SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 1, 1998
Spacehab, Incorporated
(Exact name of registrant as specified in its charter)
Washington
(State or jurisdiction of incorporation)
0-27206 91-1273737
(Commission File Number) (IRS Employer Identification No.)
1595 Spring Hill Road, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
(703) 821-3000
(Registrant's Telephone Number)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 1, 1998, pursuant to a Stock Purchase Agreement dated as of July
1, 1998 (the "Stock Purchase Agreement"), Spacehab, Incorporated (the
"Registrant"), acquired all the outstanding shares of capital stock of Johnson
Engineering Corporation, a Colorado corporation ("Johnson Engineering"). Johnson
Engineering, headquartered in Houston, Texas, is primarily engaged in the
business of providing engineering services to the National Aeronautics and Space
Administration ("NASA"). A copy of the Stock Purchase Agreement is filed
herewith as Exhibit 2.1 and reference is made thereto for the complete terms and
conditions thereof.
The purchase price of $24,500,000 in cash (subject to adjustment following
a review of the closing date balance sheet of Johnson Engineering) was based
upon the business prospects of Johnson Engineering and the estimated value of
synergies to be realized by the integration of the Registrant and capital stock
of Johnson Engineering. Registrant purchased all the outstanding shares of
capital stock of Johnson Engineering from the former shareholders, Eugene A.
Cernan, William A. Jackson and W.T. Short, all of whom have executed employment
and non-competition agreements with Registrant as of July 1, 1998. Registrant
obtained the funds for the purchase price from an offering in October 1997 of
its 8% Convertible Subordinated Notes due 2007.
Registrant intends to operate Johnson Engineering under its current name
as a wholly-owned subsidiary of Registrant. Registrant expects Johnson
Engineering to continue to operate its business in the same manner as before the
acquisition.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Pro forma financial information of Registrant reflecting the
acquisition of Johnson Engineering.
Unaudited pro forma Consolidated Balance Sheet as of March 31,
1998.
Unaudited pro forma Consolidated Statement of Income for the
nine-month period ended March 31, 1998.
Unaudited pro forma Consolidated Statement of Income for the
year ended June 30, 1997.
Notes to Unaudited Pro Forma Consolidated Financial
Statements.
(b) Financial statements of Johnson Engineering.
Unaudited Balance Sheet as of March 31, 1998.
Unaudited Statements of Earnings for the three-month periods
ended March 31, 1997 and 1998.
Unaudited Statements of Cash Flows for the three-month periods
ended March 31, 1997 and 1998.
Note to Financial Statements
Report of Independent Certified Public Accountants.
Audited Balance Sheet as of December 31, 1997.
Audited Statement of Earnings for the year ended December 31,
1997.
Audited Statement of Stockholders' Equity for the year ended
December 31, 1997.
Audited Statement of Cash Flows for the year ended December
31, 1997.
Notes to Financial Statements
(c) Exhibits.
The following Exhibits are included with this Form 8-K:
2.1 Stock Purchase Agreement dated as of July 1, 1998 by and among
Spacehab, Incorporated, a Washington corporation, as buyer, Eugene
A. Cernan, William A. Jackson and W.T. Short, as sellers, and
Johnson Engineering Corporation, a Colorado corporation. (Schedules
and Exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Such Schedules and Exhibits are listed and described
in the Stock Purchase Agreement. Registrant hereby agrees to furnish
to the Securities and Exchange Commission, upon its request, any or
all such omitted Schedules and Exhibits.)
23 Consent of Grant Thornton LLP.
99.1 Press Release of the Registrant, dated July 1, 1998.
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited consolidated pro forma financial information
consists of an Unaudited Pro Forma Consolidated Balance Sheet as of March 31,
1998 and Unaudited Pro Forma Consolidated Statements of Income for the nine
months ended March 31, 1998 and the year ended June 30, 1997 (the "Pro Forma
Statements").
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
acquisition of Johnson Engineering as if it occurred on March 31, 1998. The
Unaudited Pro Forma Consolidated Statements of Income for the nine months ended
March 31, 1998 and the year ended June 30, 1997 give effect to the acquisition
of Johnson Engineering as if it occurred at the beginning of such periods.
The acquisition of Johnson Engineering will be accounted for using the
purchase method of accounting and, accordingly, the purchase price will be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values as of the date of
consummation of the acquisition. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable. The actual allocation of the purchase price, however, and the
resulting effect on net income from operations may differ from the pro forma
amounts included herein.
Management believes that, on the basis set forth herein, the Pro Forma
Statements reflect a reasonable estimate of this transaction based on currently
available information. The pro forma financial data do not purport to represent
what the Company's financial position or results of operations would actually
have been had this transaction in fact occurred on the date or at the beginning
of the period indicated or to project the Company's financial position or
results of operations for any future date or period indicated. The Pro Forma
Statements should be read in conjunction with the consolidated financial
statements and related footnotes of Spacehab, Incorporated included in the
Company's 1997 annual report on Form 10-K and the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1998
(in thousands)
Historical
--------------------
SPACEHAB Johnson Adjustments Pro Forma
Engineering
---------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $84,962 $ 2 $(26,028)(1)$ 58,936
Receivables, net.............. 12,972 8,466 21,438
Prepaid and other current
assets...................... 1,767 239 2,006
------- ------ --------- -------
Total current assets.......... 99,701 8,707 (26,028) 82,380
Property and equipment, net...... 100,890 351 101,241
Goodwill, net.................... 3,268 -- 24,781(1) 28,049
Deferred mission costs........... 1,918 -- 1,918
Other assets, net................ 5,775 247 6,022
------- ------ ------- --------
TOTAL ASSETS..................... $211,552 $9,305 $(1,247) $219,610
======== ====== ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt.............. $ 3,660 $ 400 $ -- $4,060
Accounts payable and accrued
expenses......................... 4,656 4,042 8,698
Accrued consulting and
subcontracting services 6,871 2,516 9,387
Advance billings.............. 377 -- 377
------ ----- ----- ------
Total current liabilities..... 15,564 6,958 -- 22,522
Notes payable to shareholder..... 11,895 -- 11,895
Loan payable under credit
agreement, net of current
portion..................... 1,000 -- 1,000
Note payable, net of current
portion..................... 9,547 -- 9,547
Convertible notes payable........ 63,250 -- 63,250
Deferred flight revenue and
other liabilities................ 18,570 -- 1,100(1) 19,670
------- ----- ----- -------
Total liabilities............. 119,826 6,958 1,100 127,884
Shareholders' equity:
Common stock.................. 81,198 20 (20)(1) 81,198
Additional paid-in capital.... 16 69 (69)(1) 16
Retained earnings ............ 10,512 2,258 (2,258)(1) 10,512
------- ----- ----- -------
Total shareholders' equity.... 91,726 2,347 (2,347) 91,726
------- ----- ----- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........... $211,552 $9,305 $(1,247) $219,610
======== ====== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended March 31, 1998
(dollars in thousands, except per share data)
Historical
--------------------
SPACEHAB Johnson Adjustments Pro Forma
Engineering
---------------------------------------------
<S> <C> <C> <C> <C>
Revenue................. $ 39,290 $36,965 $ -- $76,255
Costs of Revenue:
Integration and
operations.............. 18,370 33,380 (39)(4) 51,711
Depreciation......... 2,935 -- 2,935
Insurance and other
direct costs 915 -- 915
-------- ------- ------ --------
Total costs of revenue 22,220 33,380 39 55,561
-------- ------- ------ --------
Gross profit 17,070 3,585 (39) 20,694
Marketing, general and (212)(4)
administrative expenses 10,022 1,506 743 (3) 12,059
Research and development 1,793 75 1,868
-------- ------- ------ --------
Total operating expenses 11,815 1,581 531 13,927
-------- ------- ------ --------
Income from operations.. 5,255 2,004 (492) 6,767
Interest expense, net of
capitalized amounts (2,632) (18) (2,650)
Interest and other income 2,341 275 2,616
-------- ------- ------ --------
Income before income taxes 4,964 2,261 (492) 6,733
Income tax expense...... -- -- 292(5) 292
-------- ------- ------ --------
Net income.............. $ 4,964 $2,261 $ (784) $6,441
======== ======= ====== ========
Net income per
share--diluted.......... $ 0.44 $ 0.56
======== ========
Shares used in computing
net income--per
share--assuming dilution 11,408 11,408
======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
statements
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended June 30, 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------
SPACEHAB Johnson Adjustments Pro Forma
Engineering(2)
--------------------------------------------------
<S> <C> <C> <C>
Revenue $ 56,601 $ 36,776 $ 93,377
Costs of Revenue:
Integration and 23,799 32,790 $ (52)(4) 56,537
operations............
Depreciation........... 9,825 -- 9,825
Insurance and other
direct costs.......... 496 -- 496
------- ------- -------- --------
Total costs of revenue... 34,120 32,790 (52) 66,858
------- ------- -------- --------
Gross profit.............. 22,481 3,986 52 26,519
------- ------- -------- --------
Marketing, general and (282)(4)
administrative expenses. 8,567 1,842 991 (3) 11,118
Research and development.. 1,252 70 1,322
------- ------- -------- --------
Total operating expenses. 9,819 1,912 709 12,440
------- ------- -------- --------
Income from operations.... 12,662 2,074 (657) 14,079
Interest expense, net of
capitalized amounts....... (955) (52) (1,007)
Interests and other income 1,822 -- 1,822
------- ------- -------- --------
Income before income taxes 13,529 2,022 (657) 14,894
Income tax expense........ 2,971 -- 306 3,277
------- ------- -------- --------
Net income................ $10,558(6) $ 2,022 $(963) $ 11,617
======= ======= ======== ========
Net income per
share--diluted............. $ 0.95(6) $ 1.04
======== ======= ======== ========
Shares used in computing
net income per share
--assuming dilution 11,180 11,180
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial Statements
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
acquisition of Johnson Engineering as if it occurred on March 31, 1998. The
Unaudited Pro Forma Consolidated Statements of Income for the nine months ended
March 31, 1998 and the year ended June 30, 1997 give effect to the acquisition
of Johnson Engineering as if it occurred at the beginning of such periods.
(1) To recognize the acquisition of Johnson Engineering. The Company purchased
all of the outstanding common stock from the former shareholders of
Johnson Engineering for $24.5 million in cash (subject to adjustment
following a review of the closing date balance sheet of Johnson
Engineering), and incurred approximately $1.5 million in costs associated
with the acquisition.
The acquisition of Johnson Engineering will be accounted for using the
purchase method of accounting and, accordingly, the purchase price will be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values as of date of
consummation of the acquisition. For purposes of the pro forma
information, management of the Company has assumed that the fair values of
the assets and liabilities acquired will be equal to their respective book
values as of the date of the acquisition, although the Company has
included a pro forma adjustment to record a $1.1 million liability to
recognize the fair value of Johnson Engineering's long-term contract with
NASA.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable. The actual
allocation of the purchase price, however, and the resulting effect on net
income from operations may differ from the pro forma amounts included
herein.
(2) To reflect the historical results of operations of Johnson Engineering.
Johnson Engineering had adopted a December 31 year-end, while the Company
operates on a June 30 year-end. Accordingly, Johnson Engineering's
historical results of operations have been conformed to the Company's
fiscal year-end of June 30 with respect to the Unaudited Pro Forma
Consolidated Statements of Income for the nine months ended March 31, 1998
and the year ended June 30, 1997.
(3) To recognize the amortization of goodwill over a 25-year period.
(4) To recognize the reduction in the historical executive compensation of
Johnson Engineering based on employment agreements with certain executives
of Johnson Engineering.
(5) To recognize Federal and state income taxes. Prior to the acquisition,
Johnson Engineering had elected S Corporation status for federal and state
income tax purposes, and accordingly, Johnson Engineering's historical
results of operations reflect no provisions for income taxes. Subsequent
to the acquisition, Johnson Engineering's results of operations will be
consolidated with those of the Company for federal and state income tax
purposes.
(6) Excludes an extraordinary gain of $3,274 (or $0.29 per share), net of
taxes, relating to the Company favorably amending and restating the Credit
Agreement.
<PAGE>
Johnson Engineering Corporation
<TABLE>
<CAPTION>
UNAUDITED BALANCE SHEET
March 31, 1998
ASSETS
CURRENT ASSETS
<S> <C>
Cash ........................................................ $ 2,288
Accounts receivable, net of allowance for doubtful
accounts of $8,584 .......................................... 8,457,842
Unbilled revenue ............................................ 7,612
Prepaid and other ........................................... 239,305
----------
Total current assets ............................... 8,707,047
PROPERTY AND EQUIPMENT
Leasehold improvements ...................................... 276,969
Furniture and equipment ..................................... 228,597
Computer equipment .......................................... 90,725
Purchased software .......................................... 39,718
636,009
Less accumulated depreciation and amortization ........... 285,397
350,612
----------
OTHER ASSETS ................................................... 147,800
Retainage ................................................... 99,710
Other ....................................................... --
247,510
Total Assets ....................................... $9,305,169
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank ........................................ $ 400,000
Accounts payable ............................................ 4,041,694
Accrued and other current liabilities ....................... 2,384,760
Accrued contract liability .................................. 130,958
----------
Total current liabilities .......................... 6,957,412
STOCKHOLDERS' EQUITY
Common stock - $1 par value; authorized, 50,000
shares; issued and outstanding, 20,000 shares ............. 20,000
Additional paid-in capital .................................. 69,015
Retained earnings ........................................... 2,258,742
2,347,757
----------
Total Liabilities and Stockholders' Equity ......... $9,305,169
==========
</TABLE>
The accompanying note is an integral part of this statement.
<PAGE>
Johnson Engineering Corporation
<TABLE>
<CAPTION>
UNAUDITED STATEMENTS OF EARNINGS
Three months ended March 31, 1997 and 1998
REVENUES ................................................... 1997 1998
----------- -----------
<S> ........................................................ <C> <C>
Contract revenues ....................................... $ 7,724,595 $11,769,008
Other, net .............................................. 10,383 2,288
----------- -----------
Total revenues ................................. 7,734,978 11,771,296
----------- -----------
COSTS AND EXPENSES
Cost of revenues ........................................ 6,893,530 10,480,999
General and administrative
expenses ................................................ 373,543 571,860
Research and development expenses ....................... 23,838 28,926
Interest expense ........................................ 6,310 7,364
----------- -----------
Total costs and expenses ....................... 7,297,221 11,089,149
----------- -----------
NET EARNINGS .................................... $ 437,757 $ 682,147
=========== ===========
</TABLE>
The accompanying note is an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
Johnson Engineering Corporation
UNAUDITED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1998
1997 1998
----------- -----------
Cash flows from operating activities
<S> ........................................................ <C> <C>
Net earnings ............................................ $ 437,757 $ 682,147
Adjustments to reconcile net
earnings to net cash used in
operating activities
Depreciation and amortization ........................ 23,019 28,856
Changes in current assets and
liabilities
Accounts receivable, net ........................... (666,647) (3,056,408)
Unbilled revenue ................................... 482,135 428,698
Prepaid and other .................................. 122,604 (127,727)
Accounts payable ................................... (1,195,784) 650,752
Accrued liabilities ................................ 287,297 1,230,422
----------- -----------
Net cash used in operating
activities ....................................... (509,619) (163,260)
Cash flows from investing activities
Purchases of property and
equipment ............................................... (7,309) (32,806)
Retainage ............................................... -- 30,000
Other assets ............................................ (3,279) (26,226)
----------- -----------
Net cash used in investing
activities ...................................... (10,588) (29,032)
Cash flows from financing activities
Borrowings under note payable ........................... 3,550,000 3,140,000
Repayments on note payable .............................. (2,175,000) (2,740,000)
Distributions to stockholders ........................... (600,000) (207,508)
----------- -----------
Net cash provided by
financing activities ............................ 775,000 192,492
----------- -----------
NET INCREASE IN CASH ............................... 254,793 200
Cash at beginning of period ................................ 3,800 2,088
----------- -----------
Cash at end of period ...................................... $ 258,593 $ 2,288
=========== ===========
Cash paid during the period for
interest ................................................... $ 6,311 $ 7,364
=========== ===========
</TABLE>
The accompanying note is an integral part of these statements.
<PAGE>
Johnson Engineering Corporation
NOTE TO FINANCIAL STATEMENTS
March 31, 1997 and 1998
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Johnson Engineering Corporation (the "Company") is primarily engaged in
providing engineering services and products to the federal government.
The interim financial statements included herein have been prepared by the
Company without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, all adjustments necessary to present fairly the financial position
of Johnson Engineering Corporation, as of March 31, 1998, and the results of
operations and cash flows for the three months ended March 31, 1997 and 1998
have been included and are of a normal, recurring nature. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Johnson Engineering Corporation
We have audited the accompanying balance sheet of Johnson Engineering
Corporation (a Colorado corporation), as of December 31, 1997, and the related
statements of earnings, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Johnson Engineering
Corporation, as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
May 8, 1998
<PAGE>
Johnson Engineering Corporation
<TABLE>
<CAPTION>
BALANCE SHEET
December 31, 1997
ASSETS
CURRENT ASSETS
<S> ................................................. <C>
Cash ............................................. $ 2,088
Accounts receivable, net of allowance for doubtful 5,401,434
accounts of $8,584
Unbilled revenue ................................. 436,310
Prepaid and other ................................ 111,578
----------
Total current assets .................... 5,951,410
PROPERTY AND EQUIPMENT
Leasehold improvements ........................... 264,860
Furniture and equipment .......................... 223,149
Computer equipment ............................... 90,725
Purchased software ............................... 39,718
----------
618,452
Less accumulated depreciation and amortization 256,541
----------
361,911
OTHER ASSETS
Retainage ........................................ 177,800
Other ............................................ 73,484
251,284
----------
Total Assets ............................ $6,564,605
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................. $3,406,191
Accrued liabilities .............................. 1,154,338
Accrued contract liability ....................... 130,958
----------
Total current liabilities ............... 4,691,487
COMMITMENTS ......................................... --
STOCKHOLDERS' EQUITY
Common stock - $1 par value; authorized, 50,000 .. 20,000
shares; issued
and outstanding, 20,000 shares
Additional paid-in-capital ....................... 69,015
Retained earnings ................................ 1,784,103
1,873,118
----------
Total Liabilities and Stockholders' Equity . $6,564,605
==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Johnson Engineering Corporation
STATEMENT OF EARNINGS
Year ended December 31, 1997
REVENUES
<S> ................................................. <C>
Contract revenues ................................ $42,778,523
Gain on disposal of staffing services division ... 275,000
Other, net ....................................... 11,330
-----------
Total revenues .......................... 43,064,853
COSTS AND EXPENSES
Cost of revenues ................................. 38,540,704
General and administrative expenses .............. 1,986,589
Research and development expenses ................ 92,080
Interest expense ................................. 25,584
-----------
Total costs and expenses ................ 40,644,957
-----------
NET EARNINGS ............................ $ 2,419,896
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Johnson Engineering Corporation
STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31, 1997
Common Stock
------------- Additional Receivable Total
paid-in Retained from stockholders'
Shares Amount capital earnings stockholders equity
------ ------- ----------- ---------- ------------ ------------
Balance
<S> <C> <C> <C> <C> <C> <C>
at January 1, 1997 20,000 $20,000 $69,015 $1,750,220 $(700,000) $1,139,235
Net earnings - - - 2,419,896 - 2,419,896
Distribution to
stockholders - - - (2,386,013) 700,000 (1,686,013)
------ ---- ----- ---------- ---------- ----------
Balance
at December 31, 1997 20,000 $20,000 $69,015 $1,784,103 $ - $1,873,118
====== ======= ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Johnson Engineering Corporation
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
Increase (Decrease) in Cash
Cash flows from operating activities
<S> .......................................................... <C>
Net earnings .............................................. $ 2,419,896
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization ........................... 94,412
Gain on sale of staffing services division .............. (275,000)
Loss on disposal of property and equipment .............. 27,697
Changes in current assets and liabilities
Accounts receivable, net .............................. (1,491,744)
Unbilled revenue ...................................... 45,725
Prepaid and other ..................................... 43,676
Accounts payable ...................................... 591,035
Accrued liabilities ................................... (25,090)
------------
Net cash provided by operating activities ........... 1,430,607
------------
Cash flows from investing activities
Proceeds from disposal of property and equipment ........ 2,390
Purchases of property and equipment ..................... (148,434)
Proceeds from sale of staffing services division ........ 391,330
Other assets ............................................ 8,408
------------
Net cash provided by investing activities ........... 253,694
------------
Cash flows from financing activities
Borrowings under note payable ........................... 12,215,000
Repayments on note payable .............................. (12,215,000)
Distributions to stockholders ........................... (1,686,013)
------------
Net cash used in financing activities ............... (1,686,013)
------------
NET DECREASE IN CASH ................................ (1,712)
Cash at beginning of period ............................... 3,800
------------
Cash at end of period ..................................... $ 2,088
============
Cash paid during the period for:
Interest ................................................ $ 36,344
Income taxes ............................................ --
</TABLE>
- ------------------
Noncash investing and financing activities:
In 1997, the Company sold its staffing services division, including accounts
receivable of $146,330, for a cash payment of $391,330 and a $30,000 retainage.
In 1997, the Company exchanged a condominium for a $69,290 note receivable from
a stockholder.
In 1997, the Company distributed a $700,000 note receivable for stock
subscription to the stockholders.
The accompanying notes are an integral part of this statement.
<PAGE>
Johnson Engineering Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Johnson Engineering Corporation (the "Company") was incorporated in the state of
Colorado in 1973 and is primarily engaged in providing engineering services and
products to the federal government.
On September 1, 1997, the Company sold its technical staffing services division
for approximately $421,000, resulting in a gain of $275,000. The sale of this
division had no significant impact on the financial position or results of
operations of the Company.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Contract Revenues
In April 1993, the Company was awarded a contract with NASA (the "NASA
Contract") for a period of five years, with priced option renewals up to nine
years. The Company derived approximately 97% of its total revenues for the year
ended December 31, 1997 from this long-term federal contract with NASA.
Additionally, at December 31, 1997, approximately 97% of the Company's accounts
receivable were due from NASA. In April 1998, NASA exercised the first renewal
option, which extended the contract to April 2001.
