Execution Copy

 

STOCK PURCHASE AGREEMENT

 

by and among

 

VERSAR, INC.,

 

J.M. WALLER ASSOCIATES, INC.

 

and

 

THE SHAREHOLDERS NAMED THEREIN

 

DATED JUNE 30, 2014

 

 

 

  

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement is made and entered into as of June 30, 2014, by
and among Versar, Inc., a Delaware corporation (the “Purchaser”), J.M. Waller
Associates, Inc., a Virginia corporation (the “Company”), Charles W. Scott, a
resident of the State of Texas (“Scott”), James W. Emery, Jr., a resident of the
Commonwealth of Virginia (“Emery”), and Wendell A. Newton, a resident of the
State of Georgia (“Newton”; each of Scott, Emery and Newton is sometimes
referred to herein as a “Shareholder” and together as the “Shareholders”). For
purposes of this Agreement, the terms contained in Exhibit A shall have the
respective meanings set forth therein.

 

RECITALS

 

Whereas, the Shareholders own all of the issued and outstanding shares (the
“Shares”) of the Company’s common stock, no par value per share (the “Company
Common Stock”) as follows:

 

       Ownership  Shareholder  Shares   Interest  Scott   6,180    63.06% Emery 
 2,640    26.94% Newton   980    10.00%             Total   9,800    100.00%

 

Whereas, upon the terms and conditions set forth herein, the Shareholders
propose to sell to the Purchaser, and the Purchaser proposes to purchase from
the Shareholders, all of the Shares in exchange for the consideration set forth
herein;

 

Now, Therefore, in consideration of the respective covenants, agreements and
representations and warranties set forth herein, the parties to this Agreement,
intending to be legally bound, agree as follows:

 

ARTICLE I
DESCRIPTION OF TRANSACTION

 

Section 1.1.          Agreement to Purchase and Sell.   Subject to the terms and
conditions hereof, at the Closing, the Shareholders shall sell, assign, transfer
and deliver to the Purchaser, and the Purchaser shall purchase and acquire from
the Shareholders, all right, title and interest in and to the Shares, free and
clear of all Encumbrances.

 

Section 1.2.          Purchase Price.   Subject to adjustment pursuant to
Section 1.4, Purchaser shall pay the Shareholders, pro rata in accordance with
their respective ownership interests in the Company as of the Closing, up to
$13,000,000 in the forms of consideration set forth in Section 1.3 below (the
“Purchase Price”).

 

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Section 1.3.          Payment of Purchase Price.

 

(a)          On the Closing Date, the Purchaser shall:

 

(i)          pay or cause to be paid to the Shareholders, pro rata in accordance
with each Shareholder’s ownership interest in the Company as of the Closing,
cash in an amount equal to $7,000,000 (the “Closing Cash”), of which $750,000
will be retained by the Purchaser (the “Holdback Amount”) to secure any payment
obligations of the Shareholders for the adjustment to the Purchase Price, if
any, set forth in Section 1.4 below; and

 

(ii)         issue promissory notes to the Shareholders, pro rata in accordance
with each Shareholder’s ownership interest in the Company, with an aggregate
principal amount of $6,000,000, maturity dates of January 1, 2019, interest
accruing at five percent (5%) per year on the unpaid balance, level quarterly
payments of principal and interest based on a four and one-half year
amortization schedule, and otherwise in the form of the promissory note set
forth as Exhibit B hereto (each a “Closing Note” and together, the “Closing
Notes”).

 

(b)          All payments required under this Section 1.3 or any other provision
of this Agreement, if payable to the Shareholders in cash, shall be made by wire
transfer of immediately available funds to the bank accounts listed for each
Shareholder on Exhibit C or as otherwise designated in writing by the
Shareholders’ Representative.

 

Section 1.4.          Adjustment of Purchase Price.

