AGREEMENT OF MERGER
AND
PLAN OF REORGANIZATION
by and among
COMMAND SECURITY CORPORATION
a New York corporation
and
BROWN SECURITY INDUSTRIES, INC.;
a California corporation; and
MARC BROWN and HAL BROWN,
individuals
_____________, 2007
Initials: __________
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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
This Agreement of Merger and Plan of Reorganization (the
"Agreement")
is made and adopted as of the ___ day of March, 2007 by and among
Command
Security Corporation, a New York corporation, (the "Acquiring
Corporation"), Hal
Brown and Marc Brown, as individuals, (Hal Brown and Marc Brown
hereinafter
sometimes referred to, collectively, as the "Individual
Shareholders"); and
Brown Security Industries, Inc., a California Corporation, (the
"Merging
Corporation" or "BSI")
PRELIMINARY STATEMENT
WHEREAS, the Individual Shareholders own a majority of the issued
and
outstanding shares of the capital stock of the Merging Corporation
(the stock
owned by the Individual Shareholders is collectively referred to as
the "Stock"
or the "Shares").
WHEREAS, One Hundred Percent (100%) of the shares of stock of
Rodgers
Police Patrol, Inc., a California corporation, ("RPP") and
Strategic Security
Services, Inc., a California corporation, ("SSS") is owned by the
Merging
Corporation;
WHEREAS, the business of RPP and SSS is the provision of armed
and
unarmed uniformed security guard services and motorized patrol
services, with
existing operations in California. ("Business");
WHEREAS, the Acquiring Corporation and the Merging Corporation
desire
to enter into a statutory merger pursuant to Article 9 of the New
York Business
Corporation Law and Title 1, Division 1, Chapter 11 of the
California
Corporations Code, with the Individual Shareholders receiving
shares in the
Acquiring Corporation and cash for their shares in the Merging
Corporation, all
within the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986,
as amended (the "Code"), and the exchange of the Individual
Shareholders' shares
are being made in a transaction to which section 351, 354, 355 or
356 of the
Code applies, as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
hereinafter
set forth and other good and valuable consideration, the receipt of
which is
hereby acknowledged, the parties hereby and herewith adopt a plan
of statutory
merger reorganization under section 368(a)(1)(A) of the Code and
agree as
follows:
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1. STATUTORY
MERGER AND REORGANIZATION.
1.1.
Shares
------
(a) Subject to and upon the terms and conditions of this Agreement,
at
the closing of the statutory merger contemplated by this Agreement
(the
"Closing"), the Individual Shareholders shall transfer, convey,
assign and
deliver to the Acquiring Corporation, free and clear of all liens,
and the
Acquiring Corporation shall, acquire and accept from the
Individual
Shareholders, all of the outstanding Shares of the Merging
Corporation owned by
the Individual Shareholders, as set forth on Schedule I attached
hereto in a
merger subject to the statutory provisions of the New York Business
Corporation
Law and the California Corporations Code. The Acquiring Corporation
shall file
or caused to be filed with the New York and California Secretaries
of State all
of the necessary forms and documents to effectuate such a statutory
merger.
(b) At the Closing the Individual Shareholders shall deliver to
th9e
Acquiring Corporation certificates evidencing the Shares duly
endorsed in blank
or with stock powers duly executed by the Individual Shareholders,
along with
the Corporate Books which shall contain, including but without
limitation, the
Certificate of Incorporation, By-Laws, Share Register, original or
copies for
all issued and un-issued shares, copies of warrants for shares in
the company,
if any, most recent Statement of Information, minutes of the most
recent Board
meeting, and Resolution authorizing Merging Corporation to enter
into this
merger, Resignation of all of the Directors (except as may be
required by law to
maintain necessary licenses) and copies of all licenses held by the
Merging
Corporation or necessary for the operation of the Companies.
1.2
Assets
------
(a) It is the intention of the parties that subject to and upon
the
terms and conditions of this Agreement together with the terms and
conditions of
a certain Agreement by and among the Acquiring Corporation and the
Merging
Corporation and the Employee Stock Ownership Plan and its Trustees
("ESOP Sales
Agreement") entered into contemporaneously with this Agreement, at
the Closing
(as defined), the Acquiring Corporation shall receive all shares in
the Merging
Corporation, and that at such time the Merging Corporation shall
own all of the
outstanding shares of each of RPP and SSS, and the Merging
Corporation, RPP and
SSS (collectively the "Companies") shall own, rent or lease all of
the assets as
set forth in various schedules attached hereto ("Assets") (except
for excluded
assets as set forth in Schedule II) free and clear of all liens,
claims and
encumbrances, other than Permitted Liens (as defined).
(b) Included in the Assets are all of the customer accounts, and
all
contracts and agreements, information related to customer accounts,
and any and
all other documentation and/or agreement for the rendition of
uniformed security
guard services, and/or any other product and/or service provided by
each of the
Companies relating to such accounts, and all bids, quotations and
service orders
relating to the accounts, as set forth herein and the various
schedules attached
hereto (hereinafter referred to as the
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"Accounts"), which the Individual Shareholders warrants contain a
true and
accurate statement of such Accounts. Any contract maintained or
services
performed by the Companies, which Individual Shareholders claims
are retained by
any related entity, shall be clearly disclosed in Schedule III, or
such shall be
deemed to be an Asset of the Merging Corporation.
(c) The rights to the name "Brown Security Industries",
"Rodgers
Police Patrol" and "Strategic Security Services" and all variations
thereof and
all service marks, trademark, service and trademark registrations
and
applications, trade-names, logos, copyrights, other licenses
thereof, know-how,
trade secrets, list of past performance standards, catalogues,
recorded
knowledge, business plans, advertising materials, scheduling and
service methods
including software and manuals, sales and service manuals and/or
any other
proprietary, confidential or similar provisions related to the
operation of the
business shall be deemed to be Assets of the Companies.
(d) All of the rights and obligations under the Lease Agreements
(as
defined) for the office premises, office equipment, employee
equipment, vehicles
and uniforms utilized by the Companies shall be included as Assets
of the
Companies..
(e) Pending the Closing, all of the properties set forth in
paragraphs
(b), (c) and (d) above shall remain the exclusive property of BSI,
RPP and/or
SSS. Both the Acquiring Corporation disclaim and quitclaim any
interest therein.
Any confidential information received by the Acquiring Corporation
shall be kept
confidential and treated as trade secrets of BSI, RPP and/or SSS by
both the
Acquiring Corporation until the Closing, or in the event the
Closing does not
take place, then forever.
2. SHARES AND
CASH EXCHANGED.
2.1
Consideration.
