
have been historically prepared by the Company.
Section 4.7 Public Announcements. Except as required by applicable Law or
stock exchange rules, neither the Buyer nor any of the Sellers shall make, or
permit any of their Related Persons or representatives to make, any public
announcement in respect of this Agreement, the Ancillary Agreements or the
transactions contemplated hereby or thereby without the prior written consent of
the other party.
Section 4.8 Further Actions. From the date hereof until the Closing:
(a) Each party shall use all commercially reasonable efforts to take or
cause to be taken all actions, and to do or cause to be done all other things,
necessary, proper or advisable in order for such party to fulfill and perform
its respective obligations in respect of this Agreement and the Ancillary
Agreements to which it is a party, to cause the conditions to their respective
obligations set forth in Article VI to be fulfilled and otherwise to consummate
and make effective the transactions contemplated hereby and thereby.
(b) Each party shall, as promptly as practicable, (i) make, or cause to be
made, all filings and submissions (including those under the HSR Act, if
applicable) required under any Law applicable to such party or any of its
Related Persons, and give such reasonable undertakings as may be required in
connection therewith, and (ii) use commercially reasonable efforts to obtain,
cause to be obtained, all consents, authorizations and approvals from all
Governmental Authorities and any other Persons necessary to be obtained or made
by such party or any of its Related Persons, in each case in connection with
this Agreement or any of the Ancillary Agreements, or the consummation of the
transactions contemplated hereby or thereby, provided that (A) the Sellers and
their respective Related Persons shall not give any undertakings, make any
commitments or enter into any agreements that would be binding upon the Buyer or
any member of the EDO Group, including, after the Closing, the Company, without
the prior written consent of the Buyer, and (B) neither the Buyer nor any member
of the EDO Group shall be required to take any action that (1) involves
divestiture of an existing business of the Buyer or any member of the EDO Group,
including, after the Closing, the Company, (2) involves unreasonable expense or
(3) could reasonably be expected to impair the overall
42
benefit expected to be realized from the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements.
(c) Each party shall, and shall cause its Related Persons to, coordinate
and cooperate with the other party and its Related Persons in exchanging such
information and supplying such reasonable assistance as may be reasonably
requested by the other party in connection with the filings and other actions
contemplated by this Section 4.8.
Section 4.9 Insurance. The Sellers shall cause the Company to maintain or
cause to be maintained through the Closing Date the insurance with respect to
the Company referred to in Section 2.19. If the Buyer requests, the Sellers
shall cause the Company to purchase, at the Buyer's expense, an extended
reporting period with respect to such insurance. Following the Closing, the
Sellers shall, and shall cause the Company to, (i) not seek to change any rights
or obligations of the Company under such insurance, (ii) cooperate with the
Company in making claims under such insurance, and (iii) promptly pay over to
the Company any amounts that any Seller or any Related Person of any Seller may
receive under such insurance in respect of losses experienced by the Company.
Section 4.10 Further Assurances. Following the Closing, the Sellers shall,
and shall cause their respective Related Persons and representatives to,
promptly execute and deliver, without further consideration, such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably be requested by the Buyer or the
Company to confirm and assure the rights and obligations provided for in this
Agreement and the Ancillary Agreements and render effective the consummation of
the transaction contemplated hereby and thereby, or otherwise to carry out the
intent and purposes of this Agreement.
Section 4.11 Restricted Shares Agreements. At the Closing, each of the Key
Employees shall execute and deliver a Restricted Shares Agreement, effective as
of the Closing Date. Pursuant to the Restricted Shares Agreements, the Buyer
will issue to the Key Employees, on the terms and subject to the conditions and
restrictions set forth therein, in consideration of personal services to be
rendered by the Key Employees on and after the Closing Date, shares of Buyer
Common Stock having the aggregate value set forth in Section 1.3(b)(iv) of the
Sellers' Disclosure Letter.
Section 4.12 Retention Agreements. The Buyer shall use its commercially
reasonable efforts to enter into a retention agreement, substantially in the
form of Exhibit E attached hereto (each, a "Retention Agreement" and,
collectively, the "Retention Agreements") with each of the individuals
identified in Section 4.12 of the Sellers' Disclosure Letter (each, an
"Additional Key Employee" and, collectively, the "Additional Key Employees")
promptly following the Closing, and in any event not later than thirty (30) days
following the Closing Date. Pursuant to the Retention Agreements, the Buyer will
agree to pay the Additional Key Employees, on the terms and subject to the
conditions and restrictions set forth therein, the aggregate amount specified in
Section
43
4.12 of the Sellers' Disclosure Letter. In the event that a Retention Agreement
is not entered into by the Buyer and any of the Additional Key Employees as a
result of such Additional Key Employee's decision, at his or her sole
discretion, not to enter into a Retention Agreement with the Buyer, the Buyer
and the Seller shall be deemed to have satisfied their respective obligations
under this Section 4.12.
Section 4.13 Restricted Stock. On or prior to the Closing Date, the Sellers
shall cause the Company to take all corporate action necessary to waive any
restrictions on transfer of any shares of Class A Stock issued pursuant to the
Restricted Stock Agreements such that the restricted stock may be transferred to
the Buyer in accordance with this Agreement.
Section 4.14 Consulting Agreements. On or prior to the Closing Date, the
Company shall enter into extension or renewal agreements (and shall deliver to
the Buyer copies thereof) with respect to each of the Consulting Agreements. As
extended or renewed pursuant to this Section 4.14, the Consulting Agreements (a)
shall be in form and substance reasonably satisfactory to the Buyer and (b)
shall provide, among other things, that (i) all work product developed by the
consultants pursuant to the Consulting Agreements shall constitute "works made
for hire" within the meaning of the U.S. Copyright Act, and all intellectual
property rights in and to any such work product shall be owned by the Company,
(ii) all intellectual property rights in and to any work product developed by
the consultants pursuant to the Consulting Agreements following such extension
or renewal that does not constitute a "work made for hire" within the meaning of
the U.S. Copyright Act shall be automatically assigned by the consultant to the
Company and (iii) all intellectual property rights in and to any work product
developed by the consultants pursuant to the Consulting Agreements prior to such
extension or renewal shall be assigned by the consultants to the Company
effective as of the date of such extension or renewal.
Section 4.15 ROFO Waiver. Within three (3) Business Days following the date
hereof, each of the Sellers (other than the ESOP) shall execute and deliver, and
shall cause the Company to execute and deliver, to the Buyer a Waiver of Right
of First Offer and Termination Agreement, substantially in the form of Exhibit F
attached hereto (the "ROFO Waiver").
ARTICLE V
TAX MATTERS
Section 5.1 Sellers' Responsibility for Taxes. Notwithstanding anything in
this Agreement to the contrary, the Sellers (other than the ESOP), jointly and
severally, shall bear and pay, reimburse, indemnify and hold harmless Buyer
Indemnitees for, from and against any and all Losses with respect to Taxes where
such Taxes (a) are in respect of any Pre-Closing Tax Period, but only to the
extent such Taxes exceed the "accrued taxes payable" set forth on the Closing
Statement as finally determined, (b) arise under
44
Treasury Regulation Section 1.1502-6 or any similar provision of U.S. state,
local or foreign Law or under principles of transferee or successor liability or
by contract, or (c) arise from, or are attributable to, any inaccuracy in, or
breach of, any representation or warranty made in Section 2.18, in each of the
above cases, together with any reasonable out-of-pocket fees and expenses
(including attorney's and accountant's fees) incurred in connection therewith.
