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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
February 17, 1998
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Date of Report (Date of earliest event reported)
FEDERAL DATA CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
333-36447
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(Commission File No.)
52-0940566
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(I.R.S. Employer Identification Number)
4800 Hampden Lane, Bethesda, MD 20814
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(Address of principal executive offices) (Zip Code)
(301) 986-0800
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(Registrant's telephone number, including area code)
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Item 5. Acquisition or Disposition of Assets.
On February 17, 1998, Federal Data Corporation (the "Company"), acquired all of
the outstanding capital stock of R.O.W. Sciences, Inc. ("R.O.W. Sciences") from
Ralph O. Williams ("Williams"), Frederic M. Cullen, Trustees of R.O.W. Sciences
ESOP, John C. Smith and Paul H. Tardif. The total purchase price for the stock
was $9 million, consisting of $8 million in cash and $1 million in promissory
notes to Williams. The purchase price may be increased by up to $1 million if
certain revenue objectives are met. R.O.W. Sciences provides services that
support Government research in life and health sciences with state-of-the-art
computer based technologies. The Company intends for R.O.W. Sciences to continue
to provide such services.
The Company financed its acquisition of R.O.W. Sciences with funds available
under the $75 million secured revolving credit facility provided to the Company
by Bankers Trust Company, Bank of Boston, The Bank of New York, BTM Capital
Corporation, Creditanstalt Bankverein, Credit Lyonnais New York Branch, First
Source Financial LLP, First Union Commercial Corp. and IBJ Schroder Bank & Trust
Company.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
It is not practical to provide the required financial statements for R.O.W.
Sciences at this time. The statements will be filed as soon as they are
prepared and not later than May 4, 1998.
(b) Pro Forma Financial Information
It is not practical to provide the required pro forma financial statements
for the Company at this time. The statements will be filed as soon as they
are prepared and not later than May 4, 1998.
(c) Exhibits
2 Stock Purchase Agreement by and among Federal Data Corporation and Ralph O.
Williams, Frederic M. Cullen, Trustees of R.O.W. Sciences ESOP, John C.
Smith, Paul H. Tardif and R.O.W. Sciences, Inc. dated as of February 17,
1998
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.
Federal Data Corporation
/s/ James M. Dean
By: ----------------------------
James M. Dean
Vice President and
Chief Financial Officer
Date: March 3, 1998
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STOCK PURCHASE AGREEMENT
BY AND AMONG
Federal Data Corporation
AND
Ralph O. Williams
Frederic M. Cullen
Trustees of R.O.W. Sciences ESOP
John C. Smith
Paul H. Tardif
AND
R.O.W. Sciences, Inc.
February 17, 1998
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EXHIBITS
Exhibit A: Form of Note
Exhibit B: Financial Statements
Exhibit C: Projections
Exhibit D: Form of Required Consents; List of Required Consents
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STOCK PURCHASE AGREEMENT
Agreement entered into as of February 17, 1998, by and among Federal
Data Corporation, a Delaware corporation (the "Buyer"), and Ralph O. Williams
(the "Majority Holder"), Frederic M. Cullen, Trustees of R.O.W. Sciences ESOP,
John C. Smith and Paul H. Tardif (together, the "Minority Holders" and
collectively with the Majority Holder, the "Sellers"), and R.O.W. Sciences,
Inc., a Delaware corporation (the "Target"). The Buyer, the Sellers and Target
are referred to collectively herein as the "Parties."
Sellers in the aggregate own all of the outstanding capital stock of
Target. Target is engaged in a business that consists of biomedical and health
services research; health information management; and computer-based information
technologies provided primarily to agencies of the Government of the United
States pursuant to contracts with such agencies and subcontracts under prime
contracts with such agencies and also to nonprofit agencies and commercial
clients (the "Business").
This Agreement contemplates a transaction in which, on and subject to
the terms hereinafter set forth, Buyer will purchase from Sellers, and Sellers
will sell to the Buyer, all of the outstanding capital stock of Target, all as
more specifically set forth herein.
Now, therefore, in consideration of the premises and the mutual
promises, representations, warranties, and covenants herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and the anticipated benefits of Buyer's ownership of the
Target to Target, the Parties agree as follows.
1. Definitions.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Applicable Rate" means the prime rate of interest published from time
to time in the Wall Street Journal plus 2% per annum.
"Affiliate" means, as to any Person, any corporation, partnership,
limited liability company or other entity which controls, is controlled by, or
under common control with, such Person, and as to any Person which is a
corporation or limited liability company, any director, managing member, officer
or greater than 10% shareholder of such Person.
"Ancillary Agreements" mean the Consulting Agreement executed by Ralph
O. Williams (the "Consulting Agreement"), the Employment Agreement executed by
John C. Smith and the Employment Agreement executed by Paul H. Tardif
(collectively, the "Employment Agreements"), all in form satisfactory to Buyer,
and all in connection with the transactions contemplated by this Agreement.
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"Assets" means all of Target's right, title and interest in and to
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, owned by Target, other than the Excluded Assets.
"Audited Net Assets" and "Audited Net Asset Statement have the meaning
set forth in section 2(c) below.
"Business" has the meaning set forth in the Preface.
"Books and Records" means (a) all records and lists pertaining to
Target, the Assets, the Business, customers, suppliers or personnel of Target,
(b) all product, business and marketing plans of Target and (c) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by Target and relating to Target, the Business or the Assets, except
for any agreement between or among shareholders which will be terminated as of
the Closing, with no terms surviving thereafter.
"Buyer" has the meaning set forth in the preface above.
"Claim" means any claim for indemnification pursuant to section 9 of
this Agreement.
"Closing" has the meaning set forth in section 2(f) below.
"Closing Date" has the meaning set forth in section 2(f) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
Target, Business, or Assets or the businesses and affairs of Buyer, or their
respective Affiliates that is not already generally available to the public and
is (or would, under the policies of Buyer, be) treated as confidential or
proprietary by Target.
"Contract" means any written agreement, contract, lease, purchase
order, memoranda of understanding or other binding contractual commitment of
Target, provided, however, that the term Contract shall not, for any purpose
hereof, include any Excluded Assets.
"Disclosure Schedule" has the meaning set forth in section 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
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"ESOP" means the R.O.W. Sciences Employee Stock Ownership Plan,
established as of December 2, 1992, pursuant to the Plan document of such date.
The ESOP, through its trustees, is the owner of 256,245 Target Shares, of which
161,722 remain subject to the lien of Crestar Bank (the "Crestar ESOP Lien")
with respect to the purchase money loan provided with respect to such shares by
Crestar Bank (the "Crestar ESOP Loan").
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, judgments, orders, codes, or
injunctions, which impose liability for or standards of conduct concerning the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of Hazardous Substances including, The
Resource Conservation and Recovery Act of 1976, as amended, The Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), The Toxic Substances Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, to the extent it relates to the
handling of and exposure to hazardous or toxic materials or similar substances,
and any other so-called "Superfund" or "Superlien" law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" notwithstanding any other provision of this
greement, shall mean the following assets of Target, if any:
(a) any receivables or notes payable from Affiliates of Target or
shareholders of Target, other than for travel advances in the ordinary course;
and
(b) all of Target's causes of action, choses in action, rights of
recovery and rights of set-off of any kind against any Person, if any, arising
out of or relating to the Excluded Assets or the Excluded Liabilities.
"Excluded Liabilities" notwithstanding any other provision of this
Agreement, shall mean the following liabilities and obligations of Target or
relating to the Business or the Assets, which are not intended to be borne by
Target or Buyer by reason of the purchase of the Target Shares pursuant to the
terms of this Agreement:
(a) all liabilities and obligations to Affiliates of Target other
than for the provision of goods or services in the ordinary course of business
on arm's length terms;
(b) all other liabilities and obligations for which any Seller has
expressly assumed responsibility pursuant to this Agreement or otherwise;
(c) all liabilities and obligations relating to the employment
agreements between Target and John C. Smith and Target and Paul H. Tardif in
effect prior to the Closing Date, except as may be otherwise expressly set
forth herein or in any Ancillary Agreements;
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(d) all obligations for any indebtedness for borrowed money, except
to the extent the same are reflected on the Audited Net Asset Statement; and
(e) all liabilities and obligations resulting or arising as a result
of or in connection with a finding against or plea by Majority Holder for
criminal activity or actual, intentional and knowing fraud related to the
Business.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in section 4(g)
below.
"Fixtures" means any fixtures, machinery, installations and building
equipment owned by Target and located at or on any Leased Real Property.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Government Contracts" means contracts or subcontracts held by Target
in which the ultimate contracting party is the United States government or any
agency or instrumentality thereof.
"Hazardous Substance" means any hazardous or toxic substance or waste,
pollutant or contaminant including petroleum products, asbestos, PCBs and
radioactive materials.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Indemnified Party" has the meaning set forth in section 9(d)(i)
below.
"Indemnifying Party" has the meaning set forth in section 9(d)(i)
below.
"Intellectual Property" means the following, to the extent related to
the Business (a) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other
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proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Inventory" means all inventory owned by Target or reflected on the
Audited Net Asset Statement and held for resale in the Business, wherever the
same may be located.
"January 31 Balance Sheet" means the unaudited balance sheet of the
Target as of January 31, 1998, as initialed by Majority Holder and Buyer as part
of the Closing.
"Knowledge" means actual knowledge. Subject to the remaining
provisions of this definition, as to any corporation, limited liability
company or partnership, the knowledge of any executive officer of such
corporation or the managing member or managing director of such limited
liability company or any general partner of any such partnership shall
constitute knowledge of the entity. Any reference in this Agreement to
"Knowledge of Majority Holder" or "Knowledge of Target" or other similar
phrase shall mean the Knowledge of Ralph O. Williams, John C. Smith and Paul
H. Tardif. Any reference in this Agreement to "Knowledge of Buyer" or other
similar phrase shall mean the Knowledge of Daniel R. Young, James M. Dean,
Peter C. Belford, Timothy Fowler, Larry A. Forseth, and Pamela J. Thompson.
"Leasehold Improvements" shall mean all leasehold improvements
situated in or on the Leased Real Property used in the Business and owned by
Target.
"Loss Contract" means any Contract for which Target has accrued a
loss on its financial statements or which Target reasonably expects, based on
Target's Knowledge as of the date of this Agreement and the Closing Date, to
result in a loss.
"Majority Holder" has the meaning set forth in the preface above.
"Material Adverse Change" means any change relating to the Business or
the Assets which has a Material Adverse Effect.
"Material Adverse Effect" means a material adverse affect on the
business, financial condition, operations, results of operations or future
prospects (to the extent reasonably foreseeable as of the date hereof or the
date of Closing) of the Business or the Assets taken as a whole.
"Minority Holder" has the meaning set forth in the preface above.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
section 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in section
4(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in section
4(g) below.
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"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Party" means Buyer and each Seller.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Personal Property" shall mean all of the personal property, whether
tangible or intangible, owned by Target.
"Pre-Closing Environmental Liabilities" means, in connection with the
Business or the Real Property, any written notice, claim, demand, action, suit,
complaint, proceeding or other communication by any Person or Government
Authority alleging liability or potential liability (including liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties) arising
out of, relating to, based on or resulting from circumstances which, as of the
Closing Date, exist and form the basis of any violation or alleged violation of
any Environmental Laws, including the presence, Release or threatened Release of
any Hazardous Substance.
"Purchase Price" has the meaning set forth in section 2(b) below.
"Real Property" means all real property owned, leased, operated or
occupied by the Target as of the date of this Agreement, together with all
Leasehold Improvements or Fixtures located thereon.
"Reference Amount" means $1,528,015.
"Release" means any spill, leak, discharge, disposal, pumping,
pouring, emitting, emptying, injecting, abandoning, leaching, dumping or
allowing to escape of any Hazardous Substance.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a)(i) mechanic's, materialmen's,
and similar liens, and (ii) other statutory liens, which have been disclosed to
Buyer, with respect to amounts not yet due and payable or which are being
contested in good faith through appropriate proceedings, (b) liens for taxes not
yet due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings which have been disclosed to Buyer, for which
adequate reserves are maintained and reflected on the Financial Statements, to
the extent required by GAAP (c) purchase money liens and liens securing rental
payments under capital lease arrangements which are reflected on the Audited
Net Asset Statement and which do not arise in whole or in part from
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indebtedness or capital lease arrangements which constitute Excluded Assets, and
(d) other encumbrances disclosed in the Schedules to this Agreement.