--------------
(a)
In exchange for the transfer of all of the Shares from
Individual
Shareholders to Acquiring Corporation as part of a statutory
merger, the
Acquiring Corporation shall transfer to the Individual Shareholders
(y) (i) cash
in immediately available funds; and, (ii) shares of common stock of
the
Acquiring Corporation ("Acquiring Corporation Stock") to be valued
at the
Valuation Amount; the consideration of "(i)" , and "(ii)" totaling
TWO MILLION
ONE HUNDRED THOUSAND DOLLARS ($2,100,000); and, (z) seventy percent
(70%) of the
Tangible Net Worth as defined in Section 3.2. ("Total
Consideration").
(b)
For purposes of this Agreement and the underlying transaction
Acquiring
Corporation Stock shall be valued at the average of the public
trading closing
prices of the Acquiring Corporation Stock during the five (5)
trading days
preceding the execution of this Agreement.
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2.2
Transfer of
Consideration.
--------------------------
(a) The consideration to be given to the Individual Shareholders
shall
be: twenty-five percent (25%) in cash in immediately available
funds ("Cash
Consideration"), and the remaining seventy five percent (75%) in
Acquiring
Corporation Stock ("Stock Consideration").
(b) Said amount shall be given at Closing to the Individual
Shareholders, pro rata, as follows: (i) Thirty percent (30%) of the
Cash
Consideration and the Stock Consideration shall be given directly
to the
Individual Shareholders; and (ii) Seventy percent (70%) of the
Cash
Consideration and the Stock Consideration shall be deposited in
escrow pursuant
to the Escrow Agreement as attached as Exhibit 2.2(b).
(c) The Certificates of Acquiring Corporation Stock shall be issued
to
the Individual Shareholders in proportion to their holdings of BSI
shares as set
forth in Schedule I.
(d) All Acquiring Corporation Stock to be received by
Individual
Shareholders shall be "Restricted Securities". As such, the
subsequent sale of
such shares will be subject to compliance with all applicable
securities laws as
then in effect including, without limitation, SEC Rule 144. All
Acquiring
Corporation Stock to be received by Individual Shareholders shall
be entitled to
"piggy back" registration rights on any offering of shares of
Acquiring
Corporation Stock made while any of those shares are "Restricted
Securities",
and such "piggy back" rights shall be at the expense of the
Acquiring
Corporation. All "piggy back" rights shall be without cost to the
Individual
Shareholders receiving Acquiring Corporation Stock.
3. DEBT CERTIFICATE AND INCREASE IN CONSIDERATION FOR TANGIBLE NET
WORTH.
3.1. Debt Certificate.
-----------------
(a) Not less than five (5) business days prior to the Closing
Date,
the Individual Shareholders shall deliver to the Acquiring
Corporation a
certificate (the "Non-Transferable Debt Certificate") signed by an
authorized
officer of each of the Companies setting forth the Companies' good
faith
estimate of the aggregate amount of Companies' Debt (as defined
below) as of the
close of business on the Closing Date that each of the Companies
believes would
be due upon the merger because of provisions relating to transfer
of ownership
(the "Closing Debt"). The Companies shall produce such good faith
estimate in
consultation with Acquiring Corporation and shall provide Acquiring
Corporation
with such supporting documentation for such estimate as Acquiring
Corporation
shall reasonably request. At the Closing, the Acquiring Corporation
shall either
have obtained consent of the creditor to a transfer and/or a
release of any
guaranty by any of the Individual Shareholders, replaced the debt
or guaranty,
or paid-off all of the Closing Debt as set forth on the
Non-Transferable Debt
Certificate. There shall not be any adjustment to the Consideration
resulting
from the
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application of this subsection; it being understood and agreed that
all
liabilities have already been accounted for in the calculation of
Tangible Net
Worth under section 3.1(b). For purposes of this Agreement, "Debt"
shall mean,
without duplication:
(i) Indebtedness for borrowed money;
(ii) Indebtedness for the deferred purchase price of property
or
services;
(iii) Any indebtedness of the Company evidenced by any note,
bond, debenture or other debt security;
(iv) Obligations of the Company as lessee under leases which
have
been or should be, in accordance with United States generally
accepted
accounting principles ("GAAP"), recorded as capital leases;
(v) Contingent obligations of the Company under any bonds,
including without limitation performance bonds;
(vi) All accrued and unpaid interest on or any fees, penalties
or
other amounts due with respect to any such Debt (including,
without
limitation, any prepayment fees or penalties);
(vii) Any obligations of the Companies of a type referred to in
clauses (i) through (vi) to the extent directly or indirectly
guaranteed by one or more of the Individual Shareholders or any
other
shareholder of the Companies;
(viii) Any obligations of any other Person of a type referred
to
in clauses (i) through (vi) to the extent directly or
indirectly
guaranteed by the Company.
(b) Schedule V contains a true and correct list of all of the
Companies' Debt as of the date of this Agreement.
3.2.
Increase in Consideration for Tangible Net Worth. Not less than
five
(5) business days prior to the Closing Date, the Individual
Shareholders shall
deliver to the Acquiring Corporation a certificate (the "Tangible
Net Worth
Certificate") signed by an authorized officer of each of the
Companies setting
forth the Companies good faith estimate of the amount of Companies'
Tangible Net
Worth (as defined below) on the Closing Date (the "Estimated
Tangible Net
Worth"). The Companies shall produce such good faith estimate in
consultation
with Acquiring Corporation and shall provide Acquiring Corporation
with such
supporting documentation for such estimate as Acquiring Corporation
shall
reasonably request. In the event Acquiring Corporation disagrees
with the
Estimated Tangible Net Worth it shall give the Companies written
notice of such
disagreement and the Merging Corporation and Acquiring Corporation
shall
negotiate in good faith to resolve such dispute. In the event such
dispute is
not resolved prior to the Closing Date, the Acquiring Corporation
and the
Individual Shareholders may terminate this Agreement and the
parties will have
the rights set forth in Section 14 of this Agreement.
(a) For purposes of this Agreement, "Tangible Net Worth" shall
mean
the difference between the Assets and the Liabilities.
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(b) "Assets" shall mean, all of the Companies' assets, computed on
a
group basis, (other than Excluded Assets set forth on Schedule II
and Operating
Assets set forth on Schedule II A) as determined in accordance with
GAAP applied
consistently with the accounting methods BSI used to determine the
Estimated
Tangible Net Worth.
(c) "Liabilities" shall mean, all of the Companies' disclosed
liabilities (both current and long term), computed on a group
basis, as
determined in accordance with GAAP applied consistently with the
accounting
methods the Companies used to determine the Estimated Tangible Net
Worth.
4. POST CLOSING
ADJUSTMENTS AND PAYMENTS.
4.1
Adjustment for
Tangible Net Worth.
(a) No later than sixty (60) days after the Closing Date, the
Acquiring Corporation will prepare and deliver to the Individual
Shareholders a
final statement (the "Final Statement") setting forth the actual
amount of the
Companies' Tangible Net Worth as of the Closing Date (the "Actual
Tangible Net
Worth") and a calculation of any difference between Estimated
Tangible Net Worth
and the Actual Tangible Net Worth. Such Final Statement shall be
prepared in
accordance with GAAP applied consistently with the accounting
methods the
Companies used to determine the Estimated Tangible Net Worth. The
final Tangible
Net Worth calculation shall include any audit adjustments for
undisclosed
liabilities and/or assets.
