AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

EXECUTION COPY

 

 

AGREEMENT AND PLAN OF MERGER

 

AMONG

 

G RAY H AWK S YSTEMS , I NC .,

 

C ERTAIN S HAREHOLDERS OF G RAY H AWK S YSTEMS , I NC .,

 

P ROJECT O WL , I NC .,

 

M AN T ECH I NTERNATIONAL C ORPORATION

 

AND

 

T HE S HAREHOLDER R EPRESENTATIVE

 

D ATED AS OF M AY 3, 2005

 

TABLE OF CONTENTS

 

TABLE OF CONTENTS (cont’d)

 

 

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TABLE OF CONTENTS (cont’d)

 

 

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TABLE OF CONTENTS (cont’d)

 

 

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TABLE OF CONTENTS (cont’d)

 

 

 

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T HIS A GREEMENT AND P LAN OF M ERGER is made this 3 ^rd day of May, 2005 (hereinafter, the “ Agreement ”), by and among GRAY HAWK SYSTEMS, INC., a Virginia corporation (the “ Company ”), certain of the shareholders of the Company set forth on the signature page hereto (“ Shareholder Parties ”), PROJECT OWL, INC., a newly incorporated Virginia corporation and wholly owned subsidiary of Buyer (“ Merger Sub ”), MANTECH INTERNATIONAL CORPORATION, a Delaware corporation (“ Buyer ”) and Harry M. Howton, in his capacity as the Shareholder Representative (the “ Shareholder Representative ” and, collectively, with the Company, the Shareholders (as defined below), Merger Sub and Buyer, the “ Merger Parties ”).

 

WHEREAS , Merger Sub, upon the terms and subject to the conditions of this Agreement and in accordance with the VSCA, will merge with and into the Company (the “ Merger ”);

 

WHEREAS , upon the consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Buyer;

 

WHEREAS , the Board of Directors of the Company has (a) determined that the Merger is fair to and in the best interests of the holders of Company Common Stock (as hereinafter defined), (ii) approved and adopted this Agreement and the transactions contemplated hereby, including the Merger, and (iii) recommended approval and adoption of this Agreement by the holders of the Company Common Stock; and

 

WHEREAS , the Board of Directors of Buyer has determined that the Merger is fair to and in the best interests of Buyer and its stockholders and the Board of Directors of Buyer and Merger Sub and the sole shareholder of Merger Sub have approved and adopted this Agreement and the transactions contemplated hereby.

 

NOW, THEREFORE , in consideration of the premises and the mutual promises, representations, warranties and covenants contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1 Definitions .

 

The following terms shall have the indicated meaning when used in this Agreement:

 

“ Accounting Principles ” shall have the meaning ascribed to such term in Section 2.9(a).

 

“ Actual Net Worth Adjustment ” shall have the meaning ascribed to such term in Section 2.10(a).

 

“ Adjusted Purchase Price ” shall have the meaning ascribed to such term in Section 2.7(a).

“ Adjustment Deductible ” shall have the meaning ascribed to such term in Section 2.9(c)

 

“ Affiliate ” shall mean with respect to any Person, any other Person that is directly or indirectly controlling, controlled by or under common control with such Person or entity or any of its subsidiaries, and the term “ control ” (including the terms “ controlled by ” and “ under common control with ”) means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise.

 

“ Agreement ” shall have the meaning ascribed to such term in the first paragraph hereof.

 

“ Aggregate Merger Consideration ” shall mean the Closing Purchase Price less any Purchase Price Adjustment Final Payment paid by the Shareholders, plus any Purchase Price Adjustment Final Payment paid by the Buyer.

 

“ Alternate Transaction ” shall have the meaning ascribed to such term in Section 5.5.

 

“ Articles of Merger ” shall mean that certain Articles of Merger substantially in the form of Schedule A .

 

“ Asserted Tax Claim ” shall have the meaning ascribed to such term in Section 8.2(a).

 

“ Authorizations ” shall mean all licenses, certificates, permits, franchises, or other authorizations granted to the Company by Governmental Entities that are used in or relate to the conduct of the Business of the Company, including those that are listed on Schedule 3.2(b) .

 

“ Benefit Plan ” shall mean each pension, profit-sharing, thrift, savings or other retirement, bonus, deferred compensation, incentive compensation, employee stock ownership, stock purchase, stock option, stock bonus, severance or termination pay, hospitalization or other medical, life or other insurance, long- or short-term disability, supplemental unemployment benefit, fringe benefit, sick pay, or vacation pay or similar plan, program, agreement, or arrangement maintained for the benefit of current or former employees, directors or consultants of the Company or any subsidiary or with respect to which the Company or any subsidiary makes or has any obligation to make contributions.

 

“ Books and Records ” shall mean all of the Company’s customer or subscriber lists and records, accounts and billing records, minute books, capitalization charts and ledgers, detailed property records, equipment records, plans, blueprints, specifications, designs, drawings, surveys, engineering reports, and personnel records (where applicable) and all other documents, computer data and records owned or controlled by the Company relating to the Company.

 

“ Business ” means the business of the Company, as currently conducted by the Company or as currently contemplated by it to be conducted.

 

“ Business Day ” shall mean any day other than a Saturday, Sunday or federal holiday.

 

“ Buyer ” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

 

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“ Buyer Claim ” shall have the meaning ascribed to such term in Section 7.5(a).

 

“ Buyer Net Worth Adjustment” shall have the meaning ascribed to such term in Section 2.10(a).

 

“ Buyer Parties ” shall have the meaning ascribed to such term in Section 7.1.

 

“ Capital Lease Obligations ” shall mean all capital lease obligations of the Company outstanding as of Closing.

 

“ Certificate of Employees ” shall mean the certificate to be delivered by the Company pursuant to Section 2.8(b)(xvi).

 

“ Certificate of Identified Company Obligations ” shall mean the certificate to be delivered by the Company pursuant to Section 2.8(b)(xvii).

 

“ Certificate of Share Ownership ” shall mean the certificate to be delivered by the Company pursuant to Section 2.8(b)(xv).

 

“ Certificate(s) ” shall have the meaning ascribed thereto in Section 2.6(c).

 

“ Claim Notice ” shall have the meaning ascribed to such term in Section 7.5(a).

 

“ Closing ” shall have the meaning ascribed to such term in Section 2.2.

 

“ Closing Date ” shall have the meaning ascribed to such term in Section 2.2.

 

“ Closing Date Balance Sheet ” shall have the meaning ascribed to such term in Section 2.9(b).

 

“ Closing Net Worth ” shall have the meaning ascribed to such term in Section 2.9(b).

 

“ Closing Net Worth Adjustment ” shall have the meaning ascribed to such term in Section 2.9(a).

 

“ Closing Purchase Price ” shall have the meaning ascribed to such term in Section 2.7(a).

 

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

“ Company ” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

 

“ Company Balance Sheet ” shall mean the unaudited balance sheet of the Company as of the Company Balance Sheet Date.

 

“ Company Balance Sheet Date ” shall mean March 31, 2005.

 

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“ Company Common Stock ” shall have the meaning ascribed to such term in Section 3.3(a).

 

“ Company Debt ” shall mean all indebtedness of the Company for borrowed money or other interest-bearing indebtedness as of closing (and including any deficit balances in any Company cash accounts, in the amount stated on the Company Balance Sheet), including, without limitation, any prepayment or similar fees or charges related to the retirement or termination of bank debt of the Company which will be discharged or satisfied at or in connection with the Closing (as set forth in Section 2.7(b)).

 

“ Company Disclosure Schedules ” shall have the meaning ascribed to such term in the first paragraph of Article III.

 

“ Company Financial Statements ” shall have the meaning ascribed to such term in Section 3.9.

 

“ Company Intellectual Property ” shall have the meaning ascribed to such term in Section 3.19(b).

 

“ Company’s Articles of Incorporation ” shall have the meaning ascribed to such term in Section 2.8(b)(1)(A).

 

“ Company’s Bylaws ” shall have the meaning ascribed to such term in Section 2.8(b)(1)(A).

 

“ Company’s Shareholders Agreement ” shall have the meaning ascribed to such term in Section 3.3(a).

 

“ Convertible Options ” shall mean any options, warrants, agreements, convertible or exchangeable securities or other commitments pursuant to which the Company is or may become obligated to issue, sell, transfer, purchase, return or redeem securities of the Company.

 

“ Current Customer ” shall have the meaning ascribed to such term in Section 5.13(b).

 

“ Current Government Contracts ” shall have the meaning ascribed to such term in Section 3.22(a).

 

“ Deductible ” shall have the meaning ascribed to such term in Section 7.3(b).

 

“ DCAA ” shall have the meaning ascribed to such term in Section 3.22(k).

 

“ Direct Costs ” shall have the meaning ascribed to such term in 48 C.F.R. Section 2.101.

 

“ Dissenting Shares ” shall have the meaning ascribed to such term in Section 2.6(e).

 

“ Effective Time ” shall have the meaning ascribed to such term in Section 2.3.

 

“ Environmental Laws ” means all United States federal, state and local laws, statutes, ordinances, and codes which address or are otherwise concerned with, environmental issues, and

 

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all regulations, rules, standards, orders and directives of all properly constituted governmental authorities (charged with the responsibility of implementing or enforcing such laws, statutes, ordinances and codes) relating to (a) “Releases” (as defined in 42 U.S.C. sec. 9601(22)) or threatened Releases of Hazardous Material (as defined below) into the environment, (b) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Material, (c) the health or safety of employees in the workplace, (d) protecting or restoring natural resources or (e) the environment.

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“ ERISA Affiliate ” shall mean any person, firm or entity (whether or not incorporated) which, by reason of its relationship with the Company, is required to be aggregated with the Company under Sections 414(b), (c) or (m) of the Code.

 

“ Escrow Account ” shall mean the escrow account in respect of the Escrow Amount maintained by the Escrow Agent pursuant to the terms hereof.

 

“ Escrow Agent ” shall mean Wachovia Bank, National Association, a national banking association.

