SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
FTI CONSULTING, INC.
(Registrant)
By: /s/ Gary Sindler
---------------------------------------
Gary Sindler
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
DATED: October 9, 1998
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
FTI CONSULTING, INC.
AND
GLENN R. BAKER AND
DENNIS A. GUENTHER
DATED AS OF SEPTEMBER 25, 1998 AND
WITH ECONOMIC EFFECT FROM SEPTEMBER 1, 1998
TABLE OF CONTENTS
1. STOCK PURCHASE AND RELATED MATTERS........................................1
1.1 TRANSFER OF STOCK....................................................1
1.2 PURCHASE PRICE.......................................................1
1.3 ACCOUNTING TERMS.....................................................2
1.4 EFFECTIVE DATE.......................................................2
2. CLOSING...................................................................2
2.1 LOCATION AND DATE....................................................2
2.2 DELIVERIES...........................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................3
3.1 DUE ORGANIZATION.....................................................3
3.2 AUTHORIZATION; VALIDITY..............................................3
3.3 NO CONFLICTS.........................................................4
3.4 CAPITAL STOCK OF THE COMPANY.........................................4
3.5 TRANSACTIONS IN CAPITAL STOCK........................................4
3.6 ABSENCE OF CLAIMS AGAINST COMPANY....................................5
3.7 SUBSIDIARIES AND STOCK...............................................5
3.8 COMPLETE COPIES OF MATERIALS.........................................5
3.9 FINANCIAL STATEMENTS.................................................5
3.10 LIABILITIES AND OBLIGATIONS..........................................5
3.11 BOOKS AND RECORDS....................................................6
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY....................................6
3.13 ACCOUNTS AND NOTES RECEIVABLE........................................6
3.14 PERMITS..............................................................7
3.15 REAL PROPERTY........................................................7
3.16 PERSONAL PROPERTY....................................................9
3.17 INTELLECTUAL PROPERTY................................................9
3.18 MATERIAL CONTRACTS AND COMMITMENTS..................................11
3.19 GOVERNMENT CONTRACTS................................................12
3.20 [Intentionally Deleted].............................................12
3.21 INSURANCE...........................................................12
3.22 ENVIRONMENTAL MATTERS...............................................12
3.23 LABOR AND EMPLOYMENT MATTERS........................................14
3.24 EMPLOYEE BENEFIT PLANS..............................................14
3.25 TAXES...............................................................19
3.26 CONFORMITY WITH LAW; LITIGATION.....................................21
3.27 RELATIONS WITH GOVERNMENTS..........................................21
3.28 ABSENCE OF CHANGES..................................................22
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3.29 DISCLOSURE..........................................................23
4. REPRESENTATIONS OF BUYER.................................................24
4.1 DUE ORGANIZATION....................................................24
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS..............................24
4.3 NO CONFLICTS........................................................24
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.............................25
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..........25
5.2 NO LITIGATION.......................................................25
5.3 OPINION OF SELLERS' COUNSEL.........................................25
5.4 CONSENTS AND APPROVALS..............................................25
5.5 SECRETARY'S CERTIFICATE AND CHARTER DOCUMENTS.......................25
5.6 EMPLOYMENT AGREEMENTS...............................................26
5.7 CLOSING DELIVERIES..................................................26
5.8 DUE DILIGENCE.......................................................26
5.9 NO CONFLICTS OF INTEREST............................................26
5.10 LEASES..............................................................26
5.11 YEAR 2000 COMPLIANCE................................................26
5.12 SHAREHOLDERS' AGREEMENT.............................................26
5.13 GUARANTEE OF INDUSTRIAL REVENUE BOND................................26
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS..................27
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..........27
6.2 NO LITIGATION.......................................................27
6.3 CONSENTS AND APPROVALS..............................................27
6.4 OPINION OF BUYER'S COUNSEL..........................................27
6.5 EMPLOYMENT AGREEMENTS...............................................27
6.6 LEASES..............................................................27
7. CERTAIN COVENANTS........................................................28
7.1 NOTIFICATION OF CERTAIN MATTERS.....................................28
7.2 UNPAID TAXES........................................................28
7.3 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE....................28
7.4 COOPERATION ON TAX MATTERS..........................................28
7.5 CERTAIN TAXES.......................................................29
7.6 PROFESSIONAL LIABILITY INSURANCE .................................29
8. INDEMNIFICATION..........................................................29
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.........................29
8.2 LIMITATION AND EXPIRATION...........................................30
8.3 INDEMNIFICATION PROCEDURES..........................................31
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8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS................33
8.5 EXERCISE OF RIGHT OF OFFSET.........................................33
8.6 REMEDIES CUMULATIVE.................................................34
9. NONCOMPETITION AND CONFIDENTIALITY.......................................34
9.1 EMPLOYMENT AGREEMENTS. ............................................34
10. GENERAL..................................................................34
10.1 SUCCESSORS AND ASSIGNS.............................................34
10.2 ENTIRE AGREEMENT...................................................34
10.3 COUNTERPARTS.......................................................34
10.4 BROKERS AND AGENTS.................................................35
10.5 EXPENSES...........................................................35
10.6 SPECIFIC PERFORMANCE; REMEDIES.....................................35
10.7 NOTICES............................................................35
10.8 GOVERNING LAW......................................................36
10.9 SEVERABILITY.......................................................36
10.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS..........................36
10.11 AMENDMENT; WAIVER..................................................37
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SCHEDULES:
3.1(a) Jurisdictions Authorized or Qualified to do Business in
3.1(b) List of Directors and Officers
3.3 Conflicts
3.4 Outstanding Capital Stock
3.9 Financial Statements
3.10 Liabilities and Obligations
3.12 Bank Accounts; Powers of Attorney
3.13 Notes Receivable
3.14 Permits
3.15(b) Real Property
3.15(c) Real Property Supplement
3.16(a) Personal Property
3.17(a) Registered and Unregistered Marks
3.17(b)(i) Patents
3.17(b)(ii) Copyright Registrations
3.17(d) Intellectual Property
3.18(a) Significant Customers and Significant Suppliers
3.18(b) Material Contracts
3.18(c) Canceled Contracts
3.18(d) Third Party Consents
3.19 Government Contracts
3.21 Insurance
3.22(a) Hazardous Materials
3.22(c) Permits and Compliance
3.22(d) Environmental Permits
3.23(c) At-will Employees
3.24(b) Company Plans and Company Benefit Arrangements
3.24(c) Amendments to Company Benefit Plans
3.24(d) Worker's Compensation Claims
3.24(e) Key Employees
3.25(b) Taxes
3.25(c) Assets
3.26(b) Conformity with Law; Litigation
3.28 Absence of Changes
7.6 Insurance
8.1(a) Certain Indemnified Matters
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EXHIBITS:
Exhibit 1.2A Form of Baker Promissory Note
Exhibit 1.2B Form of Guenther Promissory Note
Exhibit 5.6A Form of Baker Employment Agreement
Exhibit 5.6B Form of Guenther Employment Agreement
Exhibit 5.10A Form of Main Headquarters Facility Lease Agreement
Exhibit 5.10B Form of Secondary Headquarters Facility Lease Agreement
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 25th day of September, 1998, by and among FTI Consulting, Inc., a Maryland
corporation ("Buyer"), and Glenn R. Baker and Dennis A. Guenther (each a
"Stockholder" and collectively, the "Stockholders").
RECITALS
A. The Stockholders are the owners of all of the issued and outstanding
shares (the "Shares") of the capital stock of S.E.A., Inc., an Ohio corporation
(the "Company").
B. The Stockholders desire to sell to Buyer and Buyer desires to purchase
from the Stockholders the Shares pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE AND RELATED MATTERS
1.1 TRANSFER OF STOCK. Upon the terms and subject to the conditions hereof,
at the Closing (as defined in Section 2.1), Buyer will purchase from the
Stockholders, and the Stockholders will sell, transfer and deliver to Buyer, all
of the Shares free and clear of all Liens (defined below) in consideration of
payment of the Purchase Price specified in Section 1.2. For the purposes of this
Agreement, "Lien" means any security interest, pledge, encumbrance, lien
(statutory or otherwise), charge, security agreement, option, right of first
refusal, preemptive right, restriction on transfer or preferential arrangement
of any kind or nature whatsoever.