"Seller Representative" means Ralph O. Williams, or any other Seller
hereafter designated by a majority in interest of the Sellers to act in the
capacity of Seller Representative under this Agreement, which other Seller shall
be identified to Buyer by written notice in accordance with the terms hereof.
"Subsidiary" means any corporation, partnership, limited liability
company, joint venture or other entity in which Target, directly or indirectly,
holds more than fifty percent (50%) of the voting power of all equity securities
or other ownership interests of such entity, or possesses, directly or
indirectly, power to direct or cause the direction of management or policies
(whether through ownership of voting securities or otherwise).
"Seller" has the meaning set forth in the preface above.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, par value $.01 per
share, of Target.
"Tax" or "Taxes" means any federal, state, local or foreign net or
gross income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, governmental fee or like assessment or charge of any
kind whatsoever, together with any interest and penalties, whether as a primary
obligor or as a result of being a "transferee" (within the meaning of Section
6901 of the Code and any corresponding state and local law) of another person or
a member of an affiliated, consolidated or combined group.
"Third Party Claim" has the meaning set forth in section 9(d) below.
Other Defined Terms. The following terms shall have the meanings
defined for such terms in the sections set forth below:
Term Section Reference
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Allowable Cost Section 9(b)(ii)
Business Employees Section 5(k)
Buyer Indemnification Matter Section 9(b)
Buyer Parties Section 9(b)
Cash Consideration Section 2(b)
CERCLA Section 1
Consulting Agreement Section 1
Crestar ESOP Lien Section 1
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Crestar ESOP Loan Section 1
Determination Date Section 2(c)(i)
Employment Agreements Section 1
FAR Section 9(b)(ii)
Interim Payment Section 2(b)(i)
Leased Real Property Section 4(m)(ii)
Material Contracts Section 4(p)(i)
Material Lease Section 4(m)(ii)
Material Intellectual Property Section 4(o)(i)
Material Non-Owned Intellectual
Property Section 4(o)(ii)
Net Assets Section 2(c)(i)
Note Section 2(b)(i)
Objection Notice Section 2(c)(i)
Parties preface
Permit Section 4(r)
Post-Closing Adjustment Section 2(c)(i)
Pre-Closing Default Section 11(a)
Prior Smith Employment Agreement Section 2(c)
Product Warranties Section 6(c)
Projections Section 4(h)
Receivables and Unbilled Costs Section 4(z)(iii)
Required Consents Section 5(g)
Rubino & McGeehin Section 2(c)
SBA Section 3(b)(i)
Section 8(a) Contract Section 2(b)(ii)
Seller Indemnification Matters Section 9(c)
Seller Parties Section 9(c)
Shareholder Agreements Section 3(b)(iv)
Termination Date Section 11(a)(iv)
2. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from each Seller, and each Seller
agrees to sell to the Buyer, all of such Seller's Target Shares, free and clear
of all restrictions, for the consideration specified below in this section 2.
(b) Total Consideration and Terms. The aggregate consideration for
the Target Shares to be purchased by the Buyer hereunder shall consist of the
sum of Purchase Price, as defined below, plus the Additional Purchase Price,
as defined below.
(i) The "Purchase Price" shall, subject to adjustment as
provided in section 2(c) hereof, consist of (x) Eight Million Dollars
($8,000,000) in cash (the "Cash
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Consideration"); and (y) a promissory note in the form attached hereto
as Exhibit A (the "Note"), made by Buyer, in the aggregate principal
amount of One Million Dollars ($1,000,000), which aggregate principal
amount shall be subject to the rights of set-off as provided in
section 9(g) hereof.
(ii) The "Additional Purchase Price," which shall be paid to
Majority Holder, shall be the amount in addition to the Purchase Price
paid to the Sellers by the Buyer, based upon the Target's continuation
of its contracts currently covered by section 8(a) of the Small Business
Act (15 U.S.C. Section 637(a) et. seq.) as so designated in section
4(p) of the Disclosure Schedule to this Agreement. The Additional
Purchase Price shall equal five percent (5%) of the total revenues
generated by such Section 8(a) Contracts (the "8(a) Contract Revenue")
included in section 4(p) of the Disclosure Schedule during the five (5)
year period commencing January 1, 1998 and actually received by Target
during such period, provided, however, that for purposes of this
subsection and the calculation of the Additional Purchase Price, the
Majority Holder shall also be entitled to receive as the first
installment of the Additional Purchase Price an amount (the "Interim
Payment") equal to five percent (5%) of the difference between
$20,000,000 and $15,792,092, which difference (subject to adjustment in
accordance with the audit to be performed in the calculation of the Net
Asset Adjustment) is agreed by Buyer and Majority Holder to be the
amount of the 8(a) Contract Revenue deemed received by Target during the
period from the date the parties determined the basis for the Purchase
Price and December 31, 1997. Notwithstanding the foregoing, the
Additional Purchase Price (including the Interim Payment) shall not
exceed one million dollars ($1,000,000). The Additional Purchase Price
shall be paid to Majority Holder on a quarterly basis, in arrears, with
the Interim Payment to be made simultaneously with the payment pursuant
to section 2(c) below. The Additional Purchase Price shall be subject
to reduction pursuant to section 2(c)(iii) below.
(iii) At the Closing, the Buyer, directly or pursuant to
mutually agreed upon instructions to a mutually agreed upon escrow
agent, shall pay to the Sellers by wire transfer of immediately
available funds to an account or accounts designated in writing by the
Sellers an amount equal to the Cash Consideration and issue and deliver
to the Majority Holder the Note. The Purchase Price shall be paid to or
directed in writing by each of the Sellers as follows:
(A) a portion of the Cash Consideration shall be paid to each
Minority Holder, in each case equal to such Minority Holder's respective
percentage holding of Target Shares multiplied by $10,000,000;
(B) remainder of the Cash Consideration shall be paid to
Majority Holder; and
(C) the Note shall be fully payable to, and delivered at
Closing to, the Majority Holder.
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(c) Net Asset Adjustment. Not later than ninety (90) days after the
Closing Date, the Majority Holder shall cause to be prepared and delivered to
Buyer an audited special purpose statement of the Net Assets (as defined below)
as of January 31, 1998 (the "Audited Net Asset Statement") which shall have been
audited by Rubino & McGeehin Chartered ("Rubino & McGeehin") in accordance with
GAAP, applied on a basis consistent with, and following the accounting
principles, procedures, policies and methods employed by Target in preparing
Target's Most Recent Fiscal Year End balance sheet (to the extent consistent
with GAAP); provided, however, that appropriate adjustments shall be made to
include as liabilities of Target accrued as of January 31, 1998 for purposes of
the Audited Net Asset Statement the following items: the amount ($100,000) paid
to settle the Carey litigation against Target (docket No. 158313, Maryland
Circuit Court); the excise tax of approximately $296,200 payable by Target in
connection with the sale of the Target Shares owned by the ESOP; the legal fees
and financial advisory fees paid by the Target in connection with consideration
of this Agreement by the Trustees of the ESOP and the sale by the ESOP of its
Target Shares; legal fees for services to Target, Sellers and their Affiliates
in connection with the transaction contemplated by this Agreement; the bonus
payable to John C. Smith upon sale of Target in accordance with section 4 of the
employment agreement in effect between John C. Smith and Target prior to the
Closing Date (the "Prior Smith Employment Agreement") and one-half of the fees
and expenses charged by Rubino & McGeehin for preparing such Audited Net Asset
Statement. Buyer and Sellers shall promptly provide the other Party hereto
access to, and copies of, all information reasonably requested by the other
Party or its representatives in connection with the preparation of the Audited
Net Asset Statement or to investigate the basis of any dispute therewith.
(i) Buyer shall have a period of thirty (30) days after delivery
to it of the Audited Net Asset Statement to provide to the Seller
Representative notice setting forth with reasonable specificity any
objection thereto, which objection shall relate only to any matters
which affect the amount of Net Assets shown on the Audited Net Asset
Statement (an "Objection Notice"). Failure to provide an Objection
Notice within such thirty-day period shall constitute Buyer's approval
of the Audited Net Asset Statement as so delivered. If Buyer timely
provides an Objection Notice, Buyer and the Seller Representative shall
promptly commence good faith discussions in an attempt to resolve any
issues raised in the Objection Notice. If Buyer and the Seller
representative are unable to resolve such dispute within thirty (30)
days after the delivery of the Objection Notice, such dispute shall be
resolved by a national accounting firm mutually acceptable to the Buyer
and the Majority Holder or, in the absence of agreement, by a national
accounting firm selected by lot after eliminating Target's and Buyer's
principal outside accountants. At or prior to the time such dispute is
submitted to such accounting firm for resolution, Buyer shall provide a
specific proposed Net Asset amount. The accounting firm so selected
shall make its determination within thirty (30) days after delivery to
it of the Objection Notice which determination shall be final and
binding upon the Parties with respect to the Post-Closing Adjustment.
The fees and expenses of such accounting firm shall be paid by the Buyer
and the Sellers pro rata in accordance with each Party's asserted
position relative to the accounting firm's final determination. The
amount of the Net Assets on the Closing Net Assets Statement, as
determined pursuant to this section,
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shall be the "Audited Net Assets." For purposes of this Agreement, "Net
Assets" means the book value of total Assets owned by Target as of the
Closing, less the book value of Target's liabilities as of the Closing,
other than all Excluded Liabilities, each as determined in accordance
with GAAP, applied on a basis consistent with, and following the
accounting principles, procedures, policies and methods employed by
Sellers in preparing Target's Most Recent Fiscal Year End balance sheet.
The date on which the Audited Net Assets is determined shall be the
"Determination Date." The "Post-Closing Adjustment" shall be computed
by subtracting the Reference Amount from the Audited Net Assets.
(ii) If the Post-Closing Adjustment is a positive number, Buyer
shall pay such excess to Majority Holder, in immediately available
funds, within ten (10) business days after the Determination Date.
(iii) If the Post Closing Adjustment is a negative number, the
first installment of the Additional Purchase Price and, to the extent
necessary, any subsequent installments, paid to the Majority Holder, and
then the principal amount of the Note, shall be reduced by such
deficiency, until the entire amount of such deficiency shall have been
recovered by Buyer, provided that the aggregate of the Additional
Purchase Price and the principal amount of the Note shall be the maximum
amount to be recovered by Buyer pursuant to this section 2(c)(iii). a(d)
The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Shaw
Pittman Potts & Trowbridge in Washington, D.C., commencing at 11:00 a.m.
local time on February 17, 1998 or on the second business day following
the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at
the Closing itself) or such other date as the Buyer and the Sellers may
mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in section 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in section 7(b)
below, (iii) each of the Sellers will deliver to the Buyer stock certificates
representing all of such Seller's Target Shares, endorsed in blank or
accompanied by duly executed assignment documents and any necessary releases to
make such Target Shares free and clear of any liens, and (iv) the Buyer will
deliver to each Seller the portions of the consideration specified in section
2(b)(i) and (iii) above.
3. Representations and Warranties of the Buyer and Sellers.
(a) Representations and Warranties Concerning the Buyer. The Buyer
represents and warrants to the Sellers that the statements contained in this
section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as
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though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this section 3(a)).
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of
Delaware.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions, except
as the enforceability hereof may be affected by bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws affecting the
rights of creditors generally, and by general principles of equity. The
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement, except for the filing, if any, contemplated by section 5(b)
below.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its Certificate of
Incorporation or Bylaws.
(iv) Brokers' Fees. The Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which any Seller
could become liable or obligated.
(b) Representations and Warranties Concerning the Sellers. Each of the
Sellers represents and warrants to the Buyer that the statements contained in
this section 3(b) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this section 3(b)) with respect to itself or himself, except as set
forth in the Disclosure Schedule attached hereto.