 

(a)          Within ninety (90) calendar days following the Closing Date, the
Purchaser shall prepare and deliver to the Shareholders’ Representative the Net
Working Capital Schedule and its calculation of the Net Working Capital Deficit
or Net Working Capital Surplus, if any, based thereon. The Net Working Capital
Schedule will include, and be based on, an audited balance sheet for the Company
as of the Closing Date prepared in accordance with GAAP, as if it were prepared
by the Company in accordance with the Company’s past practices consistently
applied (so long as such practices are in accordance with GAAP), as of a fiscal
year end, and otherwise in accordance with the policies and procedures set forth
on Exhibit D.

 

(b)          The Shareholders’ Representative shall have thirty (30) calendar
days following receipt of the Net Working Capital Schedule delivered pursuant to
Section 1.4(a) during which to notify the Purchaser of any dispute of any item
contained therein, which notice shall set forth in detail the basis for such
dispute. The Purchaser and the Shareholders’ Representative shall cooperate in
good faith to resolve any such dispute as promptly as possible. Upon such
resolution, the Final Net Working Capital Schedule shall be prepared in
accordance with the agreement of the Purchaser and the Shareholders’
Representative and the calculation of the Net Working Capital Deficit or the Net
Working Capital Surplus, if any, based thereon shall be final and binding on the
parties. In the event the Shareholders’ Representative does not notify the
Purchaser of any such dispute within such thirty (30)-day period or notifies the
Purchaser within such period that it does not dispute any item contained
therein, the Net Working Capital Schedule delivered pursuant to Section 1.4(a)
shall constitute the Final Net Working Capital Schedule and the Purchaser’s
calculation of the Net Working Capital Deficit or Net Working Capital Surplus,
if any, based thereon shall be final and binding on the parties.

 

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(c)           If the Purchaser and the Shareholders’ Representative are unable
to resolve any dispute regarding the Net Working Capital Schedule delivered
pursuant to Section 1.4(a) within thirty (30) calendar days following the
Purchaser’s receipt of notice of such dispute, such dispute shall be submitted
to, and all issues having a bearing on such dispute shall be resolved by Ernst &
Young LLP or McGladrey LLP, as jointly selected by the Purchaser and
Shareholders’ Representative (the “Accounting Referee”); provided, that, the
Accounting Referee shall be Ernst & Young LLP if the parties cannot agree on a
selection. In resolving any such dispute, the Accounting Referee shall consider
only those items or amounts in the Net Working Capital Schedule as to which the
Shareholders’ Representative has disagreed. The Accounting Referee’s
determination of the Net Working Capital Schedule and the Net Working Capital
Deficit or Net Working Capital Surplus, if any, based thereon shall be final and
binding on the parties. The Accounting Referee shall use commercially reasonable
efforts to complete its work within thirty (30) calendar days following its
engagement. The Shareholders, on the one hand, shall pay one-half (1/2) of all
fees and expenses of the Accounting Referee, and the Purchaser, on the other
hand, shall pay one-half (1/2) of all fees and expenses of the Accounting
Referee.

 

(d)           Within ten (10) calendar days following the determination of the
Final Net Working Capital Schedule:

 

(i)          if there is a Net Working Capital Deficit that is $750,000 or less,
the Purchaser shall satisfy such amount by retaining funds from the Holdback
Amount and distributing the balance of the Holdback Amount, if any, together
with interest thereon computed at the rate of five percent (5%) per annum,
prorated from the Closing Date, to the Shareholders pro rata in accordance with
each Shareholder’s ownership interest in the Company as of the Closing;

 

(ii)          if there is a Net Working Capital Deficit that exceeds $750,000
but is less than $1,000,000, the Purchaser shall satisfy such amount by
retaining the entire Holdback Amount, providing a credit to the Shareholders the
(“MB Credit”) for the amount of the shortfall, but not to exceed $250,000, and
attempting to recoup such MB Credit (at its risk) from the payments received, if
any, after the Closing Date from the prime contractor listed on Section 2.9 that
would otherwise be payable to the Shareholders, pro rata in accordance with
their respective ownership interests in the Company as of the Closing, pursuant
to Section 1.3(b);