1.2 PURCHASE PRICE.
(a) Closing Payment; Notes. For purposes of this Agreement, the
"Purchase Price" shall be $15,630,000.00 and shall be paid to the Stockholders
as follows:
(i) Buyer shall pay $10,000,000 in cash (the "Closing Payment")
to the Stockholders at Closing; and
(ii) Buyer shall deliver promissory notes in the forms attached
hereto as Exhibits 1.2A and 1.2B (each a "Note" and, collectively, the "Notes")
evidencing Buyer's obligation to pay the balance of the Purchase Price to the
Stockholders in accordance with the following schedule: (a) $3,000,000 on
September 30, 1999 (the "First Payment") and (b) $2,630,000 on September 30,
2000 (the "Second Payment"). The Notes shall provide for payment of simple
interest on the unpaid principal at the rate of 7.5% per annum from and after
the Closing Date and shall provide for payments to the Stockholders of all
accrued but unpaid interest in quarterly installments commencing on December 31,
1998 and continuing on the last day of each succeeding
March, April, September, and December thereafter until the Notes are paid in
full (the "Interest Payments").
(b) Right of Offset. Buyer shall have the right to deduct and offset
the amount of any indemnification claim under Section 8.1 against the payments
of principal and interest due and owing under the terms of the Notes, in order
of maturity, pursuant to the terms of Section 8.5.
(c) No Acquisitions upon Event of Default. If an Event of Default (as
defined in the Notes) has occurred and is continuing, Buyer shall not enter into
any binding agreement to acquire, or consummate the acquisition of, any entity,
whether by merger, stock or asset purchase or otherwise, requiring financing,
without the prior written permission of the Stockholders.
1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles ("GAAP"), consistently
applied.
1.4 EFFECTIVE DATE. The consummation of the transactions contemplated by
this Agreement shall be deemed effective as of September 1, 1998 (the "Effective
Date") and, except as may be provided to the contrary in Section 8.1
(indemnification by the Stockholders), all economic profits and losses of the
Company as of the Effective Date shall accrue to the benefit of and be deemed to
be the responsibility of Buyer. The representations and warranties of the
parties set forth in Articles 3 and 4 hereof shall be effective as of the
Closing Date unless they specifically refer to an earlier date.
2. CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at 10:00 a.m., local time, at
the offices of Wilmer, Cutler & Pickering, 100 Light Street, 13th Floor,
Baltimore, Maryland on or before September 25, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as Buyer and the Stockholders may mutually agree, which date shall be
referred to as the "Closing Date."
2.2 DELIVERIES. The Stockholders shall deliver to Buyer the following at
the Closing: (a) stock certificates representing the Shares, accompanied by
stock powers duly executed in blank or duly executed instruments of transfer and
any other documents that are necessary to transfer to Buyer good and marketable
title to the Shares free and clear of all Liens; (b) resignations of directors
of the Company as Buyer may request; (c) a properly executed statement as to
nonforeign person status in a form reasonably acceptable to Buyer for purposes
of satisfying Buyer's obligations under Treasury Regulation ss. 1.1445-2(b)(2);
and (d) all other documents, certificates, instruments or writings required to
be delivered by the Stockholders or the Company at or prior to the Closing
2
pursuant to this Agreement or otherwise required in connection herewith. Against
delivery of the Shares and the foregoing deliveries, Buyer shall deliver to the
Stockholders at the Closing in immediately available funds the Closing Payment,
the Notes, and all other documents, certificates, instruments or writings
required to be delivered by Buyer at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith. Upon condition that the
Closing shall have occurred, Buyer shall deliver to the Stockholders the First
Payment, Second Payment, and all Interest Payments upon the dates provided in
Section 1.2 in immediately available funds according to such instructions as the
Stockholders shall deliver to Buyer in writing no later than five (5) days prior
to the date of each such payment.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Stockholders, jointly and
severally, represents and warrants to Buyer as follows (for purposes of this
Agreement, the phrases "knowledge of the Stockholders" or the "Stockholders'
knowledge," or words of similar import, means the knowledge of the Stockholders,
Yvonne Brown, Michael Holman, Robert Laumon, Michael Carrocci, or any of them,
or the other directors and officers of the Company (if any), including, without
limitation, facts of which such persons, in the reasonably prudent exercise of
their duties, should be or should have been aware:
3.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly authorized and qualified under all applicable
laws, regulations, ordinances and orders of public authorities to do business;
to own, operate and lease its properties; and to carry on its business in the
places and in the manner as now conducted, except where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets, profits, or
condition (financial or otherwise) of the Company. Schedule 3.l(a) hereto
contains a list of all jurisdictions in which the Company is authorized or
qualified to do business. The Company is in good standing as a foreign
corporation in each jurisdiction in which it does business. The Company has
delivered to Buyer true, complete and correct copies of the Articles of
Incorporation and Regulations of the Company. Such Articles of Incorporation and
Regulations are collectively referred to as the "Charter Documents." The Company
is not in violation of any Charter Documents. The minute books of the Company
have been made available to Buyer (and have been delivered, along with the
Company's original stock ledger to Buyer) and are correct and complete in all
material respects. Schedule 3.1(b) contains a complete and accurate list of the
directors and officers of the Company.
3.2 AUTHORIZATION; VALIDITY. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
the leases required pursuant to Section 5.10. The Stockholders have the full
legal right and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of the leases
required pursuant to Section 5.10 have been duly and validly authorized by the
Board of Directors of the Company. This Agreement is a legal, valid and binding
obligation of each of the
3
Stockholders enforceable against each of them in accordance with its terms. The
lease agreements required pursuant to Section 5.10 are legal, valid and binding
obligations of the Company enforceable against it in accordance with its terms.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) except as set forth on Schedule 3.3, conflict with, or result in a
default (or would constitute a default but for any requirement of notice or
lapse of time or both) under, any document, agreement or other instrument to
which the Company or the Stockholders is a party or by which the Company or the
Stockholders is bound, or result in the creation or imposition of any Lien,
charge or encumbrance on any of the Company's properties pursuant to (i) any law
or regulation to which the Company or the Stockholders or any of their
respective property is subject, or (ii) any judgment, order or decree to which
the Company or the Stockholders is bound or any of their respective property is
subject;
(c) except as set forth on Schedule 3.3, result in termination or any
impairment of any permit, license, franchise, contractual right or other
authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or the Stockholders is subject or by which the
Company or the Stockholders is bound.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 500 common shares, without par value, of which 60 shares are
issued and outstanding. All of the Shares have been duly authorized and validly
issued and are fully paid and nonassessable. All of the Shares were offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Further, none of
the Shares was issued in violation of any preemptive rights. There are no voting
agreements or voting trusts with respect to any of the Shares, except such
agreements as will be terminated by the Stockholders at Closing. The number of
Shares owned by each Stockholder and the percentage interest in the Company
represented by such Shares is set forth on Schedule 3.4. The Stockholders are
the sole record and beneficial owners of all of the Shares, and hold good and
marketable title to the Shares, free and clear of all Liens.
3.5 TRANSACTIONS IN CAPITAL STOCK. No option, warrant, call, preemptive
right, subscription right, conversion right or other contract or commitment of
any kind exists of any character, written or oral, which may obligate the
Company or a Stockholder to issue or sell any shares of capital stock, or by
which any shares of capital stock may otherwise become outstanding. The Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire
4
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. As a result of the transactions
contemplated by this Agreement, Buyer will be the record and beneficial owner of
all outstanding capital stock of the Company and all rights to acquire capital
stock of the Company.
3.6 ABSENCE OF CLAIMS AGAINST COMPANY. Except for the Related Party
Agreements (as defined in Section 3.18), neither of the Stockholders has any
claims of any kind against the Company, nor have the Stockholders assigned any
such claims to any third party.
3.7 SUBSIDIARIES AND STOCK. The Company has no subsidiaries. The Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
3.8 COMPLETE COPIES OF MATERIALS. The Company has delivered to Buyer true
and complete copies of each agreement, contract, commitment or other document
(or summaries thereof) that is referred to in the Schedules or that has been
requested by Buyer.
3.9 FINANCIAL STATEMENTS. Schedule 3.9 includes (a) true, complete and
correct copies of the Company's audited balance sheets as of December 31, 1996
and 1997 (the end of its most recent completed fiscal year), and income
statements for the years ended December 31, 1996 and 1997 (collectively, the
"Audited Financials") and (b) true, complete and correct copies of the Company's
unaudited balance sheet (the "Interim Balance Sheet") as of August 31, 1998 (the
"Balance Sheet Date") and income statement, for the eight-month period then
ended (collectively, the "Interim Financials," and together with the Audited
Financials, the "Company Financial Statements"). The Company Financial
Statements have been prepared from the books and records of the Company in
accordance with GAAP consistently applied throughout the periods specified
therein and present fairly the financial condition and results of operations of
the Company as of the dates and for the periods specified therein, except as may
be indicated in the notes thereto and except that the Interim Financials do not
include provisions for deferred tax assets or liabilities or current or deferred
income Taxes and may be subject to normal year-end audit adjustments. Since the
dates of the Company Financial Statements, there have been no material changes
in the Company's accounting policies.