Section 5.2 Straddle Periods. For purposes of Section 5.1, any liability
for Taxes attributable to a taxable period that begins before and ends after the
Closing Date (a "Straddle Period") shall be apportioned between the portion of
such period ending on the Closing Date and the portion beginning on the day
after the Closing Date (a) in the case of real and personal property Taxes, by
apportioning such Taxes on a per diem basis and (b) in the case of income Taxes
and all other Taxes, on the basis of a closing of the books as of the end of the
Closing Date.
Section 5.3 Tax Returns. The Sellers (other than the ESOP) shall be
responsible for preparing and filing all Tax Returns with respect to the Company
for all Pre-Closing Tax Periods other than Tax Returns in respect of any
Straddle Period. The Buyer shall be responsible for preparing and filing all
Straddle Period Tax Returns. Each of the Sellers and the Buyer shall use
commercially reasonable efforts to make any Tax Returns and work papers in
respect of a Pre-Closing Tax Period for which such party is responsible for
preparing available for review by the other party sufficiently in advance of the
due date for filing such Tax Returns, provided that the Sellers shall furnish
any such Tax Return that is an Income Tax Return to the Buyer for review not
later than sixty (60) days prior to the due date for filing such Income Tax
Return. In the event of any disagreement between the Buyer and the Sellers
regarding Tax Returns, such disagreement shall be resolved by BDO Xxxxxxx, LLP
(the "Tax Accountant"), and any such determination by the Tax Accountant shall
be final. The fees and expenses of the Tax Accountant shall be borne equally by
the Buyer on one hand and the Sellers on the other hand. If the Tax Accountant
does not resolve any differences between the Sellers and the Buyer with respect
to such Tax Return at least five (5) days prior to the due date therefor, such
Tax Return shall be filed as prepared by the party having the responsibility
hereunder for preparing such Tax Return and shall be amended by such party to
reflect the Tax Accountant's resolution. The preparation and filing of any Tax
Return that does not relate to a Pre-Closing Tax Period shall be exclusively
within the control of the Buyer. Except in connection with an audit resolved
pursuant to Section 5.4, the Sellers shall not amend any Tax Returns for any
Pre-Closing Tax Period without the written consent of the Buyer.
Section 5.4 Tax Contests. Any party (other than the ESOP) that receives any
notice of a pending or threatened Tax audit, assessment or adjustment relating
to the Company, or to any Affiliate of the Company that may give rise to a
liability for the Company, or to any Seller as a result of holding Company stock
shall promptly notify the
45
other party within ten (10) Business Days of receipt of such notice. The parties
each agree to consult with and to keep the other parties hereto informed on a
regular basis regarding the status of any Tax audit or proceedings to the extent
that such audit or proceeding could affect a liability of such other parties
(including indemnity obligations). The Sellers shall have the right to control
at their expense the portion of any such audit, examination or proceeding that
relates to any Taxes for which the Sellers are responsible, provided that the
Sellers shall not settle or compromise any such audit, examination or proceeding
without the consent of the Buyer and provided further that the Buyer may
participate in any such audit, examination or proceeding, at its own expense.
The Buyer shall control any audit, examination or proceeding (or portion
thereof) that does not relate to Taxes for which the Sellers are responsible
under Section 5.1.
Section 5.5 Books and Records; Cooperation. The Buyer and the Sellers
(other than the ESOP) shall (and shall cause their respective Affiliates,
Related Persons and representatives to) (a) provide the other party with such
assistance as may be reasonably requested in connection with the preparation and
filing of any Tax Return or any audit or other examination by any taxing
authority or judicial or administrative proceeding relating to Taxes and (b)
retain (and provide the other party and its agents and representatives with
reasonable access to) all records or information which may be relevant to such
Tax Return, audit, examination or proceeding, provided that the foregoing shall
be done in a manner so as not to interfere unreasonably with the conduct of the
business of the parties.
Section 5.6 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes and fees (including any penalties
and interest) incurred in connection with transactions contemplated by this
Agreement (including any real property transfer tax and any similar Tax) shall
be paid by the Sellers when due, and the Sellers will, at their own expense, and
to the extent permitted under applicable Law, file all necessary Tax returns and
other documentation with respect to all such Taxes and fees, and, if required by
applicable law, the Buyer will, and will cause any member of the EDO Group to,
join in the execution of any such Tax returns and other documentation.
Section 5.7 Overlap. To the extent that an obligation or responsibility
pursuant to Article VIII may overlap with an obligation or responsibility
pursuant to this Article V, the provisions of this Article V shall govern such
obligation or responsibility.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to the Obligations of Buyer and Sellers. The
obligations of the Buyer and the Sellers to consummate the transactions
contemplated hereby shall be subject to the fulfillment at or prior to the
Closing of the following conditions:
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(a) HSR Act Notification. The notifications of the Buyer and the
Sellers pursuant to the HSR Act, if any, shall have been made and the
applicable waiting period and any extensions thereof shall have expired or
been terminated.
(b) No Injunction, etc. Consummation of the transactions contemplated
hereby or by the Ancillary Agreements shall not have been restrained,
enjoined or otherwise prohibited or made illegal by any applicable Law.
(c) Other Governmental Approvals. The Sellers shall have received all
consents, authorizations or approvals from the Governmental Authorities
referred to in Section 2.4(a) of the Sellers' Disclosure Letter, and the
Buyer shall have received all consents, authorizations or approvals from
the Governmental Authorities referred to in Section 3.3(a) of the Buyer
Disclosure Letter, in each case in form and substance reasonably
satisfactory to the Buyer and the Sellers, and no such consent,
authorization or approval shall have been revoked.
Section 6.2 Conditions to Obligations of Buyer. The obligations of the
Buyer to consummate the transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing of the following additional conditions:
(a) Representations and Warranties. The representations and warranties of
the Sellers contained in this Agreement or in any Ancillary Agreement and in any
certificate or other writing delivered pursuant hereto (i) that are qualified by
materiality or Material Adverse Effect shall be true and correct in all respects
or (ii) that are not qualified by materiality or Material Adverse Effect shall
be true and correct in all material respects, except that the representations
and warranties in Section 2.2 and 2.23 shall be true and correct in all
respects, in each case at and as of the date hereof and at and as of the Closing
Date with the same effect as though made at and as of the Closing Date (except
for any representations and warranties made as of a certain date, which
representations and warranties shall be true and correct as of such date).
(b) Performance. The Sellers shall have in all material respects duly
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by the Sellers at or prior to
the Closing.
(c) Officer's Certificate. The Sellers shall have delivered to the Buyer a
certificate, dated the Closing Date and signed by a duly authorized officer, to
the effect set forth in Section 6.2(a) and (b).
(d) Consents. The Sellers shall have received all consents, authorizations
or approvals or delivered all notices listed in Section 2.4(b) of the Sellers'
Disclosure Letter, in each case in form and substance reasonably satisfactory to
the Buyer, and no such consents, authorizations, approvals or notices shall have
been revoked.
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(e) No Litigation, etc. No Litigation shall have been filed and be pending,
no Governmental Authority shall have notified the Buyer, any of the Sellers or
the Company of its intention to commence, or recommend the commencement of,
Litigation and no Law shall have been enacted, entered, enforced, promulgated or
issued with respect to or deemed applicable, which in any case seeks or purports
to challenge, prohibit, interfere with, limit, delay, restrain, impose damages
or other material obligations in connection with or increase the cost of the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, including without limitation the acquisition, ownership,
voting or disposition by the Buyer of any Shares and the ownership, control or
operation by the Buyer, the Company or any of their respective Affiliates of a
material portion of the Business or the assets of the Company.
(f) No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect shall exist or have occurred or come to exist or
been threatened since the Balance Sheet Date that, individually or in the
aggregate, has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect.