(b) Dispute of Amount of Actual Tangible Net Worth.
(i) In the event one or more of the Individual Shareholders
("Objecting Party") objects to the amounts shown on the Final
Statement, the
Objecting Party shall notify the Acquiring Corporation in writing
of such
objection within two (2) weeks following the actual receipt thereof
by the
Objecting Party, stating in such written objection ("Written
Objection") the
reasons therefore and setting forth the Objecting Party's
calculation of the
Actual Tangible Net Worth.
(ii) Upon receipt by the Acquiring Corporation of such written
objection, the Acquiring Corporation and the Objecting Party shall
attempt to
resolve the disagreement through negotiation.
(iii) If the Acquiring Corporation and the Objecting Party
cannot
resolve such disagreement within twenty (20) days following the end
of the
foregoing two (2) week period, the Acquiring Corporation and the
Objecting Party
shall submit the matter for resolution to a mutually agreeable
nationally
recognized independent firm of certified public accountants not
affiliated with
either the Acquiring Corporation or the Objecting Party and which
did not have
any responsibility for or involvement in the original calculation
of either the
Actual Tangible Net Worth or the Estimated Tangible Net Worth. Such
accounting
firm shall deliver a statement (the "Accounting Statement") setting
forth its
own calculation of the Actual Tangible Net Worth and the difference
between the
Actual Tangible Net Worth and the Estimated Tangible Net Worth
within thirty
(30) days of the submission of the matter to such firm
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(which calculation, absent manifest error, shall be binding and
conclusive on
the parties and not subject to appeal).
(iv) If the difference between the Actual Tangible Net Worth
as shown in the Accounting Statement and in the Final Statement is
less than the
difference between the Actual Tangible Net Worth as shown in the
Accounting
Statement and in the Written Objection, the fees and expenses of
such
independent accounting firm will be borne by the Acquiring
Corporation,
otherwise the fees and expenses of such independent accounting firm
will be
borne by the Objecting Party.
(c) Either within three (3) weeks following the delivery of such
Final
Statement, if there was no Written Objection, or within five (5)
days of the
delivery of the Accounting Statement, if there was a Written
Objection, the
Acquiring Corporation or the Escrow Agent, as the case may be,
shall pay to the
other seventy (70%) percent of the difference between the Actual
Tangible Net
Worth, set forth on the Accounting Statement if there was a Written
Objection or
set forth in the Final Statement if there was no Written Objection,
and the
Estimated Tangible Net Worth, with said amount paid within seven
(7) calendar
days following final determination pro rata in the same form of
consideration
and percentage as deposited in escrow pursuant to Section 2.2(b) of
this
Agreement by adjustment of the amount of the cash and stock
deposited in escrow.
4.2
Account Retention and
Revenue Guarantee Adjustments.
(a)
Definitions:
i. "Accounts"
shall be defined as the accounts listed on schedule
VI.
ii. "Average Revenue" shall be defined as:
(A) for a Credited Lost Account, the average monthly revenue
for
that Credited Lost Account during the period that it was serviced
by
the Acquiring Corporation;
(B) for a Lost Account, the Revenue from that Account billed
during the seventh through twelfth full calendar months following
the
Closing, divided by a factor of twelve (12); notwithstanding
the
foregoing the average revenue for an Account lost in the first
sixth
months shall be zero;
(C)
for an Other Account, the Revenue from that Account billed
during the first through twelfth full calendar months following
the
Closing, divided by a factor of twelve (12); (D) for
Replacement
Account, the Revenue from that Replacement Account billed during
the
Revenue Guarantee Period, divided by a factor of twelve (12);
and
(E) for a Permanent Account, the Revenue from that Account
billed
during the first through twelfth full calendar months following
the
Closing, divided by a factor of twelve (12).
iii. "Combined Account Consideration" shall be defined as
$2,100,000.00.
iv. "Combined Account Revenue Goal" shall be defined as
$11,000,000.00 per annum or $916,666.67 per month.
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v. "Credited Lost Account" shall be defined as a Lost Account
cancelled, in whole or in part, of an account as a result of:
(A) The poor performance of services by the Acquiring
Corporation, the Acquiring Corporation, or any subsidiary
thereof;
(B) Increases in billing rates not otherwise permitted under
the BSI's, RPP's, or SSS's customer contracts;
(C) Actions taken by the Acquiring Corporation, the
Acquiring
Corporation, or any subsidiary thereof without the
concurrence of Marc Brown; or
(D) The expiration of a customer contract, unless a timely
bid upon the same terms as were in the expiring customer
contract, or such other terms as are approved by Marc Brown, is
submitted to the customer for renewal of the customer contract.
vi. "Lost Account" shall be defined as an Account that is not
serviced by the Acquiring Corporation for twelve months following
the
Closing.
vii. "Other Accounts" are accounts serviced by the Acquiring
Corporation at some time during the twelve months following the
Closing, but which are not Lost Accounts, Permanent Accounts or
Replacement Business.
viii. "Permanent Account" shall be defined as an Account
serviced
by the Acquiring Corporation for twelve months following the
Closing.
ix. "Replacement
Account" is any account sold anywhere in the
United States through the efforts of the Individual
Shareholders
and/or the joint efforts of the Individual Shareholders and/or
other
existing employees of the Companies who remain as employees of
the
Acquiring Corporation, with other existing and future employees
or
agents of the Acquiring Corporation, (i) during the twelve
month
period following the Closing or (ii) during the ninety (90)
days
following the loss of an Account or Accounts to replace such
lost
business, whichever period is longer. Notwithstanding the
foregoing,
Replacement Account specifically includes without limitation
all
potential accounts listed on Schedule VIII. Notwithstanding the
foregoing, all Replacement Business must be serviced by the
Acquiring
Corporation for twelve months to be deemed a Replacement Account
(the
"Replacement Guarantee Period").
x. "Revenue" for an account is the gross revenue, less taxes
and
pass throughs.
xi. "Revised Consideration" shall be defined as the product of
the calculation set forth in section 4.2(b)
(b)
The Combined Account Conside9ation will be reduced by 3.27
times
Seventy Percent (70%) of the greater of (i) the Permanent Business
Shortfall, or
(ii) the Total Business Shortfall, both calculated as of the end of
the twelfth
month subsequent to the Closing, but giving effect to any
Replacement Guarantee
Period for Replacement Business. For the purposes of this section
4.2(b):
i. "Permanent Business Shortfall" shall be defined as an amount,
but
not
less than zero, equal to:
(A) Ninety-Five Percent (95%) of the Combined Account Revenue
Goal stated monthly; less
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(B) The total of the Average Revenue for all Credited Lost
Accounts, Lost Accounts, Replacement Accounts and Permanent
Accounts.
ii. "Total Business Shortfall" shall be defined as an amount, but
not
less
than zero, equal to:
(A) The Combined Account Revenue Goal stated monthly; less
(B) The total of the Average Revenue for all Credited Lost
Accounts, Lost Accounts, Other Accounts, Replacement Accounts
and
Permanent Accounts.
