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STOCK PURCHASE AGREEMENT

Purchase and Sale Agreement

STOCK PURCHASE AGREEMENT | Document Parties: FORTRESS INTERNATIONAL GROUP, INC. | Greenfeig, PC | INNOVATIVE POWER SYSTEMS INC | Levin Cohn Ferris Glovsky & Popeo, PC | QUALITY POWER SYSTEMS, INC You are currently viewing:
This Purchase and Sale Agreement involves

FORTRESS INTERNATIONAL GROUP, INC. | Greenfeig, PC | INNOVATIVE POWER SYSTEMS INC | Levin Cohn Ferris Glovsky & Popeo, PC | QUALITY POWER SYSTEMS, INC

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Title: STOCK PURCHASE AGREEMENT
Governing Law: Maryland     Date: 9/27/2007
Industry: Investment Services     Law Firm: Mintz Levin Cohn Ferris Glovsky & Popeo, P.C; Stein, Sperling, Bennett, De Jong, Driscoll, & Greenfeig, P.C     Sector: Financial

STOCK PURCHASE AGREEMENT, Parties: fortress international group  inc. , greenfeig  pc , innovative power systems inc , levin cohn ferris glovsky & popeo  pc , quality power systems  inc
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STOCK PURCHASE AGREEMENT
 
by and among
 
INNOVATIVE POWER SYSTEMS INC.,
 
THE STOCKHOLDERS OF INNOVATIVE POWER SYSTEMS INC.,
 
QUALITY POWER SYSTEMS, INC.,
 
THE STOCKHOLDERS OF QUALITY POWER SYSTEMS, INC.
 
and
 
FORTRESS INTERNATIONAL GROUP, INC.
 
Dated as of September 24, 2007
 





TABLE OF CONTENTS

     
Page
ARTICLE I
DEFINITIONS
 
1
1.1.
Definitions
 
1
       
ARTICLE II
PURCHASE AND SALE OF THE SHARES; ADJUSTMENT
 
6
2.1.
Purchase and Sale of the Shares.
 
6
2.2.
Closing
 
6
2.3.
Deliveries and Payments at the Closing.
 
6
2.4.
Purchase Price Adjustment.
 
7
2.5.
Earn-Out Payments.
 
9
       
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES
 
11
3.1.
Organization and Standing
 
11
3.2.
Authorization
 
12
3.3.
Noncontravention
 
12
3.4.
Consents and Filings
 
12
3.5.
Capital Stock
 
12
3.6.
Subsidiaries
 
13
3.7.
Financial Statements
 
13
3.8.
Absence of Undisclosed Liabilities
 
13
3.9.
Absence of Certain Changes
 
13
3.10.
Litigation
 
14
3.11.
Compliance with Laws.
 
14
3.12.
Material Contracts.
 
14
3.13.
Intellectual Property.
 
16
3.14.
Benefit Plans.
 
16
3.15.
Labor; Employees.
 
17
3.16.
Taxes
 
17
3.17.
Environmental Matters
 
18
3.18.
Real Property
 
18
3.19.
Personal Property
 
18
3.20.
Sufficiency of Assets
 
18
3.21.
Insurance
 
19
3.22.
Suppliers and Customers
 
19
3.23.
Bank Accounts; Authorized Signatories
 
19
3.24.
Brokers
 
19
3.25.
Affiliate Transactions
 
19
3.26.
Books and Records
 
19
3.27.
Restrictions on Business Activities
 
19
3.28.
Certain Business Practices
 
19
3.29.
Takeover Statutes
 
20
3.30.
Disclosure
 
20
 
(i)

 
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS
 
20
4.1.
Authorization
 
20
4.2.
The Shares
 
20
4.3.
Consents and Filings
 
20
4.4.
Noncontravention
 
21
4.5.
No Legal Proceedings
 
21
4.6.
Receipt of Buyer Common Stock for Seller’s Own Account
 
21
4.7.
Accredited Investor
 
21
4.8.
Disclosure of Information
 
21
4.9.
Restricted Securities
 
21
4.10.
Legends
 
21
       
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
 
22
5.1.
Organization and Existence
 
22
5.2.
Authorization
 
22
5.3.
Consents and Filings
 
22
5.4.
Noncontravention
 
22
5.5.
No Legal Proceedings
 
22
5.6.
Valid Issuance of Buyer Common Stock
 
22
5.7.
Brokers
 
23
5.8.
Disclosure
 
23
       
ARTICLE VI
COVENANTS
 
23
6.1.
Conduct of the Business
 
23
6.2.
Access
 
23
6.3.
Government Filings
 
24
6.4.
Further Actions
 
24
6.5.
Tax Returns
 
24
6.6.
No Solicitation of Other Proposals.
 
24
6.7.
Noncompetition and Nonsolicitation.
 
