PURCHASE AGREEMENT

Exhibit 2.1

Conformed Copy

 

PURCHASE AGREEMENT

BY AND AMONG

JMP CREDIT CORPORATION,

DBAH CAPITAL, LLC,

FLAT HAT HOLDINGS, LLC

AND

CRATOS CAPITAL PARTNERS, LLC

Dated as of March 31, 2009

 

TABLE OF CONTENTS

 

 

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PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of the 31 ^st day of March, 2009, by and among JMP CREDIT CORPORATION , a Delaware corporation (“ Buyer ”), DBAH CAPITAL, LLC , a Delaware limited liability company (“ DBAH ”), FLAT HAT HOLDINGS, LLC , a Georgia limited liability company (“ Flat Hat ”) (DBAH and Flat Hat each, a “ Seller ” and collectively, the “ Sellers ”), and CRATOS CAPITAL PARTNERS, LLC , a Delaware limited liability company (“ Cratos ”). Unless otherwise provided, capitalized terms used herein are defined in Article XI .

RECITALS

WHEREAS , Sellers own all of the issued and outstanding Class A units of Cratos;

WHEREAS , subject to the terms and conditions set forth herein, Buyer desires to acquire from Sellers such Class A units of Cratos, and Sellers desire to sell to Buyer all of such Class A units; and

WHEREAS , DBSI owns Class C, Class D and Class E notes issued under the Indenture and has agreed to sell certain of such notes to Buyer and its affiliates, and Buyer and its affiliates have agreed to purchase such notes.

AGREEMENT

NOW, THEREFORE , for and in consideration of the foregoing premises and of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby covenant, agree, represent and stipulate as follows:

ARTICLE I

PURCHASE AND SALE

Section 1.1 Purchase and Sale .

(a) Subject to the terms and conditions of this Agreement, at the Closing, DBAH will sell, convey, transfer, assign and deliver to Buyer, and Buyer will purchase from DBAH, all of the right, title and interest of DBAH in and to the Class A units of Cratos set forth on Schedule 1.1(a) .

(b) Subject to the terms and conditions of this Agreement, at the Closing, Flat Hat will sell, convey, transfer, assign and deliver to Buyer, and Buyer will purchase from Flat Hat, all of the right, title and interest of Flat Hat in and to the Class A units of Cratos set forth on Schedule 1.1(b) .

Section 1.2 Purchase Consideration . Subject to the terms and conditions of this Agreement, at the Closing, Buyer will deliver the consideration as follows:

(a) the amounts due pursuant to the Pay-Off and Termination Letter payable by Buyer by wire transfer of immediately available funds to the account or accounts designated therein; and

(b) the Flat Hat Promissory Note to Flat Hat.

Section 1.3 Note Purchase Transaction . Simultaneously with the Closing, DBSI shall sell, and JMP and its affiliates shall purchase or cause to be purchased, all of DBSI’s right, title and interest in and to the portions and aggregate par amounts of Class C, Class D and Class E notes issued under the Indenture and specified on Schedule 1.3 hereto, pursuant to industry practice fixed income transaction protocols as evidenced by trade confirmations issued by DBSI to JMP and its affiliates upon the purchase of such Class C, Class D and Class E notes (the “ Note Purchase Transaction ”).

ARTICLE II

THE CLOSING

Section 2.1 Time and Place of Closing . The closing of the transactions contemplated hereby (the “ Closing ”) shall take place at the offices of McKenna Long & Aldridge LLP, 303 Peachtree Street, N.E., Suite 5300, Atlanta, Georgia 30308, at 10:00 a.m. (local time) on the date that is one (1) Business Day after all conditions precedent set forth in Article VII and Article VIII have been satisfied or waived (or, if later, five (5) Business Days after the date hereof), or at such other time or place upon which the parties may agree that is at least five (5) Business Days after the date hereof (the day on which the Closing takes place being referred to herein as the “ Closing Date ”); provided that all conditions to Closing set forth in Article VII and Article VIII have been satisfied or waived.