(c)
Any consideration due pursuant to subsection 4.2 (b) shall occur
after
the completion of the Replacement Guarantee Period.
(d)
In the event any adjustment must be made in accordance with
this
section 4.2, the payment shall be made by the Escrow Agent within
seven (7)
calendar days following final determination pro rata in the same
form of
consideration and percentage as deposited in escrow pursuant to
Section 2.2(b)
of this Agreement by adjustment of the amount of the cash and stock
deposited in
escrow.
(e)
Any Purchase Price reduction pursuant to Section 4.2 shall first
be
made to the Second Deferred Payment. In the event the reduction is
likely to
exceed the amount of the Second Deferred Payment (i.e. the
reduction to the
Combined Account Consideration would be reduced by more than 50% of
the amounts
held in escrow as a result of accounts lost prior to the six month
anniversary
of the Closing) in the Acquiring Corporation's reasonable good
faith opinion,,
the difference may be reduced from the First Deferred Payment, in
accordance
with Section 4.2(d).
(f)
Any Purchase Price reduction exceeding the amounts due the
Individual
Shareholders shall be due, jointly and severally, immediately upon
demand.
Payment by Individual Shareholders may be made in the form of cash
or the
securities (restricted or otherwise) of the Acquiring
Corporation.
5. PLACE OF
CLOSING; CLOSING DATE
Subject to the terms and conditions of this Agreement, the closing
of the
transactions contemplated by this Agreement (the "Closing") shall
be held at the
offices of the Company no later than April 2, 2007, or, in the
event that all
conditions to the obligations of the parties to consummate the
transactions
contemplated hereby (other than conditions with respect to actions
the
respective parties will take at the Closing itself) have not been
satisfied or
waived as of such date, on such other date as the parties may
agree, but in no
event later than three (3) business days after all such conditions
have been
satisfied or waived (the "Closing Date"). The actual time of
Closing shall be
such time of day on the Closing Date as is set forth on a
certificate executed
on the Closing Date by each of the Acquiring Corporation and
Individual
Shareholders (the "Effective Closing Time Certificate").
Notwithstanding the
above, the parties may mutually agree to Close by exchanging
Closing Documents
by facsimile or electronically.
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6. CLOSING
DELIVERABLES:
6.1
Stock and Other Documentation:
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(a) The Individual Shareholders shall deliver or cause to be
delivered
to the Acquiring Corporation:
(i) Good and sufficient instruments of transfer transferring
to the Acquiring Corporation all of each of the Individual
Shareholders' right,
title and interest in the Stock and such instruments of transfer
(A) shall be in
the form which is usual and customary, (B) shall be in form and
substance
reasonably satisfactory to the Acquiring Corporation and its
counsel, (C) shall
effectively vest in the Acquiring Corporation good title to all of
the
Individual Shareholders' right, title and interest in the Stock
free and clear
of all mortgages, pledges, security interests, charges, taxes,
liens,
restrictions and encumbrances of any kind (collectively, "Liens"),
except for
Permitted Liens (as defined below);
(ii) Individual Shareholders' certificate certifying:
(A) Each of the
Companies' Articles of Incorporation
("Articles of Incorporation");
(B) Each of the
Companies' Bylaws ("Bylaws");
(C) The resolutions adopted unanimously by the shareholders
of the Companies approving the transactions contemplated herein
and the board of directors of each Company approving the
transactions contemplated herein; and
(D) Incumbency;
(iii) A certificate of good standing issued by the Secretary
of State of the state of each state in which each of the
Companies is incorporated;
(iv) Certificates of foreign qualification for each of the
Companies issued by each of Secretary of State of each state in
which each of the Companies are authorized;
(v) The Non-Transferable Debt Certificate; (vi) The Tangible
Net Worth Certificate;
(vii) In accordance with Section 7.2 below, the Required
Consents (as defined in Section 7.2 below);
(viii) An opinion of the Individual Shareholders and each of
the Companies' counsel, substantially in the form of Exhibit
6.1(a)(viii) hereto;
(ix) An employment agreement, substantially in the form of
Exhibit 6.1(a)(ix) hereto, executed by Marc Brown (the "Marc
Brown Employment Agreement")
(x) An employment agreement substantially in the form of
Exhibit 6.1(a)(x) hereto executed by Larry Reid ("Reid
Employment
Agreement")
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(xi) A Registration of Rights agreement substantially in the
form of Exhibit 6.1(a)(xii) executed by all Holders (as defined
therein)
(xii) The Escrow Agreement;
(xiii) Such other documentation as may be reasonably
requested by the Acquiring Corporation in connection with the
consummation of the transactions contemplated by this
Agreement.
(b) Acquiring Corporation shall deliver to Individual Shareholders,
as
applicable:
(i) The portion of the Consideration due on the Closing Date in
accordance with Section 2.2(b);
(ii) A receipt from the Escrow Agent for the Escrowed Stock
Consideration and for the Escrowed Note Consideration;
(iii) An officer's certificate certifying (A) the Acquiring
Corporation's certificate of incorporation, and (B) the
resolutions
adopted by the Board of Directors of the Acquiring Corporation
approving the transactions contemplated herein;
(iv) A certificate of good standing issued by the secretary of
state of the state of New York;
(v) The Individual Shareholders Employment Agreement executed
by
Acquiring Corporation; (vi) The Reid Employment Agreement executed
by
Acquiring Corporation;
(vii) The Escrow Agreement;
(viii) The Effective Closing Time Certificate;
(ix) An opinion of counsel of the Acquiring Corporation that
this
transaction qualifies as a statutory merger under New York law;
and
(x) Such other documentation as may be reasonably requested by
the Company in connection with the consummation of the
transactions
contemplated by this Agreement.
6.2
Delivery of Contracts and Records. As a condition to Closing,
the
Individual Shareholders shall deliver or cause to be delivered to
the Acquiring
Corporation all Required Consents necessary to effect the transfer
of such
Contracts to the Acquiring Corporation, and no such Required
Consents shall
impose any burdensome conditions or requirements on the Acquiring
Corporation.
The Individual Shareholders shall also deliver to the Acquiring
Corporation at
the Closing, all of the Companies' corporate and business records,
books and
other data relating to the assets, business and operations of the
Business, to
the extent the same constitute part of the Assets. For a period of
seven (7)
years following the Closing Date, neither party shall destroy any
business
records, books or data in its possession without first giving
notice to the
other party of its intention to destroy such records, books or data
and allowing
such other party an opportunity to obtain or copy such records,
books or data.
Each party shall afford the other reasonable access to such
records, books and
data upon request.