(g) FIRPTA Certificate. Each of the Sellers shall have delivered to the
Buyer a statement, meeting of requirements section 1.1445-2(b)(2) of the
Treasury Regulations, to the effect that such Seller is not a "foreign person"
as such term is used in such section.
(h) Ancillary Agreements. Each Seller shall have executed and delivered to
the Buyer each of the Ancillary Agreements to which such Seller is a party.
(i) Resignations. All directors and officers of the Company whose
resignations shall have been requested by the Buyer shall have submitted their
resignations or been removed from office, effective as of the Closing Date.
(j) ESOP Certificate. The condition set forth in Section 6.4 shall have
been satisfied.
Section 6.3 Conditions to Obligations of Sellers. The obligation of the
Sellers to consummate the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Closing of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties of
the Buyer contained in this Agreement shall be true and correct in all material
respects at and as of the date hereof and shall be repeated and shall be true
and correct in all material respects at and as of the Closing Date with the same
effect as though made at and as of such time (except for any representations and
warranties made as of a certain date, which representations and warranties shall
be true and correct as of such date).
48
(b) Performance. The Buyer shall have in all material respects duly
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by the Buyer at or prior to the
Closing.
(c) Officer's Certificate. The Buyer shall have delivered to the Sellers a
certificate, dated the Closing Date and signed by its duly authorized officer,
to the effect set forth in Section 6.3(a) and (b).
(d) Ancillary Agreements. The Buyer shall have executed and delivered to
the Sellers each of the Ancillary Agreements.
(e) No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect shall exist or have occurred or come to exist or
been threatened against Buyer since the date of this Agreement that,
individually or in the aggregate, has resulted in, or would reasonably be
expected to result in, a material adverse effect on the Buyer.
Section 6.4 Conditions to the Obligations of the ESOP. In addition to the
conditions set forth in Section 6.1 and 6.3, the ESOP shall not be required to
perform its obligation to consummate the transactions contemplated by this
Agreement unless the Administrator has executed and delivered to the Trustee, on
or prior to the Closing Date, a certificate pursuant to Section 5.1.5 of the
ESOP to the effect that the portion of the Purchase Price payable with respect
to the Shares owned by the ESOP is equal to or exceeds the aggregate fair market
value of such Shares.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by the written agreement of the Buyer and the Sellers;
(b) by either the Buyer or the Sellers by written notice to the other
party, if:
(i) the Closing shall not have been consummated on or before
November 26, 2006 (the "End Date"); provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(i) shall
not be available to any party whose breach of any provision of this
Agreement results in the failure of the Closing to be consummated by
such time; or
(ii) (A) there shall be any Law that makes consummation of the
transactions contemplated by this Agreement illegal or otherwise
49
prohibited or (B) any Order enjoining the Buyer or any of the Sellers
from consummating the transactions contemplated by this Agreement is
entered and such judgment, injunction, judgment or order shall have
become final and nonappealable;
(c) by the Buyer by written notice to the Sellers, if a material
breach of any representation or warranty or failure to perform any covenant
or agreement on the part of the Sellers or the Company set forth in this
Agreement shall have occurred that would cause the conditions set forth in
Section 6.1 or Section 6.2 not to be satisfied, and such breach is
incapable of being cured by the End Date;
(d) by the Buyer by written notice to the Sellers, if a Material
Adverse Effect on the Company shall have occurred; or
(e) by the Sellers by notice to the Buyer, if a material breach of any
representation or warranty or failure to perform any covenant or agreement
on the part of the Buyer set forth in this Agreement shall have occurred
that would cause the conditions set forth in Section 6.1 or Section 6.3 not
to be satisfied, and such breach is incapable of being cured by the End
Date.
Section 7.2 Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 7.1, this Agreement
shall become void and of no effect without liability of any party (or any of its
Affiliates, Related Persons, directors, officers, trustees, employees,
stockholders, agents, representatives or advisors) to the other party hereto,
except as set forth in Section 7.2(b).
(b) A termination fee in the amount of $6,300,000 (the "Termination Fee")
shall be payable by one party (the "Breaching Party") to the other party (the
"Non-Breaching Party") in the event that (i) this Agreement is terminated by the
Breaching Party other than as expressly permitted in Section 7.1 or (ii) the
Breaching Party willfully takes or omits to take any action that results in a
breach of a representation or warranty of the Breaching Party set forth in this
Agreement or failure by the Breaching Party to perform any of its covenants
under this Agreement, in each case, if such breach or failure (A) gives the
Non-Breaching Party the right to terminate this Agreement under Section 7.1(c)
or (e) and (B) this Agreement is terminated by the Non-Breaching Party pursuant
thereto. The Termination Fee shall also be payable by the Sellers (other than
the ESOP) to the Buyer in the event this Agreement is terminated by either the
Buyer or the Sellers pursuant to Section 7.1(a) or (b) as a result of the
failure of the condition set forth in Section 6.4 to be satisfied. The
Termination Fee shall be payable within five (5) Business Days following the
date of such termination. The parties agree that the Termination Fee shall
constitute liquidated damages and shall be the Non-Breaching Party's sole and
exclusive remedy against the Breaching Party for any losses or damages suffered
by the Non-Breaching Party by reason of such termination or the breach giving
50
rise to such termination and the resulting failure to consummate the
transactions contemplated by this Agreement. The parties agree that the amount
of the Termination Fee is a reasonable estimate of such potential damages and
that the actual amount of such damages would be difficult to determine.
Notwithstanding the foregoing, the ESOP shall not be required to pay any portion
of the Termination Fee set forth in this Section 7.2(b). For the avoidance of
doubt, no Termination Fee will be payable by any party if the Closing occurs.
(c) The provisions of this Section 7.2 and Sections 4.4(b), 9.1, 9.2, 10.1,
10.4 and 10.6 shall survive any termination of this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival. The representations and warranties of the parties
contained in this Agreement, the Ancillary Agreements or in any certificate or
other writing delivered pursuant hereto or in connection herewith shall survive
for a period of eighteen (18) months following the Closing Date; provided,
however, that (a) the representations and warranties set forth in Sections 2.1,
2.2, 2.3, 2.9(a), 2.23 and 2.25 shall survive indefinitely or until the latest
date permitted by law and (b) the representations and warranties set forth in
Sections 2.14, 2.15, 2.16, 2.17 and 2.18 shall survive for the duration of the
applicable statute of limitations (including waivers) plus sixty (60) days. The
covenants and agreements of the parties contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing for the period explicitly specified therein or, if no
such period is specified therein, indefinitely. Notwithstanding the preceding
sentences, any breach of representation, warranty, covenant or agreement in
respect of which indemnity may be sought under this Agreement shall survive the
time at which it would otherwise terminate pursuant to the preceding sentences,
if notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time. Such notice shall set forth with reasonable
specificity the nature of the breach alleged.
Section 8.2 Indemnification by Sellers. The Sellers (other than the ESOP)
shall, jointly and severally, defend, indemnify and hold harmless the Buyer, any
member of the EDO Group and the Company, and their respective officers,
directors, employees, agents, advisers and representatives (collectively, the
"Buyer Indemnitees"), from and against, and pay or reimburse the Buyer
Indemnitees for, any and all damage, loss, liability and expense (including
reasonable expenses of investigation, enforcement and collection and reasonable
attorneys' and accountants' fees and expenses in connection with any action,
suit or proceeding whether involving a third party claim or a claim solely
between the parties hereto) (collectively, "Losses"), resulting from, arising
out of or relating to:
(a) any inaccuracy in or breach of any representation or warranty
51
when made by the Sellers in or pursuant to this Agreement or any of the
Ancillary Agreements;
(b) any failure of any of the Sellers (or, prior to the Closing, the
Company) to perform any covenant or agreement under this Agreement or any
of the Ancillary Agreements;
(c) any Sellers' Expenses that were not properly reflected on the
Closing Balance Sheet in accordance with Section 1.4(e); or
(d) any of the matters described in Item (a) of Section 2.17(b) of the
Sellers' Disclosure Letter or Item (a) of Section 2.17(d)(i) of the
Sellers' Disclosure Letter (regardless of whether or not the Loss exceeds
any estimated damages or costs set forth in such items of the Sellers'
Disclosure Letter).