 

“ Escrow Agreement ” shall have the meaning ascribed to such term in Section 2.7(c).

 

“ Escrow Amount” shall mean an amount equal to ten percent (10%) of the Adjusted Purchase Price.

 

“ Escrow Funds ” shall mean the funds that are held by the Escrow Agent in the Escrow Account.

 

“ Escrow Termination Date ” shall be the one (1)-year anniversary of the Closing Date.

 

“Estimated Net Worth Adjustment” shall have the meaning ascribed to such term in Section 2.9(a).

 

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

“ GAAP ” shall mean United States generally accepted accounting principles consistently applied in accordance with the historic policies and practices of the Company for the periods covered thereby.

 

“ Government Contract ” shall mean any prime contract, subcontract, purchase order, task order, delivery order, teaming agreement, joint venture agreement, strategic alliance agreement, basic ordering agreement, pricing agreement, letter contract or other similar arrangement of any kind that are currently active in performance or that have been active in performance at any time in the seven year period prior the Closing Date with (i) any Governmental Entity; (ii) any prime contractor of a Governmental Entity in its capacity as a prime contractor; or (iii) any subcontractor at any tier with respect to any contract of a type described in clauses (i) or (ii) above. A task, purchase or delivery order under a Government Contract shall not constitute a separate Government Contract, for purposes of this definition, but shall be part of the Government Contract to which it relates.

 

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“ Government Contract Bids ” shall have the meaning ascribed to such term in Section 3.22(a).

 

“ Governmental Entity ” shall mean any public body or authority, including courts of competent jurisdiction, domestic or foreign.

 

“ Hazardous Materials ” shall mean any hazardous or toxic substance, material or waste which is regulated under, or defined as a “hazardous substance,” “pollutant,” “contaminant,” “toxic chemical,” “hazardous material,” “toxic substance” or “hazardous chemical” under (i) Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. (“CERCLA”); (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq .; (iii) the U.S. Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq .; (iv) the U.S. Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq .; (v) the U.S. Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq .; (vi) regulations promulgated under any of the above statutes or (vii) any applicable state or local statute, ordinance, rule, or Regulation that has a scope or purpose similar to those statutes identified above.

 

“ HSR Act ” shall have the meaning ascribed to such term in Section 3.2(b).

 

“ Identified Company Obligations” shall have the meaning ascribed to such term in Section 2.7(a)(ii).

 

“ Inbound License Agreement ” shall have the meaning ascribed to such term in Section 3.19(d).

 

“ Indemnification Cap ” shall have the meaning ascribed to such term in Section 7.3(b).

 

“ Indemnified Losses ” shall have the meaning ascribed to such term in Section 7.1.

 

“ Indirect Costs ” shall have the meaning ascribed to such term in 48 C.F.R. Section 2.101.

 

“ Initial Purchase Price ” shall have the meaning ascribed to such term in 2.7(a).

 

“ Intellectual Property ” shall mean (a) letters patent, patents, patent applications, patent licenses, and all claims with regard thereto; (b) software licenses and know-how licenses, source codes, passwords, trade names, trademarks, service marks, licenses of trademarks, trade names and/or service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications; (c) interests in inventions, processes and trade secrets, whether reduced to practice or not, on which no application for letters patent has been filed but as to which the Company has a right or option to obtain an assignment or license by reason of an existing contract with or employment of the inventor; (d) methods or processes, designs, technical data, product development data, research data, know-how, market reports, consumer investigations, product surveys, distribution methods customer lists, trade

 

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secrets, notebooks and other industrial property rights, whether or not secret and whether or not reduced to writing; and (e) all other factual and proprietary information, whether or not secret and whether or not reduced to writing, including all invention disclosures, data, analytic methods, acceptance or rejection criteria, whether or not capable of precise separate description, but which in any event alone or when accumulated give to the one acquiring it an ability to study, test, produce or market something which one otherwise would not have known to study, test, produce or market in the same way.

 

“ IRS ” shall mean the Internal Revenue Service or its successor.

 

“ Knowledge ” shall mean: (i) with respect to the Company, the actual knowledge that any of the persons listed on Schedule 1.1 has or would have reason to have if he or she had performed his or her services and duties in the ordinary course on behalf of the Company in a reasonably diligent manner; (ii) with respect to any other Person that is an entity, the actual knowledge that a director or officer has or would have reason to have if he or she had performed his or her services and duties in the ordinary course on behalf of the Person in a reasonably diligent manner; and (iii) with respect to any Person that is an individual, the actual knowledge that Person has or would have reason to have after reasonable inquiry and due investigation.

 

“ Law(s) ” means, with respect to any Person, any federal, state, local or other statute, law, ordinance, rule, regulation, order, writ, injunction, judgment, decree or other requirement of any Governmental Entity (including Environmental Laws) existing as of the Closing Date applicable to such Person or any of such Person’s property, assets, officers, directors, employees, consultants or agents.

 

“ Leases ” shall have the meaning ascribed to such term in Section 3.13(a).

 

“ Liabilities ” means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, known or unknown, and whether accrued, absolute, contingent, matured, or unmatured.

 

“ Licensed Intellectual Property ” shall have the meaning ascribed to such term in Section 3.19(c).

 

“ Lien ” shall mean, with respect to any asset, any mortgage, lien, pledge, charge, collateral sales contract, security interest or encumbrance of any kind.

 

“ Listed Contract ” shall have the meaning ascribed to such term in Section 3.17(b).

 

“ Litigation Conditions ” shall have the meaning ascribed to such term in Section 7.5(e).

 

“ Look-Back Period ” shall have the meaning ascribed to such term in Section 5.13(b).

 

“ Losses ” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, Taxes, Liens, losses, expenses, and fees, including court costs and reasonable attorneys’ fees and expenses

 

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“ Material Adverse Effect ” will be deemed to have occurred if any event (whether specific to the applicable party or generally applicable to multiple parties), violation, inaccuracy, circumstance or other matter (considered together with all other matters that would constitute exceptions to the representations and warranties set forth in this Agreement but for the presence of “Material Adverse Effect” or other materiality qualifications, or any similar qualifications, in such representations and warranties) has, or could reasonably be expected to have, or give rise to, a material adverse effect on, or material adverse change to the financial condition, business, or results of operations of the party making the representations and warranties.

 

“ Meeting Date ” shall have the meaning ascribed to such term in Section 5.1(a)(i).

 

“ Merger ” shall have the meaning ascribed to such term in the recitals above.

 

“ Merger Parties ” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

 

“ Merger Sub ” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

 

“ Merger Sub Common Stock ” shall have the meaning ascribed to such term in Section 2.6(d).

 

“ Multiemployer Plan ” shall mean any “multiemployer plan” as such term is defined in Section 3(37) of ERISA.

 

“ Officer ” or “ officer ” shall have the meaning ascribed to such term in Rule 16a-1 under the Exchange Act.

 

“ Officer’s Certificate ” shall have the meaning ascribed to such term in Section 7.5(b).

 

“ Option Holder Cashout Amount ” shall have the meaning ascribed to such term in Section 3.3(c).

 

“ Option Holder Cashout Certificate ” shall mean the certificate to be delivered by the Company pursuant to Section 2.8(b)(xiv).

 

“ Option Holders ” shall mean any person holding any Convertible Options.

 

“ Optionee Release Agreement ” shall have the meaning ascribed to such term in Section 5.17.

 

“ Permitted Lien(s) ” shall mean (a) statutory Liens for Taxes and water and sewer charges not yet delinquent or Liens arising out of Taxes or general or special assessments not in default and payable without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings; (b) those Liens disclosed in Schedule 3.13(b) ; (c) statutory Liens of carriers, warehousemen, mechanics, materialmen and the like arising in the ordinary course of business for obligations not yet due and that could not reasonably be expected to have a Material Adverse Effect on the Company; (d) easements, restrictive covenants, rights of way

 

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and other similar restrictions that could not reasonably be expected to have a Material Adverse Effect on the Company; (e) landlord’s Liens; (f) imperfections of title and Liens that could not reasonably be expected to have a Material Adverse Effect on the Company or that are reserved against in the Company Balance Sheet; (g) Liens in connection with workmen’s compensation, unemployment insurance or other social security, old age pension or public liability obligations; (h) legal or equitable encumbrances deemed to exist by reason of the existence of any litigation or other legal proceeding or arising out of a judgment or award with respect to which an appeal is being prosecuted in good faith and levy and execution thereon have been stayed and continue to be stayed; and (i) zoning, building and other similar restrictions imposed by any laws that could not reasonably be expected to have a Material Adverse Effect on the Company.

 

“ Person ” shall mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

“ Pro Forma Closing Net Worth” shall have the meaning ascribed to such term in Section 2.9(a).

 

“ Pro Rata Interest ” shall mean the percentage equal to the number of shares of Company Common Stock held by the Shareholder immediately prior to the Effective Time divided by the sum of all shares of Company Common Stock outstanding immediately prior to the Effective Time, excluding for all purposes hereof any shares held in treasury by the Company.

 

“ Proposed Settlement ” shall have the meaning ascribed to such term in Section 8.2(b).

 

“ Prospective Customer ” shall have the meaning ascribed to such term in Section 5.13(b).

 

“ Proxy Statement ” shall have the meaning ascribed to such term in Section 5.1(a)(ii).

 

“ Purchase Price Adjustment Final Payment” shall have the meaning ascribed to such term in Section 2.10(d).

 

“Purchase Price Adjustment Notice” shall have the meaning ascribed to such term in Section 2.10(a).

 

“Purchase Price Adjustment Referee” shall have the meaning ascribed to such term in Section 2.10(c).

 

“Real Property ” shall mean all real property and interests in real property (including those certain easements, privileges, right-of-way agreements, surface use rights, servitudes, and other real property interests necessary for access to or which are ancillary or appurtenant to the use and enjoyment of such real property and the operation of the Business of the Company).

 

“ Regulatory Approvals ” shall have the meaning ascribed to such term in Section 5.7.

