SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15 (d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 10, 2002
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ENGINEERED SUPPORT SYSTEMS, INC.
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MISSOURI 0-13880 43-1313242
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
201 Evans Lane, St. Louis, Missouri 63121
(Address of principal executive officer) (Zip Code)
Registrant's telephone number including area code: (314) 553-4000
Item 5. Other Events.
On May 10, 2002, Engineered Support Systems, Inc. (the
Company) acquired the outstanding stock of Radian, Inc., a
supplier of engineering, logistics support and systems
integration services to the U.S. Department of Defense.
The purchase price was $41.8 million, consisting of $39.8
million in cash and $2.0 million in the common stock of
the Company.
Item 7. Financial Statements and Exhibits
(c)(1) Stock Purchase Agreement by and between Engineered
Support Systems, Inc. and Radian, Inc.
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.
ENGINEERED SUPPORT SYSTEMS, INC.
Date: May 10, 2002 BY: /s/ Gary C. Gerhardt
-------------------- ---------------------------------------
Gary C. Gerhardt
Vice Chairman - Administration and
Chief Financial Officer
Item 7(c)(1) - Stock Purchase Agreement by and between Engineered Support
Systems, Inc. and Radian, Inc.
STOCK PURCHASE AGREEMENT
by and between
ENGINEERED SUPPORT SYSTEMS, INC.,
Buyer,
RADIAN, INC.
the Company,
and
TIMOTHY B. FLEISCHER AND
KARI J. FLEISCHER,
Sellers,
Dated: April 26, 2002
RELATING TO THE SALE OF THE OUTSTANDING SHARES
OF
RADIAN, INC.
TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS
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1.1. Affiliate......................................................1
1.2 Bid............................................................1
1.3. Code...........................................................1
1.4. Commercial Software............................................1
1.5. DPGDS Contract.................................................2
1.6. Environmental Law..............................................2
1.7. Government.....................................................2
1.8. Government Contract............................................2
1.9. HSR............................................................2
1.10. Income Taxes..................................................2
1.11. Intellectual Property.........................................2
1.12. Knowledge.....................................................2
1.13. Law...........................................................3
1.14. Lien..........................................................3
1.15. Material Adverse Effect.......................................3
1.16. Morrisette Obligations........................................3
1.17. Party and Parties.............................................3
1.18. Person........................................................3
1.19. Sun Trust Lien................................................3
1.20. Sun Trust Obligations.........................................3
1.21. Tax Return....................................................3
1.22. Taxes.........................................................4
1.23. U.S. Government...............................................4
1.24. Other Terms...................................................4
ARTICLE II. PURCHASE AND SALE
-----------------
2.1. The Shares.....................................................4
2.2. Purchase Price; Manner of Payment; Cash Out of Options.........4
2.3. Closing........................................................5
2.4. Deliveries of th Company and Sellers at Closing................5
2.5. Deliveries of Buyer at Closing.................................6
2.6. Closing Financial Statements...................................6
2.7. Minimum Adjusted Stockholders' Equity..........................7
2.8. The Business...................................................7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
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3.1. Authorization; Stock Ownership.................................7
3.2. Capitalization and Related Matters.............................8
3.3. Corporate Existence and Qualification..........................9
3.4. Financial......................................................9
3.5. Property......................................................10
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3.6. Stock Record and Minute Books; Directors and Officers.........11
3.7. Taxes.........................................................11
3.8. Accounts Receivable...........................................12
3.9. Inventories...................................................12
3.10. Absence of Certain Changes...................................12
3.11. No Breach of Law or Governing Document.......................13
3.12. Litigation...................................................14
3.13. Environmental Matters........................................14
3.14. Contracts....................................................15
3.15. Government Contracts.........................................16
3.16. Intellectual Property........................................18
3.17. Labor Matters................................................19
3.18. Employee Benefit Matters.....................................20
3.19. Product Liability............................................22
3.20. Approvals and Filings........................................22
3.21. Brokers, Finders.............................................22
3.22. Certain Unlawful Practices...................................22
3.23. Bank Accounts................................................23
3.24. Disclosure...................................................23
3.25. Insurance....................................................23
3.26. Entire Business..............................................23
3.27. Licenses and Permits.........................................23
3.28. Back Charges, Rebates, etc...................................23
3.29. Quote Log....................................................23
3.30. Undisclosed Liabilities......................................24
3.31. Documents ...................................................24
3.32. Sellers Representations and Warranties.......................24
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
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4.1. Authorization.................................................26
4.2. Investment Representation.....................................26
4.3. Governmental Approvals and Filings............................26
4.4. Brokers, Finders..............................................26
4.5. No Breach of Law or Governing Document........................26
4.6. Capitalization and Related Matters............................27
4.7. SEC Reports and Financial Matters.............................27
4.8. Material Adverse Effect.......................................28
4.9. Company Projections...........................................28
ARTICLE V. CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
5.1. Representations and Warranties................................29
5.2. Performance of Agreement......................................29
5.3. Approvals.....................................................29
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5.4. No Adverse Proceeding.........................................29
5.5. Certificates..................................................30
5.6. Resignations..................................................30
5.7. Opinion of Counsel for Sellers................................30
5.8. Exchange of Options...........................................30
5.9. Fleischer Non-Compete Agreement...............................30
5.10. Certificates of Good Standing................................30
5.11. Payment of the Morrisette Obligations........................30
ARTICLE VI. CONDITIONS TO THE COMPANY'S AND SELLERS' OBLIGATIONS
----------------------------------------------------
6.1. Representations and Warranties................................31
6.2. Performance of Agreement......................................31
6.3. Approvals.....................................................31
6.4. No Adverse Proceeding.........................................31
6.5. Certificate...................................................32
6.6. Fleischer Matters.............................................32
6.7. Opinion of Counsel for Buyer..................................32
6.8. Certificate of Good Standing..................................32
6.9. Certain Liabilities...........................................32
6.10. Transitional Services Agreement..............................32
6.11. Exchange of Options..........................................32
ARTICLE VII. ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1. Conduct of Business Before Closing............................33
7.2. Access to Records.............................................33
7.3. HSR Filing....................................................34
7.4. Exon-Florio Amendment.........................................34
7.5. Public Announcements; Confidentiality.........................35
7.6. Further Assurances............................................35
7.7. Knowledge of Breach; Current Information......................36
7.8. Tax Matters...................................................36
7.9. Portal Dynamics...............................................36
7.10. Employee Bonuses.............................................37
7.11. Exchange Act Reports; Rule 144 Matters.......................38
7.12. Certain Liabilities..........................................38
7.13. Section 16 Matters...........................................39
ARTICLE VIII. INDEMNIFICATION
---------------
8.1. Indemnification by Sellers....................................39
8.2. Limitations on Liability of Sellers ..........................40
8.3. Indemnification by Buyer......................................41
8.4. Limitations on Liability of Buyer.............................41
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8.5. Notice of Claim...............................................42
8.6. Right to Contest Claims of Third Persons......................43
8.7. Exclusive Remedy..............................................43
8.8. Directors and Officers Indemnification and Insurance..........43
ARTICLE IX. MISCELLANEOUS PROVISIONS
------------------------
9.1. Termination of the Agreement; Effect of Termination...........44
9.2. Notice........................................................45
9.3. Entire Agreement..............................................46
9.4. Assignment; Binding Agreement.................................47
9.5. Counterparts..................................................47
9.6. Headings; Interpretation......................................47
9.7. Expenses......................................................47
9.8. Governing Law.................................................47
9.9. Third Party Beneficiaries.....................................47
9.10. Amendments and Waivers.......................................48
9.11. Survival of Covenants........................................48
9.12. Specific Performance.........................................48
9.13. Termination of Repurchase Agreement..........................48
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 26th day of April, 2002, by and between ENGINEERED SUPPORT
SYSTEMS, INC., a Missouri corporation ("Buyer"), RADIAN, INC., a Delaware
corporation (the "Company"), and TIMOTHY B. FLEISCHER and KARI J. FLEISCHER
(hereinafter collectively referred to as the "Sellers").
RECITALS
A. Buyer desires to purchase from Sellers, on the terms and conditions
set forth in this Agreement, twelve million (12,000,000) shares of the
common stock, $ .001 par value per share (the "Shares") of the Company; and
B. The Shares constitute all of the issued and outstanding shares of
capital stock of the Company; and
C. Sellers desire to sell the Shares to Buyer on the terms and
conditions set forth in this Agreement; and
D. Certain terms used herein have the meanings given in Article I.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I.
DEFINITIONS
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The following terms used in this Agreement shall have the meanings
given below:
1.1. AFFILIATE.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such Person; provided, however, that the Company shall not be
considered to be an Affiliate of Sellers after the Closing Date unless
expressly so provided herein.
1.2. BID.
"Bid" means any written offer by the Company in connection with the
Business that if accepted would lead to a Government Contract or a Material
Contract.
1.3. CODE.
"Code" means the Internal Revenue Code of 1986, as amended.
1.4. COMMERCIAL SOFTWARE.
"Commercial Software" means software generally available for
license or sale (off-the-shelf or otherwise) to the public.
1.5. DPGDS CONTRACT.
"DPGDS Contract" means the master and any annual or other contracts
the Company has with the U.S. Government for the Deployable Power Generation
and Distribution System.
1.6. ENVIRONMENTAL LAW.
"Environmental Law" means any federal, state, or local statute,
rule, ordinance, code, license, permit, plan, regulation or order, as in
effect on the date hereof, relating to the protection of the environment or
to the regulation of any toxic, radioactive, ignitable, corrosive, reactive
or otherwise hazardous substances, materials, contaminants, pollutants or
wastes or any other substances the presence of which requires
identification, investigation, regulation or remediation under any
applicable federal, state or local statute, regulation or ordinance
(including, without limitation, asbestos, PCB's, underground storage tanks
and infectious substances).
1.7. GOVERNMENT.
"Government" means the United States or any other nation, state, or
bilateral or multilateral governmental authority, any local governmental
unit or subdivision thereof, or any branch, agency, or judicial body
thereof.
1.8. GOVERNMENT CONTRACT.
"Government Contract" means any prime contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, change order, or other
arrangement of any kind in writing either (a) between Company and any of (i)
the U.S. Government (acting on its own behalf or on behalf of another
country or international organization), (ii) any prime contractor of the
U.S. Government, or (iii) any subcontractor with respect to any contract
described in clauses (i) or (ii) above, or (b) financed by the U.S.
Government and subject to the rules and regulations of the U.S. Government
concerning procurement.
1.9. HSR.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
1.10. INCOME TAXES.
"Income Taxes" means any foreign, federal, state or local Tax
imposed on or measured by net income.
1.11. INTELLECTUAL PROPERTY.
"Intellectual Property" means all of the following (in whatever
form or medium) which are owned by or licensed to the Company: (a) patents,
trademarks, service marks and copyrights, (b) applications for patents and
for registration of trademarks, service marks and copyrights, (c) trade
secrets and trade names, and (d) all other items of proprietary know-how or
intellectual property.
1.12. KNOWLEDGE.
"Knowledge" means, (i) with respect to an individual, actual
knowledge (i.e., the conscious awareness of facts or other information), or
belief, without undertaking any investigation, and (ii) with respect to the
Company, the actual knowledge of the officers or directors of the Company.
The words "know", "knowing" and "known" shall be construed
2
accordingly.
1.13. LAW.
"Law" means any applicable statute, law, treaty, convention,
ordinance, decree, order, injunction, rule, directive, or regulation of any
Government.
1.14. LIEN.
"Lien" means a deed of trust, mortgage, security interest, claim,
restriction, charge or other material encumbrance or collateral interest.
1.15. MATERIAL ADVERSE EFFECT.
"Material Adverse Effect" means any change in or effect on the
Company that is or is reasonably likely to be materially adverse to the
condition (financial or otherwise), business, properties, liabilities or
results of operations of the Company; provided that (a) changes that affect
the defense industry generally, (b) changes in general economic conditions,
(c) changes resulting from the transactions contemplated by this Agreement
or the announcement thereof, and (d) the outbreak or escalation of
hostilities or similar calamity or crisis shall not be taken into account in
determining whether there has been a Material Adverse Effect.
1.16. MORRISETTE OBLIGATIONS.
Any and all liabilities and obligations owing from the Company to
Douglas R. Morrisette ("Morrisette") pursuant to the outstanding promissory
notes issued by the Company to Morrisette in connection with the repurchase
of Morrisette's shares of Company common stock, par value $.001 per share,
which, as of the date hereof, have an aggregate outstanding principal
balance of $450,000.
1.17. PARTY AND PARTIES.
"Party" means the Buyer, the Company or the Sellers, as the case
may be, and "Parties" means the Buyer, the Company and the Sellers together.
1.18. PERSON.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a Government or political subdivision or agency or instrumentality
thereof.
1.19. SUN TRUST LIEN.
"Sun Trust Lien" means the Lien encumbering the assets of the Company
granted in favor of Sun Trust Bank in connection with the $7,500,000 line of
credit and other credit facilities provided by Sun Trust Bank to the Company.
1.20. SUN TRUST OBLIGATIONS.
"Sun Trust Obligations" means all amounts outstanding under the Sun
Trust Bank credit facilities of the Company as of the Closing Date (as
defined below).
1.21. TAX RETURN.
"Tax Return" means any report, return, statement, claim for refund,
declaration or other information with respect to any Tax required to be
filed or actually filed with a Federal, state or other applicable taxing
authorities , including any schedule or attachment thereto, and including
any amendment thereof.
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1.22. TAXES.
"Tax or Taxes" means all Federal, state, local or other taxes or
similar Government charges, fees, levies, or assessments, including without
limitation income, capital gain, gross receipts, ad valorem, value added,
intangible, excise, customs duties, real property, personal property,
windfall profit, sales, use, transfer, license, withholding, employment,
payroll and franchise taxes imposed by any Government, and shall include any
interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to, or incurred in connection with any such Taxes or any
contest or dispute thereof.
1.23. U.S. GOVERNMENT.
"U.S. Government" means the United States Government and any agencies,
instrumentalities and departments thereof.
1.24. OTHER TERMS.
Other defined terms herein shall have the meanings given to them in
the other Sections of this Agreement.
ARTICLE II.
PURCHASE AND SALE
-----------------
2.1. THE SHARES.
On the terms and subject to the conditions set forth in this
Agreement, at Closing, Sellers shall sell and deliver the Shares to Buyer
and Buyer shall purchase and accept the Shares from Sellers.
2.2. PURCHASE PRICE; MANNER OF PAYMENT; CASH OUT OF OPTIONS.
(a) The purchase price for the Shares ("Purchase Price") shall be
an amount equal to the difference between (i) Forty Million Dollars
($40,000,000), and (ii) the amount of the Morrisette Obligations to be paid
pursuant to Section 7.12 hereof.
(b) The Purchase Price shall be payable in the following manner:
(i) An amount of the Purchase Price equal to the
difference between (x) $38,000,000, and (y) the amount of the Morrisette
Obligations to be paid pursuant to Section 7.12 hereof, shall be paid to
Sellers at Closing by wire transfer of immediately available funds pursuant
to wiring instructions furnished by Sellers (the "Closing Payment"); and
(ii) $2,000,000 of the Purchase Price shall be payable by
the issuance to Sellers, pro rata based on their ownership of the Company's
Common Stock (as hereinafter defined) immediately prior to the Closing, of
the number of shares of unregistered Buyer common stock, par value $.01 per
share, having a market value of $2,000,000 based upon the average closing
price of a share of such Buyer common stock as reported by the NASDAQ
National Market System for the ten (10) immediately preceding trading days
ending on the second (2nd) trading day preceding the Closing Date ("ESSI
Stock"). Any fractional share shall be rounded to the nearest whole share of
ESSI Stock. The ESSI Stock will be restricted shares under the Securities
Act of 1933, as amended (the "1933 Act"). All certificates for the ESSI
Stock
4
shall bear the following or a substantially similar legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE
SECURITIES LAW. NO SALE OR DISTRIBUTION OF THESE SECURITIES MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL OR CERTIFICATE IN A FORM SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY APPLICABLE STATE SECURITIES LAW."