25
6.8.
Defined Benefit Pension Plan
 
26
       
ARTICLE VII
CONDITIONS TO CLOSING
 
26
7.1.
Conditions Precedent to Buyer’s Obligations
 
26
7.2.
Conditions Precedent to each Company’s and Seller’s Obligations
 
27
       
ARTICLE VIII
INDEMNIFICATION OBLIGATIONS
 
28
8.1.
Survival
 
28
8.2.
Sellers’ Indemnification Obligations
 
28
8.3.
Buyer IPSI and QPSI Indemnification Obligations
 
28
8.4.
Notice of Claim
 
29
8.5.
Direct Claims
 
29
8.6.
Third Party Claims
 
29
       
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
 
30
9.1.
Termination
 
30
9.2.
Effect of Termination
 
30
 
(ii)

 
ARTICLE X
MISCELLANEOUS
 
30
10.1.
Expenses; Transfer Taxes
 
30
10.2.
Notices
 
31
10.3.
Severability
 
32
10.4.
Amendments and Waivers
 
32
10.5.
Counterparts
 
33
10.6.
Entire Agreement
 
33
10.7.
No Third Party Beneficiaries
 
33
10.8.
Governing Law
 
33
10.9.
Consent to Jurisdiction; Waiver of Jury Trial
 
33
10.10.
Publicity
 
34
10.11.
Assignment
 
34
10.12.
Construction
 
34
 
(iii)


STOCK PURCHASE AGREEMENT
 
This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of September 24, 2007 by and among FORTRESS INTERNATIONAL GROUP, INC., a Delaware corporation (“ Buyer ”), INNOVATIVE POWER SYSTEMS INC., a Virginia corporation (“ IPSI ”), QUALITY POWER SYSTEMS, INC., a Delaware corporation (“ QPSI ” and with IPSI, each a “ Company ” and together, the “ Companies ”), and the undersigned holders of the outstanding shares of capital stock of each of IPSI and QPSI (each, a “ Seller ” and, collectively, the “ Sellers ”).
 
RECITALS
 
A.   The Sellers own all of the issued and outstanding shares of capital stock of IPSI and QPSI (collectively, the “ Shares ”), with each Seller owning the number of Shares set forth on such Seller’s signature page hereto.
 
B.   Buyer desires to purchase the Shares from the Sellers, and the Sellers desire to sell the Shares to Buyer, in each case on the terms and subject to the conditions contained in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
 
ARTICLE I
DEFINITIONS
 
1.1.    Definitions . As used in this Agreement, the following terms have the following meanings:

Accounting Firm ” has the meaning set forth in Section 2.4(b)(iii) .

Adjusted Cash Consideration ” has the meaning set forth in Section 2.4(c) .

Affiliate ” of any Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

Agreed Allocation ” with respect to any Seller means the percentage set forth on Schedule I attached hereto.
 
Agreement ” has the meaning set forth in the preamble to this Agreement.

Acquisition Proposal ” has the meaning set forth in Section 6.6(a) .

Business ” has the meaning set forth in Section 6.7(b) .
 

 
Business Day ” means any day other than a Saturday or Sunday or any day banks in the State of New York are authorized or required to be closed.
 
Buyer ” has the meaning set forth in the preamble to this Agreement.
 
Buyer Common Stock ” has the meaning set forth in Section 2.1(b)(iii) .
 
Buyer Indemnified Parties ” has the meaning set forth in Section 8.2 .
 
Buyer Parties ” has the meaning set forth in Section 6.7(b) .
 
Cash Consideration ” has the meaning set forth in Section 2.1(b)(i) .
 
Closing ” has the meaning set forth in Section 2.2 .
 
Closing Date ” has the meaning set forth in Section 2.2 .
 
Closing Date Amount ” has the meaning set forth in Section 2.1(c) .
 
Closing Working Capital ” has the meaning set forth in Section 2.4(a) .
 
Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.
 
Company ” and “ Companies ” have the meanings set forth in the preamble to this Agreement.
 
Company Plan ” has the meaning set forth in Section 3.14(a) .
 
Company Representatives ” has the meaning set forth in Section 6.6(a) .
 
Consent ” has the meaning set forth in Section 3.4 .
 
Current Assets ” has the meaning set forth in Section 2.4(d) .
 
Current Liabilities ” has the meaning set forth in Section 2.4(d) .
 
Damages ” means any and all claims, lawsuits, liabilities, losses, damages, costs and expenses, including the reasonable fees and disbursements of counsel (including fees of attorneys and paralegals, whether at the pre-trial, trial, or appellate level, or in arbitration) and all amounts reasonably paid in investigation, defense, or settlement of any of the foregoing.
 
Direct Claim ” has the meaning set forth in Section 8.4 .
 
Direct Claim Counter Notice ” has the meaning set forth in Section 8.5 .
 
Earn-Out Payment ” has the meaning set forth in Section 2.5.
 
Earn-Out Period ” has the meaning set forth in Section 2.5.
 
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Earn-Out Worksheet ” has the meaning set forth in Section 2.5(a) .
 
EBITDA ” has the meaning set forth in Section 2.5(a) .
 
Employment Agreement ” has the meaning set forth in Section 2.3(b)(ii) .
 
Encumbrance ” means any charge, claim, lien, pledge, security interest, voting agreement, option, right of first refusal, easement, servitude, right of way, or other encumbrance or similar restriction.
 
ERISA ” has the meaning set forth in Section 3.14(a) .
 
Filing ” has the meaning set forth in Section 3.4 .
 