Section 2.2 Deliveries . At the Closing, subject to the satisfaction or waiver of each of the conditions specified in Article VII and Article VIII below, (i) the parties shall execute and deliver to each other the documents referred to in Article VII and Article VIII hereof; and (ii) Buyer shall provide the consideration to Sellers set forth in Section 1.2 .

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller, severally and not jointly, with respect to itself, represents and warrants to Buyer as follows:

Section 3.1 Organizational Matters .

(a) Organization, Power and Good Standing . It is a limited liability company, duly organized, validly existing and in good standing under the laws of the state of its jurisdiction of organization and has the limited liability company power and authority to own, lease and operate its properties and assets and to carry on its business as currently conducted. It is duly qualified to do business as a foreign limited liability company in each jurisdiction in which such qualification is necessary under applicable law, except where the failure to be so qualified would not have a material adverse effect on such Seller.

 

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(b) Authorization and Enforceability . It has all necessary limited liability company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized, executed and delivered by, and constitute a legal, valid and binding obligation of such Seller, Enforceable against such Seller in accordance with its terms.

(c) Non-Contravention . Except as set forth on Schedule 3.1(c) , neither the execution, delivery or performance of this Agreement nor the consummation of the Closing and the performance by it of its obligations hereunder in accordance with the terms and conditions hereof does or will constitute, result in or give rise to (i) a breach, violation or default under any Legal Requirement applicable to Seller, except where such breach, violation or default would not have a material adverse effect on Seller or on its ability to perform its obligations under the transactions contemplated hereunder; (ii) a breach of or default under any Charter or Operating Agreement provision of Seller; (iii) the imposition of any Lien upon any asset of Seller; or (iv) a breach of or default under or contravention of (or the acceleration of the time for performance of any obligation under) any Contractual Obligation of Seller (other than those set forth in the Cratos LLC Agreement), except where such breach, default or contravention would not have a material adverse effect on Seller or on its ability to perform its obligations under the transactions contemplated hereunder. Except as set forth on Schedule 3.1(c) , no approval, consent, waiver, authorization or other order of, and no declaration, filing, registration, qualification or recording with, any Governmental Authority or Person is required to be obtained from or made by or on behalf of Seller in connection with the execution, delivery or performance of this Agreement and the consummation of the Closing and the performance by Seller of its obligations hereunder in accordance with the terms and conditions of this Agreement.

Section 3.2 Ownership of Equity Securities . It owns, of record and beneficially, good and valid title to the Equity Securities set forth next to its name on Schedule 1.1(a) or 1.1(b) , as applicable, and, except as set forth in the Cratos LLC Agreement or on Schedule 3.2 , such Equity Securities are free and clear of any Liens. Other than the Equity Securities listed on Schedule 1.1(a) or 1.1(b) , as applicable, it owns no Equity Securities of Cratos or any Subsidiary and, except as set forth in the Cratos LLC Agreement, has no right of any kind to have any such Equity Security issued. Subject to the terms of the Cratos LLC Agreement, it has full and exclusive power, right and authority to vote the Equity Securities listed on Schedule 1.1(a) or 1.1(b) , as applicable. Except for the Cratos LLC Agreement, Seller is not a party to or bound by any agreement affecting or relating to its right to transfer or vote the Equity Securities listed on Schedule 1.1(a) or 1.1(b) , as applicable. Seller hereby waives, until the earlier of Closing and termination of this Agreement, its rights, if any, under Sections 2.6, 2.7, 2.8, 2.9, 2.10 and 2.11 of the Cratos LLC Agreement.

Section 3.3 Litigation . There is no Action pending or, to the knowledge of Seller, threatened against Seller which challenges the validity of this Agreement or the transactions contemplated by this Agreement, or otherwise seeks to prevent, directly or indirectly, the consummation of such transactions.

 

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Section 3.4 Brokers . No broker, finder, investment bank or similar agent is entitled to any brokerage or finder’s fee in connection with the transactions contemplated by this Agreement based upon agreements or arrangements made by or on behalf of Seller.