The certificates for the ESSI Stock may also bear any legend required by any
applicable state securities or other law. In addition, the Buyer shall make
or cause to be made a notation regarding the restrictions on transfer of the
ESSI Stock in the stock transfer records maintained by it or its transfer
agent and the ESSI Stock shall be transferred on the books of Buyer or its
transfer agent, as applicable, only if transferred or sold pursuant to an
effective registration statement or an applicable exemption under the 1933
Act or under any applicable state securities law covering such shares or
such sale.
(c) On the Closing Date, Buyer will fund the cash out of the then
outstanding options (whether then vested or unvested) to acquire Company
Common Stock held by certain of Company's employees pursuant to the
Company's 2001 Equity Incentive Plan (the "Options"). Pursuant to the terms
and conditions of an Option Exchange and Release Agreement to be entered
into on or prior to the Closing Date by and between the Company and each
holder of Options (each, an "Exchange and Release Agreement"), each such
holder shall surrender the Options to the Company in exchange for a cash
payment equal to the product obtained by multiplying (i) the difference
between (x) $3.33 and (y) the exercise price per share of Company Common
Stock of the Options, by (ii) the number of shares of Company Common Stock
covered by such holder's Options (the "Cash Out Payment"). Buyer shall
deliver or cause to be delivered to the Company on the Closing Date by wire
transfer of immediately available funds, the aggregate amount of the Cash
Out Payments, which amount shall not exceed $10,000,000.
2.3. CLOSING.
The consummation of the transactions contemplated hereby
("Closing") shall take place at the offices of Shaw Pittman, 1650 Tysons
Blvd., McLean, VA 22102, or at such other place as the Parties may mutually
agree. The Closing shall occur on the date which is two (2) business days
after the satisfaction or waiver of the conditions set forth in Articles V
and VI hereof (the "Closing Date"), or on such other date as may be agreed
by the Parties in writing. The Closing shall be effective as of 12:01 a.m.
on the Closing Date.
2.4. DELIVERIES OF THE COMPANY AND SELLERS AT CLOSING.
Subject to the conditions to Sellers' obligations in Article VI, at
Closing, the Company and Sellers, as applicable, shall deliver or cause to
be delivered to Buyer
(a) all of the certificates evidencing the Shares, each duly endorsed
for transfer to Buyer or accompanied by a stock power duly executed in
blank, and
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(b) all of the certificates, resignations, agreements, documents and
other instruments set forth in Article V hereof.
2.5. DELIVERIES OF BUYER AT CLOSING.
Subject to the conditions to Buyer's obligations in Article V, at
Closing, Buyer shall
(a) pay the Closing Payment portion of Purchase Price to Sellers and
deliver to Sellers certificates evidencing the ESSI Stock pursuant to
Section 2.2(b)(ii) hereof,
(b) deliver to the Sellers all of the certificates, agreements,
documents and other instruments set forth in Article VI hereof, and
(c) pay the aggregate amount of the Cash Out Payments to the Company in
accordance with Section 2.2(c).
2.6. CLOSING FINANCIAL STATEMENTS.
(a) As promptly as practicable following the Closing Date, but in
no event later than forty-five (45) days after the Closing Date, Buyer shall
cause to be prepared, at Buyer's expense and in good faith, and submit to
Sellers an audited balance sheet of the Company as of Closing Date (the
"Closing Balance Sheet") and the related audited statement of income for the
period then ended (collectively, the "Closing Financial Statements"). The
Closing Financial Statements shall be prepared by McGladrey & Pullen, LLP in
accordance with generally accepted accounting principles consistent in all
respects (including, without limitation, classification and presentation of
line items) with past practices, so long as such practices have been in
accordance with generally accepted accounting principles (the "Accounting
Principles"), provided, that the Closing Financial Statements shall not
include the Morrisette Obligations and the cash-out of the Options pursuant
to the Exchange and Release Agreements (including any related income tax
effect) and the stockholders' equity shall reflect any resulting increase or
decrease, as the case may be.
(b) In the event Sellers dispute the Closing Financial Statements
as delivered by Buyer, Sellers shall provide written notice (a "Notice of
Dispute") specifying in reasonable detail all points of disagreement with
the Closing Financial Statements to Buyer within thirty (30) days after
receipt of the Closing Financial Statements. If Sellers fail to deliver a
Notice of Dispute within such 30-day period, then the Closing Financial
Statements as delivered by Buyer shall be used for purposes of Section 2.7.
If Sellers deliver a Notice of Dispute within such 30-day period, Buyer and
Sellers shall endeavor in good faith to resolve all specified points of
disagreement within thirty (30) days after Seller's receipt of Buyer's
Notice of Dispute. If the dispute is not resolved within such 30-day period,
either or both Parties may refer the dispute to a partner in a nationally
recognized "Big Five" firm of independent public accountants (which firm
shall not then have, nor within the past three (3) years have had, any
relationship with Buyer or its Affiliates or the Sellers or their
Affiliates) as shall be mutually acceptable to Buyer and the Sellers, (the
"Arbiter"), as arbitrator to finally determine, as soon as practicable, all
points of disagreement with respect to the Closing Financial Statements. For
purposes of such arbitration, each Party shall submit proposed Closing
Financial Statements to the Arbiter and to the other Party, accompanied by
such additional information explaining such Party's position with respect to
the Closing Financial Statements as it (they) desires to submit. Each Party
shall, at the time of such submission, be free to revise positions they have
maintained in prior drafts of the Closing Financial Statements and related
discussions, but the Parties shall not be permitted to further
6
modify their proposed Closing Financial Statements once these are submitted
to the Arbiter. Buyer shall submit any revised Closing Financial Statements
no later than five (5) days after such referral. Sellers shall have ten (10)
days after such referral to submit their revised Closing Financial
Statements in response. The Arbiter shall apply the terms of this Section
2.6, and shall otherwise conduct the arbitration under such procedures as
the Parties may agree or, failing such agreement, under the Commercial
Arbitration Rules of the American Arbitration Association. The fees and
expenses of the arbitration and the Arbiter incurred in connection with the
arbitration of the Closing Financial Statements shall be allocated between
the Parties by the Arbiter in proportion to the extent either Party did not
prevail on the points of disagreement in the Closing Financial Statements;
provided, that such fees and expenses shall not include, so long as a Party
complies with the procedures of this Section 2.6, the other Party's outside
counsel or accounting fees. All determinations by the Arbiter shall be
final, conclusive and binding with respect to the Closing Financial
Statements and the allocation of arbitration fees and expenses.
(c) Buyer agrees to cooperate with Sellers in attempting to resolve
any points of disagreement referred to in Section 2.6(b), including without
limitation, making reasonably available to Sellers to the extent reasonably
requested all books, records, work papers and personnel; provided, however,
that Sellers will conduct their work in a manner that does not unreasonably
interfere with or disrupt the conduct of the Business by the Company after
the Closing.
2.7. MINIMUM ADJUSTED STOCKHOLDERS' EQUITY.
(a) In the event the stockholders' equity shown on the Closing
Balance Sheet as finally determined (by agreement or otherwise) in
accordance with Section 2.6, plus the amount of the liability set forth on
the Closing Balance Sheet relating to the Employee Bonuses (net of any
related income tax effect) ("Final Adjusted Stockholders' Equity"), is less
than $4,000,000, Sellers shall pay to Buyer, as an adjustment to the
Purchase Price, in the manner provided in Section 2.7(b), the amount of such
deficiency on a dollar for dollar basis.
(b) If a payment pursuant to Section 2.7(a) is due from Sellers to
Buyer, it shall be made within five (5) business days after the Final
Adjusted Stockholders' Equity has been determined by wire transfer to an
account designated by Buyer.
2.8. THE BUSINESS.
The "Business" of the Company shall mean, for all purposes of this
Agreement, all aspects of the business and operations conducted by the
Company as of the date hereof and all related assets and liabilities.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
-------------------------------------------------------------
The Company hereby makes the representations and warranties set
forth in Sections 3.1 through 3.31, and the Sellers, jointly and severally,
hereby make the representations and warranties set forth in Section 3.32, to
Buyer:
3.1. AUTHORIZATION; STOCK OWNERSHIP.
(a) The Company has all requisite power and authority to execute and
deliver this
7
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement and all other agreements
herein contemplated to be executed by the Company have been (or will be
prior to the Closing) effectively authorized by all necessary action,
corporate or otherwise, by the Company. This Agreement and all other
agreements herein contemplated to be executed by the Company constitutes (or
upon execution will constitute) valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting
the rights of creditors and the effect or availability of rules of law
governing specific performance, injunctive relief or other equitable
remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity) (collectively, "Bankruptcy Laws and
Equitable Principles").
(b) The Shares consist of 12,000,000 shares of common stock of the
Company, $ .001 par value (the "Company Common Stock"). The Sellers are the
record (and beneficial) owners of all of the Shares (6,000,000 owned by
each), free and clear of all Liens. No person (other than the Sellers) has
any power or right of any kind, to dispose of or direct the disposition of
the Shares or to vote or direct the voting of the Shares.
3.2. CAPITALIZATION AND RELATED MATTERS.
The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock, of which the Shares are the only shares
issued and outstanding, and (ii) 2,000,000 shares of preferred stock, $ .001
par value, of which no shares are issued and outstanding. All the Shares
were duly authorized and validly issued and are fully paid and
non-assessable and free of all preemptive rights. Schedule 3.2 sets forth a
------------
complete and accurate list of the holders of the Options, the number of
shares of Company Common Stock subject to each such Option and the exercise
price for each such Option. Except for the Options, the Shares and Buyer's
rights hereunder and except as set forth on Schedule 3.2,
------------
(a) there are outstanding
(i) no other securities of the Company (whether of a debt, equity
or hybrid nature), and
(ii) no rights, warrants or options to acquire, exchange or
convert securities of the Company, and
(b) neither the Sellers nor the Company is subject to any
obligation to issue, deliver, redeem, or otherwise acquire or retire the
Shares or any other securities of the Company, except in connection with the
Morrisette Obligations.
There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to the Company. There are no
agreements, voting trusts, proxies or understandings with respect to the
voting, registration or transferability of the Shares or otherwise between
or among the Company and any of its stockholders and/or, to the Company's
knowledge, between or among any of the Company's stockholders.
The Company has no subsidiaries and does not own, directly or
indirectly, any shares of capital stock or any equity investment or other
equity interest in or have any commitment to acquire any such interest in,
any other corporation, partnership, limited liability company, association
or other business organization or entity.
8
3.3. CORPORATE EXISTENCE AND QUALIFICATION.
The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Except as set
forth on Schedule 3.3, the Company is duly qualified as a foreign
------------
corporation to do business and is in good standing as a foreign corporation
in each state in which the ownership or leasing of its properties or the
conduct of its Business makes it necessary to qualify, except where the
failure to so qualify would not have a Material Adverse Effect. Schedule 3.3
------------
hereto sets forth the jurisdictions in which the Company is qualified as a
foreign corporation. The Company has the corporate power and authority to
own or lease and operate its properties and assets and conduct the Business
as currently conducted. The addresses for each office, plant and/or other
site at which the Company conducts the Business is set forth on Schedule 3.3.
------------
3.4. FINANCIAL.
(a) Attached hereto as Schedule 3.4(a) are the following (the
---------------
"Financial Statements"):
(i) the audited balance sheets of the Company as of
December 31, 1999, December 31, 2000 and December 31, 2001, and the related
statements of income for the fiscal years then ended, together with the
related footnotes and accountant reports thereon; and
(ii) the unaudited balance sheet of the Company as of
March 31, 2002 (the "Interim Balance Sheet"), and the related profit and
loss statement for the three (3) month period then ended (including the
detail provided therefrom) (collectively, the "Interim Financial
Statements").
(b) The Financial Statements:
(i) were derived from and prepared in accordance with the books
and records of the Company,
(ii) are true, correct and complete in all material respects and
present fairly, in all material respects, the financial position and results
of operations of the Company at the dates and for the periods indicated. The
information reflected in the Financial Statements was prepared in accordance
with Accounting Principles (except, in the case of the Interim Financial
Statements, for the absence of year-end adjustments and footnote
disclosure), and
(iii) disclose all of the assets and reflect or reserve
against all liabilities (whether fixed or contingent) of the Company as of
the dates of such Financial Statements (other than assets or liabilities
which are not required by Accounting Principles to be disclosed, reflected
or reserved, as the case may be, on the Financial Statements).
There has been no change in accounting methods or practices during
the years covered by the Financial Statements, except as required by
Accounting Principles or by applicable law. Except as set forth on
Schedule 3.4(b), since March 31, 2002, there has not been any material adverse
---------------
change in the financial condition or results of operations of the Company
from that shown on the Financial Statements, provided that (i) changes that
affect the defense industry generally, (ii) changes in general economic
conditions, (iii) changes resulting from the transactions contemplated by
this Agreement or the announcement thereof, and (iv) the outbreak or
escalation of hostilities or similar calamity or crisis shall not be taken
into account in determining whether there has been a material adverse
change.
9
(c) The Company has provided Buyer with projections for the
expected financial results of the Company through its 2006 fiscal year which
are attached as Schedule 3.4(c) (the "Company Projections"). Subject to the
---------------
qualifications set forth in Section 4.9 hereof, the Company Projections were
prepared in good faith based upon assumptions that the Company believed to
be reasonable at the time the Company Projections were prepared.
3.5. PROPERTY.
Except as set forth on Schedule 3.5,
------------
(a) the Company is and will be on the Closing Date the sole owner
of all right, title and interest in and to all assets reflected on the
Interim Balance Sheet as owned or acquired after the date thereof, and has
and will have on the Closing Date good and marketable title to, or a valid
right to use same; except in each case for Permitted Liens, for assets sold
in the ordinary course of business since the date of the Interim Balance
Sheet and for defects in title that do not materially detract from the
value, or materially interfere with the Company's use of, such assets; and
(b) none of such assets of the Company are subject to any Liens
except:
(i) Liens reflected on the Interim Balance Sheet or Liens
incurred since the date of the Interim Balance Sheet in the ordinary course
of business;
(ii) Liens for Taxes not yet due or being contested in
good faith; mechanics, warehousemen and materialmen Liens not unusual in
nature or material in amount; Liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on
the use of real property or irregularities in title thereto which do not
materially detract from the value of, or materially impair the use of, such
property; pledges and deposits made in the ordinary course of business; and
Liens, not material in nature or amount, that do not materially detract from
the value, or materially impair the use of, the items subject to such Liens;
(iii) the Sun Trust Lien; and
(iv) Liens arising in the ordinary course of business as a
result of progress payments received under Government Contracts
(collectively, "Permitted Liens").
Except as set forth on Schedule 3.5, no material tangible assets of
------------
the Business (including raw materials and inventory) are in the possession
of others and the Company holds no property on consignment in connection
with the Business.