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<PAGE>
6.3
Further Assurances. Each party hereto agrees, from time to time
after
the Closing and at the reasonable request of the other party, and
without
further consideration, to (a) execute and deliver further
instruments of
transfer, assumption and assignment (in addition to those delivered
under
Sections 6(a), and 6(b)) and take such other actions as the other
party may
reasonably require to more effectively transfer, assign to and vest
in, the
Acquiring Corporation the Stock and Assets; and (b) cooperate with
and provide
assistance to the other party in transferring possession of the
Assets to the
Acquiring Corporation.
6.4
Procedures for Assets not Transferable. If any of the contracts
or
agreements or any other property or rights included in the Assets
is not
assignable or transferable either by virtue of the provisions
thereof or under
applicable law without the consent of some party or parties and any
such consent
is not obtained prior to the Closing, this Agreement and the
related instruments
of transfer shall not constitute an assignment or transfer thereof
and, unless
otherwise agreed between the Acquiring Corporation and the
Individual
Shareholders with respect to any such contract, the Individual
Shareholders
shall use commercially reasonable efforts to obtain any such
consent as soon as
possible after the Closing and the Acquiring Corporation shall use
all
commercially reasonable efforts to assist in that endeavor. In the
event any of
the Companies and a third party continues to be parties to an
agreement after
the Closing as a result of a consent not having been obtained, the
Acquiring
Corporation and/or its subsidiaries shall perform under such
agreement if it
receives the benefits thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL
SHAREHOLDERS.
--------------------------------------------------------------
In
order to induce the Acquiring Corporation to enter into this
Agreement,
the Individual Shareholders make the following representations and
warranties to
the Acquiring Corporation concerning the Individual Shareholders,
each of the
Companies and the Business,
7.1
Organization and Corporate Power. The Merging Corporation, RPP and
SSS
are corporations duly organized, validly existing and in good
standing under the
laws of the state of California. Each of the Companies are duly
qualified to do
business as a foreign corporation, (a) in each jurisdiction listed
in Schedule
XXXV, and (b) in each jurisdiction in which the failure to be so
qualified would
have a Material Adverse Effect. For purposes of this Agreement,
"Material
Adverse Effect" is defined as any matter which has or is reasonably
expected to
have a material negative effect on the assets, properties,
liabilities,
operations, condition (financial or other), business, results of
operations or
prospects of either the Company or the Business. Each of the
Companies has all
requisite corporate power and authority to own or lease its
properties, to carry
on its business as presently conducted, to enter into and perform
this Agreement
and the agreements contemplated hereby to which it is a party and
to carry out
the transactions contemplated hereby and thereby. The copies of the
Articles of
Incorporation and Bylaws of each Company, is attached hereto as
Exhibit 7.1, is
correct and complete in all respects
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<PAGE>
as of the date hereof, no amendments thereto are pending, and none
of the
Companies is in violation of any term of its Articles of
Incorporation or
Bylaws.
7.2
Non-Contravention. The execution, delivery and performance of
this
Agreement and each of the other agreements, documents and
instruments to be
executed and delivered by the Individual Shareholders as
contemplated hereby and
the issuance and delivery thereof, do not and will not: (a)
violate, conflict
with, or result in a default (whether after the giving of notice,
lapse of time
or both) or loss of benefit under, any contract or obligation to
which the
Companies and/or the Individual Shareholders are a party or by
which any of
their assets (including all of the Assets) are bound, or any
provision of the
Articles of Incorporation or Bylaws; (b) violate or result in a
violation of, or
constitute a default under, any provision of any law, regulation or
rule, or any
order of, or any restriction imposed by, any court or governmental
agency
applicable to the Companies; (c) except as set forth in Schedule
XXXVI, require
the Companies or the Individual Shareholders or any other party to
provide any
notice to, make any declaration or filing with, or obtain the
consent or
approval of, any governmental authority or any other third party
(collectively,
the "Required Consents"); or (d) accelerate any obligation under or
give rise to
a right of termination of or result in a loss of benefit under any
indenture or
loan or credit agreement or any other agreement, contract,
instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment,
injunction, decree,
determination or arbitration award to which the Companies or the
Individual
Shareholders are a party or by which any of their assets (including
the Assets)
are bound or affected, or result in the creation or imposition of
any Lien on
any of the Assets.
7.3
Capitalization; Ownership of Stock.
-----------------------------------
(a)
The total authorized capital stock and par value of each of the
Companies is set forth on Schedule I (collectively, the "Stock").
All of the
issued and outstanding shares of Stock are owned beneficially and
of record as
set forth on Schedule I, free and clear of any Liens. All of the
issued and
outstanding shares of Stock are duly and validly issued, fully paid
and
nonassessable. All of the shares of Stock were issued in compliance
with all
applicable securities laws. There are no outstanding subscriptions,
options,
warrants, commitments, preemptive rights, rights of first refusal,
agreements,
arrangements or commitments of any kind or nature for or relating
to the
issuance, sale, registration or voting of, or outstanding
securities convertible
into or exchangeable for, any shares of capital stock of any class
or other
equity interests of the Companies.
7.4
Subsidiaries; Investments. Except as set forth on Schedule IX none
of
the Companies have any Subsidiaries (as defined in Section 17(e))
nor hold an
equity interest in any other Person.
7.5
Financial Statements; Projections.
----------------------------------
(a) The Individual Shareholders and Companies have previously
furnished to the Acquiring Corporation copies of its audited
financial
statements, including, without limitation, balance sheets,
statements of income
and statements of cash
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<PAGE>
flows, for the fiscal year ended June 30, 2004. Copies of its
audited financial
statements for the fiscal years ended June 30, 2006 and 2005
together with
reviewed financial statement for the nine (9) month period ended
March 31, 2007
shall be delivered within one (1) month following the Closing. Cost
for the
audited financial statements and financial review shall be paid by
the
Individual Shareholders. Except as otherwise disclosed on Schedule
X, such
financial statements were prepared in accordance with GAAP, applied
on a
consistent basis in conformity with the Companies' past practices,
and such
financial statements are complete, correct and consistent in all
material
respects with the books and records of the Companies and fairly and
accurately
present the financial position of the Companies as of the dates
thereof and the
results of operations and cash flows of the Companies for the
periods shown
therein.
(b) The projections previously provided to the Acquiring
Corporation
represent good faith estimates of the performance of the Business
for the
periods stated therein based upon assumptions which were believed
in good faith
to be reasonable when made and continue to be reasonable as of the
date hereof.
7.6
Absence of Undisclosed Liabil9ties. Except as and to the extent
reflected or reserved against in the March 31, 2007 balance sheet
of the
Companies (the "Base Balance Sheet"), incurred in the ordinary
course of
business since the date of the Base Balance Sheet, or as set forth
in Schedule
XI, the Companies do not have and are not subject to any liability
or obligation
of any nature, whether accrued, absolute, contingent or otherwise,
asserted or
unasserted, known (including, without limitation, liabilities as
guarantor or
otherwise with respect to obligations of others, or liabilities for
Taxes (as
defined in Section 7.10 below) due or accrued or to become due.