Section 8.3 Indemnification by Buyer. The Buyer shall defend, indemnify and
hold harmless the Sellers and their respective Related Persons, directors,
officers, trustees, employees, agents, advisers and representatives
(collectively, the "Seller Indemnitees") from and against, and pay or reimburse
the Seller Indemnitees for, any and all Losses resulting from, arising out of or
relating to:
(a) any inaccuracy in or breach of any representation or warranty made
by the Buyer in or pursuant to this Agreement or any of the Ancillary
Agreements; or
(b) any failure of the Buyer to perform any covenant or agreement
under this Agreement or any of the Ancillary Agreements.
Section 8.4 Certain Limitations, etc.
(a) Except as set forth in Section 8.4(e), the Sellers' indemnification
obligations under this Article VIII shall be subject to the following
limitations: (i) the Sellers shall not be required to indemnify Buyer
Indemnitees for Losses under clause (a) or (b) of Section 8.2 until the
aggregate amount of all such Losses exceeds $500,000 (the "Threshold Amount"),
in which event the Sellers shall be responsible only for Losses in excess of
$250,000 (the "Deductible"), (ii) except with respect to any inaccuracies in or
breaches of the representations and warranties contained in Sections 2.1, 2.2,
2.3 and 2.18, the aggregate liability of the Sellers for Losses under clause
(a), (b) or (d) of Section 8.2 shall not exceed $25,000,000 (the "Cap") and
(iii) in no event shall the aggregate liability of any individual Seller for
Losses under Section 8.2 exceed an amount equal to the portion of the Purchase
Price allocated to such Seller in accordance with the Allocation Percentages.
52
(b) Except (x) as set forth in Section 8.4(e) and (y) with respect to any
inaccuracies in or breaches of the representations and warranties contained in
Sections 3.1 and 3.2, (i) the Buyer shall not be required to indemnify Seller
Indemnitees for Losses under clause (a) or (b) of Section 8.3 until the
aggregate amount of all such Losses exceeds the Threshold Amount, in which event
the Buyer shall be responsible only for Losses in excess of the Deductible and
(ii) in no event shall the aggregate liability of the Buyer for Losses under
clause (a) or (b) of Section 8.3 exceed the Cap.
(c) The amount of any Losses resulting from, arising out of or relating to
any inaccuracy in or breach of any representation or warranty contained in this
Agreement or any of the Ancillary Agreements and subject to indemnification
under this Article VIII shall be determined without regard to any materiality
(except that references to GAAP shall not disregard the concept of materiality
incorporated therein), "Material Adverse Effect" or similar qualification, or
any qualification or requirement that a matter be or not be "reasonably
expected" to occur, contained in or otherwise applicable to such representation
or warranty.
(d) Notwithstanding anything to the contrary herein, the rights and
remedies of any party in respect of any inaccuracy or breach of any
representation, warranty, covenant or agreement shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts or
circumstances upon which any claim of any such inaccuracy or breach is based may
also be the subject matter of any other representation, warranty, covenant or
agreement as to which there is no inaccuracy or breach. The Buyer shall have no
right to indemnification under this Agreement in respect of any inaccuracy or
breach of any representation or warranty of the Sellers to the extent that any
individual listed in clause (iii) of the definition of "Knowledge" contained in
Section 9.1 (but such knowledge shall not be ascribed to the Buyer or any such
individual based on the aggregate knowledge of such individuals) has actual
knowledge on the date of this Agreement that such representation and warranty is
inaccurate as of date of this Agreement. Neither the Buyer nor any individual
shall have any duty of due inquiry under this Section 8.4(d) as to any matter
whatsoever. The representations and warranties of the Sellers shall not
otherwise be affected or deemed waived by reason of any investigation made by or
on behalf of the Buyer (including but not limited to by any of its advisors,
consultants or representatives) or by reason of the fact that the Buyer or any
of such advisors, consultants or representatives knew or should have known that
any such representation or warranty is, was or might be inaccurate (regardless
of when such investigation was conducted or knowledge was obtained) or by reason
of the Buyer's waiver of any condition set forth in Section 6.2.
(e) Except as provided in Sections 5.1 and 10.13, the indemnity provided
for in this Article VIII shall be the sole and exclusive remedy of Buyer
Indemnitees or Seller Indemnitees, as the case may be, after the Closing for any
inaccuracy of any representation or warranty of the Sellers or the Buyer,
respectively, herein or any other
53
breach of this Agreement; provided, however, that (i) nothing herein shall limit
in any way any such party's remedies in respect of fraud, intentional
misrepresentation or omission or intentional misconduct by the other party in
connection herewith or the transactions contemplated hereby and (ii) the
limitations on indemnification set forth in Section 8.4(a) or Section 8.4(b), as
the case may be, shall not apply to any willful or knowing breaches by any party
of its covenants set forth in this Agreement or any of the Ancillary Agreements.
(f) The parties agree that any indemnification payments made pursuant to
this Agreement shall be treated for tax purposes as an adjustment to the
Purchase Price to the extent permitted under applicable Law and shall be
allocated among the Sellers as provided in this Agreement.
(g) The amount of Losses indemnified under this Article VIII shall be
reduced by the net amount the Indemnified Party recovers (after deducting all
attorneys' fees, expenses, premium increases as a result of the Loss and other
costs of recovery) pursuant to any insurance policy.
Section 8.5 Third Party Claim Procedures. In the case of any Litigation
asserted by a third party (a "Third Party Claim") against a party entitled to
indemnification under this Agreement (an "Indemnified Party"), notice shall be
given by the Indemnified Party to the party required to provide indemnification
(the "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of such Third Party Claim and in a manner consistent with Section
10.1, and the Indemnified Party shall permit the Indemnifying Party (at the
expense of such Indemnifying Party and so long as the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified Party for
Losses related to such Third Party Claim) to assume the defense of such Third
Party Claim, provided that (a) counsel for the Indemnifying Party who shall
conduct the defense of such Third Party Claim shall be reasonably satisfactory
to the Indemnified Party, and the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and (b) the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnification obligation under this Agreement except
to the extent that such failure results in a lack of actual notice to the
Indemnifying Party and such Indemnifying Party is materially prejudiced as a
result of such failure to give notice. If the Indemnifying Party does not
promptly assume the defense of such Third Party Claim following notice thereof,
the Indemnified Party shall be entitled to assume and control such defense and
to settle or agree to pay in full such Third Party Claim without the consent of
the Indemnifying Party without prejudice to the ability of the Indemnified Party
to enforce its claim for indemnification against the Indemnifying Party
hereunder. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defense of any such Third Party Claim, shall consent
to entry of any judgment or enter into any settlement that provides for
injunctive or other non-monetary relief affecting the Indemnified Party or that
does not include as an
54
unconditional term thereof the giving by each claimant or plaintiff to such
Indemnified Party of an irrevocable release from all liability with respect to
such Third Party Claim. If the Indemnified Party in good faith determines that
(i) the conduct of the defense or any proposed settlement of any Third Party
Claim would reasonably be expected to affect adversely the Indemnified Party's
Tax liability or the ability of the Company to conduct the Business, or (ii) the
Indemnified Party may have available to it one or more defenses or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such Third Party Claim, the Indemnified Party
shall have the right at all times to take over and control the defense,
settlement, negotiation or Litigation relating to any such Third Party Claim at
the sole cost of the Indemnifying Party, provided that if the Indemnified Party
does so take over and control, the Indemnified Party shall not settle such Third
Party Claim without the written consent of the Indemnifying Party, such consent
not to be unreasonably withheld or delayed, and provided, further, that in the
case of clause (ii) above, the Indemnified Party will have no such right to so
take over and control where such Third Party Claim involves no potential
remedies other than monetary damages and the Indemnifying Party will pay all
such monetary damages. In any event, the Sellers and the Buyer shall cooperate
in good faith in the defense of any Third Party Claim subject to this Article
VIII and the records of each shall be reasonably available to the other with
respect to such defense.