Financial Statements ” has the meaning set forth in Section 3.7 .
 
GAAP ” means United States generally accepted accounting principles.
 
Governmental Entity ” means any U.S. or foreign federal, state, provincial or local governmental authority, court, government or self-regulatory organization, commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of any of the foregoing.
 
Indemnifying Party ” has the meaning set forth in Section 8.4 .
 
Intellectual Property ” means all U.S. and foreign intellectual property rights, including patents, inventions, technology, discoveries, processes, know-how, trademarks, service marks, trade names, brand names, domain names, corporate names, logos, copyrights, and copyrightable works (including software and related items), and trade secrets, and all registrations, applications, continuations, continuations-in-part, divisions, provisionals, reissues, re-examinations and similar protections relating thereto.
 
IPSI ” has the meaning set forth in the preamble to this Agreement.
 
IPSI Common Stock ” means the common stock of IPSI, par value $0 per share.
 
Knowledge ” means the actual knowledge, after reasonable inquiry, of the Sellers, and with respect to IPSI, Keith (Wayne) Byrd and Dan Toland, and with respect to QPSI, Keith (Wayne) Byrd, Dan Toland, and Judy Toland, after reasonable investigation by such persons.
 
Law ” means any domestic or foreign, federal, state, provincial or local statute, law, ordinance, rule, administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree or other requirement of any Governmental Entity.
 
Lease ” has the meaning set forth in Section 3.18 .
 
Legal Proceeding ” means any action, claim, lawsuit, arbitration, proceeding or investigation.
 
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Material Adverse Effect ” means a material adverse effect on the business, assets, financial condition, results of operations or prospects of the Companies and the Subsidiaries, taken as a whole, other than events or changes generally occurring in the businesses in which the Companies and the Subsidiaries operate or in the economy in general.
 
Material Contract ” means any contract or agreement required to be set forth on Schedule 3.12(a) .
 
Noncompete Parties ” has the meaning set forth in Section 6.7(a) .
 
Note ” has the meaning set forth in Section 2.1(b)(ii) .
 
Notice of Claim ” has the meaning set forth in Section 8.4 .
 
Notice of Disagreement ” has the meaning set forth Section 2.4(b) .
 
Parties ” means the parties to this Agreement, and “ Party ” means any of the Parties.
 
Permit ” means any permit, licenses, registrations or other authorization.
 
Permitted Encumbrances ” means (i) liens for taxes, assessments and other governmental charges not yet due and payable or, if due, (A) not delinquent or (B) being contested in good faith by appropriate proceedings; (ii) mechanics’, workmen’s, repairmen’s, warehousemen’s, carriers’ or other liens arising or incurred in the ordinary course of business; (iii) liens or title retention arrangements arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (iv) with respect to real property, (A) easements, licenses, covenants, rights-of-way and other similar restrictions, including, without limitation, any other agreements or restrictions which would be shown by an investigation of title to the extent and nature which a prudent buyer of property in the relevant jurisdiction would carry out, (B) any conditions that may be shown by survey, title report or physical inspection (whether or not made) and (C) zoning, building and other similar restrictions, so long as none of (A) or (B) or (C) prevent the use of such real property substantially as currently used by the Companies or any of the Subsidiaries or materially affect the value of any such property.
 
Person ” means any individual, corporation, limited liability company, limited partnership, general partnership, joint venture, trust, association, Governmental Entity or other organization or entity.
 
Purchase Price ” has the meaning set forth in Section 2.1(b) .
 
QPSI ” has the meaning set forth in the preamble to this Agreement.
 
QPSI Common Stock ” means the common stock of QPSI, par value $0 per share.
 
Section 2.5(b) Accountants ” has the meaning set forth in Section 2.5(b) .
 
Section 2.5(b) Notice ” has the meaning set forth in Section 2.5(b) .
 
4

 
Securities Act ” has the meaning set forth in Section 4.7 .
 
Seller ” and “ Sellers ” have the meanings set forth in the preamble to this Agreement.
 
Seller’s Cash Consideration ” with respect to any Seller means the dollar amount of Cash Consideration equal to the product of (x) the aggregate Cash Consideration payable pursuant to Section 2.1(b)(i) multiplied by (y) such Seller’s Agreed Allocation.
 
Seller Indemnified Parties ” has the meaning set forth in Section 8.3.
 
Sellers’ Representative ” has the meaning set forth in Section 2.5(a) .
 
Seller’s Stock Consideration ” with respect to any Seller means the number of shares of Buyer Common Stock equal to the product of (x) the aggregate number of shares of Buyer Common Stock issuable pursuant to Section 2.1(b)(iii) multiplied by (y) such Seller’s Agreed Allocation.
 
Shares ” has the meaning set forth in the Recital A to this Agreement.
 
Statement ” has the meaning set forth in Section 2.4(a) .
 
Subsidiaries ” means the direct and indirect subsidiaries of IPSI and QPSI and “ Subsidiary ” means any of the Subsidiaries.
 
Tax ” or “ Taxes ” means all United States federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, real estate, excise, value added, estimated, stamp, alternative or add-on minimum, environmental, withholding and any other taxes, duties or assessments, together with all interest, penalties and additions imposed with respect to such amounts.
 