 

“ Required Consents ” shall have the meaning ascribed to such term in Section 3.2(b).

 

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“ Restricted Employee ” shall have the meaning ascribed to such term in Section 5.13(a).

 

“ Restrictive Period ” shall have the meaning ascribed to such term in Section 5.13(a).

 

“ Section 338 Election” shall have the meaning ascribed to such term in Section 2.11(a).

 

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

“ Shareholder Net Worth Adjustment” shall have the meaning ascribed to such term in Section 2.10(a).

 

“ Shareholder Parties ” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

 

“ Shareholder Purchase Price Adjustment Objection Notice” shall have the meaning ascribed to such term in Section 2.10(b).

 

“ Shareholder Release Agreement ” shall have the meaning ascribed to such term in Section 5.17.

 

“ Shareholder Representative ” shall mean (a) Harry M. Howton, and (b) in the event of the resignation, death or disability of Harry M. Howton, then the Shareholders’ Committee authorized pursuant to Section 10.1(f).

 

“ Shareholder Returns ” shall have the meaning ascribed to such term in Section 8.2.

 

“ Shareholder(s) ” shall mean the holders of the Company Common Stock immediately prior to the Effective Time representing 100% beneficial and record ownership of the Company, each of whom is listed on Schedule 3.4.

 

“ Shareholders’ Committee ” shall have the meaning ascribed to such term in Section 10.1(f).

 

“ Short Period Return ” shall have the meaning ascribed to such term in Section 8.1(a).

 

“ Special Escrow Agent Costs ” shall have the meaning ascribed to such term in Section 10.2(b).

 

“ Special Meeting ” shall have the meaning ascribed to such term in Section 5.1(a)(i).

 

“ Straddle Period ” shall have the meaning ascribed to such term in Section 8.1(b).

 

“ Straddle Period Return ” shall have the meaning ascribed to such term in Section 8.1(b).

 

“ Surviving Corporation ” shall have the meaning ascribed to such term in Section 2.1.

 

“ Surviving Corporation Common Stock ” shall have the meaning ascribed to such term in Section 2.6(d).

 

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“ Tax Claim Notice ” shall have the meaning ascribed to such term in Section 8.2(a).

 

“ Tax Indemnification Cap ” shall have the meaning ascribed to such term in Section 7.3(b).

 

“ Tax Returns ” shall mean all returns, declarations, reports, claims for refund, statements and other documents required or permitted to be filed with any Governmental Entity in respect of any Tax (including payroll tax remittances and payroll tax returns, but not including the Shareholders’ personal returns, declarations, reports, claims for refund, statements and other documents) and “ Tax Return ” shall mean one of the foregoing Tax Returns.

 

“ Taxes ” shall mean all taxes, charges, fees, levies, imposts, withholdings or other assessments, domestic or foreign, including, without limitation all net income, gross income, gross receipts, sales, use, ad valorem , transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment (including withholding, payroll and employment taxes required to be withheld with respect to income paid to employees), excise, estimated, severance, stamp, occupation, premium, windfall profits, environmental, capital stock, social security (or similar), unemployment, disability, registration, value added, alternative or add-on minimum, real property, personal property or other taxes, customs, duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign).

 

“ Termination Date ” shall have the meaning ascribed to such term in Section 9.1.

 

“ Third-Party Claim ” shall have the meaning ascribed to such term in Section 7.5(e).

 

“ Transaction Fees ” shall have the meaning ascribed to such term in Section 2.7(a)(iii).

 

“Transferred Employees” shall have the meaning ascribed to such term in Section 5.8(a).

 

“ Voluntary Termination Date ” shall mean May 31, 2005, or such other date as may be from time to time agreed by Buyer, the Company and the Shareholder Representative, which date (i) may be extended by the prior written consent of Buyer, the Company and the Shareholder Representative and (ii) will be automatically extended if the Merger Parties have not received approval pursuant to their HSR Act filings on or prior to such date until such time (but in no event later than July 31, 2005) that such approval under the HSR Act has been obtained.

 

“ VSCA ” shall mean the Virginia Stock Corporation Act, as amended.

 

“ Welfare Plan ” shall mean any “employee welfare benefit plan” as such term is defined in Section 3(l) of ERISA.

 

Section 1.2 Construction .

 

(a) This Agreement is to be deemed to have been prepared jointly by the parties hereto after arm’s length negotiations, and any uncertainty or ambiguity existing herein shall not be interpreted against any party, but according to the application of the rules of

 

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interpretation of contracts. Each party acknowledges and represents that it has been represented by its own legal counsel in connection with the transactions contemplated by this Agreement, with the opportunity to seek advice as to its legal rights from such counsel. Each party further represents that it is being independently advised as to the tax or securities consequences of the transaction contemplated by this Agreement and is not relying on any representation or statements made by the other party as to such tax and securities consequences.

 

(b) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires, (ii) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules hereto and all attachments thereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Schedule references are to the Articles, Sections, paragraphs, and Schedules to this Agreement unless otherwise specified, (iii) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified, (iv) the word “or” shall not be exclusive, (v) “dollars” or “$” shall refer to United States dollars, and (vi) provisions shall apply, when appropriate, to successive events and transactions.

 

ARTICLE II

 

THE MERGER

 

Section 2.1 The Merger .

 

Upon the terms and subject to the satisfaction or waiver of the conditions hereof, and in accordance with the applicable provisions of this Agreement and the VSCA, at the Effective Time, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the Company, as existing on and after the Effective Time, being hereinafter sometimes referred to as the “ Surviving Corporation ”) and shall continue to be governed by the laws of the Commonwealth of Virginia.

 

Section 2.2 Closing .

 

The closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m. (Washington, D.C. time) on the later of May 9, 2005 or the date that is the second Business Day after satisfaction or waiver of the conditions set forth in Article VI, at the Washington, D.C. office of Venable, LLP, unless another date or place is agreed to in writing by the Merger Parties (such date upon which the Closing occurs, the “ Closing Date ”).

 

Section 2.3 Effective Time .

 

Concurrently with the Closing, the parties hereto shall cause the Articles of Merger to be filed with the State Corporation Commission of Virginia in accordance with the VSCA. The time the Merger becomes effective in accordance with applicable law, which shall be the date and time at which the Articles of Merger have been duly filed with the State Corporation Commission of Virginia or at such other date and time as is agreed between the parties and specified in the Articles of Merger, is referred to herein as the “ Effective Time .”

 

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Section 2.4 Articles of Incorporation and Bylaws of the Surviving Corporation .

 

The articles of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with the provisions thereof and of applicable law; provided, however, the articles of incorporation shall be amended by virtue of the Merger to provide that the name of the Surviving Corporation from and after the Effective Time shall be ManTech Gray Hawk Systems, Inc. Unless otherwise determined by Buyer, the bylaws of Merger Sub in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with the provisions thereof and of applicable law.

 

Section 2.5 Directors and Officers .

 

All of the directors and officers of the Company immediately prior to the Effective Time, unless otherwise so notified by Buyer, shall resign effective as of the Effective Time. Buyer, as sole shareholder of the Surviving Corporation, shall appoint new directors, in its sole discretion, effective as of the Effective Time. Further, the officers of Merger Sub immediately prior to the Effective Time shall become the officers of the Surviving Corporation, effective as of the Effective Time, to hold their respective offices until their successors are duly elected and qualified or until their earlier death, resignation or removal.

 

Section 2.6 Effect of the Merger .

 

At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the VSCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time:

 

(a) all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, Liabilities and duties of the Company and Merger Sub shall become the debts, Liabilities and duties of the Surviving Corporation;

 

(b) each share of Company Common Stock held in the treasury of the Company immediately prior to the Effective Time, if any, shall automatically be cancelled and retired and shall cease to exist, and no cash, stock or other property shall be delivered in exchange therefore;

 

(c) all shares of Company Common Stock exchanged and converted in accordance with Section 2.7(e) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a validly issued and non-assessable stock certificate of the Company (“ Certificate ”) or instrument representing any such shares, except those holders of shares as to which dissenters’ rights have been perfected under the VSCA, shall cease to have any rights with respect thereto, except the right to receive payment therefore as set forth in Section 2.7(e), upon the surrender of such Certificate or instrument in accordance with Section 2.7(e), without interest. The portion of the Aggregate

 

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Merger Consideration paid or payable in respect of the surrender of such Certificates or instruments pursuant to this Agreement shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock represented by such Certificates. If after the Effective Time, Certificates or other such instruments are presented to Buyer or the Surviving Corporation, they shall be cancelled and exchanged for the proper portion of the Aggregate Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in Section 2.7(e);

 

(d) each share of common stock, par value $.01 per share, of Merger Sub (the “ Merger Sub Common Stock ”) issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation (the “ Surviving Corporation Common Stock ”). Each stock certificate of Merger Sub evidencing ownership of any such shares of Merger Sub Common Stock shall, as of the Effective Time, evidence ownership of such shares of Surviving Corporation Common Stock; and

 

(e) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by Shareholders of the Company who have perfected dissenters’ rights in accordance with the VSCA (the “ Dissenting Shares ”) shall not be converted into or represent any right to receive the amount set forth in Section 2.7(e) below, unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder’s rights to appraisal under the VSCA. Any payments to any holder who has exercised dissenter’s rights shall be made by Buyer, subject to the indemnification obligations of the Shareholders set forth in Article VII hereof in connection with any additional payments by or liabilities of Buyer arising in connection with payments to holders of Dissenting Shares. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder’s rights to appraisal of such shares under the VSCA, such holder’s shares shall thereupon be deemed to have been converted into and to have become exchangeable for, at the Effective Time, the right to receive the amount set forth in Section 2.7(e). The Company shall not make any payment to or settle any dispute with the holder of any Dissenting Shares without the prior written consent of Buyer.