Section 8.6 Escrow; Right of Set-Off.
(a) The Buyer shall exercise its rights to indemnification under this
Agreement or any of the Ancillary Agreements by giving written notice of any
Losses suffered by the Buyer or the Company that the Buyer believes in good
faith to be the obligation of one or more of the Sellers under this Agreement or
any of the Ancillary Agreements (a "Claim") to the Sellers' Representative and
the Escrow Agent pursuant to the Escrow Agreement.
(b) In the event that the Escrow Amount is insufficient to fully satisfy
the Sellers' indemnification obligations under this Agreement or any Ancillary
Agreements, the Buyer may set off the amount of such shortfall against any
amounts payable to the individual Sellers under the Promissory Note, in
accordance with the procedures set forth therein.
(c) Neither the exercise of nor the failure to give notice of a Claim
pursuant to the Escrow Agreement or to exercise the right of set-off pursuant to
Section 8.6(b) shall constitute an election of remedies or limit the Buyer in
any manner in the enforcement of any other remedies that may be available to it.
ARTICLE IX
DEFINITIONS
Section 9.1 Certain Terms. The following terms have the respective meanings
given to them below:
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"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, as the same may be amended from time to
time.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
"Accounts Receivable" has the meaning set forth in Section 2.20.
"Acquisition Proposal" means, other than the transactions contemplated by
this Agreement, any third-party offer, proposal or inquiry relating to, or any
third-party indication of interest in, any acquisition or purchase, direct or
indirect, whether by way of asset purchase, stock purchase, merger,
consolidation, share exchange, business combination or otherwise, of any
material assets of the Company (other than sales of inventory in the Ordinary
Course of Business) or any other transaction intended to frustrate the purposes
of, impede, interfere with, prevent or materially delay the transactions
contemplated by this Agreement or that could reasonably be expected to dilute
materially the benefits to the Buyer of the transactions contemplated by this
Agreement.
"Additional Key Employees" has the meaning set forth in Section 4.12.
"Administrator" means the administrator of the ESOP.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Agreement" has the meaning set forth in the Preamble.
"Allocation Percentage" means, with respect to any Seller, the number of
Shares owned by such Seller, divided by the total number of Shares, as set forth
on Schedule I attached hereto.
"Ancillary Agreements" means, collectively, (i) the Promissory Note, (ii)
the Escrow Agreement, (iii) the Sellers' Release, (iv) the Restricted Shares
Agreements and (v) the ROFO Waivers.
"Assets" has the meaning set forth in Section 2.9(a).
"Audited Financial Statements" has the meaning set forth in Section 2.5(a).
"Balance Sheet" means the consolidated balance sheet of the Company dated
as of the Balance Sheet Date and included in the Unaudited Financial Statements.
"Balance Sheet Date" has the meaning set forth in Section 2.5(a).
56
"Baseline Book Value" means $14,804,739.
"Breaching Party" has the meaning set forth in Section 7.2(b).
"Business" means the business and operations of the Company as conducted as
of the date hereof and as of the Closing Date.
"Business Day" means any day on which banks are not required or authorized
to close in New York City.
"Buyer" has the meaning set forth in the Preamble.
"Buyer Common Stock" means the common stock of the Buyer, par value $1.00
per share.
"Buyer Disclosure Letter" means the letter, dated as of the date hereof,
delivered by the Buyer to the Sellers prior to the execution of this Agreement
and identified as the Buyer Disclosure Letter.
"Buyer Indemnitees" has the meaning set forth in Section 8.2.
"Cap" has the meaning set forth in Section 8.4(a).
"Cash Consideration" has the meaning set forth in Section 1.3(b).
"Claim" has the meaning set forth in Section 8.6(a).
"Class A Shares" has the meaning set forth in the Recitals.
"Class B Shares" has the meaning set forth in Recitals.
"Closing" has the meaning set forth in Section 1.3(a).
"Closing Balance Sheet" has the meaning set forth in Section 1.4(e).
"Closing Book Value" means an amount equal to (x) total consolidated assets
of the Company (excluding goodwill and intangible assets) minus (y) total
consolidated liabilities, in each case as of the Closing Date but without giving
effect to the Closing, except for the items set forth in Section 1.4(e).
"Closing Date" has the meaning set forth in Section 1.3(a).
"Closing Statement" has the meaning set forth in Section 1.4(e).
"Code" means the Internal Revenue Code of 1986, as amended.
57
"Company" has the meaning set forth in the Recitals.
"Company Benefit Plans" means each written or oral employee benefit plan,
scheme, program, policy, arrangement and contract (including, but not limited
to, any "employee benefit plan," as defined in Section 3(3) of ERISA, whether or
not subject to ERISA, and any bonus, deferred compensation, stock bonus, stock
purchase, restricted stock, stock option or other equity-based arrangement, and
any employment, termination, retention, bonus, change in control or severance
plan, program, policy, arrangement or contract) for the benefit of any current
or former officer, employee or director of the Company that is maintained or
contributed to by the Company or any Company Related Person, or with respect to
which any of them could incur material liability under the Code or ERISA or any
similar non-U.S. law.
"Company Securities" has the meaning set forth in Section 2.2(b).
"Confidential Information" means any and all confidential business
information and any and all information, however documented, that is a trade
secret within the meaning of applicable statutory or case law concerning the
business and affairs of the Company or the Buyer, whether or not marked as
"secret" or "confidential," including, without limitation, the following: (i)
product specifications, data, know-how, formulas, blueprints, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current and planned research and development, current and
planned manufacturing and distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs, database technologies, concepts,
ideas and methods; (ii) to the extent such information is not publicly disclosed
by the Company or the Buyer in any filings with Governmental Authorities, in
press releases or otherwise, all financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans, the
names and backgrounds of key personnel, personnel training techniques and
personnel materials; and (iii) any and all notes, analysis, compilations,
studies, summaries and other material prepared by or for the Company or the
Buyer containing or based, in whole or in part, on any of the foregoing
information. Confidential Information does not include, however, information
that is or becomes generally available to the public other than as a result of a
disclosure by any Seller or the Company.
"Consulting Agreements" means, collectively, (i) the Agreement for
Consulting Services, dated March 1, 2004, by and between the Company and Xxxx
Xxxxxxxxx and (ii) the Agreement for Consulting Services, dated August 19, 2005,
by and between the Company and Maglathlin Consulting Services LLC.
"Deductible" has the meaning set forth in Section 8.4(a).
"Dispute Notice" has the meaning set forth in Section 1.4(f).
58
"Disputed Item" has the meaning set forth in Section 1.4(f).
"EDO Group" means the Buyer and all members of the affiliated group of
corporations (within the meaning of IRC Section 1504) of which the Buyer is the
parent.
"End Date" has the meaning set forth in Section 7.1(b)(i).