 

(iii)         if there is a Net Working Capital Deficit that exceeds $1,000,000,
the Purchaser shall satisfy such amount by (i) retaining the entire Holdback
Amount, (ii) providing the MB Credit for $250,000 and attempting to recoup such
MB Credit (at its risk) from the payments received, if any, after the Closing
Date from the prime contractor listed on Section 2.9 that would otherwise be
payable to the Shareholders, pro rata in accordance with their respective
ownership interests in the Company as of the Closing, pursuant to Section 1.3(b)
and (iii) reducing the principal amount of the Closing Notes, pro rata in
accordance with each Shareholder’s ownership interest in the Company as of the
Closing, by an amount equal to the difference between (x) the Net Working
Capital Deficit minus (y) $1,000,000; and

 

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(iv)        if there is a Net Working Capital Surplus, the Purchaser shall pay
to the Shareholders, pro rata in accordance with each Shareholder’s ownership
interest in the Company as of the Closing, an amount equal to the Net Working
Capital Surplus, and deliver the Holdback Amount, together with interest thereon
computed at the rate of five percent (5%) per annum, prorated from the Closing
Date, to the Shareholders, pro rata in accordance with each Shareholder’s
ownership interest in the Company as of the Closing.

 

ARTICLE II
Representations and Warranties of the Company and the ShareholderS

 

The Company and the Shareholders hereby represent and warrant to the Purchaser,
as of the date hereof and as of the Closing Date, as set forth below.

 

Section 2.1.          Organization; Standing and Power; Subsidiaries.

 

(a)          The Company is a corporation duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation, 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, and
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction listed in Section 2.1(a) of the Shareholder
Disclosure Schedule, which jurisdictions constitute as of the date hereof the
only jurisdictions in which the character of the properties it owns, operates or
leases or the nature of its activities makes such qualification necessary or
advisable.

 

(b)          Except as set forth in Section 2.1(b)(i) of the Shareholder
Disclosure Schedule, the Company has no Subsidiaries. Except as set forth in
Section 2.1(b)(ii) of the Shareholder Disclosure Schedule, the Company does not
own, nor has it owned in the past five (5) years, beneficially or otherwise, any
shares or other securities of, or any direct or indirect equity or other
financial interest in, any Entity (other than entities that had no operations or
assets at any time). Except as set forth in Section 2.1(b)(iii) of the
Shareholder Disclosure Schedule, the Company has not agreed and is not obligated
to make any future investment in or capital contribution to any Entity. Neither
the Company nor the Shareholder has ever approved, or commenced any proceeding
or made any election contemplating, the dissolution or liquidation of the
business or affairs of the Company.

 

Section 2.2.          Articles of Incorporation and Bylaws; Records.   The
Company has delivered to the Purchaser true, correct and complete copies of its
(a) articles of incorporation and bylaws, including all amendments thereto,
(b) stock records and (c) the minutes and other records of the meetings and
other proceedings (including any actions taken by written consent or otherwise
without a meeting) of the shareholders of the Company, the board of directors of
the Company and all committees of the board of directors of the Company (the
items described in (a), (b) and (c) above, collectively, the “Company
Constituent Documents”). The books of account, stock records, minute books and
other records of the Company are accurate and complete in all material respects,
and have been maintained in accordance with all applicable Laws and prudent
business practices.

 

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Section 2.3.          Authority; Binding Nature of Agreement.    The Company has
the absolute and unrestricted right, power and authority to enter into and
perform its obligations under this Agreement and any Shareholder Related
Agreement to which it is a party, and the execution, delivery and performance by
the Company of this Agreement and any Shareholder Related Agreement to which it
is a party have been duly authorized by all necessary action on the part of the
Company. Each Shareholder has the absolute and unrestricted, right, power,
authority and capacity to enter into and perform such Shareholder’s obligations
under this Agreement and any Shareholder Related Agreement to which such
Shareholder is a party. This Agreement constitutes the legal, valid and binding
obligation of the Company and each Shareholder, enforceable against the Company
and each Shareholder in accordance with its terms, subject to (a) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies (the “Bankruptcy and Equity Exception”). Upon the
execution and delivery by or on behalf of the Company and/or each Shareholder of
each Shareholder Related Agreement to which it/he is a party, such Shareholder
Related Agreement will constitute the legal, valid and binding obligation of the
Company or the Shareholder, as applicable, enforceable against the Company or
the Shareholder, as applicable, in accordance with its terms, subject to the
Bankruptcy and Equity Exception.