The Company's NASA contract is on a cost-plus-award-fee basis and is subject to
review and negotiation by NASA. Revenues on cost-plus-fee contracts are
recognized to the extent of costs incurred plus base-fee revenues using the
percentage-of-completion method, measured on costs incurred. Award fees, which
provide earnings based on the Company's contract performance as determined by
periodic NASA evaluations, are recorded when the amounts can be reasonably
estimated, or are awarded. As award fees are determined by NASA evaluations, it
is at least reasonably possible estimated award fees will be revised in the near
term. Approximately $400,000 of estimated award fees recognized as income in
1997 are subject to evaluation. Retainages of $147,800 at December 31, 1997
represent amounts withheld on contracts until NASA performs final contract
audits.
Contract costs, including indirect costs, are subject to audit and adjustment by
negotiations between the Company and NASA. The Company has reserved $130,958 as
accrued contract liability for potential disallowed costs and future credits on
government contracts as of December 31, 1997.
Unbilled revenues represent amounts earned but not yet billed by the Company on
contracts.
<PAGE>
Johnson Engineering Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
2. Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided using straight-line and accelerated methods over the estimated useful
lives of the related assets ranging from three to seven years.
Depreciation expense of $94,412 was recorded for the year ended December 31,
1997.
3. Income Taxes
Federal income taxes on net earnings are payable personally by the stockholders
pursuant to an election under Subchapter S of the Internal Revenue Code not to
have the Company taxed as a corporation. Accordingly, no provision has been made
for federal income taxes.
4. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes;
accordingly, actual results could differ from those estimates.
NOTE B - COMMON STOCK TRANSACTIONS
The Company issued 20,000 shares of common stock for a $700,000 note receivable
from stockholders in 1994. The 6.34% interest-bearing note receivable for the
stock subscription which was collateralized by the common stock purchased and
had been reflected as a component of stockholders' equity in the accompanying
financial statements was distributed to the stockholders in 1997.
NOTE C - NOTE PAYABLE TO BANK
The Company has a $2,500,000 line of credit agreement which is collateralized by
cash, accounts receivable, inventory, and equipment. The line of credit bears
interest at the bank's base rate plus .5% (9% at December 31, 1997) and contains
restrictive covenants relating to tangible net worth, ratio of current assets to
current liabilities, coverage of earnings before interest, income taxes and
depreciation and amortization to outstanding debt, dividends and payments to
stockholders, among other restrictions. The line of credit matures on May 31,
1998, and at December 31, 1997, no amounts were outstanding under the line.
<PAGE>
Johnson Engineering Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE D - COMMITMENTS
The Company has a consulting contract with the Company's former president that
provides for a retainer as well as a percentage of contract net profits, as
defined, for contract years six through nine (currently in contract year five);
new contracts net profits, as defined, obtained before September 1, 1998; and
net revenue on shelf technology that existed at November 1994.
The Company rents office space and equipment under operating leases. Related
rent expense was $333,270 for the year ended December 31, 1997. Future minimum
lease commitments as of December 31, 1997 for the office and equipment leases
are as follows:
Year ending December 31
1998 $555,032
1999 565,001
2000 563,159
2001 569,431
2002 515,492
Thereafter 238,482
--------
$3,006,597
==========
NOTE E - EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan under Section 401(k) of the Internal
Revenue Code covering personnel who have been employed at least six months.
Employees may contribute up to 10% of their compensation to the plan. Beginning
January 1, 1997, the Company began contributing an amount equal to 50% of the
employees' contributions not to exceed 5% of the employees' compensation. The
Company also has the ability to make additional discretionary contributions to
the plan. At December 31, 1997, the Company had accrued discretionary
contributions of approximately $137,000. For 1997, expense under the plan was
approximately $653,000.
NOTE F - RELATED PARTY TRANSACTIONS
In 1997, the Company exchanged a condominium for a $69,290 uncollateralized note
receivable from a stockholder, which resulted in a gain of $10,844. The note
requires monthly interest payments at 5.7%, with unpaid principal and interest
due in February 2000 and has been included in other assets in the accompanying
financial statements.
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
--------------
2.1 Stock Purchase Agreement dated as of July 1, 1998 by and
among Spacehab, Incorporated, a Washington corporation, as
buyer, Eugene A. Cernan, William A. Jackson and W.T. Short,
as sellers, and Johnson Engineering Corporation, a Colorado
corporation. (Schedules and Exhibits have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. Such Schedules
and Exhibits are listed and described in the Stock Purchase
Agreement. Registrant hereby agrees to furnish to the
Securities and Exchange Commission, upon its request, any or
all such omitted Schedules and Exhibits.)
23 Consent of Grant Thornton LLP.
99.1 Press Release of the Registrant, dated July 1, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPACEHAB, INCORPORATED
By: /s/ Margaret E. Grayson
-------------------------
Margaret E. Grayson
Vice President and CFO
Dated: July 12, 1998.
STOCK PURCHASE AGREEMENT
Dated July 1, 1998
by and among
SPACEHAB, INCORPORATED
a Washington corporation,
BUYER
and
William A. Jackson,
an individual,
Eugene A. Cernan ,
an individual
and
W. T. Short
an individual,
SELLERS
Collectively
The Holders of One Hundred Percent (100%)
of the Outstanding Common Stock
of
JOHNSON ENGINEERING CORPORATION, a Colorado corporation.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
STOCK PURCHASE AGREEMENT.....................................................1
SECTION 1. SALE AND PURCHASE................................................1
a) Sale and Purchase................................................1
b) Purchase Price...................................................1
SECTION 2. THE CLOSING......................................................3
a) Time and Place of Closing........................................3
b) Delivery and Payment.............................................4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO STOCK
OWNERSHIP, AUTHORITY, NO VIOLATION, ETC. ........................4
a) Stock Ownership..................................................4
b) No Violation, Etc................................................4
c) No Other Agreements to Sell Assets or Business...................5
d) Litigation.......................................................5
e) Good Standing; Authority; Execution and Delivery.................5
f) Taxes............................................................5
g) Knowledge........................................................6
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES REGARDING SELLERS AND
THE COMPANY......................................................6
a) Consents, No Conflicts, Etc......................................6
b) Organization and Good Standing...................................6
c) Capitalization...................................................7
d) Articles of Incorporation and By-laws............................7
e) Financial Statements.............................................7
g) Absence of Undisclosed Liabilities and Obligations...............8
h) Absence of Certain Changes or Events.............................8
i) Reserved........................................................11
j) Accounts Receivable.............................................11
k) Reserved........................................................11
l) Lists of Properties, Contracts and Personnel Data...............11
i) Schedule 4(l)(i). Qualification..........................11
ii) Schedule 4(l)(ii). Real Property.........................11
iii) Schedule 4(l)(iii). Intellectual Property; Computer
Software..................................................12
iv) Schedule 4(l(iv). Personal Property......................12
v) Schedule 4(l)(v). Insurance..............................12
vi) Schedule 4(l)(vi). Other Contracts.......................12
vii) Schedule 4(l)(vii). Labor Agreements.....................13
viii) Schedule 4(l)(viii). ERISA...............................13
ix) Schedule 4(l)(ix). Compensation..........................13
x) Schedule 4(l)(x). Powers of Attorney.....................13
xi) Schedule 4(l)(xi). Indebtedness..........................13
xii) Schedule 4(l)(xii). Bank Accounts........................13
xiii) Schedule 4(l)(xiii). Agents..............................14
xiv) Schedule 4(l)(xiv). Licenses and Permits.................14
m) Investments.....................................................14
n) Copies of Documents.............................................14
o) Tangible Properties.............................................15
p) Validity of Contracts...........................................16
q) Intellectual Property...........................................16
r) Environmental Matters...........................................17
s) Insurance.......................................................19
t) Labor Matters...................................................20
u) Employee Benefits...............................................20
v) Litigation......................................................22
w) Warranties......................................................22
x) Compliance with Laws............................................23
y) Taxes...........................................................23
z) No Brokers......................................................26
aa) Illegal Payments................................................26
bb) Transactions with Certain Persons...............................26
cc) Assets..........................................................27
dd) Exclusive Use of Bank Accounts..................................27
ee) Books and Records...............................................27
ff) Government Furnished Equipment..................................27
gg) Hart-Scott-Rodino Filings.......................................27
hh) Consequences of Acquisition.....................................27
ii) Disclosure......................................................28
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.........................28
a) Consents, No Conflicts, Etc.....................................28
b) Organization and Good Standing..................................28
c) Authority; Execution and Delivery...............................28
d) No Brokers......................................................28
e) Disclosure......................................................28
SECTION 6. CERTAIN COVENANTS AND AGREEMENTS................................29
a) Non-competition.................................................29
b) Release.........................................................29
c) Non-disclosure..................................................29
d) Access to Facilities; Due Diligence.............................29
e) Further Assurances..............................................30
f) Filing of Tax Returns and Payment of the Tax....................30
g) Apportionment regarding Taxes...................................33
h) Access to Information regarding Taxes...........................33
i) Books and Records...............................................33
j) Notice of Audit.................................................33
k) Tax Contest.....................................................34
l) Transfer Taxes..................................................34
m) Collection of Receivables.......................................34
n) Assignment of Receivables.......................................35
o) Capital Expenditures............................................35
p) Government Clearances...........................................35
q) Blanket Escrow Fund.............................................35
r) Award Fee Escrow Fund...........................................35
s) Deduction Escrow Fund...........................................36
t) S Corporation Election..........................................36
SECTION 7. DELIVERIES BY SELLERS ON THE CLOSING DATE.......................36
a) Stock Certificates..............................................36
b) Opinion of Sellers' Counsel.....................................36
c) Approvals and Consents..........................................36
d) Escrow Agreement................................................37
e) Settlement of Certain Accounts..................................37
f) Bank Accounts...................................................37
g) Sellers' Employment Agreements..................................37
h) Option Agreement................................................37
i) Resignations....................................................37
SECTION 8. DELIVERIES BY BUYER ON THE CLOSING DATE.........................37
a) Buyer's Performance.............................................37
b) Opinion of Buyer's Counsel......................................37
c) Sellers' Employment Agreements..................................37
d) Escrow Agreement................................................37
e) Option Agreement................................................38
SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION, ETC............................................38
a) Survival of Representations, Warranties, Etc....................38
b) Nature of Sellers' Liability....................................39
c) Sellers' Agreement to Indemnify.................................39
d) Limitation on Liability of Sellers..............................39
e) Buyer's Agreement to Indemnify..................................39
f) Third Party Claims..............................................40
SECTION 10. PAYMENT OF CERTAIN EXPENSES.....................................40
SECTION 11. INJUNCTIVE RELIEF...............................................40
SECTION 12. WAIVER..........................................................40
SECTION 13. NOTICES, ETC....................................................41
SECTION 14. ENTIRE AGREEMENT; AMENDMENT.....................................42
SECTION 15. PRESS RELEASES..................................................42
SECTION 16. GENERAL.........................................................42
SECTION 17. SEVERABILITY....................................................43
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of July 1, 1998 (together with the
Schedules, Annexes and Exhibits hereto, this "Agreement"), is by and among
SPACEHAB, INCORPORATED, a Washington corporation, as buyer ("Buyer"), JOHNSON
ENGINEERING CORPORATION (the "Company"), a Colorado corporation and William A.
Jackson ("Jackson"), Eugene A. Cernan ("Cernan") and W.T. Short ("Short") as
sellers (individually "Seller" and collectively "Sellers"), collectively the
beneficial and record owners of one hundred percent (100%) of the issued and
outstanding shares of common stock, $1.00 par value per share (the "Common
Stock"), of the Company.
WHEREAS, the Company is primarily engaged in the business of providing
engineering services to the National Aeronautics and Space Administration (
"NASA") (the "Business");
WHEREAS, the Company's principal offices and operations are located at 555
Forge River Road, Webster, Texas 77598;
WHEREAS, Sellers desire to sell all of the shares of Common Stock owned by
each of them, which in the aggregate represent all of the capital stock of the
Company, all as set forth on Annex I hereto (collectively, the "Shares") and
Buyer desires to purchase such Shares for the consideration and on the terms and
conditions provided herein; and
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, and agreements contained herein, Seller(s) and
Buyer hereby agree as follows:
SECTION 1. SALE AND PURCHASE.
a) Sale and Purchase. On the terms and subject to the conditions of this
Agreement, on the Closing Date (as defined in Section 2(a)), each Seller will
sell, convey, transfer and deliver to Buyer, and Buyer will purchase from such
Seller, the number of Shares set forth opposite such Seller's name on Annex I
hereto, which Shares represent one hundred percent (100%) of the outstanding
shares of capital stock of the Company. As to each Seller, the Shares being sold
by such Seller are sometimes referred to herein as such "Seller's Shares."
b) Purchase Price. On the terms and subject to the conditions of this
Agreement, in consideration of the sale of the Shares, Buyer agrees to pay
Sellers on the Closing Date (as hereinafter defined) the purchase price (the
"Purchase Price"), which shall consist of a sum in cash equal to Twenty Four
Million, Five Hundred Thousand Dollars ($24,500,000), payable as
follows:
<PAGE>
(i) Seventeen Million Nine Hundred Thousand Dollars
($17,900,000) payable to Sellers at closing;
(ii) Two Million Five Hundred Thousand Dollars ($2,500,000) (the
"Blanket Escrow Fund") delivered to the Escrow Agent (as
defined in the Escrow Agreement), to be released in accordance
with the terms and provisions of the Escrow Agreement set
forth as Exhibit IV.A hereto;
(iii) Three Million Dollars ($3,000,000) (the "Award Fee Escrow
Fund") delivered to the Escrow Agent, to be released in
accordance with the terms and provisions of the Escrow
Agreement set forth as Exhibit IV.B hereto; and
(iv) One Million One Hundred Thousand Dollars ($1,100,000) (the
"Deduction Escrow Fund") delivered to the Escrow Agent, to be
released in accordance with the terms and provisions of the
Escrow Agreement set forth as Exhibit IV.C hereto.
The Purchase Price shall be payable by wire transfer of immediately
available funds to such bank account or bank accounts as Sellers and Escrow
Agent shall theretofore designate in writing to Buyer, or by such other means as
are agreed upon by Sellers, Buyer and Escrow Agent. The Purchase Price shall be
allocated among the Sellers as set forth on Annex I hereto.
c) Closing and Post-Closing Adjustment.
(i) Definitions.
"GAAP" shall mean Generally Accepted Accounting Principles as
historically applied by the Company.
"Retained Earnings" shall be given the meaning ascribed to
this concept in accordance with GAAP.
"Special Bonus" shall mean a one-time bonus of Five Hundred
Thousand Dollars ($500,000) payable by the Company on June 30,
1998 and distributed among certain employees, such bonus not
being charged directly or indirectly to any of the contracts
to which NASA is signatory and taking into account any payroll
or similar taxes and deductions which are normally assessed on
such compensation payable.
<PAGE>
(ii) Estimated Closing Adjustment. At Closing, Sellers will
deliver to Buyer an estimated award fee income calculation
for the period from June 1, 1998 to, and including, June
30, 1998, to be attached to this Agreement as Exhibit VI,
such estimate being prepared in accordance with GAAP and
being based on an estimated NASA award fee of seventy five
percent (75%) for such period of operation (the "June
Income Estimate"). The Company will then pay Sellers the
result of the following calculation: the Retained Earnings
as at May 31, 1998 according to the unaudited statement of
income and Retained Earnings being delivered in accordance
with Section 4(e)(iii) of this Agreement (the "May 31
Income"), plus the June Income Estimate, less the Retained
Earnings on the audited statement of income and retained
earnings for the twelve (12) months ended December 31,
1997, less any distributions and less any other payments
outside of the ordinary and historical course of business
made by the Company to Sellers after May 31, 1997, less the
Special Bonus.
(iii) Post-Closing Adjustment. Within fifteen (15) days after
receiving payment from NASA relating to the award fee score
determinations for the Company for both of the operating
periods ending March 31 and September 30, 1998, Buyer shall
calculate the Retained Earnings as at June 30, 1998, such
calculation being prepared to reflect the award fee scores
granted by NASA for the periods ending March 31, 1998 and
September 30, 1998 and according to the same methodology as
was used in determining the May 31 Income (the result of such
calculation being hereinafter referred to as the "Closing
Income"). Buyer shall then make the following calculation: the
Closing Income, less the payment made to Sellers as a result
of the application of Section 1(c)(ii) of this Agreement. If
this amount is a positive number, the Company shall pay to
Sellers within 30 days such amount. If this amount is a
negative number, Sellers will have received an over-payment by
operation of Section 1(c)(ii) of this Agreement and shall
reimburse the Company for this over-payment within 30 days, it
being understood that such amount, unless otherwise agreed by
Buyer, will not be drawn from any fund established as a result
of any of the Escrow Agreements attached hereto as Exhibits.
SECTION 2. THE CLOSING.
<PAGE>
a) Time and Place of Closing. On the terms and subject to the conditions
contained in this Agreement, the closing of the purchase and sale of the Shares
(the "Closing") shall take place at the offices of Porter & Hedges, L.L.P.,
Houston, TX, 77002-2764 on July 1, 1998 or at such other place or time as shall
be mutually agreed to by the parties (the "Closing Date").
b) Delivery and Payment. At the Closing, each Seller shall deliver (or
cause to be delivered) to Buyer stock certificates representing the number of
Seller's Shares set forth opposite such Seller's name on Annex I hereto, duly
endorsed or accompanied by duly executed stock powers in blank and having all
necessary stock transfer tax stamps affixed thereto at the expense of Sellers in
form suitable for transfer of valid title thereto to Buyer free and clear of any
Encumbrances (as defined herein), and the certificates and opinions to be
delivered pursuant to Section 7 hereof, against payment of the Purchase Price by
Buyer as provided in Section 1 b) above and delivery by Buyer of the opinion to
be delivered pursuant to Section 8 hereof.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO
STOCK OWNERSHIP, AUTHORITY, NO VIOLATION, ETC.
Each Seller hereby severally represents and warrants to Buyer, as follows:
a) Stock Ownership. Such Seller is the beneficial and record owner of such
Seller's Shares, free and clear of any lien, pledge, option, security interest,
claim, third party right or any other restriction or encumbrance of any nature
whatsoever ("Encumbrances"), and on the Closing Date will transfer to Buyer good
and indefeasible title to such Shares, free and clear of any Encumbrance.
b) No Violation, Etc. Neither such Seller's execution and delivery of this
Agreement, the consummation of the transactions contemplated herein nor
compliance by such Seller with any of the provisions hereof will:
i) result in the creation of any Encumbrance upon such Seller's
Shares under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license,
agreement, or any other instrument or obligation to which such
Seller is a party or by which Seller or Seller's Shares may be
bound or affected;
ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Seller or such Seller's Shares;
or
<PAGE>
iii) require any consent, approval, authorization, order, filing,
registration or qualification of or with any court,
governmental authority or third person to be obtained by such
Seller in connection with the execution and delivery by
Sellers of this Agreement or consummation by Sellers of the
transactions contemplated herein in the manner contemplated
hereby.
c) No Other Agreements to Sell Assets or Business. Such Seller has no
obligation, absolute or contingent, to any other individual, corporation,
partnership, trust, limited liability company, association, joint venture or
other entity (each, a "Person") to (i) sell such Seller's Shares (other than the
sales contemplated hereby), (ii) sell any assets of the Company (other than
sales of inventory in the ordinary course of the business of the Company), (iii)
issue, sell or otherwise transfer any capital stock or any security convertible
into or exchangeable for capital stock of the Company (other than the sales
contemplated hereby), (iv) effect any merger, consolidation or other
reorganization of the Company or (v) enter into any agreement with respect to
any of the foregoing.
d) Litigation. There is no action, claim, suit or proceeding pending or,
to the knowledge of such Seller, threatened by or against or affecting such
Seller or such Seller's Shares and, to the knowledge of such Seller, there is no
investigation pending or threatened against or affecting such Seller or such
Seller's Shares, in each case before any court or governmental or regulatory
authority or body, that could reasonably be expected to have an effect on the
consummation of the transactions contemplated by this Agreement or such Seller's
Shares following the Closing. There are no writs, decrees, injunctions or orders
of any court or governmental or regulatory agency, authority or body outstanding
against such Seller with respect to such Seller's Shares.
e) Good Standing; Authority; Execution and Delivery. Each Seller has the
power, capacity and authority to enter into this Agreement and to sell such
Seller's Shares in accordance with the terms hereof, and to perform fully such
Seller's obligations hereunder. This Agreement has been duly executed and
delivered by each Seller and constitutes the legal, valid and binding obligation
of such Seller enforceable against such Seller in accordance with its terms,
except as the enforcement hereof (or thereof) may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement of creditors' rights
in general or by general principles of equity.
<PAGE>
f) Taxes. Each Seller has reported in his filings relating to Taxes (as
further defined in this Agreement, particularly in Section 4(y)), his allocable
share of income from the Company and has timely filed all reports, returns,
estimates or other filings (including all schedules and other attachments
thereto) relating to Taxes that he was required to file. All such Tax Returns as
they relate to income allocable from the Company having taken into account that
the Company was a valid S Corporation as of April 1, 1996 (A) were prepared in
the manner required by applicable law, (B) are true, correct and complete in all
material respects, and (C) reflect the liability for Taxes. All Taxes owed by
each Seller (whether or not shown on any Return) and all assessments of Tax made
with respect to such Returns have been paid on or before their date or will be
paid when due. No adjustment relating to such Returns has been proposed formally
or informally by any taxing authority and, to the knowledge of the Seller, no
basis exists for any such adjustment.
g) Knowledge. Such Seller has no knowledge that the representations
and warranties in this Section 3 are not also accurate as regards the other
Sellers.
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES REGARDING SELLERS
AND THE COMPANY.