 

Section 2.7 Consideration for the Merger and Option Cashout

 

(a) Merger Consideration Paid at Closing . Subject to the terms and conditions of this Agreement, Buyer agrees to pay or cause to be paid to, or on behalf of, the Shareholders at Closing an aggregate amount in cash equal to One Hundred Million dollars ($100,000,000) (the “ Initial Purchase Price ”) (i) less the amount equal to outstanding Company Debt and Capital Lease Obligations at Closing, if any; (ii) less the amounts of any outstanding obligations of the Company for termination, severance and like amounts, the aggregate amount of which is set forth on Schedule 2.7(a) (the “ Identified Company Obligations ”); (iii) less the amount necessary to satisfy final bills rendered by the legal, accounting and investment banking advisors to the Company invoicing fees and expenses incurred in such advisors’ representation of the Company in connection with the transactions contemplated hereby, such final bills to be delivered to the Company no later than one Business Day prior to Closing (such fees and expenses, “ Transaction Fees ”); (iv) subject to Section 2.9(c), increased or decreased by the Estimated Net Worth Adjustment, if any (in aggregate, the Initial Purchase Price less the items

 

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(i) through (iii) above and subject to item (iv) above is hereinafter referred to as the “ Adjusted Purchase Price ”); and (v) less the Option Holder Cashout Amount. For purposes of this Agreement, “ Closing Purchase Price ” shall mean Adjusted Purchase Price less the Option Holder Cashout Amount.

 

(b) Payment of Company Debt and Transaction Fees and Assumption of Capital Lease Obligations . Buyer shall, or shall cause the Company to, (i) pay the respective amounts withheld from the Initial Purchase Price pursuant to Section 2.7(a)(i) herein to the holders of the Company Debt in cash, on behalf of the Company, at Closing, (ii) pay the Transaction Fees withheld from the Initial Purchase Price pursuant to Section 2.7(a)(iii) to the appropriate service providers, and (iii) subject to the Company obtaining consent to assignment thereof, Buyer shall assume the Capital Lease Obligations on behalf of the Company at Closing.

 

(c) Payment of Escrow Amount . At Closing, the Buyer shall deliver or cause to be delivered, on behalf of the Shareholders a portion of the Closing Purchase Price equal to the Escrow Amount to the Escrow Agent by wire transfer of immediately available funds to be held in escrow pursuant to the terms contained herein relating to the Escrow Account and that certain Escrow Agreement, by and among Buyer, Shareholder Representative and the Escrow Agent, dated as of even date herewith, in the form attached hereto as Schedule B (the “ Escrow Agreement ”).

 

(d) Payment of Option Holder Cashout Amount . At Closing Buyer shall pay to the Company the aggregate Option Holder Cashout Amount as set forth on Schedule 3.3(c) attached hereto to an account designated by the Company. The Company will pay such funds to the Option Holders and in the amounts as set forth on the Option Holder Cashout Certificate delivered by the Company to Buyer at Closing through its normal payroll processing procedures and subject to all applicable payroll and withholding Taxes.

 

(e) Payment of Aggregate Merger Consideration .

 

(i) At the Effective Time, each holder of Company Common Stock outstanding immediately prior to the Effective Time (other than shares cancelled pursuant to Section 2.7(f) and those shares as to which dissenters’ rights have been perfected under the VSCA), subject to (A) the delivery of a Shareholder Release Agreement, (B) surrender of his or her Certificate or other instrument representing his or her shares of Company Common Stock, and (C) to the terms of this Section 2.7, shall by virtue of the Merger be entitled to receive, and the Buyer shall pay or cause to be paid to or on behalf of such holder, an amount equal to his or her Pro Rata Interest of the Closing Purchase Price as set forth on the Certificate of Share Ownership to be delivered by the Company to Buyer at Closing.

 

(ii) In accordance with Section 2.10 and at the time or times provided in Section 2.10, each Shareholder shall be entitled to receive his or her Pro Rata Interest as set forth on the Certificate of Share Ownership of any Purchase Price Adjustment Final Payment to be paid by the Buyer or shall pay his or her Pro Rata Interest as set forth on the Certificate of Share Ownership of any Purchase Price Adjustment Final Payment to be paid by the Shareholders.

 

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(iii) Finally, after termination of the Escrow Agreement and resolution of any claims made against the Escrow Amount pursuant to the Escrow Agreement, in accordance with the terms of the Escrow Agreement, each Shareholder shall by virtue of the Merger be entitled to receive an amount equal to his or her Pro Rata Interest of any remaining Escrow Amount in accordance with the percentages set forth on the Certificate of Share Ownership hereto.

 

(iv) All cash payments shall be made by wire transfer of immediately available funds; provided, however, that Buyer shall not be required to make any payment by wire transfer in an amount less than Five Hundred Thousand Dollars ($500,000) and may issue checks written against immediately available funds in lieu of wire transfer for such payments. All payments of Closing Purchase Price to Shareholders pursuant to this Agreement and payment and delivery of the Escrow Amount to the Escrow Agent on behalf of the Shareholders shall be made in such amounts and pursuant to such percentages (which percentages shall be equal to their Pro Rata Interests) as are set forth in the spreadsheet to be provided by the Shareholder Representative no later than three (3) Business Days prior to the Closing Date in the form set forth in the Certificate of Share Ownership, rounded to the nearest cent.

 

(f) Cancellation of Company Owned Stock . At the Effective Time, each share of Company Common Stock held in the treasury of the Company immediately prior to the Effective Time, if any, shall automatically be cancelled and retired and shall cease to exist, and no cash, stock or other property shall be delivered in exchange therefore.

 

(g) No Further Ownership Rights in Company Common Stock . As of the Effective Time, all shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist. Each holder of a Certificate shall cease to have any rights with respect thereto, except the right to receive his or her Pro Rata Interest of the Closing Purchase Price in accordance with and subject to the terms of this Agreement, including, without limitation, Section 2.7(e), upon surrender of such Certificate. The Pro Rata Interest of the Closing Purchase Price paid or payable to the Shareholders in respect of the surrender of Certificates shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock represented by such Certificates.

 

(h) Tax Withholding . Buyer shall be entitled to deduct and withhold from the allocable portion of the Aggregate Merger Consideration otherwise payable to any Shareholder or, to the extent not undertaken by the Company, the allocable portion of the Option Holder Cashout Amount otherwise payable to any Option Holder such amounts as Buyer (or any Affiliate thereof) is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by Buyer (or any Affiliate thereof) and remitted to the appropriate taxing authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such deduction and withholding was made by Buyer (or any Affiliate thereof).

 

Section 2.8 Deliveries at the Closing .

 

(a) Buyer and Merger Sub Deliveries . Without limiting any other obligation of Buyer and Merger Sub under this Agreement, at the Closing, in addition to the payment of the

 

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Closing Purchase Price, the Escrow Amount and the Option Holder Cashout Amount, in each case as described above, Buyer and Merger Sub shall deliver or cause to be delivered to the Shareholder Representative, on behalf of and for the benefit of the Shareholders (and certain other Persons party thereto) the Escrow Agreement, duly executed by Buyer.

 

(b) Company Deliveries . Without limiting any other obligation of the Company under this Agreement, at the Closing, the Company shall deliver or cause to be delivered the following to Buyer and Merger Sub:

 

(i)

A certificate of the Company dated the Closing Date and signed on its behalf by its authorized officer certifying that:

 

(A)

The Company’s Amended and Restated Articles of Incorporation (the “ Company’s Articles of Incorporation ”) and the Company’s Bylaws, as amended through the date hereof (the “ Company’s Bylaws ”), attached to the certificate, are true and complete and have been in full force and effect in the form attached thereto since the date of the adoption of the resolutions referred to in clause (B) below and have not been amended, rescinded or modified, except to the extent attached thereto;

 

(B)

the resolutions adopted by its board of directors, attached to the certificate, authorizing its execution, delivery and performance of this Agreement and its actions taken in connection with the transactions contemplated by this Agreement and recommending approval and adoption of this Agreement, the Articles of Merger and the transactions contemplated hereby by the holders of the Company Common Stock, were duly adopted at a duly convened meeting thereof, at which a quorum was present and acting throughout or by unanimous written consent, remain in full force and effect, and have not been amended, rescinded or modified, except to the extent attached thereto;

 

(C)

the resolutions adopted by the Shareholders, attached to the certificate, authorizing its execution, delivery and performance of this Agreement and its actions taken in connection with the transactions contemplated by this Agreement, were duly adopted either at a duly convened meeting thereof or by written consent in accordance with the VSCA and the Company’s Articles of Incorporation, remain in full force and effect, and have not been amended, rescinded or modified, except to the extent attached thereto;

 

(D)

its officers executing this Agreement and any other documents delivered pursuant to this Agreement are incumbent officers and the specimen signatures on the certificate are their genuine signatures;

 

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(E)

it is in good standing in all jurisdictions where required, and shall attach a good standing certificate certified by the State Corporation Commission of the Commonwealth of Virginia, dated as of a date not more than ten (10) days prior to the Closing Date;

 

(F)

its representations and warranties contained in this Agreement (except as affected by the transactions contemplated in this Agreement) that are qualified as to materiality are true and correct and its representations and warranties set forth in this Agreement and that are not so qualified are true and correct in all material respects, in each case as of the Closing Date, except to the extent such representations and warranties are given as of a particular date and relate solely to a particular date or period;

 

(G)

the conditions specified in Section 6.3 of this Agreement have been fulfilled or waived;

 

(H)

it has complied in all material respects with all covenants contained in this Agreement to be performed by it prior to Closing; and

 

(I)

all Required Consents have been obtained and are in full force and effect;

 

(ii)

Debt pay-off letter(s), if any, with agreements by the lien holder(s) to release all liens upon payment thereof at Closing;

 

(iii)

Agreement terminating that certain line of credit with Wachovia;

 

(iv)

Consents to assignment of the Leases effective as of Closing (to the extent required pursuant thereto);

 

(v)

Any required consents for the assignment of any Government Contracts that are subcontracts (to the extent required pursuant thereto);

 

(vi)

Any required novations in connection with assignment of any Government Contracts;

 

(vii)

An IRS Form 8023 (or any successor form(s) thereto) executed by each Shareholder;