 

Section 2.4.          Absence of Restrictions and Conflicts; Required
Consents.    Except as set forth in Section 2.4 of the Shareholder Disclosure
Schedule, neither the execution, delivery or performance by the Company or any
Shareholder of this Agreement or any of the Shareholder Related Agreements, nor
the consummation of the transactions contemplated by this Agreement or any of
the Shareholder Related Agreements, will directly or indirectly (with or without
the giving of notice or the lapse of time or both):

 

(a)          contravene, conflict with or result in a violation of any provision
of any Company Constituent Document;

 

(b)          contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or any of the Shareholder Related Agreements or
to exercise any remedy or obtain any relief under, any Law or any order, writ,
injunction, judgment or decree to which the Company or any Shareholder, or any
of the assets owned, used or controlled by the Company, are subject;

 

(c)          contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the business of the
Company or to any of the assets owned, used or controlled by the Company;

 

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(d)          contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Company Contract, or give any
Person the right to (i) declare a default or exercise any remedy under any such
Company Contract, or (ii) modify, terminate, or accelerate any right, liability
or obligation of the Company under any such Company Contract, or charge any fee,
penalty or similar payment to the Company under any such Company Contract; or

 

(e)          result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company.

 

Except as set forth in Section 2.4 of the Shareholder Disclosure Schedule, no
filing with, notice to or consent from any Person is required in connection with
(i) the execution, delivery or performance by the Company or any Shareholder of
this Agreement or any of the Shareholder Related Agreements, or (ii) the
consummation of any of the other transactions contemplated by this Agreement or
any of the Shareholder Related Agreements.

 

Section 2.5.          Capitalization.

 

(a)          The authorized capital stock of the Company consists of 9,800
shares of Company Common Stock, of which 9,800 shares have been issued and are
outstanding. All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued, and are fully paid and non-assessable and
are owned by the Shareholders. Each Shareholder has good and valid title to, and
record and beneficial ownership of, the number of shares of Company Common Stock
set forth next to the Shareholder’s name in Section 2.5(a) of the Shareholder
Disclosure Schedule, and such Shares are free and clear of all Encumbrances.
Other than the Shares listed in Section 2.5(a) of the Shareholder Disclosure
Schedule, none of the Shareholders owns any shares of capital stock or other
equity security of the Company or any option, warrant, right, call, commitment
or right of any kind to have any such shares of capital stock or equity security
issued. All of the outstanding Shares of Company Common Stock have been issued
and granted in compliance with (i) all applicable securities laws and other
applicable Laws, and (ii) all requirements set forth in the Company Constituent
Documents and applicable Contracts.

 

(b)          The Company has no (i) issued or outstanding equity securities of
any kind other than Company Common Stock, (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire any
shares of capital stock or other securities of the Company, (iii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of capital stock or other securities of the Company,
(iv) Contract under which the Company is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities of the
Company, or (v) condition or circumstance that may give rise to or provide a
basis for the assertion of a claim by any Person to the effect that such Person
is entitled to acquire or receive any shares of capital stock or other
securities of the Company. The Company has not issued any debt securities which
grant the holder thereof any right to vote on, or veto, any actions by the
Company.

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(c)          The Company is not a party to or bound by any, and to the Knowledge
of the Company, there are no, agreements or understandings with respect to the
voting (including voting trusts and proxies) or sale or transfer (including
agreements imposing transfer restrictions) of any shares of capital stock or
other equity interests of the Company.