Sellers hereby jointly and severally represent and warrant to Buyer as
follows:
a) Consents, No Conflicts, Etc. Except as disclosed on Schedule 4(a)
hereto, neither the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby, nor compliance by Sellers or the
Company with any of the provisions hereof will (i) violate or conflict with the
Articles of Incorporation or Bylaws of the Company, (ii) violate, conflict with,
result in a breach of, constitute a default (or an event which with the giving
of notice or lapse of time or both would constitute a default) under, or result
in the acceleration of performance under, or termination or cancellation of, any
note, bond, mortgage, indenture, lease, deed of trust, license, agreement, or
any other instrument or obligation to which the Company is a party, or by which
the Company or any of its assets or properties may be bound or affected, (iii)
result in the creation of any Encumbrance upon the Shares or any of the capital
stock, assets or properties of the Company, (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, or
any of its assets or properties, (v) require the Company to obtain the consent,
approval, permission or other authorization of or qualification or filing by or
with any court, arbitrator or governmental, administrative, regulatory or
self-regulatory authority or (vi) adversely affect any Permit (as defined below)
that is required for the conduct of the business of the Company or that is
required of any employee or agent of the Company to enable him to carry out his
duties on behalf of the Company pursuant to the terms of any such Permit.
b) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Except as set forth on Schedule 4(l)(i), the Company has all requisite
corporate power to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business as a foreign corporation in each jurisdiction where such
qualification is necessary under applicable law and where failure to do so would
have a material effect on the Company.
<PAGE>
c) Capitalization.
i) The Company's authorized capital consists exclusively of
50,000 shares of Common Stock, of which 20,000 shares are
issued and outstanding. Except as disclosed on Schedule
4(m), the Company has no direct or indirect subsidiaries,
nor does it hold any equity interests or any convertible
securities in any other Person. All shareholder agreements
to which the Company or any Seller is a party, if any, will
be terminated at the Closing.
ii) All of the outstanding Common Stock has been duly
authorized and is validly issued, fully paid and
non-assessable. There are no existing subscriptions,
warrants, rights, options, calls or commitments of any
character whatsoever, or agreements to grant the same,
relating to the issuance, sale, delivery or transfer by the
Company of any capital stock of the Company, and the
Company does not have any outstanding securities
convertible into or exchangeable or exercisable for any
shares of capital stock of the Company or any
subscriptions, warrants, rights, options, calls or
commitments of any character whatsoever with respect to the
issuance, sale or delivery of such convertible securities.
d) Articles of Incorporation and By-laws. Sellers have delivered to Buyer
copies of the Articles of Incorporation of the Company (certified as of a recent
date by the Secretary of State of the State of Colorado) and the By-laws
(certified as of the date hereof by the Company's Secretary), which copies are
complete and correct as of the date hereof.
e) Financial Statements. Sellers have delivered to Buyer true and complete
copies of the following consolidated financial statements of the Company
(including any related notes to such financial statements), each of which has
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP") consistently applied throughout the periods indicated (subject to
year-end adjustments), is in accordance with the books and records of the
Company and fairly presents in all material respects the financial position and
results of operations of the Company as of the dates and for the periods
indicated:
i) audited consolidated balance sheets of the Company as at
December 31, 1996 and December 31, 1997, in each case
certified by the Company's independent certified public
accountants;
<PAGE>
ii) audited consolidated statements of income and retained
earnings and statements of changes of financial position of
the Company for the nine months ended December 31, 1996 and
the twelve months ended December 31, 1997, in each case
certified by the Company's independent certified public
accountants; and
iii) unaudited consolidated balance sheet of the Company as at May
31, 1998 and unaudited statement of income and retained
earnings and statement of changes in financial position of the
Company for the five (5) months ended May 31, 1998.
The balance sheet contained in the unaudited consolidated financial statements
of the Company as at May 31, 1998 (the "Balance Sheet Date") is herein referred
to as the "Balance Sheet."
f) Reserved.
g) Absence of Undisclosed Liabilities and Obligations. The Company does
not have any liabilities or obligations (whether accrued, absolute, contingent
or otherwise) other than (i) liabilities reflected or reserved against on the
Balance Sheet, (ii) liabilities of a type customarily reflected in a corporate
balance sheet prepared in accordance with GAAP that have arisen in the ordinary
course of business as a result of arms-length negotiations since the Balance
Sheet Date and (iii) other liabilities and obligations, contingent or otherwise,
specifically disclosed on Schedule 4(g) hereto.
h) Absence of Certain Changes or Events. Except as disclosed on Schedule
4(h) hereto, since the Balance Sheet Date, there has not been any:
i) change in the condition (financial or otherwise) of the
assets, liabilities, operations, earnings or business of
the Company, except for (x) those permitted by Section 1 of
this Agreement and (y) changes which have occurred in the
ordinary course of business which, in accordance with GAAP
applied in a manner consistent with such application on the
Balance Sheet Date, have been fully recorded in the books
and records of the Company and which have not, individually
or in the aggregate, been materially adverse to the Company;
<PAGE>
ii) change in the number of shares of capital stock issued and
outstanding or any declaration, setting aside or payment of
any dividend or other distribution, permitted by Section 1 of
this Agreement (whether in cash, securities, property or
otherwise) in respect of the capital stock of the Company, or
any redemption or other acquisition by the Company of any
shares of its capital stock;
iii) except for the Special Bonus permitted by Section 1 of this
Agreement (A) increase in the compensation payable or to
become payable by the Company to any of its officers,
directors, employees or agents (collectively, "Company
Personnel") whose total compensation for services rendered
to the Company is currently at an annual rate of more than
$25,000 or any increase of general applicability in the
compensation payable to Company Personnel (other than
pursuant to existing corporate policies, practices and
procedures described on Schedules 4(l)(vii), 4(l)(viii) or
4(l)(ix) hereto), (B) bonus, incentive compensation,
service award or other like benefit, granted, made or
accrued, contingently or otherwise, to or to the credit of
Company Personnel, or (C) employee welfare, pension,
retirement, profit-sharing or similar payment or
arrangement made or agreed to by the Company except
pursuant to the existing plans and arrangements described
on Schedule 4(l)(viii) hereto;
iv) labor trouble, or any material controversies or material
unsettled grievances threatened between the Company and any
Company Personnel or any collective bargaining organization
representing or seeking to represent Company Personnel;
v) addition to or modification of the employee benefit plans,
arrangements or practices described on Schedule 4(l)(viii)
hereto;
vi) mortgage, pledge or Encumbrance of any of the assets of the
Company except (A) the lien of current real and personal
property taxes incurred but not yet due and payable, (B)
mechanic's or like liens or obligations arising in the
ordinary course of business securing obligations not yet
due and payable, or (C) purchase money security interests
or similar liens arising in the ordinary course of business
in an amount not to exceed $25,000, in the aggregate;
vii) sale, assignment or transfer of any assets of the Company
other than in the ordinary course to customers which are
material, singly or in the aggregate, to the Company, taken as
a whole;
<PAGE>
viii) material change by the Company in accounting methods,
principles or practices, except as required by GAAP;
ix) waiver of any rights of substantial value to the Company,
whether or not in the ordinary course of business;
x) cancellation or termination of or notice of default,
non-compliance or failure to perform under any contract,
agreement or other instrument material to the Company or
notice of a material safety violation at any location at which
the Company conducts operations;
xi) liability incurred by the Company except liabilities incurred
in the ordinary course of business consistent in both kind and
amount with past practices of the Company and which are not
material to the Company;
xii) capital expenditure or the execution of any lease with respect
to any aspect of the business of the Company, or any incurring
of liability therefor, involving payments in excess of $25,000
in the aggregate;
xiii) borrowing of money by the Company or guaranteeing of any
indebtedness of others by the Company other than in the
ordinary course of business;
xiv) lending of any money or otherwise pledging the credit of the
Company to any party other than the Company, provided, that
travel advances granted to employees in the ordinary course of
business and in customary amounts are exempt from this
provision;
xv) failure to operate the business of the Company in the ordinary
course so as to preserve the businesses intact, to keep
available to the Company the services of the Company
Personnel, and to preserve for Buyer the goodwill of the
suppliers, customers and others having business relations with
the Company;
xvi) failure to pay any current obligations of the Company in
accordance with the general practices of the Company, except
for those being contested in good faith and disclosed on
Schedule 4(h) hereto;
<PAGE>
xvii) damage, destruction or casualty loss, whether covered by
insurance or not, adversely affecting the business, operations
or financial condition of the Company;
xviii)transaction entered into with any Affiliate (an "Affiliate,"
for the purposes of this Agreement, shall include with respect
to any Person, a director or officer of such Person or any
other Person which directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or under common
control with, such Person) of the Company, Jackson, Cernan or
Short or any member of Jackson's, Cernan's or Short's family
(related by blood or marriage) (each, a "Family Member");
xix) any transaction which would have a material adverse effect on
the business, operations or financial condition of the
Company;
xx) loss of service of any Company Personnel that is or are
material, individually or in the aggregate, to the conduct of
the business; or
xxi) agreement by Sellers or the Company to do any of the
foregoing.
i) Reserved.
j) Accounts Receivable. Schedule 4(j) contains a complete list of the
Company's accounts receivable as at June 30, 1998. These items and the
corresponding amounts (i) have arisen only from bona fide transactions entered
into in the ordinary course of business of the Company and (ii) except for those
items which are specifically identified on Schedule 4(j) and related to
retainages, have been collected or are collectible within 45 days for
governmental customers and 60 days for non-governmental customers after the
dates of the invoices giving rise to such receivables at the aggregate gross
recorded amounts thereof less, in the case of accounts receivable reflected on
the Balance Sheet, the allowance for uncollectible accounts, returns and trade
allowances set forth therein, and in the case of accounts receivable thereafter
recorded, an allowance for uncollectible accounts, returns and trade allowances
recorded in a manner consistent with the reserve set forth in the Balance Sheet.
All of the accounts receivable were prepared in accordance with GAAP
consistently applied throughout the periods indicated.
k) Reserved.
l) Lists of Properties, Contracts and Personnel Data. Schedules 4(l)(i)
through 4(l)(xiv) hereto contain accurate lists and summary descriptions of the
following:
<PAGE>
i) Schedule 4(l)(i). Qualification. All jurisdictions in
which the Company is duly qualified to do business as a
foreign corporation;
ii) Schedule 4(l)(ii). Real Property. All real property owned
of record or beneficially by the Company; all leases of
real property to which the Company is a party ("Real
Property Leases" ); all premises occupied by the Company
under rental arrangements without leases (including in each
case the amount of rent and the type of occupancy); and all
contracts to which the Company is a party for the sale or
purchase of real property;
iii) Schedule 4(l)(iii). Intellectual Property; Computer
Software. (A) All patents of any description and pending
applications therefor, all registrations of trademarks and
of other marks, all registrations of trade names, labels or
other trade rights, all pending applications for any such
registrations or entries of the foregoing, all copyright
registrations (including, for Computer Software (as defined
below)) and pending applications therefor, all other
copyrights, trademarks and other marks, trade names, trade
secrets and other trade rights, and all other inventions,
formulae and designs, whether or not patentable
(collectively, "Intellectual Property"), in the case of
each of the foregoing, whether U.S. or foreign, all to the
extent that the foregoing items are material to the
business of the Company and are owned in whole or in part
or used by the Company, and all licenses relating thereto
other than the Computer Software Licenses (as hereinafter
defined); and (B) all proprietary computer software
(including, without limitation, all computer programs,
object code, source code, user interface, data bases and
documentation) owned in whole or in part or used by the
Company (the "Computer Software"), and all licenses
relating thereto (other than licenses for commercially
available software for personal computers) ("Computer
Software Licenses"); the Intellectual Property Licenses and
the Computer Software Licenses being collectively referred
to as the "Licenses");
iv) Schedule 4(l(iv). Personal Property. All items of
machinery, equipment, computer hardware, motor vehicles,
office furniture, fixtures and similar personal property
owned or leased by the Company having, in the case of any
owned property, a depreciated book value in excess of
$5,000 and, in the case of any leased property, annual
lease payments in excess of $25,000, indicating the current
depreciated book value of owned items and the terms and
annual lease payments of leased items;
<PAGE>
v) Schedule 4(l)(v). Insurance. All policies of insurance in
force with respect to the Company, including, without
restricting the generality of the foregoing, those covering
properties, buildings, machinery, equipment, furniture,
fixtures, operations and lives of, or performance of their
duties by, Company Personnel, including the policy numbers,
names and addresses of insurers, expiration dates,
descriptions and amounts of coverage and annual premiums as
of the Balance Sheet Date;
vi) Schedule 4(l)(vi). Other Contracts. All written and oral
agreements, contracts and commitments which: (A) are material
to the Business of the Company; or (B) limit or restrict, in
any material way, the Company's or any Seller's right to
engage in the business of the Company as currently conducted;
vii) Schedule 4(l)(vii). Labor Agreements. All written and oral
labor contracts, employment agreements, compensation
agreements, bonus agreements, consulting or similar agreements
and collective bargaining agreements relating to Company
Personnel;
viii) Schedule 4(l)(viii). ERISA. All employee profit-sharing,
incentive, deferred compensation, welfare, pension,
retirement, group insurance, bonus, severance, stock option,
stock purchase, and other employee benefit plans (oral or
written), regardless of whether any such plan or arrangement
is an "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to (or to
which there is an obligation to contribute) by the Company for
the benefit of present or former Company Personnel
(collectively, the "Plans"), identifying (A) each such plan
which provides any benefits after termination of employment
other than a Retirement Plan and (B) each such plan which is
an "employee pension benefit plan" ("Retirement Plan") as that
term is defined in Section 3(2) of ERISA;
ix Schedule 4(l)(ix). Compensation. The names and current
annual rates of compensation of all Company Personnel whose
current aggregate annual rates of compensation including
bonuses are $25,000 or more, together with a summary
(containing estimates to the extent necessary) of bonuses
(other than the Special Bonus), additional compensation
(whether current or deferred) and other like benefits, if
any, paid to such persons prior to the Closing Date;
<PAGE>
x Schedule 4(l)(x). Powers of Attorney. The names of all Persons
holding powers of attorney from the Company;
xi Schedule 4(l)(xi). Indebtedness. All notes, debentures, bonds,
letters of credit, bankers' acceptances and other instruments
evidencing indebtedness (including capital leases, guarantees
and lines of credit) of the Company;
xii Schedule 4(l)(xii). Bank Accounts. The name of each
institution in which the Company has a bank account or
safe-deposit box, the number of any such account or box, and
the names of all Persons authorized to draw thereon or to have
access thereto;
xiii Schedule 4(l)(xiii). Agents. The name of each agent, if any,
other than a regular employee or a commission salesman of the
Company, who is entitled to be paid, a commission after the
Closing Date in connection with obtaining any Contract (as
defined below) or order of the Company; and
xiv Schedule 4(l)(xiv). Licenses and Permits. All material
governmental or regulatory licenses, permits, consents,
franchises, approvals, authorizations and certificates
(including, but not limited to, all Environmental Permits (as
defined below)) and pending applications therefore
(collectively, "Permits") required to conduct or used by or in
the business of the Company.
m Investments. The Company does not own any capital stock, partnership
interests or other equity interest in any corporation, partnership, joint
venture, trust or other business association except as disclosed on Schedule
4(m).
n Copies of Documents. The Company previously delivered or made available
to Buyer, or to Dewey Ballantine LLP, counsel to Buyer, true and complete copies
of:
i all leases, agreements, contracts, undertakings, commitments,
arrangements and plans listed on Schedules 4(l)(ii), 4(l)(iv),
4(l)(vi), 4(l)(vii) and 4(l)(viii);
ii all deeds or other evidence of title to owned real property
listed on Schedule 4(l)(ii) and copies of any title insurance
policies with respect thereto;
<PAGE>
iii the most recent Internal Revenue Service Determination
Letters, summary plan descriptions and employee
communications, Annual Reports (Form 5500 Series) and
accompanying schedules and actuarial reports for the plans and
arrangements listed on Schedule 4(l)(viii);
iv all Intellectual Property and Computer Software listed on
Schedule 4(l)(iii);
v all Permits listed on Schedule 4(l)(xiv);
vi all policies of insurance listed on Schedule 4(l)(v);
vii all instruments evidencing a power of attorney listed on
Schedule 4(l)(x);
viii all securities, notes, debentures, bonds, bankers'
acceptances, letters of credit and other instruments of
indebtedness listed on Schedule 4(l)(xi);
ix all agreements, contracts, commitments or other arrangements
listed on Schedule 4(l)(xii);
x any environmental reports or studies prepared by or on
behalf of the Company or Sellers; and
xi all other title insurance policies and all other deeds to
owned real property.
o Tangible Properties. The Company has:
i good and indefeasible title to all of the properties and
assets which it purports to own, real, personal, tangible
and intangible (including those reflected in the Balance
Sheet, except as since sold or otherwise disposed of in the
ordinary course of business), free and clear of all
Encumbrances of any nature whatsoever, except for (A) the
lien of taxes not yet due and payable; (B) such
imperfections of title and Encumbrances, if any, as do not
materially detract from the value, or interfere with the
present use, of the properties of the Company,
respectively, or otherwise impair the business operations
of the Company;
<PAGE>
ii in all material respects performed all the obligations
required to be performed by it to the date hereof under
said leases and possesses and quietly enjoys said
properties under said leases, and such personal tangible
and intangible properties, and as to real property leased
to Seller's knowledge, are not subject to any Encumbrances,
easements, rights of way, building or use restrictions,
exceptions, reservations or limitations that interfere with
or impair the present and continued use thereof in the
usual and normal conduct of the business of the Company;
iii not received notice of (A) any violation of any applicable
zoning regulation, ordinance or other law, order,
regulation or requirement relating to the operations of
owned or leased properties of the Company and Sellers know
of no such violation, or (B) any pending or threatened
condemnation proceedings relating to any of their
respective owned or leased properties and, so far as known
to Sellers, there are no such pending or threatened
proceedings; and
iv maintained its plants, structures, equipment and material
tangible properties in good operating condition and repair,
ordinary wear and tear excepted.
p Validity of Contracts. Each contract, agreement or commitment of the
Company listed in any Schedule hereto (individually any "Contract" and
collectively the "Contracts" ) is valid and enforceable in accordance with its
terms and the Company is not, and will not be with notice, the lapse of time, or
both, in material default under any provision of any such contract, agreement or
commitment. To the Sellers' knowledge, any Person which is a party to any such
agreement, contract or commitment, is not, and will not be with notice, the
lapse of time or both, in material default under any provision of any such
contract, agreement or commitment. To the Seller's knowledge, by concluding this
Agreement, the Company's rights under any material contract will not be
adversely affected nor will this Agreement cause material damage to, or
diminution in value of, any business relationship which the Company enjoys. In
addition, to the Sellers' knowledge, neither any Person who now has business
dealings with the Company nor any management employee of the Company has
notified Sellers or the Company or any of its employees, and no Seller has a
reasonable basis to believe, that any such Person or entity (i) has threatened
to terminate, either for convenience or default, any contract which is material
to the Business, (ii) might cease its dealings or employment with the Company
after the Closing Date, or (iii) might seek to re-negotiate any or all of the
terms of any contract or other arrangement which governs the relationship
between this party and the Company, any Seller, or Sellers.
q Intellectual Property.
<PAGE>
i No Person other than the Company has an ownership interest
in, or a right to receive a royalty or similar payment with
respect to, any of the Intellectual Property or Computer
Software listed on Schedule 4(l)(iii) hereto, except as
noted in such Schedule. No intellectual property rights
other than the Intellectual Property, the Computer Software
and the Licenses are required to permit the conduct of the
business of the Company as now conducted. The Company has
good title to, or is licensed or otherwise has the right to
use, all of the Intellectual Property listed on Schedule
4(l)(iii), free and clear of any Encumbrance or royalty or
other payment requirements of any nature whatsoever, except
as noted in such Schedule.
ii All Intellectual Property is valid and enforceable to the
extent of the Company's ownership therein, and none of the
Intellectual Property has been cancelled or abandoned or
licensed by the Company in such a way as could reasonably
be expected to have an adverse effect on the validity of
such Intellectual Property or dedicate same to the public.
The Company is listed in the records of the appropriate
U.S. agency as the sole and exclusive owner of record for
each registration, grant and application listed in Schedule
4(l)(iii) as to which it claims sole and exclusive
ownership in said schedule. All registration and
maintenance fees that have become due and payable in
respect of any such grant or registration have been paid.
To the best of the Sellers' knowledge, the Company is not
infringing upon, or otherwise violating, the intellectual
property rights of any third party. The Company has
received no notice of any proceedings or claims that are
infringing upon or otherwise violating any such rights, and
the Company and the Sellers are unaware of any such
infringement or violation as to which notice has not been
received by the Company. No proceedings or claims in which
the Company alleges that any third party is infringing upon
or otherwise violating any of the Intellectual Property are
pending and none have been served by, instituted or
asserted by the Company. Without limiting the generality
of the foregoing, no trademark, service mark, trade name or
corporate name used by the Company, infringes or dilutes
the trademark, service mark, corporate name or trade name
of any person.
<PAGE>
iii To the knowledge of the Company and the Sellers, the use of
the Computer Software does not violate or otherwise
infringe the rights of any third party. Except as set
forth on Schedule 4(l)(iii), the Company has obtained from
all individuals who participated in any respect in the
authorship of any Computer Software (as employees of the
Company, as consultants, as employees of consultants or
otherwise) effective waivers of any and all ownership
rights of such individuals in such Computer Software, and
assignments to the Company of all copyrights with respect
thereto, other than from such individuals whose works the
Company hereby represents to be "works made for hire"
within the meaning of Section 101 of the Copyright Act of
1976.
r Environmental Matters. Except as specifically set forth in
Schedule 4(r):
i The Company complies and at all times has complied in all
material respects with all Environmental Laws (as defined
below) applicable to the business or the properties owned,
operated or otherwise controlled by the Company, including,
without limitation, the use, maintenance and operation of
such properties, and all activities and conduct of business
by the Company related thereto, including, without
limitation, the treatment, remediation, removal, transport,
storage and/or disposal of any Contaminant (as defined
below).
ii The Company has obtained all Environmental Permits necessary
for the ownership and operation of the Company and its
business, all such Environmental Permits are in good standing,
and the Company is in compliance in all material respects with
all terms and conditions of such Environmental Permits.
iii Neither the Sellers, nor the Company is or has been subject
to any investigation, or any judicial or administrative
proceeding, notice, order, judgment, decree or settlement,
alleging or addressing (x) any violation of any
Environmental Law, or (y) any claims or liabilities or
costs arising from the Release (as defined below) or
threatened Release of any Contaminant at any location.