(i) Authorization of Transaction. Each Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each Seller, enforceable against such Seller in
accordance with its terms and conditions, except as the enforceability
hereof may be affected by bankruptcy, insolvency, fraudulent transfer,
reorganization, and similar laws affecting the rights of creditors
generally, and by general principles of equity. Except as expressly set
forth herein, no Seller is required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency or any other Person in order to
consummate the transactions contemplated by this Agreement, except for
the filing of a notice with the
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small Business Administration (the "SBA") with respect to the transfer
of control of a company qualified under section 8(a) of the Small
Business Act.
(ii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
any Seller is subject. The Parties recognize and exclude from the
foregoing the fact that a certain proportion of the contracts currently
held by Target (as shown on sections 4(p) or 4(ab) of the Disclosure
Schedule) have been awarded under SBA programs which are subject to
certain restrictions.
(iii) Brokers' Fees. No Seller has any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the
Buyer could become liable or obligated.
(iv) Target Shares. Each Seller holds of record and owns
beneficially (except for the Trustees of the ESOP who hold of record and
for the benefit of the ESOP participants the ESOP Target Shares) the
number of Target Shares set forth next to his name in section 3(b) of
the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state
securities laws), taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands other than
(A) such restrictions as may be contained in the agreements (the
"Shareholder Agreements") described in section 3(b) of the Disclosure
Schedule, each of which will be terminated and of no further force or
effect as of the Closing and (B) the Crestar ESOP Lien. No Seller is a
party to any option, warrant, purchase right, or other contract or
commitment (other than the Shareholder Agreements and this Agreement)
that could require such Seller to sell, transfer, or otherwise dispose
of any capital stock of Target. No Seller is a party to any voting
trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Target.
4. Representations and Warranties Concerning Target. Each of Target and
the Majority Holder jointly and severally represent and warrant to the Buyer
that the statements contained in this section 4 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this section 4), except as set forth in
the disclosure schedule delivered by the Sellers to the Buyer on the date hereof
and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this section 4.
(a) Corporate Existence and Capitalization.
(i) Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware. Target is
duly authorized to conduct business as a foreign corporation and is in
good standing under the laws of each
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jurisdiction where such qualification is required, except where the lack
of such qualification would not have a Material Adverse Effect. Section
4(a) of the Disclosure Schedule contains an accurate list of all
jurisdictions in which Target is qualified to do business as a foreign
corporation
(ii) The authorized capital stock of Target consists solely of
1,000,000 shares of common stock, par value $.01 per share, of which
693,478 shares are issued and outstanding. All of the issued and
outstanding shares of such common stock have been duly authorized and
validly issued and are fully paid and nonassessable and are not subject
to any preemptive rights. To the knowledge of Target, each of the
Sellers owns of record and beneficially the number of shares of common
stock set forth on section 3(b) of the Disclosure Schedule with respect
to such Seller, free and clear of all restrictions on transfer (other
than restrictions under the Securities Act, state securities laws and
the Shareholder Agreements, which Shareholder Agreements shall be
terminated on or before the Closing), taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims and demands, other than such restrictions as may be contained in
the Shareholder Agreements.
(iii) Target has not issued or granted any outstanding options,
warrants, rights or other securities convertible into or exchangeable or
exercisable for shares of the capital stock of Target, any other
commitments or agreements providing for the issuance of additional
shares of the capital stock of Target, the sale of treasury shares, or
for the repurchase or redemption of shares of Target's capital stock, or
any obligations arising from canceled stock. There are no agreements of
any kind which may obligate Target to issue, purchase, register for
sale, redeem or otherwise acquire any of its securities or interests.
There are no outstanding or authorized stock appreciation, phantom stock
or similar rights with respect to Target.
(iv) To the Knowledge of Target, except for the Shareholder
Agreements and the Crestar ESOP Lien, there are no voting trusts,
shareholder agreements, proxies or other agreements in effect with
respect to the voting or transfer of the Target Shares.
(b) Authorization of Transaction. Target has all requisite corporate
power and authority to own, lease and operate the properties owned by it, to
conduct its business as it is presently being conducted, to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by Target.
(c) Noncontravention. Except as set forth in section 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Target or any of the Assets is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
material breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any Contract to which Target is a party or by
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which it is bound or to which any of the Assets is subject (or result in the
imposition of any Security Interest upon any of the Assets), except where, prior
to or simultaneously with the Closing, such Contract is being terminated or the
consent of the other party thereto will have been obtained. Target does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect on the business,
financial condition, operations, results of operations, or future prospects of
the Business, or on the ability of the Parties to consummate the transactions
contemplated by this Agreement, and except for the filing contemplated by
section 5(b) below. Notwithstanding the foregoing, Target and the Majority
Holder make no representation as to the applicability of 41 U.S.C. section 15
(the "Assignment of Claims Act"), 31 U.S.C. section 3727 (the "Assignment of
Claims Act"), or the assignability of any contracts subject to any restrictions
under Small Business Administration programs.
(d) Title to Assets. Except as set forth in section 4(d) of the
Disclosure Schedule, Target has good title to, or a valid leasehold interest in,
or, as to Intellectual Property, valid license of, the property and assets used
by it, or shown on the Most Recent Balance Sheet or acquired after the date
thereof and shown on the Audited Net Asset Statement, free and clear of any
Security Interests. Except as contemplated by this Agreement, the Assets are
all of the assets necessary for the conduct of the Business as currently
conducted.
(e) Books and Records. Target has made and kept (and given Buyer
access to) Books and Records and accounts, which, in reasonable detail,
accurately and fairly reflect in all material respects, Target's business. The
minute books of Target to which Buyer has been given access do not omit
reference to any corporate transaction that requires board or shareholder
approval of Target which will continue in effect or remain binding on Target or
any of the Assets after the Closing.
(f) Subsidiaries. Target has no Subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit B are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and audited statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended June
30, 1997 (the "Most Recent Fiscal Year End"), June 30, 1996 and June 30, 1995
for Target, and (iii) unaudited balance sheets and statements of operations,
(the "Most Recent Financial Statements") as of and for the six (6) months ended
December 31, 1997 (the "Most Recent Fiscal Month End") for Target. The
Financial Statements described above present fairly the financial condition of
Target and the Business as of such dates and the results of operations of Target
for such periods. The Financial Statements (including the notes thereto ) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby; provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.
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(h) Projections. Majority Holder has delivered to Buyer projected
income statements and balance sheets of the Business for the 1998 and 1999
fiscal years (the "Projections"), which are attached as Exhibit C hereto. The
Projections were prepared in good faith and represent management's current
estimate, based on Target's current Knowledge, of the financial position and
results of operations of the Business for the periods indicated. To Target's
Knowledge as of the date hereof and as of the Closing Date, the assumptions
forming the basis of such Projections are reasonable. Buyer recognizes that the
basis for such Projections assumes the "stand alone" operation of the Business.
(i) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Change in
Target, or the Business, taken as a whole. Specifically, without limiting the
generality of the foregoing, since the Most Recent Fiscal Year End, except as
contemplated in this Agreement or as set forth in the Disclosure Schedule, there
has not been any:
(i) change in accounting methods, principles, or practices by
Target, except as required by law or by generally applicable changes
instituted in the accounting profession;
(ii) material damage, destruction or loss (whether or not covered
by insurance) adversely affecting the tangible Assets or the Business;
(iii) cancellation of any material indebtedness or waiver or
release of any material right or claim of Target;
(iv) increase in the rate of compensation payable or to become
payable to, any bonus, incentive compensation, service award or other
like benefit granted, made or accrued, contingently or otherwise, for or
to the credit of, any director, officer or other employee, except as
provided in any employment agreement (including any union contract)
between Target and any such persons or in any employee plan, and except
for any increases in the normal course of business;
(v) addition to or modification of the Employee Benefit Plans,
arrangements or practices affecting the officers, directors, or Business
Employees of Target other than (A) contributions made for 1997 in
accordance with the normal practices of the Target, or (B) the extension
of coverage to such persons who became eligible after the Most Recent
Fiscal Year End;
(vi) cancellation or termination of any material Contract or entry
into any Contract which is not in the ordinary course of the business of
Target;
(vii) sale, assignment or transfer of any material portion of
the Assets, other than in the ordinary course of business, except as
approved in writing in advance by Buyer and except for transfers of the
Excluded Assets;
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(viii) capital expenditure or the execution of any lease or any
incurring of liability therefor by Target involving payments in excess
of $100,000 with respect to any such expenditure or lease or otherwise
not substantially in accordance with Target's past practice;
(ix) any indebtedness incurred by Target for borrowed money or any
commitment to borrow money entered into by Target, or any loans made or
agreed to be made by Target except for loans constituting Excluded
Assets and indebtedness incurred in the ordinary course of business as
part of Target's Inventory financing or under the existing working
capital line of credit;
(x) revaluation by Target of any of the Assets, including, without
limitation, writing-off notes, or writing-off accounts receivable except
with respect to accounts receivable written off in the ordinary course
of business;
(xi) payment or declaration of any dividends, distributions with
respect to any of the Target Shares, or redemption, repurchase or
acquisition by Target of any of the Target Shares; or
(xii) agreement by Target or the Majority Holder to do any of
the things described in the preceding clauses (i) through (xi), other
than as expressly provided herein.
(j) Undisclosed Liabilities. Target does not have any material
liability (whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due, including any
liability for Taxes), except for (i) liabilities set forth on the Most Recent
Financial Statements (or in any notes to the June 30, 1997 Financial Statements)
and liabilities on the Audited Net Asset Statement, including, but not limited
to, the liability to be reflected on the Audited Net Asset Statement for the
excise tax of approximately $296,200 resulting from the sale of Target Shares by
the ESOP, (ii) liabilities which have arisen after the Most Recent Fiscal Month
End in the ordinary course of business, and (iii) Excluded Liabilities.
(k) Legal Compliance. Target has complied in its operations in all
material respects with all applicable statutes and governmental rules,
regulations and Permits. No action, suit, proceeding, hearing, or, to Majority
Holder's Knowledge, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against Target alleging any failure so to comply,
nor, to the Knowledge of Majority Holder, are any such actions threatened.
(l) Tax Matters.
(i) Filing of Tax Returns. Target has timely filed with the
appropriate taxing authorities all returns (including without limitation
information returns and other material information) in respect of Taxes
required to be filed through the date hereof and will timely file any
such returns required to be filed on or prior to the Closing Date, in
each
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case, subject to any applicable extensions. The returns and other
information filed are complete and accurate in all material respects.
Target has not requested any extension of time within which to file
returns (including without limitation information returns) in respect of
any Taxes.
(ii) Payment of Taxes. All Taxes that accrue or are payable by
Target in respect of taxable periods that end on or before the Closing
Date and for any taxable periods that begin before the Closing Date and
end thereafter to the extent such Taxes are attributable to the portion
of such period ending on the Closing Date (such period being referred to
herein as a "Pre-Closing Partial Period"), as determined under the
closing of the books method of allocation, have (or will have, on or
before the Closing Date) been timely paid, or an adequate reserve has
been established therefor (or will be on or before the Closing Date), as
set forth in section 4(l) of the Disclosure Schedule or in the Financial
Statements. Target has no liability for Taxes in excess of the amounts
so paid or reserves so established.
(iii) Audit, Investigations or Claims. Except as set forth in
section 4(l) of the Disclosure Schedule, there are no pending or to the
best of the Target's knowledge, threatened audits, investigations or
claims for or relating to any additional Tax liability, and there are no
matters under discussion with any governmental authorities with respect
to Taxes that in the reasonable judgment of the Target is likely to
result in a material additional liability of Target for Taxes. Except
as set forth in such section 4(l), neither Target nor Majority Holder
has been notified that any taxing authority intends to audit any return
of Target for any period.
(iv) Lien. There are no liens for Taxes (other than for current
Taxes not yet due and payable) on the Assets.