7.7
Absence of Certain Developments. Since the date of the Base
Balance
Sheet, the Companies have conducted its business only in the
ordinary course
consistent with past practice and, except as set forth in Schedule
XII, there
has not been any:
(a) Change in the assets, liabilities, condition (financial or
other),
properties, business, operations or prospects of the Companies,
which change by
itself or in conjunction with all other such changes, whether or
not arising in
the ordinary course of business, has had or could reasonably be
expected to have
a Material Adverse Effect, except with the consent of the Acquiring
Corporation;
(b)
Declaration, setting aside or payment of any dividend or other
distribution (whether of cash, in kind or securities) with respect
to, or any
direct or indirect redemption, purchase or acquisition of, any of
the capital
stock of the Companies, or any issuance or sale by the Companies of
any shares
of its capital stock, including, without limitation, any in kind
distribution of
accounts receivable, inventory or other assets of the Companies,
except with the
consent of the Acquiring Corporation;
(c)
Waiver or release of any right of the Companies or cancellation
or
discharge of any debt or claim held by the Companies, including any
write-off or
other compromise of any accounts receivable;
<PAGE>
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(d) Loss, destruction or damage to any property which could have
a
Material Adverse Effect, whether or not covered by insurance;
(e) Acquisition or disposition, or any agreement or other
arrangement
for the acquisition or disposition of, any assets or properties of
the
Companies;
(f) Transaction or agreement involving the Companies and any
officer,
director, employee, or shareholder of the Companies, or any loans
to any of the
foregoing;
(g) Increase, direct or indirect, or other change in the
compensation
paid or payable to any officer, director, employee, independent
contractor or
agent of the Companies or any establishment or creation of any
employment,
deferred compensation or severance agreement or employee benefit
plan with
respect to such Persons or the amendment to, or modification or
termination of,
any of the foregoing;
(h) Change in the terms and conditions of the employment of the
Companies' personnel or any labor dispute involving any matter;
(i) Incurrence or refinancing of any Debt, mortgage, encumbrance
or
placement of any Lien on any properties or assets of the Company,
other than
Liens for Taxes not yet due and payable, except with the consent of
the
Acquiring Corporation;
(j) Transaction not occurring in the ordinary course of business
and
consistent with past practices;
(k) Change in accounting methods or practices, collection or
credit
policies, pricing policies, reserve policies, revenue recognition
policies or
payment policies;
(l) Payment or discharge of a Lien or liability of the Companies
which
were not shown on the Base Balance Sheet as of the date thereof or
incurred in
the ordinary course of business thereafter;
(m) Loss, or any known development that could reasonably be
expected
to result in a loss, of any significant supplier, customer or
account of the
Companies;
(n) Entering into, amendment or termination of any material
contract
or agreement to which the Companies are a party or by which it is
bound;
(o) Amendment to the Articles of Incorporation or Bylaws;
(p) Incurrence of capital expenditures, other than in the
ordinary
course of business consistent with past practices; or
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<PAGE>
(q) Agreement or understanding, whether in writing or otherwise,
by
the Companies or any other Person that would result in any of the
foregoing
transactions or events or require the Companies to take any of the
foregoing
actions.
7.8 Accounts
Receivable; Accounts Payable.
--------------------------------------
(a) All of the accounts receivable of the Companies, whether shown
or
reflected on the Base Balance Sheet or otherwise, represent bona
fide completed
sales made in the ordinary course of business, are valid and
enforceable claims,
are not subject to any material and substantial set-offs or
counterclaims, and
are fully collectible in the normal course of business after
deducting the
reserve set forth in the Base Balance Sheet. Since the date of the
Base Balance
Sheet, the Companies have collected its accounts receivable in the
ordinary
course and in a manner which is consistent with its prior
practices. Except as
set forth in Schedule XIII attached hereto, the Companies have no
accounts
receivable or loans receivable from any Person which is an
affiliate of the
Companies, the Individual Shareholders, any director, officer,
shareholder or
employee of the Companies or any affiliate thereof.
(b) All of the accounts payable and notes payable of the
Companies
arose in bona fide arms' length transactions in the ordinary course
of business,
and no such account payable or note payable is delinquent in its
payment. Since
the date of the Base Balance Sheet, the Companies have paid its
accounts payable
in the ordinary course and in a manner which is consistent with its
prior
practices. Except as set forth in Schedule XIV, as of the date
hereof, the
Companies have no accounts payable to any Person which is an
affiliate of the
Companies, the Individual Shareholders, any director, officer, or
employee of
the Companies or any affiliate thereof.
7.9
Real and Personal Property. Except as set forth in Schedule XV,
the
Assets do not include any owned real property. Schedule XV also
sets forth the
addresses and uses of all real property that the Companies lease.
The Companies
own or have a valid leasehold interest in all of the Assets. All of
the Assets
are located at one of the addresses set forth on Schedule XV or at
various
customer locations. Except for Liens set forth on Schedule XVI (the
"Permitted
Liens"), none of such property or assets of the Companies, tangible
or
intangible, is subject to any Lien. Except for the Permitted Liens,
no financing
statement under the Uniform Commercial Code with respect to any of
the Assets is
active in any jurisdiction, and the Companies have not signed any
such active
financing statement or any security agreement authorizing any
secured party
thereunder to file any such financing statement against any of the
Assets. The
Assets are all of the assets used in the operation of the Business
as the same
has been operated prior to the date hereof. The tangible Assets (i)
are in
working order (reasonable wear and tear excepted), (ii) have been
maintained in
a manner consistent with the needs of the Business, and (iii)
conform in all
material respects with all applicable state and federal statutes,
ordinances,
regulations and laws.