Section 3.5 No Other Representations or Warranties . Except for the representations and warranties made in this Article III , neither Seller nor any other Person makes any representation or warranty with respect to Sellers.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLERS AND CRATOS

REGARDING CRATOS AND THE SUBSIDIARIES

Cratos hereby represents and warrants to Buyer as follows:

Section 4.1 Organizational Matters .

(a) Organization, Power and Good Standing . Cratos is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the limited liability company power and authority to own, lease and operate its properties and assets and to carry on its business as currently conducted. Cratos has made available true and correct copies of its Charter and Operating Agreement, each as amended to date and currently in effect. Cratos is duly qualified to do business as a foreign limited liability company in each jurisdiction in which such qualification is necessary under applicable law, except where the failure to be so qualified or licensed has not had a Material Adverse Effect.

(b) Authorization and Enforceability . Cratos has all necessary limited liability company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized, executed and delivered by, and constitute a legal, valid and binding obligation of Cratos, Enforceable against it in accordance with its terms.

(c) Non-Contravention . Except for items listed on Schedule 4.1(c) , neither the execution, delivery or performance of this Agreement nor the consummation of the Closing and the performance by Cratos of its obligations hereunder in accordance with the terms and conditions hereof does or will constitute, result in or give rise to (i) a breach, violation or default under any Legal Requirement applicable to Cratos; (ii) a breach of or default under any Charter or Operating Agreement provision of Cratos; (iii) the imposition of any Lien upon any asset of Cratos; or (iv) a breach of or default under or contravention of (or the acceleration of the time for performance of any obligation under) any Contractual Obligation of Cratos or any Subsidiary, except where such breach, default or contravention would not have a Material Adverse Effect. Except as set forth on Schedule 4.1(c) , no approval, consent, waiver, authorization or other order of, and no declaration, filing, registration, qualification or recording with, any Governmental Authority or Person is required to be obtained from or made by or on behalf of Cratos or any Subsidiary in connection with the execution, delivery or performance of this Agreement and the consummation of the Closing and the performance by Cratos of its obligations hereunder in accordance with the terms and conditions of this Agreement.

 

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(d) Capitalization . The authorized, issued and outstanding Equity Securities of Cratos and the Subsidiaries are set forth on Schedule 4.1(d) . The Equity Securities set forth on Schedule 4.1(d) constitute all of the issued and outstanding Equity Securities of Cratos and the Subsidiaries, and except as set forth on Schedule 4.1(d) , Cratos and the Subsidiaries own no Equity Securities, directly or indirectly, of any other Person. All such Equity Securities of Cratos and the Subsidiaries are duly authorized, validly issued and are free of any preemptive or other similar rights and were issued in compliance with applicable state and federal securities laws. Except as set forth on Schedule 4.1(d) , neither Cratos nor any of the Subsidiaries has any outstanding bonds, debentures, notes or other securities the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the holders of Equity Securities of Cratos or the Subsidiaries on any matter. Except as set forth on Schedule 4.1(d) , there are no (i) outstanding Equity Securities of Cratos or any Subsidiary, or (ii) commitments or obligations of any kind or character (other than this Agreement) for (A) the issuance of Equity Securities of Cratos or any Subsidiary or (B) the repurchase, redemption or other acquisition of any Equity Securities of Cratos or any Subsidiary. The Equity Securities of Cratos set forth on Schedule 1.1(a) and Schedule 1.1(b) constitute all of the outstanding voting limited liability company interests of Cratos. Except as set forth on Schedule 4.1(d) , there are no outstanding options, warrants, puts, calls, commitments, agreements, contracts, preemptive or other rights to purchase, issue, exchange, convert or otherwise acquire any Equity Securities of Cratos.

Section 4.2 Absence of Other Claims . No prior offer, issue, redemption, call, purchase, sale, merger or transfer with respect to any Equity Securities of Cratos or any Subsidiary has given or may give rise to (a) any valid claim or action by any Person (including any former or present holder of any of Equity Securities of Cratos or the Subsidiaries) which is Enforceable against Cratos or any Subsidiary, or Buyer; or (b) any valid interest in Cratos or any Subsidiary.