(v) Safe Harbor Lease Property. None of the Assets is property
that is required to be treated as being owned by any other person
pursuant to the so-called safe harbor lease provisions of former Section
168(f)(8) of the Code.
(vi) Security for Tax-Exempt Obligations. None of the Assets
directly or indirectly secures any debt the interest on which is
tax-exempt under Section 103(a) of the Code.
(vii) Tax Exempt Use Property. None of the Assets is "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(viii) Foreign Person. Neither Target nor any Seller is a
person other than a United States person within the meaning of the Code.
(ix) Wage Withholding. Target has withheld all Taxes required to
have been withheld in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party, and such withheld Taxes have either
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been duly paid to the proper governmental authority or properly set
aside in accounts for such purpose.
(x) Disclosure Statements. Target has not filed with respect to
any item a disclosure statement pursuant to Code Section 6662 or any
comparable disclosure with respect to foreign, state and/or local
statutes.
(xi) Liability For Taxes of Others. Target (A) has not been a
member of any affiliated group filing a consolidated federal Income Tax
Return and (B) has no liability for the Taxes of any person as defined
in Section 7701(a)(1) of the Code under Treas. Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(xii) No Withholding. The transaction contemplated herein is
not subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code or of any other
provision of law.
(xiii) Parachute Payments. Target has not made any payments,
nor is Target obligated to make any payments, and is not a party to any
agreement that could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(xiv) Changes in Accounting Method. Except as set forth in
section 4(l) of the Disclosure Schedule, Target has not agreed to nor is
it required to make any adjustment pursuant to Section 481(a) of the
Code by reason of a change in accounting method initiated by Target, and
neither Target nor any Majority Holder has any knowledge that the IRS
has proposed any such adjustment or change in accounting method.
(m) Real Property.
(i) Target does not own any real property.
(ii) Section 4(m)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to Target for
use in the Business (the "Leased Real Property"). Target has made
available to the Buyer correct and complete copies of the leases and
subleases listed in section 4(m)(ii) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in
section 4(m)(ii) of the Disclosure Schedule which relates to the leases
(A) with Allstate Insurance Co. for the Target's Maryland headquarters,
and (B) with Rickman Firstfield Associates for Target's Maryland
laboratory facility (each, a "Material Lease"), the lease or sublease is
legal, valid, binding, enforceable, and in full force and effect.
Target has not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in any such leasehold or subleasehold.
Target enjoys peaceful and undisturbed possession of all Leased Real
Property, and Target has fulfilled in all material respects all the
obligations required to be performed by it through the date hereof with
respect to such Material Leases. Each
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Material Lease is transferable (upon receipt of necessary landlord
consents) in connection with the transactions contemplated hereby.
(iii) Target has received all required material approvals of
governmental authorities (including Permits and material certificates of
occupancy or other similar certificates permitting lawful occupancy)
required in connection with the present use of the space covered by the
Material Leases.
(iv) Target has not received notice of any special assessment
relating to any Real Property for which Target would be liable under any
of the Real Property Leases.
(n) Tangible Personal Property. All items of tangible Personal
Property having a gross book value equal to or greater than $10,000 constituting
part of the Assets are in good operating condition and repair (subject to normal
wear and tear) and are suitable for the purposes for which they are intended
(taking into account the constantly evolving nature of computer and other
technological equipment).
(o) Intellectual Property. To the Knowledge of Majority Holder, Target
has not interfered with, infringed upon, misappropriated, or violated any
Intellectual Property rights of third parties in any material respect, and
Target has not received, within the last two years any written charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation. To the Knowledge of Target, no
third party has interfered with, infringed upon, misappropriated, or violated
any material Intellectual Property rights of Target constituting part of the
Assets.
(i) Section 4(o)(i) of the Disclosure Schedule identifies those
items of Intellectual Property owned by Target and used in the Business,
the loss of which could reasonably be expected to have a Material
Adverse Effect ("Material Intellectual Property"), and identifies each
license, agreement, or other permission which Target has granted to any
third party with respect to any such Material Intellectual Property
(together with any exceptions). Copies of all documents of Material
Intellectual Property have been made available to Buyer. With respect
to each item of Intellectual Property required to be identified in
section 4(o)(i) of the Disclosure Schedule:
(A) the item is not subject to any adverse outstanding
injunction, judgment, order, decree, ruling, or charge; and
(B) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
Target, threatened which challenges the legality, validity,
enforceability, use, or ownership of the item.
(ii) Pursuant to a valid license, sublicense, agreement, or
permission, Target holds all of the Intellectual Property owned by any
third party and required to operate the Business ("Material Non-Owned
Intellectual Property"), the loss or unavailability of which would have a
material adverse effect on the Business. Copies of all documents of
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Material Non-Owned Intellectual Property have been made
available to Buyer. With respect to each item of Intellectual
Property described in this section 4(o)(ii):
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect; provided,
however, that no representation is made as to the ownership
of any Material Non-Owned Intellectual Property or as to the
right of the Target's licensor, sublicensor or grantor to
grant any such license, sublicense, agreement or permission;
(B) neither Target nor, to the Knowledge of
Target, any other party to the license, sublicense,
agreement, or permission is in breach or default which would
permit termination, modification, or acceleration
thereunder; and
(C) Target has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(iii) With respect to each software license or
software sublicense to which Seller is a party, Seller has
not granted any sublicense or similar right except in
accordance with the terms and conditions thereof, including
the payment of all applicable royalties, and is not
otherwise in material violation of such license or
sublicense agreement.
(p) Contracts.
(i) Buyer has been given access to copies of the
currently effective Contracts described in clauses (A)
through (P) to which Target is a party (the "Material
Contracts"), which copies are true and correct in all
material respects, subject to ordinary course extensions,
renewals, and similar changes. Section 4(p) of the
Disclosure Schedule lists:
(A) except as summarized in the Financial
Statements or included in section 4(i)(viii) to the
Disclosure Schedule, each lease, rental or occupancy
agreement, license, installment and conditional sale
agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property, providing for
payments in excess of $25,000 per annum;
(B) any Contract (or group of related Contracts)
(other than a Government Contract) for the furnishing or
receipt of goods or services or delivery of goods and/or
materials, the performance of which will extend over a
period of more than one year after the date of this
Agreement or under which Target is obligated to pay or
expected to receive aggregate consideration in excess of
$50,000 or is required to incur capital expenditures in
excess of $50,000 during the year ending December 31, 1998;
(C) any Government Contract, including any
Section 8(a) Contract of the Small Business Act (15 U.S.C.
Section 637(a) et seq.), to which Target is a party as of
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January 31, 1998, each of which is denoted as a Section 8(a)
Contract on the Disclosure Schedule;
(D) any Contract creating or governing a
partnership, limited liability company, joint venture or any
teaming agreement or other Contract (however named) which
teaming agreement or other Contract involves a sharing of
profits, losses, costs, or liabilities by Target with any
other Person and involving a liability of Target in excess
of $10,000 per annum;
(E) any note, debenture, guarantee, loan, letter
of credit, surety-bond or other agreement, instrument or
commitment (or group of related agreements) in effect as of
the date hereof, other than in connection with the Crestar
ESOP Loan, under which Target has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money,
including any agreement or commitment for future loans,
credit or financing, in excess of $10,000 or under which
Target has imposed a Security Interest on any of the
material Assets, tangible or intangible;
(F) any agreement (other than a teaming
agreement) imposing on Target a restriction or obligation
regarding confidentiality or noncompetition (the
"Confidentiality Agreements), other than Confidentiality
Agreements executed in connection with ordinary course
product testing work performed by Target at its laboratory
facility in Gaithersburg, Maryland for pharmaceutical or
biotechnology companies;
(G) any Contract involving an obligation of
Target to make any payment to any Affiliate of Target, any
Seller, or any of Target's directors, officers or employees
(not including salary or similar compensation reflected on
Target's payroll records or commitments to pay incentive
compensation bonuses in accordance with Targets established
practice and evidenced by written agreements or letters),
except as otherwise contemplated by this Agreement);
(H) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation,
severance, or other material plan or arrangement for the
benefit of its current or former directors, officers, and
employees (not including customary fringe benefits such as
accrued vacation or sick leave);
(I) any collective bargaining agreement or any
other agreement with any employee representative of a group
of employees or labor union relating to wages, hours or
other conditions of employment;
(J) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other
basis which is not terminable at-will or which provides
annual compensation in excess of $50,000 or severance
benefits or a termination penalty in excess of $10,000,
except for those otherwise contemplated by this Agreement;
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(K) any agreement under which Target has advanced
or loaned any amount which remains outstanding, to any of
its directors, officers, and employees outside the ordinary
course of business and which will not be paid off at or
prior to the Closing or will not constitute an Excluded
Asset; each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended
by Target other than in the ordinary course of business;
(L) each Loss Contract; and
(M) each amendment, supplement, and modification
(whether written or oral) in respect of any of the foregoing.
(ii) With respect to each such Material Contract,
except as set forth in section 4(p) of the Disclosure
Schedule, (A) the Contract is legal, valid, binding,
enforceable, and in full force and effect in all material
respects; and (B) no party is in breach or default which
would permit termination, modification, or acceleration
under the Contract.
(iii) Except as set forth on section 4(p) of the
Disclosure Schedule, Target is not engaged in any
renegotiations of any amounts paid or payable to Target
under current or completed Contracts with any Person having
the contractual or statutory right to demand or require such
renegotiation. Target has not received any written demand
for such renegotiation in respect of any such Contract.
Except as set forth on section 4(p) of the Disclosure
Schedule, no Person, including any government contracting
officer or prime contractor has given Target written notice
that any material adjustments are required to the terms of
any Material Contracts.
(q) Notes and Accounts Receivable. The amount of all notes,
accounts receivable, unbilled invoices and other debts due or recorded in the
Financial Statements, except to the extent the same constitute Excluded
Assets, (A) will be, subject to the reserves reflected on the Audited Net
Asset Statement, good and collectible in full in the ordinary course of
business and in any event not later than one hundred eighty (180) days after
the Closing Date, or after the date billed, if later (assuming use by Buyer
of billing and collection practices which are customary in the industry), and
(B) are not subject to any counterclaim or setoff except to the extent of
any such reserve.
(r) Licenses, Permits and Authorizations. Target maintains
all material licenses, approvals, consents, franchises and other permits
(including without limitation, all facility security clearances) of or with
any governmental regulatory or administrative authority, whether foreign,
federal, state or local, necessary for the conduct of the Business as it is
now conducted (each a "Permit"). All such Permits are in full force and
effect and there are no proceedings pending or, to the Majority Holder's
Knowledge, threatened that seek the revocation, cancellation, suspension or
adverse modification thereof. Such Permits constitute all of the material
licenses, approvals, consents, franchises and permits necessary to permit
Target to own, operate, use and maintain its Assets in the manner in which
they are now operated and maintained and to conduct the Business
substantially as currently conducted. All required filings
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with respect to such Permits have been timely made and all required
applications for renewal thereof have been timely filed.
(s) Insurance. Section 4(s) of the Disclosure Schedule
sets forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) held by Target:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage; and
(iv) the amount (including a description of how
deductibles and ceilings are calculated and operate)
of coverage.
With respect to each such insurance policy, (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects;
and (B) no event has occurred which, with notice or the lapse of time, would
permit termination, modification, or acceleration, under the policy. Section
4(s) of the Disclosure Schedule describes any material self-insurance
arrangements affecting Target. To the Majority Holder's knowledge, Target is
not a named insured or otherwise the beneficiary of coverage under any
insurance policy held by any other Person.
(t) Litigation. Section 4(t) of the Disclosure Schedule
sets forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or
has received written notice that it has been threatened to be made a party to
any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator.
(u) Product Warranty. Substantially all of the products
manufactured, sold, leased, and delivered by Target have conformed in all
material respects with all applicable contractual commitments. Target has no
material liability for replacement or repair thereof or other damages in
connection therewith, subject only to (i) the express provisions of any of
the Material Contracts, and (ii) the reserve for product warranty claims set
forth in the Financial Statements, as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of Seller.