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<PAGE>
7.10
Tax Matters. The Companies have timely and properly filed all
federal,
state, local and foreign tax returns required to be filed by it
through the date
hereof (and all such tax returns are correct and complete in all
material
respects), and has paid or caused to be paid all Taxes, required to
be paid by
it through the date hereof whether disputed or not, except Taxes
which have not
yet become due. The companies file their tax returns as part of a
consolidated
group consisting of the Companies. The Companies have not filed any
tax return
as part of a consolidated group including any entity other than
BSI, RPP and
SSS. The provisions for Taxes in the Base Balance Sheet are
sufficient as of its
date for the payment of all accrued and unpaid Taxes of any nature
of the
Companies, and any applicable Taxes owing by the Companies to any
jurisdiction,
whether or not assessed or disputed. All Taxes and other
assessments and levies
which the Companies were or are required to withhold or collect
have been
withheld and collected and have been paid over to the proper
governmental
authorities. The Companies have delivered to the Acquiring
Corporation correct
and complete copies of all annual tax returns, examination reports,
and
statements of deficiencies filed by, assessed against, or agreed to
by, the
Companies since December 31, 2001. The Companies have not received
notice of any
audit or any proposed deficiencies from the Internal Revenue
Service (the "IRS")
or any other taxing authority. There are in effect no waivers of
applicable
statutes of limitations with respect to any Taxes owed by the
Companies for any
year. Neither the IRS nor any other taxing authority is now
asserting or, to the
knowledge of the Companies, threatening to assert against the
Companies any
deficiency or claim for additional Taxes or interest thereon or
penalties in
connection therewith in respect of the income or sales of the
Companies. The
Companies are an affiliated group of corporations filing a
consolidated federal
income tax return; nor do the Companies have no liability for Taxes
of any other
Person, other than the Companies, under Treasury Regulations
ss.1.1502-6 (or any
similar provision of foreign, state or local law) or otherwise. The
Companies
are not a party to any Tax allocation or sharing arrangement,
except among the
Companies. The Companies are not party to any contract, agreement,
plan or
arrangement covering any employee or former employee thereof, that,
individually
or collectively, could give rise to the payment of any amount that
would not be
deductible pursuant to Section 280G or Section 162 of the Code. The
taxable year
of the Companies for federal and state income tax purposes is the
fiscal year
ended June 30th. The Companies have not joined in any combined or
unitary tax
return with any other entity, excepting the Companies. For purposes
of this
Agreement "Taxes" shall mean (i) any federal, state, local or
foreign net
income, gross income, gross receipts, premium, windfall profit,
severance, real
property, personal property, production, sales, use, license,
excise, franchise,
employment, payroll, withholding, social security (or similar),
unemployment,
occupation, capital stock, profits, disability, registration,
estimated,
alternative or add-on minimum, ad valorem, value-added, transfer,
stamp, or
environmental tax, or any other tax, custom, duty, governmental fee
or other
like assessment or charge of any kind whatsoever, together with any
interest or
penalty, addition to tax or additional amount imposed by any
governmental
authority, whether disputed or not.
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<PAGE>
7.11
Certain Contracts and Arrangements. Except as set forth in
Schedule
XVII (with true and correct copies heretofore delivered to the
Acquiring
Corporation), the Companies are not a party or subject to or bound
by or the
beneficiary of:
(a) Any plan or contract providing for collective bargaining or
the
like, or any contract or agreement with any labor union;
(b) Any material customer contract or agreement providing for
168
hours or more of weekly service;
(c) Any contract, lease or agreement involving a potential
commitment
or payment by the Companies in excess of $10,000;
(d) Any contract, lease or agreement which is not cancelable by
the
Company without penalty upon sixty (60) days' notice or less;
(e) Any contract or agreement for the marketing of products or
services for a price in excess of $5,000;
(f) Any contract, consent order, decision, judgment or other
agreement
containing covenants directly or indirectly limiting the freedom of
the
Companies to compete in any line of business or with any Person or
entity;
(g) Any contract or agreement for the purchase of any real
property,
leasehold improvements, equipment or fixed assets;
(h) Any indenture, mortgage, promissory note, loan agreement,
guaranty
or other agreement or commitment for borrowing or any pledge or
security
arrangement;
(i) Any joint venture or partnership agreement or other
agreement
which involves a sharing of revenues, profits, losses, costs or
liabilities of
the Companies with any other Person;
(j) Any employment contracts, non-competition agreements, or
agreements with present or former officers, directors or employees
of the
Companies or Persons or organizations related to or affiliated with
any such
Persons;
(k) Except for the Plan, and the Companies' 401(k) plan, any
pension,
profit sharing, retirement or stock options plans;
(l) Any royalty, dividend or similar arrangement with third
parties
based on the sales volume of the Companies or any contract
involving fixed price
or fixed volume arrangements;
(m) Any acquisition, merger or similar agreement;
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<PAGE>
(n) Any contract with a governmental body, except for any
contracts
with the City of San Diego;
(o)
Any outstanding power of attorney;
(p) Any management service agreements or arrangements with any
affiliated or unaffiliated Persons or entities; or
(q) Any other contract not executed in the ordinary course of
business.
All of the contracts
and commitments of the Companies are in full force and
effect and neither the Companies, nor, to the Knowledge of the
Companies, any
other party is in default thereunder (nor, to the Knowledge of the
Company has
any event occurred which with notice, lapse of time or both would
constitute a
default thereunder) and the Companies have not received notice of
any alleged
default under any such contract, agreement, understanding or
commitment.
7.12
Intellectual Property Rights.
-----------------------------
(a) Schedule XVIII contains a complete and accurate list of all
Patents (as defined below) owned by the Companies or otherwise used
in the
Business (the "Company Patents"), Marks (as defined below) owned by
the
Companies or otherwise used in the Business (the "Company Marks")
and Copyrights
(as defined below) owned by the Companies or otherwise used in the
Business
("Company Copyrights").
(b) Except as set forth on Schedule XVIII, (i) the Companies
exclusively own or possess adequate and enforceable rights to use,
without
payment to a third party, all of the Intellectual Property Assets
(as defined
below) necessary for the operation of the Business, free and clear
of all Liens;
(ii) all Companies' Patents, Companies' Marks and Companies
Copyrights which are
issued by or registered with, as applicable, the U.S. Patent and
Trademark
Office, the U.S. Copyright Office or in any similar office or
agency anywhere in
the world are currently in compliance with formal legal
requirements (including
without limitation, as applicable, payment of filing, examination
and
maintenance fees, proofs of working or use, timely
post-registration filing of
affidavits of use and incontestability and renewal applications)
and are valid
and enforceable; (iii) there are no pending, or, to the Companies'
and the
Individual Shareholders' Knowledge, threatened claims against the
Companies or
any of its employees alleging that any of the Companies
Intellectual Property
Assets or the Business, infringes or conflicts with the rights of
others under
any Intellectual Property Assets ("Third Party Rights"); (iv)
neither the
Business nor any Companies Intellectual Property Asset infringes or
conflicts
with any Third Party Rights; (v) the Companies have not received
any
communications alleging that the Companies have violated or, by
conducting the
Business, would violate any Third Party Rights or that any of
the
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<PAGE>
Companies Intellectual Property Assets is invalid or unenforceable;
(vi) no
current or former employee or consultant of the Company owns any
rights in or to
any of the Companies Intellectual Property Assets; and (vii) the
Companies are
not aware of any violation or infringement by a third party of any
of the
Companies Intellectual Property Assets.