Section 4.3 Financial Statements .

(a) Financial Information . Buyer has been furnished with true, correct and complete copies of (i) the audited consolidated balance sheet of Cratos, including the schedules thereto related to the Subsidiaries, and the consolidating balance sheet of each Subsidiary as of December 31, 2007, and the related audited statements of operations and cash flows for the year ended December 31, 2007; (ii) the unaudited consolidated balance sheet of Cratos, including the schedules thereto related to the Subsidiaries, and the consolidating balance sheet of each Subsidiary as of December 31, 2008, and the related unaudited statements of operations and cash flows for the year ended December 31, 2008; (iii) the unaudited consolidated balance sheet of Cratos, including the schedules thereto related to the Subsidiaries and the consolidating balance sheet of each Subsidiary as of February 28, 2009 and the related unaudited statements of operations and cash flows for the two (2) months then ended (collectively, the “ Cratos Financial Statements ”).

(b) Character of Financial Information . The Cratos Financial Statements were prepared in accordance with GAAP consistently applied throughout the periods specified therein and present fairly, in all material respects, the consolidated financial position and results of operations of Cratos and the financial position and results of each Subsidiary as of the dates and

 

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for the periods specified therein in accordance with GAAP as consistently applied by Cratos, subject in the case of the Financial Statements described in Section 4.3(a)(ii) and Section 4.3(a)(iii) to the absence of notes thereto and normal year-end adjustments. All accounts receivable set forth in the Cratos Financial Statements are (i) accurately reflected on the Cratos Financial Statements; (b) valid receivables owned by Cratos, free and clear of any Lien; (iii) not more than ninety (90) days past due, and (iv) to the Knowledge of Cratos, not subject to set-offs or counterclaims.

(c) No Undisclosed Liabilities . There are no liabilities of any nature (whether absolute, accrued, contingent or otherwise and whether matured or unmatured) of Cratos or any Subsidiary, other than (i) liabilities reflected or reserved against on the Cratos Financial Statements, and (iii) liabilities set forth on Schedule 4.3(c) .

(d) Indebtedness . Schedule 4.3(d) sets forth the amount and a description, containing the source, date incurred, amount outstanding and expected maturity date, of all Debt of Cratos and the Subsidiaries as of the date of this Agreement. Buyer shall be furnished with a revised Schedule 4.3(d) at Closing. Except as set forth on Schedule 4.3(d) , the execution, delivery or performance of this Agreement will not (i) constitute a breach or default under any Debt instrument of Cratos or (ii) give rise to any right to accelerate or cause the repayment of any of the Debt of Cratos by any lender.

Section 4.4 Change in Condition Since Balance Sheet Date . Except for matters set forth on Schedule 4.4 , since the Balance Sheet Date, the Business has been conducted only in the Ordinary Course of Business and:

(a) Neither Cratos nor any Subsidiary has:

(i) Entered into any Contractual Obligation other than this Agreement relating to (A) the sale of any of its Equity Securities; (B) the purchase of assets constituting a business; or (C) any merger, consolidation, reorganization or other business combination;

(ii) Settled or agreed to settle any Action;

(iii) Mortgaged, pledged or subjected to any Lien any of its assets other than (A) conditional sales or similar security interests granted in connection with the lease or purchase of equipment or supplies in the Ordinary Course of Business; and (B) Liens disclosed on Schedule 4.4 ;

(iv) Cancelled any Debt owed to or claims held by it;

(v) Sold, leased, transferred or exchanged any property for less than the fair value thereof (except with respect to property that is obsolete or no longer used or useful in connection with the Business sold or transferred in the Ordinary Course of Business);

(vi) Declared or paid any dividends or made distributions with respect to its Equity Securities;

 