(v) Employees. Except as set forth in section 4(v) of the
Disclosure Schedule, as of the date of this Agreement, no Executive Officer,
which is defined for the purposes of this 4(v) as the Chief Executive
Officer, the Chief Operating Officer and Chief Financial Officer of Target,
has given Target written notice of plans to terminate employment with Target
during the next twelve (12) months, except for Majority Holder, as
contemplated by the transactions in this
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Agreement and the Ancillary Agreements. Except as set forth in section
4(p)(i)(I) of the Disclosure Schedule, Target is not a party to or bound by
any collective bargaining agreement. There are no complaints against Target
pending before the National Labor Relations Board or any similar state or
local labor agency by or on behalf of any Employee of Target. Target has
complied in all material respects with all laws, rules and regulations
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes (hereinafter collectively referred to as
the "Employment Laws"). Target is not liable for the payment of taxes,
fines, penalties or other amounts, however designated, for failure to comply
with any of the foregoing Employment Laws. Except as set forth in section
4(p) of the Disclosure Schedule, as of the date of this Agreement, there are
no representation questions, arbitration proceedings, labor strikes, slow
downs or stoppages, grievances or other labor disputes pending or, to
Target's Knowledge, threatened with respect to the Target's Employees.
Target has no obligations relating to former employees, no longer employed by
Target, except to the extent contemplated by this Agreement and the Ancillary
Agreements.
(w) Environmental Matters. Target owns no real estate.
To Target's knowledge, (i) Target has complied with and is not in violation
of any Environmental Laws, (ii) Target is not required to hold or obtain any
environmental permits, certificates, consents or other settlements
agreements, licenses, approvals, registrations or authorizations under any
Environmental Laws, other than those that are currently held by Target in
compliance with applicable federal, state or local law, (iii) no notice,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity relating to the Leased Real
Property or Target's operations with respect to any alleged violation by
Target of any Environmental Law or with respect to any use, possession,
generation, treatment, storage, recycling, transportation or disposal of any
Hazardous Substances by or on behalf of Target, (iv) there are no facts or
circumstances related to environmental matters concerning the Leased Real
Property that could reasonably be expected to lead to any future
environmental claims against Target under current Environmental Laws, and (v)
there have been no environmental inspections, investigations, studies,
audits, tests, reviews or other analyses conducted in relation to any Leased
Real Property, Target or the Business which have been provided or reported to
Target, except for those inspections periodically conducted under existing
licenses or permits.
(x) Employee Benefits.
(i) Section 4(x) of the Disclosure Schedule lists each
Employee Benefit Plan that Target maintains or to which
Target contributes.
(ii) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in all material
respects with the applicable requirements of ERISA, the
Code, and other applicable laws.
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(iii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-l's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan.
(iv) All contributions for any period ending on or
before the Closing Date which are not yet due have been paid
to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of Target. All
premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each
such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(v) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code section 401(a) and has received
a favorable determination letter from the Internal Revenue
Service.
(vi) Copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan have been made available to
Buyer.
(vii) With respect to each Employee Benefit Plan
that Target maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required
to contribute, Target has not incurred any material
liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal
liability) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(viii) Target never has contributed to, or ever has
been required to contribute to, any Multiemployer Plan or
has any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due),
including any withdrawal liability, under any Multiemployer
Plan.
(ix) Target does not maintain nor ever has maintained,
or contribute, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents
(other than in accordance with Code section 4980B).
(y) Guaranties. Except for Target's guaranty of the
Crestar ESOP Loan, Target is not a guarantor or otherwise is responsible for
any liability or obligation (including indebtedness) of any other Person.
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(z) Government Contracts. With respect to each Government
Contract:
(i) During the past five (5) years, no payment has
been made by Target, or by any Person authorized to act on
Target's behalf, to any Person in connection with any such
Government Contracts, in violation of applicable procurement
laws or regulations or in violation of (or requiring
disclosure pursuant to) the Foreign Corrupt Practices Act.
(ii) Section 4(z) of the Disclosure Schedule sets forth
all outstanding or pending change orders which could
reasonably be deemed to involve an amount in excess of
$10,000 and all claims, requests for equitable adjustments,
outstanding or pending subcontractor, supplier or vendor
claims, and all teaming agreements, joint venture
arrangements and agency agreements, with respect to such
Government Contracts; provided, however, that this section
4(2)(ii) is not intended to include ordinary course accounts
payable or purchase orders with respect to such Government
Contracts.
(iii) Target's accounts receivable, unbilled costs
and accrued profits (less customer progress payments), notes
receivable, contracts in progress, accounts payable and
notes payable (collectively the "Receivables and Unbilled
Costs") included in the January 31 Balance Sheet shall be
recorded on its books and records in the ordinary course of
business in accordance with GAAP applied on a consistent
basis with prior years, subject to the adjustments referred
to in section 4(g) above.
(iv) With respect to each Government Contract, except
as set forth in Section 4(z) of the Disclosure Schedule, (A)
Target has complied with all material terms and conditions
of such Government Contract, including all clauses,
provisions and requirements incorporated expressly, by
reference or by operation of law therein, (B) Target has
complied with all requirements of applicable laws pertaining
to such Government Contract, (C) all representations and
certifications executed, acknowledged or set forth in such
Government Contract were complete and correct in all
material respects as of their effective date, and Target has
complied in all material respects with all such
representations and certifications, and (D) neither the
United States Government nor any prime contractor,
subcontractor or other Person has notified Seller in
writing, that Target has breached or violated any applicable
law, or any material certification, representation, clause,
provision or requirement pertaining to such Government
Contract. Anything herein to the contrary notwithstanding,
to the extent any breach of this representation would also
constitute a breach of the representation made in section
4(u), such breach shall be subject to the terms of section
6(d) below.
(v) Target is not currently, and has not been in the
past five (5) years, debarred or suspended from doing
business with any Federal government agency, nor has any
such suspension or debarment action been commenced. No show
cause notices, notices of termination for default or cure
notices have been issued against Target in the past five (5)
years, except, as to any such cure notices, those with
respect to which cure has been made in the ordinary course
of business.
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(vi) Target is not currently and has not been in the
past five years, under administrative, civil or criminal
indictment or, to the Majority Holder's Knowledge,
investigation, with respect to any alleged irregularity,
misstatement or omission arising under or in any way
relating to any of such Government Contracts.
(vii) No security clearances are required to be
held by Target for the execution of its obligations under
any such Government Contracts; Target has never been denied
a security clearance necessary to perform any such
Government Contract unless such clearance has later been
granted.
(aa) Brokers' Fees. Except for the amount payable to John
C. Smith pursuant to section 4 of the Prior Smith Employment Agreement,
Target has no liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
(bb) Backlog. Section 4(ab) of the Disclosure Schedule
identifies for each Government Contract constituting part of the Assets,
Target's reasonable estimate, based on Target's past experience with such
Government Contract and other experience in the industry, of the amounts to
be recognized under the term of such Government Contract during the projected
term thereof, assuming all option years are exercised. Notwithstanding the
provisions of this section 4(ab), the Parties recognize, (A) that Section
8(a) Contracts may be terminated by the SBA upon a change in control of
Target (provided, however that Majority Holder and Target will use all
reasonable efforts to avoid such termination pursuant to section 6(b) below),
and (B), that a number of such Government Contracts (as indicated in the
Disclosure Schedule) are IDIQ contracts, as to which no specific quantities
are designated, and that there can be no assurance that the actual experience
under any particular Government Contract will conform to such estimates.
(cc) Disclosure. The representations and warranties
contained in this section 4 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Majority Holder will use his or its
reasonable efforts to cooperate with the other partes in order to consummate
and make effective the transactions contemplated by this Agreement.
(b) Operation of Business. From the date hereof to the
Closing Date, Target and Majority Holder shall not, and Majority Holder will
not permit Target to, engage in any practice, take any action, or enter into
any transaction outside the ordinary course of the Business. Without
limiting the generality of the foregoing, except with the written consent of
Buyer or with respect solely to the Excluded Assets, Target shall not and
Majority Holder will not cause Target to:
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(i) change or amend the Articles of Incorporation or
Bylaws of Target;
(ii) enter into, extend, materially modify, terminate
or renew any Material Contract;
(iii) sell, assign, transfer, convey, lease,
mortgage, pledge or otherwise dispose of or encumber any
material Assets, or any interests therein, except in the
ordinary course of business;
(iv) except as otherwise required by law or in the
ordinary course of business, take any action relating to
Business Employees (as hereinafter defined) with respect to
the grant of any bonus, severance or termination pay
(otherwise than pursuant to policies or agreements of Target
in effect on the date hereof or in section 5(c) of the
Disclosure Schedule), or with respect to any increase of
benefits payable under its severance or termination pay
policies or agreements in effect on the date hereof or
increase in any material respect the compensation or fringe
benefits of any employee or pay any benefit not required by
any existing Employee Plan, agreement or policy;
(v) make any change in the key management structure of
Target, including, without limitation, the hiring of
additional officers or the termination of existing officers
other than in the ordinary course of business;
(vi) adopt, enter into or amend any Employee Plan,
agreement (including, without limitation, any collective
bargaining or employment agreement), trust, fund or other
arrangement for the benefit or welfare of its employees;
(vii) acquire by merger or consolidation with, or
merge or consolidate with, or purchase substantially all of
the assets of, or otherwise acquire any material assets or
business of any corporation, partnership, association or
other business organization or division thereof;
(viii) make any capital expenditures or commitments
in excess of $10,000 in the aggregate, except any such
expenditures disclosed to Buyer prior to the date hereof;
(ix) make any material loans or advances to any Person;
(x) make any material tax election or settlement or
compromise with tax authorities which would affect the
Assets or the Business after the Closing hereunder, except
as set forth in section 4(l) of the Disclosure Schedule;
(xi) intentionally do any other act which would cause
any representation or warranty in this Agreement to be or
become untrue in any material respect;
(xii) fail to maintain the tangible Assets in their
current state of repair, excepting normal wear and tear or
casualty, or fail to replace consistent with Target's past
practice inoperable, worn out, obsolete or destroyed Assets;
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(xiii) make any changes in accounting policies or
practices; provided that Majority Holder shall cause Target
to report to Buyer promptly any such changes Target proposes
to make, and Buyer shall not withhold its consent to any
such change if the same would not reasonably be deemed to
have an adverse effect on Target or Buyer after the Closing;
(xiv) declare, set aside, or pay any dividend or
make any distribution with respect to its capital stock or
redeem, purchase, or otherwise acquire any of its capital
stock; or
(xv) enter into any agreement, or otherwise become
obligated, to do any action prohibited hereunder.
(c) Preservation of Business. Target will make reasonable
efforts, and Majority Holder will make all reasonable efforts to cause
Target, to keep the Business and Assets substantially intact, including its
present operations, physical facilities, and relationships with employees,
lessors, licensors, suppliers and customers, subject to customary commercial
practice.
(d) Full Access. Majority Holder and Target will permit
representatives of the Buyer to have full access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of
Target, to all premises, properties, personnel, books, records (including tax
records), contracts, and documents of or pertaining to the Business.
(e) Confidentiality. Except (i) for any governmental
filings required in order to complete the transactions, and (ii) as Buyer and
the Majority Holder may agree or consent to in writing, each of Buyer and
each Seller will treat and hold as such any Confidential Information it
receives from the other Party or its representatives in the course of the
reviews contemplated by section 5(e) or otherwise, and will not use any of
the Confidential Information except in connection with this Agreement;
provided, however, that any party hereto may disclose such information to its
legal and financial advisors, lenders, financing sources and their respective
legal advisors and representatives so long as such Persons agree to maintain
the confidentiality of such information in accordance with this section 5(f).