 

Section 2.6.          Company Financial Statements; Undisclosed Liabilities.

 

(a)          Section 2.6(a) of the Shareholder Disclosure Schedule includes
true, correct and complete copies of the following financial statements and
notes thereto (collectively, the “Company Financial Statements”):

 

(i)          the audited balance sheet of the Company as of the fiscal year
ended December 31, 2013 (the “FYE 2013 Balance Sheet”), and the statements of
income and cash flow for the fiscal year ended December 31, 2013, including
footnotes and other presentation items; and

 

(ii)         the internally prepared balance sheet of the Company as of the
five-month period ended May 31, 2014 (the “Interim Balance Sheet”) and the
related statements of income and cash flow for the five-month period ended May
31, 2014.

 

(b)          Each Company Financial Statement: (i) is complete in all material
respects and has been prepared (A) in conformity with the books and records of
the Company and (B) consistent with GAAP applied on a consistent basis
throughout the periods covered thereby (except as may be indicated in the notes
to such Company Financial Statement); and (ii) fairly presents, in all material
respects, the financial position of the Company as of such dates and the results
of operations and cash flows of the Company for the periods then ended. No
financial statement of any Person is required by GAAP to be included in the
Company Financial Statements.

 

(c)          The books and records of the Company (i) reflect all items of
income and expense and all assets and liabilities required to be reflected in
the Company Financial Statements consistent with GAAP and (ii) are in all
material respects complete and correct. The Company maintains proper and
adequate internal accounting controls (including, but not limited to, procedures
encompassing cost accounting, estimating, purchasing, proposal and billing) that
are in compliance with all requirements of all of the Government Contracts that
are applicable to the Company and of applicable government laws and regulations
and which provide commercially reasonable assurance that (i) transactions are
executed in accordance with management’s authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and (iii) accounts, notes and other receivables and
inventory are recorded accurately.

 

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(d)           There are no liabilities or obligations of the Company of any kind
whatsoever (whether absolute, accrued, contingent or determined, and whether
matured or non-matured), except such liabilities or obligations (i) that are
fully reflected or provided for in the FYE 2013 Balance Sheet or the Interim
Balance Sheet or the notes thereto, (ii) that have arisen in the ordinary course
of business, consistent with past practice, since the date of the Interim
Balance Sheet and of a type reflected or provided for in the Interim Balance
Sheet or (iii) that have not resulted in and would not, individually or in the
aggregate be expected to result in, a loss to the Company in excess of $50,000.
Company is not a guarantor nor is it otherwise liable for any obligation
(including indebtedness) of any other Person. Except as set forth in Section
2.6(d) of the Shareholder Disclosure Schedule, no current or former shareholder
of the Company has any claim against the Company (other than a claim for
compensation due in the ordinary course of business).

 

(e)           The Company has not entered into any off balance sheet financial
arrangements, including any transaction involving a hedge or derivative
financial instrument.

 

(f)            Except as set forth in Section 2.6(f) of the Shareholder
Disclosure Schedule, the Company has no Closing Date Indebtedness.

 

Section 2.7.          Absence of Changes.   Except as set forth in Section 2.7
of the Shareholder Disclosure Schedule, since the date of the FYE 2013 Balance
Sheet:

 

(a)           no Material Adverse Effect has occurred and, to the Knowledge of
the Company, no event, occurrence, development or state of circumstances or
facts has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect;

 

(b)           the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices, other than entering into this Agreement
and the agreements and transactions contemplated hereby;

 

(c)           the Company has not taken or authorized the taking of any of the
following:

 

(i)          formed any subsidiary or acquired any equity interest or other
interest in any other Entity;

 

(ii)         made any capital expenditure outside the ordinary course of
business or made any single capital expenditure in excess of $25,000 or capital
expenditures exceeding $50,000 in the aggregate;

 