There are no present or past actions, activities,
circumstances, conditions, events or incidents that could
form the basis of a claim, action or proceeding under any
Environmental Law against Sellers or the Company. Neither
the Sellers nor the Company has received any written notice
concerning any alleged violation of Environmental Laws or
any alleged liability arising out of or related to the
Release or threatened Release of a Contaminant at any
location.
iv No Environmental Lien (as defined below) has attached to any
of the properties or assets owned, operated or otherwise
controlled by the Company.
<PAGE>
v To Sellers' knowledge there has been no Release or
threatened Release of any Contaminants at, to or from any
of properties currently owned, operated or otherwise
controlled by the Company, and there was no Release of any
Contaminants at, to, or from any of the properties formerly
owned, operated, or otherwise controlled by the Company
while such property was owned, operated, or otherwise
controlled by the Company, and there has been no disposal
(as such term is defined in the Federal Resource
Conservation and Recovery Act) of any Contaminants at any
properties while owned, operated or otherwise controlled by
the Company.
vi The Company has not transported or arranged for the
transport of any Contaminants for the purpose of treatment,
storage, reclamation, recycling, remediation or disposal to
any facility or site which is listed or proposed for
listing on the National Priorities List ("NPL") pursuant to
the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or listed on the Comprehensive
Liability Information System ("CERCLIS") or any similar
list of sites.
vii To Sellers' knowledge no asbestos or asbestos containing
materials, urea formaldehyde foam insulation or
polychlorinated biphenyls ("PCBs") are located in, at or upon
any of the properties owned, operated or otherwise controlled
by the Company.
viii No underground improvements, including, but not limited to,
treatment or storage tanks, sumps or water, gas or oil wells,
or associated piping, are or ever have been located on any of
the properties while owned, operated or otherwise controlled
by the Company.
For purposes hereof, the following terms shall have the following
meanings:
"Contaminant" means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, medical waste, radioactive waste,
special waste, petroleum or petroleum-derived substance or waste, asbestos,
PCBs, or any hazardous or toxic constituent thereof and includes, but is not
limited to, any substance defined in or regulated under Environmental Law.
"Environmental Laws" means all applicable federal, state, local and
foreign laws, statutes, codes, ordinances, rules, regulations, directives,
binding policies, Environmental Permits, orders, and common law equitable
principles relating to pollution, contamination, wastes, contaminants or the
protection of the environment, health or safety.
<PAGE>
"Environmental Lien" means a lien in favor of any governmental
authority for any (a) liability under any Environmental Law, or (b) damages
arising from, or costs incurred by, such governmental authority in response to a
Release or threatened Release of a Contaminant into the environment.
"Environmental Permits" means all permits, consents, licenses, and
other approvals or authorizations required under Environmental Laws.
"Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migrating into
the indoor or outdoor environment of any Contaminant through or in the air,
soil, surface water, groundwater or the properties owned, occupied, or otherwise
controlled by the Company.
"Remedial Action" means actions required by Environmental Laws to
(i) clean up, remove, treat or in any other way address Contaminants in the
indoor or outdoor environment; (ii) prevent the Release or threat of Release or
minimize the further Release of Contaminants; or (iii) investigate and determine
if a remedial response to a Release or to the presence of contaminants is
needed, to design such a response and post-remedial investigation, monitoring,
operation, maintenance and care.
s Insurance. All policies of insurance (or renewals thereof) set forth on
Schedule 4(l)(v) are valid, outstanding and in force and effect on the date
hereof and all premiums with respect thereto, covering all periods up to and
including the date hereof, have been paid before past due. Such policies will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Such policies are in the amounts
shown on Schedule 4(l)(v), and insure the equipment of the Company against loss,
theft and destruction and insure the properties and business of the Company
against such losses and risks as are adequate to protect the properties and
business of the Company. The insurance policies to which the Company is a party
are sufficient for compliance with all material requirements of law and of all
material agreements to which the Company is a party. The Company has not been
refused any insurance with respect to any assets or operations, nor has its
coverage been limited by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last five
years. The Company has not received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to
be made in order to continue such insurance. No notice of cancellation or
termination of any such insurance policy has been received by the Company or
Sellers.
<PAGE>
t Labor Matters. Except as disclosed on Schedule 4(l)(vii) hereto, the
Company has no labor contracts, collective bargaining agreements or employment
agreements with any Company Personnel or any representative of any Company
Personnel. Except as set forth on Schedule 4(t) hereto, (i) the Company is in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice; (ii) there is no unfair labor practice
complaint against the Company pending before the National Labor Relations Board;
(iii) there is no labor strike, representation campaign or work stoppage
actually pending or threatened, against or affecting the Company; (iv) no
grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been asserted against
the Company; and (v) the Company has not experienced any work stoppage.
u Employee Benefits.
i There are no present or former Company Personnel who are
entitled to (x) any pension benefit that is unfunded or (y)
any pension, health or life insurance or other benefit to be
paid after termination of employment other than required by
Section 601 of ERISA or pursuant to Plans intending to be
qualified under Section 401(a) of the Code (as defined
hereafter) and listed on Schedule 4(l)(viii).
ii Each Plan that is an employee welfare benefit plan as
defined in Section 3(1) of ERISA is either (x) funded
through an insurance contract and is not a "welfare benefit
fund" within the meaning of Section 419 of the Code or (y)
is unfunded. To the extent that any of the welfare
benefits under the Plans are insured, there is no liability
in the nature of a retroactive rate adjustment or
loss-sharing or similar arrangement with respect to such
Plan.
iii All contributions or payments owed under or which otherwise
relate to any Plan have been made with respect to all
periods prior to the date hereof. The Company is not in
default under any Plan and each Plan complies in all
material respects with and has been operated in compliance
with applicable law. As to each Plan for which an annual
report is required to be filed under ERISA or the Code, all
such filings have been made on a timely basis, no
liabilities with respect to such Plan existed on the date
of such annual report except as disclosed therein, and no
adverse change has occurred with the financial materials
covered by such annual report since the date thereof. No
actual or threatened disputes, lawsuits, claims (other than
routine claims for benefits) investigations, audits or
complaints to, or by, any person or governmental entity
have been filed or are pending with respect to the Plans.
<PAGE>
iv None of the assets of the Plans is invested in any property
constituting employer real property or an employer security
within the meaning of Section 407(d) of ERISA.
v The Company (or any entity that is or was at any time
treated as a single employer with the Company under Section
414(b), (c), (m) or (o) of the Code) has not at any time
(x) maintained, contributed to or been required to
contribute to any plan under which more than one employer
makes contributions (within the meaning of Section 4064(a)
of ERISA) or any plan that is a Multiemployer Plan, (y)
incurred or expects to incur any liability to the Pension
Benefit Guaranty Corporation or otherwise under Title IV of
ERISA (other than the payment of premiums none of which are
overdue) or (z) incurred or expects to incur liability in
connection with an "accumulated funding deficiency" within
the meaning of Section 412 of the Code whether or not
waived.
vi Each Plan that is intended to qualify under Section 401(a)
of the Code is qualified under Section 401(a) of the Code,
and to the knowledge of the Company, there is no reason why
such tax-qualified status should be revoked. All
contributions due with respect to the periods ending on or
before the Closing Date to the Plans have been timely made
and a pro rata portion of the contributions (including
matching contributions) for the current plan year has been
made or appropriate charges will be reflected on the
Balance Sheet.
vii Neither the Company nor any other person, including any
fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA),
which could subject any of the Plans (or their trusts), the
Company, or any person who the Company has an obligation to
indemnify, to any tax or penalty imposed under Section 4975 of
the Code or Section 502 of ERISA.
<PAGE>
viii The events contemplated by this Agreement (either alone or
together with any other event) will not (A) entitle any
present or former Company Personnel to severance pay,
unemployment compensation, or other similar payments under
any Plan or law, (B) accelerate the time of payment or
vesting or increase the amount of benefits due under any
Plan or compensation to any present or former Company
Personnel, (C) result in any payments (including parachute
payments) under any Plan or law becoming due to any present
or former Company Personnel, or (D) terminate or modify or
give a third party a right to terminate or modify the
provisions or terms of any Plan.
ix The Company has reserved the right to amend, terminate or
modify at any time each of the Plans.
x There are no written employment agreements with any employees
except those attached to Schedule 4(l)(vii), and all oral
employment agreements, if any, are fully summarized on
Schedule 4(l)(vii).
v Litigation. Except as disclosed on Schedule 4(v) hereto, there is (i) no
claim, litigation, proceeding, labor dispute (other than routine grievance
procedures), arbitral action or government investigation pending or threatened
against or relating to (A) the Company or any of its properties, (B) any Plan,
(C) any Company Personnel in reference to actions taken by them in such
capacities or (D) Sellers with respect to the Shares nor (ii) any valid basis
known to Sellers for any such litigation, proceeding or investigation which if
adversely determined could have a material adverse effect on the business of the
Company. There are no writs, decrees, injunctions or orders of any court or
governmental or regulatory agency, authority or body outstanding against the
Company, any Plan or against Sellers with respect to the Shares.
w Warranties. The terms of any warranties relating to the services
provided by the Business are set forth on Schedule 4(w). Except as set for on
this Schedule, neither the Sellers nor the Company have made any express
warranties with respect to services provided by the Business and, to the best of
Sellers' knowledge, no other warranties have been made by Company Personnel.
<PAGE>
x Compliance with Laws. The Company has complied in all material respects
with all applicable statutes, regulations, orders, ordinances and other laws of
the United States of America, all state, local and foreign governments and other
governmental bodies and authorities and agencies of any of the foregoing to
which they are subject. The Company has not received any written or oral notice
to the effect that, or otherwise been advised that, it is not in compliance with
any of such statutes, regulations and orders, ordinances, other laws or
undertakings, and Sellers have no reason to anticipate that any presently
existing circumstances are likely to result in violations of any such
regulations which could, in any one case or in the aggregate, cause a material
loss to the Company or otherwise have a material adverse effect on the business
or prospects of the Company. Except as set forth on Schedule 4(x) hereto, the
Company has complied with all applicable FAR, CAS and DCAA regulations and
requirements in effect as of the date hereof with respect to its accounting
system. The Company has obtained all Permits which are required in connection
with the operations of their respective businesses as presently conducted. All
such Permits are in full force and effect and no proceedings for the suspension
or cancellation of any Permit is pending or, to the Sellers' knowledge,
threatened. The foregoing representations and warranties in this Section 4(x)
are in addition to, and not in limitation of, the other representations and
warranties contained elsewhere in this Agreement.
y Taxes. For the purposes of this Agreement, "Tax" and "Taxes" shall
include all income, profits, gains, gross receipts, net worth, premium, value
added, ad valorem, sales, use, excise, stamp, transfer, franchise, withholding,
payroll, employment, occupation, workers' compensation, disability, severance,
unemployment insurance, social security and property taxes, duties, assessments,
fees, levies, or similar charges of any kind whatsoever, together with any
interest, penalties and additions thereto, required by any federal, state, local
or foreign governmental entity, including all amounts imposed as a result of
being a member of an affiliated or combined group. In addition, for the purposes
of this Agreement, all Taxes shall be determined without regard to the carryback
of any net operating loss, capital loss, general business credit, or other tax
attribute incurred after the Closing Date. The Sellers hereby represent and
warrant to the Buyer as follows:
i The Company (and any predecessor of the Company) has been
at all times since April 1, 1996 an "S Corporation" within
the meaning the Internal Revenue Code of 1986, as amended
(together with the Treasury Regulations from time to time
promulgated thereunder, the "Code" ) and has similar status
under any corresponding provisions of applicable law in
jurisdictions where it files its corporation tax returns.
Such status as an S Corporation will continue to be in
effect at such time of the consummation of the transactions
contemplated hereby so as to permit the effectiveness of
the Section 338(h)(10) Election (the "Section 338(h)(10)
Election") if the Buyer desires to make such an election
and the Sellers shall not take, and shall not cause or
permit the Company to take, any action inconsistent with
the foregoing.
ii The Company has timely filed all reports, returns,
elections, estimates, declarations, information statements
or other filings (including all schedules and other
attachments thereto) relating to Taxes (individually "Tax
Return" or "Return" and collectively "Tax Returns" or
"Returns") that it was required to file. All such Tax
Returns (A) were prepared in the manner required by
applicable law, (B) are true, correct and complete in all
material respects, and (C) reflect the liability for
Taxes. All Taxes owed by the Company (whether or not shown
on any Return) and all assessments of Tax made with respect
to such Returns have been paid or will be paid when due.
No adjustment relating to such Returns has been proposed
formally or informally by any taxing authority and, to the
knowledge of the Company and the Sellers, no basis exists
for any such adjustment.
<PAGE>
iii The Company (A) is not a party to any agreement providing
for the sharing, allocation or indemnification of Taxes,
(B) has not been a member of an affiliated group filing a
consolidated federal income Tax Return, (C) has no
liability for Taxes of any Person (other than itself) under
the Code (or any corresponding state, local or foreign
law), as a transferee or successor, by contract or
otherwise, or (D) is not a party to any partnership, joint
venture or other arrangement treated as a partnership for
income tax purposes.
iv The Company has paid, caused to be paid, or has provided a
sufficient reserve, including deferred Tax liabilities (the
"Tax Reserve"), on the Financial Statements for the payment
of all Taxes for which the Company is or knows it could be
liable, whether to taxing authorities or to other persons
or entities with respect to all taxable periods ending on
or before the Closing Date; and such Taxes paid or provided
for include those for which the Company may be liable as
the transferee of the assets of, or as successor to, any
other corporation, association, partnership, joint venture,
or other entity. The Company has timely made all payments
of estimated Tax required to be made under the Code and any
state, local, or foreign law. Schedule 4(y)(iv) lists each
Tax accrued in the Tax Reserve set forth on the Financial
Statements for all taxable periods (or portions thereof)
ended on or prior to the Closing Date.
v The Company has withheld from its employees, customers, and
other payees (and timely paid to the appropriate government
entity) all amounts required by the Tax withholding
provisions of applicable federal, state, local, and foreign
laws (including, without limitation, income, social
security, and employment Tax withholding for all types of
compensation, and withholding on payments to non-United
States persons) for all periods through the date hereof.
vi Schedule 4(y)(vi) sets forth each income or franchise Tax
Return filed by the Company for which the applicable
statute of limitations for assessment has not lapsed and
all jurisdictions in which the Company has filed an income
or franchise Tax Return. Except as set forth in Schedule
4(y)(vi), the Company neither is nor has been engaged in a
trade or business in any jurisdiction in which it has not
filed required income or franchise Tax Returns, and no
jurisdiction has claimed in writing or otherwise that the
Company is required to file an income or franchise Tax
Return in such jurisdiction.
<PAGE>
vii Except as set forth on Schedule 4(y)(vii), there are no
claims or investigations by the Internal Revenue Service or
any other taxing authority pending or threatened against
the Company or the Sellers (as to their allocable income
from the Company) for any past due Taxes; the Company has
not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax
assessment or deficiency for which the Company or the
Sellers (as to their allocable income from the Company)
could be liable under any provision of federal, state,
local, or foreign law; there are no outstanding requests
for information made by any taxing authority to the Company
or the Sellers (as to their allocable income from the
Company); and there are no outstanding requests by the
Company or the Sellers (as to their allocable income from
the Company) to any taxing authority for a ruling,
determination, permission, consent, or similar item. No
closing agreement (as defined in the Code) or any similar
provision of any state, local, or foreign law has been
entered into by or with respect to the Company or the
Sellers.
viii There are no liens or Encumbrances upon the Common Stock or
upon any asset of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax. Except as
provided on Schedule 4(l)(x), no power of attorney that is
currently in force has been granted to any person with respect
to any matter relating to Taxes that could affect the Company.
ix Except as set forth on Schedule (y)(ix), the Company has not
made any payments, nor is it obligated to make any payments,
or is a party to any agreement that under certain
circumstances could obligate it or any other party to make any
payments, that will not be deductible under the Code.
x Except as set forth in Schedule 4(y)(x), the Company does not
have any item of income, gain, loss, or deduction reportable
in a taxable period ending after the date hereof but
attributable to a transaction that occurred in a taxable
period or portion thereof ending on or before the date hereof.
xi No consent under the Code or any corresponding provision of
state, local or foreign tax law has been filed with respect to
the Company or any of its assets or Properties.
xii Schedule 4(y)(xii) sets forth the taxable year of the Company
for federal, state and local income or franchise Tax purposes.
<PAGE>
xiii The Company has not participated in or cooperated with an
"international boycott" within the meaning of the Code.
xiv The Sellers do not have control of the Buyer within the
meaning of Section 304 of the Code, nor are they related to
the Buyer within the meaning of Section 318 of the Code, and
on and after the Closing will not have control of nor be
related to the Buyer within the meaning of such aforementioned
Sections of the Code.
z No Brokers. Neither Sellers nor the Company have entered into and will
not enter into any agreement, arrangement or understanding with any Person which
may result in an obligation of Buyer to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby.
aa Illegal Payments. Neither the Company nor any Company Personnel has
made any payment of funds of the Company prohibited by law, and no funds of the
Company have been set aside to be used for any payment prohibited by law.
bb Transactions with Certain Persons. Except as disclosed on Schedule
4(h), none of the Sellers or any officer, director or employee of the Company or
any Family Member or any Affiliate thereof is presently a party to any
transaction with the Company relating to the business of the Company, including,
without limitation, any contract, agreement or other arrangement (i) providing
for the furnishing of services by, (ii) providing for the rental of real or
personal property from, or (iii) otherwise requiring payments to (other than
services as officers, directors or employees) any such person or to any Person
in which any such person has a substantial interest as a shareholder, member,
officer, director, trustee or partner.
cc Assets. The assets of the Company constitute, and on the Closing Date
will constitute, all of the assets and services that are necessary to permit the
business of the Company to be conducted by Buyer in substantially the manner as
it has heretofore been conducted and none of the Sellers or any officer,
director or employee of the Company or any Family Member or any Affiliate
thereof or any other Person owns any of such assets.
dd Exclusive Use of Bank Accounts. The bank accounts and safe-deposit
boxes included on Schedule 4(l)(xii) have been used exclusively by the Company
for the conduct of its Business. After the Closing Date, the Company will have
exclusive ownership of these items and of the corresponding funds and property
deposited therein.
<PAGE>
ee Books and Records. The books of account and other financial and
corporate records of the Company have been maintained in all material respects
in accordance with good business and accounting practices consistently applied.
The minute books and stock transfer books of the Company are correct, complete
and current in all material respects. All documentary and stock transfer tax
stamps required in connection with the issuance and transfer of the capital
stock of the Company have been duly affixed for transfer.
ff Government Furnished Equipment. The Company has properly accounted for
all Government Furnished Equipment (as defined by the relevant Federal
Acquisition Regulation, the "GFE") which is used in the Business, in the manner
required by law, or under any applicable rule or regulation, or under the terms
of any applicable contract, instrument or relationship under which such GFE was
obtained or put at the Sellers' or the Company's disposal. Sellers and the
Company have discharged all obligations and liabilities relating to such
equipment.
gg Hart-Scott-Rodino Filings. In determining whether an obligation to
effect filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "Hart-Scott-Rodino Act") arises as a result of this Agreement, Buyer relied
on Sellers' and the Company's representations that (i) the value of the
Company's assets as determined under the Hart-Scott-Rodino Act and related
regulations does not exceed $10 Million dollars and (ii) the Company is not a
manufacturing company as this term is defined in the relevant legislation.
Sellers and the Company represent and warrant that, as of the Closing Date, this
information is accurate.
hh Consequences of Acquisition. Neither any Person who now has business
dealings with the Company nor any management employee of the Company has
notified Sellers or the Company, and no Seller has a reasonable basis to
believe, that any such person or entity would or might cease business dealings
or employment with the Company after the Closing Date. No customer or supplier
which was material to the business of the Company in the past twelve months has
terminated in writing or materially reduced its purchases from or provision of
products or services to the Company or threatened to take any similar action.
ii Disclosure. No representation or warranty made by Sellers in this
Section 4 or as provided herein, or by each Seller in Section 3 of this
Agreement or as provided therein, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
and information contained herein or therein, in light of the circumstances under
which they were made, not misleading.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Sellers as follows:
<PAGE>
a Consents, No Conflicts, Etc. Neither the execution and delivery of this
Agreement, the consummation by Buyer of the transactions contemplated herein nor
compliance by Buyer with any of the provisions hereof will (i) violate or
conflict with any provision of the Articles of Incorporation or Bylaws of Buyer,
(ii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Buyer or any of its assets or properties, or (iii) require the
consent, approval, permission or other authorization of or by or filing or
qualification with any court, arbitrator or governmental, administrative, or
self-regulatory authority which has not been obtained.
b Organization and Good Standing. Buyer is a company duly organized and
validly existing under the laws of the State of Washington and has all requisite
corporate power to carry on its business as presently conducted.
c Authority; Execution and Delivery. All requisite corporate action has
been taken to authorize the execution, delivery and performance by Buyer of this
Agreement and the transactions contemplated herein, and no other corporate
proceedings on the part of Buyer are necessary to authorize the execution and
delivery of this Agreement and the transactions contemplated herein. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as enforcement hereof or thereof may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights in general or by general principles of equity.
d No Brokers. Neither Buyer, nor any of its Affiliates has entered into
any agreement, arrangement or understanding with any Person which will result in
the obligation of the Company or Sellers to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby.
e Disclosure. No representation or warranty made by the Buyer in this
Agreement or as provided herein contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
SECTION 6. CERTAIN COVENANTS AND AGREEMENTS.