If this Agreement is terminated for any reason whatsoever, each Party will
return to the other Party or destroy all tangible embodiments (and all
copies) of the Confidential Information, including all information prepared
by the receiving party or such receiving party's representatives, which are
in its possession or the possession of its representatives. Any provision
hereof to the contrary notwithstanding, information not so destroyed (or
returned) will remain subject to these confidentiality provisions
(notwithstanding any termination of this Agreement) until the second
anniversary of the date of this Agreement. The foregoing confidentiality
provisions shall not apply to such portions of the information received which
(i) are or become generally available to the public through no action by the
receiving party or by such party's representatives, (ii) are or become
available to the receiving party on a nonconfidential basis from a source,
other than the disclosing party or its representatives, which the receiving
party believes, after reasonable inquiry, is not prohibited from disclosure
of such information by a contractual, legal or fiduciary obligation, and
shall not
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apply to any disclosure after the Closing by Buyer of any information
relating solely to Target (other than information relating to the Excluded
Assets or Excluded Liabilities).
(f) Consents; Reasonable Effort; Cooperation. Target and
Majority Holder will make reasonable efforts to obtain in writing the
consents of third parties, in connection with the consummation of the
transactions, listed on Exhibit D attached hereto, such consents to be
substantially in the form set forth in such Exhibit D (the "Required
Consents").
(g) Notice of Developments. Buyer will give written notice
to the Seller Representative of any development causing a breach of any of
the representations and warranties in section 3(a) which has not previously
been disclosed to the Seller Representative, with reasonable promptness after
Buyer gains Knowledge thereof. The Seller Representative will give written
notice to Buyer of any development causing a breach of any of the
representations and warranties in section 3(b) or 4 above relating to the
Sellers, Target, the Business, the Assets or the transactions contemplated
hereby, which has not previously been disclosed, with reasonable promptness
after Target has Knowledge thereof. Buyer will give the Seller
Representative notice, as soon as reasonably practicable after Buyer has
Knowledge thereof, of any material inaccuracy of the representations and
warranties of the Majority Holder with regard to the Business or the Assets
of which Buyer gains Knowledge from Buyer's or its agents' due diligence
investigation with regard to this Agreement.
(h) Exclusivity. Prior to the Closing or other termination
of this Agreement in accordance with the terms hereof, the Majority Holder
will not (and the Majority Holder will not cause or permit Target to) accept
an offer from any Person relating to the acquisition of any capital stock or
other voting securities, or any portion of the Assets, of Target, other than
in the ordinary course of business (including any acquisition structured as a
merger, consolidation, or share exchange). The Majority Holder will not vote
his Target Shares in favor of any such nonpermitted acquisition structured as
a merger, consolidation, or share exchange.
(i) No Solicitations. From the date hereof through the
Closing Date or termination of this Agreement in accordance with the terms
hereof, neither Target nor the Majority Holder shall directly or through an
agent solicit, participate in or initiate discussions or negotiations with
any Person or group of Persons (other than Buyer or any of its Affiliates)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transactions involving Target or the Business.
(j) Employee Matters. Upon the Closing, Buyer will cause
Target to continue the employment of each employee of Target ("Business
Employees") except for such individuals, if any, as are designated on section
4(v) of the Disclosure Schedule (the "Excluded Employees") at a comparable
level of salary and comparable benefits as currently provided to such
Business Employee by Target. Notwithstanding the foregoing, Buyer shall not
thereafter be restricted from any modification in terms of employment or
termination of the Business Employees in the ordinary course of business. It
is acknowledged and agreed that Buyer shall have no obligation to pay, or
cause Target after the Closing to pay, any severance or termination payments
to any Excluded Employee by virtue of the termination of their employment
with Target effective as of the Closing.
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(k) Updated Contract Backlog and Financial Statements.
Prior to the Closing, (i) Target shall provide an updated estimate of the
amounts anticipated to be recognized during the remaining term of the
Government Contracts, prepared on the same basis as described in the
representation set forth in section 4(ab) of this Agreement, and (ii) Target
shall deliver to Buyer on a timely basis any interim financial statements
prepared by Target in the ordinary course of business.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General.
(i) In case at any time after the Closing any further
action is necessary to carry out the purposes of this
Agreement, the Majority Holder, or any of the Sellers to the
extent their action is required, will take such further
action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to
indemnification therefor under section 9 below). In
particular, (A) in connection with any actions taken by
Target or Sellers pursuant to 13 C.F.R. 124.317(d) to
provide for the proper transfer of each outstanding Section
8(a) Contract to Buyer and to ensure that each such Section
8(a) Contract remain in effect notwithstanding the transfer
of ownership of Target, the Sellers will take such
reasonable actions required after Closing to obtain the
approval of such transfer from the Administrator of the SBA.
The Sellers shall consult with Buyer prior to the delivery
of, and give Buyer the opportunity to comment on, any notice
which Sellers are required to provide to the SBA pursuant to
the terms of Target's Section 8(a) Contracts or the Small
Business Act, and (B) in connection with ESOP following
Closing, the Parties shall cooperate with the Trustees of
the ESOP to prepare any filings with the Internal Revenue
Service or otherwise and to take all actions that are
reasonably deemed necessary by the Trustees of the ESOP for
proper termination of the ESOP.
(ii) The Parties acknowledge and agree that from and
after the Closing the Buyer will be entitled to possession
of the Books and Records (other than such Books and Records
relating solely to the Excluded Assets and Excluded
Liabilities, as to which Buyer shall be entitled to
possession of a complete and accurate copy), but will
provide copies thereof to Sellers promptly upon request
therefor. Buyer will provide all reasonable cooperation
with Sellers in connection with obtaining any information
reasonably necessary for preparation of financial statements
and tax returns.
(b) Governmental Consents. Each of Buyer, Majority Holder
and Target consent to give any notices to, make any filings with, and to use
its reasonable efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies in connection with the matters
referred to in sections 3(a)(iii) and 3(b)(ii) and 4(c) above. Target and
Majority Holder shall take all actions reasonably required pursuant to 13
C.F.R. 124.317(d) to provide for the proper transfer of each outstanding
Section 8(a) Contract to Buyer and will use their
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reasonable efforts to cause each such Section 8(a) Contract to remain in
effect notwithstanding the transfer of ownership of Target; and to take such
reasonable actions thereafter to obtain the approval of such transfer from
the administrator (the "Administrator") of the SBA; the parties recognize
that such approval cannot be assured, that the foregoing efforts of the
Majority Holder shall be part of, and not in addition to, the services
contemplated by the Consulting Agreement provided for in section 7(a)(viii)
below, and that the Majority Holder shall not be obligated to expend his
personal funds in this regard. Notwithstanding the foregoing, Target and
Majority Holder shall consult with Buyer prior to the delivery of, and give
Buyer the opportunity to comment on, any notice which Target or Majority
Holder are required to provide to the SBA pursuant to the terms of Target's
Section 8(a) Contracts or the Small Business Act.
(c) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any fact,
circumstance, condition, occurrence, event, incident, action, failure to act,
or transaction prior to the Closing Date directly involving the Business,
each of the other Parties will make all reasonable efforts to cooperate with
him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to
indemnification therefor under section 9 below).
(d) The parties acknowledge that products sold and delivered by Target
under the Government Contracts prior to the Closing Date may be subject to
certain warranties, relating to the condition, suitability or conformity of
such products to specified requirements, contained in such Government
Contracts (the "Product Warranties"), even though Target has not manufactured
any of such products. Majority Holder shall indemnify Buyer against any
liability for breach of any such Product Warranties, pursuant to the
provisions of section 9 below, solely to the extent such Product Warranties
exceed the coverage of any warranties or other protections provided by the
manufacturer of such products, and provided that Buyer makes a claim with
respect to such breach within the two-year period following the Closing.
Prior to making any claim against Majority Holder with respect to any claim
or liability relating to such Product Warranties, Buyer shall make reasonable
efforts for a period of ninety (90) days from the date Buyer obtains
Knowledge of such warranty claim to (i) determine whether the claimed defect
or other problems with the product is covered by a manufacturer's warranty or
similar protection, and (ii) obtain protection against or reimbursement for
any such claim or liability from the manufacturer of the applicable product.
Majority Holder shall provide all reasonable cooperation in such efforts by
Buyer.
(e) Except as otherwise set forth above, the terms of this section 6
shall survive the Closing for a period of two (2) years.
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7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in sections 3(b) and 4
above shall be true and correct in all material respects at and as of the
Closing Date (except for those expressly relating to a different date);
(ii) Sellers shall have performed and complied in all material respects
with all of their covenants hereunder through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any of the transactions contemplated by this Agreement or
have a Material Adverse Effect;
(iv) the Buyer shall have received from counsel to the Sellers
opinions, addressed to the Buyer, reasonably satisfactory to Buyer and its
counsel and dated as of the Closing Date;
(v) Buyer shall have received from Target and Sellers such
certificates of duly authorized officers and others to evidence
compliance with the conditions set forth in this section 7(a) as may be
reasonably requested by Buyer;
(vi) Buyer shall have received the Required Consents;
(vii) Each of John C. Smith and Paul H. Tardif shall have entered into
the Employment Agreements with R.O.W. Sciences, Inc. in the form approved
by Buyer, and executed such Employment Agreements, subject to consummation
of the transactions contemplated hereby, as of the date of this Agreement;
(viii) The Majority Holder shall also have entered into a Consulting
Agreement with R.O.W. Sciences, Inc. in the form approved by Buyer and the
Majority Holder, and executed such Consulting Agreement, subject to
consummation of the transactions contemplated hereby, as of the date of
this Agreement;
(ix) Majority Holder shall have executed the acknowledgment at the end
of the Note; and
(x) The Crestar ESOP Loan shall have been repaid and the Crestar ESOP
Lien shall have been released.
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The Buyer may waive any condition specified in this section 7(a) in writing, or
by consummating the transactions contemplated hereby.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in section 3(a) above
shall be true and correct in all material respects at and as of the
Closing Date (except for those expressly relating to a different date);
(ii) the Buyer shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any of the transactions contemplated by this Agreement;
(iv) the Sellers shall have received from counsel to the Buyer an
opinion addressed to the Sellers, reasonably satisfactory to Sellers and
their counsel, and dated as of the Closing Date;
(v) Sellers shall have received from Buyer resolutions adopted by the
Board of Directors of Buyer approving this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby, certified
by Buyer's corporate secretary or assistant secretary;
(vi) Buyer shall have executed and delivered to any applicable Seller
the Ancillary Agreements to which such Seller is a party; and
(vii) Sellers shall have received from Buyer such certificates of its
duly authorized officers and others to evidence compliance with the
conditions set forth in this section 7(b) as may be reasonably requested
by Sellers.
The Majority Holder may waive any condition specified in this section 7(b) in
writing or by consummating the transactions contemplated hereby.
8. Consents To Assignment or Novation; Risk of Loss.
(a) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign or novate any Contract,
or any claim or right or any benefit arising thereunder or resulting
therefrom, if an attempted assignment or novation thereof, without the
consent of a third party thereto, would constitute a breach thereof or in any
way adversely affect the rights of Target thereunder. If such consent is not
obtained, or if an attempted
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assignment or novation thereof would be ineffective or would affect the
rights thereunder so that Target would not receive all such rights, Sellers
and Buyer will cooperate, in all reasonable respects but without material
cost to Sellers which is not promptly reimbursed by Buyer, to obtain such
consent as soon as practicable. Recognizing that any action taken by
Sellers pursuant to this section 8(a) is at the request of and for the
benefit of Buyer, Buyer agrees to indemnify and hold harmless Sellers from
and against any claim, loss, liability, damages, cost or expense (including
reasonable attorneys' fees and expenses) arising from or related to any
breach or default under such contracts by Target following the Closing Date
or any action taken by Sellers pursuant to the terms of this section 8(a) at
the request of Buyer. No failure of a Contract to be transferred shall be
deemed to affect any amount payable to Sellers pursuant to any provision of
section 2 of this Agreement (subject to any set-off rights expressly provided
for in this Agreement), except to the extent such failure is the result of
any breach by Target or any Seller of any covenant, representation or
warranty contained herein, and except that the parties recognize that the
Additional Purchase Price shall be payable only if and to the extent Target
receives Section 8(a) Contract Revenue.