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(vii)(A) Increased (or committed to increase) the compensation payable or to become payable to or the benefits afforded any employee; or (B) increased (or committed to increase) the rate of benefits payable under, amended the terms of, or entered into any new, bonus, incentive, pension, insurance, severance, deferred compensation, retirement profit sharing or other employee benefit plan or compensation or commission arrangement (contingent or otherwise) covering any current or former director, independent contractor or employee, other than as required by any applicable Legal Requirement;

(viii) Entered into any new or amended any (or committed to entering into or amending any) employment, severance, retention, compensation or change in control agreement for any current or former director, independent contractor or employee (other than customary offer letters for employment at will in the Ordinary Course of Business that do not provide severance or change of control benefits);

(ix) Made any loan to (other than the advancement of expenses to directors and employees in the Ordinary Course of Business), or entered into any other transaction with any of its current or former directors, officers and employees or entered into any collective bargaining agreement;

(x) Added to or modified in any material respect any of the Company Plans other than (i) contributions made in the Ordinary Course of Business, or (ii) the extension of coverage to other personnel who became eligible after the Balance Sheet Date;

(xi) Sold, assigned or transferred any assets having a value in excess of $25,000 other than in the Ordinary Course of Business;

(xii) Cancelled, terminated or materially amended any Permit or Contractual Obligation to which it is a party outside the Ordinary Course of Business;

(xiii) Made any capital expenditure or incurred a liability therefor, in each case involving payments in excess of $25,000;

(xiv) Changed accounting methods or practices, other than such changes required by law or GAAP;

(xv) Experienced material damage, destruction or loss with respect to any property or assets having a value in excess of $25,000 (whether or not covered by insurance);

(xvi) Incurred indebtedness for borrowed money or any commitment to incur indebtedness, or any loans made or agreed to be made by it, other than borrowings under the Business’ existing working capital credit facility or in the Ordinary Course of Business;

(xvii) Executed, terminated or materially amended any lease for real or personal property involving annual payments in excess of $25,000;

 

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(xviii) Made any material change in underwriting practices or policies, collection practices, policies or terms or payment practices, policies or terms applicable to any of its customers or creditors; or

(xix) Entered into any agreement, whether or not in writing, to do any of the foregoing.

(b) There has not been any Material Adverse Effect.

Section 4.5 Personal and Real Property .

(a) Cratos and each Subsidiary have valid title to all of their personal property (other than leased or licensed personal property), and such personal property is not subject to any Lien except as set forth on Schedule 4.5(a) . Copies of all leases and licensing agreements for personal property (“ Personalty Leases ”) leased or licensed by Cratos or any Subsidiary have been made available to Buyer. Cratos and each Subsidiary have performed all material obligations required to be performed by them under such Personalty Leases, and no event or condition exists which constitutes or, with the giving of notice or the passage of time or both, would constitute a material default by Cratos or any Subsidiary as lessee or licensee under such leases.

(b) Neither Cratos nor any Subsidiary owns any real property. Each lease of real property (the “ Real Property Leases ”) leased to Cratos and the Subsidiaries is valid and in full force and effect. Cratos and each Subsidiary have performed all material obligations required to be performed by them under such Real Property Leases, and no event or condition exists which constitutes or, with the giving of notice or passage of time or both, would constitute a material default by any Subsidiary as lessee under such Real Property Leases. Cratos and the Subsidiaries have made available to Buyer copies of the Real Property Leases and any amendments thereto.

Section 4.6 Intellectual Property .

(a) Schedule 4.6(a ) lists all patents, registered copyrights, registered trademarks and service marks, internet domain names and all applications for any of the foregoing, as well as any material unregistered trademarks and service marks that are owned by Cratos or any Subsidiary (together with Cratos’ and the Subsidiaries’ various unregistered copyrights and trade secrets and other intellectual property rights, the “ Owned Intellectual Property ”). Except as set forth on Schedule 4.6(a) , Cratos and each Subsidiary have good and marketable title to each item of Owned Intellectual Property owned by it free and clear of any Lien and no other Person has the right to use such Owned Intellectual Property.