"Environmental Law" means any foreign, federal, state or local law, treaty,
statute, rule, regulation, order, ordinance, decree, injunction, judgment,
governmental restriction or any other requirement of law (including common law)
regulating or relating to the protection of human health, safety (as it relates
to releases of Hazardous Substances), natural resources or the environment,
including, without limitation, laws relating to contamination and the use,
generation, management, handling, transport, treatment, disposal, storage,
Release or threatened Release of Hazardous Substances.
"Environmental Permit" means any permit, license, authorization or consent
required pursuant to applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute.
"Escrow Agent" means The Bank of New York.
"Escrow Agreement" has the meaning set forth in Section 1.3(b).
"Escrow Amount" has the meaning set forth in Section 1.3(b).
"ESOP" means the Impact Science and Technology, Inc. Employee Stock
Ownership Plan and Trust.
"ESOP Amount" means an amount equal to the product of (x) the Cash
Consideration and (y) the ESOP's Allocation Percentage.
"Estimated Closing Balance Sheet" has the meaning set forth in Section
1.4(c).
"Estimated Closing Book Value" has the meaning set forth in Section 1.4(c).
"Estimated Closing Statement" has the meaning set forth in Section 1.4(c).
"Financial Statements" has the meaning set forth in Section 2.5(a).
"GAAP" has the meaning set forth in Section 1.4(c).
"Governmental Authority" means (i) any nation or government, any state or
other political subdivision thereof, (ii) any entity, authority or body
exercising executive,
59
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof, or (iii) any court, tribunal or
arbitrator, and any self-regulatory organization.
"Governmental Authorization" means any approval, consent, waiver, license,
franchise, permit, certificate or other similar authorization issued, granted,
given or otherwise made available by or under the authority of any Governmental
Authority or pursuant to any applicable Law.
"Government Contract" means a Contract or binding proposal between the
Company and any Governmental Authority, including any facilities contract for
the use of government-owned facilities.
"Government Subcontract" means a Contract that is a subcontract between the
Company and any third party relating to a prime contract with any Governmental
Authority.
"Hazardous Substances" means any substance that: (i) is or contains
asbestos, urea formaldehyde insulation, polychlorinated biphenyls, petroleum or
petroleum products, radon gas, microbiological contamination or related
materials, (ii) requires investigation or remedial action pursuant to any
Environmental Law, or is defined, listed or identified as a "hazardous waste,"
"hazardous substance," "toxic substance" or words of similar import thereunder,
or (iii) is regulated under any Environmental Law.
"Holdback Amount" means an amount, if any, by which the Baseline Book Value
exceeds the Estimated Closing Book Value.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder.
"Income Tax Return" means any Tax Return for any Tax on or measured by net
income.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, or with respect to deposits
or advances of any kind, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such Person
upon which interest charges are customarily paid (other than trade payables
incurred in the Ordinary Course of Business), (iv) all obligations of such
Person under conditional sale or other title retention agreements relating to
any property purchased by such Person, (v) all obligations of such Person issued
or assumed as the deferred purchase price of property or services (excluding
obligations of such Person to creditors for raw materials, inventories, services
60
and supplies incurred in the Ordinary Course of Business), (vi) all lease
obligations of such Person capitalized on the books and records of such Person,
(vii) all obligations of others secured by a Lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (viii) all obligations of such Person under interest rate,
currency or commodity derivatives or hedging transactions, (ix) all letters of
credit or performance bonds issued for the account of such Person (excluding (a)
letters of credit issued for the benefit of suppliers to support accounts
payable to suppliers incurred in the Ordinary Course of Business, (b) standby
letters of credit relating to workers' compensation insurance and surety bonds
and (c) surety bonds and customs bonds) and (x) all guarantees and arrangements
having the economic effect of a guarantee of such Person of any Indebtedness of
any other Person.
"Indemnified Party" has the meaning set forth in Section 8.5.
"Indemnifying Party" has the meaning set forth in Section 8.5.
"Independent Accountant" has the meaning set forth in Section 1.4(h).
"Individual Allocation Percentage" means, with respect to any Seller other
than the ESOP, the number of Shares owned by such Seller, divided by the total
number of Shares owned by all Sellers other than the ESOP, as set forth on
Schedule I attached hereto.
"Intellectual Property" means all trademarks, service marks, trade names,
trade dress, including all goodwill associated with the foregoing, domain names,
copyrights, Software, Web Sites, mask works and other semiconductor chip rights,
and similar rights, and registrations and applications to register or renew the
registration of any of the foregoing, patents and patent applications, Trade
Secrets, and all similar intellectual property rights.
"Inventory Count" has the meaning set forth in Section 1.4(b).
"IP Contracts" has the meaning set forth in Section 2.10(b).
"IRS" means the Internal Revenue Service.
"Key Employees" has the meaning set forth in Section 1.3(b)(iv).
"Knowledge" of a particular fact or other matters means, with respect to
any individual, that such individual is actually aware of such fact or other
matter, after due inquiry, and (i) a Person (other than any individual or the
Company) will be deemed to have "Knowledge" of a particular fact or other matter
if any individual who is serving, or who has at any time served, as a director,
officer, partner, employee, executor or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such
61
fact or other matter, (ii) the Company will be deemed to have "Knowledge" of a
particular fact or other matter if, and only if, any one or more of the Sellers
or Xxxxxx Xxxxxx or Xxxxxxx X. Xxxxxx has, or at any time had, Knowledge of such
fact or other matter, and (iii) the Buyer will be deemed to have "Knowledge" of
a particular fact or other matter if, and only if, any one or more of Xxxxxxxx
X. Xxxxxxx, Xxxxxxx Xxxxxx, Xxxxx Xxxxxx or Xxxxxxxx X. Xxxxxxxx has, or at any
time had, Knowledge of such fact or other matter.
"Laws" has the meaning set forth in Section 2.12(a).
"Leased Real Property" has the meaning set forth in Section 2.9(d).
"Leases" has the meaning set forth in Section 2.9(d).
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Litigation" means any action, cause of action, claim, cease and desist
letter, demand, suit, proceeding, citation, summons, subpoena or investigation
of any nature, civil, criminal, regulatory or otherwise, in law or in equity.
"Loss" has the meaning set forth in Section 8.2.
"Material Adverse Effect" means a material adverse effect on the business,
operations, condition (financial or otherwise), prospects, assets or
liabilities, liquidity, capital resources or significant components or revenues
and expenses of the Company.
"Material Contract" has the meaning set forth in Section 2.8(b).
"Non-Breaching Party" has the meaning set forth in Section 7.2(b).
"Non-Compete Period" has the meaning set forth in Section 4.5(a).
"Order" means any decision, order, judgment, ruling, stipulation, decree,
injunction, subpoena, verdict, determination or award issued, made or rendered
by any Governmental Authority having competent jurisdiction.
"Ordinary Course of Business" means, with respect to a Person, that an
action taken by such Person will be deemed to have been taken in the "Ordinary
Course of Business" only if such action is (i) consistent with the past
practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person, (ii)
62
such action is taken in accordance with sound and prudent business practices and
consistent with industry practices of similarly situated defense contractors,
(iii) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority)
and (iv) such action is similar in nature and magnitude to actions customarily
taken by such Person, without any authorization by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority),
in the ordinary course of the normal day-to-day operations of such Person.
"Organizational Documents" means the articles of incorporation, certificate
of incorporation, charter, bylaws, articles of formation, regulations, operating
agreement, certificate of limited partnership, partnership agreement, and all
other similar documents, instruments or certificates executed, adopted, or filed
in connection with the creation, formation, or organization of a Person,
including any amendments thereto.
"Owned Intellectual Property" has the meaning set forth in Section 2.10(a).
"Owned Real Property" has the meaning set forth in Section 2.9(c).