The Company owns no real property. Schedule 3.5 lists all of the
------------
real property and improvements that are leased by the Company. With respect
to such leased real property, (i) the Company has good, valid and presently
existing leasehold interests to all such leased real property, and in each
case, such properties are held under valid enforceable leases (subject to
Bankruptcy Laws and Equitable Principles), (ii) except as set forth on
Schedule 3.14(b), the Company has performed all material obligations
----------------
required to be performed by it to date under said leases and possesses said
premises under said leases, and (iii) except as set forth on Schedule 3.14(b),
----------------
none of the other parties to said leases are, to the knowledge of the
Company, in material default under or in material breach of their
obligations under said leases. Except as otherwise set forth on Schedule 3.5,
------------
all of the premises leased by the Company (including the improvements
thereto) are, in all material respects, in reasonably good operating
condition and repair, ordinary wear and tear excepted. To the knowledge of
the Company, all of the buildings
10
and real property improvements, leased or otherwise used by the Company do
not violate any applicable building code, zoning ordinance or other Law in
any material respect.
Except as otherwise set forth in Schedule 3.5, all vehicles,
------------
machinery, equipment, apparatus and fixtures, whether owned or leased by the
Company, are in reasonably good and normal operating condition and repair in
all material respects, ordinary wear and tear excepted, and are adequate for
the uses to which they are being put and have been regularly maintained, in
all material respects, in accordance with the manufacturer's specifications
therefor, if applicable.
3.6. STOCK RECORD AND MINUTE BOOKS; DIRECTORS AND OFFICERS.
The stock record books and minute books of the Company are current
and true and correct in all material respects. True, correct and complete
copies of the certificate of incorporation and bylaws (and all amendments
thereto) of the Company, shareholder and Board of Directors minutes of
meetings (or unanimous consents taken in lieu of meetings) conducted to date
and copies of the certificates evidencing the Shares, have been previously
furnished to Buyer; provided that, the Company has not furnished to the
Buyer, and the minute books of the Company do not contain, the referenced
documents set forth on Schedule 3.6 hereto. Schedule 3.6 lists the directors
------------ ------------
and officers of the Company.
3.7. TAXES.
(a) The Company:
(i) has timely and properly filed with the appropriate
Government entity all income Tax Returns and all other Tax Returns which
were required to have been filed prior to the date of this Agreement (taking
into account any extensions of the time for filing such Tax Returns), and
(ii) has paid in full all Taxes required to have been paid
prior to the date of this Agreement, except to the extent such Tax
liabilities are reflected on the Interim Financial Statements as current
liabilities or are not required by Accounting Principles to be reflected on
the Interim Financial Statements. All income and other Tax Returns filed or
caused to be filed by the Company are correct and complete in all material
respects.
(b) The Company has complied in all material respects with all Laws
relating to the withholding of Taxes and the payment thereof and has timely
and properly withheld from employee wages and paid over to the proper
Government entity all amounts required to be withheld and paid over under
applicable Law.
(c) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency, which waiver or extension has not expired.
(d) To the Company's knowledge, there is no currently pending and
the Company has not received notice of any potential examination or audit
pertaining to, or claims for, Taxes or assessments against the Company by
any taxing authority in respect of any taxable period to date.
(e) True, correct and complete copies of the Company's year 1997,
1998, 1999 and 2000 federal income Tax Returns have been previously
furnished to Buyer.
(f) No deductions by the Company for severance payments (including
those to be
11
made under the Bonus Plan (as hereinafter defined)) are or will be subject
to limitation based on the "golden parachute provisions" of Code Section
280G in connection with or resulting from the transactions contemplated by
this Agreement.
(g) The Company has no liability for any Tax obligations of any
taxpayer other than the Company (including, without limitation, any current
or former Affiliate of the Company).
3.8. ACCOUNTS RECEIVABLE.
All the accounts receivable reflected in the Interim Financial
Statements (whether shown as billed or unbilled) and any accounts receivable
arising between the date of such Interim Financial Statements and the
Closing Date arose or will have arisen in the ordinary course of business
and represent (or will represent) bona fide obligations owing to the Company
from the applicable account debtor. To the Company's knowledge such accounts
receivable are not and will not be on the Closing Date subject to any valid
counterclaim, set-off, defense or Lien (except for Permitted Liens). The
reserves for doubtful accounts set forth on the Interim Financial Statements
have been established in accordance with Accounting Principles.
3.9. INVENTORIES.
Except as set forth on Schedule 3.9, there are no physical
------------
inventories held or owned by the Company at any location not owned or leased
by the Company. Except as set forth on Schedule 3.9, the Company's
------------
inventory, in all material respects, is usable and saleable in the ordinary
course of business.
3.10. ABSENCE OF CERTAIN CHANGES.
Since December 31, 2001, except as disclosed on the Interim Balance
Sheet or as set forth on Schedule 3.10 or the other Schedules hereto, and
-------------
except as provided in Section 3.30, there has not been:
(a) Any event, occurrence, development or state of circumstances or
facts involving the Company which constitutes a Material Adverse Effect on
the Company;
(b) Except in connection with the Employee Bonuses and the Exchange
and Release Agreements, any increase in compensation or other remuneration
payable to or for the benefit of or committed to be paid to or for the
benefit of any shareholder, director, officer, agent, consultant or employee
of the Company other than in the ordinary course of business consistent with
past practice, or in any benefits granted under any Plan with or for the
benefit of any such shareholder, director, officer, agent, consultant or
employee other than in the ordinary course of business consistent with past
practice;
(c) Except in connection with the transactions contemplated by this
Agreement, any sale, transfer or other disposition of any of the Company's
material assets (tangible or intangible) or any other similar material
transaction entered into or carried out by the Company other than in the
ordinary course of business;
(d) Except in connection with the transactions contemplated by this
Agreement, any increase in the amount of indebtedness or liabilities of the
Company other than in the ordinary course of business and in amounts and on
terms consistent with past practice; or any endorsement, assumption, or
guarantee of payment or performance of any loan or obligation of any other
Person by the Company;
12
(e) Any material change made by the Company in its methods of doing
business or of accounting or in the manner in which the Company keeps its
books and records, other than as required by generally accepted accounting
principles or by applicable law;
(f) Any termination or termination threatened in writing, or
substantial modification of the relationship of the Company with any
material customer or supplier;
(g) Except in connection with the transactions contemplated by this
Agreement, any cancellation of any material indebtedness (individually or in
the aggregate) owing to the Company or the waiver or release by the Company
of any claims or rights of material value; or
(h) Any declaration or payment of any dividend of any kind or the
making of any distribution in respect to the Company's capital stock;
(j) Any written cure, show cause, or termination notices received by
the Company with respect to any Material Contract or any Government
Contract;
(k) Any commitment by the Company to make any capital expenditure in
excess of $100,000 per item or $500,000 in the aggregate;
(l) The execution by the Company of any contract (or lease) or any
material amendment to any contract (or lease) to which the Company is party
or by which the Company is bound and for which the Company's aggregate
obligations to pay money thereunder would be in excess of $100,000 or the
Company would be obligated for a term in excess of three (3) years; or
(m) Any binding commitment or agreement by Sellers or the Company to
do any of the foregoing items (b) through (l).
3.11. NO BREACH OF LAW OR GOVERNING DOCUMENT.
Except as set forth on Schedule 3.11 and except for matters which
-------------
would not have a Material Adverse Effect, the Company is not in default
under or in material breach or violation of any Law or the provisions of any
Government permit, franchise, or license, or any provision of its
certificate of incorporation or its bylaws. Except as set forth on
Schedule 3.11, the Company has not received any written notice during the past
-------------
four (4) years alleging any such material default, breach or violation which
has not been finally resolved. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) violate or conflict with any provisions of the certificate of
incorporation or bylaws of the Company, (ii) result in a breach of any of
the terms or provisions of, or constitute a violation or default under, or
conflict with any Law applicable to the Company or any judgment, decree,
order or award of any court, governmental body or arbitrator to which the
Company is a party or may be bound, or (iii) except as otherwise expressly
disclosed in this Agreement or on any of the Schedules hereto, violate, or
be in conflict with, or constitute a default under, or result in the
termination of, accelerate the performance required by, or cause the
acceleration of the maturity of any material liability or obligation, or
result in the creation or imposition of any Lien upon the Shares or the
assets of the Company under any note, bond, mortgage, indenture, deed of
trust, license, lease, contract, commitment, understanding, or other
agreement to which the Company is a party (including, without limitation,
the Government Contracts and Material Contracts) or to which the Company may
be bound or affected or to which the Shares or the assets of the Company may
be subject; except, in the case of (ii) and (iii), where such breach,
violation, default, conflict, termination, acceleration, creation or
imposition would not result in a material liability to the Company or
materially impair or hinder the Company's operations after the
13
Closing Date.
3.12. LITIGATION.
Except as set forth on Schedule 3.12, there is no suit, claim,
-------------
litigation, investigation, inquiry, proceeding (administrative, judicial, or
in arbitration, mediation or alternative dispute resolution) or other action
pending or, to the knowledge of Company, threatened against the Company in
connection with the Business or otherwise (each a "Proceeding"), except for
such Proceedings which, if there were a decision adverse to the Company in
such Proceeding, would not result in a material liability to the Company or
materially impair or hinder the Company's operations after the Closing Date.
The Company is not subject to any unsatisfied judgment, order or decree
entered in any lawsuit or proceeding. Except as disclosed on Schedule 3.12,
-------------
to the Company's knowledge, neither of the Sellers has any claim against the
Company, for whatever reason, either as a stockholder, director, officer,
employee or otherwise. Except as disclosed on Schedule 3.12, there is no
-------------
pending suit, claim, litigation or other proceeding against any Person that
could be an Indemnified Officer/Director (as hereinafter defined) based in
whole or in part on the fact that such Person is or was a director or
officer of the Company nor is the Company aware of any such contemplated
action. There is not now pending any suit, claim, litigation or other
proceeding that the Company has commenced against another Person nor is the
Company aware of any such contemplated action.
3.13. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 3.13 hereto, to the knowledge of
-------------
the Company:
(a) the Company is in compliance in all material respects with all
applicable Environmental Laws, and the Company has not received any written
notice or demand from a Government entity, citizens' group or other Person
which is currently pending, alleging a material violation of any
Environmental Law, ordering or requesting that steps be taken to remedy any
environmental condition on or at the Company's facilities (or elsewhere), or
claiming that the Company is responsible for damages, losses, penalties,
fines, liabilities, costs and expenses of any kind or nature (including
attorneys' fees) as a result of the existence of hazardous materials or
substances upon, about or underneath any of the Company's current or former
facilities or migrating or threatening to migrate to or from any such
facilities.
(b) the Company has all material permits and other authorizations
required under the Environmental Laws, and the Company is in compliance with
such permits and other authorizations;
(c) no conditions were created by the Company at any facility
currently or formerly owned, leased or operated by the Company during the
period of the Company's ownership, lease or operation of such facility that
require remediation of any material nature under any Environmental Law;
(d) the Company has not received any notice or demand which is
currently pending under any Environmental Law as a result of the offsite
disposal of any hazardous material or waste by the Company.
(e) the Company has not placed or caused to be placed on any
facilities currently or formerly owned, leased, occupied or operated by the
Company any underground storage tanks nor is the Company aware of any such
underground storage tanks having been placed on or underneath any of such
facilities at any time by any Person.
14
3.14. CONTRACTS.
(a) Set forth on Schedule 3.14(a) is a list of each written or oral
----------------
contract, agreement, lease, indenture and evidence of indebtedness to which
the Company is a party which involves any of the following:
(A) a guarantee, contingent liability or indemnity
involving an obligation in excess of $100,000,
(B) a power of attorney,
(C) a sharing of payments or joint venture,
(D) a sales agency, representation, distributorship,
supply or franchise arrangement which is not terminable on not more than
sixty (60) days' notice without penalty,
(E) material restrictions imposed on the Company regarding
competition or solicitation of customers or employees,
(F) collective bargaining or union representation,
(G) a payment (or repayment) obligation in excess of $100,000,
(H) a material lease or other contractual commitment with a
remaining term in excess of three (3) years or with aggregate outstanding
obligations in excess of $100,000,
(I) employment, consulting and independent contractor
agreements to which the Company is a party,
(J) any written or oral agreement or other commitment with
an Affiliate of the Sellers,
(K) any agreement with respect to the treatment of
confidential information furnished by or to the Company, or
(L) any contract, agreement, arrangement and commitment of
any kind (other than Government Contracts) to which the Company is a party
regarding commercial transactions involving the Company's products and
services and involving payments to or from the Company in excess of $100,000
(collectively, the foregoing being the "Material Contracts").
(b) Each of the Material Contracts is a valid, binding and enforceable
obligation of the Company and the other parties thereto, subject to
Bankruptcy Laws and Equitable Principles. Except as indicated on Schedule
--------
3.14(b),
--------
(i) the Company is not, and
(ii) to the knowledge of the Company, no other party to a
Material Contract is, in material default under or in material breach or
violation of any Material Contract, and no event has occurred that, through
the passage of time or the giving of notice, or both, would constitute a
material default under any Material Contract, and neither the execution of
this Agreement nor the Closing hereunder do or will constitute or result in,
such a material default, breach or violation, cause the acceleration of any
obligation of any party thereto or the creation of a Lien upon any of the
Company's assets or the Shares, or require any party's consent or approval
thereunder.
(c) Set forth on Schedule 3.14(c) is a list of each written or
----------------
oral contract (or
15
subcontract), lease (or sublease) or other agreement, commitment, liability
or obligation between the Company and Portal Dynamics, Inc. ("Portal
Dynamics").
3.15. GOVERNMENT CONTRACTS. Set forth on Schedule 3.15 is a list of
-------------
each Government Contract.
(a) Schedule 3.15(a) identifies each Government Contract with
----------------
respect to which:
(i) the Company is in material breach or with the passage of
time or the giving of notice, or both, the Company would be in material
breach;
(ii) the Company expects to recognize a loss at the gross
profit level (determined on a basis consistent with the Accounting
Principles) in connection with such contract or any option thereof;
(iii) full funding (pursuant to multi-year contract
provisions) has not been established;
(iv) there has been a material amendment since
December 31, 2001, other than in the ordinary course or business;
(v) to the Company's knowledge, the other party(ies) to
the Government Contract are in material breach or with the passage of time
or the giving of notice, or both, such other party(ies) would be in material
breach; or
(vi) the consent or approval of the other party(ies) to
the Government Contract is required in connection with the consummation of
the transactions contemplated by this Agreement.
Schedule 3.15(a) further briefly describes the circumstances
----------------
with respect to any of the above described disclosures.
(b) Except as set forth on Schedule 3.15(b):
----------------
(i) to the Company's knowledge, there are no audits (other
than those conducted in the ordinary course of business) of any Government
Contracts being conducted by the U.S. Government, a prime contractor or any
other party to any Government Contract;
(ii) except to the extent finally resolved (and except for
any liability relating thereto paid or reflected on the Interim Balance
Sheet), to its knowledge, the Company has not, with respect to any
Government Contracts, received during the past two (2) years:
(A) any written cure notice or show cause notice
(as defined in the Federal Acquisition Regulations Part 49) pursuant to
applicable contract default provisions or notice of default;
(B) any written contract termination, whether for
default, convenience, cancellation or lack of funding or other reasons;
(C) any written final decision or unilateral
modification assessing a price reduction, penalty or claim for damages or
other remedy;
(D) any written claim based on assertions of
defective pricing or violations of government cost accounting standards or
cost principles; or
(E) any written request for an equitable adjustment
of, or claim
16
concerning, such contracts by any of the Company's customers, subcontractors
or suppliers;
(iii) except to the extent finally resolved (and any
liability relating thereto paid or reflected on the Interim Balance Sheet),
the Company has not, within the past four (4) years, with respect to any
Government Contracts, received any written notice of any investigation or
enforcement proceeding of a criminal, civil or administrative nature by any
investigative or enforcement agency of any Government (including any qui tam
--- ---
action brought under the Civil False Claims Act alleging any irregularity,
misstatement or omission arising under or relating to any Government
Contract); and
(iv) there exists no financing arrangements with respect to
performance of any current Government Contract.