(b) Schedule 4.6(b) lists all license agreements or other Contractual Obligations pursuant to which any patents, copyrights, trademarks and service marks, domain names and trade secrets are licensed to Cratos or the Subsidiaries that are either (i) material to Cratos or the Subsidiaries, or (ii) incorporated into or included as part of the Owned Intellectual Property (the “ Licensed Intellectual Property ” and together with the Owned Intellectual Property, the “ Business Intellectual Property ”).

 

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(c) Schedule 4.6(c) lists each license, sublicense or other Contractual Obligation under which Business Intellectual Property is licensed by Cratos or the Subsidiaries to third parties (the “ Acquired Licenses ”). To the Knowledge of Cratos, the use by Cratos and each Subsidiary of the Business Intellectual Property does not infringe any registered United States patent, trademark, service mark or copyright or, to the Knowledge of Cratos, any other enforceable intellectual property right of a third party. To the Knowledge of Cratos, no activity of any third party infringes upon the rights of Cratos or the Subsidiaries with respect to any of the Business Intellectual Property. No written notice of claims, or, to the Knowledge of Cratos, unwritten notices of claims have been asserted by any Person against Cratos or any Subsidiary with respect to the use of any Business Intellectual Property used by Cratos or any Subsidiary or licensed pursuant to the Acquired Licenses challenging or questioning the validity or effectiveness of such use or any license or sublicense agreements to which Cratos or any Subsidiary is a party and other than any royalties or payments due to any of the licensors of the Licensed Intellectual Property pursuant to the license agreements listed on Schedule 4.6(b) , no Person has a right to a royalty or similar payment in respect of Cratos’ or the any Subsidiary’s use of any Business Intellectual Property.

Section 4.7 Certain Contractual Obligations . Set forth on Schedule 4.7 is a true and complete list of all of the following Contractual Obligations of Cratos and the Subsidiaries:

(a) All collective bargaining agreements and all written employment, severance, independent contractor, and consulting agreements, other than customary offer letters for employment at will that do not provide severance benefits beyond customary policies in the Ordinary Course of Business;

(b) All Contractual Obligations under which Cratos or any Subsidiary is or will after the Closing be restricted in any respect from carrying on any business or other activities anywhere in the world;

(c) All Contractual Obligations to sell or otherwise dispose of any assets having a fair market value in excess of $25,000, except in the Ordinary Course of Business;

(d) All Contractual Obligations between Cratos or any Subsidiary, on the one hand, and an Affiliate of Cratos or any Subsidiary, as the case may be, on the other hand;

(e) All Contractual Obligations (including partnership and joint venture agreements) under which (i) Cratos or any Subsidiary have any liability or obligation for Debt or constituting or giving rise to a guarantee of any liability or obligation of any Person (other than Cratos or any Subsidiary), or (ii) any Person has any liability or obligation constituting or giving rise to a guarantee of any liability or obligation of Cratos or any Subsidiary;

(f) All Contractual Obligations entered into pursuant to which Cratos or any Subsidiary have incurred an obligation to pay any amounts in respect of indemnification obligations, purchase price adjustment or otherwise in connection with any (i) acquisition or disposition of assets constituting a business or securities representing a controlling interest in any Person; (ii) merger, consolidation or other business combination; or (iii) series or group of related transactions or events of a type specified in subclauses (i) or (ii);

 

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(g) All Contractual Obligations pursuant to which Cratos or any Subsidiary may be obligated to pay for goods and services to be delivered or performed in excess of $25,000 per year, except for purchase orders issued in the Ordinary Course of Business and except for Contractual Obligations with customers;

(h) All joint ventures, limited liability company or partnership agreements, or other agreements (however named) involving a sharing of profits, losses, costs or liabilities by Cratos or any Subsidiary with any other Person;

(i) Any agreement with any investment or research consultant, solicitor or sales agent, or otherwise with respect to the referral of business to Cratos or any Subsidiary;

(j) Any agreement for the provision of investment management or similar services; and

(k) Any Contractual Obligation entered into by Cratos or any Subsidiary since the Balance Sheet Date other than in the Ordinary Course of Business and involving payments in excess of $25,000.