 

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(viii)

The minute books, corporate seals and stock ledger of the Company; and

 

(ix)

the Escrow Agreement, duly executed by the Shareholder Representative;

 

(x)

Resignations of each director and officer of the Company, effective as of the Effective Time;

 

(xi)

Executed copies of Optionee Release Agreements from each holder of options to purchase Company Common Stock;

 

(xii)

Executed copies of Shareholder Release Agreements from each holder of Company Common Stock;

 

(xiii)

Agreements terminating employment agreements with certain employees set forth on Schedule 2.8(b);

 

(xiv)

The Option Holder Cashout Certificate, which (A) confirms the accuracy of the amount of the Option Holder Cashout Amount provided in Schedule 3.3(c) and (B) sets forth a true, accurate and complete list of: all Option Holders, the number of shares represented by the Convertible Options held by each such Option Holder, the respective exercise prices thereof and the amount of cash to be paid on or before Closing to fully and completely terminate such Option Holder’s Convertible Options and any rights related thereto in a form acceptable to Buyer and executed and delivered by a duly authorized officer of the Company;

 

(xv)

The Certificate of Share Ownership, which is a true, accurate and complete list of the names of each Shareholders of the Company as of the Closing, the number and class of shares of Company Common Stock held by such Shareholders and the Pro Rata Interest of each of such Shareholders in a form acceptable to Buyer and executed and delivered by a duly authorized officer of the Company;

 

(xvi)

The Certificate of Employees, which shall list as of the Closing the following information for each employee or director of the Company, including each employee on leave of absence or layoff status: name, job title, current compensation paid or payable, and vacation accrued; in a form acceptable to Buyer and executed and delivered by a duly authorized officer of the Company;

 

(xvii)

The Certificate of Identified Company Obligations, which shall confirm the amount of aggregate Identified Company Obligations as set forth on Schedule 2.7(a) and shall include the components of the Identified Company Obligations including for each separate

 

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Identified Company Obligation, the name of the person to whom the payment shall be made, the amount of the payment and the nature of the payment obligation (e.g. severance, notes payable, transaction bonuses, employee payroll taxes, and negative vacation balances) in a form acceptable to Buyer and executed and delivered by a duly authorized officer of the Company;

 

(xviii)

Legal opinion from counsel to the Company in substance as set forth in Schedule E attached hereto and reasonably satisfactory to Buyer, addressed to Buyer and dated as of the Closing Date; and

 

(xix)

Such other documents, instruments, certificates and writings as reasonably may be requested by Buyer no later than three (3) Business Days prior to the Closing.

 

Section 2.9 Closing Net Worth Adjustment and Estimated Closing Net Worth Adjustment .

 

(a) The “ Closing Net Worth Adjustment ” shall be the positive or negative difference, if any, by which the Closing Net Worth (as defined below) differs from nineteen million one hundred thousand dollars ($19,100,000) (the “ Pro Forma Closing Net Worth ”). If the Closing Net Worth exceeds the Pro Forma Closing Net Worth, then the Closing Net Worth Adjustment shall be positive; and if the Closing Net Worth is less than the Pro Forma Closing Net Worth, then the Closing Net Worth Adjustment shall be negative. The Company shall estimate in good faith the Closing Net Worth, as of Closing, and deliver (i) such estimate, which shall include an unaudited balance sheet of the Company as of a date within three (3) Business Days prior to the Closing Date that (A) is prepared in accordance with GAAP, applied in a manner consistent with and using all of the same accounting principles, practices, methodologies and policies (which, in the case of judgments, shall be judgments consistent with the applicable judgments made with respect to the Company Balance Sheet) used in the preparation of the Company Balance Sheet (the “ Accounting Principles ”) and (B) reflects balance sheet account balances consistent with average balances of such accounts for September 2004 through March 2005 unless the Company and Buyer agree otherwise, and (ii) copies of the working papers used to prepare such estimate and unaudited balance sheet to Buyer, no later than three (3) Business Days before the Closing Date (the difference between such estimate and the Pro Forma Closing Net Worth, if any, being the “ Estimated Net Worth Adjustment ”). As provided in Section 2.7(a) and subject to Section 2.9(c), the Initial Purchase Price shall be adjusted for the Estimated Net Worth Adjustment, if any. The Closing Net Worth shall be finally determined in accordance with Section 2.9(b) and Section 2.10.

 

(b) Promptly after the Closing, Buyer’s independent accountants shall, at Buyer’s expense (i) audit the books of account of the Company as of the Closing Date, and (ii) prepare an audited balance sheet of the Company as of the Closing Date (the “ Closing Date Balance Sheet ”). The Closing Date Balance Sheet shall be prepared in accordance with the Accounting Principles and shall be accompanied by an unqualified report of Buyer’s independent accountants on the Closing Date Balance Sheet certifying that the Closing Date Balance Sheet and any related notes thereto were prepared in accordance with the Accounting Principles. The

 

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Merger Parties acknowledge that (A) the sole purpose of the determination of Closing Net Worth is to adjust the Initial Purchase Price so as to reflect the change in net worth of the Company from the Pro Forma Closing Net Worth to the actual net worth of the Company on the Closing Date. For purposes of this Agreement, “ Closing Net Worth ” shall mean the Company’s assets as of the Closing, less the Company’s Liabilities as of Closing, both as reflected on the Closing Date Balance Sheet, increased by the aggregate amount of the items reducing the Initial Purchase Price as set forth in Sections 2.7(a) (i), (ii), (iii) and (v) and the amount of any corporate state Tax liability solely attributable to a deemed asset sale arising by reason of any Code Section 338(h)(10) election made by Buyer and the Shareholders, to the extent the amount of such items is accrued and included on the Closing Date Balance Sheet.

 

(c) Notwithstanding anything else in this Agreement to the contrary, no Estimated Net Worth Adjustment or Actual Net Worth Adjustment (as described in Section 2.10(a) below), whether positive or negative, shall be made until and unless the amount of any such adjustment exceeds One Hundred Thousand dollars ($100,000) (the “ Adjustment Deductible ”). If any Estimated Net Worth Adjustment or any Actual Net Worth Adjustment shall exceed the Adjustment Deductible, then the adjustment shall be made only to the extent the adjustment exceeds the Adjustment Deductible. Further, notwithstanding anything contained herein to the contrary, any actual adjustments, whether positive or negative, made in excess of the Adjustment Deductible in connection with the Estimated Net Worth Adjustment or the Actual Net Worth Adjustment shall be limited, both individually and in the aggregate, to the amount of One Million Five Hundred Thousand dollars ($1,500,000).

 

Section 2.10 Post-Closing Adjustment Payments .

 

(a) Buyer, based on the Closing Date Balance Sheet, shall provide to the Shareholder Representative, within sixty (60) days after Closing, (i) a copy of the Closing Date Balance Sheet accompanied by the unqualified report of Company’s accountant as provided in Section 2.9(b), and (ii) a copy of Buyer’s independent accountants’ calculation of (A) the actual Closing Net Worth Adjustment, if any (the “ Actual Net Worth Adjustment ”); (B) the amount by which, if any, Closing Net Worth exceeds the Pro Forma Closing Net Worth and, in such case, the amount if any, by which a positive Estimated Net Worth Adjustment is less than a positive Actual Net Worth Adjustment or the amount, if any, by which a negative Estimated Net Worth Adjustment is greater than a negative Actual Net Worth Adjustment or the spread, if any, between a negative Estimated Net Worth Adjustment and a positive Actual Net Worth Adjustment (in each such case, a “ Shareholder Net Worth Adjustment ”); and (C) the amount by which, if any, Pro Forma Closing Net Worth exceeds Closing Net Worth and, in such case, the amount, if any, by which a positive Estimated Net Worth Adjustment is greater than a positive Actual Net Worth Adjustment or the amount, if any, by which a negative Estimated Net Worth adjustment is less than a negative Actual Net Worth adjustment or the spread, if any, between a positive Estimated Net Worth Adjustment and a negative Actual Net Worth Adjustment (in each such case, a “ Buyer Net Worth Adjustment ”) (such materials in item (ii) of this Section 2.10(a), the “ Purchase Price Adjustment Notice ”).

 

(b) Buyer, at the Shareholder Representative’s request, shall allow the Shareholder Representative and his or her representatives reasonable access at all reasonable times to the Surviving Corporation’s and Company’s accountants, personnel, properties, Books

 

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and Records, work papers, schedules and calculations directly relating to the Closing Date Balance Sheet, the Actual Net Worth Adjustment, Buyer Net Worth Adjustment, if any, and Shareholder Net Worth Adjustment, if any, for the purpose of reviewing the Purchase Price Adjustment Notice and the Closing Date Balance Sheet and confirming the accuracy of the preparation thereof. Any Buyer Net Worth Adjustment or Shareholder Net Worth Adjustment shall be paid within thirty (30) days of the Shareholder Representative’s receipt of the Purchase Price Adjustment Notice, except for any of the Buyer Net Worth Adjustment or the Shareholder Net Worth Adjustment, as the case may be, for which the Shareholder Representative has provided Buyer with a Shareholder Purchase Price Adjustment Objection Notice (as subsequently defined) in good faith. In the event that the Shareholder Representative provides such notice (“ Shareholder Purchase Price Adjustment Objection Notice ”) to Buyer no later than thirty (30) days after receipt of the Purchase Price Adjustment Notice that the Shareholders in good faith dispute Buyer’s independent accountants’ determination of the Actual Net Worth Adjustment, if any, the Buyer Net Worth Adjustment, if any, and/or the Shareholder Net Worth Adjustment, if any, determined in accordance with Section 2.10(a), the Shareholder Representative and Buyer shall then meet and negotiate in good faith to resolve such dispute, such negotiation to begin as soon as practicable (but in any case, no later than thirty (30) days) after Buyer’s receipt of the Shareholder Purchase Price Adjustment Objection Notice.