Tax Authority ” means any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
 
Tax Return ” means any return, report, information return or other document (including any related or supporting information) required to be filed with any taxing authority with respect to Taxes, including information returns, claims for refunds of Taxes and any amendments or supplements to any of the foregoing.
 
Third Party Claim ” has the meaning set forth in Section 8.4 .
 
Working Capital ” has the meaning set forth in Section 2.4(d) .
 
5

 
ARTICLE II
PURCHASE AND SALE OF THE SHARES; ADJUSTMENT
 
2.1.    Purchase and Sale of the Shares .  
 
(a)    Subject to the terms and conditions hereof, at the Closing, each Seller shall sell, transfer, assign and deliver to Buyer, and Buyer shall purchase from each Seller, legal and beneficial ownership of the Shares held by such Seller, free and clear of Encumbrances of any kind.  
 
(b)    The aggregate purchase price for the Shares (the “ Purchase Price ”) shall consist of the following:
 
(i)    $1,550,000 in cash, subject to adjustment as provided herein (the “ Cash Consideration ”);
 
(ii)    a promissory note in the aggregate original principal amount of $300,000, substantially in the form attached hereto as Exhibit A (the “ Note ”); and
 
(iii)    that number of fully paid, nonassessble shares of common stock of Buyer, par value $0.001 per share (the “ Buyer Common Stock ”) as shall be equal to $150,000, calculated based on the average of the last reported sale prices per share of Buyer Common Stock on the Nasdaq over the 20   consecutive trading days ending on the trading day that is two trading days prior to the Closing Date; and
 
(iv)    the earn out amounts, if any, determined in accordance with the provisions of Section 2.5 in the event IPSI and QPSI achieve certain target revenues.
 
(c)    The Cash Consideration shall be increased by an amount equal to the amount by which the Working Capital (as defined below) set forth on the good faith estimate prepared by Sellers (and reasonably satisfactory to Buyer) and delivered to Buyer at least five Business Days prior to the Closing Date exceeds Three Hundred Thousand Dollars ($300,000.00), and shall be decreased by an amount equal to the amount by which the Working Capital set forth on the good faith estimate prepared by Sellers (and reasonably satisfactory to Buyer) and delivered to Buyer at least five Business Days prior to the Closing Date is less than Three Hundred Thousand Dollars ($300,000.00) (the Cash Consideration as so adjusted shall hereinafter be referred to as the “Closing Date Amount”).
 
(d)    The Purchase Price shall be allocated as follows: 70% of the consideration for the purchase of IPSI and 30% of the consideration for the purchase of QPSI. The Parties agree to file their respective federal, state and local income tax returns based on the above allocation and to indemnify the other against any loss, liability, damage, penalty, interest or expense (including reasonable attorney's fees) incurred by reason of breach thereof.
 
2.2.    Closing . The closing of the purchase and sale of the Shares (the “ Closing ”) will take place on the second Business Day following the satisfaction or waiver of the conditions set forth in Article VII , or at such other date as may be agreed to by the Parties (the date on which the Closing actually occurs being referred to as the “ Closing Date ”).  
 
2.3.    Deliveries and Payments at the Closing .  
 
(a)    At the Closing, Buyer shall deliver or cause to be delivered:
 
(i)    to the applicable Sellers, such Seller’s Cash Consideration by wire transfer of immediately available funds to such account or accounts as may be designated by such Seller in writing no later than two Business Days prior to the Closing, in each case against delivery by such Seller of the certificates evidencing the Shares being sold by such Seller, duly endorsed or accompanied by duly executed stock powers;
 
6

 
(ii)    the Note referred to in Section 2.1(b)(ii) ;
 
(iii)    to the applicable Sellers, certificates for the number of whole shares of Buyer Common Stock representing each Seller’s Stock Consideration;
 
(iv)    to each Company, the officer’s certificate referred to in Section 7.2(c) hereof; and
 
(v)    such other documents as Sellers may reasonably request to demonstrate satisfaction of the conditions and compliance with the covenants set forth in this Agreement.
 
(b)    At Closing, Sellers shall deliver or cause to be delivered to Buyer:
 
(i)    a receipt for the payment of the Seller’s Cash Consideration;
 
(ii)    Employment Agreements, dated as of the Closing Date, executed by Keith (Wayne) Byrd and Dan Toland and substantially in the form of Exhibit B attached hereto (each an “ Employment Agreement ”);
 
(iii)    the officer’s certificate referred to in Section 7.1(c) hereof; and
 
(iv)    such other documents as Buyer may reasonably request to demonstrate satisfaction of the conditions and compliance with the covenants set forth in this Agreement.
 
2.4.    Purchase Price Adjustment .
 
(a)    Within 60 days after the Closing Date, Buyer shall prepare and deliver to the Sellers an audited balance sheet of each Company prepared in accordance with this Agreement, and to the extent not inconsistent, GAAP, and a statement attached thereto (the “ Statement ”), certified by an officer of Buyer, setting forth Working Capital (as defined in Section 2.4(d) ) as of the close of business on the Closing Date (the “ Closing Working Capital ”).
 