Each of the Contractual Obligations described in the foregoing clauses of Cratos and the Subsidiaries shall be referred to herein collectively as the “ Cratos Contracts .” Cratos has made available to Buyer true and correct copies of the Cratos Contracts. Each of the Cratos Contracts has been validly executed and delivered thereby and is Enforceable. To the Knowledge of Cratos, (i) no breach or default by any other Person under any of the Cratos Contracts has occurred and is continuing, and no event has occurred which with notice or lapse of time or both would constitute such a breach or default; and (ii) no breach or default by any other Person under any of the Cratos Contracts has occurred and is continuing, and no event has occurred which with notice or lapse of time on both would constitute such a breach or default. To the Knowledge of Cratos, the execution, delivery or performance of this Agreement will not constitute a breach or default under, or give rise to any right to terminate, any of the Contractual Obligations of Cratos by any counterparty thereto.

Section 4.8 Insurance . Set forth on Schedule 4.8 is a true and accurate list as of the date hereof of all insurance arrangements and current primary, excess and umbrella policies or binders of insurance owned or held by or on behalf of or covering the operations, assets, business, equipment, properties, operations, employees, officers and directors of Cratos and the Subsidiaries (the “ Insurance Policies ”). Each Insurance Policy is valid, outstanding and Enforceable in accordance with its terms and neither Cratos nor any Subsidiary is in material breach or default thereunder. Cratos and the Subsidiaries have not received any notice of cancellation of any such Insurance Policy or been denied insurance coverage within the last year, other than notices of cancellation routinely sent at the end of a policy term.

Section 4.9 Litigation . Except as set forth on Schedule 4.9 , there is no Action against Cratos or any Subsidiary pending or, to the Knowledge of Cratos, threatened. There is no Action pending or, to the Knowledge of Cratos, threatened which seeks rescission of or seeks to enjoin the consummation of this Agreement or any of the transactions contemplated hereby. Except as set forth on Schedule 4.9 , there is no unsatisfied judgment, order, injunction or decree binding upon Cratos or any Subsidiary and there have been no Actions by any Governmental Authority against or involving Cratos or any Subsidiary.

 

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Section 4.10 Compliance with Laws . Cratos and each Subsidiary hold all material permits, licenses, authorizations, certificates, exemptions, franchises, rights, authorizations, consents and approvals of Governmental Authorities (the “ Permits ”) necessary for the lawful ownership and use of the properties and assets of Cratos and the Subsidiaries and the conduct of the Business under applicable Legal Requirements. The Permits are in full force and effect, and Cratos and each Subsidiary are in compliance with the Permits in all material respects. Neither Cratos nor any Subsidiary has received any written notification from any Governmental Authority threatening to terminate, revoke or cancel, or asserting that Cratos or any Subsidiary is not in compliance with, any Permit. Neither Cratos nor any Subsidiary is in conflict with, in default under, or in violation of any Legal Requirement applicable to it, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect.

Section 4.11 Labor Matters . Neither Cratos nor any Subsidiary is a party to any labor agreement with respect to its employees with any labor organization, group or association. To the Knowledge of Cratos, there has been no attempt by organized labor or its representatives to make Cratos or any Subsidiary conform to the demands of organized labor that would cover any employees of Cratos or any Subsidiary. There is no unfair labor practice charge or complaint against Cratos or any Subsidiary pending before the National Labor Relations Board or any comparable state agency. No labor strikes, labor disturbances or work stoppages or other material labor disputes are pending against Cratos or any Subsidiary.

Section 4.12 Tax Matters . Except as set forth on Schedule 4.12 :

(a) All Tax Returns required to have been filed by or with respect to Cratos and the Subsidiaries and the income, operations, business and assets of Cratos and the Subsidiaries have been timely and properly filed (taking into account any extension of time to file granted or obtained) and such Tax Returns are true, correct and complete in all material respects.