3.10 LIABILITIES AND OBLIGATIONS.
(a) Except as set forth on Schedule 3.10, the Company is not liable
for nor subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
5
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) For purposes of this Section 3.10, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured.
3.11 BOOKS AND RECORDS. The Company has made and kept books and records and
accounts, which, in reasonable detail, accurately and fairly reflect its
activities. The Company has not engaged in any transaction, maintained any bank
account, or used any corporate funds except for transactions, bank accounts, and
funds which have been and are reflected in its normally maintained books and
records.
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.12 sets forth a complete
and accurate list as of the date of this Agreement of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
3.13 ACCOUNTS AND NOTES RECEIVABLE. Schedule 3.13 sets forth a complete and
accurate list of the Company's notes receivable. The Company has delivered to
Buyer (i) an accurate summary as of August 31, 1998 and (ii) a complete and
accurate list as of a date not more than two (2) business days prior to the
Closing, of the accounts receivable of the Company (including without limitation
receivables from and advances to employees and the Stockholders), which includes
an aging of all accounts receivable showing amounts due in 30-day aging
categories (collectively, the
6
"Accounts Receivable"). All Accounts Receivable represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business. The Accounts Receivable are current and collectible net of
any respective reserves shown on the Company's books and records with respect to
such Accounts Receivable (which reserves are adequate and calculated consistent
with past practice). Subject to such reserves, each of the Accounts Receivable
will be collected in full, without any set-off. There is no contest, claim, or
right of set-off under any contract with any obligor of an Account Receivable
relating to the amount or validity of such Account Receivable.
3.14 PERMITS. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles, licenses and franchises necessary to be owned or held by it for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former stockholder, officer, manager, member or
employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any of the Permits. The Company has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits and other applicable orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing. The transactions contemplated by this Agreement will not result
in a default under any Permit, or result in a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any Permit,
except such Permits as are set forth on Schedule 3.14, for which the Company has
duly filed such notices or applications necessary to effectuate the continuation
of all rights and benefits of such Permits after the Closing Date. Each
Stockholder and all other persons employed, hired or retained by the Company
have, or have valid applications pending for, all professional licenses required
to be used by such persons in the conduct of the business of the Company as and
where currently conducted, and all such licenses are valid.
3.15 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
leased, used or enjoyed by the Company, together with any additions thereto or
replacements thereof. The Company does not own any Real Property.
(b) Schedule 3.15(b) contains a complete and accurate description of
all Real Property (including street address, owner, landlord and Company's use
thereof), and sets forth a true and complete list of all oral or written leases,
subleases, licenses, concession agreements or other use or occupancy agreements
pursuant to which the Company leases from any other party any Real Property,
including all amendments, renewals, extensions, modifications or supplements to
any of the foregoing or substitutions for any of the foregoing (collectively,
the "Leases"). The Real
7
Property listed on Schedule 3.15(b) includes all interests in real property
necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.15(c):
(i) The Company has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
(ii) All structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including
but not limited to the walls, roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facility
included therein, and other material items at the Real Property (collectively,
the "Tangible Assets"), are free of defects and in good operating condition and
repair, ordinary wear and tear excepted. For purposes of this Section, a defect
shall mean a single condition or any number of conditions relating to the
structures or any structural, mechanical or physical system which requires an
expenditure of more than $5,000 to correct.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in the conduct of the Company's business are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Company's business and to permit full compliance with the
requirements of all laws in the operation of such business.
(iv) The Real Property and all present uses and operations of the
Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the use, occupation and operation of the Real Property.
(v) There are no pending or, to the Stockholders' knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company
8
received notice of any pending or threatened special assessment proceedings
affecting any portion of the Real Property.
(vi) There are no parties other than the Company in possession of
any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any other party or parties the right of use or occupancy of any portion of
the Real Property or any portion thereof.
(vii) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid at or
prior to Closing.
(viii) The Company's interests under the Leases are free of all
Liens, except for restrictions on transfer as set forth on Schedule 3.18(d).
(ix) Except as set forth on Schedule 3.18(d), none of the Leases
requires the consent or approval of any party thereto in connection with the
consummation of the transactions contemplated hereby.
3.16 PERSONAL PROPERTY.
(a) Schedule 3.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment (the "Personal Property Leases") and an indication as to
which assets are currently owned, or were formerly owned, by the Stockholders or
the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the material machinery and equipment of the Company,
including that listed on Schedule 3.16(a), are in good working order and
condition, ordinary wear and tear excepted. All Personal Property Leases are in
full force and effect and constitute valid and binding agreements of the
Company, and the Company is not in breach of any of their terms. All fixed
assets used by the Company that are material to the operation of its business
are either owned by the Company or leased pursuant to one or more of the
Personal Property Leases.
3.17 INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is validly
licensed to operate under or use or otherwise possesses legally enforceable
rights to use, the registered and unregistered Marks (defined below) it uses in
the course of its business. Schedule 3.17(a) lists (i) all of the Marks
registered in the United States Patent and Trademark Office ("PTO") or the
equivalent thereof in any
9
state of the United States or in any foreign country, and (ii) all of the
unregistered Marks that the Company now owns or uses in connection with its
business. For purposes of this Section 3.17, the term "Mark" shall mean all
right, title and interest in and to any United States or foreign trademarks,
service marks and trade names now held by the Company, including any
registration or application for registration of any trademarks and service marks
in the PTO or the equivalent thereof in any state of the United States or in any
foreign country, as well as any unregistered marks used by the Company, and any
trade dress (including logos, designs, company names, business names, fictitious
names and other business identifiers) used by the Company in the United States
or any foreign country.
(b) The Company is the true and lawful owner of, or is validly
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents (defined below) and Copyrights (defined below) it uses in the course
of its business. Schedule 3.17(b)(i) lists all such Patents and Schedule
3.17(b)(ii) lists all such Copyrights. For purposes of this Section 3.17, the
term "Patent" shall mean any United States or foreign patent to which the
Company has title as of the date of this Agreement, as well as any application
for a United States or foreign patent made by the Company; the term "Copyright"
shall mean any United States or foreign copyright owned by the Company as of the
date of this Agreement in both published and unpublished works which the Company
has taken affirmative actions to protect during the last five (5) years,
including any registration of copyrights, in the United States Copyright Office
or the equivalent thereof in any foreign country, as well as any application for
a United States or foreign copyright registration made by the Company.
(c) The Company owns or is validly licensed to use all trade secrets,
franchises, technology, proprietary rights, know-how, or similar rights
(collectively, the "Other Rights") that it uses or practices in connection with
the operation of its business.
(d) The Marks, Patents, Copyrights, and Other Rights are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.17(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether or not requiring the payment of royalties.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 3.17(a), (b)(i), or (b)(ii). No claims with
respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending or, to the Stockholders' knowledge, are
threatened by any person, nor, to the Stockholders' knowledge, do any grounds
for any claims exist: (i) to the effect that the services provided by the
Company, or the sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by the Company misappropriates,
misuses or infringes on any
10
copyright, patent, trademark, service mark or trade secret; (ii) against the use
by the Company of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the Company's business as currently conducted by the Company; (iii)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property or other trade secret material to the Company; or (iv)
challenging the Company's license or legally enforceable right to use of the
Third Party Intellectual Property. To the Stockholders' knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. The Company has (x) not been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, patents, trademarks, service
marks, or copyrights and which has not been finally terminated, or been informed
or notified by any third party that the Company may be engaged in such
infringement or (y) no knowledge of any infringement liability with respect to,
or infringement by, the Company of any trade secret, patent, trademark, service
mark, or copyright of another.
3.18 MATERIAL CONTRACTS AND COMMITMENTS.
(a) Schedule 3.18(a) sets forth a complete and accurate list of all
Significant Customers and Significant Suppliers. For purposes of this Agreement,
"Significant Customers" are the twenty (20) customers that have effected the
most purchases, in dollar terms, from the Company during each of the past four
(4) fiscal quarters, and "Significant Suppliers" are the twenty (20) suppliers
who supplied the largest amount by dollar volume of products or services to the
Company during the twelve (12) months ending on the Balance Sheet Date.