<PAGE>
a Non-competition. Each Seller, severally and not jointly, will not for a
period of five (5) years following the Closing (the "Non-competition Period"),
(i) in any geographic area where the Company conducts business during the
Non-competition Period, engage or participate in directly or indirectly (whether
as an officer, director, employee, partner, consultant, holder of an equity or
debt investment, lender or in any other manner or capacity), or lend it or his
name (or any part or variant thereof) to, any business which is, or as a result
of Sellers' engagement or participation would become competitive with any aspect
of the business of the Company; (ii) deal, directly or indirectly, in a
competitive manner with any customers doing business with the Company during the
Non-competition Period; (iii) solicit or employ any officer, director, employee,
or agent of the Company to become an officer, director, employee, or agent of
any Seller, their respective Affiliates or anyone else; (iv) engage in or
participate in, directly or indirectly, any business conducted under any name
that shall be the same as or similar to the name of the Company or any trade
name used by it; or (v) be engaged in or influential upon procurement or
purchasing of the Company's products. Ownership by such Seller for investment of
less than five percent (5%) of the outstanding shares of capital stock or class
of debt securities of any corporation with one or more classes of its capital
stock listed on a national securities exchange or actively traded in the
over-the-counter market shall not, in and of itself, constitute a breach of the
foregoing covenant. Each Seller is entering into the foregoing covenant to
assure Buyer of the transfer of the goodwill of the Company, and in order to
induce Buyer to consummate the purchase contemplated by this Agreement.
b Release. Except for the enforcement of the terms and provisions of this
Agreement and for any agreements to be entered into by the Company at or
following the Closing, Sellers hereby and on behalf of all Family Members,
affiliates, predecessors, successors and assigns, hereby unconditionally release
and agree to hold harmless the Company following the Closing from any and all
claims that they may have or be able to allege.
c Non-disclosure. Each Seller will not at any time after the date of this
Agreement divulge, furnish to or make accessible to anyone any knowledge or
information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices or ideas or
know-how, whether patentable or not, with respect to any confidential or secret
aspects of the Business of the Company (including, without limitation, customer
lists, supplier lists and pricing arrangements with customers or suppliers);
provided, however, that nothing herein shall prohibit each Seller or the Company
from complying with any order or decree of any court of competent jurisdiction
or governmental authority, but each Seller will give Buyer timely notice of the
receipt of any such order or decree.
d Access to Facilities; Due Diligence. Between the date hereof and the
Closing Date: (i) authorized representatives of Buyer shall have reasonable
access to all properties, books, Records, Contracts and other documents of
Sellers and the Company relating to the Business; and (ii) Sellers and the
Company will furnish to Buyer all information with respect to the Business that
Buyer reasonably requests.
<PAGE>
e Further Assurances. To the best of their abilities, for a period of two
(2) years after the Closing Date Sellers will, and will cause the Company and
all Company Personnel to, cooperate fully with Buyer in connection with the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, for a period of two (2) years from and after the Closing Date and
with respect to those representations and warranties related to Sections 9(a)(i)
and 9(a)(ii) of this Agreement, from time to time, at Buyer's request and
without further consideration, Sellers will execute and deliver, or cause to be
executed and delivered, such other instruments and take such other action as
Buyer may reasonably request in order to carry out the purposes of this
Agreement; provided, that Sellers shall not be required to make any payment to
any third party other than its employees and representatives (such as legal
counsel and accountants) in complying with this covenant.
f Filing of Tax Returns and Payment of the Tax.
i The Company shall timely file or cause to be timely filed
all Tax Returns that are required to be filed (with
extensions) on or before the Closing Date. The Company
shall timely pay or cause to be timely paid all Tax
reported, or required to be reported, on such Returns. The
Sellers are liable for and have paid, or (to the extent not
yet due and payable) will pay, in a timely fashion, all
Taxes required to be paid attributable to their ownership
of the Company stock in respect of all periods ending on or
prior to the Closing Date, including, without limitation,
Taxes for which they are liable due to the status of the
Company as an S Corporation for federal income tax purposes
(and any analogous provisions of state or local law). To
the extent not covered by the Deduction Escrow and by the
provisions of this Agreement as they relate to the
Deduction Escrow Fund, the Sellers further shall be liable
for, and, at the direction of the Buyer, shall pay directly
the applicable taxing authority on or before the due date
therefor or, within ten (10) days of any payment by the
Buyer or the Company in respect thereof, shall reimburse
the Buyer for the payment of, any and all finally
adjudicated Taxes of the Company attributable to any
taxable period ending on or prior to the Closing Date and
the allocable portion of any and all Taxes of the Company
attributable to any partial period (through and including
the Closing Date) of any taxable period beginning before
and ending after the Closing Date to the extent that such
Taxes are not reflected in the reserve for Taxes shown in
the Closing Documents. The Taxes attributable to any
partial period shall be computed in the manner set forth in
Section 6(g). At the Closing, the Sellers shall deliver to
the Buyer a schedule that lists all Tax Returns of the
Company for all taxable periods ending on or before the
Closing Date that are not required to be filed pursuant to
Section 4(y).
<PAGE>
ii After the Closing Date, the Buyer shall prepare and file,
or shall cause to be prepared and filed, all Tax Returns
for the Company for all periods ending on or prior to the
Closing Date which are filed after the Closing Date. The
Buyer shall permit the Sellers to review and comment on
each such Tax Return described in the preceding sentence
prior to filing, and such Returns shall not be filed
without Sellers' prior written consent, such consent not to
be unreasonably withheld. To the extent permitted by
applicable law, the Sellers shall include any income, gain,
deduction or other tax items for such periods of their Tax
Returns in a manner consistent with the Schedule K-1s
furnished by the Company to the Sellers for such period.
iii Sellers, the Buyer and the Company shall cooperate fully,
as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request)
the provision of records and information which are
reasonably relevant to any such Tax Return, audit,
litigation or other proceeding.
iv) All Tax Returns described in this Agreement shall be prepared
in a manner consistent with past practice, except for changes
in applicable law with the consent of the Buyer.
v) At the Buyer's option, the Company and each of the Sellers,
including consenting spouses, will join with the Buyer in
making the Section 338(h)(10) Election. The Sellers will
include any income, gain, loss, deduction or other tax item
resulting from the Section 338(h)(10) Election on their Tax
Returns to the extent permitted or required by applicable
law. For purposes of clarification, it is specifically
agreed that Buyer shall reimburse Seller for any tax cost
arising from Buyer's decision to effect a Section
338(h)(10) Election.
<PAGE>
vi) Subject to subparagraph (vii) below, any refunds of Taxes
not reflected as a receivable on the Closing Balance Sheet
that are received by the Buyer or the Company, and any
amounts credited against Tax not reflected on the Closing
Balance Sheet to which the Buyer or the Company becomes
entitled, that relate to the taxable periods or portions
thereof ending on or prior to the Closing Date, shall be
for the account of the Sellers and the Buyer shall pay to
the Sellers any such refund or the amount of any such
credit within fifteen (15) days after receipt thereof. In
addition, to the extent that a claim for refund or a
proceeding results in a payment or credit against Tax by a
taxing authority to the Buyer or the Company of any amount
reflected in the reserve for Taxes shown on the Closing
Balance Sheet, the Buyer shall pay such amount to the
Sellers within fifteen (15) days after receipt thereof.
Any amount due to the Sellers under this paragraph shall be
subject to offset for any amounts owed by the Sellers to
the Buyer under this paragraph. Any refunds of Taxes
reflected as a receivable on the Closing Balance Sheet
which are received by the Sellers shall be for the account
of the Buyer and the Sellers shall pay to the Buyer any
such refund or the amount of any credit within fifteen (15)
days after receipt or entitlement thereto. In addition,
the Sellers shall pay to the Buyer the amount of any
refunds of Taxes or amounts credited against Taxes
reflected as a receivable on the Closing Balance Sheet not
in fact received by the Buyer.
vii) If the Company's taxable income is adjusted due to the
filing of an amended return, adjustment by a Taxing
authority, or otherwise, and such change results in an
increase in income in a pre-Closing S return Tax year and a
related and opposite change in a post-Closing Tax period,
the Company and the Buyer shall pay to the Sellers all tax
benefit expected to be generated from such offsetting
reductions in income in all post-Closing Tax periods,
computed at the highest federal, state and local corporate
tax rate (with state and local tax rates adjusted for the
benefit of the federal tax deduction).
If the Company's taxable income is adjusted due to the filing
of an amended return, adjustment by a Taxing Authority, or
otherwise, and such change results in a decrease in income in
a pre-Closing S return Tax year and opposite change in a
post-Closing Tax period, the Sellers shall pay to the Buyer
all tax benefit expected to be generated from such offsetting
reductions in income in all pre-Closing Tax periods, computed
at the highest marginal federal, state and local individual
tax rate for each such Seller.
<PAGE>
For example, if an amount expensed in a pre-Closing S return
Tax period is capitalized by a Taxing authority (and the
Sellers consent to such adjustment), which capitalized amount
is depreciable in post-Closing Tax periods, the Sellers will
pay the additional Tax on their increased allocable S
corporation income, and the Company and Buyer will pay the
Sellers the tax benefit realized from their increased
post-Closing tax depreciation. Any payment arising under this
Section 6(f)(vii) will be paid within 90 days of receipt of
the final agreed adjustment from the taxing authority,
computed by taking the corresponding tax benefit at a discount
rate of 15%.
g) Apportionment regarding Taxes. Except as otherwise required by
applicable law, for any taxable period that begins on or before and ends after
the Closing Date, for purposes of apportioning a Tax to the portion of such
taxable period that ends on the Closing Date, (i) the parties shall treat the
Closing Date as the last day of such taxable period and (ii) the Tax for the
taxable period that is allocable to the portion of the taxable period ending on
the Closing Date shall (A) in the case of a Tax that is not based on income or
gross receipts, be deemed to be the amount of such Tax for the entire taxable
period multiplied by a fraction, the numerator of which is the number of days in
the taxable period ending on (and including) the Closing Date and the
denominator of which is the total number of days in the entire taxable period,
and (B) in the case of any Tax based upon or related to income or gross
receipts, be deemed equal to the amount that would be payable if the relevant
taxable period ended on the Closing Date, based on actual operations of the
Company during such period as shown on its permanent books and records. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
h) Access to Information regarding Taxes. From the date hereof, the Buyer
shall, and cause the Company to, make available to the Sellers and their
representatives, and the Sellers shall cause to be made available to the Buyer
and the Company and their representatives: (i) all Tax Returns and all documents
and records in connection with the preparation thereof for taxable periods
ending on or before the Closing Date and any examination reports and statements
of deficiencies assessed against, proposed to be assessed against, or agreed to
by the Company for such taxable periods; and (ii) any Tax sharing or allocation
agreement or arrangement involving the Company at any time during the ten-year
period ending on the date hereof and a true and complete description of any such
unwritten or informal agreement or arrangement.
i) Books and Records. The Buyer shall retain or cause the Company to
retain all books and records pertinent to the Company for each taxable period or
portion thereof ending on or prior to the Closing Date until the expiration of
the applicable statute of limitations (giving effect to any and all extensions
and waivers) and to abide by or cause compliance with all record retention
agreements entered into by or on behalf of the Company with any taxing
authority.
<PAGE>
j) Notice of Audit. If the Buyer receives any written notice from any
taxing authority proposing an adjustment to any Tax for which the Sellers may be
personally liable or be obligated to indemnify the Buyer under this Agreement,
the Buyer shall give prompt written notice thereof to the Sellers that describes
such proposed adjustment in reasonable detail ("Notice of Audit"), and shall
indicate the amount (estimated, if necessary) of the Tax and other items
described in this Agreement that may be suffered by the Buyer or the Company.
The failure to give a Notice of Audit pursuant to this Section 6(j), however,
shall not reduce the obligations of the Sellers hereunder unless, and to the
extent that, such failure prejudices the rights of the Sellers to contest such
Tax.
k) Tax Contest. The Buyer and its duly appointed representatives shall
have the sole right to defend, negotiate, resolve, settle or contest any claim
for Tax made by a taxing authority with respect to any period in which the
Company was a "C" corporation and the Sellers shall have the same rights during
any period in which the Company was a Subchapter S corporation, in each case for
periods prior to the Closing Date and for which the Sellers have indemnified the
Buyer under this Agreement; provided, however, that Buyer shall not be required
to contest any claim unless (A) it has received from the Sellers, in such form
as Buyer shall deem satisfactory, indemnification and security for any and all
actual or anticipated liability, loss, cost or expense arising out of or
relating to such amount or the contest thereof, including, but not limited to,
all attorneys' and accountants' fees and expenses, penalties, interest and
additions to tax, (B) if the contest shall be conducted in a manner requiring
the payment of all or part of such amount, the Sellers shall have paid the
amount required, and (C) the Sellers shall have acknowledged in writing their
liability to indemnify Buyer fully for the contested Tax and any additional
interest, penalties, or expenses arising as a result of such contest; provided,
however, that, if the Sellers have complied with the foregoing and Buyer
declines to contest such Tax claim, the Buyer will waive its right to
indemnification. Buyer shall not settle any Tax contest or otherwise take any
action that could adversely affect the Sellers, without the consent of the
Sellers, which consent shall not be unreasonably withheld.
l) Transfer Taxes. The Sellers shall bear the cost of any documentary,
stamp, transfer, or similar transfer tax payable with respect to the transfer of
the Common Stock to the Buyer.
m) Collection of Receivables. After the Closing Date, all cash, checks or
other proceeds received by Sellers or any of its banks or other financial
institutions that relate to the accounts receivable of the Company shall be paid
to the Company within ten (10) business days after receipt by Sellers, which
payments shall be accompanied by a statement identifying the payee, the amount
of the payment and the related invoice number. Sellers shall give Buyer access
to any and all lockboxes of the Company where payments for accounts receivable
are remitted, if any. Sellers shall instruct its banks to remit to Buyer all
amounts received by such banks with respect to such accounts. Sellers agree to
endorse and Buyer shall have the right to endorse the name of Sellers on any
such checks or proceeds (whether received directly by Buyer or received from
Sellers or its bank) and shall deposit such checks and other proceeds in bank
accounts maintained in the Company's name. From and after the Closing Date,
Sellers shall cooperate with, and provide reasonable assistance to, Buyer in
collecting such accounts.
<PAGE>
n) Assignment of Receivables. If any Account Receivable of the Company is
not collected by the Company within sixty (60) days after the Closing Date,
Buyer may, at its option, cause the Company to assign such Account Receivable to
Sellers and Sellers shall pay Buyer directly or through the Escrow an amount in
cash equal to the account receivable so assigned within three (3) business days
after assignment by Buyer.
o) Capital Expenditures. From the date of this Agreement until the Closing
Date, neither Sellers nor the Company will incur any capital expenditure or any
liability therefor requiring any payment or payments in excess of $10,000
individually or $250,000 in the aggregate without the prior written consent of
Buyer.
p) Government Clearances. As soon as practicable following execution of
this Agreement, Sellers shall prepare and provide to Buyer, which shall be set
forth in Schedule 6(s), a description of all existing government clearances (the
"Government Clearances") issued to Sellers or its Personnel under, in connection
with, or relating to the Company's Contracts or Business, including but not
limited to all facilities clearances and personnel clearances in the name of
Sellers. Sellers shall provide to Buyer promptly any information requested by
Buyer relating to or involving the information described on Schedule 6(s).
Sellers shall promptly provide such cooperation and assistance, and shall
execute such documents and consents as Buyer shall reasonably request, to assist
in the transfer or assignment of the clearances described on Schedule 6(s) to
the Company and/or the application for issuance of new clearances to the Company
in connection with this Agreement as may be required or requested by applicable
governmental authorities or may be needed to operate the Business as currently
operated.
q) Blanket Escrow Fund. In the event that Buyer is entitled to
indemnification as a result of Section 9(c) of this Agreement, Buyer shall be
entitled to reimbursement out of the Blanket Escrow Fund which is established as
a result of this Agreement and of the Escrow Agreement attached as Exhibit IV.A
hereto.
r) Award Fee Escrow Fund. The Award Fee Escrow Fund applies to the award
fee determinations which will be granted by NASA for the following operating
periods: (a) April 1, 1998 to September 30, 1998; (b) October 1, 1998 to March
31, 1999; (c) April 1, 1999 to September 30, 1999; (d) October 1, 1999 to March
31, 2000; and (e) April 1, 2000 to September 30, 2000. Upon receipt by the
Company of NASA's payment of the award fee for each of these periods, if the
award fee score is 85 or higher, Seller will be entitled to withdraw Six Hundred
Thousand Dollars ($600,000) from the Award Fee Escrow Fund, and, if the award
fee score is 84 or lower, Buyer will be entitled to withdraw the same amount
from the Award Fee Escrow Fund, all as provided in the Escrow Agreement attached
as Exhibit IV.B hereto.
<PAGE>
s) Deduction Escrow Fund. If any Tax Return filed by the Company for any
period ending before the Sellers' election to be treated as an S Corporation
became effective (as of April 1, 1996) is challenged or reassessed by the
Internal Revenue Service or by any similar taxing authority on the basis of
deductions taken in connection with employees or consultants, Buyer shall be
entitled to be reimbursed for any cost resulting from such reassessment. Any
reimbursement which results from the application of this Section 6(s) shall be
drawn from the Deduction Escrow Fund, in accordance with this Agreement and with
the Escrow Agreement attached as Exhibit IV.C hereto. In the event that Sellers
appeal such reassessment, Sellers shall pay all fees and costs associated with
such contest and Buyer shall only be entitled to reimbursement upon the earlier
of (i) the receipt of a finally adjudicated decision with regard to such
reassessment or (ii) Sellers' deciding to pay the amount of such reassessment.
t) S Corporation Election. Considering Sellers' representation under
Section 4(y)(i) and under any other provisions of this Agreement relating to the
Company's S Corporation status between April 1, 1996 and Closing, Sellers shall
continue to diligently pursue any and all means available which would lead to
final confirmation regarding the validity of this election, in accordance with
the Covenants (as defined in this Agreement). For purposes of clarification,
nothing in this Section 6(t) shall operate so as to affect or diminish any other
provisions of this Agreement.
SECTION 7. DELIVERIES BY SELLERS ON THE CLOSING DATE.
On or prior to the Closing Date, Sellers shall satisfy the following:
a) Stock Certificates. On the Closing Date, Sellers shall have delivered
to Buyer a certificate or certificates evidencing the Shares, free and clear of
all Encumbrances of any nature whatsoever, duly endorsed in blank for transfer
or accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed.
b) Opinion of Sellers' Counsel. There shall have been delivered to Buyer
an opinion, dated the Closing Date and addressed to Buyer, of Porter & Hedges,
L.L.P., counsel to Sellers, in substantially the form of Exhibit I hereto.
c) Approvals and Consents. Sellers shall have obtained and shall have
delivered to Buyer all requisite approvals and consents from governmental or
regulatory bodies or agencies, whether federal, state, local or foreign, or from
any other Person pursuant to leases, mortgages, contracts, agreements, permits
or licenses necessary to be obtained by Sellers or the Company for the
performance of their respective obligations hereunder. Sellers shall also have
delivered satisfactory evidence that all Government Clearances set forth in
Schedule 6(s) have been validly transferred or otherwise assigned to the
Company.
<PAGE>
d) Escrow Agreement. Sellers, Buyers and Escrow Agent shall have executed,
and Sellers shall have delivered to Buyer, the Escrow Agreement in the form
attached hereto as Exhibit IV.
e) Settlement of Certain Accounts. On or before the Closing Date, all
amounts owing by Sellers or any Company Personnel, other than as listed on a
Schedule 7(e) hereto, or any of their respective Affiliates or Family Members to
the Company shall have been repaid in full, and Sellers shall have delivered to
Buyer reasonably satisfactory evidence with respect thereto.
f) Bank Accounts. Sellers shall have delivered to Buyer a certificate
setting forth the balances in the Company's bank accounts as of the last
business day preceding the Closing Date and also indicating that since the
Balance Sheet Date no transactions were entered into other than in the ordinary
course of business.
g) Sellers' Employment Agreements. Each Seller shall have executed
and delivered to Buyer his Employment Agreement in the form of Exhibits II.A,
II.B. and II.C hereto.
h) Option Agreement. Sellers shall have executed and delivered to Buyer
the Option Agreement is the form of Exhibit III hereto.
i) Resignations. At the Closing, Sellers shall deliver evidence of the
resignation of all directors and officers of the Company.
SECTION 8. DELIVERIES BY BUYER ON THE CLOSING DATE.
On or prior to the Closing Date, Buyer shall satisfy the following:
a) Buyer's Performance. On the Closing Date, Buyer shall pay the Purchase
Price in accordance with the terms and provisions of Section 1(b) of this
Agreement.
b) Opinion of Buyer's Counsel. There shall have been delivered to Sellers
an opinion, dated as of the Closing Date and addressed to Sellers, of Buyer's
counsel, Dewey Ballantine LLP, in substantially the form of Exhibit V hereto.
c) Sellers' Employment Agreements. Buyer shall have executed and delivered
to each Seller and any similar party an Employment Agreement in substantially
the form of Exhibits II.A, II.B and II.C.
<PAGE>
d) Escrow Agreement. Buyer shall have executed and delivered to Sellers
the Escrow Agreements in the forms attached hereto as Exhibits IV.A through
IV.C.
e) Option Agreement. Buyer shall have executed and delivered to each
Seller an Option Agreement in the form of Exhibit III hereto.
SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION, ETC.