"Permitted Liens" means (i) Liens disclosed on the Balance Sheet; (ii)
Liens for Taxes not yet due or being contested in good faith (and for which
adequate accruals or reserves have been established on the Balance Sheet); or
(iii) Liens that do not materially detract from the value or materially
interfere with any present or intended use of such property or assets.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PPA Excess Amount" has the meaning set forth in Section 1.4(j).
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date and, with respect to a Tax period that begins on or before the
Closing Date and ends thereafter, the portion of such Tax period ending on the
Closing Date.
"Promissory Note" has the meaning set forth in Section 1.2(b).
"Purchase Price" has the meaning set forth in Section 1.2(a).
"Related Party Transaction" has the meaning set forth in Section 2.24(a).
"Related Person" means, (i) with respect to any Person that is an
individual, (A) any member of such individual's Family, (B) any Person that is
an Affiliate of such individual or one or more members of such individual's
Family, (C) any Person in which such individual or members of such individual's
Family hold (individually or in the
63
aggregate) a Material Interest, and (D) any Person with respect to which such
individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity), and
(ii) with respect to any specified Person other than an individual, (A) any
Person that is an Affiliate of such specified Person, (B) any Person that holds
a Material Interest in such specified Person, (C) each Person that serves as a
director, officer, partner, executor, or trustee of such specified Person (or in
a similar capacity), (D) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity), (E) any
trade or business, whether or not incorporated, which, together with such
specified Person, is treated as a single employer under Section 414 of the Code,
and (F) any Related Person of any individual described in clause (B) or (C). For
purposes of this definition, (i) the "Family" of an individual includes (A) the
individual, (B) the individual's spouse and former spouses, (C) any other
natural person who is the parent, grandparent, child, grandchild, sibling, aunt,
uncle, niece or nephew of the individual or the individual's spouse, and (D) any
other natural person who resides in the same household as such individual, and
(ii) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the 0000 Xxx) of voting securities or other voting
interests representing at least 10% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests in a Person.
"Release" means any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including without
limitation, the moving of any materials through, into or upon, any land, soil,
surface water, groundwater or air, or otherwise entering into the indoor or
outdoor environment.
"Resolution Period" has the meaning set forth in Section 1.4(g).
"Restricted Shares Agreements" has the meaning set forth in Section
1.3(b)(v).
"Restricted Stock Agreements" means, collectively, (i) the Restricted Stock
Agreement, dated May 16, 2003, by and between the Company and Xxxx X. Xxxxx,
with respect to 20,000 Class A Shares, (ii) the Restricted Stock Agreement,
dated August 19, 2004, by and between the Company and Xxxx X. Xxxxxxxx, with
respect to 10,000 Class A Shares, (iii) the Restricted Stock Agreement, dated
June 24, 2005, by and between the Company and Xxxxx X. Xxxxxxx, with respect to
2,000 Class A Shares and (iv) the Restricted Stock Agreement, dated June 27,
2005, by and between the Company and Xxxxxxx X. Xxxxxxxx, with respect to 2,000
Class A Shares.
"Retention Agreements" has the meaning set forth in Section 4.12.
"ROFO Waiver" has the meaning set forth in the Recitals.
64
"Seller Indemnitees" has the meaning set forth in Section 8.3.
"Sellers" has the meaning set forth in the Preamble.
"Sellers' Disclosure Letter" means the letter, dated as of the date hereof,
delivered by Seller to Buyer prior to the execution of this Agreement and
identified as the Seller Disclosure Letter.
"Sellers' Expenses" means any and all fees and expenses of the Sellers
incurred by the Company in connection with the negotiation, execution and
delivery of this Agreement and the Ancillary Agreements, and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
any fees and expenses associated with the filing of the Sellers' notifications
pursuant to the HSR Act (if applicable) and the fees and expenses of the
Sellers' counsel, accountants, financial advisers, brokers, representatives and
other agents, in each case to the extent paid or to be paid by the Company as
permitted hereunder.
"Sellers' Holdback Amount" means an amount equal to the product of (x) the
Holdback Amount and (y) a percentage equal to the aggregate Allocation
Percentage of all Sellers other than the ESOP.
"Sellers' Release" has the meaning set forth in Section 1.3(b)(v).
"Sellers' Representative" has the meaning set forth in Section 10.6(a).
"Shareholders Agreement" means the First Amended and Restated Shareholders
Agreement of the Company, dated as of March 17, 2003.
"Shares" has the meaning set forth in the Recitals.
"Significant Employees" has the meaning set forth in Section 2.7(l).
"Software" means all computer software, including but not limited to,
application software, system software and firmware, including all source code
and object code versions thereof, in any and all forms and media, and all
related documentation.
"Straddle Period" has the meaning set forth in Section 5.2.
"Tax" means any federal, state, local or foreign income, alternative,
minimum, accumulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, value added,
transfer, registration, stamp, premium, excise, customs duties, severance,
environmental (including taxes under Section 59A of the Code), real property,
personal property, ad valorem, occupancy, license, occupation, employment,
payroll, social security, disability, unemployment, workers' compensation,
withholding, estimated or other similar tax, duty, fee, assessment
65
or other governmental charge or deficiencies thereof (including all interest and
penalties thereon and additions thereto).
"Tax Accountant" has the meaning set forth in Section 5.4.
"Tax Return" means any federal, state, local or foreign tax return,
declaration, statement, report, schedule, form or information return or any
amendment to any of the foregoing relating to Taxes.
"Termination Fee" has the meaning set forth in Section 7.2(b).
"Third Party Claim" has the meaning set forth in Section 8.5.
"Threshold Amount" has the meaning set forth in Section 8.4(a).
"Trade Secrets" means all proprietary and confidential information,
know-how, research and development, trade secrets, customer lists, technical and
design information, data, processes, formulae, methods, schematics, process
technology, plans, drawings, blue prints, inventions and discoveries.
"Treasury Regulation" means the regulations prescribed under the Code.
"Trustee" means the trustee of the ESOP, solely in his or her capacity as
trustee.
"Unaudited Financial Statements" has the meaning set forth in Section
2.5(a).
"Unresolved Items" has the meaning set forth in Section 1.4(h).
"Web Sites" means all web sites, web pages and URLs.
Section 9.2 Construction. Unless specified otherwise, in this Agreement the
obligations of any party consisting of more than one person are joint and
several. The words "hereof", "herein" and "hereunder" and words of like import
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in this construction or
interpretation hereof. References to Articles, Sections, Exhibits and Schedules
are to Articles, Sections, Exhibits and Schedules of this Agreement unless
otherwise specified. All Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Exhibit or Schedule but
not otherwise defined therein, shall have the meaning as defined in this
Agreement. Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation," whether or not they are in fact
following by those words or words of like import.
66
"Writing", "written" and comparable terms refer to printing, typing and other
means of reproducing words (including electronic media) in a visible form.
References to any agreement or contract are to that agreement or contract as
amended, modified or supplemented from time to time in accordance with the terms
hereof and thereof. References to any Person include the successors and
permitted assigns of that Person. References from or through any date mean,
unless otherwise specified, from and including or through and including,
respectively. Any reference to "days" means calendar days unless Business Days
are expressly specified. If any action under this Agreement is required to be
done or taken on a day that is not a Business Day, then such action shall not be
required to be done or taken on such day but on the first succeeding Business
Day thereafter.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given:
if to the Buyer,
EDO Corporation
00 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Secretary
Fax: (000) 000-0000
with a copy to:
Debevoise & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Bab, Esq.
Fax: (000) 000-0000
if to the Sellers,
Xxxxxx X. Xxxxxx
c/o Impact Science & Technology, Inc.