(c) Except as set forth on Schedule 3.15(c), neither the Company,
----------------
nor any of the Company's officers or, to the Company's knowledge, employees,
is suspended or debarred from doing business with the U.S. Government or is
the subject of a finding of nonresponsibility or ineligibility for U.S.
Government contracting, and to the Company's knowledge, there are no
circumstances that would warrant the institution of suspension or debarment
proceeding against the Company or any of its officers or employees.
(d) Except as set forth on Schedule 3.15(d):
----------------
(i) neither the Company nor any of its directors or
officers, or, to the Company's knowledge, any of the Company's employees,
consultants or agents, is or during the past two years has been under
administrative, civil or criminal investigation or indictment by the U.S.
Government with respect to any alleged irregularity, misstatement or
omission arising under or relating to any Government Contract or Bid, and
(ii) during the past two (2) years, neither the Company
nor any Affiliate of the Company has conducted or initiated any internal
investigation or made a voluntary disclosure to the U.S. Government with
respect to any allegation of any irregularity, misstatement or omission
arising under or relating to a Government Contract or Bid.
(e) Except as set forth on Schedule 3.15(e), there are not
----------------
(i) any material claims pending or, to the Company's knowledge,
threatened against the Company, either by the U.S. Government or by any
prime contractor, subcontractor, vendor or other Person, arising under or
relating to any Government Contract, and
(ii) any material disputes before a court or administrative
agency between the Company and the U.S. Government under the Contract
Disputes Act or any other statute or regulation or between the Company and
any prime contractor, subcontractor or vendor arising under or relating to
any Government Contract. Except as set forth on Schedule 3.15(e), subsequent
----------------
to December 31, 2001, the Company has not received any draft or final post
award audit report.
(f) Except as set forth on Schedule 3.15(f), all material test and
----------------
inspection results provided by the Company to the U.S. Government or to any
other Person pursuant to any Government Contract or as a part of the
delivery to the U.S. Government or to any other Person pursuant to a
Government Contract of any article designed, engineered or manufactured by
the Company were complete and correct in all material respects as of the
date so provided. Except as set forth in the Schedule 3.15(f), the Company
----------------
has provided all material test and inspection
17
results to the U.S. Government or to any other Person pursuant to a
Government Contract as required by U.S. law and the terms of the applicable
Government Contracts.
(g) With respect to each and every Government Contract and Bid to
which the Company is currently a party, and except as otherwise set forth in
any Schedule referenced in this Section 3.15, (i) the Company has complied
in all material respects with all terms and conditions of each Governmental
Contract and Bid, including all clauses, provisions and requirements
incorporated expressly, by reference or by operation of law therein; (ii)
the Company has complied in material respects with all requirements of Laws
pertaining to any Government Contract or Bid; (iii) all representations and
certifications executed, acknowledged or set forth in or pertaining to a
Government Contract or Bid in all material respects, are accurate and
complete as of their effective date, and the Company has complied in all
material respects with such representations and certifications including,
without limitation, all representations and certifications required by or
relating to any and all Laws and the regulations and rules relating to the
submission of progress payment requests; (iv) no material cost incurred by
the Company has been disallowed; and (v) no material amount of money due to
the Company from the Government has been withheld or set off or been the
subject of any attempt to withhold or set off.
(h) Except as set forth on Schedule 3.15(h) the Company is in
----------------
material compliance with all of its obligations relating to the customer
furnished items under the terms of Government Contracts to which it is a
party, including, but not limited to, government furnished equipment,
government furnished property, government furnished information and like
categories of customer furnished assets provided by the Government in such
Government Contracts.
(i) Except to the extent prohibited by the Industrial Security
Manual for Safeguarding Classified Information, Schedule 3.15(i) sets forth
----------------
all facility security clearances held by the Company and all personal
security clearances held by any officer or employee of the Company.
(j) The Company's cost accounting and procurement systems with
respect to Government Contracts are in compliance in all material respects
with all governmental regulations and rules.
(k) All of the data and information provided to the Buyer by the
Company relating to the DPGDS Contract (including, without limitation, the
listing of the selling prices for the various components being offered under
the DPGDS Contract and subcontractor cost information) is accurate and
complete in all material respects.
(l) Except as set forth on Schedule 3.15(l), the Company, to the
----------------
knowledge of the Company, has current advance agreements with its customers
for the allocation and reimbursement of independent research and development
expenses ("IR&D") and the IR&D expenses incorporated in the pricing of the
Company's Government Contracts are fully reimbursable and allocable at
substantially the rate specified in said Agreement.
3.16. INTELLECTUAL PROPERTY.
(a) Schedule 3.16(a) contains a list of all registered trademarks,
----------------
service marks, copyrights and patents, and all applications therefor,
included in the Intellectual Property owned by the Company (the "Company
Owned Intellectual Property"), specifying as to each, as applicable:
18
(i) the nature of such Intellectual Property;
(ii) the owner of such Intellectual Property; and
(iii) the jurisdictions by or in which such Intellectual
Property has been issued or registered or in which an application for such
issuance or registration has been filed, including the respective
registration or application numbers.
Schedule 3.16(a) contains a list of all non-Company Owned
----------------
Intellectual Property licensed to the Company or which the Company has
authority to use in connection with the operations of the Business (other
than Commercial Software) specifying as to each, as applicable:
(i) the nature of such Intellectual Property;
(ii) the licensees or owner of such Intellectual Property; and
(iii) the agreement or contract under with such Intellectual
Property is licensed to the Company
Schedule 3.16(a) contains a list of all material licenses,
----------------
sublicenses and other agreements as to which the Company is a party and
pursuant to which any Person is authorized to use the Intellectual Property
or any other material rights of the Company with respect to intellectual
property.
(b) Except as disclosed on Schedule 3.16(b),
-----------------
(i) there has been no claim made against the Company
asserting the invalidity, misuse or unenforceability of any of the
Intellectual Property, nor to the Company's knowledge have there been any
actions or other judicial or adversary proceedings involving the Company
concerning the Intellectual Property, nor to the knowledge of the Company,
is any such action or proceeding threatened,
(ii) the Company is not aware of any current infringement or
misappropriation of any of the Company Owned Intellectual Property,
(iii) to the knowledge of the Company, the Company has not
infringed or misappropriated any intellectual property or proprietary right
of any other person, and there are no Liens imposed against the Company and
affecting the Intellectual Property (except as otherwise expressly disclosed
in Section 3.5) and the Company has the right and authority to use (x) each
item of Company Owned Intellectual Property in connection with the conduct
of the Business and, (y) each item of non-Company Owned Intellectual
Property in connection with the conduct of the Business, subject to the
terms and limitations of the license agreements or other agreements or
instruments by which the rights to use such non-Company Owned Intellectual
Property were granted.
3.17. LABOR MATTERS.
(a) There is no collective bargaining, representation or similar
agreement or arrangement to which the Company is a party or by which it is
bound.
(b) Except as set forth on Schedule 3.17(b):
----------------
(i) The Company is not aware of any currently pending charge
before the National Labor Relations Board (or any counterpart state agency)
that the Company has engaged in any unfair labor practice;
19
(ii) There is no labor strike, dispute, slowdown, or stoppage
pending or, to the knowledge of the Company, threatened against the Company;
(iii) No collective bargaining agreement is currently being
negotiated and, to the knowledge of the Company, no organizing effort
is currently being made with respect to the Company's employees; and
(iv) To the knowledge of the Company, no current or former
employee of the Company has any valid claim against the Company on account
of or for
(A) overtime pay, other than overtime pay for the current
payroll period,
(B) wages or salary (excluding current bonus, accruals and
amounts accruing under pension and profit-sharing plans) for any period
other than the current payroll period,
(C) vacation, time off or pay in lieu of vacation or time
off, other than as may be accrued on the books and records of the Company in
accordance with the Accounting Principles or earned in respect of the
current fiscal year, or
(D) any violation of any Law relating to minimum wages
or maximum hours of work;
except to the extent that any of the foregoing is reflected on the Interim
Balance Sheet, not required by Accounting Principles to be reflected on the
Interim Balance Sheet, or not material and incurred in the ordinary course
of business since the date of the Interim Balance Sheet.
(c) Schedule 3.17(c) lists all employees of the Company, together
----------------
with their respective job titles, dates of employment, rates of compensation
(including any increases in compensation since December 31, 2001) and office
location. Except as otherwise disclosed in the Schedules hereto, the Company
has complied and is presently complying in all material respects with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and there is no charge or
complaint actually pending or to the knowledge of the Company, threatened
against the Company before the Equal Employment Opportunity Commission or
the Department of Labor, or any state or local agency of similar
jurisdiction. Except as otherwise noted on Schedule 3.17(c), the employment
----------------
of all persons employed by the Company is terminable at will, without any
penalty or severance obligation of any kind on the part of the Company.
3.18. EMPLOYEE BENEFIT MATTERS.
(a) Except as set forth on Schedule 3.18(a), the Company in
----------------
connection with the Business does not have outstanding and is not a party to
or subject to liability under any agreement, arrangement, plan, or policy,
whether or not considered legally binding, that involves
(i) any pension, retirement, profit sharing, deferred
compensation, bonus, stock option, stock purchase, health, welfare, or
incentive plan, or
(ii) welfare or "fringe" benefits, including without limitation
vacation, severance, disability, medical, dental, life and other insurance,
tuition reimbursement plan, company car, club dues, sick leave or family
leave, or other benefits (together the "Plans" and each item thereunder a
"Plan").
20
(b) Each Plan has been administered in material compliance with its
terms and, to the extent applicable, with the Employee Retirement Income
Security Act of 1974, as amended or other Law applicable to any Plan. Each
Plan that is intended to qualify under Section 401(a) or Section 501(c)(9)
of the Code has received a favorable determination letter from the Internal
Revenue Service (a copy of which has been provided to Buyer) and related
trusts have been determined to be exempt from taxation. Nothing has occurred
that would cause and no action or proceeding is pending or threatened which,
to the knowledge of the Company, could result in the loss of such exemption
or qualification except for amendments required by Law for which the
remedial amendment period remains open.
(c) No Plan is a multi-employer plan (as defined in Section 3(37)
of ERISA) and the Company has not contributed to nor ever has been obligated
to contribute to any multi-employer plan.
(d) To the Company's knowledge, except as set forth on
Schedule 3.18(d), there have been no prohibited transactions within the meaning
----------------
of Sections 406 or 407 of ERISA or Section 4975 of the Code for which a
statutory or administrative exemption does not exist with respect to any
Plan and which would result in a material liability to the Company. No
reportable event within the meaning of Section 4043 of ERISA (other than
those for which reporting is waived) has occurred with respect to any Plan
subject to Title IV of ERISA. With respect to each Plan, all payments due
from the Company to date have been made and all amounts properly accrued to
date as liabilities of Company which have not been paid have been properly
recorded on the books of the Company and are reflected on the Interim
Balance Sheet.
(e) Except as specified on Schedule 3.18(e), no Plan provides
----------------
benefits at the expense of the Company, including, without limitation, death
or medical benefits (whether or not insured), with respect to current or
former employees of the Company beyond their retirement or other termination
of services other than:
(i) continuation coverage mandated by Section 4980B of the Code
or other Law;
(ii) death or pension benefits under any Plan that is an employee
pension benefit plan;
(iii) deferred compensation benefits accrued as liabilities on
the Interim Balance Sheet;
(iv) disability benefits under any Plan that is an
employee welfare benefit plan and which have been fully provided for by
insurance or otherwise;
(v) benefits in the nature of severance pay; or
(vi) rights to convert to an individual policy of insurance
pursuant to the terms of an insurance contract under a Plan.
(f) Except as set forth on Schedule 3.18(d), to the Company's
----------------
knowledge, there has been no act or omission by Company with regard to the
Plans that has given rise to any fines, penalties, taxes or related charges
under Section 502(c) of ERISA or Chapter 43 of the Code.
(g) Except as set forth on Schedule 3.18(g), neither the execution
----------------
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (either alone or in conjunction with any other
event) (i) result in any severance, termination or other payment
21
becoming due to any former or current employee of the Company or any of its
Affiliates or cause an increase in the amount of compensation due to any
such employee or former employee; or (ii) increase or affect the calculation
of the amount of any benefits otherwise payable under any Plan or result in
any acceleration of the time of payment or vesting of any such benefits.
3.19. PRODUCT LIABILITY.
Except as described on Schedule 3.19, no material claim or
-------------
allegation of personal injury, death, or property or economic damages, claim
for punitive or exemplary damages, claim for contribution or indemnification,
or claim for injunctive relief in connection with any product manufactured,
sold or distributed by the Company has been asserted in writing against the
Company.
3.20. APPROVALS AND FILINGS.
None of the Sellers nor the Company is required to obtain any
approval, consent, or authorization of, or to make any declaration or filing
with, any Government or other Persons for the valid execution and delivery
of this Agreement or any other agreement to be delivered hereunder, the
purchase and sale of the Shares, or the performance or consummation of the
respective transactions contemplated hereby or thereby except for
(a) compliance with the applicable provisions of HSR, if required,
(b) compliance with the Exon-Florio Amendment, if required,
(c) any necessary approvals of the U.S. Government relating to
Government Contracts as listed on Schedule 3.15(a),
(d) the landlord consents and other approvals set forth on
Schedule 3.20, and
-------------
(e) approvals, consents, authorizations, declarations or filings
which the failure to make or obtain would not result in a material liability
to the Company or materially impair or hinder the Company's operations after
the Closing Date.
3.21. BROKERS, FINDERS.
Except as set forth on Schedule 3.21, no finder, broker, agent, or
-------------
other intermediary, acting on behalf of Sellers or the Company, is entitled
to a commission, fee or other compensation in connection with the
negotiation or consummation of this Agreement or any of the transactions
contemplated hereby.
3.22. CERTAIN UNLAWFUL PRACTICES.
In the four (4) year period preceding the date of this Agreement,
the Company has not nor has any officer, employee or agent of the Company
nor has any person acting on any of their behalf, directly or indirectly,
given or agreed to give any material gift or similar benefit to any
customer, supplier, competitor or governmental employee or official or has
engaged in any other practice (including, but not limited to, violation of
any anti-trust law) or received or retained any such gift or similar
benefit, which in any case would subject the Company to any material damage
or penalty in any civil, criminal or Government litigation or proceeding or
which would be grounds for termination or modification of any Government
Contract or any Material Contract.
22
3.23. BANK ACCOUNTS.
Schedule 3.23 contains an accurate and complete list of (i) the
-------------
names and addresses of each bank or other financial institution in which the
Company has an account; (ii) the account numbers of such accounts; and (iii)
the authorized signatories on each such account.
3.24. DISCLOSURE.
The representations and warranties of the Company or the Sellers set
forth in this Agreement or any certificate or agreement to be furnished to
Buyer by or on behalf of the Company or the Sellers at the Closing pursuant
hereto, do not contain or will not at the Closing contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements, in light of the circumstances under which they
were made, not misleading.
3.25. INSURANCE.
Schedule 3.25 includes a summary description of all insurance
-------------
policies covering the Business, which description includes the properties or
liabilities covered, the insurer, the amount and period of coverage and any
additional insureds and loss payees. The Company has not received any notice
or other communication within one (1) year prior to the date hereof
cancelling or materially amending or materially increasing the premium
payable under any of such insurance policies and to the knowledge of the
Company, no such cancellation, amendment or an increase of premiums is
threatened. There remains no outstanding written requirements or
recommendations of any insurance company or any governmental authority
pertaining to any material repairs or other material work to be done on or
with respect to any of the Company's properties.