(b) Risk of Loss. If any material portion of the tangible Assets is
destroyed or damaged by fire or any other cause prior to the Closing Date
which destruction or damage disables Target from carrying on, or materially
impairs Target's ability to carry on, a material part of the Business, the
Seller Representative shall give written notice to Buyer as soon as
reasonably practicable after, but in any event within five (5) business days
of, Majority Holder obtaining Knowledge thereof, including information as to
the amount of insurance, if any, believed to cover such destruction or
damage. In such event, prior to the Closing, Buyer shall have the option,
which shall be exercised by written notice to the Seller Representative
within ten (10) days after receipt of the Seller Representative's notice or,
if there are not ten (10) days prior to the Closing Date, as soon as
practicable prior to the Closing Date, of (i) closing with such Assets in
their destroyed or damaged condition, in which event Buyer shall be entitled
to the proceeds of any insurance or other proceeds payable with respect to
such loss and, subject to the limitations set forth in section 9 hereof, to
indemnification for any uninsured portion of such loss to the extent provided
by such section 9, and the full purchase price shall be paid, (ii) if agreed
by the Seller Representative, excluding such Assets from the transaction
contemplated hereby, in which case the purchase price shall be reduced by the
amount allocated to such Assets, as mutually agreed between the Parties, and
Sellers shall be entitled to promptly receive any insurance or other proceeds
payable with respect to such loss, or (iii) after providing Target with a
reasonable opportunity to repair such destruction or damage, terminating this
Agreement in accordance with section 11.
9. Survival; Indemnification.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing and continue in full force and effect for a period
of two (2) years thereafter except as otherwise expressly set forth herein
and except that those representations made with respect to the matters set
forth in sections 4(a) (ii) and (iii), 4(j), 4(l), 4(w), 4(x) and 4(z) and
any claim with respect thereto shall survive until ninety (90) days after the
expiration of the applicable statute of limitations (with
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extensions) with respect to the matters addressed in those sections, or (ii)
as otherwise expressly set forth herein. The termination after Closing of
the representations and warranties provided herein shall not affect the
rights of a party in respect of any claim made by such party in a writing
received by the other party prior to the expiration of the applicable
survival period provided herein.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event Target or Buyer suffers Adverse Consequences after
the Closing as a result of (A) the breach by Sellers or Target of any
of their respective representations and warranties contained in
section 3(b) or 4 hereof or of any covenant in section 2, 5, 6 or 10
hereof, (B) any third party claim with respect to the operation of
the Business or other actions of Target prior to the Closing Date
(except to the extent any such claim constitutes a liability included
on the Audited Net Asset Statement), (C) any Excluded Liability or
Pre-Closing Environmental Liability, or (D) any material breach or
default by Target under any of the Contracts prior to the Closing
Date (each, a "Buyer Indemnification Matter"), provided that the
Buyer makes a written claim for indemnification against Majority
Holder pursuant to section 13(h) below within the survival period
described above, then the Majority Holder agrees to indemnify and
hold harmless the Buyer and its Affiliates, and their respective
directors, officers, shareholders and employees (collectively, the
"Buyer Parties") from and against any Adverse Consequences the Buyer
Parties may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer Parties
may suffer after the end of any applicable survival period) directly
resulting from or caused by such Buyer Indemnification Matter
(calculated as set forth in subsection (e) below); provided, however,
that Majority Holder shall not have any obligation to indemnify any
of the Buyer Parties from or against any Adverse Consequences
resulting from any Buyer Indemnification Matter until the Buyer
Parties have suffered Adverse Consequences by reason of all such
Buyer Indemnification Matters in excess of $250,000 in the aggregate,
after which point Majority Holder will be obligated only to indemnify
the Buyer Parties from and against further such Adverse Consequences;
further provided, that the limitations set forth above shall not
apply to (x) any breach of a covenant set forth in sections 5 or 6 of
this Agreement, or of the representation set forth in sections
4(a)(ii) or 4(l)(ix), hereof, or (y) any indemnification for any
Excluded Liability.
(ii) Notwithstanding the provisions of section 9(b)(i), the maximum
amount for which the Majority Holder may be liable shall be
limited to the outstanding principal amount of the Note as of the
date on which the claim for indemnification is made, and the
exclusive source for discharging such liability of the Majority
Holder shall be a reduction of such outstanding principal amount
of the Note; provided, however, that anything in this Agreement to
the contrary notwithstanding, the limitation provided for in this
section 9(b)(ii) shall not apply to any indemnification for any
matter described in item (e) of the definition of Excluded
Liability.
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(iii) Notwithstanding the provisions of this section 9(b), to the
extent that claims against the Majority Holder result in an
obligation to pay Buyer, the Majority Holder's liability will be
offset by any amount that is an Allowable Cost, direct or indirect,
that is permissible under the Federal Acquisition Regulations (the
"FAR") that may be reimbursed to the Buyer following the Closing
Date. For purposes of this subsection (iii), Allowable Cost shall
mean any allowable cost, as defined under the FAR, which Buyer
believes in good faith, based on such definition, is appropriate for
submission to the appropriate federal contracting agency and which,
upon submission to such federal contracting agency, has in fact been
confirmed by such agency to be an allowable cost reimbursable to the
Buyer, or has in fact been so reimbursed.
(c) Indemnification Provisions for Benefit of Sellers. In the event (i)
the Buyer breaches any of its representations, warranties, and covenants
contained herein, or (ii) after the Closing, Target takes or fails to take
any action under any Contract which constitutes part of the Assets, or
fails fully and timely to perform its obligations with respect to any
liabilities existing as of the Closing and not constituting Excluded
Liabilities (each, a "Seller Indemnification Matter"), and a claim is made
against any of the Sellers or any of the Seller Parties (as defined below)
with respect thereto, provided that any of the Sellers or such Seller
Party makes a written claim for indemnification against the Buyer pursuant
to section 13(h) below within the survival period described above, then
the Buyer agrees to indemnify, save, and hold harmless any of such Sellers
and any Sellers' Affiliates, and their respective directors, officers,
shareholders and employees (collectively, the "Seller Parties") from and
against any Adverse Consequences such Seller Parties may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences the such Seller Parties may suffer after the end of any
applicable survival period) resulting from or caused by the Seller
Indemnification Matter (calculated as set forth in subsection (e) below);
provided, however, that the Buyer shall not have any obligation to
indemnify the Sellers hereunder until the Sellers have suffered Adverse
Consequences by reason of all Seller Indemnification Matters in excess of
$250,000 in the aggregate, after which point the Sellers shall be entitled
to indemnification for all such Adverse Consequences in excess of such
amount; and further provided that the limitation set forth above shall not
apply to claims for breaches of any covenant set forth in section 5 or 6
of this Agreement.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this section 9, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in
writing within ten (10) days after the Indemnified Party has
Knowledge thereof; provided, however, that the Indemnified Party's
failure timely to provide such notice shall not bar the Indemnified
Party's right to indemnification hereunder if the Indemnified Party
can establish that such failure has not materially prejudiced the
Indemnifying Party's ability to defend the claim or proceeding.
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(ii) Any Indemnifying Party will have the right, at its sole cost and
expense, to assume the defense of the Third Party Claim with counsel of
his or its choice reasonably satisfactory to the Indemnified Party at any
time within ten (10) business days after the Indemnified Party has given
notice of the Third Party Claim; provided, however, that the Indemnifying
Party shall not have the right to control the defense of any such claim or
proceeding unless it has acknowledged in writing its obligation to
indemnify the Indemnified Party from liability arising from such claim or
proceeding pursuant to this section 9 (subject to any applicable
limitations set forth in subsections 9(b) and 9(c) above), and then, and
periodically thereafter, provides the Indemnified Party with reasonably
sufficient evidence of the ability of the Indemnifying Party to satisfy
its obligations under this section 9 with respect to such Third Party
Claim. In the event that the Indemnifying Party assumes the defense as
set forth hereunder, the Indemnifying Party shall conduct the defense of
the Third Party Claim with reasonable diligence thereafter. The
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim; provided
that Indemnifying Party's counsel will consult with such co-counsel, but
shall remain in sole control of such action.
(iii) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with section 9(d)(ii)
above, (A) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party (not to
be withheld, conditioned or delayed unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages by one or
more of the Indemnifying Parties and does not impose any material
injunction or other equitable relief upon the Indemnified Party and (B)
the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (not to be withheld,
conditioned or delayed unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and conducts
the defense of the Third Party Claim in accordance with section 9(d)(ii)
above, however, (A) the Indemnified Party may defend against the Third
Party Claim in any manner he or it reasonably may deem appropriate;
provided that the Indemnified Party shall conduct the defense of the Third
Party Claim with reasonable diligence and (B) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the extent provided in this section
9. In such event, (1) the Indemnifying Party may retain separate
co-counsel at its sole cost and expense and participate in the defense of
the Third Party Claim, and the Indemnified Party's counsel will consult
with such co-counsel but shall remain in sole control of such proceeding,
and (2) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not to
be withheld, conditioned or delayed unreasonably).
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(e) Determination of Adverse Consequences. The Parties shall make
appropriate adjustments for tax consequences and insurance coverage and take
into account the time cost of money (using the Applicable Rate as the discount
rate from the later of the Closing Date or the date of incurrence of such
Adverse Consequences, if not involving a Third Party Claim, or the date of such
Third Party Claim) in determining Adverse Consequences for purposes of this
section 9. All indemnification payments under this section 9 shall be deemed
adjustments to the Purchase Price.
(f) Exclusive Remedy. The Buyer and Sellers acknowledge and agree that,
except (i) as otherwise set forth in this Agreement, (ii) with respect to
actual fraud, intentional misconduct and violations of law, and (iii) for claims
brought for breaches of or default under any Ancillary Agreement, the foregoing
indemnification provisions in this section 9, together with any other
indemnification provisions expressly set forth in this Agreement, shall be the
exclusive remedy of the Buyer and Sellers with respect to matters relating to
the Business and the Assets and the transactions contemplated by this Agreement.
Without limiting the foregoing, Buyer acknowledges that Target's inclusion as a
Party to this Agreement is not intended to, nor shall it have the effect of,
enlarging the liability of the Majority Holder beyond the limitations set forth
in this section 9.
(g) Right of Set-Off. In addition to any other remedies, any Claims
under this section 9 are, at the option of the Buyer, subject to the following
right of set-off. At the Buyer's election, the principal amount of the Note is
subject to adjustment following the Closing for any aggregate amount finally
determined to be payable by or to Buyer or the Sellers pursuant to this section
9. Any such adjustment is intended as, and shall be treated by the Parties as,
an adjustment to the Total Consideration. If the principal amount of the Note
is adjusted pursuant to this subsection (g), such adjustment shall be deemed to
be made effective as of the later of (i) Closing Date, or (ii) the date such
Claim arose, and all interest that may have accrued on the principal amount so
canceled or added shall also be deemed to be retroactively canceled or added,
effective as of such date. Upon any adjustment of the principal amount of the
Note, Sellers shall, upon request of Buyer, surrender the outstanding Note for a
replacement Note reflecting the adjusted principal amount, and Buyer shall, upon
request of Sellers, execute and deliver to Sellers such replacement Note. In
the event that a Claim is made, but not finally determined, before the maturity
date of the Note, Buyer shall be entitled to hold back a portion of the
principal payment due on such maturity date equal to the amount of such Claim,
until such Claim is finally determined. In such event, any portion of such
amount so withheld which is finally determined not to be payable with regard to
such Claim shall bear interest at a rate of 9% per annum and shall be payable to
Majority Holder, together with such interest, within ten (10) business days
after the date of such final determination.
10. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters:
(a) Buyer shall, and shall cause Target to, promptly provide and make
available to the Majority Holder all information he may request for the purpose
of preparing and filing any such return or working on any such audit.
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(b) Buyer and Sellers shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of any
Tax Returns for Target 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 audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
(c) Buyer and Sellers further agree, upon request, to use all
reasonable efforts, but shall not be required to expend their personal funds, to
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed on Target (including, but not limited to, with respect to the
transactions contemplated hereby).
(d) Buyer and Sellers further agree, upon request, to provide each
other party with all information that either party may be required to report
pursuant to section Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(e) Any transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the transactions contemplated hereby, shall
be paid half by Sellers and half by Buyer when due, with the Sellers' portion
pro rated in accordance with their respective Target shares on the Closing Date.