(b) Schedule 3.18(b) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements), other than agreements with customers for the performance of
services or delivery of goods or materials by the Company entered into by the
Company in the ordinary course of business (i) to which the Company and the
Stockholders or any affiliate of the Company, the Stockholders or any officer or
director of the Company are parties ("Related Party Agreements"); (ii) that may
give rise to obligations or liabilities exceeding, during the current term
thereof, $25,000, or (iii) that may generate revenues or income exceeding,
during the current term thereof, $25,000 (collectively with the Leases, the
Personal Property Leases, and the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts, and, in the case of oral Material Contracts, a
complete and accurate summary of the terms and conditions thereof, together with
all amendments, renewals, extensions, modifications or supplements thereto and
all material correspondence related thereto, including all correspondence
pursuant to which any party provided notice of the exercise of any operation
granted to such party under such Material Contract.
11
(c) Except to the extent set forth on Schedule 3.18(c), (i) none of
the Company's Significant Customers has canceled or significantly reduced or, to
the Stockholders' knowledge, is currently attempting or threatening to cancel or
reduce, any purchases from the Company, (ii) none of the Company's Significant
Suppliers has canceled or significantly reduced or is currently attempting to
cancel or significantly reduce, the supply of products or services to the
Company, (iii) the Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and (iv) there
are no Material Contracts that were not negotiated at arm's length. The Company
has not received any material customer complaints concerning its products and/or
services.
(d) Each Material Contract is valid and binding on the Company and is
in full force and effect and is not subject to any default thereunder by any
party obligated to the Company pursuant thereto. Except with respect to the
Leases, the Company has obtained all necessary consents, waivers and approvals
of parties to any Material Contracts that are required in connection with any of
the transactions contemplated hereby, or are required by any governmental agency
or other third party or are advisable in order that any such Material Contract
remain in effect without modification after the Closing and without giving rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit ("Third Party Consents"). All Third Party Consents are listed on
Schedule 3.18(d).
3.19 GOVERNMENT CONTRACTS.
(a) Except as set forth on Schedule 3.19, the Company is not a party
to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Stockholders, has any suspension or debarment action been threatened or
commenced.
3.20 [Intentionally Deleted].
3.21 INSURANCE. Schedule 3.21 sets forth a complete and accurate list, as
of the Balance Sheet Date, of all insurance policies carried by the Company and
all insurance loss runs and workers' compensation claims received for the past
two (2) policy years. The Company has made available to Buyer true, complete and
correct copies of all current insurance policies, all of which are in full force
and effect, including any insurance policies carried by the Company insuring the
Stockholders. All premiums payable under all such policies have been paid and
the Company is otherwise in full compliance with the terms of such policies.
Such policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. To the
Stockholders' knowledge, there have been no threatened terminations of, or
material premium increases with respect to, any of such policies.
12
3.22 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Other than as set forth on Schedule 3.22(a),
no underground or aboveground storage tanks and no amount of any substance that
has been designated by any governmental entity or by applicable federal, state,
local or other applicable law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present on Real Property that the Company or any of its predecessors in interest
has at any time owned, operated, occupied or leased. Schedule 3.22(a) identifies
all underground and aboveground storage tanks, and the capacity, age, and
contents of such tanks, located on Real Property leased by the Company.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of or released, or exposed its employees or
others to, Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any governmental entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits and Compliance. The Company currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Company's Hazardous
Material Activities and other business of the Company as such activities and
business are currently being conducted. All Environmental Permits are in full
force and effect. The Company (A) is in compliance in all material respects with
all terms and conditions of the Environmental Permits and (B) is in compliance
in all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all governmental entities relating to pollution or
protection of health and the environment or contained in any regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. To the Stockholders' knowledge, there are no
circumstances that may prevent or interfere with such compliance in the future.
Schedule 3.22(c) includes a listing and description of all Environmental Permits
currently held by the Company.
(d) Environmental Liabilities. Except as set forth on Schedule
3.22(d), no action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending, or to the Stockholders' knowledge,
threatened concerning any Environmental Permit, Hazardous Material or any
Company Hazardous Materials Activity. There are no past or present actions,
activities, circumstances, conditions, events, or incidents that could involve
the Company (or any
13
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) in any environmental litigation, give rise to any
environmental claim against the Company, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
3.23 LABOR AND EMPLOYMENT MATTERS. With respect to employees of and service
providers to the Company.
(a) The Company is and has been in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such laws
respecting employment discrimination, workers' compensation, family and medical
leave, the Immigration Reform and Control Act, and occupational safety and
health requirements, and has not and is not engaged in any unfair labor
practice;
(b) there is not now, nor has the Company or its employees ever been
subject to, any collective bargaining agreement relating to the Company nor has
any union attempted to organize the Company's employees; there is not now, nor
within the past three (3) years has there been, any unfair labor practice
complaint against the Company pending or, to the Stockholders' knowledge,
threatened, before the National Labor Relations Board or any other comparable
authority; and
(c) all employees of the Company are at-will, except as set forth on
Schedule 3.23(c); all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.24 EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to present
or former directors, employees, agents, or independent contractors, other than
any obligation, arrangement, custom or practice that is an Employee Benefit
Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred compensation, bonus,
stock option or purchase, hospitalization, medical insurance, life insurance,
tuition reimbursement or scholarship programs, any plans subject to Section 125
of the Internal Revenue Code, of 1986, as amended (the "Code") and any plans
providing benefits or payments in
14
the event of a change of control, change in ownership, or sale of a substantial
portion (including all or substantially all) of the assets of any business or
portion thereof, in each case with respect to any present or former employees,
directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit Arrangement
sponsored or maintained by the Company or with respect to which the Company has
or may have any liability (whether actual, contingent, with respect to any of
its assets or otherwise) as of the Closing Date, in each case with respect to
any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date, any Employee
Benefit Plan for which the Company is the "plan sponsor" (as defined in Section
3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the Company or to
which the Company is or might be obligated to make payments, in each case with
respect to any present or former employees of the Company. Company Plan includes
any Qualified Plans that covered employees of the Company and that were
terminated on or after January 1, 1989.
(iv) "Employee Benefit Plan" has the meaning given in Section
3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(vi) "ERISA Affiliate" means any person that, together with the
Company, would be or was at any time treated as a single employer under Section
414 of the Code or Section 4001 of ERISA and any general partnership of which
the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan described in
Section 3(1) of ERISA.