(iii)        except in the ordinary course of business and consistent with past
practice, entered into or become bound by, or permitted any of the assets owned
or used by it, other than assets that would not be material, individually or in
the aggregate, to the Company, to become bound by, any Company Contract, or
amended or terminated, or waived any right under any Company Contract;

 

(iv)        acquired, leased or licensed any right or other asset from any other
Person or sold or otherwise disposed of, leased, licensed or encumbered, any
right or other asset to any other Person (except in each case for assets
acquired, leased, licensed, encumbered or disposed of by the Company in the
ordinary course of business and not having a value, or not requiring payments to
be made or received, in excess of $25,000 individually, or $50,000 in the
aggregate), or waived or relinquished any material claim or right;

 

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(v)         repurchased, repaid, or incurred any indebtedness or guaranteed any
indebtedness of another Person, guaranteed any debt securities of another
Person, entered into any “keep well” or other agreement to maintain any
financial statement condition of another Person or entered into any arrangement
having the economic effect of any of the foregoing;

 

(vi)        granted, created, incurred or suffered to exist any Encumbrance on
the assets of the Company, other than pursuant to the Company’s bank line of
credit, or written down the value of any material asset or investment on the
books or records of the Company, except for depreciation and amortization in the
ordinary course of business and consistent with past practice;

 

(vii)       made any loans, advances or capital contributions to, or investments
in, any other Person;

 

(viii)      except as required to comply with applicable Laws or any Contract or
Employee Benefit Plan in effect on the date hereof, (A) paid to any Employee,
officer, director or independent contractor of the Company any benefit not
provided for under any Contract or Employee Benefit Plan in effect on the date
hereof, (B) granted any awards under any Employee Benefit Plan, (C) taken any
action to fund or in any other way secure the payment of compensation or
benefits under any Contract or Employee Benefit Plan, (D) taken any action to
accelerate the vesting or payment of any compensation or benefit under any
Contract or Employee Benefit Plan, (E) adopted, entered into or amended any
Employee Benefit Plan other than offer letters entered into with new Employees
in the ordinary course of business consistent with past practice that provide,
except as required by applicable Laws, for “at will employment” with no
severance benefits or (F) made any material determination under any Employee
Benefit Plan that is inconsistent with the ordinary course of business
consistent with past practice; or

 

(ix)         except as required by GAAP or applicable Laws, changed its fiscal
year, revalued any of its material assets or made any material changes in
financial or tax accounting methods, principles or practices;

 

(x)          the Company has not amended, cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims) outside the
ordinary course of business, and has not accelerated collection of accounts
receivable outside the ordinary course of business or delayed payment of
accounts payable;

 

(xi)         the Company has not granted any license or sublicense of any rights
under or with respect to any material Intellectual Property, other than in the
ordinary course of business;

 

(xii)        there has been no change made or authorized in the Company
Constituent Documents which have not been approved in writing by Purchaser,
provided, that, all of the Constituent Documents furnished or made available to
Purchaser prior to the date hereof shall be deemed to have been so approved;

 

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(xiii)       the Company has not issued, sold, exchanged, or otherwise disposed
of any of its capital stock, granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock, authorized or issued capital stock; granted any registration
rights; purchased, redeemed, retired or otherwise acquired any shares of any
such capital stock; or declared or made payment of any dividend or other
distribution or payment in respect of shares of capital stock, except as set
forth in Section 2.7(c)(xiii) of the Shareholder Disclosure Schedule;

 

(xiv)      the Company has not experienced any material damage, destruction,
condemnation, seizure or loss (whether or not covered by insurance) to property;

 

(xv)       the Company has not made any loan to, or entered into any other
transaction outside the ordinary course of business with, any of its directors,
officers or Employees;

 

(xvi)      the Company has not changed any method or principle of accounting
except to the extent required by GAAP or as advised by the Company’s independent
accountant;

 

(xvii)     the Company has not made any material Tax election or settled any
material Tax liability; or

 

(xviii)    neither the Company nor any of the Shareholders, directors or
officers has agreed to take, or committed to take, any of the actions referred
to in Section 2.7(b) or Section 2.7(c) above.