Except as they relate to Sections 3, 6(a), 6(c) and the Employment
Agreements attached hereto as Exhibits (which shall be several and not joint
representations and undertakings of the individual Sellers), all statements
contained in any Schedule, Annex or Exhibit hereto (except for the Employment
Agreements) or in any certificate delivered by or on behalf of the parties
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed representations and warranties by the parties hereunder.
a) Survival of Representations, Warranties, Etc. Except as otherwise
provided herein, the representations and warranties made in this Agreement or
provided herein shall survive for two (2) years following the Closing Date,
notwithstanding any investigation at any time made by or on behalf of the other
party; provided, that:
i) all representations and warranties made by Sellers in Section
4(r) (Environmental Matters), 4(u) (Employee Benefits) and
4(x) (Compliance with Laws), shall survive until the
applicable period for the statute of limitation (or any
extension thereof) has expired (as the case may be, the
applicable "Survival Period");
ii) all representations and warranties with respect to any Tax
shall survive the Closing and shall terminate and expire
thereafter on the later to occur of (A) the lapse of the
applicable statute of limitations with respect to the
assessment of such Tax (including any extensions thereof)
and (B) sixty (60) days after the final administrative or
judicial determination thereof, and no claim may be
asserted thereafter with the exception of claims arising
out of any fact, circumstance, action, or proceeding to
which the party asserting such claim shall have given
notice to the other parties to this Agreement prior to the
termination of such period of the reasonable belief that a
Tax or other item described in this Agreement will
subsequently arise therefrom;
<PAGE>
iii) if any representation or warranty made in this Agreement or
provided for herein is fraudulently given, it shall survive
the Closing Date for an unlimited period of time; and
iv) any specific claim or action of which specific notice is given
to the party which made such representation or warranty, prior
to the date on which representation or warranty otherwise
terminates as provided herein, may continue to be asserted.
b) Nature of Sellers' Liability. Each Seller shall be liable to Buyer
under Section 3, 6(a) and 6(c) hereof only for a breach by such Seller of his
representations, warranties and covenants contained therein. With respect to all
other representations, warranties and covenants made by Sellers in this
Agreement or as provided herein (other than in Section 3, 6(a) and 6(c)) the
liabilities of Sellers shall be joint and several.
c) Sellers' Agreement to Indemnify. Subject to the limitations on
liability set forth in Section 9(d) below, each Seller shall fully indemnify and
hold harmless Buyer, its subsidiaries (including the Company) and to the extent
Buyer is required to indemnify them, all Affiliates, officers, directors,
employees, representatives and agents of Buyer and its Subsidiaries against and
in respect of any and all liabilities, losses, damages, deficiencies, penalties,
fines, costs or expenses (including, without limitation, the fees and expenses
of investigation and counsel) (collectively "Losses") resulting from (A) any
misrepresentation or breach of warranty or the non-fulfillment of any agreement,
covenant or obligation by Sellers made in this Agreement (excluding Sections 3,
6(a), 6(c) and the Employment Agreements attached hereto as Exhibits but
including, without limitation, the Schedules, Annexes and other Exhibits hereto
and the certificates delivered hereunder) or as provided herein, and (B) any and
all actions, suits, proceedings, claims, demands, assessments, and judgments
incidental to the foregoing or the enforcement of such indemnification.
d) Limitation on Liability of Sellers. Sellers shall not be subject to
liability under 9(c)(i) for any misrepresentation or breach of warranty unless
and until any and all of Buyer's Losses exceed $25,000 in the aggregate, in
which case Sellers shall be liable for the full amount of such Losses. For
purposes of clarification, it is specifically understood that no indemnification
shall arise with respect to Section 4(j) hereof until the amount of uncollected
receivables within 90 days of the date of invoice exceeds the bad debt reserve
set forth on the Balance Sheet. It is also understood that the maximum amount
for which each Seller shall be liable under this Section 9 shall be the amount
of the Purchase Price which such Seller received.
<PAGE>
e) Buyer's Agreement to Indemnify. Buyer will fully indemnify and hold
harmless Sellers against and in respect of any and all of Sellers' Losses (i)
resulting from any misrepresentation or breach of warranty or the
non-fulfillment of any agreement, covenant or obligation by Buyer made in this
Agreement (including, without limitation, the Schedules, Annexes and Exhibits
hereto and the certificates delivered hereunder) or as provided herein and (ii)
arising out of the conduct of the business of the Company from and after the
date hereof, except to the extent any such Loss arises out of or is related to
any matter for which Buyer is entitled to be indemnified by Sellers hereunder.
It is specifically understood that if Buyer and Sellers make the Section
338(h)(10) Election as described in this Agreement and Sellers incur tax
liability in excess of that which they would have incurred if the election was
not made, Buyer will indemnify Sellers for such additional tax liability.
f) Third Party Claims. Promptly after the receipt by any party hereto of
notice of any claim, action, suit or proceeding of any third party which is
subject to indemnification hereunder, such party or parties (the "Indemnified
Party") shall give written notice of such claim (a "Notice of Claim") to the
party obligated to provide indemnification hereunder (collectively, the
"Indemnifying Party"), stating the nature and basis of such claim and the amount
thereof, to the extent known. The Indemnifying Party shall be entitled to
participate in the defense or settlement of such matter and the parties agree to
cooperate in any such defense or settlement and to give each other full access
to all information relevant thereto. The Indemnifying Party shall not be
obligated to indemnify an Indemnified Party hereunder for any settlement entered
into without the Indemnifying Party's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed. If the loss incurred
relates to the failure of the Buyer or the Company to collect any note or
account receivable and if any Sellers pay in full the unpaid balance thereof to
the Buyer or the Company, the Buyer will cause the Company to assign said note
or account without recourse to the Sellers paying same in full satisfaction of
the Sellers' indemnification obligation as to such uncollected note or account.
Any collection procedures by Sellers will be carried out in a reasonable manner
with prior notice to Buyer so as not to prejudice the Company's relationship
with the account debtor.
SECTION 10. PAYMENT OF CERTAIN EXPENSES.
Sellers will pay all federal, state, county and local Taxes (including,
without limitation, any requisite transfer taxes) which may be payable by reason
of the consummation of the purchase and sale of the Shares. Subject to the
foregoing, each party will be liable for its own costs and expenses incurred in
connection with the negotiation, preparation, execution or performance of this
Agreement and the transactions contemplated hereby.
<PAGE>
SECTION 11. INJUNCTIVE RELIEF.
Sellers acknowledge that irreparable damage would result if the provisions
of Sections 6(a), (b) or (c) were not complied with in accordance with their
respective specific terms. Accordingly, Sellers agree that Buyer shall have the
right, in addition to any other rights or remedies it may have, to injunctive
relief, without the necessity of posting a bond, in respect of any failure on
the part of Sellers and to comply with provisions of Sections 6(a), (b) or (c).
SECTION 12. WAIVER.
Any of the terms or conditions of this Agreement may be waived at any time
and from time to time in writing by the party entitled to the benefits thereof
without affecting any other terms or conditions of this Agreement.
SECTION 13. NOTICES, ETC.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given, if delivered in person
or by courier, telegraphed, telexed or by facsimile transmission or mailed by
certified or registered mail, postage prepaid:
if to SPACEHAB, INCORPORATED:
Spacehab, Incorporated
1595 Spring Hill Road
Vienna, VA 22812
Attn: Margaret E. Grayson
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attn: Frank E. Morgan II
<PAGE>
if to W. T. Short, Eugene A. Cernan and William A. Jackson:
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, TX 77598
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, TX 77002-2764
Attn: John M. Ransom
and with a copy to:
McDade, Fogler, Maines and Lohse
909 Fannin, Suite 1800
Houston, TX 77010
Attn: Thomas R. McDade
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
SECTION 14. ENTIRE AGREEMENT; AMENDMENT.
This Agreement (excluding the Employment Agreements attached hereto as
Exhibits II.A, II.B, and II.C and including, without limitation, the Schedules,
Annexes and all other Exhibits hereto and the certificates delivered hereunder)
and the other agreements referred to herein and entered into in connection
herewith set forth the entire agreement and understanding of the parties in
respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof including all such agreements, arrangements and understandings between
the Sellers and the Company. No representation, promise, inducement or statement
of intention has been made by Sellers or Buyer which is not embodied in this
Agreement or the other agreements referred to herein and entered into in
connection herewith, the Schedules, Annexes or Exhibits hereto, or the written
statements, certificates or other documents delivered pursuant hereto, and
neither Sellers nor Buyer shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
This Agreement may be amended or modified only by a written instrument executed
by Buyer and Sellers or by their successors and assigns.
<PAGE>
SECTION 15. PRESS RELEASES.
Neither Sellers, nor Buyer, nor the Company shall issue any press releases
or make any public announcements of any of the transactions contemplated by this
Agreement except as may be mutually agreed to in writing by both Sellers and
Buyer; provided, however, that notwithstanding the foregoing, Sellers and Buyer
shall be permitted, upon prior notice to the other party, to make such
disclosures to the public, governmental or regulatory authorities or
shareholders of Buyer to maintain compliance with, or to prevent violation of,
applicable laws, rules or regulations.
SECTION 16. GENERAL.
This Agreement: (i) shall be performable in and construed and enforced in
accordance with the laws of the State of New York, without giving effect to the
choice of law principles thereof; (ii) shall inure to the benefit of and be
binding upon the heirs, legal representatives, successors and assigns of Sellers
and the successors and assigns of Buyer, nothing in this Agreement, expressed or
implied, being intended to confer upon any other Person any right or remedies
hereunder, other than a successor of Seller or Buyer; and (iii) may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. The Section and
other headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 17. SEVERABILITY.
To the extent that any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, if any
provision, term, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, then such provision, term, covenant or
restriction shall be construed to cover only that duration, extent or activities
which may be validly and enforceably covered and the remainder of the
provisions, terms, covenants and restrictions contained herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
BUYER:
SPACEHAB, INCORPORATED
By: /S/ DAVID ROSSI
Name: David Rossi
Title: President
SELLERS:
/S/ W.T. SHORT
-------------------
W. T. Short
/S/ WILLIAM A. JACKSON
---------------------
William A. Jackson
/S/ EUGENE A. CERNAN
---------------------
Eugene A. Cernan
<PAGE>
<TABLE>
<CAPTION>
Annex I
SHARES SOLD AND PURCHASE PRICE ALLOCATION
- ---------------------------------------------------------------------------------------
Name of Seller Number of % of Total Purchase Purchase Total
Shares Price Price Purchase
Owned Received Deposited Price
at Closing with
Escrow Agent
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. T. Short 6,000 30% $ 5,370,000 $ 1,980,000 $7,350,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
William A. Jackson 8,000 40% $ 7,160,000 $ 2,640,000 $9,800,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Eugene A. Cernan 6,000 30% $ 5,370,000 $ 1,980,000 $7,350,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total 20,000 100% $17,900,000 $ 6,600,000 $24,500,000
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit I
FORM OF OPINION OF COUNSEL TO THE COMPANY AND SELLERS
i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado. The Company has all
requisite corporate power to own, lease and operate its properties and to carry
on its business as it is now being conducted, and is duly qualified and in good
standing to do business as a foreign corporation in each jurisdiction where such
qualification is necessary under applicable law.
ii) The Company's authorized capital consists exclusively of 50,000 of
Common Stock of which 20,000 shares are issued and outstanding. All of the
outstanding Common Stock has been duly authorized and is validly issued, fully
paid and non-assessable. There are no existing subscriptions, warrants, rights,
options, calls or commitments of any character whatsoever or agreements to grant
the same, relating to the issuance, sale, delivery or transfer by Sellers or the
Company of any capital stock of the Company and the Company does not have any
outstanding securities convertible into or exchangeable or exercisable for any
shares of capital stock of the Company or any subscriptions, warrants, rights,
options, calls or commitments of any character whatsoever with respect to the
issuance, sale or delivery of such convertible securities.
iii) Except as otherwise disclosed on Schedule 4(v) to the Agreement, such
counsel does not know of any (A) claim, litigation, proceeding, labor dispute
(other than routine grievance procedures), arbitral action or governmental
investigation pending or threatened against or relating to (1) the Company or
any of its properties, (2) any Plan, (3) any Company Personnel in reference to
actions taken by them in such capacities or (4) Sellers with respect to the
Shares, (B) valid basis for any such litigation, proceeding or investigation
which if adversely determined could have a material adverse effect on the
business of the Company, or (C) writs, decrees, injunctions or orders of any
court or governmental or regulatory agency, authority or body outstanding
against the Company, any Plan or against Sellers with respect to the Shares.
iv) Each of the Sellers has the power, capacity and authority to enter
into the Agreement and to sell such person's shares in accordance with the terms
thereof in each case sufficient to convey to Buyer good and marketable title to
the shares, free and clear of all Encumbrances of any nature whatsoever and to
perform fully such person's obligations thereunder.
<PAGE>
v) The Agreement and the Employment Agreements with the Sellers and with
other designated employees have been duly executed and delivered by the
aforementioned parties and constitute the legal, valid and binding obligations
of each Seller enforceable against each Seller in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency, or
other similar laws affecting the enforcement of creditors' rights in general or
by general principles of equity.
vi) Counsel is not aware of any action, claim, suit or proceeding pending
or threatened by or against or affecting such Seller or such Seller's Shares and
Counsel is not aware of any investigation pending or threatened against or
affecting such Seller or such Seller's Shares before any court or governmental
or regulatory authority or body, that could reasonably be expected to have an
effect on the consummation of the transactions contemplated by the Agreement or
such Seller's Shares following the Closing. Counsel is not aware of any writs,
decrees, injunctions or order of any court or governmental or regulatory agency,
authority or body outstanding against such Seller with respect to such Seller's
Shares.
vii) Counsel is not aware of any Encumbrance of any nature whatsoever
relating to the Shares, and the certificates for the Shares and instruments of
transfer relating thereto delivered to Buyer at the Closing are such as to
transfer to and vest in Buyer good and marketable title to the Shares, free and
clear of all such Encumbrances.
viii) Except as disclosed on Schedule 4(a) of the Agreement, neither the
execution and delivery of the Agreement, the consummation of the transactions
contemplated thereby, nor compliance by Sellers or the Company with any of the
provisions thereof will (A) violate or conflict with the Articles of
Incorporation or Bylaws of the Company, (B) violate, conflict with, result in a
breach of, constitute a default (or an event which with the giving of notice or
lapse of time or both would constitute a default) under, or result in the
acceleration of performance under, or termination or cancellation of, any note,
bond, mortgage, indenture, lease, deed of trust, license, agreement, or any
other instrument or obligation to which the Company is a party, or by which the
Company or any of its assets or properties may be bound or affected, (C) result
in the creation of any Encumbrance upon the Shares or upon any of the capital
stock, assets or properties of the Company, (D) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its assets or properties, (E) require the Company to obtain the consent,
approval, permission or other authorization of or qualification or filing by or
with any court, arbitrator or governmental, administrative, regulatory or
self-regulatory authority or (F) adversely affect any Permit that is required
for the conduct of the business of the Company or that is required of any
employee or agent of the Company to enable him to carry out his duties on behalf
of the Company pursuant to the terms of any such Permit.
<PAGE>
Exhibit V
FORM OF OPINION OF DEWEY BALLANTINE LLP
i) Buyer is a corporation duly organized, is an existing corporation under
the laws of the State of Washington, and has all requisite corporate power to
carry on its business as it is then being conducted.
ii) All requisite corporate action has been taken by Buyer to authorize
the execution, delivery and performance by Buyer of the Agreement and the
transactions contemplated therein, and no other corporate proceedings on the
part of Buyer are necessary to authorize the execution and delivery of the
Agreement and the transactions contemplated therein.
iii) Each of the Agreement, the Employment Agreement, the Option Agreement
and the Escrow Agreement has been duly executed and delivered by Buyer and
constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights in general or by general principles of equity.
iv) As to the opinion that Buyer is an existing corporation under the laws
of the State of Washington, Dewey Ballantine LLP is relying exclusively on a
Certificate of the Secretary of State of Washington regarding such matters.
v) As to the opinion that Buyer is duly organized under the laws of the
State of Washington and has all requisite corporate power to carry on its
business as conducted, Dewey Ballantine LLP is relying exclusively on a prior
opinion from local counsel in the State of Washington regarding such matters.
vi) As to the opinion expressed in paragraph (iii) herein, Dewey
Ballantine LLP has assumed that the laws of the State of Washington as they
relate to such matters are of the same effect as the laws of the State of New
York.
IV-B-1
THIS AWARD FEE ESCROW AGREEMENT (the "Escrow Agreement") dated as of July
1, 1998, is made by and among SPACEHAB, INCORPORATED, a Washington corporation
("Buyer"), William A. Jackson, Eugene A. Cernan and W.T. Short, (individually
"Seller" and collectively "Sellers") and First Union National Bank, a national
banking association (the "Escrow Agent"), as contemplated by that certain Stock
Purchase Agreement, dated as of July 1, 1998, by and among Sellers and Buyer.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Stock Purchase Agreement
WHEREAS, Buyer and Sellers have entered into the Stock Purchase Agreement,
dated as of July 1, 1998, to provide for the purchase of all of the Shares of
the Company;
WHEREAS, Sellers have agreed to indemnify Buyer in certain circumstances
pursuant to Section 9 of the Stock Purchase Agreement;
WHEREAS, the closing of the transactions contemplated by the Stock
Purchase Agreement are taking place as of the date hereof and the execution of
this Escrow Agreement by the parties is an express condition thereto; and
WHEREAS, Buyer has relied upon the representations, warranties and
covenants of Sellers provided in the Stock Purchase Agreement and in the
Schedules, Annexes, Exhibits Certificates and other documents delivered pursuant
to the Stock Purchase Agreement.
NOW, THEREFORE, to induce Buyer to proceed with the Closing and the
acquisition of all of the Shares of the Company and in consideration of such
Closing and acquisition, and in further consideration of the mutual covenants
and agreements contained herein and in the Stock Purchase Agreement, and
intending to be legally bound, the parties hereto do hereby agree as follows:
<PAGE>
ARTICLE I
Section I.1 Contemporaneous with the execution of this Escrow Agreement,
Buyer shall deposit at Closing, by wire transfer of immediately available funds,
Three Million ($3,000,000) of the Purchase Price, representing the sum of, the
Award Fee Escrow Fund ("Escrow Amount") with the Escrow Agent, such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein, it being understood that any interest or other income thereon will
also form part of the Escrow Fund. The interest shall be reported as income to
Buyer and Buyer shall be entitled to receive a distribution from the Escrow Fund
each year in an amount sufficient to pay the income taxes thereon calculated at
the highest corporate rate (giving effect to state and local income taxes). The
disbursement of any interest income net of income taxes paid, will be
distributed in proportional amounts to the party or parties to whom the amounts
deposits into the Escrow Fund upon execution of the Escrow Agreement re actually
paid. The Escrow Agent shall invest the Escrow Amount in interest bearing United
States government securities or mutual funds consisting of United States
government securities and repurchase agreements having a maturity not exceeding
the Escrow Period. Upon compliance with the terms hereof, Buyer shall be
entitled to receive payment from the Escrow Fund for all Losses for which Buyer
is entitled to indemnification under the Stock Purchase Agreement.
Section I.2 The Escrow Agent shall hold, safeguard and dispose of the
Escrow Fund in accordance with the terms hereof and shall treat such Escrow Fund
as an escrow fund in accordance with the terms hereof and not as the property of
Buyer or Sellers.
<PAGE>
ARTICLE II
ESCROW PERIOD
The funds forming the Escrow Fund shall remain in existence for a period
ending when NASA makes payments of the award fee which is attributable to the
operating period ending September 30, 2000 (the "Award Fee Escrow Period") and
no claim may be asserted thereafter with the exception of claims arising out of
any fact, circumstance, action, or proceeding to which the party asserting such
claim shall have given to the other parties to this Agreement, prior to the
termination of such period, notice of the reasonable belief that an item
described in this Agreement will subsequently arise therefrom; provided,
however, that any element of the Escrow Fund shall continue to be maintained
beyond the Escrow Period to the extent set forth in Article V hereof, in the
event that there exists any Claim (as defined in Article III hereof) that is
pending or not yet resolved pursuant to Article IV hereof.
ARTICLE III
CLAIMS AGAINST ESCROW FUND
<PAGE>
Section III.1 Award Fee Escrow Fund Disbursement. The parties agree that
the Award Fee Escrow Fund applies to the award fee determinations which will be
granted by NASA for the following operating periods: (a) April 1, 1998 to
September 30, 1998; (b) October 1, 1998 to March 31, 1999; (c) April 1, 1999 to
September 30, 1999; (d) October 1, 1999 to March 31, 2000; and (e) April 1, 2000
to September 30, 2000. Within 10 days of receipt by the Company of payment by
NASA of the award fee attributable to any of the above-referenced periods, Buyer
and two out of three Sellers shall prepare a Certificate (the "Certificate")
authorizing the release of a portion of the Award Fee Escrow Fund as follows: if
the award fee score underlying this period is 85 or higher, Seller will be
entitled to withdraw and receive payment of Six Hundred Thousand Dollars
($600,000) plus the interest thereon net of taxes paid, and, if the award fee
score is less than 85, Buyer will be entitled to withdraw the same amount from
the Award Fee Escrow Fund. Accordingly, the Award Fee Escrow Fund will be
depleted when the appropriate party withdraws the amount attributable to the
operating period ending September 30, 2000.
ARTICLE IV
RESOLUTION OF DISPUTES
Section IV.1 If a dispute arises between Sellers and Buyer as to the
application, interpretation or operation of this Award Fee Escrow Agreement,
Sellers and Buyer shall attempt in good faith to agree upon the rights of the
respective parties with respect to such dispute. If Sellers and Buyer so agree,
a memorandum setting forth such agreement shall be prepared and signed by Buyer
and Sellers and shall be furnished to each of them, and a Certificate
summarizing this agreement and signed by Buyer and two out of three Sellers will
be presented to the Escrow Agent.
<PAGE>
Section IV.2 If no such agreement can be reached after good faith
negotiation, but in any event 30 days after Sellers refuse to consent to the
delivery of a portion of the Escrow Fund for the amount of a Loss in respect of
any Claim made by Buyer (a "Dispute"), such Dispute shall be submitted to
mandatory and binding arbitration. The arbitration shall be pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). The arbitration hearing shall be held in such neutral location as the
parties may mutually agree or, in the absence of mutual agreement, in New York
City. The arbitration panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including without limitation, the provisions of
this Section 4.2. Any award rendered by the arbitration panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
Section IV.3 If at any time there shall arise a dispute between any or all
of the Sellers concerning which of them shall be liable for payment of a Claim
or Claims, Sellers hereby expressly acknowledge and agree that: (i) such dispute
will not in any way whatsoever delay the delivery, in the ordinary course, to
Buyer of any amount out of the Escrow Fund pursuant to Article III hereof; (ii)
Sellers shall attempt in good faith to agree upon their rights with respect to
each such Claim; (iii) if all Sellers so agree, a memorandum setting forth such
agreement shall be prepared and signed by Sellers and shall be furnished to the
Escrow Agent and Buyer; and (iv) if no such agreement can be reached after good
faith negotiation, but in any event 30 days after either, as the case may be,
raises a dispute as referenced in this Section 4.3, then the dispute shall be
submitted to binding arbitration before an arbitrator or arbitrators mutually
agreed to by the Sellers.