(b)    During the 45-day period following each Seller’s receipt of the Statement, the Sellers and their accountants shall be permitted to review the working papers of Buyer relating to the Statement. The Statement shall become final and binding upon the parties on the 45th day following delivery thereof, unless the Sellers’ Representative gives written notice of the Sellers’ disagreement with the Statement (a “ Notice of Disagreement ”) to Buyer prior to such date. Any Notice of Disagreement shall:
 
(i)    specify in reasonable detail the nature of any disagreement so asserted;
 
7

 
(ii)    only include disagreements based on mathematical errors or based on Closing Working Capital not being calculated in accordance with this Section 2.4 ; and
 
(iii)    be accompanied by a certificate of the Seller’s accountants stating that they concur with each of the positions taken by Sellers in the Notice of Disagreement.
 
If a Notice of Disagreement is received by Buyer in a timely manner, then the Statement (as revised in accordance with Clause I or II below) shall become final and binding upon the Sellers and Buyer on the earlier of (I) the date the Sellers’ Representative and Buyer resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (II) the date any disputed matters are finally resolved in writing by the Accounting Firm (as defined below). During the 30-day period following the delivery of a Notice of Disagreement, the Sellers’ Representative and Buyer shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement. During such period Buyer and its accountants shall have access to the working papers of the Seller’s accountants prepared in connection with their certification of the Notice of Disagreement. At the end of such 30-day period, the Sellers and Buyer shall submit to an independent accounting firm that has not had a previous relationship with the Sellers or Buyer (the “ Accounting Firm ”) for arbitration any and all matters that remain in dispute and that were properly included in the Notice of Disagreement, in the form of a written brief. The Accounting Firm shall be Reznick Fedder & Silverman or, if such firm is unable or unwilling to act, such other nationally recognized independent public accounting firm as shall be agreed upon by the parties hereto in writing. The Sellers and Buyer agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the Party against which such determination is to be enforced. The parties shall instruct the Accounting Firm to render its decision as promptly as practicable but in no event later than 60 days after its selection. The cost of any proceeding (including the fees and expenses of the Accounting Firm and reasonable attorney fees and expenses of the parties) pursuant to this Section 2.4 shall be borne by Buyer and the Sellers in inverse proportion as they may prevail on matters resolved by the Accounting Firm, which proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the matters submitted. The fees and disbursements of the Sellers’ accountants incurred in connection with their review of the Statement and certification of any Notice of Disagreement shall be borne by the Sellers, and the fees and disbursements of the accountants of Buyer incurred in connection with their certification of the Statement and review of any Notice of Disagreement shall be borne by Buyer.

(c)    The Cash Consideration shall be increased by the amount by which Closing Working Capital exceeds Three Hundred Thousand Dollars ($300,000.00) and decreased by the amount by which Closing Working Capital is less than $300,000 (the Cash Consideration as so adjusted shall hereinafter be referred to as the “ Adjusted Cash Consideration ”). If the Closing Date Amount (as defined in Section 2.1(c) ) is more than the Adjusted Cash Consideration, Buyer shall, upon the Statement becoming final and binding on the parties, be entitled to set-off payment to Sellers from the Note to the extent of such difference, and to the extent such difference exceeds the principal amount of the Note, each Seller shall remit, within five Business Days, such Seller’s Agreed Allocation of such difference together with interest thereon at a rate equal to the rate of interest from time to time announced publicly by Citibank, N.A., as its prime rate, calculated on the basis of the actual number of days elapsed divided by 365, from the Closing Date to the date of payment. In the event that any amount is due hereunder on any date when an Earn-Out Payment would be payable, Buyer shall have the right to set-off payment to Sellers with respect to such Earn-Out Payment to the extent of any such amount that remains payable. If the Closing Date Amount (as defined in Section 2.1(c) ) is less than the Adjusted Cash Consideration, Buyer shall, upon the Statement becoming final and binding on the parties, remit, within five Business Days, such difference together with interest thereon at a rate equal to the rate of interest from time to time announced publicly by Citibank, N.A., as its prime rate, calculated on the basis of the actual number of days elapsed divided by 365, from the Closing Date to the date of payment.
 
8


(d)    The term “ Working Capital ” means Current Assets (as defined below) minus Current Liabilities (as defined below). The terms “ Current Assets ” and “ Current Liabilities ” mean the consolidated current assets and consolidated current liabilities, respectively, of each Company calculated in accordance with generally accepted accounting principles (“ GAAP ”) applied consistently throughout the periods involved. Without limiting the generality of the foregoing, Current Liabilities will include all accrued tax liabilities through the Closing Date.

2.5.    Earn-Out Payments .
 
(a)    Delivery of Financial Information . Within 90 days after the last Business Day of each Earn-Out Period (as defined below), Buyer shall deliver to each Seller a work sheet (the “ Earn-Out Worksheet ”) prepared by Buyer’s independent public accountants or Buyer’s Chief Financial Officer (or his designee), setting forth Buyer’s determination of earnings of each Company before interest, taxes, depreciation and amortization (“ EBITDA ”) and cash equal to Buyer’s determination of such Seller’s Agreed Allocation of the Earn-Out Payments for said Earn-Out Period. Subject to execution of a Non-Disclosure Agreement in customary form, Sellers shall have the right, at Sellers’ expense, once during each Earn-Out Period, at reasonable times and upon reasonable notice, to examine, and to have one representative, who shall initially be Wilhelm Monroe & Gallagher (the “ Sellers’ Representative ”) examine, the books and records of the Companies to determine whether the calculation and payment of the Earn-Out Payment are being conducted in accordance with the provisions of this Agreement.
 