Buyer will file all necessary Tax Returns and other documentation with respect
to all such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees, if required by applicable law and shall promptly provide each
Seller with a copy of such Tax Returns and a statement setting forth such
Sellers' share of such Taxes.
(f) Sellers shall have no liability with respect to any Taxes of any
kind with respect to Target or its Assets or operations (i) with respect to all
tax periods beginning after the Closing Date, (ii) with respect to any tax
period of Target beginning before the Closing Date and ending after the Closing
Date, but only with respect to the portion thereof beginning after the Closing
Date, or (iii) with respect to any Pre-Closing Partial Period, but only to the
extent such Taxes were paid prior to Closing or are provided for on the Audited
Net Asset Statement.
(g) Sellers and Buyer agree to give prompt notice to each other of any
proposed adjustment to Taxes for periods of Target ending on or prior to the
Closing Date or any Pre-Closing Partial Period. Sellers and Buyer shall
cooperate with each other in the conduct of any audit or other proceedings
involving Target for such periods and each party may participate at its own
expense. Seller Representative shall have the right to control the conduct of
any such audit or proceeding for which Seller Representative agrees that any
resulting Tax allocable to any period prior to or including the Closing Date is
covered by the indemnity provided in section 9 of this Agreement, (such audit or
other proceeding, a "Sellers' Contest"), provided that: (i) Seller
Representative shall keep Buyer informed regarding the progress and substantive
aspect of any Sellers' Contest and (ii) Seller Representative shall not
compromise or settle any Sellers' Contest without Buyer's consent, which consent
may not be unreasonably withheld. If Seller
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Representative chooses to direct a Sellers' Contest, Buyer shall cause powers
of attorney authorizing Seller Representative to represent Target before the
relevant taxing authority and such other documents as are reasonably
necessary for Seller Representative to control the conduct of any Sellers'
Contest.
11. Termination.
(a) Termination of Agreement. Either Buyer or Majority Holder may
terminate this Agreement as provided below:
(i) Buyer and Majority Holder may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice to
the Seller Representative at any time prior to the Closing (A) in the
event any of the Sellers has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Seller Representative of the breach,
and the breach has continued without cure for a period of ten (10) days
after the notice of breach or (B) if the Closing shall not have occurred
on or before the Termination Date (as defined below), by reason of the
material failure of any condition precedent under section 7(a) hereof
(unless the breach of any representation, warranty, or covenant of Buyer
contained in this Agreement is a material factor therein); or (C) if
consummation of the transactions contemplated by this Agreement is
enjoined, prohibited or otherwise restrained by the terms of a final,
non-appealable order or judgment of a court of competent jurisdiction,
or (D) if such termination would be authorized pursuant to section 8(b)
hereof; and
(iii) Majority Holder may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, Majority
Holder have notified the Buyer of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice of
breach or (B) if the Closing shall not have occurred on or before the
Termination Date, by reason of the material failure of any condition
precedent under section 7(b) hereof (unless the breach of any
representation, warranty, or covenant of Target or any Seller contained
in this Agreement is a material factor therein); or (C) if consummation
of the transactions contemplated by this Agreement is enjoined,
prohibited or otherwise restrained by the terms of a final,
non-appealable order or judgment of a court of competent jurisdiction.
(iv) "Termination Date" means February 17, 1998; provided that
Buyer may extend the Termination Date, by written notice to Seller
Representative prior to any termination of this Agreement, to a date not
later than February 28, 1998 in order to obtain satisfaction of the
closing conditions set forth in section 7.
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(v) Effect of Termination. If any Party terminates this Agreement
pursuant to section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to
any other Party (except for any liability of any Party then in breach);
provided, however, that (i) the confidentiality provisions contained in
section 5(f) above shall survive termination, and (ii) the provisions of
Article 12 shall apply.
12. Breach of Agreement.
(a) Breach and Opportunity to Cure. If any party shall breach the
terms of this Agreement or default in the performance of its obligations to be
performed hereunder prior to Closing (a "Pre-Closing Default"), the
nondefaulting party shall have the right to provide the applicable Seller and
Majority Holder, or Buyer, as applicable, with notice specifying in reasonable
detail the nature of such breach or default. If such breach or default has not
been cured within the time period specified in section 11 above, or by two (2)
business days prior to the Closing Date, if earlier, then the party giving such
notice may (i) terminate this Agreement by giving written notice to the
defaulting party hereunder, (ii) extend the Closing Date for a period not in
excess of ten (10) days, if such default has not been cured by the Closing Date
(but no such extension shall constitute a waiver of such nondefaulting party's
right to terminate as a result of such default), (iii) exercise the remedies
available to such party pursuant to sections 12(b) or 12(c), as applicable,
subject to the right of the other party to contest such action through
appropriate proceedings, and/or (iv) proceed to Closing.
(b) Sellers' Remedies for Failure of Buyer to Close. Buyer recognizes
that if the transactions contemplated hereby are not consummated as a result of
Buyer's default, Sellers would incur damages, the extent of which is extremely
difficult and impractical to ascertain. The parties, therefore, agree that if
this Agreement is terminated or the transactions contemplated are otherwise not
consummated due to the material default of Buyer, Buyer shall pay to the
Sellers its costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby, up to $50,000, as liquidated damages, as
Sellers' sole and exclusive remedy in full settlement of any damages of such
failure to close. The parties agree that this sum shall be in lieu of any and
all other relief to which Sellers might otherwise be entitled due to such
failure to close.
(c) Buyer's Remedies for Failure of Sellers to Close. Sellers agree
that the Target Shares represent unique property that cannot be readily obtained
on the open market and that Buyer would be irreparably injured if Sellers'
obligation to sell the Target Shares to Buyer pursuant to this Agreement is not
specifically enforced after default. Therefore, Buyer shall have the right to
specifically enforce Sellers' obligation to sell the Target Shares to Buyer
pursuant to this Agreement, and Sellers agree to waive the defense in any such
suit that Buyer has an adequate remedy at law and to interpose no opposition,
legal or otherwise, as to the propriety of specific performance as a remedy. In
addition, Buyer shall be entitled to obtain from Sellers court costs and
reasonable attorneys' fees incurred by Buyer in enforcing its rights under this
subsection (c). As a condition to seeking specific performance, Buyer shall not
be required to have tendered the Cash Consideration, but shall be ready, willing
and able to do so. In the event
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Buyer elects not to seek specific performance, but instead to terminate this
Agreement as a result of any Pre-Closing Default, then Buyer shall be entitled
to recover its costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby, up to $50,000 as liquidated damages, as
Buyer's sole and exclusive remedy in full settlement of any damages of such
wrongful failure of Sellers to close. If, upon the default of Sellers in their
obligation to close hereunder, Buyer seeks specific performance and does not
prevail in its attempt to obtain specific performance, then Buyer shall be
entitled to recover its costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, up to $50,000, as liquidated
damages, as Buyer's sole and exclusive remedy in full settlement of any damages
arising from such wrongful failure of Sellers to close.
(d) Parties' Remedies for Breach After Closing. For the breach by any
of the Parties of any covenant or agreement of such Party to be performed after
the Closing, the nondefaulting Party shall have the rights provided for under
section 9 hereof, and all other rights and remedies available for breach of
contract at law and in equity.
13. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the Buyer and the Seller
Representative; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided that the Buyer Parties and Seller
Parties are intended third party beneficiaries of section 9 hereof.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
(d) Further Assurances. Each Party to this Agreement shall execute
such documents and take, or cause Target to take, such further actions as may
reasonably be necessary to implement the provisions of this Agreement.
(e) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and Majority Holder; provided, however, that the
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates or as collateral to its financing source and (ii)
designate one or more of its
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Affiliates to perform its obligations hereunder (in any or all of which cases
the original Buyer nonetheless shall remain fully responsible for the
performance of all obligations hereunder designated as the obligations of
Buyer); and (iii) after the Closing Date, assign its rights and obligations
under this Agreement to any Person in connection with a sale or other
disposition of substantially all of the Business or substantially all of
Target's assets, without the consent of Sellers.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given when personally
delivered against a signed receipt or delivered by recognized overnight courier
(and then at the time of delivery or when delivery is refused) or if it is sent
by certified mail, return receipt requested, postage prepaid (and then three
business days after deposited in such mail) and addressed to the intended
recipient as set forth below:
If to the Sellers: c/o Ralph O. Williams
11222 River View Drive
Potomac, Maryland 20854
Copy to: Alan J. Berkeley, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036
Trustees of R.O.W. ESOP
c/o Luis Granados, Esq.
McDermott, Will & Emery
600 13th Street, N.W.
Washington, D.C. 20005-3096
If to the Buyer: Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20816
Attn: Peter C. Belford
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Copy to: Victoria J. Perkins, Esq.
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Maryland without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Maryland or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Maryland.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Majority Holder, provided that each Seller must agree to any amendment or
modification of the representations and warranties of the individual Sellers in
section 3(b) hereof. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Subject to section 2(c) above, except as otherwise set
forth herein, each of the Parties will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits, Annexes and Schedules. The Exhibits,
Annexes and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
Federal Data Corporation
By: /s/ Peter C. Belford
-------------------------------------
Name:
Title:
SELLERS:
/s/ Ralph O. Williams
-------------------------------------
Name: Ralph O. Williams
/s/ Frederic M. Cullen
-------------------------------------
Name: Frederic M. Cullen
The Trustees of the R.O.W. Sciences ESOP
By: /s/ Rupert Ambrose
-------------------------------------
Name: Rupert Ambrose
Title: Trustee
By: /s/ Stephen Levin
-------------------------------------
Name: Stephen Levin
Title: Trustee
/s/ John C. Smith
-------------------------------------
Name: John C. Smith
/s/ Paul H. Tardif
-------------------------------------
Name: Paul H. Tardif
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TARGET:
R.O.W. Sciences, Inc.
By: /s/ Ralph O. Williams
-------------------------------------
Name:
Title:
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The following exhibits and schedules have been omitted because they are not
deemed to be material to an investment decision. The Company undertakes to
furnish supplementally a copy of any omitted exhibit or schedule to the
Commission upon request.
Exhibit A - Form of Note
Exhibit B - Financial Statements
Exhibit C - Projections
Exhibit D - List of Required Consents; Form of Consent; Form of Estoppel
Certificates
Disclosure Schedule
Section 3 (b) List of current shareholders
Section 4 (a) State of incorporation; jurisdictions in which Target is qualified
to do business as a foreign corporation
Section 4 (i) (iii) Cancellation of indebtedness or waiver or release of right
or claim
Section 4 (i) (iv) Cancellation or termination of material Contract or entry
into Contract
Section 4 (i) (viii) Capital expenditures or execution of lease
Section 4 (i) (x) Revaluation of any of the Assets
Section 4 (i) (xi) Payment or declaration of dividends, distributions
Section 4 (l) Tax matters
Section 4 (m) (ii) Real property leased or subleased
Section 4 (p) (i) (A) Lease, rental or occupancy agreement
Section 4 (p) (i) (B) Contract for furnishing or receipt of goods or services or
delivery of goods or services
Section 4 (p) (i) (C) Government contract to which Target is a party
Section 4 (p) (i) (D) Contract creating or governing a partnership etc.
Section 4 (p) (i) (E) Note, debenture, guarantee, loan, letter of credit or
other agreement
Section 4 (p) (i) (H) Profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan
Section 4 (p) (i) (I) Collective bargaining agreement
Section 4 (p) (i) (J) Agreement for employment
Section 4 (s) Insurance
Section 4 (t) Litigation
Section 4 (x) Employee benefits
Section 4 (z) (v) (i) Government contracts
Section 4 (ab) Contract backlog
Consulting agreement between R.O.W. Sciences, Inc. and Ralph O. Williams
Employment agreement between R.O.W. Sciences, Inc. and Mr. John C. Smith
Employment agreement between R.O.W. Sciences, Inc. and Mr. Paul H. Tardif