3.26. ENTIRE BUSINESS.
The assets, properties, licenses and agreements of the Company are
all of the assets, properties, licenses and agreements necessary to conduct
the Business in the manner in which it is presently being conducted.
3.27. LICENSES AND PERMITS.
The Company has all necessary federal, state, local and foreign
licenses, permits and other governmental authorizations required for the
conduct of the Business and the ownership of its properties as presently
conducted and owned, other than licenses and permits which the failure to
obtain would not result in a material liability to the Company or materially
impair or hinder the Company's operations after the Closing Date.
3.28. BACK CHARGES, REBATES, ETC.
Except as set forth on Schedule 3.28, there are no material
-------------
outstanding claims by customers for back charges, rebates, price reductions,
credits or settlements, or for breaches of product or service warranties, or
for product liability for products manufactured or sold by the Company.
3.29. QUOTE LOG.
Included on Schedule 3.29 is the quote log of the Company as of
-------------
March 1, 2002, which quote log contains a list of all outstanding Bids or
proposals for contract under which the value
23
of services to be performed or goods to be provided by the Company or the
costs of goods to be sold by the Company is expected to exceed $100,000.
3.30. UNDISCLOSED LIABILITIES.
The Company has no liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due
or to become due), except for (a) liabilities accrued or reserved against
and reflected on the Interim Balance Sheet, (b) liabilities which have
arisen since the date of the Interim Balance Sheet in the ordinary course of
business and which are similar in nature and amount to the liabilities which
arose during the comparable period of time in the immediately preceding
fiscal period, (c) liabilities which would not be required by Accounting
Principles to be reflected on a balance sheet, (d) liabilities incurred in
connection with this Agreement and the agreements, documents, and
instruments contemplated hereby, (e) liabilities that individually or in the
aggregate would not be reasonably likely to result in material liability to
the Company or materially impair or hinder the Company's operations after
the Closing Date, and (f) the liabilities set forth on Schedule 3.30 hereto
-------------
or which are of a type covered by other representations and warranties of
the Company contained in this Agreement.
3.31. DOCUMENTS.
True, correct and complete copies of all documents creating or
evidencing any Plan, Material Contract, Government Contract, agreement,
lease, commitment or obligation described within this Article III have been
furnished to Buyer.
3.32. SELLERS REPRESENTATIONS AND WARRANTIES.
The Sellers hereby jointly and severally make the following
representations and warranties to Buyer:
(a) Each of the Sellers has all requisite power and authority to
execute and deliver this Agreement, to perform their obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement and
all other agreements herein contemplated to be executed by the Sellers
constitutes (or upon execution will constitute) valid and binding
obligations of the Sellers, enforceable against the Sellers in accordance
with their respective terms, subject to Bankruptcy Laws and Equitable
Principles.
(b) The Shares consist of 12,000,000 shares of common stock of the
Company, $ .001 par value. The Sellers are the record (and beneficial)
owners of all of the Shares (6,000,000 owned by each), free and clear of all
Liens. No person (other than the Sellers) has any power or right of any
kind, to dispose of or direct the disposition of the Shares or to vote or
direct the voting of the Shares. There are no agreements or understandings
with respect to the transferability of Shares between the Sellers or between
or among the Company and either or both of the Sellers. The Sellers will
transfer to the Buyer at Closing good and marketable title to the Shares,
free and clear of all Liens.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby by each Seller will
(i) result in a breach of any of the terms or provisions of, or constitute
a violation or default under, or conflict with any Law applicable to such
Seller or any judgment, decree, order or award of any court, governmental
body or arbitrator to which such Seller is a party or may be bound, or
(ii) except as otherwise expressly disclosed in this Agreement or on any
of the Schedules hereto, violate, or be in conflict with, or
24
constitute a default under, or result in the termination of, accelerate the
performance required by, or cause the acceleration of the maturity of any
material liability or obligation, or result in the creation or imposition of
any Lien upon the Shares under any note, bond, mortgage, indenture, deed of
trust, license, lease, contract, commitment, understanding, or other
agreement to which such Seller is a party or to which such Seller may be
bound or affected or to which the Shares or may be subject. Except as set
forth on Schedule 3.12 hereto, neither of the Sellers has any claim against
-------------
the Company, for whatever reason, either as a stockholder, director,
officer, employee or otherwise.
(d) Each Seller hereby confirms that the ESSI Stock acquired
hereunder will be acquired for investment for Seller's own account, not as a
nominee or agent, and not with a view to the sale or distribution of any
part thereof, and that Seller has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, each Seller further represents that such Seller does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the ESSI Stock.
(e) Each Seller understands that the ESSI Stock has not been
registered under the 1933 Act or under any applicable state securities law,
on the ground that the sale provided for in this Agreement and the issuance
of ESSI Stock hereunder is exempt from registration under the 1933 Act and
that the Buyer's reliance on such exemption is predicated, in part, on such
Seller's representations set forth herein.
(f) Each Seller represents that he or she is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the 1933 Act
and that such Seller is experienced in evaluating the merits and risks of
investing in companies such as the Buyer, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of his or her investment in ESSI Stock and has the ability to bear
the economic risks of his or her investment. Each Seller further represents
that he or she has had access, during the course of the transaction and
prior to his or her acquisition of ESSI Stock hereunder, to the same kind of
information that would be provided in a registration statement filed by the
Buyer under the 1933 Act and that such Seller has had, during the course of
the transaction and prior to Seller's purchase of the ESSI Stock, the
opportunity to ask questions of, and receive answers from, the Buyer
concerning the terms and conditions of the offering and to obtain additional
information necessary to verify the accuracy of any information furnished to
him or her or to which he or she had access.
(g) Each Seller understands that the ESSI Stock or any interest
therein may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or under any applicable state securities
law or an exemption therefrom, and that in the absence of an effective
registration statement covering the ESSI Stock or an available exemption
from registration under the 1933 Act and any applicable state securities
laws, the ESSI Stock must be held indefinitely. In particular, each Seller
is aware that the ESSI Stock may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of that Rule,
including applicable holding period, manner of sale and notice filing
requirements, are met.
25
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby makes the following representations and warranties to
the Company and each of the Sellers:
4.1. AUTHORIZATION.
Buyer is a corporation, duly organized, validly existing and in
good standing under the laws of Missouri. Buyer has all requisite power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement and all other agreements herein contemplated to be executed by
Buyer constitutes (or upon execution will constitute) valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
terms, subject to Bankruptcy Laws and Equitable Principles. This Agreement
and all other agreements herein contemplated to be executed by the Buyer has
been (or will be prior to the Closing) effectively authorized by all
necessary action, corporate or otherwise, by the Buyer. Buyer is duly
qualified as a foreign corporation to do business and is in good standing as
a foreign corporation in each state in which the ownership or leasing of its
properties or the conduct of its business makes it necessary to qualify,
except where the failure to so qualify would not have a material adverse
effect on the Buyer. Buyer has the corporate power and authority to own or
lease and operate its properties and assets and conduct its business as
currently conducted.
4.2. INVESTMENT REPRESENTATION.
Buyer is acquiring the Shares for its own account, for investment
and without any view to resale or distribution of the Shares or any portion
thereof.
4.3. GOVERNMENTAL APPROVALS AND FILINGS.
Except for compliance if required, with the applicable provisions
of the HSR and any applicable provisions of Sec. 721 of Title VII of the
Defense Production Act of 1950, as amended (50 U.S.C. App. 2170) (the
"Exon-Florio Amendment") and any other requirements (excluding approvals of
the U.S. Government) as would not prohibit or materially affect the
completion of the transactions contemplated hereby, Buyer is not required to
obtain any approval, consent, or authorization of, or to make any
declaration or filing with, any Government for the valid execution and
delivery of this Agreement or any other agreement to be delivered hereunder,
the purchase and sale of the Shares, or the performance or consummation of
the respective transactions contemplated hereby or thereby.
4.4. BROKERS, FINDERS.
Except as set forth on Schedule 4.4, no finder, broker, agent, or
-------------
other intermediary, acting on behalf of Buyer, is entitled to a commission,
fee or other compensation in connection with the negotiation or consummation
of this Agreement or any of the transactions contemplated hereby.
4.5. NO BREACH OF LAW OR GOVERNING DOCUMENT.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) violate or
conflict with any provisions of the articles of incorporation or bylaws of
Buyer, (ii) result in a breach of any of the terms or provisions of, or
constitute a violation or default under, or conflict with any Law applicable
to Buyer or any
26
judgment, decree, order or award of any court, governmental body or
arbitrator to which Buyer is a party or may be bound, or (iii) except as set
forth on Schedule 4.5, violate, or be in conflict with, or constitute a
------------
default under, or result in the termination of, accelerate the performance
required by, or cause the acceleration of the maturity of any material
liability or obligation, or result in the creation or imposition of any Lien
upon the ESSI Stock or the assets of Buyer under any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment,
understanding, or other agreement to which Buyer is a party or to which
Buyer may be bound or affected or to which the ESSI Stock or the assets of
Buyer may be subject; except, in the case of (ii) and (iii), where such
breach, violation, default, conflict, termination, acceleration, creation or
imposition would not have a material adverse effect on Buyer.
4.6. CAPITALIZATION AND RELATED MATTERS.
The authorized capital stock of Buyer consists of 30,000,000 shares
of common stock, par value $0.01 per share ("ESSI Common Stock"), of which
10,273,820 shares were issued and outstanding as of February 28, 2002. All
of the shares of ESSI Stock issuable hereunder have been duly reserved for
issuance and, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and free and clear
of all Liens. Options to purchase an aggregate of 620,638 shares of ESSI
Common Stock (the "ESSI Options") were outstanding as of February 28, 2002.
Except for the ESSI Options, the shares of ESSI Common Stock referenced in
the first sentence of this Section 4.6, and the Sellers' rights hereunder,
(a) there are outstanding
(i) no other securities of Buyer (whether of a debt, equity or
hybrid nature), and
(ii) no rights, warrants or options to acquire, exchange or
convert securities of Buyer, and
(b) Buyer is not subject to any obligation to issue, deliver,
redeem, or otherwise acquire or retire the ESSI Stock or any shares of
capital stock or other securities of Buyer.
There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to the Company. There are no
agreements, voting trusts, proxies or understandings with respect to the
voting, registration or transferability of Buyer's shares of capital stock
or otherwise between or among Buyer and any of its stockholders other than
proxies solicited in connection with an annual or special meeting of Buyer's
shareholders or as disclosed in Buyer SEC Reports (as hereinafter defined).
To Buyer's knowledge, there are no agreements or understandings concerning
the registration of shares of Buyer's capital stock between or among Buyer
and any of its stockholders or Affiliates.
4.7. SEC REPORTS AND FINANCIAL MATTERS.
Each form, report, schedule, registration statement and definitive
proxy statement filed by Buyer with the SEC since October 31, 1999 (as such
documents have been amended prior to the date hereof, the "Buyer SEC Reports"),
-----------------
as of their respective dates, complied in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
promulgated thereunder and the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder (the "Exchange Act"). None of the
Buyer SEC Reports, as of the date on which such Buyer SEC Report was
declared effective pursuant to the 1933 Act or the date on
27
which such Buyer SEC Report was filed pursuant to the Exchange Act, as
applicable, contained or contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of Buyer
and its subsidiaries included in such reports comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with Accounting Principles, consistently applied
(except, in the case of the unaudited interim financial statements, as
permitted by Form 10-Q of the SEC) and fairly present in all material
respects (subject, in the case of the unaudited interim financial
statements, to normal, recurring adjustments) the consolidated financial
position of Buyer and its subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Since October 31, 1999, Buyer has timely filed with the SEC all
forms, reports and other documents required to be filed prior to the date
hereof, and no subsidiary of Buyer has filed, or been required to file, any
form, report or other document with the SEC, in each case, pursuant to the
1933 Act or the Exchange Act. Since October 31, 2001, except as described in
the Buyer SEC Reports, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
Buyer or any subsidiary of Buyer, except changes resulting from changes in
accounting pronouncements of the Financial Accounting Standards Boards or
the SEC or changes in applicable laws or rules or regulations thereunder.
Buyer has, and will at the Closing have, sufficient funds to consummate the
transactions contemplated by this Agreement and to pay all related fees and
expenses it incurs.
4.8. MATERIAL ADVERSE EFFECT.
Since October 31, 2001, there has not occurred or arisen any event
or events that, individually or in the aggregate, has had or, insofar as can
be reasonably forseen, would have a material adverse effect on the condition
(financial or otherwise), business, properties, liabilities or results of
operations of Buyer; provided that (i) changes that affect the defense
industry generally, (ii) changes in general economic conditions, (iii)
changes resulting from the transactions contemplated by this Agreement or
the announcement thereof, (iv) the outbreak or escalation of hostilities or
similar calamity or crisis, and the potential sale or the failure to sell
Buyer's Engineered Specialty Plastics Division shall not be taken into
account in determining whether such a material adverse effect has occurred.
4.9. COMPANY PROJECTIONS.
(a) Buyer hereby acknowledges and agrees that: (i) the Company
Projections were not prepared with a view towards compliance with published
guidelines of the American Institute of Certified Public Accountants or the
Accounting Principles, (ii) the Company Projections necessarily make
numerous assumptions with respect to industry performance, general business,
economic and political conditions, taxes, and other matters, many of which
are beyond the Company's control and which may not prove to be correct;
(iii) the Company Projections involve certain risks and uncertainties,
including risks and uncertainties faced by the Buyer which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, the Company Projections; and (iv) the Company is not making any
representation or warranty or guarantee that the Company Projections will be
achieved.
28
(b) Buyer represents and warrants that (x) it has had, during the
course of the transaction and prior to the purchase of the Shares, the
opportunity to ask questions of, and receive answers from, the Company
concerning the Company, the Business and the Company Projections and to
obtain additional information necessary to verify the accuracy of any
information furnished to it or to which it had access, and (y) it has
reviewed the Company Projections and has come to its own judgment concerning
the Company, the Business and the Company Projections.
ARTICLE V.
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer at Closing shall be subject to the
satisfaction, at or prior to the Closing, of each of the following
conditions (unless waived in writing by Buyer):
5.1. REPRESENTATIONS AND WARRANTIES.
The Company's and Sellers' representations and warranties set forth
in Article III shall have been true and correct in all material respects
when made and shall be true and correct in all material respects on the
Closing Date as though such representations and warranties were made at and
as of such date (without giving effect to modifications to the Schedules to
this Agreement which are delivered by the Company or the Sellers to Buyer
after the date hereof and on or before the Closing Date), unless expressly
made as of another date, in which case such representations and warranties
shall be true and correct in all material respects at and as of such other
date.
5.2. PERFORMANCE OF AGREEMENT.
Sellers and the Company shall have fully performed and complied in
all material respects with all covenants, conditions, and other obligations
under this Agreement to be performed or complied with by them at or prior to
Closing.
5.3. APPROVALS.
All required consents and approvals from Governments and the other
party(ies) to the Material Contracts and the consents and approvals from the
parties listed on Schedule 3.20 shall have been obtained and all waiting
-------------
periods required by Law shall have expired. Further, Buyer shall have
received any necessary waivers or consents from its lender in connection
with the guaranty provided by Buyer pursuant to Section 7.10 hereof.
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5.4. NO ADVERSE PROCEEDING.
No action shall have been instituted by a third party and remain
pending before a grand jury or court or other Government entity
(a) for the purpose of enjoining or preventing the consummation
of this Agreement or any of the transactions contemplated hereby, or
(b) which claims that this Agreement, such transactions, or their
consummation, is illegal.