 

(c) In the event that Buyer and the Shareholder Representative are not able to resolve such dispute within thirty (30) days after the date on which Buyer receives the Shareholder Purchase Price Adjustment Objection Notice, then the Shareholder Representative and Buyer may refer the issues in dispute to a neutral, mutually acceptable independent accounting firm of national reputation with which no party hereto has had a preexisting relationship for resolution (the “ Purchase Price Adjustment Referee ”) and, immediately thereafter, shall provide notice of such referral to the other Merger Parties. If, within ten (10) days after the date on which Buyer received the Shareholder Purchase Price Adjustment Objection Notice, the parties are unable to agree on a neutral accounting firm to act as Purchase Price Adjustment Referee, (i) each party shall select a neutral accounting firm of national reputation and such firms together shall select the neutral accounting firm to act as the Purchase Price Adjustment Referee, and (ii) if any party does not select a neutral accounting firm within ten (10) days of written demand therefore by the other party, the independent neutral accounting firm selected by the other party shall act as the Purchase Price Adjustment Referee. The Purchase Price Adjustment Referee will only consider those items and amounts as to which Buyer and Shareholder Representative have disagreed within the time periods and on the terms specified above and must resolve the matter in accordance with the terms and provisions of this Agreement. The Merger Parties shall submit their positions on the dispute to the Purchase Price Adjustment Referee within thirty (30) days after referral. The Purchase Price Adjustment Referee shall deliver to Buyer and Shareholder Representative, as promptly as practicable and in any event within thirty (30) days after its appointment, a written report setting forth the resolution of any such disagreement determined in accordance with the terms of this Agreement. The Purchase Price Adjustment Referee shall select as a resolution the position of either Buyer or Shareholder Representative for each item of disagreement and may not impose an alternative resolution. The Purchase Price Adjustment Referee shall make its determination based solely on presentations and supporting material provided by the parties and not pursuant to any independent review. The determination of the Purchase Price Adjustment Referee shall be final and binding upon Buyer and the Shareholders. The fees and expenses of the Purchase Price

 

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Adjustment Referee shall be shared equally by Buyer and the Shareholders. Buyer and the Shareholder Representative shall direct the Purchase Price Adjustment Referee to promptly provide invoices of all such fees and expenses directly to the Shareholder Representative and Buyer. Any other costs incurred by either party including, but not limited to, experts, attorneys or financial advisors shall be at the sole cost of the party incurring such cost regardless of the determination.

 

(d) On the applicable date referred to in Section 2.10(b) (with regard to payments for which if there is no dispute) or within fifteen (15) Business Days after final determination in accordance with this Section 2.10, either (i) Buyer shall pay to the Shareholders their respective Pro Rata Interests of the amount of any Shareholder Net Worth Adjustment, or (ii) the Shareholders shall pay to Buyer the amount of any Buyer Net Worth Adjustment (in accordance with their respective Pro Rata Interests). Any such payment is hereinafter referred to as the “ Purchase Price Adjustment Final Payment .” Any Buyer Net Worth Adjustment shall be paid first from the Escrow Account (with such payment being deducted from each Shareholder’s share of the Escrow Amount on a pro rata basis in accordance with his or her Pro Rata Interest) and, second, if the Escrow Amount is not sufficient to satisfy the Buyer Net Worth Adjustment, by the Shareholders personally (as a several obligation in proportion to the Shareholders’ Pro Rata Interests).

 

(e) Any Purchase Price Adjustment Final Payment shall be made by wire transfer of immediately available funds after its final determination in accordance with this Section 2.10 to account(s) specified by Buyer and the Shareholder Representative, as the case may be, to receive the Purchase Price Adjustment Final Payment; provided, however, that Buyer shall not be required to make any payment by wire transfer in an amount less than Five Hundred Thousand Dollars ($500,000) and may issue checks written against immediately available funds in lieu of wire transfer for such payments.

 

Section 2.11 Section 338(h)(10) Election .

 

(a) Each Shareholder shall join with Buyer in making an election under Section 338(h)(10) of the Code and, at the request of Buyer, any analogous provision of state or local law (each such election, a “ Section 338 Election ”) with respect to the purchase of the stock of the Company. On the Closing Date, the Company shall deliver to Buyer IRS Form 8023 (or any successor form(s) thereto) executed by each Shareholder.

 

(b) Buyer, the Company and the Shareholders agree that the Purchase Price and the Liabilities of the Company (plus other relevant items) will be allocated to the assets of the Company in accordance with Code Sections 338 and 1060 and the regulations thereunder and the provisions set forth in Schedule 2.11(b) (attached hereto and made a part hereof) and Buyer, the Company and the Shareholders shall file all Tax Returns (including amended returns and claims for refund), IRS Form 8883 and any information reports in a manner consistent therewith.

 

(c) The Shareholders shall include their pro rata share of any income, gain, loss, deduction, or other tax item resulting from the Section 338 Election on their tax returns to the extent required by applicable law and Buyer shall pay to Shareholders such additional amounts as may be payable pursuant to the provisions of Schedule 2.11(b) .

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS

 

As a material inducement to the Buyer and Merger Sub to enter into this Agreement, except as specifically disclosed on the Company’s disclosure schedules with respect to this Article III (the “ Company Disclosure Schedules ”) delivered to Buyer and Merger Sub by the Company and the Shareholders concurrently herewith (each schedule of which qualifies only the representation in the correspondingly numbered or specifically cross-referenced Section of this Agreement, and together form a part of this Agreement), the Company and each of the Shareholders, jointly and severally, hereby represent and warrant to Buyer and Merger Sub as provided in this Article III (provided, however, each such representation and warranty as to a Shareholder is made by such Shareholder severally). Representations and warranties made herein are, as of the date hereof, and will be, as of the Closing Date, true, correct and complete.

 

Section 3.1 Organization and Good Standing; Subsidiaries .

 

The Company is a corporation, duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all requisite corporate power and authority to conduct its business as presently conducted, and as it is presently proposed to be conducted, and to own, lease and operate the assets and properties now owned, leased and operated by it. Except as set forth on Schedule 3.1 , the Company is duly qualified to do business and is in good standing in each jurisdiction where such qualification is required. Except as set forth on Schedule 3.1 , the Company has no parents or subsidiaries and owns no shares of any corporation and has no ownership or other investment interest, whether of record, beneficially, or equitably, directly or indirectly, in any association, partnership, joint venture or other legal entity or Person. Except as set forth on Schedule 3.1 , the Company has no commitments to contribute to the capital of, make loans to, or share losses of, any Person.

 

Section 3.2 Authority; No Violation .

 

(a) This Agreement and the consummation of all of the transactions contemplated hereby, including the Merger, together with the agreements reflected in the Articles of Merger, have been duly authorized by the board of directors of the Company and by all requisite corporate action, and the Company has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, subject only to the approval by the Shareholders of the Company in accordance with Section 13.1-718 and Section 13.1-657 of the VSCA and the Company’s Articles of Incorporation. No corporate proceedings other than board of directors and Shareholder approval on the part of the Company is necessary to approve and authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. The board of directors of the Company has adopted, in compliance with the VSCA, a resolution approving and adopting this Agreement and the transactions contemplated hereby, and recommending approval and adoption of this Agreement, the Articles of Merger and the transactions contemplated hereby by the holders of record of the Company Common Stock. This Agreement has been duly executed and delivered by the Company, and when executed and delivered by Buyer and Merger Sub, assuming the

 

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enforceability of this Agreement upon Buyer and Merger Sub, will constitute valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law).

 

(b) Except for consents and approvals of, or filings or registrations with, the Federal Trade Commission and the Antitrust Division of the United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations thereunder (the “ HSR Act ”) and as disclosed in Schedule 3.2(b) (the “ Required Consents ”), the execution and delivery by the Company of this Agreement and the consummation and performance by the Company of the transactions contemplated hereby in the manner herein provided do not and will not (i) require the approval, consent or authorization of, or any filing with or notice to, any foreign, federal, state, local or other governmental agency or body or any other third party (which is not deemed to include the Shareholders of the Company), other than approvals, consents, authorizations, filings or notices which have been obtained, made or given, or (ii) conflict with, or result in an uncured or unwaived breach or violation of any term or provision of, constitute (or give rise to any right to declare) a default under, or cause the acceleration of any payments pursuant to, or otherwise cause any modification, termination, cancellation under or pursuant to, (A) the Company’s Articles of Incorporation or the Company’s Bylaws, (B) any indenture, contract, mortgage, deed of trust, lease, note or note agreement or any other agreement or instrument to which the Company is a party or by which the Company or any of its assets or properties is bound, including, without limitation Company Debt and Capital Lease Obligations, (C) any governmental license, franchise, permit or other authorization held by the Company, or (D) any law, judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or body applicable to the Company.

 

(c) The Shareholder Parties, who hold in aggregate eighty six percent (86%) of the voting shares of Company Common Stock, have each approved this Agreement and the Merger by executing this Agreement and by executing a written consent of Shareholders dated as of the date hereof, an executed copy of which is attached hereto as Schedule F . The approval of this Agreement and the Merger by the Shareholder Parties constitutes the requisite approval of the Shareholders and no other vote of the Shareholders shall be required with respect to approval of the matters contemplated hereby.

 

Section 3.3 Capitalization of the Company .