00 Xxxxxxxxx Xxxx.
Xxxxxx, XX 00000
Fax: (000) 000-0000
67
with a copy to:
McLane, Graf, Xxxxxxxxx & Middleton, Professional Association
000 Xxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
if to the ESOP,
Xxxxxxx Xxxxxx
Spinnaker Trust
0 Xxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
with a copy to:
Wakelin, Xxxxxxx & X'Xxxxxxx, LLP
00 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. on a Business
Day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed to have been received on the next succeeding
Business Day in the place of receipt.
Section 10.2 Amendment; Waivers, etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or
68
privileges hereunder. Unless otherwise specifically provided herein, the rights
and remedies herein provided are cumulative and none is exclusive of any other,
or of any rights or remedies that any party may otherwise have at law or in
equity. The rights and remedies of any party based upon, arising out of or
otherwise in respect of any inaccuracy or breach of any representation,
warranty, covenant or agreement or failure to fulfill any condition shall in no
way be limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may also be
the subject matter of any other representation, warranty, covenant or agreement
as to which there is no inaccuracy or breach.
Section 10.3 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and each of the Ancillary
Agreements shall be paid by the party incurring such cost or expense. All fees
and expenses associated with the filing of the notifications of the Buyer and
the Sellers pursuant to the HSR Act (if applicable) shall be borne equally by
the Buyer, on the one hand, and the Sellers, on the other hand.
Section 10.4 Governing Law, etc.
(a) THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS, TO THE
EXTENT SUCH PRINCIPLES OR RULES ARE NOT MANDATORILY APPLICABLE BY STATUTE AND
WOULD PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. The
Buyer and each of the Sellers hereby irrevocably submit to the jurisdiction of
the courts of the State of New York and the Federal courts of the United States
of America located in the State, City and County of New York solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby and thereby. The Buyer and each of the Sellers irrevocably
agree that all claims in respect of the interpretation and enforcement of the
provisions of this Agreement and of the Ancillary Agreements, and in respect of
the transactions contemplated hereby and thereby, or with respect to any such
action or proceeding, shall be heard and determined in such a New York State or
Federal court, and that such jurisdiction of such courts with respect thereto
shall be exclusive, except solely to the extent that all such courts shall
lawfully decline to exercise such jurisdiction. The Buyer and each of the
Sellers hereby waive, and agree not to assert, as a defense in any action, suit
or proceeding for the interpretation or enforcement hereof or of any such
document or in respect of any such transaction, that it is not subject to such
jurisdiction. The Buyer and each of the Sellers hereby waive, and agree not to
assert, to the maximum extent permitted by law, as a defense in any action, suit
or proceeding for the interpretation or enforcement hereof or of any such
document or in respect of any such transaction, that
69
such action, suit or proceeding may not be brought or is not maintainable in
such courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts. The
Buyer and each of the Sellers hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 10.1 or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF
THE ANCILLARY AGREEMENTS, OR THE BREACH, TERMINATION OR VALIDITY OF THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 10.4(b).
Section 10.5 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 10.6 Sellers' Representative.
(a) Each of the Sellers (other than the ESOP) hereby irrevocably appoints
Xxxxxx X. Xxxxxx (the "Sellers' Representative") as his, her or its agent, proxy
and attorney-in-fact for all purposes under this Agreement, and each such Seller
authorizes the Sellers' Representative to do any and all of the following for
such Seller and in such Seller's name and stead: (i) to execute, acknowledge, as
appropriate, and deliver to the Buyer any certificate, document or agreement
referred to herein or contemplated hereby (other than the Restricted Shares
Agreement to which such Seller is a party, if any); (ii) to accept, receipt for
and deposit any funds or other amounts owing to the Sellers (other than the
ESOP) hereunder; (iii) to represent, negotiate on behalf of and bind the Sellers
(other
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than the ESOP) in connection with the determination of the purchase price
adjustment amount pursuant to Section 1.4, any negotiations or agreements with
the Buyer with respect to the purchase price adjustment under Section 1.4, and
any presentation to or discussions with the Independent Accountant with respect
thereto; (iv) to pay the purchase price adjustment amount, if any, due from the
Sellers (other than the ESOP) to the Buyer in accordance with Section 1.4,
subject to the individual Sellers' prior payment or prompt reimbursement of such
amount to the Sellers' Representative; (v) to represent, negotiate on behalf of
and bind the Sellers (other than the ESOP) in connection with the determination
of any indemnification claims under this Agreement or any of the Ancillary
Agreements or any negotiations or agreements with the Buyer with respect to
indemnification, and to make any indemnification payments under this Agreement
or any of the Ancillary Agreements on behalf of the Sellers (other than the
ESOP); (vi) on behalf of the Sellers (other than the ESOP), to execute,
acknowledge, as appropriate, and deliver such modifications and amendments to
this Agreement or any of the Ancillary Agreements as the Sellers' Representative
shall deem advisable in his discretion; and (vii) to do any and all other acts
and things on behalf of the Sellers (other than the ESOP) in connection with
this Agreement or any of the Ancillary Agreements as the Sellers' Representative
shall deem advisable in his discretion. The agency created hereby shall be
deemed irrevocable and coupled with an interest. The Buyer shall be entitled to
rely upon the powers granted herein with respect to any matter relating to this
Agreement or any of the Ancillary Agreements, and any question which may arise
concerning the power or authority of the Sellers' Representative to act for each
Seller (other than the ESOP) shall be interpreted and construed in favor of the
authority of the Sellers' Representative.
(b) The Sellers' Representative shall not be liable to any Seller with
respect to any actions taken (or not taken) by the Sellers' Representative in
the performance of his duties under this Agreement and any other document or
agreement referred to herein or contemplated hereby, except to the extent that
such actions were taken (or not taken) as a result of the intentional misconduct
of the Sellers' Representative.
Section 10.7 Assignment. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto. Notwithstanding the foregoing, without the consent of
the other parties hereto, the Buyer may transfer or assign (including by way of
a pledge), in whole or from time to time in part with prior written notice to
the Sellers, (a) to one or more of its Affiliates, the right to purchase all or
a portion of the Shares, but no such transfer or assignment will relieve the
Buyer of its obligations hereunder or (b) to its lenders or other financing
sources under its credit facilities any or all of its rights hereunder
(including its rights to seek indemnification hereunder) as collateral security
for indebtedness, but no such transfer or assignment will relieve the Buyer of
its obligations hereunder. Upon any such permitted assignment, the references in
this Agreement to the Buyer shall also apply to any such assignee unless the
context otherwise requires.
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Section 10.8 No Third Party Beneficiaries. Except as provided in Article
VIII with respect to indemnification of Indemnified Parties hereunder, nothing
in this Agreement shall confer any rights upon any person or entity other than
the parties hereto and their respective heirs, successors and permitted assigns.
Section 10.9 Entire Agreement. This Agreement and the Ancillary Agreements
(when executed and delivered) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
Section 10.10 Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any matter materially adverse to any
party. Upon such determination, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
Section 10.11 Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
Section 10.12 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
Section 10.13 Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any court specified in Section 10.4, in addition to any other remedy to which
they are entitled at law or in equity.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
Sellers:
----------------------------------------
Xxxxxx X. Xxxxxx
----------------------------------------
Xxxxx X. Xxxxx
----------------------------------------
P. Xxxxxxx Xxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxxxxxx X. Xxxxx
----------------------------------------
Xxxxx X. Xxxxxxxx
----------------------------------------
Xxxx X. Xxxxx
----------------------------------------
Xxxx X. Xxxxxxxx
----------------------------------------
Xxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxxx
IMPACT SCIENCE & TECHNOLOGY, INC.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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Buyer:
EDO CORPORATION
By:
------------------------------------
Name: Xxxxxxxx X. Xxxxxxx
Title: Senior Vice President-Finance,
Treasurer and Chief Financial
Officer
74