(b)    Disputes Regarding Earn-Out Worksheet . In the event that Sellers dispute any amounts reflected on any Earn-Out Worksheet, Sellers’ Representative shall notify Buyer in writing (such notice, a “ Section 2.5(b) Notice ”), within 45 days after the delivery of the Earn-Out Worksheet, setting forth the amount, nature and basis of the dispute. Within the following 10 days, the parties shall use their reasonable best efforts to resolve in good faith such dispute. Upon their failure to do so, Sellers’ Representative and Buyer shall within 10 days from the end of such 10 day period jointly engage an Independent Accountant (the “ Section 2.5(b) Accountants ”). The Section 2.5(b) Accountants shall be engaged jointly by Buyer and Sellers’ Representative to decide the dispute with respect to the Earn-Out Worksheet within 30 days from its appointment; such decision to be communicated to both parties in writing. The decision of the Section 2.5(b) Accountants shall be final and binding upon the parties and accordingly a declaratory judgment by a court of competent jurisdiction may be entered in accordance therewith. The fees and expenses of such accounting firm shall be borne by one-half by Buyer and one-half by Sellers’ Representative.
 
9

 
(c)    Calculation of 2007 Earn-Out Payment . The Earn-Out Payment (the “ 2007 Earn-Out Payment ”) for the period ending on December 31, 2007 (the “ 2007 Earn-Out Period ”) shall be determined as follows:
 
(i)    to the extent EBITDA is less than or equal to $600,000, the 2007 Earn-Out Payment shall equal $0.00,
 
(ii)    to the extent EBITDA is greater than $600,000, the 2007 Earn-Out Payment shall equal $400,000 payable as follows: $200,000 in cash and a promissory note in the aggregate original principal amount of $200,000 substantially in the same form of the Note.
 
(d)    Calculation of 2008 and 2009 Earn-Out Payments . The Earn-Out Payments for each twelve (12) month period ending on December 31, 2008 and December 31 2009 (each such twelve-month period individually, the “ 2008 Earn-Out Period ” or “ 2009 Earn-Out Period, ” as applicable) shall be determined as follows with respect to any such Earn-Out Period:
 
(i)    to the extent EBITDA is less than or equal to $450,000, the Earn-Out Payment for each of the 2008 Earn-Out Period and 2009 Earn-Out Period, as applicable, shall equal $0.00,
 
(ii)    to the extent EBITDA is greater than $450,000, the Earn-Out Payment for each of the 2008 Earn-Out Period and 2009 Earn-Out Period, as applicable, shall equal $150,000 plus the sum of (x) $1 for every dollar of EBITDA between $450,000 and $600,000 and (y) 20% of every dollar of EBITDA above $600,000.
 
(e)    Calculation of 2010 Earn-Out Payment . In the event the 2007 Earn-Out Payment calculated in accordance with Section 2.5(c) above equals $0.00, the Earn-Out Payment (the “ 2010 Earn-Out Payment ”) for the twelve (12) month period ending on December 31, 2010 (the “ 2010 Earn-Out Period ”) shall be determined as follows:
 
(i)    to the extent EBITDA is less than or equal to $450,000, the 2010 Earn-Out Payment shall equal $0.00,
 
(ii)    to the extent EBITDA is greater than $450,000, the 2010 Earn-Out Payment shall equal $150,000 plus the sum of (x) $1 for every dollar of EBITDA between $450,000 and $600,000 and (y) 20% of every dollar of EBITDA above $600,000.
 
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In the event the 2007 Earn-Out Payment calculated in accordance with Section 2.5(c) above is greater than $0.00, there shall not be any Earn-Out Payment for the twelve (12) month period ending on December 31, 2010.
 
(f)    Payment . Subject to the provisions of Section 2.5(g) , Buyer shall deliver any Earn-Out Payment to Sellers based on each Seller’s Agreed Allocation determined in accordance with Section 2.4(c) within five Business Days of the Accountants final and binding decision.
 
(g)    Right of Set-Off . Buyer’s obligation to make the Earn-Out Payments is subject to reduction or non-payment due to (i) any claim for Damages that a Buyer Indemnified Party may have against Sellers in accordance with Article VIII and (ii) any decrease in the Cash Consideration pursuant to Section 2.4(c) in excess of the Note balances available to be set-off. In the event that Buyer determines to exercise its right of set-off pursuant to this Section 2.5 , Buyer shall comply with the provisions of this Section 2.5 in determining the Earn-Out Payment and shall pay the amount, if any, by which the Earn-Out Payment exceeds the amount set-off by Buyer.  
 