 

(a) The authorized capital stock of the Company consists of 7,682,424 shares of Class A Common Stock, par value $.01 per share (the “ Class A Stock ”) and 6,062,913 shares of Class B Common Stock, par value $.01 per share (the “ Class B Stock ” and, together with the Class A Stock, the “ Company Common Stock ”) of which 7,532,424 shares of Class A Stock and 3,418,654 shares of Class B Stock are issued and are outstanding on the date hereof. All of such issued and outstanding shares of Company Common Stock are held beneficially and of record by the Shareholders as of the date hereof. All of the issued and outstanding shares of Company Common Stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. Other than as set forth in the Company’s Articles of Incorporation and in the Company’s Amended and Restated Shareholders Agreement, dated April 8, 2004, as

 

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amended (the “ Company’s Shareholders Agreement ”), there are no outstanding arrangements, agreements, or commitments of any kind relating to the issuance, purchase, sale, redemption, repurchase, or transfer of the shares of Company Common Stock (other than this Agreement). Other than as set forth in the Company’s Articles of Incorporation and in the Company’s Shareholders Agreement, there are no outstanding arrangements, agreements, or commitments of any kind relating to the voting of the Company Common Stock. Except as set forth on Schedule 3.3(a) , none of the shares of Company Common Stock was issued in violation of the Securities Act or any other law, rule or regulation. The Company does not own nor is it a party to any agreement pursuant to which it could acquire any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

 

(b) Except as set forth on Schedule 3.3(b) , or as otherwise disclosed in Section 3.3(c) hereof, there are no (i) securities of the Company reserved for issuance for any purpose, (ii) agreements pursuant to which registration rights in the securities of the Company have been granted, (iii) shareholders’ agreements, whether written or verbal, among any current or former shareholders of the Company or (iv) statutory or contractual preemptive rights, rights of first refusal or similar rights with respect to the capital stock of the Company.

 

(c) Schedule 3.3(c) sets forth the aggregate amount of cash to be paid on or before Closing to fully and completely terminate all Option Holder’s Convertible Options and any rights related thereto (the “ Option Holder Cashout Amount ”). The Company has provided to Buyer, as of May 3, 2005, a true, accurate and complete list of: all Option Holders, the number of shares represented by the Convertible Options held by each such Option Holder, the respective exercise prices thereof and the amount of cash to be paid on or before Closing to fully and completely terminate such Option Holder’s Convertible Options and any rights related thereto. As of the Closing Date, there shall be no Option Holders and no Convertible Options shall exist.

 

Section 3.4 Ownership of Company Common Stock .

 

The Company has provided to Buyer an accurate, true and complete list of Shareholders of Company Common stock and of the issued and outstanding shares of Company Common Stock that are owned beneficially and of record as of May 3, 2005 by such Shareholders. All such shares of Company Common Stock as set forth in such list provided to Buyer are free and clear of all Liens. Further, such list identifies any shares of Company Common Stock held by Shareholders that are “restricted shares” within the meaning of Code Section 83.

 

Section 3.5 Corporate Records .

 

The minute books of the Company (a) are current and contain correct and complete copies of the Company’s Articles of Incorporation and the Company’s Bylaws, including all amendments thereto and restatements thereof, and (b) accurately and adequately reflect all action previously taken by the shareholders, board of directors and committees of the board of directors of the Company. The stock record books of the Company are true, correct and complete, and accurately reflect all transactions effected in the capital stock of the Company through and including the date hereof.

 

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Section 3.6 Tax Matters .

 

(a) The Company (and any predecessor of Company) has been a validly electing S corporation within the meaning of Sections 1361 and 1362 of the Code throughout its existence and the Company will be an S corporation up to and including the Closing Date.

 

(b) The Company has duly and timely filed all Tax Returns required to be filed by the Company on or prior to the Closing Date and all such Tax Returns are accurate, correct and complete. The Company has paid in full all Taxes or has made adequate provision on the Closing Date Balance Sheet for the payment of all Taxes which have been incurred or are due or, to the Company’s Knowledge, claimed to be due from them by any taxing authorities. The provisions for Taxes currently payable on the Company Balance Sheet are at least equal, as of the date thereof, to all unpaid Taxes of the Company, whether or not disputed.

 

(c) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, Shareholder, or other third party.

 

(d) Except as set forth on Schedule 3.6(d) , (i) the Tax Returns of the Company have been audited by the appropriate authorities or are closed by the applicable statutes of limitations for all taxable periods through December 31, 2000, and any Liabilities of the Company with respect thereto have been fully paid, finally settled or adequately provided for on the Company Balance Sheet, and (ii) there are no disputes pending in respect of, or claims asserted for, Taxes on the Company, nor are there any pending or, to the Company’s Knowledge, threatened, audits or investigations or outstanding matters under discussion with any taxing authorities with respect to the payment of Taxes by the Company, nor has the Company given or been requested by any taxing authority to give any waivers extending the statutory period of limitations applicable to any Tax Return for any Taxes of the Company.

 

(e) Except as set forth on Schedule 3.6(e) , the Company has not (i) requested any extension of time within which to file any Tax Return for the Company, which Tax Return has not since been filed, or (ii) executed any power of attorney, which is currently in effect, with respect to any matter relating to Taxes of the Company.

 

(f) Neither the Company nor any Shareholders have received any notice of deficiency or assessment from any taxing authority with respect to Liabilities for Taxes of the Company that have not been fully paid or finally settled. Nor has any taxing authority in a jurisdiction where the Company does not file Tax Returns claimed that the Company may be subject to tax in that jurisdiction.

 

(g) The Company, with regard to any property or assets held or acquired by it at any time, has not filed a consent pursuant to Section 341(f) of the Code.

 

(h) The Company is not and has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii).

 

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(i) The Company has not agreed to make, nor is it required to make any adjustment pursuant to Sections 481(a) or 263A of the Code (or similar provisions of other law) by reason of a change in accounting method, including any adjustment that may be required by reason of the transactions contemplated by this Agreement. The Company has not taken action that is not in accordance with past practice that could defer a Liability for Taxes of the Company from any taxable period ending on or before the Closing Date to any taxable period ending after such date.

 

(j) There are no Liens with respect to Taxes (except for Liens for Taxes not yet delinquent) upon any of the properties or assets, personal or mixed, tangible or intangible, of the Company.

 

(k) Except as set forth on Schedule 3.6(k) , the Company is not a party to or bound by any agreement providing for the indemnification, allocation or sharing of Taxes.

 

(l) Except as set forth on Schedule 3.6(l) , the Company has no Liability for the Taxes of any Person (other than the Company) (i) under Treasury Regulations Section 1.1502-6 of the income tax regulations (or any similar provision of State, local or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.

 

(m) The Company is not party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in connection with the Agreement or any change of control of the Company, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code.

 

(n) The Company is not party to or bound by any closing agreement or offer in compromise with any taxing authority.

 

(o) Schedule 3.6(o) discloses any foreign jurisdictions in which the Company is subject to Tax.

 

(p) Except as set forth on Schedule 3.1 , the Company is not party to any joint venture, partnership, or other arrangement or contract which could be treated as a partnership for federal income tax purposes.

 

(q) Except as set forth on Schedule 3.6(q) , in the twenty-four (24) months preceding the date of this Agreement, the Company has not: (i) made any distributions, redemptions or other payments in respect of its securities other than regular and normal distributions consistent with the Company’s past practice and in accordance with the Company’s Certificate of Incorporation; or (ii) disposed of any of its assets other than in the ordinary course or business.

 

(r) Except as set forth on Schedule 3.6(r) , the Company has no potential Liability for any Tax under Section 1374 of the Code. In the past ten (10) years, the Company has not (A) acquired assets from another corporation in a transaction in which Target’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (B) acquired the stock of any corporation which is a qualified subchapter S subsidiary.

 

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Section 3.7 Employee Benefit Plans .

 

(a) Schedule 3.7(a) lists all existing Benefit Plans. Except as set forth on Schedule 3.7(a) , the Company has no formal plan or commitment, whether legally binding or not, to create any additional Benefit Plan, to modify or change any existing Benefit Plan or to terminate any existing Benefit Plan that would affect any current employee, director or consultant, or former employee, director or consultant, of the Company. There are no oral Benefit Plans to which the Company is a party.

 

(b) The Company has delivered or made available the following documents to Buyer with respect to each Benefit Plan, where applicable: correct and complete copies of the plan documents (including all amendments thereto); the most recent summary plan description or other plan description and all modifications and updates thereto; the most recent IRS determination letter or opinion letter if the Benefit Plan is intended to be qualified under the Code, if any, and all notices that were given by the IRS or the Department of Labor to a Benefit Plan; the two most recent Form 5500 Annual Reports filed with the IRS, actuarial reports, if any, and related financial statements, if any; and all related trust agreements, group annuity contract, other insurance contracts and other funding agreements, if any related to each Benefit Plan.

 

(c) Except as set forth in Schedule 3.7(c) , each Benefit Plan has been maintained, operated and administered in accordance with its terms and all applicable Laws. Except as set forth in Schedule 3.7(c) , all required reports and descriptions have been filed or distributed timely with respect to each Benefit Plan. The requirements of Parts 6 and 7 of Subtitle B of Title I of ERISA and of sections 4980B and 4980D of the Code have been met in all material respects with respect to each Benefit Plan that is a Welfare Plan.

 

(d) Each Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified and such determination is evidenced by a determination letter. Likewise, each trust created thereunder intended to be exempt from federal income tax under Section 501(a) of the Code is so exempt and is evidenced by a determination letter. No amendment has been made to such Benefit Plan or the trust created thereunder since the date of the Benefit Plan’s most recent determination letter in any respect that would adversely affect the qualification of the Benefit Plan, the exemption of the trust or result in an increase in its costs. Each Benefit Plan intended to satisfy the requirements of Section 125 or 501(c)(9) of the Code satisfies such requirements in all material respects.

 

(e) Except as set forth on Schedule 3.7(e) , the Company has no ERISA Affiliates.

 

(f) Neither the Company nor any ERISA Affiliate maintains or has ever maintained a retirement plan subject to Title IV of ERISA or Section 412 of the Code.

 

(g) Neither the Company nor any ERISA Affiliate has ever maintained, contributed to or otherwise had any obligation with respect to any “Multiemployer Plan” as defined in Section 3(37) of ERISA.

 

(h) Except as set forth on Schedule 3.7(h) : (i) the Company does not have any commitment, intention or understanding to create, terminate or adopt any Benefit Plan that

 

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would result in any additional Liability to the Company or the Buyer or any of the Buyer’s subsidiaries; and (ii) since the beginning of the current fiscal year of the Company, no event has occurred and no condition or circumstance has existed that reasonably would be expected to result in an increase in the benefits under or the expense of maintaining a Benefit Plan from the level of benefits or expense incurred for the most recently completed fiscal year of the Company.