(b) Schedule 3.24(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 3.24(b) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and Benefit
Arrangements:
15
(i) true, correct, and complete copies of all the following
documents with respect to each Company Plan and Company Benefit Arrangement, to
the extent applicable, have been delivered to Buyer: (A) all documents
constituting the Company Plans and Company Benefit Arrangements, including but
not limited to, trust agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent Forms 5500 or
5500C/R and any financial statements attached thereto and those for the prior
three (3) years; (C) the last Internal Revenue Service determination letter, the
last IRS determination letter that covered the qualification of the entire plan
(if different), and the materials submitted by the Company to obtain those
letters; (D) the most recent summary plan description; all summaries of material
modifications thereto, and the most recent actuarial reports and Statement of
Financial Accounting Standards Nos. 87, 106, and 112 reports; (E) the most
recent written descriptions of all non-written agreements relating to any such
plan or arrangement; (F) all reports and test results received within the four
(4) years preceding the date of this Agreement by third-party administrators,
actuaries, investment managers, consultants, or other independent contractors
(other than individual account records) or prepared by employees of the Company
or its ERISA Affiliates; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
(ii) the 401K Profit Sharing Plan (the "Company 401(k) Plan") is
the only Qualified Plan. The Company has not maintained or contributed to
another Qualified Plan. The Company 401(k) Plan qualifies under Section 401(a)
of the Code, and any trusts maintained pursuant thereto are exempt from federal
income taxation under Section 501 of the Code, and nothing has occurred with
respect to the design or operation of any Qualified Plans that could cause the
loss of such qualification or exemption or the imposition of any liability,
lien, penalty, or tax under ERISA or the Code;
(iii) the Company has not sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan), and neither the Company
nor any ERISA Affiliate has, since January 1, 1989, terminated or withdrawn from
or sought a funding waiver with respect to any plan subject to Title IV of
ERISA, and no facts exist that could reasonably be expected to cause such
actions in the future; no accumulated funding deficiency (as defined in Code
Section 412), whether or not waived, exists with respect to any such plan; no
reportable event (as defined in ERISA Section 4043) has occurred with respect to
any such plan (other than events for which reporting is waived); all costs of
any such plans have been provided for on the basis of consistent methods in
accordance with sound actuarial assumptions and practices, and the assets of
each such plan, as of its last valuation date, exceeded its "Benefit
Liabilities" (as defined in ERISA Section 4001(a)(16)); and, since the last
valuation date for each such plan, no such plan has been amended or changed to
increase the amounts of benefits thereunder and, to the Stockholders' knowledge,
there has been no event that would reduce the excess of assets over benefit
liabilities;
16
(iv) each Company Plan and each Company Benefit Arrangement has
been maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits by, against, or
relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or the Stockholders, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Stockholders, threatened
by, against, or relating to any Company Plan or Company Benefit Arrangement,
against the assets of any trust or other funding arrangement under any such
Company Plan, by or against the Company with respect to any Company Plan or
Company Benefit Arrangement, or by or against the plan administrator or any
fiduciary of any Company Plan or Company Benefit Arrangement, and the Company
does not have knowledge of any fact that could form the basis for any such claim
or lawsuit. The Company Plans and Company Benefit Arrangements are not presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company 401(k)
Plan under the IRS's Employee Plans Compliance Resolution System, its Closing
Agreement Program, or any predecessor programs;
(vi) no Company Plan or Company Benefit Arrangement contains any
provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a result
of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has occurred no
non-exempt "prohibited transaction" (within the meaning of Section 4975 of the
Code) or transaction prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would, if successfully
challenged, result in any liability for the Company or any Stockholder, officer,
director, or employee of the Company;
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the Company
Benefit Plans into conformity with the applicable provisions of ERISA, the Code,
and other applicable laws have been made or taken except to the extent such
amendments or actions (A) are not required by law to be made or taken until
after the Effective Date and (B) are disclosed on Schedule 3.24(c);
(x) payment has been made of all amounts that the Company is
required to pay as contributions to the Company Benefit Plans as of the last day
of the most recent fiscal year of each of the plans ended before the date of
this Agreement; all benefits accrued under any
17
unfunded Company Plan or Company Benefit Arrangement will have been paid,
accrued, or otherwise adequately reserved in accordance with GAAP as of the
Balance Sheet Date; and all monies withheld from employee paychecks with respect
to Company Plans have been transferred to the appropriate plan within the period
required by applicable regulations;
(xi) the Company has not prepaid or prefunded any Welfare Plan
through a trust, reserve, premium stabilization, or similar account, nor does it
provide benefits through a voluntary employee beneficiary association as defined
in Section 501(c)(9);
(xii) no statement, either written or oral, has been made by the
Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have an adverse economic consequence to the Company;
(xiii) the Company has no liability (whether actual, contingent,
with respect to any of its assets or otherwise) with respect to any Employee
Benefit Plan or Benefit Arrangement that is not a Company Benefit Arrangement or
with respect to any Employee Benefit Plan sponsored or maintained (or which has
been or should have been sponsored or maintained) by any ERISA Affiliate;
(xiv) all group health plans of the Company and its affiliates
have been operated in material compliance with the requirements of Sections
4980B (and its predecessor) and 5000 of the Code, and the Company has provided,
or will have provided before the Closing Date, to individuals entitled thereto
all required notices and coverage pursuant to Section 4980B with respect to any
"qualifying event" (as defined therein) occurring before or on the Closing Date;
(xv) except as set forth on Schedule 3.24(c)(xv) hereto, no
employee or former employee of the Company or beneficiary of any such employee
or former employee is, by reason of such employee's or former employee's
employment, entitled to receive any benefits, including, without limitation,
death or medical benefits (whether or not insured) beyond retirement or other
termination of employment as described in Statement of Financial Accounting
Standards No. 106, other than (i) death or retirement benefits under a Qualified
Plan, (ii) deferred compensation benefits accrued as liabilities on the Closing
Statement or (iii) continuation coverage mandated under Section 4980B of the
Code or other applicable law.
(d) Schedule 3.24(d) hereto contains the most recent quarterly listing
of workers' compensation claims and a schedule of workers' compensation claims
of the Company for the last three (3) fiscal years.
(e) Schedule 3.24(e) hereto sets forth a complete and accurate list,
as of the date hereof, of (i) all employees of the Company who are reasonably
expected to earn more than $75,000 in compensation (including salary, bonus and
other compensation) in 1998, (ii) all officers and directors, and (iii) all
employment agreements with such employees, officers and directors and the
18
rate of compensation (and the portions thereof attributable to salary, bonus,
and other compensation respectively) of each such person as of (a) the Balance
Sheet Date and (b) the date hereof.
(f) The Company has not declared or paid any bonus or other incentive
compensation in contemplation of the transactions contemplated by this
Agreement.
3.25 TAXES.
(a) For purposes of this Agreement:
(i) "Tax" (including with correlative meaning the terms "Taxes"
and "Taxable") means (a) all foreign, federal, state, local and other income,
gross receipts, sales, use, ad valorem, value-added, intangible, unitary,
transfer, franchise, license, payroll, employment, estimated, excise,
environmental, stamp, occupation, premium, property, prohibited transactions,
windfall or excess profits, customs, duties or other taxes, levies, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, (b)
any liability for payment of amounts described in clause (a) as a result of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of law, and (c)
any liability for payment of amounts described in clause (a) or (b) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person for Taxes.
(ii) The term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate, or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
(b) Except as set forth on Schedule 3.25(b):
(i) All Tax Returns required to be filed on or before the date
hereof by or on behalf of the Company have been filed, or appropriate extensions
have been filed, and such Tax Returns are true, correct, and complete in all
respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's actual liability for unpaid
Taxes as of December 31, 1997 (excluding deferred Taxes) will not exceed the
amount of the current liability accruals for Taxes (excluding deferred Taxes)
shown on the audited balance sheet as of December 31, 1997.
(iv) There is no action, suit, proceeding, investigation, audit
or claim now proposed or pending against or with respect to the Company in
respect of any Tax.
19
(v) The Company has a taxable year ending on December 31, in each
year commencing 1973.
(vi) Except as required by Buyer following the Closing Date, the
Company has not agreed to, and is not and will not be required to, make any
adjustments under Code Section 481(a) as a result of a change in accounting
methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) Except as set forth on Schedule 3.25(b), the Company has
not requested an extension of time within which to file any Tax Return or been
granted any extension or waiver of the statute of limitations period applicable
to any Tax Return, and all Tax Returns of Company for the preceding three years
have been made available to and delivered to Buyer.
(ix) There are (and as of immediately following the Closing there
will be) no Liens on the assets of the Company relating or attributable to
Taxes, other than liens for Taxes not yet due and payable.
(x) There is no basis for the assertion of any claim relating or
attributable to Taxes which, if adversely determined, would result in any Lien
on the assets of the Company or otherwise have an adverse effect on the Company
or its business.
(xi) None of the Company's assets are treated as "tax exempt use
property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or arrangements
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) Neither the Company nor any direct or indirect shareholder
of the Company has filed a consent under Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(xiv) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
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(xv) The Company is not, nor has it ever been, a party to a tax
sharing, tax indemnity or tax allocation agreement, and the Company has not
assumed the tax liability of any other person under contract.
(xvi) The Company is not, nor has it ever been a member of an
affiliated group filing a consolidated federal income Tax Return. The Company
does not and will not have up to and including the Closing Date any interest in
any other corporation with respect to which the Company owns a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
(xvii) The Company does not have any liability for the Taxes of
any individual or entity other than the Company under section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(xviii) The Company is not a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income tax purposes.
(c) Schedule 3.25(c) contains accurate and complete descriptions as of
July 31, 1998 of (i) the Company's basis in its material assets (which for
purposes of this Section 3.25(c) means assets in which the Company has a book
basis in excess of Five Hundred Dollars ($500)); (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company; (iii)
the amount of any deferred gain or loss allocable to the Company arising out of
any deferred intercompany transaction; and (iv) tax elections affecting the
Company. The Company has no net operating losses or other tax attributes
presently subject to limitation under Code sections 382, 383, or 384, or the
federal consolidated return regulations.
3.26 CONFORMITY WITH LAW; LITIGATION.
(a) The Company has not violated any law or regulation or any order of
any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it.
(b) Except as set forth on Schedule 3.26(b), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. Except as set forth on Schedule 3.26(b), there are no
judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against the
Company or against any of its properties or business, whether or not presently
owned or
21
conducted. The matters set forth on Schedule 3.26(b) will not have a material
adverse effect on the Company.
3.27 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.28 ABSENCE OF CHANGES. Except as set forth on Schedule 3.28, since
December 31, 1997, the Company has conducted its business in the ordinary course
and there has not been:
(a) any change, by itself or together with other changes, that has
affected adversely, or is likely to affect adversely, the business, operations,
affairs, prospects, properties, assets, profits or condition (financial or
otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers,
directors, employees, consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance with past practice, nor
has the Company entered into or amended any Company Benefit Arrangement, Company
Plan, employment, severance or other agreement relating to compensation or
fringe benefits;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, materially adversely affecting the
business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person, including
without limitation the Stockholders or their affiliates;
22
(h) any cancellation, or agreement to cancel, forgive or release any
indebtedness or other obligation owing to the Company, including without
limitation any indebtedness or obligation of the Stockholders and their
affiliates;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any Material Contract,
Permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$15,000;
(r) any loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Stockholders, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
23
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Buyer and their representatives regarding the
transactions contemplated by this Agreement).