ARTICLE V
EXPIRATION OF ESCROW PERIOD
<PAGE>
If, upon expiration of the Escrow Period, Buyer shall have asserted a
Claim and such Claim is pending or unresolved at the time of such expiration,
the Escrow Agent shall retain in the Escrow Fund that portion of the Escrow
Amount, net of any distributions made or to be made with respect to other
Claims, equal in value to the disbursement asserted in such Claim until such
matter is resolved. If it is determined that Buyer is entitled to recovery on
account of such disbursement, the Escrow Agent shall deliver or cause to be
delivered to Buyer the Escrow Amount having a value equal to the amount due and
payable with respect to such Claim, plus the interest thereon net of taxes paid.
In the event that no Claims, or notices as provided in Article II are made or
pending by or at the end of the Escrow Period, the remaining value of the Escrow
Fund net of Expenses and taxes shall be disbursed to the Sellers as follows:
William A. Jackson (40%), Eugene A. Cernan (30%) and W.
T. Short (30%).
ARTICLE VI
SCHEDULE FOR RELEASE OF ESCROW FUND
If any amount is paid by the Escrow Agent pursuant to a disbursement and
the actual disbursements with respect thereto are at the time determined to be
less than such payment, Buyer shall promptly return such excess to the Escrow
Agent to be deposited into the Escrow Fund, if this Escrow Agreement is then in
effect, or to Sellers, as the case may be, in accordance with the provisions of
this Article V, if this Escrow Agreement is no longer in effect.
ARTICLE VIII
ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES
To induce the Escrow Agent to act hereunder, it is further agreed that:
(a) Any recitals contained in this Escrow Agreement shall be
deemed to be those of the principals and not those of the Escrow Agent.
(b) The Escrow Agent shall not be under any duty to give the
property held hereunder any greater degree of care than it gives its own
similar property.
(c) The Escrow Agent may engage legal counsel who may be counsel for
any party to the Escrow Agreement and may act upon advice of counsel in
reference to any matter connected herewith and shall not be liable for any
acts or omissions taken or suffered pursuant to the opinion of such
counsel. The fees and expenses of such counsel shall be deemed to be a
proper expense for which the Escrow Agent will have a lien against the
Escrow Fund.
<PAGE>
(d) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Escrow Agreement or
any documents or papers deposited or called for hereunder. The Escrow
Agent shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed by it to be genuine and correct and to have been signed or sent
by the proper person or persons.
(e) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Escrow
Agreement or any documents deposited with the Escrow Agent.
(f) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other
person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person by reason of
such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(g) The Escrow Agent is authorized to rely on the written
instructions of Sellers as being the acts, respectively, of Sellers, and
the written instructions of the Chief Executive Officer or Chief Financial
Officer of Buyer as being the act of Buyer.
<PAGE>
(h) The duties of the Escrow Agent shall be as expressed under this
Escrow Agreement, and the Escrow Agent shall have no implied duties. The
permissive right or power to take any action shall not be construed as a
duty to take action under any circumstances, and the Escrow Agent shall
not be liable except in the event of its gross negligence or willful
misconduct.
(i) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
(j) In consideration of its acceptance of the appointment as the
Escrow Agent, and except with respect to the Escrow Agent's own gross
negligence or willful misconduct or acts or omissions by the Escrow Agent
not in good faith, the other parties hereto agree, jointly and severally,
to indemnify and hold the Escrow Agent harmless as to any loss or
liability incurred by it to any person, firm or corporation by reason of
its having accepted the same or in carrying out any of the terms hereof,
and to reimburse the Escrow Agent for all its expenses, including
attorney's fees, incurred by reason of its position hereunder or actions
taken pursuant hereto. The Escrow Agent shall have no liability under, or
duty to inquire into, the terms and provisions of this Escrow Agreement,
and it is agreed that its duties are purely ministerial in nature and that
the Escrow Agent shall incur no liability whatsoever except for willful
misconduct or gross negligence so long as it has acted in good faith. This
paragraph (j) shall survive the termination of the Escrow Agreement.
(k) The Escrow Agent may execute any of the duties under this Escrow
Agreement by or through agents or receivers.
(l) Unless specifically required by this Escrow Agreement, the
Escrow Agent shall not be required to give any bond or surety or report to
any court despite any statute, custom or rule to the contrary.
<PAGE>
(m) In the event the Escrow Agent becomes involved in litigation by
reason hereof, it is hereby authorized to deposit with the clerk of the
court in which the litigation is pending any and all funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder. Also, in the event the Escrow Agent is
threatened with litigation by reason hereof, it is hereby authorized to
implead all interested parties in any court of competent jurisdiction and
to deposit with the clerk of such court any such funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder.
(n) The Escrow Agent shall not be obligated to risk its own funds in
the administration of the Escrow Fund and shall have a lien against any
funds, securities or other property in its possession or control for its
fees, expenses and advancements. The Escrow Agent need not take any action
under this Escrow Agreement which may involve it in any expense or
liability until indemnified to its satisfaction for any expense or
liability it reasonably believes it may occur.
ARTICLE IX
RECORDS
The Escrow Agent shall maintain a record of all Claims against the Escrow
Fund filed with it pursuant to Article III, a record of all such claims which
shall become payable as provided in Article III or IV and a record of all
payments from the Escrow Fund to Buyer.
ARTICLE X
RESIGNATION OF ESCROW AGENT
<PAGE>
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder
by giving 30 days' written notice thereof to Buyer and Sellers by registered or
certified mail. Such resignation shall become effective following such written
notice upon the earlier of the appointment by Buyer and Sellers of a successor
Escrow Agent that accepts the appointment and agrees to be bound by the
provisions of this Agreement or the expiration of 30 days thereafter. Upon the
effectiveness of such resignation, all duties of the Escrow Agent so resigning
shall cease, other than the duty to account in accordance with Article VIII.
Buyer and Sellers shall have the right to terminate the appointment of the
Escrow Agent hereunder by giving written notice thereof to the Escrow Agent,
specifying the date upon which such termination shall take effect. A condition
precedent to such termination shall be the designation of a successor Escrow
Agent that has accepted the appointment and agreed to be bound by the provisions
of this Agreement. In event of such termination, the Escrow Agent shall turn
over and deliver to such successor Escrow Agent the Escrow Fund, and any other
sums and the records and instruments held by it under this Escrow Agreement and
render the accounting required by Article VIII.
ARTICLE XI
NOTICES
All notices and other communications pursuant to this Escrow Agreement
shall be in writing and shall be deemed given if delivered personally, sent by a
nationally recognized overnight courier, or mailed by registered or certified
mail (return receipt requested), postage prepaid, or sent by facsimile (followed
with a copy sent by courier or registered or certified mail) to the parties at
the following addresses (or at such other address for a party as shall be
specified by notice hereunder):
To Buyer: Spacehab, Incorporated
1595 Spring Hill Road
Vienna, VA
Attn: Margaret E. Grayson
with a copy to : Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Frank E. Morgan II, Esq.
<PAGE>
To Sellers: William A. Jackson
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
Eugene A. Cernan
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
W. T. Short
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
To Escrow Agent: First Union National Bank, NA
800 East Main St.
Lower Mezzanine
Richmond, VA 23219
Attn: Corporate Trust Department
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by nationally recognized overnight courier, on the business day
following dispatch, (c) in the case of mailing, on the third business day
following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
ARTICLE XII
SUCCESSORS AND ASSIGNS
This Escrow Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
<PAGE>
ARTICLE XIII
GOVERNING LAW
This Escrow Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the choice of law
principles thereof.
ARTICLE XIV
ESCROW FEES
It is agreed that the fees to be paid to the Escrow Agent in connection
with the Escrow Fund, will be paid out of the interest generated by Escrow Fund
and to the extent such amounts are not sufficient to pay said fees, one-half by
the Sellers and one-half by the Buyer.
ARTICLE XV
EXPENSES
In the event of any dispute that results in a suit or other legal
proceeding to construe or enforce any provision of this Agreement or because of
an alleged breach, default or misrepresentation in connection with any of the
provisions of this Escrow Agreement, the parties
<PAGE>
agree that each party shall be responsible for its own attorneys' fees and other
costs incurred in any action or proceeding.
ARTICLE XVI
COUNTERPARTS
This Escrow Agreement may be executed in any number of counterparts, each
of which when so executed shall constitute an original hereof, but all of which
together shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement to
be effective as of the day and year first above written.
- --------------------------------------------------------------------------------
SELLERS: BUYER:
SPACEHAB, INCORPORATED
By: /S/ DAVID ROSSI
----------------
David Rossi
/S/ WILLIAM A. JACKSON
- ----------------------
William A. Jackson
/S/ EUGENE A. CERNAN
- ----------------------
Eugene A. Cernan
/S/ W.T SHORT
- ----------------------
W. T. Short
ESCROW AGENT
By: -----------------------------
First Union National Bank, NA
THIS BLANKET ESCROW AGREEMENT (the "Escrow Agreement") dated as of
July 1, 1998, is made by and among SPACEHAB, INCORPORATED, a Washington
corporation ("Buyer"), William A. Jackson, Eugene A. Cernan and W.T. Short,
(individually "Seller" and collectively "Sellers") and First Union National
Bank, a national banking association (the "Escrow Agent"), as contemplated by
that certain Stock Purchase Agreement, dated as of July 1, 1998, by and among
Sellers and Buyer. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Stock Purchase Agreement
WHEREAS, Buyer and Sellers have entered into the Stock Purchase Agreement,
dated as of July 1, 1998, to provide for the purchase of all of the Shares of
the Company;
WHEREAS, Sellers have agreed to indemnify Buyer in certain circumstances
pursuant to Section 9 of the Stock Purchase Agreement;
WHEREAS, the closing of the transactions contemplated by the Stock
Purchase Agreement are taking place as of the date hereof and the execution of
this Escrow Agreement by the parties is an express condition thereto; and
WHEREAS, Buyer has relied upon the representations, warranties and
covenants of Sellers provided in the Stock Purchase Agreement and in the
Schedules, Annexes, Exhibits Certificates and other documents delivered pursuant
to the Stock Purchase Agreement.
<PAGE>
IV-A - 4
NOW, THEREFORE, to induce Buyer to proceed with the Closing and the
acquisition of all of the Shares of the Company and in consideration of such
Closing and acquisition, and in further consideration of the mutual covenants
and agreements contained herein and in the Stock Purchase Agreement, and
intending to be legally bound, the parties hereto do hereby agree as follows:
ARTICLE I
Section 1.1. Contemporaneous with the execution of this Escrow Agreement,
Buyer shall deposit at Closing, by wire transfer of immediately available funds,
Two Million Five Hundred Thousand Dollars ($2,500,000) of the Purchase Price,
representing the sum of the Blanket Escrow Fund with the Escrow Agent, such
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein, it being understood that any interest or other income
thereon will also form part of the Escrow Fund. The interest shall be reported
as income to Buyer and Buyer shall be entitled to receive a distribution from
the Escrow Fund each year in an amount sufficient to pay the income taxes
thereon calculated at the highest corporate rate (giving effect to state and
local income taxes). The disbursement of any interest income, net of income
taxes paid, will be distributed in proportional amounts to the party or parties
to whom the amounts deposited into the Escrow Fund upon execution of this Escrow
Agreement are actually paid. The Escrow Agent shall invest the Escrow Amount in
interest bearing United States government securities or mutual funds consisting
of United States government securities and repurchase agreements having a
maturity not exceeding the Escrow Period. Upon compliance with the terms hereof,
Buyer shall be entitled to receive payment from the Escrow Fund for all Losses
for which Buyer is entitled to indemnification under the Stock Purchase
Agreement.
Section 1.2. The Escrow Agent shall hold, safeguard and dispose of the
Escrow Fund in accordance with the terms hereof and shall treat such Escrow Fund
as an escrow fund in accordance with the terms hereof and not as the property of
Buyer or Sellers.
<PAGE>
ARTICLE II
ESCROW PERIOD
The funds forming the Escrow Fund shall remain in existence for a period
ending on July 1, 2000 (the "Escrow Period") and no claim may be asserted
thereafter with the exception of claims arising out of any fact, circumstance,
action, or proceeding to which the party asserting such claim shall have given
to the other parties to this Agreement, prior to the termination of such period,
notice of the reasonable belief that an item described in this Agreement will
subsequently arise; provided, however, that any element of the Escrow Fund shall
continue to be maintained beyond the Escrow Period to the extent set forth in
Article V hereof, in the event that there exists any Claim (as defined in
Article III hereof) that is pending or not yet resolved pursuant to Article IV
hereof.
ARTICLE III
CLAIMS AGAINST ESCROW FUND
Section 3.1. Claims against any component of the Blanket Escrow Fund. Upon
receipt by the Escrow Agent on or before the last day the Escrow Fund remains in
existence of a certificate signed by the Chief Executive Officer or Chief
Financial Officer of Buyer ("Officer's Certificate") and by two of the three
Sellers:
(a) stating that Buyer has a Loss and that Buyer is entitled to
indemnification out of the Escrow Fund pursuant to this Escrow Agreement
and Section 9 of the Stock Purchase Agreement other than as a result of
the specific items covered by the Award Fee Escrow Fund or the Deduction
Escrow Fund; and
<PAGE>
(b) specifying in reasonable detail (i) the amount of the Loss; (ii)
the individual items of Losses included in the amount so stated; (iii) the
basis for the Loss and (iv) the section of the Stock Purchase Agreement to
which such claim relates;
the Escrow Agent shall, subject to the provisions of Article IV hereof, deliver
to Buyer, as promptly as practicable, out of the Escrow Fund, such amount out of
the Escrow Fund having a value equal to the amount of such Losses. The Escrow
Agent shall make no delivery out of the Escrow Fund pursuant to this Article III
unless the Escrow Agent shall have received the Officer's Certificate specified
in this Section 3.1 to make such delivery.
SECTION 3.2. Claims. Any claim by Buyer against the Escrow Fund made
in an Officer's Certificate pursuant to this Article III shall be referred to
herein as a "Claim" or, if multiple, "Claims."
ARTICLE IV
RESOLUTION OF DISPUTES
SECTION 4.1. If the Sellers shall not have consented to the delivery to
Buyer of that portion of the Escrow Fund equal to the amount of Losses in
respect of any Claim made in an Officer's Certificate pursuant to Article III,
Sellers and Buyer shall attempt in good faith to agree upon the rights of the
respective parties with respect to each such Claim. If Sellers and Buyer so
agree, a memorandum setting forth such agreement shall be prepared and signed by
Buyer and Sellers and shall be furnished to each of them and an Officer's
Certificate will be presented to the Escrow Agent.
<PAGE>
SECTION 4.2. If no such agreement can be reached after good faith
negotiation, but in any event 30 days after Sellers refuse to consent to the
delivery of a portion of the Escrow Fund for the amount of a Loss in respect of
any Claim made by Buyer (a "Dispute"), such Dispute shall be submitted to
mandatory and binding arbitration. The arbitration shall be pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). The arbitration hearing shall be held in such neutral location as the
parties may mutually agree or, in the absence of mutual agreement, in New York
City. The arbitration panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including without limitation, the provisions of
this Section 4.2. Any award rendered by the arbitration panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
SECTION 4.3. If at any time there shall arise a dispute between any or all
of the Sellers concerning which of them shall be liable for payment of a Claim
or Claims, Sellers hereby expressly acknowledge and agree that: (i) such dispute
will not in any way whatsoever delay the delivery, in the ordinary course, to
Buyer of any amount out of the Escrow Fund pursuant to Article III hereof; (ii)
Sellers shall attempt in good faith to agree upon their rights with respect to
each such Claim; (iii) if all Sellers so agree, a memorandum setting forth such
agreement shall be prepared and signed by Sellers and shall be furnished to the
Escrow Agent and Buyer; and (iv) if no such agreement can be reached after good
faith negotiation, but in any event 30 days after either, as the case may be,
raises a dispute as referenced in this Section 4.3, then the dispute shall be
submitted to binding arbitration before an arbitrator or arbitrators mutually
agreed to by the Sellers.
<PAGE>
ARTICLE V
EXPIRATION OF ESCROW PERIOD
If, upon expiration of the Escrow Period, Buyer shall have asserted a
Claim and such Claim is pending or unresolved at the time of such expiration,
the Escrow Agent shall retain in the Escrow Fund that portion of the Escrow
Amount, net of any distributions made or to be made with respect to other
Claims, equal in value to the Loss asserted in such Claim until such matter is
resolved. If it is determined that Buyer is entitled to recovery on account of
such Claim, the Escrow Agent shall deliver or cause to be delivered to Buyer the
Escrow Amount having a value equal to the amount due and payable with respect to
such Claim plus the interest thereof net of taxes paid. In the event that no
Claims, or notices as provided in Article II, are made or are pending by or at
the end of the Escrow Period, the remaining value of the Escrow Fund, net of
expenses and taxes shall be disbursed to the Sellers as follows: William A.
Jackson (40%), Eugene A. Cernan (30%) and W.
T. Short (30%).
ARTICLE VI
SCHEDULE FOR RELEASE OF ESCROW FUND
If any amount is paid by the Escrow Agent pursuant to a Claim and the
actual Losses with respect to such Claim are at the time determined to be less
than such payment, Buyer shall promptly return such excess to the Escrow Agent
to be deposited into the Escrow Fund, if this Escrow Agreement is then in
effect, or to Sellers, as the case may be, in accordance with the provisions of
this Article V, if this Escrow Agreement is no longer in effect.
<PAGE>
ARTICLE VIII
ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES
To induce the Escrow Agent to act hereunder, it is further agreed that:
(a) Any recitals contained in this Escrow Agreement shall be
deemed to be those of the principals and not those of the Escrow Agent.
(b) The Escrow Agent shall not be under any duty to give the
property held hereunder any greater degree of care than it gives its own
similar property.
(c) The Escrow Agent may engage legal counsel who may be counsel for
any party to the Escrow Agreement and may act upon advice of counsel in
reference to any matter connected herewith and shall not be liable for any
acts or omissions taken or suffered pursuant to the opinion of such
counsel. The fees and expenses of such counsel shall be deemed to be a
proper expense for which the Escrow Agent will have a lien against the
Escrow Fund.
(d) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Escrow Agreement or
any documents or papers deposited or called for hereunder. The Escrow
Agent shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed by it to be genuine and correct and to have been signed or sent
by the proper person or persons.
(e) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Escrow
Agreement or any documents deposited with the Escrow Agent.
<PAGE>
(f) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other
person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person by reason of
such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(g) The Escrow Agent is authorized to rely on the written
instructions of Sellers as being the acts, respectively, of Sellers, and
the written instructions of the Chief Executive Officer or Chief Financial
Officer of Buyer as being the act of Buyer.
(h) The duties of the Escrow Agent shall be as expressed under this
Escrow Agreement, and the Escrow Agent shall have no implied duties. The
permissive right or power to take any action shall not be construed as a
duty to take action under any circumstances, and the Escrow Agent shall
not be liable except in the event of its gross negligence or willful
misconduct.
(i) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
<PAGE>
(j) In consideration of its acceptance of the appointment as the
Escrow Agent, and except with respect to the Escrow Agent's own gross
negligence or willful misconduct or acts or omissions by the Escrow Agent
not in good faith, the other parties hereto agree, jointly and severally,
to indemnify and hold the Escrow Agent harmless as to any loss or
liability incurred by it to any person, firm or corporation by reason of
its having accepted the same or in carrying out any of the terms hereof,
and to reimburse the Escrow Agent for all its expenses, including
attorney's fees, incurred by reason of its position hereunder or actions
taken pursuant hereto. The Escrow Agent shall have no liability under, or
duty to inquire into, the terms and provisions of this Escrow Agreement,
and it is agreed that its duties are purely ministerial in nature and that
the Escrow Agent shall incur no liability whatsoever except for willful
misconduct or gross negligence so long as it has acted in good faith. This
paragraph (j) shall survive the termination of the Escrow Agreement.
(k) The Escrow Agent may execute any of the duties under this Escrow
Agreement by or through agents or receivers.
(l) Unless specifically required by this Escrow Agreement, the
Escrow Agent shall not be required to give any bond or surety or report to
any court despite any statute, custom or rule to the contrary.
(m) In the event the Escrow Agent becomes involved in litigation by
reason hereof, it is hereby authorized to deposit with the clerk of the
court in which the litigation is pending any and all funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder. Also, in the event the Escrow Agent is
threatened with litigation by reason hereof, it is hereby authorized to
implead all interested parties in any court of competent jurisdiction and
to deposit with the clerk of such court any such funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder.
<PAGE>
(n) The Escrow Agent shall not be obligated to risk its own funds in
the administration of the Escrow Fund and shall have a lien against any
funds, securities or other property in its possession or control for its
fees, expenses and advancements. The Escrow Agent need not take any action
under this Escrow Agreement which may involve it in any expense or
liability until indemnified to its satisfaction for any expense or
liability it reasonably believes it may occur.
ARTICLE IX
RECORDS
The Escrow Agent shall maintain a record of all Claims against the Escrow
Fund filed with it pursuant to Article III, a record of all such claims which
shall become payable as provided in Article III or IV and a record of all
payments from the Escrow Fund to Buyer.
ARTICLE X
RESIGNATION OF ESCROW AGENT
<PAGE>
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder
by giving 30 days' written notice thereof to Buyer and Sellers by registered or
certified mail. Such resignation shall become effective following such written
notice upon the earlier of the appointment by Buyer and Sellers of a successor
Escrow Agent that accepts the appointment and agrees to be bound by the
provisions of this Agreement or the expiration of 30 days thereafter. Upon the
effectiveness of such resignation, all duties of the Escrow Agent so resigning
shall cease, other than the duty to account in accordance with Article VIII.
Buyer and Sellers shall have the right to terminate the appointment of the
Escrow Agent hereunder by giving written notice thereof to the Escrow Agent,
specifying the date upon which such termination shall take effect. A condition
precedent to such termination shall be the designation of a successor Escrow
Agent that has accepted the appointment and agreed to be bound by the provisions
of this Agreement. In event of such termination, the Escrow Agent shall turn
over and deliver to such successor Escrow Agent the Escrow Fund, and any other
sums and the records and instruments held by it under this Escrow Agreement and
render the accounting required by Article VIII.