(c) For purposes of this Agreement, (i) "Company Intellectual
Property
Assets" means all Intellectual Property Assets owned by the
Companies or used in
the Business, including, without limitation, the Companies'
Patents, Companies'
Marks, Companies Copyrights and Companies Trade Secrets and (ii)
"Intellectual
Property Assets" means: (A) patents, patent applications, patent
rights, and
inventions and discoveries and invention disclosures (whether or
not patented)
(collectively, "Patents"); (B) trade names, trade dress, logos,
packaging
design, slogans, Internet domain names, registered and unregistered
trademarks
and service marks and related registrations and applications for
registration
(collectively, "Marks"); (C) copyrights in both published and
unpublished works,
including, without limitation, all compilations, databases and
computer
programs, manuals and other documentation and all copyright
registrations and
applications, and all derivatives, translations, adaptations and
combinations of
the above (collectively, "Copyrights"); (D) know-how, trade
secrets,
confidential or proprietary information, research in progress,
algorithms, data,
designs, processes, formulae, drawings, schematics, blueprints,
flow charts,
models, strategies, prototypes, techniques, Beta testing procedures
and Beta
testing results (collectively, "Trade Secrets"); and (E) goodwill,
franchises,
licenses, permits, consents, approvals, and claims of infringement
against third
parties.
7.13
Litigation. Except as set forth in Schedule XIX there is no
litigation
or governmental proceeding or investigation pending or, threatened
against the
Companies or affecting any of its properties or assets or against
any officer,
director or employee of the Companies in his or her capacity as an
officer,
director or employee of the Company, nor has there occurred any
event nor does
there exist any condition on the basis of which any such
litigation, proceeding
or investigation might be properly instituted or commenced. None of
the matters
listed on Schedule XIX will have a Material Adverse Effect.
Schedule XIX
describes all litigation, claims, proceedings or known
investigations involving
any of Companies' officers, directors and shareholders in
connection with the
Business occurring or arising during the previous five (5)
years.
7.14
Employee Programs.
------------------
(a) Schedule XX sets forth a description of all of the
Companies'
Employee Programs (as defined below) that have been maintained (as
such term is
further defined below) by the Companies at any time during the five
(5) years
prior to the date hereof.
(b) There has not been any failure of any party to comply with
any
laws applicable with respect to any Employee Program that has been
maintained by
the Companies. With respect to any Employee Programs now or
heretofore
maintained by the Companies, there has occurred no breach of any
duty under
ERISA or other applicable law (including, without limitation, any
health care
continuation requirements
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<PAGE>
or any other tax law requirements, or conditions to favorable tax
treatment,
applicable to such plan), which could result, directly or
indirectly (including,
without limitation, through any obligation of indemnification or
contribution),
in any taxes, penalties or other liability to the Acquiring
Corporation, the
Companies or any affiliate (as defined below). No litigation,
arbitration, or
governmental administrative proceeding (or investigation) or other
proceeding
(other than those relating to routine claims for benefits) is
pending or
threatened with respect to any such Employee Program.
(c) Except as set forth in Schedule XX, neither the Companies nor
any
affiliate have ever (i) provided health care or any other
non-pension benefits
to any employees after their employment was terminated (other than
as required
by Part 6 of Subtitle B of Title I of ERISA) or has ever promised
to provide
such post-termination benefits or (ii) maintained an Employee
Program subject to
Title IV of ERISA, Section 401(a) or Section 412 of the Code,
including, without
limitation, any Multiemployer Plan (as defined below).
(d) For purposes of this Section 7.14 and Section 9.7:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not
limited
to, multiple employer welfare arrangements (within the meaning
of
ERISA Section 3(40)),
plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign
or
excess benefit plans) which are not subject to ERISA; and (B)
all
stock option plans, bonus or incentive award plans, severance
pay
policies or agreements, deferred compensation agreements,
supplemental
income arrangements, vacation plans, and all other employee
benefit
plans, agreements, and arrangements not described in (A) above. In
the
case of an Employee Program funded through an organization
described
in the Code Section 501(c)(9), each reference to such Employee
Program
shall include a reference to such organization;
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to
provide)
benefits under such Employee Program, or has any obligation (by
agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee
Program
provides benefits to or otherwise covers employees of such entity
(or
their spouses, dependents, or beneficiaries);
(iii) An entity is an
"affiliate" of the Companies for purposes
of this Section 7.14 and section 9.7 if it would have ever been
considered a single employer with the Companies under ERISA
Section
4001(b) or part of the same "controlled group" as the Companies
for
purposes of ERISA Section 302(d)(8)(C); and
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes
and
which is maintained
pursuant to one or more collective bargaining
agreements.
Initials: __________
EXESOP 320
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7.15
Labor Matters. (a) Merging Corporation, RPP and SSS
collectively
employ approximately 260 full-time employees and 40 part-time
employees and have
one (1) contract with an independent contractor which is attached
hereto as
Exhibit 7.15. The Companies are not delinquent in payments to any
of its
employees for any wages, salaries, commissions, bonuses or other
direct
compensation for any services performed for the Companies as of the
date hereof
or amounts required to be reimbursed to such employees. The
Companies are and
have heretofore been in compliance in all material respects with
all applicable
laws and regulations respecting labor, employment, fair employment
practices,
terms and conditions of employment and wages and hours. Except as
set forth in
Schedule XXI, there are no claims of employment discrimination or
unfair labor
practices or strikes, slowdowns, stoppages of work or any other
concerted
interference with normal operations existing, pending or threatened
against or
involving the Companies. Except as set forth in Schedule XXII, no
key employee
of the Companies has any plan or intention to terminate his
employment with the
Companies.
(b)
Individual Shareholders hereby represent and warrant that
Companies
have made available to Acquiring Corporation, prior to the date of
this
Agreement, all personnel records and information relating to any
pending
disciplinary action or claim, relating to any employee of
Companies, except for
information that is privileged.
7.16
List of Certain Employees. Schedule XXIII attached hereto contains
a
list of all managers, employees, consultants, independent
contractors, brokers
and sales persons of the Companies who, individually, received
compensation for
the fiscal year ended December 31, 2006 in excess of $40,000 or are
scheduled to
receive compensation for the fiscal year ended June 30, 2007 in
excess of
$40,000. In each case, Schedule XXIII includes the current job
title, years of
service with the Companies and aggregate annual compensation and
benefits of
each such individual. The Companies have complied in all material
respects with
the immigration laws of the United States with respect to the
hiring, employment
and engagement of all of its employees and consultants who are not
United States
citizens and the immigration or residency status of each of such
employees and
consultants is sufficient to allow such employees and consultants
to remain
lawfully employed or engaged by the Companies in the United
States.
7.17
List of Certain Suppliers. Schedule XXIV attached hereto sets forth
a
list of the top ten (10) suppliers of the Companies (based on the
amount of
payments made to such suppliers during the calendar year ended
December 31,
2006) showing, with respect to each, the name, address and dollar
volume
involved. No supplier has any plan or intention to terminate or
reduce its
business with the Companies or to materially modify its
relationship with the
Companies.
7.18
Environmental Matters.
---------------------
(a) (i) To the best of
Individual Shareholders' knowledge, the
Companies have never generated, transported, used, stored, treated,
disposed of,
or managed any Hazardous Waste (as defined below); (ii) no
Hazardous Material
(as
Initials: __________
EXESOP 320
23
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<PAGE&