3.29 DISCLOSURE. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Buyer pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholders contained
in this Agreement, in the Schedules attached hereto or in any certificate
furnished or to be furnished by the Stockholders or the Company to Buyer in
connection herewith or pursuant hereto contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to the Stockholders that has specific
application to the Company (other than general economic or industry conditions)
and that adversely affects or may threaten the assets, business, prospects,
financial condition, or results of operations of the Company that has not been
set forth in this Agreement or a Schedule hereto.
4. REPRESENTATIONS OF BUYER
To induce the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer represents and warrants to the
Stockholders as follows:
4.1 DUE ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, prospects, properties,
assets, profits, or condition (financial or otherwise) of Buyer.
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of Buyer
executing this Agreement have all requisite corporate power and authority to
enter into and bind Buyer to the terms of this Agreement. Buyer has the full
legal right, power and corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the Notes by Buyer and the performance by Buyer of the
transactions contemplated herein and therein have been duly and validly
authorized by the Board of Directors of Buyer, and this Agreement and the Notes
have been duly and validly authorized by all necessary corporate action. This
Agreement is and the Notes will be legal, valid and binding obligations of Buyer
enforceable in accordance with their terms.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
24
(a) conflict with, or result in a breach or violation of the Articles
of Incorporation or Bylaws of Buyer;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject; or
(c) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Buyer is subject, or by which Buyer is bound.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of the
representations and warranties of the Stockholders contained in this Agreement
shall be true, correct and complete on and as of the Closing Date; all of the
terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by the Stockholders on or before the Closing Date
shall have been duly complied with, performed or satisfied.
5.2 NO LITIGATION. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging Buyer's proposed
acquisition of the Company, or limiting or restricting Buyer's conduct or
operation of the business of the Company (or its own business) following the
Closing shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
Except as set forth on Schedule 3.26(b), there shall be no action, suit, claim
or proceeding of any nature pending or threatened against Buyer, the Company,
the Stockholders or their respective properties or any of their officers or
directors, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company.
5.3 OPINION OF SELLERS' COUNSEL. Buyer shall have received an opinion from
counsel to the Stockholders and the Company, dated the Closing Date, in a form
reasonably satisfactory to counsel for Buyer.
25
5.4 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency or third party, relating to the consummation by
the Company and the Stockholders of the transactions contemplated hereby shall
have been obtained and made.
5.5 SECRETARY'S CERTIFICATE AND CHARTER DOCUMENTS. The Stockholders shall
have delivered to Buyer (a) copies of the Articles of Incorporation of the
Company certified by an appropriate authority in the state of its incorporation
dated a date no earlier than five days before the Closing Date, (b) Secretary's
Certificate of Incumbency, certifying the offices and signatures of the officers
and directors of the Company, and including copies of the Regulations of the
Company certified by the Secretary of the Company, and (c) certificates of good
standing for each jurisdiction listed in Schedule 3.1(a).
5.6 EMPLOYMENT AGREEMENTS. The Stockholders shall each have executed an
employment agreement (each, an "Employment Agreement" and collectively, the
"Employment Agreements") in the forms attached hereto as Exhibits 5.6A and 5.6B.
5.7 CLOSING DELIVERIES. The Stockholders and the Company shall have made
the deliveries to Buyer as are called for by Section 2.2 of this Agreement.
5.8 DUE DILIGENCE. Buyer shall be fully satisfied in its sole discretion
with the results of its review of all of the Schedules, and other due diligence
investigations with respect to, the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits and
condition (financial and otherwise) of the Company.
5.9 NO CONFLICTS OF INTEREST. Buyer shall have determined in its sole
discretion that there exist no material legal, ethical or other conflicts
between the Company's clients and the Buyer's clients.
5.10 LEASES. The Company shall have entered into ten-year leases for the
Company's headquarters facility on terms and conditions satisfactory to Buyer
and the Company and at commercially reasonable rates consistent with the pro
forma financial results of the Company for 1997 provided to Buyer, in the form
of Exhibits 5.10A and 5.10B.
5.11 YEAR 2000 COMPLIANCE. Buyer shall have determined in its sole
discretion that the Company and its information systems and software will
continue to function without material impairment arising from any inability or
difficulty in processing date information accurately before, on or after January
1, 2000, including leap years ("Year 2000 Compliant"), or can be made Year 2000
Compliant through systems or programming modifications or replacements, that, in
the aggregate, will not exceed $50,000.
5.12 SHAREHOLDERS' AGREEMENT. The Stockholders shall have executed and
delivered an amendment to the Shareholders' Agreement dated April 24, 1997,
providing for the termination of such agreement as of the Closing.
26
5.13 GUARANTEE OF INDUSTRIAL REVENUE BOND. Buyer shall have received a
termination letter from Bank One which terminates and releases the Company's
guarantee under that certain Guaranty Agreement among S.E.A., Inc., Donald B.
Uldricks, Janet A. Uldricks, Glenn R. Baker, Dennis A. Guenther, Judith A.
Guenther, Richard L. Welsh, and Mary Lou Welsh and Bank One, Columbus, NA, dated
as of December 1, 1985, relating to that certain $1,400,000 County of Franklin,
Ohio Industrial Development Revenue Bond.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
The obligations of the Stockholders to effect the transactions contemplated
hereby are subject to the satisfaction or waiver, at or before the Closing Date,
of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of the
representations and warranties of Buyer contained in this Agreement shall be
true, correct and complete on and as of the Closing Date; all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by Buyer on or before the Closing Date shall have been
duly complied with, performed or satisfied.
6.2 NO LITIGATION. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging Buyer's proposed
acquisition of the Company, or limiting or restricting Buyer's conduct or
operation of the business of the Company (or its own business) following the
Closing shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
Except as set forth on Schedule 3.26(b), there shall be no action, suit, claim
or proceeding of any nature pending or threatened, against Buyer or the Company,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of Buyer and its subsidiaries
taken as a whole.
6.3 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency or third party relating to the consummation by
Buyer of the transactions contemplated herein shall have been obtained and made.
6.4 OPINION OF BUYER'S COUNSEL. The Stockholders shall have received an
opinion from counsel to the Buyer, dated the Closing Date, in a form reasonably
satisfactory to counsel for the Stockholders.
6.5 EMPLOYMENT AGREEMENTS. Buyer shall have entered into an Employment
Agreement with each Stockholder in the form of Exhibits 5.6A and 5.6B.
27
6.6 LEASES. The Company shall have entered into ten-year leases for the
Company's headquarters facility on terms and conditions satisfactory to Buyer
and the Company and at commercially reasonable rates consistent with the pro
forma financial results of the Company for 1997 provided to Buyer, in the form
of Exhibits 5.10A and 5.10B.
6.7 SECRETARY'S CERTIFICATE. Buyer shall have delivered to the Stockholders
(a) copies of the Articles of Incorporation of the Company certified by an
appropriate authority in the state of its incorporation dated a date no earlier
than five days before the Closing Date and (b) Secretary's Certificate of
Incumbency, certifying the offices and signatures of the applicable officers of
Buyer, and including copies of the Bylaws of Buyer certified by the Secretary of
Buyer.
7. CERTAIN COVENANTS
7.1 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give prompt
notice to the other parties hereto of (a) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of it contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (b) any material failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such party hereunder. The delivery of any notice
pursuant to this Section 7.1 shall not, without the express written consent of
the other parties be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, (ii) modify the conditions set
forth in Articles 5 and 6, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
7.2 UNPAID TAXES. The Stockholders jointly and severally covenant and agree
to promptly reimburse Buyer for any amount that the Company's actual liabilities
for unpaid Taxes for all periods or portions thereof ending on or before
December 31, 1997 (excluding deferred Taxes) exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as such
accruals are reflected on the audited financial statements as of December 31,
1997.
7.3 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date.
7.4 COOPERATION ON TAX MATTERS.
(a) Buyer, the Company and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such 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. The Company and the Stockholders agree (A) to
28
retain all books and records with 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 (and, to the extent notified by
Buyer or Stockholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Stockholders, as the case may be,
shall allow the other party to take possession of such books and records.