ARTICLE XI
NOTICES
All notices and other communications pursuant to this Escrow Agreement
shall be in writing and shall be deemed given if delivered personally, sent by a
nationally recognized overnight courier, or mailed by registered or certified
mail (return receipt requested), postage prepaid, or sent by facsimile (followed
with a copy sent by courier or registered or certified mail) to the parties at
the following addresses (or at such other address for a party as shall be
specified by notice hereunder):
To Buyer: Spacehab, Incorporated
1595 Spring Hill Road
Vienna, VA
Attn: Margaret E. Grayson
with a copy to : Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Frank E. Morgan II, Esq.
To Sellers: William A. Jackson
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
Eugene A. Cernan
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
<PAGE>
W. T. Short
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
To Escrow Agent: First Union National Bank, NA
800 East Main St.
Lower Mezzanine
Richmond, VA 23219
Attn: Corporate Trust Department
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by nationally recognized overnight courier, on the business day
following dispatch, (c) in the case of mailing, on the third business day
following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
ARTICLE XII
SUCCESSORS AND ASSIGNS
This Escrow Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
ARTICLE XIII
GOVERNING LAW
This Escrow Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the choice of law
principles thereof.
<PAGE>
ARTICLE XIV
ESCROW FEES
It is agreed that the fees to be paid to the Escrow Agent in connection
with the Escrow Fund, will be paid out of the interest generated by the Escrow
Fund and to the extent such amounts are not sufficient to pay said fees,
one-half by the Sellers and one-half by the Buyer.
ARTICLE XV
EXPENSES
In the event of any dispute that results in a suit or other legal
proceeding to construe or enforce any provision of this Agreement or because of
an alleged breach, default or misrepresentation in connection with any of the
provisions of this Escrow Agreement, the parties agree that each party shall be
responsible for its own attorneys' fees and other costs incurred in any action
or proceeding.
ARTICLE XVI
COUNTERPARTS
This Escrow Agreement may be executed in any number of counterparts, each
of which when so executed shall constitute an original hereof, but all of which
together shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement to
be effective as of the day and year first above written.
<PAGE>
- --------------------------------------------------------------------------------
SELLERS: BUYER:
SPACEHAB, INCORPORATED
By:/s/ DAVID ROSSI
David Rossi
/S/ WILLIAM A. JACKSON
- ----------------------
William A. Jackson
/S/ EUGENE A. CERNAN
- --------------------
Eugene A. Cernan
ESCROW AGENT
/S/W.T. SHORT
- --------------------
W. T. Short By:
First Union National Bank, NA
IV-C-1
THIS DEDUCTION ESCROW AGREEMENT (the "Escrow Agreement") dated as of July
1, 1998, is made by and among SPACEHAB, INCORPORATED, a Washington corporation
("Buyer"), William A. Jackson, Eugene A. Cernan and W.T. Short, (individually
"Seller" and collectively "Sellers") and First Union National Bank, a national
banking association (the "Escrow Agent"), as contemplated by that certain Stock
Purchase Agreement, dated as of July 1, 1998, by and among Sellers and Buyer.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Stock Purchase Agreement
WHEREAS, Buyer and Sellers have entered into the Stock Purchase Agreement,
dated as of July 1, 1998, to provide for the purchase of all of the Shares of
the Company;
WHEREAS, Sellers have agreed to indemnify Buyer in certain circumstances
pursuant to Section 9 of the Stock Purchase Agreement;
WHEREAS, the closing of the transactions contemplated by the Stock
Purchase Agreement are taking place as of the date hereof and the execution of
this Escrow Agreement by the parties is an express condition thereto; and
WHEREAS, Buyer has relied upon the representations, warranties and
covenants of Sellers provided in the Stock Purchase Agreement and in the
Schedules, Annexes, Exhibits Certificates and other documents delivered pursuant
to the Stock Purchase Agreement.
<PAGE>
NOW, THEREFORE, to induce Buyer to proceed with the Closing and the
acquisition of all of the Shares of the Company and in consideration of such
Closing and acquisition, and in further consideration of the mutual covenants
and agreements contained herein and in the Stock Purchase Agreement, and
intending to be legally bound, the parties hereto do hereby agree as follows:
ARTICLE I
Section I.1 Contemporaneous with the execution of this Escrow Agreement,
Buyer shall deposit at Closing, by wire transfer of immediately available funds,
One Million One Hundred Thousand Dollars ($1,100,000) of the Purchase Price,
representing the sum of the Deduction Escrow Fund (the "Escrow Amount") with the
Escrow Agent, such deposit to constitute an escrow fund (the "Escrow Fund") to
be governed by the terms set forth herein, it being understood that any interest
or other income thereon will also form part of the Escrow Fund. The interest
shall be reported as income to Buyer and Buyer shall be entitled to receive a
distribution from the Escrow Fund each year in an amount sufficient to pay the
income taxes thereon calculated at the highest corporate rate (giving effect to
state and local income taxes). The disbursement of any interest income, net of
income taxes paid, will be distributed in proportional amounts to the party or
parties to whom the amounts deposited into the Escrow Fund upon execution of
this Escrow Agreement are actually paid. The Escrow Agent shall invest the
Escrow Amount in interest bearing United States government securities or mutual
funds consisting of United States government securities and repurchase
agreements having a maturity not exceeding the Escrow Period. Upon compliance
with the terms hereof, Buyer shall be entitled to receive payment from the
Escrow Fund for all Losses for which Buyer is entitled to indemnification under
the Stock Purchase Agreement.
Section I.2 The Escrow Agent shall hold, safeguard and dispose of the
Escrow Fund in accordance with the terms hereof and shall treat such Escrow Fund
as an escrow fund in accordance with the terms hereof and not as the property of
Buyer or Sellers.
<PAGE>
ARTICLE II
ESCROW PERIOD
The funds forming the Escrow Fund shall remain in existence until the
earlier to occur of: (i) the third anniversary of the date on which Johnson
Engineering Corporation filed its federal income tax return for the tax year
ended March 31, 1995 as evidenced by Internal Revenue Service records or (ii)
December 15, 1998, and no claim may be asserted thereafter with the exception of
claims arising out of any fact, circumstance, action, or proceeding to which the
party asserting such claim shall have given to the other parties to this
Agreement, prior to the termination of such period, notice of the reasonable
belief that an item described in this Agreement will subsequently arise;
provided, however, that any element of the Escrow Fund shall continue to be
maintained beyond the Escrow Period to the extent set forth in Article V hereof,
in the event that there exists any Claim (as defined in Article III hereof) that
is pending or not yet resolved pursuant to Article IV hereof.
ARTICLE III
CLAIMS AGAINST ESCROW FUND
Section III.1 Claims against any component of the Deduction Escrow Fund.
Upon receipt by the Escrow Agent on or before the last day the Escrow Fund
remains in existence of a certificate signed by the Chief Executive Officer or
Chief Financial Officer of Buyer ("Officer's Certificate") and by two out of
three Sellers:
(a) stating that Buyer has a Loss and that Buyer is entitled to
indemnification out of the Escrow Fund pursuant to this Escrow Agreement
and Section 6(s) of the Stock Purchase Agreement; and
<PAGE>
(b) specifying in reasonable detail (i) the amount of the Loss; (ii)
the individual items of Losses included in the amount so stated; (iii) the
basis for the Loss and (iv) the section of the Stock Purchase Agreement to
which such claim relates;
the Escrow Agent shall, subject to the provisions of Article IV hereof, deliver
to Buyer, as promptly as practicable, out of the Escrow Fund, such amount out of
the Escrow Fund having a value equal to the amount of such Losses. The Escrow
Agent shall make no delivery out of the Escrow Fund pursuant to this Article III
unless the Escrow Agent shall have received the Officer's Certificate specified
in this Section 3.1 to make such delivery.
Section III.2 Claims. Any claim by Buyer against the Escrow Fund
made in an Officer's Certificate pursuant to this Article III shall be
referred to herein as a "Claim" or, if multiple, "Claims."
ARTICLE IV
RESOLUTION OF DISPUTES
Section IV.1 If the Sellers shall not have consented to the delivery to
Buyer of that portion of the Escrow Fund equal to the amount of Losses in
respect of any Claim made in an Officer's Certificate pursuant to Article III,
Sellers and Buyer shall attempt in good faith to agree upon the rights of the
respective parties with respect to each such Claim. If Sellers and Buyer so
agree, a memorandum setting forth such agreement shall be prepared and signed by
Buyer and Sellers and shall be furnished to each of them and an Officer's
Certificate will be presented to the Escrow Agent.
<PAGE>
Section IV.2 If no such agreement can be reached after good faith
negotiation, but in any event 30 days after Sellers refuse to consent to the
delivery of a portion of the Escrow Fund for the amount of a Loss in respect of
any Claim made by Buyer (a "Dispute"), such Dispute shall be submitted to
mandatory and binding arbitration. The arbitration shall be pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). The arbitration hearing shall be held in such neutral location as the
parties may mutually agree or, in the absence of mutual agreement, in New York
City. The arbitration panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including without limitation, the provisions of
this Section 4.2. Any award rendered by the arbitration panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
Section IV.3 If at any time there shall arise a dispute between any or all
of the Sellers concerning which of them shall be liable for payment of a Claim
or Claims, Sellers hereby expressly acknowledge and agree that: (i) such dispute
will not in any way whatsoever delay the delivery, in the ordinary course, to
Buyer of any amount out of the Escrow Fund pursuant to Article III hereof; (ii)
Sellers shall attempt in good faith to agree upon their rights with respect to
each such Claim; (iii) if all Sellers so agree, a memorandum setting forth such
agreement shall be prepared and signed by Sellers and shall be furnished to the
Escrow Agent and Buyer; and (iv) if no such agreement can be reached after good
faith negotiation, but in any event 30 days after either, as the case may be,
raises a dispute as referenced in this Section 4.3, then the dispute shall be
submitted to binding arbitration before an arbitrator or arbitrators mutually
agreed to by the Sellers.
<PAGE>
ARTICLE V
EXPIRATION OF ESCROW PERIOD
If, upon expiration of the Escrow Period, Buyer shall have asserted a
Claim and such Claim is pending or unresolved at the time of such expiration,
the Escrow Agent shall retain in the Escrow Fund that portion of the Escrow
Amount, net of any distributions made or to be made with respect to other
Claims, equal in value to the Loss asserted in such Claim until such matter is
resolved. If it is determined that Buyer is entitled to recovery on account of
such Claim, the Escrow Agent shall deliver or cause to be delivered to Buyer the
Escrow Amount having a value equal to the amount due and payable with respect to
such Claim, plus the interest thereon net of taxes paid. In the event that no
Claims, or notices as provided in Article II, are made or are ending by or at
the end of the Escrow Period, the remaining value of the Escrow Fund, net of
expenses and taxes shall be disbursed to the Sellers as follows: William A.
Jackson (40%), Eugene A.
Cernan (30%) and W. T. Short (30%).
ARTICLE VI
SCHEDULE FOR RELEASE OF ESCROW FUND
If any amount is paid by the Escrow Agent pursuant to a Claim and the
actual Losses with respect to such Claim are at the time determined to be less
than such payment, Buyer shall promptly return such excess to the Escrow Agent
to be deposited into the Escrow Fund, if this Escrow Agreement is then in
effect, or to Sellers, as the case may be, in accordance with the provisions of
this Article V, if this Escrow Agreement is no longer in effect.
<PAGE>
ARTICLE VIII
ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES
To induce the Escrow Agent to act hereunder, it is further agreed that:
(a) Any recitals contained in this Escrow Agreement shall be
deemed to be those of the principals and not those of the Escrow Agent.
(b) The Escrow Agent shall not be under any duty to give the
property held hereunder any greater degree of care than it gives its own
similar property.
(c) The Escrow Agent may engage legal counsel who may be counsel for
any party to the Escrow Agreement and may act upon advice of counsel in
reference to any matter connected herewith and shall not be liable for any
acts or omissions taken or suffered pursuant to the opinion of such
counsel. The fees and expenses of such counsel shall be deemed to be a
proper expense for which the Escrow Agent will have a lien against the
Escrow Fund.
(d) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Escrow Agreement or
any documents or papers deposited or called for hereunder. The Escrow
Agent shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed by it to be genuine and correct and to have been signed or sent
by the proper person or persons.
(e) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Escrow
Agreement or any documents deposited with the Escrow Agent.
<PAGE>
(f) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other
person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person by reason of
such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(g) The Escrow Agent is authorized to rely on the written
instructions of Sellers as being the acts, respectively, of Sellers, and
the written instructions of the Chief Executive Officer or Chief Financial
Officer of Buyer as being the act of Buyer.
(h) The duties of the Escrow Agent shall be as expressed under this
Escrow Agreement, and the Escrow Agent shall have no implied duties. The
permissive right or power to take any action shall not be construed as a
duty to take action under any circumstances, and the Escrow Agent shall
not be liable except in the event of its gross negligence or willful
misconduct.
(i) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
<PAGE>
(j) In consideration of its acceptance of the appointment as the
Escrow Agent, and except with respect to the Escrow Agent's own gross
negligence or willful misconduct or acts or omissions by the Escrow Agent
not in good faith, the other parties hereto agree, jointly and severally,
to indemnify and hold the Escrow Agent harmless as to any loss or
liability incurred by it to any person, firm or corporation by reason of
its having accepted the same or in carrying out any of the terms hereof,
and to reimburse the Escrow Agent for all its expenses, including
attorney's fees, incurred by reason of its position hereunder or actions
taken pursuant hereto. The Escrow Agent shall have no liability under, or
duty to inquire into, the terms and provisions of this Escrow Agreement,
and it is agreed that its duties are purely ministerial in nature and that
the Escrow Agent shall incur no liability whatsoever except for willful
misconduct or gross negligence so long as it has acted in good faith. This
paragraph (j) shall survive the termination of the Escrow Agreement.
(k) The Escrow Agent may execute any of the duties under this Escrow
Agreement by or through agents or receivers.
(l) Unless specifically required by this Escrow Agreement, the
Escrow Agent shall not be required to give any bond or surety or report to
any court despite any statute, custom or rule to the contrary.
(m) In the event the Escrow Agent becomes involved in litigation by
reason hereof, it is hereby authorized to deposit with the clerk of the
court in which the litigation is pending any and all funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder. Also, in the event the Escrow Agent is
threatened with litigation by reason hereof, it is hereby authorized to
implead all interested parties in any court of competent jurisdiction and
to deposit with the clerk of such court any such funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder.
<PAGE>
(n) The Escrow Agent shall not be obligated to risk its own funds in
the administration of the Escrow Fund and shall have a lien against any
funds, securities or other property in its possession or control for its
fees, expenses and advancements. The Escrow Agent need not take any action
under this Escrow Agreement which may involve it in any expense or
liability until indemnified to its satisfaction for any expense or
liability it reasonably believes it may occur.
ARTICLE IX
RECORDS
The Escrow Agent shall maintain a record of all Claims against the Escrow
Fund filed with it pursuant to Article III, a record of all such claims which
shall become payable as provided in Article III or IV and a record of all
payments from the Escrow Fund to Buyer.
ARTICLE X
RESIGNATION OF ESCROW AGENT
<PAGE>
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder
by giving 30 days' written notice thereof to Buyer and Sellers by registered or
certified mail. Such resignation shall become effective following such written
notice upon the earlier of the appointment by Buyer and Sellers of a successor
Escrow Agent that accepts the appointment and agrees to be bound by the
provisions of this Agreement or the expiration of 30 days thereafter. Upon the
effectiveness of such resignation, all duties of the Escrow Agent so resigning
shall cease, other than the duty to account in accordance with Article VIII.
Buyer and Sellers shall have the right to terminate the appointment of the
Escrow Agent hereunder by giving written notice thereof to the Escrow Agent,
specifying the date upon which such termination shall take effect. A condition
precedent to such termination shall be the designation of a successor Escrow
Agent that has accepted the appointment and agreed to be bound by the provisions
of this Agreement. In event of such termination, the Escrow Agent shall turn
over and deliver to such successor Escrow Agent the Escrow Fund, and any other
sums and the records and instruments held by it under this Escrow Agreement and
render the accounting required by Article VIII.
ARTICLE XI
NOTICES
All notices and other communications pursuant to this Escrow Agreement
shall be in writing and shall be deemed given if delivered personally, sent by a
nationally recognized overnight courier, or mailed by registered or certified
mail (return receipt requested), postage prepaid, or sent by facsimile (followed
with a copy sent by courier or registered or certified mail) to the parties at
the following addresses (or at such other address for a party as shall be
specified by notice hereunder):
To Buyer: Spacehab, Incorporated
1595 Spring Hill Road
Vienna, VA
Attn: Margaret E. Grayson
with a copy to : Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Frank E. Morgan II, Esq.
To Sellers: William A. Jackson
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
Eugene A. Cernan
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
<PAGE>
W. T. Short
c/o Johnson Engineering Corporation
555 Forge River Road
Webster, Texas 77598
To Escrow Agent: First Union National Bank, NA
800 East Main St.
Lower Mezzanine
Richmond, VA 23219
Attn: Corporate Trust Department
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by nationally recognized overnight courier, on the business day
following dispatch, (c) in the case of mailing, on the third business day
following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
ARTICLE XII
SUCCESSORS AND ASSIGNS
This Escrow Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
<PAGE>
ARTICLE XIII
GOVERNING LAW
This Escrow Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the choice of law
principles thereof.
ARTICLE XIV
ESCROW FEES
It is agreed that the fees to be paid to the Escrow Agent in connection
with the Escrow Fund, will be paid out of the interest generated by the Escrow
Fund and to the extent such amounts are not sufficient to pay said fees,
one-half by the Sellers and one-half by the Buyer.
ARTICLE XV
EXPENSES
In the event of any dispute that results in a suit or other legal
proceeding to construe or enforce any provision of this Agreement or because of
an alleged breach, default or misrepresentation in connection with any of the
provisions of this Escrow Agreement, the parties agree that each party shall be
responsible for its own attorneys' fees and other costs incurred in any action
or proceeding.
ARTICLE XVI
COUNTERPARTS
This Escrow Agreement may be executed in any number of counterparts, each
of which when so executed shall constitute an original hereof, but all of which
together shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement to
be effective as of the day and year first above written.
SELLERS: BUYER:
SPACEHAB, INCORPORATED
By:/S/ DAVID ROSSI
David Rossi
/S/ WILLIAM A. JACKSON
- ----------------------
William A. Jackson
/S/ EUGENE A. CERNAN
- --------------------
Eugene A. Cernan
ESCROW AGENT
/S/ W.T. SHORT
- ---------------
W. T. Short By:
First Union National Bank, NA
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 8, 1998, accompanying the financial
statements of Johnson Engineering Corporation, as of and for the year ended
December 31, 1997, included in the Spacehab, Incorporated Form 8-K as of July 1,
1998. We hereby consent to the incorporation by reference of said report in the
Registration Statements of Spacehab, Incorporated on Form S-3 and related
amendments (File No. 333-43221, filed on December 24, 1997, January 15, 1998,
and February 4, 1998) and on Forms S-8 (File No. 333-43159, effective December
24, 1997, File No. 333-36779 as amended, effective September 30, 1997, and File
No.
333-43181, effective December 24, 1997).
/s/ GRANT THORNTON
- ------------------
GRANT THORNTON LLP
Oklahoma City, Oklahoma
July 11, 1998
FOR IMMEDIATE RELEASE
SPACEHAB Acquires Johnson Engineering Corp.
Engineering services company nearly doubles SPACEHAB's revenue base
Houston, Texas, July 1, 1998 - SPACEHAB, Inc., (Nasdaq: SPAB) announced
today that it has acquired all of the outstanding capital stock of Johnson
Engineering Corporation ("JE"), a 25-year-old Houston-based company. JE supports
the U.S. human space flight program by providing engineering services to NASA's
Johnson Space Center.
JE had more than $40 million of revenue for its fiscal year ended
December 31, 1997, and was profitable. JE will be a wholly owned SPACEHAB
subsidiary and will retain its name and management. Specific terms of the
transaction, completed on July 1, were not disclosed.
The merger broadens SPACEHAB's core business of supporting humans
living and working in space. With over 400 employees, JE's capabilities to
perform detailed design, fabrication, and operations complements SPACEHAB's
traditional strengths in conceptual design and program management.
JE performs a number of critical services for NASA including managing
all training operations and facility engineering at the Neutral Buoyancy
Laboratory ("NBL"), NASA's underwater facility where astronauts train for space
walks and assembly of the International Space Station (ISS); building mockups of
the ISS elements used in NBL training: and developing hardware for the crew
living quarters currently scheduled for launch to the ISS in 2003.
"SPACEHAB's goal is to become the leading company providing commercial
space products and services to government and industry," SPACEHAB President
David A. Rossi said. "With JE, we now have many of the critical capabilities
that bring us another step closer to accomplishing that goal."
Dr. Shelley Harrison, SPACEHAB's Chairman and Chief Executive
Officer, added: "The combination of JE and SPACEHAB will expand SPACEHAB's
capability to support our most important customer: NASA."
JE was a privately owned company until joining SPACEHAB on July 1. JE's
top three managers, Tom Short, William Jackson and Eugene Cernan will remain in
key management positions. Short will continue as President and Cernan will
continue as Chairman of the JE subsidiary. Jackson joins SPACEHAB's corporate
staff as a Vice President of Corporate Development.
"We see this merger as an opportunity to continue and expand JE's space
flight support activities and to become more directly involved in the commercial
potential of space," Short said.
Cernan, the last person to walk on the Moon, added: "Having spent most
of my career in the space program, I am delighted to be part of SPACEHAB, which
has been leading the development of commercial systems that are advancing the
frontier of human space flight."
SPACEHAB, Inc., is the world's leading provider of commercial payload
processing services for both astronaut-tended and unmanned payloads. SPACEHAB is
the first company to commercially develop, own and operate habitable modules
that provide space-based laboratory facilities and logistics resupply aboard the
U.S. Space Shuttles to support people living and working in space. The next
SPACEHAB flight is scheduled for Oct. 28, aboard the Space Shuttle Discovery
when Senator John Glenn makes his return voyage to space.
###
FOR MORE INFORMATION CONTACT:
Anne Eisele Margaret ("Peg") Grayson
Director, Corporate Communications Chief Financial Officer
SPACEHAB, Inc. SPACEHAB, Inc.
(703) 821-3000 ext. 201 (703) 821-3000
[email protected]