(b) All Taxes of Cratos and the Subsidiaries that have become due or payable have been timely paid.

(c) No deficiency for any amount of Tax has been asserted or assessed by a Governmental Authority against Cratos or the Subsidiaries. There are no Liens for Taxes on the assets of Cratos or the Subsidiaries other than liens for Taxes that are not yet due and payable.

(d) No Tax audits or other administrative or judicial Tax proceedings with respect to Taxes of Cratos and the Subsidiaries are pending or are being conducted. There is no claim or assessment pending, or, to the Knowledge of Cratos, threatened against Cratos or any Subsidiary for any alleged deficiency in Taxes. Neither Cratos nor any Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension thereof that is currently in effect. No claim has been made by a Governmental Authority in a jurisdiction where Cratos or any Subsidiary does not file a Tax Return that Cratos or such Subsidiary is or may be subject to taxation by that jurisdiction.

 

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(e) Neither Cratos nor any Subsidiary is a party to any Tax sharing or Tax indemnity agreement or similar arrangement pursuant to which Cratos or any Subsidiary or Buyer would have any obligation to make payments after Closing.

(f) Neither Cratos nor any Subsidiary has any liability for the Taxes of any other Person under (i) Treasury Regulation Sections 1.1502-6 (or any similar provision of state, local, or foreign law); (ii) as a transferee under Section 6901 of the Code or the Treasury Regulations promulgated thereunder (or any similar provision of state, local or foreign law); or (iii) as a successor, by contract or otherwise.

(g) Neither Cratos nor any Subsidiary or Buyer will be required to include in any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date (a “ Post-Closing Tax Period ”) as a result of the following (i) installment sales or open transaction disposition made on or prior to the Closing Date; (ii) the long-term contract method of accounting; (iii) a “closing agreement” as described in Section 7121 of the Code (or, in each case, any provision of any foreign, state or local Tax law having similar effect); or (iv) a prepaid amount received prior to the Closing Date.

(h) Neither Cratos nor any Subsidiary has participated in a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2). Cratos and each Subsidiary have disclosed on their U.S. federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of U.S. federal income Tax within the meaning of Section 6662 of the Code.

(i) There is no contract, agreement, plan or arrangement covering, and no payments or benefits have been provided to, any present or former employee, officer director, independent contractor or consultant of Cratos or any Subsidiary who is a “disqualified individual” (as defined in proposed Treasury Regulation 1.280G-1) that, individually or collectively, provides for, or would result in, the payment of any amount that is (i) not deductible under Section 404 of the Code, or (ii) an “excess parachute payment” as defined under Section 280G of the Code.

Section 4.13 Employee Benefit Plans .

(a) Disclosure . Schedule 4.13(a) lists all benefit and compensation plans, programs, policies, agreements, understandings, commitments arrangements and contracts including “employee benefit plans” within the meaning of Section 3(3) of ERISA, and any deferred compensation, stock option, stock purchase, restricted stock, stock appreciation rights, phantom stock or cash based incentive and bonus plans and pension, profit sharing, savings and thrift or other retirement, fringe benefits, vacation, cafeteria, medical, accidental death and dismemberment, disability, workers compensation, unemployment compensation, post-retirement insurance, post-employment, termination, retention, employment, consulting, change in control and severance plans, programs, arrangements or contracts sponsored, adopted, administered, maintained, contributed to or required to be contributed to, by Cratos for the benefit of any current employee, director, officer, independent contractor, or consultant of Cratos or any Subsidiary or with respect to which any Subsidiary may have any liability or obligation (the “ Company Plans ”).

 

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(b) Compliance .

(i) Each Company Plan intended to be “qualified” within the meaning of Section 401(a) of the Code (unless such plan is a standardized prototype plan) has received a favorable determination letter from the IRS as to qualification under Section 401(a) of the Code (or if the plan is a standardized prototype plan, it has, to the Knowledge of Cratos, received a favorable determination letter and Cratos has properly adopted such