(h)   Earn-Out Term . During each of the Earn-Out Periods, Buyer shall operate IPSI and QPSI in the ordinary course, reasonably consistent with past practices of Sellers, and not change the operations of the businesses in any material way that would have a Material Adverse Effect on the Earn-Out Payments to Sellers hereunder, provided, that Sellers acknowledge that Buyer may combine or convert the Companies into divisions of Buyer or an Affiliate of Buyer.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES
 
The Sellers and each Company jointly and severally represent and warrant to Buyer as follows:
 
3.1.    Organization and Standing . IPSI is a corporation, duly organized, validly existing and in good standing under the Laws of the State of Virginia and has all requisite power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. QPSI is a corporation, duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. Each Subsidiary is duly organized, validly existing and in good standing under the Laws of its jurisdiction of formation and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. IPSI, QPSI and each Subsidiary is duly licensed or qualified to do business and is in good standing in each jurisdiction in which such qualification or licensing is necessary because of the property and assets owned, leased or operated by it or because of the nature of its business as now being conducted, except for any failure to so qualify or be licensed or in good standing that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Schedule 3.1 lists the jurisdictions in which IPSI, QPSI and each Subsidiary is qualified to conduct business as a foreign corporation and the jurisdictions of formation and foreign qualification for each Subsidiary. IPSI and QPSI have made available to Buyer true, complete and correct copies of the constitutive documents of each Company and of each Subsidiary, in each case as amended to the date of this Agreement, and have made available to Buyer each such entity’s minute books and stock records. Neither IPSI, QPSI nor any Subsidiary is in violation of any provision of its respective certificate or articles of incorporation, by-laws or similar constitutive document.  
 
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3.2.    Authorization . The execution, delivery and performance by each of IPSI and QPSI of this Agreement and the consummation by each of the transactions contemplated hereby and thereby are within IPSI’s and QPSI’s power and have been duly authorized by all necessary action on the part of IPSI and QPSI. This Agreement constitutes (assuming the due execution and delivery by each of the other parties hereto) the legal, valid and binding obligation of IPSI and QPSI enforceable against IPSI and QPSI in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at Law).
 
3.3.    Noncontravention . Except as set forth in Schedule 3.3 , the execution, delivery and performance of this Agreement and the transactions contemplated hereby by IPSI and QPSI do not, and the consummation by IPSI and QPSI of the transactions contemplated hereby will not, (i) contravene or violate any material provision of the organizational documents of IPSI, QPSI or any Subsidiary or (ii) contravene or violate any material provision of, or result in the termination or acceleration of, or entitle any party to accelerate any obligation or indebtedness under, or result in the imposition of any Encumbrance (other than a Permitted Encumbrance) on IPSI, QPSI or any Subsidiary pursuant to any mortgage, lease, franchise, license, permit, agreement, instrument, Law, order, arbitration award, judgment or decree to which IPSI, QPSI or any Subsidiary is a party or by which IPSI, QPSI or any Subsidiary is bound.
 
3.4.    Consents and Filings . No consent, approval, license, permit, order or authorization (each, a “ Consent ”) of, or registration, declaration or filing (each, a “ Filing ”) with, any Governmental Entity is required for or in connection with the execution and delivery of this Agreement by IPSI or QPSI or the consummation by each of the transactions contemplated hereby.
 
3.5.    Capital Stock . The authorized capital stock of IPSI consists of 5,000 shares of IPSI Common Stock, of which 300 shares of IPSI Common Stock are outstanding as of the date hereof. Sellers own 100% of the issued and outstanding shares of IPSI Common Stock. All of the issued and outstanding shares of IPSI Common Stock are duly authorized, validly issued, fully paid and nonassessable. The authorized capital stock of QPSI consists of 1,000 shares of QPSI Common Stock, of which 900 shares of QPSI Common Stock are outstanding as of the date hereof. Sellers own 100% of the issued and outstanding shares of QPSI Common Stock. All of the issued and outstanding shares of QPSI Common Stock are duly authorized, validly issued, fully paid and nonassessable. None of the Shares were issued in violation of (i) any purchase option, right of first refusal, preemptive, subscription or similar rights under any provision of applicable Law, (ii) the organizational documents of IPSI or QPSI, (iii) any agreement to which IPSI or QPSI is subject or by which it is bound, or (iv) the Securities Act of 1933 or any state blue sky laws. There are no outstanding warrants, options, rights, agreements, convertible or exchangeable securities or other commitments pursuant to which IPSI or QPSI is or may become obligated to issue, sell, purchase, return or redeem any shares of capital stock of IPSI or QPSI. There are no voting trusts or other similar agreements with respect to the voting of the IPSI Common Stock or the QPSI Common Stock.
 
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3.6.    Subsidiaries . Schedule 3.6 sets forth a true and correct list of all of the Subsidiaries, indicating for each Subsidiary (i) the authorized capital stock or other ownership interests of such Subsidiary, (ii) the number and kind of shares of capital stock or units of ownership interest of such Subsidiary that are issued and outstanding, (iii) the owner or owners of all of the issued and outstanding capital stock or other ownership interests of such Subsidiary. Except for the Subsidiaries, neither IPSI or QPSI owns, directly or indirectly, any shares of or other ownership interest in any other Person.
 