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5.5. CERTIFICATES.
Each of the Company and the Sellers shall have each delivered to
Buyer at Closing a certificate of the Company and the Sellers, respectively,
dated the Closing Date and in form reasonably acceptable to Buyer, to the
effect that the conditions set forth in Sections 5.1 and 5.2, with respect
to the Company or the Sellers, as the case may be, have been satisfied.
Further, the Company shall have delivered to Buyer, dated the Closing Date
and in form reasonably satisfactory to Buyer, a certificate that provides
that the copies of the Company's Certificate and Articles of Incorporation
and By-laws (and all amendments to each of such documents) attached to the
certificate are true and complete copies of same and are in effect as of the
Closing Date.
5.6. RESIGNATIONS.
Sellers shall have delivered to Buyer at Closing the resignations,
effective as of the Closing Date, of the officers of the Company listed on
Schedule 5.6 and of the directors of the Company listed on Schedule 5.6.
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5.7. OPINION OF COUNSEL FOR SELLERS.
Buyer shall have received an opinion of counsel for the Sellers
addressed to Buyer and dated the Closing Date, in substantially the form
attached as Exhibit A hereto.
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5.8. EXCHANGE OF OPTIONS.
All of the holders of the Options shall have executed and delivered
to the Company an Exchange Agreement and Release in substantially the form
of Exhibit B pursuant to which, each of such Option holders agrees to
---------
surrender their Options in exchange for their Cash Out Payment provided in
Section 2.2(c) hereof.
5.9. FLEISCHER NON-COMPETE AGREEMENT.
Timothy B. Fleischer shall have executed and delivered the
Non-Compete Agreement in substantially the form of Exhibit C hereto (the
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"Fleischer Non-Compete Agreement"). Kari J. Fleischer shall have executed a
document reasonably satisfactory to Buyer regarding her joinder in the
Fleischer Non-Compete Agreement.
5.10. CERTIFICATES OF GOOD STANDING.
Sellers shall have delivered to Buyer at Closing Certificates of
Good Standing for the Company from the Secretary of State of Delaware and
each state in which it is qualified to do business as a foreign corporation.
5.11. PAYMENT OF THE MORRISETTE OBLIGATIONS.
The Company shall have paid in full all amounts outstanding
pursuant to the Morrisette Obligations.
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ARTICLE VI.
CONDITIONS TO THE COMPANY'S AND SELLERS' OBLIGATIONS
----------------------------------------------------
The obligations of the Company and Sellers at Closing shall be
subject to the satisfaction, at or prior to the Closing, of the following
conditions (unless waived in writing by the Company and Sellers):
6.1. REPRESENTATIONS AND WARRANTIES.
Buyer's representations and warranties set forth in Article IV
shall have been true and correct in all material respects when made, and
shall be true and correct in all material respects on the Closing Date and
as though such representations and warranties were made at and as of such
date and time (without giving effect to modifications to the Schedules to
this Agreement which are delivered by Buyer to the Company or the Sellers
after the date hereof and on or prior to the Closing Date), unless expressly
made as of another date, in which case such representations and warranties
shall be true and correct in all material respects at and as of such other
date.
6.2. PERFORMANCE OF AGREEMENT.
Buyer shall have fully performed and complied in all material
respects with all covenants, conditions and other obligations under this
Agreement to be performed or complied with by it at or prior to the Closing.
6.3. APPROVALS.
All required consents and approvals from Governments and the other
party(ies) to the Material Contracts and consents and approvals from the
parties listed on Schedule 3.20 shall have been obtained and all waiting
-------------
periods required by Law shall have expired. Further, Buyer shall have
received any necessary waivers or consents from its lender in connection
with the guaranty provided by Buyer pursuant to Section 7.10 hereof.
------------
6.4. NO ADVERSE PROCEEDING.
No action shall have been instituted by a third party and remain
pending before a grand jury or court or other Government entity
(a) for the purpose of enjoining or preventing the consummation
of this Agreement or any of the transactions contemplated hereby, or
(b) which claims that this Agreement, such transactions, or their
consummation, is illegal.
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6.5. CERTIFICATE.
Buyer shall have delivered to Sellers at the Closing a certificate
of Buyer executed by an executive officer of Buyer, dated the Closing Date
and in form reasonably acceptable to the Sellers, to the effect that the
conditions set forth in Sections 6.1 and 6.2 have been satisfied. Further,
the Buyer shall have delivered to the Sellers, dated the Closing Date and in
form reasonably satisfactory to Sellers, a certificate that provides that
the copies of the Buyer's Certificate and Articles of Incorporation and
By-laws (and all amendments to such documents) attached to the certificate
are true and correct copies of same and are in effect as of the Closing
Date.
6.6. FLEISCHER MATTERS.
The Company shall have executed and delivered the Fleischer
Non-Compete Agreement and Timothy B. Fleischer shall have received a letter
from Buyer confirming (i) his future appointment to Buyer's Board of
Directors, and (ii) that he will receive grants of options to purchase ESSI
Common Stock on par with Buyer's division Presidents.
6.7. OPINION OF COUNSEL FOR BUYER.
Sellers shall have received an opinion of counsel for the Buyer
addressed to the Sellers and dated the Closing Date, in substantially the
form attached as Exhibit D hereto.
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6.8. CERTIFICATE OF GOOD STANDING.
Buyer shall have delivered to Sellers a Certificate of Good
Standing for Buyer from the Secretary of State of Missouri.
6.9. CERTAIN LIABILITIES.
(a) The Company shall have paid in full all amounts outstanding
pursuant to the Morrisette Obligations (b) Buyer shall have paid in full the
Sun Trust Obligations and the Company shall have received written
confirmation from Sun Trust Bank that the Sun Trust Obligations have been
paid and settled in full, and the Sellers shall have been fully released by
Sun Trust Bank from any and all loan and guaranty obligations of the Sellers
pursuant to the Sun Trust Obligations.
6.10. TRANSITION SERVICES AGREEMENT.
The Company shall have executed and delivered to Portal Dynamics
the Transition Services Agreement (as defined in Section 7.9 hereof).
6.11. EXCHANGE OF OPTIONS.
All of the holders of the Options shall have executed and delivered
to the Company an Exchange Agreement and Release in substantially the form
of Exhibit B pursuant to which each of such Option holders agrees to
---------
surrender their Options in exchange for their Cash Out Payment provided in
Section 2.2(c) hereof.
32
ARTICLE VII.
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1. CONDUCT OF BUSINESS BEFORE CLOSING.
From the date hereof until the Closing, the Company shall operate
the Business in the ordinary course of business, except for such acts which
are otherwise expressly permitted under this Agreement, and the Company shall,
unless otherwise agreed by the Buyer in writing, (a) maintain its corporate
existence in full force and effect, (b) not enter into any transaction
material in nature or amount other than in the ordinary and usual course of
business, (c) not order any unusual amounts of inventory of any kind or
nature from any source other than is required for performance of contractual
obligations, (d) take no actions to materially alter delivery dates, production
schedules, shipment dates or the like from its normal course of business,
(e) not amend its Certificate of Incorporation or By-laws, (f) not declare or
pay any dividends of any kind or make any distributions in respect of the
Company's capital stock, (g) other than pursuant to Section 7.12 hereof,
------------
not prepay any of the Morrisette Obligations prior to any scheduled payment
date, (h) pay in full all Taxes of the Company becoming due and payable prior
to the Closing Date, or (i) not take any action, other than in the ordinary
course of its business and consistent with past practices, which would require
a material change to the disclosures of the Company or the Sellers given
under Article III. Further, the Company agrees to use its reasonable best
efforts to preserve intact its present business organization, keep available
the services of its officers and employees, preserve its relationships with
customers, suppliers and others having business dealings with it, maintain
its records and books of accounts in a manner consistent with past practices,
maintain its tangible assets and properties in good condition, order and
repair, reasonable wear and tear excepted, preserve all of its rights in the
Intellectual Property, and pay its accounts payables and other obligations
in the ordinary course of business consistent with past practice.
Notwithstanding the foregoing provisions of this Section 7.1 and provided a
material out-of-pocket cost or liability to the Company is not incurred,
the Company may take any action as it deems reasonably necessary or advisable
(to the extent consistent with applicable Law) to transition employees of
Portal Dynamics out of the Plans.
7.2. ACCESS TO RECORDS.
(a) Until the Closing, each of the Company and Buyer shall afford
to authorized representatives of each other Party reasonable access during
normal business hours to all personnel, premises, properties, books, records
Tax Returns and data of the Company and Buyer but only insofar as they
relate to the operations of the business of the Company and Buyer. Further,
each Party will furnish each other Party and its representatives with copies
of books, contracts, records and other documents and information concerning
the Company or the Buyer, as the case may be, which the Company or the
Buyer, as the case may be, may reasonably request. Until the Closing, each
of the Company and Buyer shall permit the Company or the Buyer, as the case
may be, and its agents, employees and contractors reasonable periodic access
during normal business hours on and to such Party's various facilities for
the purpose of conducting such surveys, inspections, audits, assessments,
tests and analyses as may be reasonably desired by the Company or the Buyer,
as the case may be. In the event the transaction contemplated hereby fails
to close for any reason, the testing Party shall repair any
33
damage caused to the other Party's facilities by such testing and restore
such facilities to their condition prior to such testing, reasonable wear
and tear excepted.
(b) Upon reasonable notice, from and after, and from time to time
after, the Closing, Buyer shall afford, and shall cause the Company to
afford, to authorized representatives of Sellers reasonable access during
normal business hours to such books, records, documents, information and
personnel of Buyer and the Company as the Sellers may reasonably request:
(i) to determine any matter relating to their rights and
obligations hereunder or to any period ending on or before the Closing Date,
(ii) to prosecute or defend any litigation or investigation
by any Government or any third Person (including without limitation Tax audits),
(iii) to prepare Sellers' Federal, state or local Tax Returns, or
(iv) for any other proper purpose.
For a period of five (5) years from and after the Closing, neither Buyer nor
the Company shall destroy any such books, records, documents, and
information.
(c) Upon Buyer's reasonable request from time to time after
Closing, Sellers shall, upon reasonable notice, afford to authorized
representatives of the Buyer and the Company reasonable access during normal
business hours to any books, records, documents and information, including
any financial records in Sellers' possession or under Sellers' control
relating to the Company or the Business or otherwise relating to Buyer's
rights and obligations hereunder or any other obligations of the Company.
(d) Nothing in this Section 7.2 will obligate any Party to take
actions that would unreasonably disrupt the normal course of their
businesses, violate the terms of any contract to which they are a party or
to which they or any of their assets is subject or grant access to any of
their proprietary, confidential or classified information (except to the
extent required for purposes of defending or prosecuting any third party
legal proceedings).
7.3. HSR FILING.
The parties shall cooperate with one another
(a) in determining whether an HSR filing is required in connection
with the transactions contemplated by this Agreement, and
(b) in making any such filing and furnishing information required
in connection therewith. The filing fee for any such HSR filing shall be
borne by Buyer.
7.4. EXON-FLORIO AMENDMENT.
If required, Buyer and Sellers agree to use their best efforts to
compile and provide the information and documentation necessary for filing a
joint Exon-Florio Amendment notification with the Committee on Foreign
Investment in the United States, as promptly as practicable after the date
hereof. Sellers shall, and shall cause Company to, use all reasonable
efforts to initiate and obtain national interest determinations ("NID(s)")
from each of the Company customers that hold contracts requiring access to
"proscribed" classified information. Buyer agrees to use all reasonable
efforts to advise and assist in obtaining these NID(s).
34
7.5. PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
(a) No Party to this Agreement shall issue any press release or
make any public statement with respect to the terms hereof or the
transactions contemplated hereby without the prior written consent of the
other Parties, except as required by Law or by the rules and regulations of
any national securities exchange on which the securities of a Party or their
Affiliates is listed; provided that, if a disclosure is determined by a
Party to be required by law or by the rules and regulations of any national
securities exchange on which the securities of such Party or its Affiliates
is listed, such Party shall notify the other Parties hereto as soon as
possible in advance of such disclosure and, to the extent practicable, give
the other Parties a reasonable opportunity to review and comment on such
disclosure.
(b) Buyer's obligations under the Confidentiality Agreement dated
April 12, 2001 (the "Confidentiality Agreement") remain in full force and
effect; provided, however, that effective upon the Closing, and subject to
subsections (a), (c) and (d) if this Section 7.5, such Confidentiality
Agreement shall terminate with respect to information relating to the
Business transferred hereunder.
(c) After the Closing, (i) Sellers shall keep confidential, and
cause their Affiliates and instruct their agents, representatives,
consultants and advisors to keep confidential, all information relating to
the Business, the Buyer and the Buyer's Affiliates, and (ii) Buyer and the
Company shall keep confidential, and cause their Affiliates and instruct
their agents, representatives, consultants and advisors to keep
confidential, all information relating to the Sellers and each Seller's
Affiliates; except in each case as required by Law or administrative process
and except for information which is available to the public on the Closing
Date, or thereafter becomes available to the public other than as a result
of a breach of this Section.
(d) If either Sellers or Buyer shall determine that it may be
required by Law or administrative process to make a disclosure otherwise
prohibited by this Section, it shall promptly so advise the other Party and
shall cooperate with such other Party and take such actions as shall be
reasonably requested by such other Party in order to prevent or limit such
required disclosure.
7.6. FURTHER ASSURANCES.
The Parties shall cooperate and shall use their reasonable best
efforts to take, or to cause to be taken, and to do, or cause to be done,
all things necessary, proper and advisable to consummate and make effective,
in the most expeditious manner practicable, the transactions contemplated
hereby, including, without limitation, using their reasonable best efforts
to satisfy, or to cause to be satisfied, all of the conditions set forth in
Articles V and VI hereof. From and after the Closing Parties shall do such
acts and execute such documents and instruments as may be reasonably
requested by the other Party to make effective the transactions contemplated
hereby. In the event that consents, approvals or other authorizations or
other acts contemplated by this Agreement have not been fully effected as of
Closing, the Parties will continue after the Closing, without further
consideration, to use their reasonable best efforts to carry out such
transactions; provided, however, in the event that certain approvals,
consents or other necessary documentation cannot be secured, then the Party
having legal responsibility, ownership or other control shall act on behalf
of the other Party, without further consideration, to effect the essential
intention of the Parties with respect to the transactions contemplated by
this Agreement.
35
7.7. KNOWLEDGE OF BREACH; CURRENT INFORMATION.
Each Party shall advise the other Parties in writing promptly (and
in any event prior to the Closing) of (i) the occurrence of any event which
renders any of such Party's representations or warranties set forth herein
inaccurate in any material respect or the awareness of such Party that any
representation or warranty set forth herein was not accurate in all material
respects when made; and (ii) the failure of such Party to comply with or
accomplish any of the covenants or agreements set forth herein in any
material respect. Between the date hereof and the Closing Date, Sellers will
also provide Buyer promptly on becoming available copies of all operating
reports and financial statements prepared by or for the Company. If any of
the information disclosed on any of the Schedules of a Party hereto is (or
becomes) incorrect, such Party shall prepare and deliver to the other
Parties updated Schedules promptly after discovering same and prior to the
Closing. If any matter arises after the date hereof which, had such matter
existed or occurred on or prior to the date hereof, would have been required
to have been disclosed on a Party's schedules, such Party shall prepare and
deliver to the other Parties supplemental schedules prior to Closing. Any
supplemental schedules delivered pursuant to Section 7.7 shall be deemed to
amend the delivering Party's Schedules, but shall not be effective for the
purposes of Sections 5.1 or 6.1 hereof.