 

Section 2.8.          Title to and Sufficiency of Assets.

 

(a)          The Company has good, valid, transferable and marketable title to,
or valid leasehold interests in, all of its properties and assets, in each case
free and clear of all Encumbrances, except for Permitted Encumbrances.

 

(b)          The property and other assets owned by the Company or used under
enforceable Contracts constitute all of the properties and assets (whether real,
personal or mixed and whether tangible or intangible) necessary and sufficient
to permit the Company to conduct its business after the Closing in accordance
with its past practice and as presently planned to be conducted by the Company.

 

(c)          Except as set forth on Section 2.8(c) of the Shareholder Disclosure
Schedule, to the Knowledge of the Company, immediately following the Closing,
all of the assets of the Company (but expressly excluding the Company’s
Contracts and real property leases) will be owned, leased or available for use
by Purchaser on terms and conditions identical to those under which, immediately
prior to the Closing, the Company owns, leases, uses or holds available for use
all such assets.

 

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Section 2.9.          Receivables.   Except as set forth on Section 2.9 of the
Shareholder Disclosure Schedule, all accounts receivable of the Company (i) are
valid, existing and collectible by the nine (9) month anniversary of the Closing
Date in a manner consistent with the Company’s past practice, without resort to
legal proceedings or collection agencies, (ii) represent monies due for goods
sold and delivered or services rendered in each case in the ordinary course of
business and (iii) are not subject to any valid claim for refund or adjustment
or any valid defense or right of set-off. There are no disputes regarding the
collectability of any such accounts receivable.

 

Section 2.10.         Bank Accounts.    Section 2.10 of the Shareholder
Disclosure Schedule provides accurate information with respect to each account
maintained by or for the benefit of the Company at any bank or other financial
institution including the name of the bank or financial institution, the account
number and the balance as of the date hereof.

 

Section 2.11.         Real Property.

 

(a)          The Company does not own and has never owned any real property. The
Company is not obligated and does not have an option to acquire an ownership
interest in any real property.

 

(b)          Section 2.11(b) of the Shareholder Disclosure Schedule includes a
true, correct and complete list of the Leased Real Property and the leases under
which such Leased Real Property is leased, subleased or licensed, including all
amendments or modifications to such leases (the “Leases”). The Company has
delivered to the Purchaser complete copies of all Leases. The Company is not a
party to any lease, sublease, license, assignment or similar arrangement under
which it is a lessor, sublessor, licensor or assignor of, or otherwise makes
available for use by any third party of, any portion of the Leased Real
Property, and, to the Knowledge of the Company, the Company is not in violation
of any zoning, building, safety or environmental ordinance, acquisition or
requirement or Law applicable to such Leased Real Property. With respect to each
Lease, except as set forth on Section 2.11(b) of the Shareholder Disclosure
Schedule (i) the Lease is legal, valid, binding, enforceable according to its
terms and in full force and effect, (ii) neither the Company nor, to the
Knowledge of the Company, any other party to such Lease, is in breach or default
under such Lease, and, to the Knowledge of the Company, no event has occurred
which, with notice or lapse of time or both, would constitute a material breach
or default under such Lease, (iii) each Lease will, to the Knowledge of the
Company, continue to be legal, valid, binding, enforceable in accordance with
its terms and in full force and effect immediately following the Closing, except
as may result from actions that may be taken following the Closing and (iv) the
Company does not owe any brokerage commissions or finder’s fees with respect to
any such Lease which is not paid or accrued in full.

 

(c)          To the Knowledge of the Company, no damage or destruction has
occurred with respect to any of the Leased Real Property for which the Company
is liable. To the Knowledge of the Company, the improvements and fixtures on the
Leased Real Property are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted.

 

11

 

 

(d)          The premises leased pursuant to each Lease are supplied with
utilities and other services necessary for the current operation of such
premises.

 

Section 2.12.         Personal Property.