3.7.    Financial Statements . Attached hereto as Schedule 3.7 are true and correct copies of the unaudited consolidated balance sheets and income statements as of July 31, 2007 (collectively “ Financial Statements ”). The Financial Statements have been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto) during the periods involved and fairly present in all material respects the consolidated financial position of IPSI and QPSI as of the dates and for the periods presented therein.
 
3.8.    Absence of Undisclosed Liabilities . Except as set forth on Schedule 3.8 , neither IPSI, QPSI nor any Subsidiary has any material liabilities except liabilities (i) reflected on, accrued or reserved against in the Financial Statements or the notes thereto or (ii) incurred in the ordinary course of business since July 31, 2007.
 
3.9.    Absence of Certain Changes . Since July 31, 2007, IPSI, QPSI and the Subsidiaries have operated their respective businesses in the ordinary course, consistent with past practice and there has not been any event or occurrence that has had or could reasonably be expected to have a Material Adverse Effect. Without limiting the scope of the foregoing, except as set forth on Schedule 3.9 :
 
(a)    Neither IPSI, QPSI nor any Subsidiary has sold, transferred, disposed of, or agreed to sell, transfer or dispose of, any material assets other than in the ordinary course of business;
 
(b)    Neither IPSI, QPSI nor any Subsidiary has acquired any material assets except in the ordinary course of business, nor acquired or merged with any other business;
 
(c)    No material tangible asset or property owned, leased or licensed by IPSI, QPSI or any Subsidiary has been destroyed, damaged or otherwise lost (whether or not covered by insurance);
 
(d)    Neither IPSI, QPSI nor any Subsidiary has increased the salary or other compensation payable or to become payable to any of its respective officers, directors, partners or employees or obligated itself to pay any bonus or other additional salary or compensation (including, without limitation, through any deferred compensation, severance, retirement, change of control, retention or similar agreement or arrangement) to any such person other than in the ordinary course of business and consistent with past practice;
 
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(e)    Neither IPSI, QPSI nor any Subsidiary has made any material change in any pricing, marketing, purchasing, tax or accounting practice, or made any material tax election or settled or compromised any material income tax liability;
 
(f)    Neither IPSI nor QPSI has made any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of its capital stock, or any repurchase, redemption or other acquisition of any outstanding shares of its capital stock or other securities;
 
(g)    Neither IPSI, QPSI nor any Subsidiary has made any material loan, advance or capital contribution to or investment in any Person;
 
(h)    Neither IPSI, QPSI nor any Subsidiary has amended, rescinded or terminated (and not renewed) any existing Material Contract or arrangement and no such Material Contract or arrangement has expired or terminated (and not been renewed) by its terms;
 
(i)    Neither IPSI, QPSI nor any Subsidiary has settled or compromised any material Legal Proceeding; and
 
(j)    Neither IPSI, QPSI nor any Subsidiary has entered into any commitment (contingent or otherwise) to do any of the foregoing.
 
3.10.    Litigation . Except as set forth in Schedule 3.10 , (i) there are no Legal Proceedings by or before any Governmental Entity or arbitration tribunal pending, or to the Knowledge of IPSI or QPSI, threatened, against IPSI, QPSI or any Subsidiary, and (ii) no injunction, writ, temporary restraining order, decree or any order of any nature has been issued by any court or other Governmental Entity relating to IPSI, QPSI or any Subsidiary or seeking or purporting to enjoin or restrain the execution, delivery and performance by IPSI or QPSI of this Agreement or the consummation of the transactions contemplated hereby.
 
3.11.    Compliance with Laws .  
 
(a)    To the best of Sellers’ Knowledge, IPSI, QPSI and each Subsidiary conducts its business in material compliance with all applicable Laws.
 
(b)    IPSI, QPSI and each Subsidiary have all material Permits necessary for the conduct of their respective businesses as presently conducted, all of such Permits are valid and in full force and effect and the Companies and the Subsidiaries, as applicable, are in compliance with the terms of all of such Permits. Except as set forth in Schedule 3.11(b) , the consummation of the transactions contemplated by this Agreement will not result in the non-renewal, revocation or termination of any Permit.  
 
3.12.    Material Contracts .  
 
(a)    Set forth in Schedule 3.12(a) is a list of the following agreements in effect on the date of this Agreement:
 
(i)    each commitment or agreement (other than purchase orders and similar agreements entered into in the ordinary course of business) for the purchase of any materials, supplies, goods, products, services or equipment or licensing of rights that requires an annual expenditure by IPSI, QPSI and any Subsidiary of more than $100,000 that cannot be terminated on not more than ninety calendar days’ notice without payment of any penalty;
 
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(ii)    each personal property under which IPSI, QPSI or any Subsidiary is a lessee that requires annual payments of more than $100,000 that cannot be terminated on not more than ninety calendar days’ notice without payment of any penalty;
 
(iii)    any partnership, joint venture or other similar agreement or arrangement to which IPSI, QPSI or any Subsidiary is a party;
 
(iv)    any agreement relating to the merger or consolidation with, or acquisition or disposition of the securities or all or substantially all of the business or assets of, any other Person;
 
(v)    any agreement relating to indebtedness for

 
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