7.8. TAX MATTERS.
(a) For purposes of this Section, "Tax Asset" means any net
operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction, claim for refund or any other credit or tax attribute
which could reduce Taxes (including, without limitation, deductions and
credits related to alternative minimum Taxes), provided, however, that such
term shall not include the Tax basis of the Shares of the Company.
(b) Other than to the extent required by Law, Buyer covenants that
it will not cause or permit the Company or any Affiliate of Buyer to amend
any Tax Return or take any Tax position on any Tax Return, take any action,
or enter into any transaction that results in any increased Tax liability
(or indemnity liability hereunder) or reduction of any Tax Asset of Sellers
or the Company in respect of any taxable period (or portion thereof) ending
on or prior to the Closing Date without Sellers' consent, which shall not be
unreasonably withheld.
(c) Sellers and Buyer shall cooperate as and to the extent
reasonably requested by any other party hereto, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon
another party's request) the provision of records and information which are
reasonably relevant to any such Tax Return, 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. Sellers and Buyer agree (i) to retain all books and records with
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respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute
of limitations of the respective taxable periods, and (ii) to give any other
party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
Buyer or Sellers, as the case may be, shall allow the other party to take
possession of such books and records.
7.9. PORTAL DYNAMICS.
(a) At the Closing, the Company and Portal Dynamics shall have
entered into
36
a Transition Services Agreement (the form of which shall be subject to the
prior written approval of the Buyer, which will not be unreasonably
withheld) (the "Transition Services Agreement"), pursuant to which such
parties shall agree to provide the transition services and a license of
certain technology of the Company described therein on an arms-length basis
following the Closing, on the terms and subject to the conditions set forth
therein. The Transition Services Agreement is intended to insure that the
separation of the Sellers' Portal Dynamics business from the Company will be
accomplished without unnecessary disruption of the operations of any of the
affected parties, and to confirm that the services and cooperation from each
such party which is required in this regard will be provided without
interruption and on commercially reasonably terms. The Parties shall
cooperate in good faith with each other in finalizing the detailed terms of
the Transition Services Agreement. Upon the Closing, the Transition Services
Agreement shall supercede this Section 7.9(a).
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(b) At the Closing, Buyer and Portal Dynamics will enter into an
agreement providing that, if at any time prior to the third (3rd)
anniversary of the Closing Date, Portal Dynamics shall propose to consummate
an equity financing or any type of business combination, (each, a "Portal
Transaction"), Portal shall so notify Buyer in writing, and Buyer shall have
the right to require Portal Dynamics to negotiate in good faith with Buyer a
Portal Transaction for a period of fourteen (14) days after such notice on a
non-exclusive basis. The Parties shall cooperate in good faith with each
other in finalizing the more detailed terms of such agreement, and upon the
Closing, such agreement shall supercede this Section 7.9(b).
--------------
(c) After the Closing Date, Buyer shall cause Company to continue to
retain all liability to any Qualified M&A Beneficiary with respect to the
transactions contemplated by this Agreement. For this purpose, the Parties
agree that provisions of 29 CFR Section 54.4980B-9 shall apply as if Portal
Dynamics did not maintain any group health plan on or after the Closing
Date.
7.10. EMPLOYEE BONUSES.
Prior to the Closing Date, the Company shall determine the amount
of bonuses that will be awarded to certain employees of the Company in
recognition of their efforts on behalf of the Company prior to the Closing
Date (the "Employee Bonuses"). The amount of money that will be available to
the Company for the Employee Bonuses shall be an amount equal to the
difference between (i) $10,000,000 and (ii) the aggregate amount of the Cash
Out Payments (i.e. the aggregate amount of cash paid to the holders of the
Options in connection with the cash out of the Options pursuant to Section
2.2(c) hereof). The amount of the Employee Bonuses allocated to each
designated employee will be payable by the Company in two (2) equal
installments on the first and second anniversary dates of the Closing Date.
All such payments shall be subject to customary withholding. The Employee
Bonuses will be submitted to the directors of the Company and the Sellers
for requisite director and shareholder approval prior to Closing, and
certified copies of such resolutions approving the Employee Bonuses shall be
provided to Buyer at Closing. Buyer covenants and agrees that the payment of
the Employee Bonuses will remain an obligation of the Company following the
Closing Date. Effective from and after the Closing, Buyer guarantees the
full and timely performance of each and every covenant, agreement and other
obligation of the Company (including any obligations of its permitted
assigns) to be performed by the Company after the Closing under this
Section 7.10. The guaranty herein provided is a guarantee of payment and
------------
performance, and not of collection, and Buyer acknowledges and agrees that
this guarantee is full and unconditional, and no release or extinguishment
of Buyer's obligations or liabilities whether by decree in any bankruptcy
37
proceeding or otherwise, shall affect the continuing validity and
enforceability of this guarantee, as well as provision requiring or
contemplating performance by Buyer except to the extent the validity and
enforceability of this guarantee is limited or extinguished by equitable
remedies (regardless or whether any such remedy is considered in a
proceeding at law or in equity).
7.11. EXCHANGE ACT REPORTS; RULE 144 MATTERS.
With a view to making available to the Sellers the benefits of Rule
144 promulgated under the Securities Act ("Rule 144") or any successor rule
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or regulation of the United States Securities and Exchange Commission (the
"SEC") that may at any time permit a Seller to sell securities of the Buyer
to the public without registration, Buyer agrees to use its reasonable best
efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC all reports and other documents required of the
Buyer under the Securities Act and the Exchange Act;
(c) furnish to Sellers upon request (i) a written statement by the
Buyer as to its compliance with the reporting requirements of Rule 144, (ii)
a copy of the most recent annual or quarterly report of the Buyer, and (iii)
such other reports and documents of the Buyer as such Sellers may reasonably
request to avail itself of any similar rule or regulation of the SEC
allowing it to sell any such securities without registration; and
(d) do any and all other acts and things that may be necessary to
enable the Sellers to consummate the public sale or other disposition of the
securities of Buyer owned by the Sellers pursuant to Rule 144, including,
without limitation, the removal of legends from certificates for shares of
ESSI Stock proposed to be sold, subject to the provisions of the last
paragraph of this Section 7.11.
------------
So long as the certificates evidencing the ESSI Stock shall bear restrictive
legends, each Seller agrees that in no event will they make a transfer or
disposition of any of the ESSI Stock (other than in accordance with the
terms of conversion thereof or pursuant to an effective registration
statement under the 1933 Act), unless and until (i) such Seller shall have
notified the Buyer of the proposed disposition and shall have furnished the
Buyer with a statement of the circumstances surrounding the disposition and
assurance that the proposed disposition is in compliance with all applicable
laws, and (ii) if reasonably requested by the Buyer, at the expense of
Buyer, there shall have been furnished to the Buyer an opinion of counsel,
reasonably satisfactory to the Buyer, to the effect that such transfer may
be made without registration under the 1933 Act.
7.12. CERTAIN LIABILITIES.
Prior to Closing, the Company shall (i) repay in full all
amounts outstanding pursuant to the Morrissette Obligations, and (ii) repay
in full all amounts outstanding under that certain promissory note dated
August 31, 2001 issued by the Company to Timothy B. Fleischer.
38
7.13. SECTION 16 MATTERS.
Prior to the Closing, Buyer and the Company shall take all
commercially reasonable steps necessary to cause any dispositions of or
acquisitions of the ESSI Stock resulting from the transactions contemplated
by Article II of this Agreement by each individual who is subject to the
reporting requirements of Section 16(a) of the Exchange Act with respect to
the Company to be exempt under Rule 16b-3 promulgated under the Exchange
Act. Buyer shall deliver to Sellers, at the Closing, certified copies of
resolutions of the Board of Directors of Buyer which to Buyer's knowledge
comply with and effectuate the exemption referred to in this Section 7.13.
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ARTICLE VIII.
INDEMNIFICATION
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8.1. INDEMNIFICATION BY SELLERS.
Subject to the limitations of Section 8.2 below, from and after the
Closing the Sellers, jointly and severally, shall indemnify and hold
harmless the Buyer and the Company and each of their respective Affiliates
and the directors, officers, employees, successors, permitted assigns and
agents of each of them (the "Buyer Indemnified Persons") against all
liabilities, losses, damages, costs and expenses reasonably incurred by them
as a result of:
(a) Any misrepresentation, breach of warranty or non-fulfillment of
any agreement or covenant on the part of the Company (other than covenants
and agreements to be performed by the Company after the Closing) or Sellers
under this Agreement, or any misrepresentation in any certificate or other
instrument furnished or to be furnished by the Company or Sellers to the
Buyer under this Agreement;
(b) Any of the following liabilities and obligations of the Company
(the "Excluded Liabilities"):
(i) all liabilities of the Company relating to the
Morrisette Obligations (other than obligations paid prior to the Closing
pursuant to Section 7.12 hereof) or any obligations or liabilities owing to
any former shareholders of the Company;
(ii) all liabilities and obligations of the Company relating to or
arising out of its previous ownership of Radian Systems, Inc. (or any other
former subsidiary of the Company) or the sale of its interest in Radian
Systems, Inc. to Sequoia Software Corporation, or the sale of certain assets
to Acquisition Logistics Systems, Inc.;
(iii) all liabilities and obligations of the Company
relating in any manner to the business operations of Portal Dynamics
regardless of when any such liabilities and obligations may have arisen or
the period for which such liabilities and obligations are attributable,
except for such matters as are expressly covered by the Transition Services
Agreement (as hereinafter defined), the current written sublease between
Portal Dynamics and the Company, the liabilities and obligations described
on Schedule 3.14(c), and any other agreement entered into between Portal
----------------
Dynamics and the Company on or after the Closing Date; and
(iv) all liabilities and obligations of the Company relating in
any manner to
39
any of the agreements, instruments, documents and authorizations (or the
failure to obtain any of such authorizations) that are referenced on
Schedule 3.6.
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(c) Any inaccuracy in the disclosures set forth on Schedule 3.2; and
------------
(d) Any claim, action, suit or other proceeding brought by or on
behalf of any holder of the Options against the Company or the Buyer seeking
to void, nullify, overturn or terminate the Exchange Agreement and Release
entered into by such Option holder or seeking to contest, dispute or
increase the compensation payable to such Option holder under the Exchange
Agreement and Release (each, an "Option Holder Claim");
(e) All actions, suits, proceedings, judgments, settlement
payments, costs and expenses (including reasonable attorneys' fees and
expenses) reasonably incurred by the Company or the Buyer incident to any of
the foregoing;
provided, that any such amounts shall
(i) be computed considering the Tax benefit to the indemnified
person arising from the indemnified matter, and
(ii) not include or be recoverable by any Person to the extent
covered by insurance available to the indemnified person.
8.2. LIMITATIONS ON LIABILITY OF SELLERS.
Notwithstanding the foregoing provisions of Section 8.1 and any
other provision of this Agreement:
(a) The Sellers shall not have any liability under this Agreement
until the aggregate amount of the indemnification obligation of the Sellers
hereunder shall exceed $400,000, in which case the Sellers shall only be
liable for the portion of such obligation in excess of $400,000, except as
set forth in Section 8.2(d) below.
(b) The Sellers shall have no liability under this Agreement for
breaches of representations or warranties or for breaches of covenants or
agreements to be performed prior to Closing, except in respect of matters as
to which the Buyer shall have asserted a claim in the manner set forth in
Section 8.5 hereof prior to the first anniversary of the Closing Date,
provided that (i) any claims relating to any inaccuracy in the Company's
representations in Section 3.2 or the Sellers' representations set forth in
Section 3.32(b) and any claims in respect of any inaccuracy in the
disclosures set forth on Schedule 3.2, shall survive the Closing
------------
indefinitely, and (ii) claims in respect of the Excluded Liabilities, any
Option Holder Claims, claims in respect of breaches of representations and
warranties set forth in Sections 3.7, 3.13 and 3.18 hereof and claims
---------------------------
determined by final, non-appealable judgment of a court of competent
jurisdiction to arise from fraud by the Sellers and/or the Company, may be
asserted at any time prior to the expiration of the applicable statutes of
limitations therefor (or any extensions thereof in the case of Tax matters).
Notwithstanding the foregoing, any claim that has been timely asserted by a
Buyer Indemnified Person in accordance with this Section 8.2(b) and Section
8.5 hereof shall survive past the applicable time limits set forth in this
Section 8.2(b) until the final resolution of the claim.
(c) The aggregate collective liability of the Sellers under this
Agreement shall not
40
exceed $17,500,000 except as set forth in Section 8.2(d) below.
(d) The minimum and maximum limitations on the Sellers' liability
set forth in Sections 8.2(a) and 8.2(c) shall not be applicable to (i)
obligations of the Sellers pursuant to Sections 2.7 and 9.7, (ii) claims in
respect of the Excluded Liabilities, (iii) any Option Holder Claims, (iv)
any claims relating to any inaccuracy in the Company's representations set
forth in Section 3.2 or the Sellers' representations set forth in Section
3.32(b), (v) any claims relating to any inaccuracy in the disclosures set
forth on Schedule 3.2 and (vi) any claims determined by final,
------------
non-appealable judgment of a court of competent jurisdiction to arise from
fraud by the Sellers; provided that, in no event shall the aggregate
collective liability of the Sellers for damages under this Agreement exceed
the sum of the Purchase Price, the aggregate amount of the Cash Out Payments
and the aggregate amount of the Employee Bonuses.
(e) Notwithstanding any provision contained herein to the contrary,
(i) except for any matters pertaining to Sections 3.2 and 3.32(b) or matters
disclosed on Schedule 3.6, Sellers shall not be liable for indemnification
------------
hereunder with respect to any breaches of representations, warranties,
covenants or agreements that Buyer or the applicable Buyer Indemnified
Person had actual knowledge of on the date hereof, and (ii) amounts payable
by Buyer or the Company pursuant to Sections 2.2, 2.5 or 7.10 or the
agreements, instruments or transactions contemplated thereby shall not be
subject to setoff, deduction, or withholding by Buyer or any other Buyer
Indemnified Person for Sellers' indemnity obligations.
8.3. INDEMNIFICATION BY BUYER.
Subject to the limitations of Section 8.4 below, from and after the
Closing the Buyer shall indemnify and hold harmless the Sellers and their
respective heirs, legal representatives, successors and assigns (the
"Sellers Indemnified Persons") against all liabilities, losses, damages,
costs and expenses reasonably incurred by them as a result of:
(a) Any misrepresentation, breach of warranty or non-fulfillment of
any agreement or covenant on the part of the Buyer, or any non-fulfillment
of any agreement of the Company after the Closing, under this Agreement, or
any misrepresentation in any certificate or other instrument furnished or to
be furnished by the Buyer to the Sellers under this Agreement;
(b) The failure by the Company or Buyer to timely pay the Employee
Bonuses; and
(c) All actions, suits, proceedings, judgments, settlement payments,
costs and expenses (including reasonable attorneys' fees and expenses)
incident to any of the foregoing;
provided, that any such amounts shall
(i) be computed considering the Tax benefit to the indemnified
person arising from the indemnified matter, and
(ii) not include or be recoverable by any Person to the extent
covered by insurance available to the indemnified person.
8.4. LIMITATIONS ON LIABILITY OF BUYER.
Notwithstanding the foregoing provisions of Section 8.3:
(a) The Buyer shall not have any liability under this Agreement until
the aggregate
41
amount of the indemnification obligation of the Buyer thereunder shall
exceed $400,000, in which case the Buyer shall only be liable for the
portion of such obligation in excess of $400,000, except as set forth in
Section 8.4(d) below.