(b) Buyer and the Stockholders further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
7.5 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with the sale of Shares contemplated by this
Agreement (including any state or municipal transfer tax), shall be paid by the
Stockholders when due, and the Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
7.6 PROFESSIONAL LIABILITY INSURANCE Schedule 7.6 sets forth the amounts
and coverages of insurance for errors and omissions and professional malpractice
liability carried by the Company as of the Closing Date. For so long as the
Stockholders have any outstanding indemnification obligation under Section 8.1
for matters that would be insured by the professional liability insurance
coverage described on Schedule 7.6, Buyer shall maintain, or cause the Company
to maintain, policies of insurance for no less than the amounts and coverages
set forth on Schedule 7.6 and, with respect to professional liability insurance,
retroactive to July 1, 1985. The Stockholders acknowledge and agree that the
professional liability coverage described on Schedule 7.6 has been determined by
Buyer and the Stockholders and is sufficient in amount and coverage for the
risks insured thereby. Except as set forth in this Section 7.6 and Section
8.3(f), the Company's insurance shall not have any effect on the Stockholders'
indemnification obligations under this Agreement.
29
8. INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders jointly
and severally covenant and agree to indemnify, defend, protect and hold harmless
Buyer and its respective officers, directors, employees, stockholders, assigns,
successors and affiliates, including without limitation, the Company
(individually, an "FTI Indemnified Party" and collectively, the "FTI Indemnified
Parties") from, against and in respect of:
(a) all liabilities, losses, claims (including, without limitation,
third party claims), damages, punitive or exemplary damages, causes of action,
lawsuits, administrative proceedings (including informal proceedings),
investigations, audits, demands, assessments, adjustments, judgments, settlement
payments, deficiencies, penalties, fines, interest (including interest from the
date of such damages) and costs and expenses (including without limitation
reasonable attorneys' fees and disbursements of every kind, nature and
description) (collectively, "Damages") suffered, sustained, incurred or paid by
any FTI Indemnified Party in connection with, resulting from or arising out of,
directly or indirectly:
(i) subject to subsection 8.1(b), any breach or inaccuracy of any
representation or warranty of the Stockholders set forth in this Agreement or
any schedule or certificate, delivered by or on behalf of any of the
Stockholders or the Company in connection herewith;
(ii) any nonfulfillment of any covenant or agreement on the part
of the Stockholders;
(iii) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, except
for such matters as are (A) otherwise disclosed in the Audited Financial
Statements, this Agreement or the schedules to this Agreement; or (B) not
disclosed in this Agreement or the schedules to this Agreement if such
non-disclosure relates to a matter that is the subject of a representation or
warranty in this Agreement and the non-disclosure is solely due to the matter
being below the materiality threshold established in such specific
representation or warranty;
(iv) those matters set forth on Schedule 3.26(b) and Schedule
8.1(a) or incorporated by reference therein; or
(v) unless there is no valid underlying claim to indemnification,
any and all Damages incident to the enforcement of this Section 8.1.
(b) Notwithstanding anything to the contrary in Section 8.1(a), the
Stockholders shall have no liability for indemnification under Section 8.1(a)(i)
except for Damages arising out of a breach or inaccuracy of any representation
or warranty contained in this Agreement of which the
30
Stockholders or either of them, has or had actual knowledge. For purposes of
this Agreement, the phrase "actual knowledge" means the knowledge of the
Stockholders, Yvonne Brown, Michael Holman, Robert Laumon, Michael Carrocci, or
any of them, or the other directors and officers of the Company (if any),
including, without limitation, facts of which such persons, in the reasonably
prudent exercise of their duties, should be or should have been aware.
(c) Provided the Closing occurs and if any FTI Indemnified Parties
have the right to indemnification under this Agreement, the Stockholders waive
any right of contribution, indemnification or other similar right against Buyer
or the Company arising out of the Articles of Incorporation and Regulations of
the Company. The Stockholders agree that any claims of Buyer and its officers,
directors, employees and agents or the Company hereunder, whether for
indemnification or otherwise, may be asserted directly and fully against the
Stockholders without the need for any claim against or joinder of the Company.
8.2 LIMITATION AND EXPIRATION. Notwithstanding anything in this Agreement
to the contrary:
(a) there shall be no liability for indemnification under Section 8.1
unless and until the aggregate amount of Damages exceeds $156,300 (the
"Indemnification Threshold"); provided, however, that no Indemnification
Threshold shall apply with respect to the recovery of Damages arising out of (i)
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations made in Sections 3.4 (capital stock of the Company), 3.5
(transactions in capital stock), 3.18 (significant customers; material contracts
and commitments), or 3.26 (conformity with law, litigation); or (ii) those
matters set forth on Schedule 3.26(b) and Schedule 8.1(a);
(b) the aggregate amount of the Stockholders' liability under this
Article 8 shall not exceed the Closing Payment plus the principal payments
actually paid or payable pursuant to the Notes, provided, however, that, the FTI
Indemnified Parties' rights to receive indemnification of amounts with respect
to amounts payable under the Notes shall be limited to the Buyer's rights to
set-off and apply future payments under the Notes to such indemnification
obligations of the Stockholders; and
(c) the indemnification obligations under this Article 8 or in any
certificate or writing furnished in connection herewith shall terminate on the
later of clause (i), (ii) or (iii) of this Section 8.2(c):
(i) (1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 8.2(c), the second anniversary of the
Closing Date; and
(2) with respect to representations, warranties and covenants
contained in Sections 3.22 (environmental matters), 3.24 (employee benefit
plans), 3.25 (taxes), and the indemnifications set forth in Section 8.1(a)(iii),
(iv) or (v) on (A) the date that is six (6) months
31
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof), or (B) if there is no applicable
statute of limitation, (x) ten (10) years after the Closing Date if the claim is
related to the cost of investigating, containing, removing or remediating a
release of Hazardous Material into the environment, or (y) five (5) years after
the Closing Date for any other claim covered by clause (i)(2) of this Section
8.2(c);
(ii) the final resolution of Claims (as defined below) pending as
of the relevant dates described in clause (i) of this Section 8.2(c) (such
claims referred to as "Pending Claims"), the final resolution thereof; and
(iii) with respect to representations and warranties contained in
Section 3.4 (capital stock of the Company), there shall be no limitation.
8.3 INDEMNIFICATION PROCEDURES. All claims or demands for indemnification
under this Section 8 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any FTI Indemnified Party has a Claim against
any party obligated to provide indemnification pursuant to Section 8.1 hereof
(the "Indemnifying Party") which does not involve a Claim being asserted against
or sought to be collected by a third party (a "Direct Claim"), the FTI
Indemnified Party shall with reasonable promptness send a Claim Notice (as
defined in subparagraph (b)) with respect to such Direct Claim to the
Indemnifying Party. If the Indemnifying Party does not notify the FTI
Indemnified Party within the Notice Period (as defined in subparagraph (b)) that
the Indemnifying Party disputes such Direct Claim, the Damages resulting from
such Direct Claim shall be conclusively deemed a liability of the Indemnifying
Party hereunder. In case an objection is made in writing in accordance with this
Section 8.3(a), the FTI Indemnified Party shall have thirty (30) days to respond
in a written statement to the objection. If after such thirty (30) day period
there remains a dispute as to any Claims, the parties shall attempt in good
faith for sixty (60) days to agree upon the rights of the respective parties
with respect to each of such Claims. If the parties should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties.