 

(i) There are no suits, actions, disputes, arbitrations, claims, arbitrations, administrative or other proceedings pending or, to the Knowledge of the Company, threatened, anticipated or expected to be asserted against the Company, any Benefit Plan or the assets thereof, with respect to any Benefit Plan (other than routine claims for benefits); there are no investigations or audits of any Benefit Plan by any Governmental Entity currently pending or, to the Knowledge of the Company, threatened; and there have been no such investigations or audits that have been concluded that resulted in any Liability of the Company that has not been fully discharged. There is no judgment, decree, injunction, rule or order of any court, governmental body, commission, agency or arbitrator outstanding against or in favor of any Benefit Plan or any fiduciary thereof (other than rules of general applicability).

 

(j) Except as set forth on Schedule 3.7(j) , neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will result in, or is a precondition to, (i) any employee, director or consultant of the Company becoming entitled to deferred compensation, bonus, severance pay or any similar payment, (ii) the acceleration of the time of payment or vesting, or an increase in the amount of, any compensation due to any employee, former employee, director or consultant of the Company, whether or not such payment would be an “excess parachute payment” (within the meaning of Section 280G of the Code), (iii) the renewal or extension of the term of any agreement regarding the compensation of any employee, former employee, director or consultant of the Company. The Company is not obligated to pay and does not owe any additional salary, deferred compensation, bonus, severance or similar payments to any Company employee, other than salary or compensation payable in the ordinary course of business consistent with past practices or as set forth in Schedule 2.7(a) .

 

(k) The Company is not required to maintain or contribute to any Benefit Plan by the law or applicable custom or rule of any jurisdiction outside of the United States.

 

(l) All contributions required to be made under the terms of any Benefit Plan as of the date of this Agreement have been timely made or, if not yet due, will be properly accrued.

 

(m) Buyer and the Company, as applicable, may terminate any Benefit Plan maintained by the Company or may cease contributions to any such Benefit Plan without incurring any Liability other than (i) a benefit liability accrued in accordance with the terms of such Benefit Plan immediately prior to such termination or ceasing of contributions; or (ii) any expenses attendant to the termination of such Benefit Plan.

 

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Section 3.8 Broker’s or Finder’s Fees .

 

The Company is not party to any agreement with any agent, broker, investment banker or other Person, or in any way obligated to any agent, broker, investment banker or other Person, for any commissions, fees or expenses, in connection with the origin, negotiation, execution or performance of this Agreement or any of the transactions contemplated herein, including any agent, broker, investment banker or other Person who would have a valid claim for a fee or commission from Buyer or Merger Sub.

 

Section 3.9 Financial Statements .

 

The balance sheet of the Company as of December 31, 2004, the related statements of income, changes in shareholders’ equity, and cash flows for the 12-month period then ended, including in each case, the notes thereto, audited by Aronson & Company, independent certified public accountants (collectively, the “ Company Financial Statements ”), correct and complete copies of all of which have been delivered by the Company to the Buyer, (i) are complete in all material respects, (ii) are in accordance with the Books and Records of the Company, (iii) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, and (iv) fairly and accurately present the financial position of the Company as of the respective dates thereof and the results of operations and changes in cash flows for the periods then ended.

 

Section 3.10 Accounts Receivable .

 

All accounts receivable reflected on the Company Balance Sheet, and all accounts receivable arising subsequent to the Company Balance Sheet Date including those reflected on the Company Balance Sheet; (a) represent bona fide claims of the Company against debtors for services performed; (b) have arisen only in the ordinary course of business, consistent with past practice; (c) are legal, valid and binding obligations of the respective debtors; and (d) are not subject to any defenses, set-offs or counterclaims and are fully collectable within ten (10) months, consistent with past practices, without cost in collection efforts thereof.

 

Section 3.11 Absence of Undisclosed Liabilities .

 

Except as set forth in the Company Disclosure Schedules, to the Company’s Knowledge, the Company has no material Liabilities or obligations, of any nature, either individually or in the aggregate, whether accrued, absolute, contingent or otherwise, whether matured or non-matured and whether due or to become due, except those Liabilities, contingencies or obligations:

 

(a) reflected or specifically reserved against in the Company Balance Sheet; or

 

(b) incurred thereafter in the ordinary course of business and consistent with past practices and that are not material in amount, either individually or in the aggregate.

 

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Section 3.12 Existing Condition .

 

Except as set forth on Schedule 3.12 , since the Company Balance Sheet Date, the business of the Company has been conducted in the ordinary course consistent with past practice and the Company has not:

 

(a) declared, set aside or paid any dividend or made or agreed to make any other distribution or payment in respect of its securities or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or acquire any of its securities;

 

(b) incurred any Liabilities, other than Liabilities incurred in the ordinary course of business consistent with past practice, or discharged or satisfied any Lien other than Permitted Liens or paid any Liabilities, other than in the ordinary course of business consistent with past practice, or failed to pay or discharge when due any Liabilities;

 

(c) sold, assigned or transferred any of its assets or properties, except in the ordinary course of business consistent with past practice;

 

(d) created, incurred, assumed or guaranteed any indebtedness for money borrowed, or mortgaged, pledged or subjected to any Lien, any of its material assets or properties, other than Liens, if any, for current Taxes not yet due and payable or other Permitted Liens;

 

(e) made or suffered any amendment or termination of any material agreement, contract, commitment, lease or plan to which it is a party or by which it is bound, or cancelled, modified or waived any debts or claims held by it, other than in the ordinary course of business consistent with past practice, or waived any rights of material value;

 

(f) suffered any damage, destruction or loss, whether or not covered by insurance, (i) that could be reasonably expected to have a Material Adverse Effect on the Company or (ii) of any item carried on its books of account at more than Twenty-Five Thousand dollars ($25,000);

 

(g) suffered any repeated, recurring or prolonged shortage, cessation or interruption of material supplies or utility services required to conduct its Business and operations;

 

(h) received notice of or had Knowledge of any actual or threatened labor dispute or trouble, labor organizing effort, strike, or work stoppage;

 

(i) made any capital expenditure or capital addition or betterment except in the ordinary course of business consistent with past practice;

 

(j) except in the ordinary course of business consistent with past practice, (i) increased the salaries or other compensation of, or made any advance (excluding advances for ordinary and necessary business expenses) or loan to, any of its Shareholders, directors, officers or employees, (ii) made any increase in, or any addition to, other benefits to which any of its Shareholders, directors, officers or employees may be entitled, (iii) granted any severance or termination pay to any of its Shareholders, directors, officers or employees, or (iv) entered into any employment, deferred compensation or other similar agreement with (or any amendment to any such existing agreement) any of its Shareholders, directors, officers or employees;

 

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(k) changed any of the accounting principles followed by it or the methods of applying such principles except as required by changes in applicable laws or regulations;

 

(l) entered into any transaction that creates an obligation that will continue to bind the Company after the Effective Time other than as contemplated by this Agreement or in the ordinary course of business consistent with past practice;

 

(m) issued, or entered into an agreement with an obligation to issue, equity securities of the Company;

 

(n) failed to use all commercially reasonable efforts to (i) carry on its business in substantially the same manner as it has heretofore been carried on; (ii) maintain its properties and facilities, including those held under Leases, in good working order and condition, ordinary wear and tear excepted; (iii) perform all of its obligations under agreements relating to or affecting its assets, properties or rights, or operate, manage or maintain its leased premises in the usual and customary manner for similar properties, or (iv) keep in full force and effect all insurance policies in effect as of the Company Balance Sheet Date;

 

(o) introduced any new method of management or operation;

 

(p) committed a breach of any contract, indenture, mortgage, deed of trust, lease, note or note agreement or any other agreement or instrument, permit, license or other right of the Company;

 

(q) made any Tax election other than in the ordinary course of business and consistent with past practice, changed any Tax election, adopted any Tax accounting method other than in the ordinary course of business and consistent with past practice, changed any Tax accounting method, filed any Tax Return (other than any estimated Tax Returns, payroll Tax Returns, sales Tax Returns or property Tax Returns) or any amendment to a Tax Return, entered into any closing agreement, settled any Tax claim or assessment or consented to any Tax claim or assessment;

 

(r) authorized, committed or agreed to take any of the actions described in subsections (a) through (q) of this Section 3.12, except as otherwise permitted by this Agreement; or

 

(s) experienced any event or condition that has had, or could be expected to have, a Material Adverse Effect.

 

Section 3.13 Title to Properties; Leasehold Interests .

 

(a) The Company does not own any Real Property. Schedule 3.13(a) sets forth a true and complete list of all real property leased by the Company and all leases related thereto (the “ Leases ”).

 

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(b) The Company has good, valid and marketable title to all the properties and assets which it purports to own (as set forth on the Company Balance Sheet) and all of these properties and assets are held free and clear of all Liens except for Permitted Liens, liens set forth on Schedule 3.13(b) , and liens which arose in the ordinary course of business and do not materially impact the Company’s ownership or use of such properties or assets. Further, the Company has good and marketable title to all assets set forth on the Company Balance Sheet, except for such assets as have been spent, sold or transferred in the ordinary course of business since the date thereof.

 

Section 3.14 Litigation .

 

The Company has not received notice of any, and to the Company’s Knowledge there exists no, action, suit, claim, mediation, arbitration, litigation, investigation or other proceeding of or before any court, arbitrator or governmental or regulatory official, body or authority pending or, to the Company’s Knowledge, threatened against the Company or its assets, properties or business, or the transactions contemplated by this Agreement. The Company is not a party to or expressly named as subject to the provisions of any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority. Except as set forth on Schedule 3.14 , the Company has no obligation to indemnify any third party for defense, settlement, and/or judgment costs incurred by such third party, other than contracts entered into in the ordinary course of business.

 

Section 3.15 Compliance with Law .

 

Except as set forth on Schedule 3.15 , to the Company’s Knowledge, the Company has complied with each, and is not in violation of any applicable law, ordinance or governmental rule or regulation to which