(b) The Buyer shall have no liability under Section 8.1 for
breaches of representations or warranties or for breaches of covenants or
agreements to be performed prior to Closing except in respect of matters as
to which the Sellers shall have asserted a claim in the manner set forth in
Section 8.5 hereof prior to the first anniversary of the Closing Date,
provided that claims arising from the failure of the Company or the Buyer to
pay the Employee Bonuses and claims determined by final, non-appealable
judgment of a court of competent jurisdiction to arise from fraud by Buyer
may be asserted at any time prior to the expiration of the applicable
statutes of limitations therefor. Notwithstanding the foregoing, any claim
that has been timely asserted by a Seller Indemnified Person in accordance
with this Section 8.4(b) and Section 8.5 hereof shall survive past the
applicable time limits set forth in this Section 8.4(b) until the final
resolution of the claim.
(c) The aggregate liability of the Buyer under this Agreement shall
not exceed $4,500,000 except as set forth in Section 8.4(d) below.
(d) Notwithstanding anything to the contrary set forth herein, the
minimum and the maximum limitations on the Buyer's indemnification liability
set forth in Sections 8.4(a) and 8.4(c) shall not be applicable to any (i)
obligations of the Buyer pursuant to Section 9.7, (ii) claims determined by
final, non-appealable judgment of a court of competent jurisdiction to arise
from fraud by Buyer, or (iii) claims arising from the failure of the Company
or the Buyer to pay the Employee Bonuses or breaches of the Company's or the
Buyer's obligations set forth in Sections 7.10 and 8.8 hereof or Buyer's
payment obligations set forth under Sections 2.2 and 2.5; provided that, in
no event shall the aggregate liability of Buyer under this Article 8 exceed
the difference between (x) the sum of $4,500,000, the Purchase Price, the
aggregate amount of the Cash Out Payments, the aggregate amount of insurance
proceeds payable to the Company or the Buyer for claims under Section 8.8
hereof, and the aggregate amount of the Employee Bonuses less (y) the
aggregate amount of the Purchase Price, the Cash Out Payments and the
Employee Bonuses that were actually paid by the Buyer or the Company.
(e) Notwithstanding any provision contained herein to the contrary,
Buyer shall not be liable for indemnification hereunder with respect to any
breaches of representations, warranties, covenants or agreements that the
Sellers or the Sellers Indemnified Persons had actual knowledge of on the
date hereof.
8.5. NOTICE OF CLAIM.
In the event that Buyer seeks indemnification on behalf of a Buyer
Indemnified Person, or Sellers seek indemnification on behalf of a Seller
Indemnified Person, such Party seeking indemnification (the "Indemnified
Party") shall give reasonably prompt written notice to the Party from which
it seeks indemnification (the "Indemnifying Party") specifying the facts
constituting the basis for such claim and the amount, to the extent known,
of the claim asserted. The Parties shall attempt for not less than thirty
(30) days to negotiate a mutually satisfactory resolution of such matter. In
the event the Parties are not able to agree on a mutually satisfactory
resolution, either Party may seek to resolve the dispute by litigation in
any court of competent jurisdiction.
42
8.6. RIGHT TO CONTEST CLAIMS OF THIRD PERSONS.
If an Indemnified Party is entitled to indemnification hereunder
because of a claim asserted by any claimant other than an indemnified person
hereunder (a "Third Person"), the Indemnified Party shall give the
Indemnifying Party reasonably prompt written notice thereof. The
Indemnifying Party shall have the right, upon written notice to the
Indemnified Party, and using counsel reasonably satisfactory to the
Indemnified Party, to investigate, contest, control the defense of or settle
the claim alleged by such Third Person (a "Third-Person Claim"); the
Indemnified Party may thereafter participate in (but not control) the
defense of any such Third-Person Claim with its own counsel at its own
expense. If the Indemnifying Party shall fail to assume the defense of any
such Third-Person Claim,
(a) the Indemnified Party, in good faith, may defend against such
claim, in such manner as it may deem appropriate, including, but not limited
to, settling such claim, after giving at least thirty (30) days' advance
notice of any proposed settlement to the Indemnifying Party and receiving
the Indemnifying Party's prior written consent, which may not be
unreasonably withheld, on such terms as the Indemnified Party, in good
faith, may deem appropriate, and
(b) the Indemnifying Party may participate in (but not control) the
defense of such action, with its own counsel at its own expense. The Parties
shall make available to each other all relevant information in their
possession relating to any such Third-Person Claim and shall cooperate in
the defense thereof.
8.7. EXCLUSIVE REMEDY.
The provisions of this Article VIII shall constitute the sole and
exclusive remedy of the Parties from and after the Closing with respect to
any claims resulting from or arising out of the provisions of this Agreement
or the transactions contemplated hereby, other than claims determined by
final, non-appealable judgment of a court of competent jurisdiction to arise
from fraud.
8.8. DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
(a) From and after the Closing, Buyer and the Company shall
indemnify, defend and hold harmless the present and former officers and
directors of the Company (the "Indemnified Officers/Directors") against all
losses, expenses (including reasonable attorneys' fees), claims, damages,
liabilities or amounts ("Losses") that are paid in settlement (provided that
such settlement has been approved by Buyer, such approval not to be
unreasonably withheld) of, or otherwise in connection with, any actual or
threatened claim, action, suit, proceeding or investigation, based in whole
or in part on the fact that such person is or was a director or officer of
the Company and arising out of actions or omissions occurring on or prior to
the Closing Date (but excluding the transactions contemplated hereby except
in the case of the Sellers, claims for which the Sellers are entitled to be
indemnified by Buyer hereunder or claims for which the Sellers are covered
by directors' and officers' liability insurance coverage), in each case, to
the full extent permitted under the Company's certificate of incorporation
and by-laws (to the fullest extent permitted by the General Corporation Law
of the State of Delaware ("DGCL")). Without limiting the generality of the
foregoing, Buyer and the Company shall, to the fullest extent permitted by
the Company's certificate of incorporation and by-laws (and to the fullest
extent permitted by DGCL), advance expenses, costs and obligations
(including reasonable attorneys' fees) reasonably incurred or to be incurred
by an Indemnified Officer/Director in defending any
43
such actual or threatened civil, criminal, administrative or investigative
action, suit or proceeding, such advancement to occur promptly after
submission to Company of a reasonably itemized statement or retainer
agreement therefor and upon a written undertaking by such Indemnified
Officer/Director to repay any and all such amounts if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company.
To the extent that Buyer and/or the Company maintains directors' and
officers' liability insurance, each Indemnified Officer/Director shall
comply with the requirements of the provisions of any such insurance
policies (including, without limitation, the utilization of defense counsel
directed by the insurance carrier), provided that, nothing herein shall
limit, restrict, eliminate or modify an Indemnified Officer/Director's right
to indemnification or expense advancement from Buyer and the Company in the
event all or any portion of the amount for which such Indemnified
Officer/Director shall be entitled to indemnification or advancement
hereunder is not covered by such insurance. Notwithstanding anything to the
contrary contained herein, no Person shall be entitled to indemnification in
respect of any Losses, costs or expenses arising out of that individual's
acts or omissions that would not meet the applicable standards of conduct
set forth in subsections (a) and (b) of Section 145 of the DGCL, as
applicable.
(b) The Company shall, and Buyer shall cause the Company to keep in
effect provisions in the Company's certificate of incorporation and bylaws
providing for exculpation of director liability and its indemnification of
the Indemnified Officers/Directors (including, without limitation,
advancement of expenses), which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that
would enlarge the right of indemnification of the Indemnified
Officers/Directors.
(c) For a period of three (3) years after the Closing Date, the
Buyer shall cause the Company to, maintain in effect the current policies of
directors' and officers' liability insurance maintained by the Company, or
policies providing substantially the same coverage, covering persons who are
currently covered by the Company's officers' and directors' liability
insurance policies with respect to actions or omissions occurring at or
prior to the Closing Date, to the extent that such policies are available;
provided, however, that policies of at least the same coverage containing
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terms and conditions which are no less advantageous to the insureds may be
substituted therefor, but, in no event shall Buyer or the Company be
required to spend more than an amount per year equal to 150% of the current
annual premiums paid by the Company for such insurance coverage.
(d) The provisions of this Section 8.8 shall survive the Closing
and are expressly intended to benefit each of the Indemnified
Officers/Directors.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
9.1. TERMINATION OF THE AGREEMENT; EFFECT OF TERMINATION.
This Agreement may be terminated at any time prior to the Closing
Date:
(a) by mutual written agreement of the Parties,
(b) by any Party if the Closing shall not have occurred on or
before May 31, 2002,
44
(c) by (i) the Company or Sellers if Buyer shall violate any of its
obligations hereunder in any material respect and if such violation shall
not be corrected within ten (10) days following delivery of a written notice
of such violation from the Company or Sellers, as the case may be, to Buyer,
or (ii) by Buyer if the Company or Sellers shall violate any of their
respective obligations hereunder in any material respect and if such
violation shall not be corrected within ten (10) days following delivery of
a written notice of such violation from Buyer to the Company or Sellers, as
the case may be, or
(d) by any Party if there shall be any Law that makes consummation
of the transactions contemplated hereby illegal or otherwise prohibited or
if consummation of the transactions contemplated hereby would violate any
nonappealable, final judgment, injunction, order or decree of any court or
Government body having competent jurisdiction.
In the event of termination of this Agreement pursuant to this
Section 9.1, (i) written notice thereof shall be given by the Party
terminating to each other Party hereto, (ii) this Agreement (other than
Article 9 and Section 7.5, which shall survive any such termination) shall
forthwith become null, void and of no further force or effect, and (iii)
there shall be no liability on the part of any Party hereto or their
respective officers and directors to any other Party hereto; provided that
no such termination shall relieve any Party from liability for any knowing
and intentional breach of such Party's representations, warranties,
covenants or agreements hereunder.
9.2. NOTICE.
All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to
have been duly given and made upon being delivered to the recipient Party by
recognized courier service, fax transmission (with confirmation of receipt)
or by registered or certified mail (postage prepaid, return receipt
requested), and addressed to the applicable address set forth below or such
other address as may be designated in writing hereafter by the recipient
Party:
If to Buyer:
Engineered Support Systems, Inc.
201 Evans Lane
St. Louis, Missouri 63121-1126
Attn: Gary C. Gerhardt, Vice Chairman and CFO
Fax: (314) 553-4997
With copies to:
David D. Mattern, Esquire
c/o Engineered Support Systems, Inc.
201 Evans Lane
St. Louis, Missouri 63121
Fax: (314) 553-4941
45
Wittner, Poger, Spewak, Maylack & Spooner, P.C.
7733 Forsyth Blvd., Suite 2000
St. Louis, Missouri 63105
Attn: David S. Spewak, Esquire
Fax: (314) 862-5741
If to Sellers:
Mr. Timothy B. Fleischer
Mrs. Kari J. Fleischer
9890 Gold Dust Court
Vienna, VA 22181
If to the Company:
Radian, Inc.
5845 Richmond Highway, Suite 725
Alexandria, VA 22303
Fax: (703) 329-9510
Attn: Timothy B. Fleischer, President
With a copy to:
Shaw Pittman, LLP
1650 Tysons Blvd.
McLean, Virginia 22102-4859
Attn: Lawrence T. Yanowitch, Esquire
Fax: (703) 770-7901
9.3. ENTIRE AGREEMENT.
This Agreement, the Schedules hereto, the Confidentiality
Agreement, and the Exhibits hereto constitute the entire agreement and
understanding between the Parties hereto with respect to the subject matter
hereof and supersede all prior and contemporaneous agreements and
understandings relative to such subject matter. In entering into this
Agreement, Buyer has relied solely on representations, warranties,
disclosures and covenants made in this Agreement (and the Schedules and
Exhibits hereto) and any certificates and documents required to be provided
by the Company or the Sellers pursuant to Article VI of this Agreement.
Buyer has been represented by counsel and has had sufficient opportunity to
examine and understand the Business and assets of the Company.
46
9.4. ASSIGNMENT; BINDING AGREEMENT.
This Agreement and the rights and obligations arising hereunder
shall be binding upon and shall inure to the benefit of the Parties and to
their respective heirs, legal representatives, successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be transferred, delegated, or assigned by any of
the Parties without the prior written consent of the other Parties, except
that Buyer may, without the consent of the Sellers or the Company, assign
its interest in this Agreement to a subsidiary of Buyer provided that in
such instance, Buyer shall remain primarily liable for all obligations under
this Agreement.
9.5. COUNTERPARTS.
This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
9.6. HEADINGS; INTERPRETATION.
The article and section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of the Agreement. Each reference in this Agreement to an
Article, Section, Schedule or Exhibit, unless otherwise indicated, shall
mean an Article or a Section of this Agreement or a Schedule or Exhibit
attached to this Agreement, respectively. References herein to "days,"
unless otherwise indicated, are to consecutive calendar days. All of the
Parties have participated substantially in the negotiation and drafting of
this Agreement and agree that no ambiguity herein shall be construed against
any Party.
9.7. EXPENSES.
Each Party shall bear its (or their) own costs and expenses
incurred in connection with the negotiation, preparation and execution of
this Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, fees and expenses of attorneys, accountants,
consultants, investment bankers and other financial advisors; it being
understood that all fees and expenses of Houlihan, Lokey, Howard and Zukin
incurred in connection the transactions contemplated by this Agreement shall
be borne by the Sellers.
9.8. GOVERNING LAW.
This Agreement shall in all respects be construed in accordance
with and governed by the substantive laws of the State of Missouri, without
reference to its choice of law rules.
9.9. THIRD PARTY BENEFICIARIES.
No provision of this Agreement is intended to confer upon any
Person other than the Parties and the Company any rights or remedies
hereunder; provided that, the provisions of Section 8.8 hereof shall inure
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to the benefit of, and be enforceable by, the Indemnified Officers/Directors.
47
9.10. AMENDMENTS AND WAIVERS.
Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case
of an amendment, by each Party, or in the case of a waiver, by the Party
against which the waiver is to be effective.
9.11. SURVIVAL OF COVENANTS.
The covenants and agreements to be performed by the Parties after
the Closing shall continue and survive the Closing in accordance with their
terms.
9.12. SPECIFIC PERFORMANCE.
The Parties hereto agree that if any of the provisions of Article
II hereof that were to be performed prior to or at the Closing were not
performed in accordance with their specific terms or were otherwise
breached, irreparable damage would occur, no adequate remedy at law would
exist and damage would be difficult to determine, and that, in addition to
any other remedy to which the Parties may be entitled hereunder in
connection with such nonperformance or breach, the Parties shall be entitled
to specific performance of the terms thereof and injunctive relief, without
the necessity of proving money damages as an inadequate remedy.
9.13. TERMINATION OF REPURCHASE AGREEMENT.
The Company and the Sellers covenant and agree with the Buyer
that effective upon the Closing, that certain Buy/Sell Agreement, by and
among the Company and the Sellers providing for the repurchase of a
stockholder party's shares upon termination of employment (as disclosed in
Schedule 3.6) shall automatically terminate without any further action of
------------
the parties thereto and such Buy/Sell Agreement shall be of no further force
and effect after the Closing Date.
[Signatures Next Page]
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IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first above written.
ENGINEERED SUPPORT SYSTEMS, INC.
By: /s/ Gary Gerhardt
---------------------------------------
Gary Gerhardt, Vice Chairman and CFO
"BUYER"
/s/ Timothy B. Fleischer
---------------------------------------
Timothy B. Fleischer
/s/ Kari J. Fleischer
---------------------------------------
Kari J. Fleischer
"SELLERS"
RADIAN, INC.
By: /s/ Timothy B. Fleischer
---------------------------------------
Timothy B. Fleischer, President and CEO
"COMPANY"
49