(b) In the event that any Claim for which the Indemnifying Party would
be liable to an FTI Indemnified Party hereunder is asserted against an FTI
Indemnified Party by a third party (a "Third Party Claim"), the FTI Indemnified
Party shall with reasonable promptness notify the Indemnifying Party of such
Third Party Claim, specifying the nature of such Claim, describing in reasonable
detail the basis therefor, and stating the amount or the estimated amount of
Damages resulting or reasonably likely to result to the extent then feasible
(which estimate shall not be conclusive of the final amount of such Damages)
(the "Claim Notice"). The Indemnifying Party shall have 30 days from the receipt
of the Claim Notice (the "Notice Period") to notify the FTI Indemnified Party
(i) whether or not such party disputes the liability to the FTI Indemnified
Party hereunder with respect to such Third Party Claim and (ii) if such party
does not dispute such liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against such
Third Party Claim, provided that such party is hereby
32
authorized (but not obligated) prior to and during the Notice Period to file any
motion, answer or other pleading and to take any other action which the
Indemnifying Party shall deem necessary or appropriate to protect the
Indemnifying Party's interests. In the event that the Indemnifying Party
notifies the FTI Indemnified Party within the Notice Period that the
Indemnifying Party does not dispute the Indemnifying Party's obligation to
indemnify hereunder and desires to defend the FTI Indemnified Party against such
Third Party Claim and except as hereinafter provided, such party shall have the
right to defend by appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by such party to a final conclusion, provided that, unless
the FTI Indemnified Party otherwise agrees in writing, such party may not settle
any matter (in whole or in part) unless such settlement includes a complete and
unconditional release of the FTI Indemnified Party. If the FTI Indemnified Party
desires to participate in, but not control, any such defense or settlement the
FTI Indemnified Party may do so at its sole cost and expense. If the
Indemnifying Party elects not to defend the FTI Indemnified Party against such
Third Party Claim, whether by failure of such party to give the FTI Indemnified
Party timely notice as provided above or otherwise, then the FTI Indemnified
Party, without waiving any rights against such party, may settle or defend
against any such Third Party Claim in the FTI Indemnified Party's sole
discretion and the FTI Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the FTI Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(c) If at any time, in the reasonable opinion of the FTI Indemnified
Party, which shall be delivered in writing to the Indemnifying Party, any such
Third Party Claim seeks material prospective or other relief which could have a
materially adverse effect on the assets, liabilities, Taxes, financial
condition, results of operations or business prospects of any FTI Indemnified
Party or any subsidiary, the FTI Indemnified Party shall so notify the
Indemnifying Party in writing. Thereafter, the FTI Indemnified Party shall have
the right to control or assume (as the case may be) the defense of any such
Third Party Claim and the amount of any judgment or settlement and the
reasonable costs and expenses of defense shall be included as part of the
indemnification obligations of the Indemnifying Party hereunder. If the FTI
Indemnified Party should elect to exercise such right, the Indemnifying Party
shall have the right to participate in, but not control, the defense of such
claim or demand at the sole cost and expense of the Indemnifying Party;
(d) Nothing herein shall be deemed to prevent the FTI Indemnified
Party from making a claim, and an FTI Indemnified Party may make a claim
hereunder, for potential or contingent claims or demands, except that Direct
Claims must be made on or before July 31, 2000, provided the Claim Notice sets
forth the specific basis for any such potential or contingent claim or demand to
the extent then feasible and the FTI Indemnified Party has reasonable grounds to
believe that such a claim or demand may be made, and provided, further, that the
Notice Period shall not be deemed to commence until such potential or contingent
claim or demand becomes an actual or noncontingent claim or demand. Buyer shall
not be entitled to exercise its right of offset against the Notes pursuant to
Section 8.5 for Claims that are merely potential or contingent.
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(e) The FTI Indemnified Party's failure to give reasonably prompt
notice as required by this Section 8.3 of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which the Indemnifying
Party may have to the FTI Indemnified Party unless the failure to give such
notice materially and adversely prejudiced the Indemnifying Party.
(f) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
Damages under Article 8. Each FTI Indemnified Party shall give all required
insurance claims notices in a timely manner and otherwise use its reasonable
best efforts to seek defense and payment pursuant to the terms of any existing
insurance coverage applicable with respect to any Claim.
8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Stockholders and Buyer in
or pursuant to this Agreement or in any document delivered pursuant hereto shall
be deemed to have been made on the date of this Agreement (except as otherwise
provided herein). The representations of the Stockholders will survive the
Closing and will remain in effect until, and will expire upon, the termination
of the relevant indemnification obligation as provided in Section 8.2. The
representations of Buyer will survive the Closing and will remain in effect
until, and will expire upon the second anniversary of the Closing Date. The
covenants of the parties will survive the Closing and expire in accordance with
their terms.
8.5 EXERCISE OF RIGHT OF OFFSET. If Buyer desires to offset the Damages
arising out of any Claim for which a Claim Notice has been given pursuant to
this Article 8 against the payments of principal and interest due and owing
under the Notes, in order of maturity, it shall give the Stockholders ten days
advance written notice of its desire to offset, which notice shall describe the
basis for the Claim, if different from that specified in the Claim Notice, and
the amount of the offset. The amount of the offset shall not exceed the amount
of Damages actually incurred or paid by the FTI Indemnified Party in respect of
such Claim or, if the amount of such damages is not certain, then Buyer's good
faith estimate of the Damages likely to result therefrom. If the Stockholders
object in writing to such offset prior to the later of (i) ten days following
the giving of such notice, or (ii) the expiration of the applicable Notice
Period, Buyer may not effect the offset, but in lieu thereof (and in lieu of
making payments under the Notes) may deposit the amount of the offset with an
escrow agent pursuant to a mutually-acceptable escrow agreement, to be held
until such time as the claim is resolved by mutual agreement of Buyer and the
Stockholders or by a final non-appealable order by a court of competent
jurisdiction. Any offset or escrow deposit made by Buyer in accordance with the
terms of this Agreement shall not constitute a default under the Notes. Neither
the exercise of nor the failure to exercise such right of set-off by Buyer shall
constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
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8.6 REMEDIES CUMULATIVE. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the FTI Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9. NONCOMPETITION AND CONFIDENTIALITY
9.1 EMPLOYMENT AGREEMENTS. The non-competition and confidentiality
provisions of each of the Employment Agreements constitute a material part of
the purchase and sale transaction contemplated by this Agreement, and are
supported by adequate consideration.
10. GENERAL
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Buyer or the Company, and the heirs, personnel representatives and successors of
the Stockholders.
10.2 ENTIRE AGREEMENT. This Agreement (which includes the Schedules hereto)
sets forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. It shall not be amended or modified except by
a written instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties regarding
the subject matter hereof, whether written or oral, are superseded by this
Agreement. Each of the Schedules to this Agreement is incorporated herein by
this reference and expressly made a part hereof.
10.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.4 BROKERS AND AGENTS. Buyer and the Stockholders (for themselves and on
behalf of the Company) each represents and warrants to the other that it has not
employed any broker or agent in connection with the transactions contemplated by
this Agreement.
10.5 EXPENSES. Buyer has and will pay the fees, expenses and disbursements
of Buyer and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement. The Company has and will
pay the fees, expenses and disbursements of the Stockholders, the Company, and
their agents, representatives, financial advisers, accountants and counsel
incurred in connection with the subject matter of this Agreement.
10.6 SPECIFIC PERFORMANCE; REMEDIES. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including
35
without limitation, the noncompetition provisions referenced in Section 9.1. It
is accordingly agreed that, in addition to any other remedies which may be
available upon the breach of any such covenants or agreements, each party hereto
shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties, covenants and agreements contained in this Agreement.
10.7 NOTICES. Any notice, request, claim, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given if delivered personally or sent by telefax
(with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer to:
FTI Consulting, Inc.
2021 Research Drive
Annapolis, Maryland 21401
Attention: Jack B. Dunn, IV
Chairman
Telefax: 410-224-3552
with a required copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: Mark A. Dewire, Esq.
Telefax: 202-663-6363
If to the Stockholders to:
Glenn R. Baker
5731 Olentangy Blvd.
Worthington, OH 43085
Dennis A. Guenther
71 Donald Ross Drive
Granville, OH 43023
36
with a required copy to:
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43216
Attention: Susan Brown, Esq.
Telefax: 614-464-6350
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Maryland.
10.9 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
10.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will be interpreted, to provide or to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity, except as may be provided in Section 8.1.
10.11 AMENDMENT; WAIVER. This Agreement may be amended by the parties
hereto at any time prior to the Closing by execution of an instrument in writing
signed on behalf of each of the parties hereto. Any extension or waiver by any
party of any provision hereto shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
[SIGNATURES ON FOLLOWING PAGE]
37
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FTI CONSULTING, INC.
By:
--------------------------------------
Name:
Title:
STOCKHOLDERS
-----------------------------------------
Glenn R. Baker
-----------------------------------------
Dennis A. Guenther
38
SCHEDULE 8.1(a)
Certain Indemnified Matters
Damages suffered, sustained, incurred or paid by any FTI Indemnified Party
in connection with, resulting from or arising out of, directly or indirectly:
1. The involvement by the Company in the aircraft charter business, including,
without limitation, any liability arising out of that certain written agreement
dated April 10, 1998, pursuant to which the Company agreed to obtain insurance
coverage for two former employees, Ken Smith and John Duhl, who are operating an
aircraft charter service.
2. The purchase and sale of one plus acres of real estate by the Company, as set
forth in that certain Agreement for the Purchase and Sale of Real Estate between
GBDG, Ltd., an Ohio limited liability company, and the Company dated December
24, 1996.
3. The purchase and sale of White Mule Company and certain assets of Geyer
Property or Properties by the Company, as set forth in agreements dated October
1, 1992 and October 8, 1992, to L. Steven Ritchey.
39