 

(a)          Except as set forth on Section 2.12(a) of the Shareholder
Disclosure Schedule or with other immaterial exceptions, all items of tangible
personal property and assets of the Company (i) are free of defects and in good
operating condition and in a state of good maintenance and repair, subject to
ordinary wear and tear and (ii) were acquired and are usable in the regular and
ordinary course of business. Except as set forth in Section 2.12(a) of the
Shareholder Disclosure Schedule, all of the material tangible personal property
and material assets of the Company are located at the Company’s offices.

 

(b)          No Person other than the Company owns any equipment or other
tangible personal property or asset that is necessary to the operation of the
Company’s business, except for the leased equipment, property or assets listed
on Section 2.12(b) of the Shareholder Disclosure Schedule and Government
Furnished Property.

 

(c)          Section 2.12(c) of the Shareholder Disclosure Schedule sets forth a
true, correct and complete list and general description of each item of tangible
personal property of the Company having a book value of more than $5,000.

 

Section 2.13.         Intellectual Property.

 

(a)          Section 2.13(a) of the Shareholder Disclosure Schedule contains a
true, correct and complete list of all material Company Registered Intellectual
Property and all material unregistered Company Intellectual Property. All
necessary registration, maintenance and renewal fees currently due in connection
with Company Registered Intellectual Property have been made and all necessary
documents, recordations and certifications in connection with such Company
Registered Intellectual Property have been filed with the relevant Governmental
Bodies for the purpose of maintaining such Company Registered Intellectual
Property. The licensing by the Company of any Company Registered Intellectual
Property has been subject to commercially reasonable quality control.

 

(b)          The Company owns, or is licensed or otherwise has the right to use,
free and clear of any Encumbrances (other than Permitted Encumbrances), all
Intellectual Property used in connection with the operation and conduct of its
business.

 

(c)          Section 2.13(c) of the Shareholder Disclosure Schedule sets forth a
true, correct and complete list of the Company Proprietary Software. The Company
has all right, title and interest in and to all intellectual property rights in
the Company Proprietary Software, free and clear of all Encumbrances, except
Permitted Encumbrances. No portion of the Company Proprietary Software contains,
embodies, uses, copies, comprises or requires the work of any third party.

12

 

  

(d)          All Company Intellectual Property which the Company purports to own
was developed by (i) an Employee working within the scope of his or her
employment at the time of such development, or (ii) agents, consultants,
contractors, or other Persons who have executed appropriate instruments of
assignment in favor of the Company as assignee that have conveyed to the Company
ownership of all Intellectual Property rights in the Company Intellectual
Property. To the extent that any Company Intellectual Property has been
developed or created by a third party for the Company, the Company has a written
agreement with such third party with respect thereto and the Company thereby
either (i) has obtained ownership of and are the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted) to, all of such third party’s Intellectual Property in such work,
material or invention by operation of law or by valid assignment.

 

(e)          The Company has not received any written complaint, assertion,
threat, demand or other written notice alleging that the Company or any of its
products or services has, nor, to the Company’s Knowledge, has the Company or
any of its products or services, infringed upon or otherwise violated, or is
infringing upon or otherwise violating, the Intellectual Property of any third
party. To the Knowledge of the Company, no Person has infringed upon or
violated, or is infringing upon or violating, any Company Intellectual Property.

 

(f)          The Company is not subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation (i) restricting in any manner the use,
transfer or licensing by the Company of any of the Company Intellectual Property
or (ii) that may affect the validity, use or enforceability of the Company
Intellectual Property or any product or service of the Company related thereto.

 

(g)          The Company has taken reasonable steps to protect its rights in any
material Confidential Information and any trade secret or confidential
information of third parties used by the Company.

 

13

 

 

Section 2.14.         Contracts.

 

(a)          Section 2.14(a) of the Shareholder Disclosure Schedule identifies
or describes all of the Contracts (including, but not limited to, all Contracts
relating to Intellectual Property) in effect on the date of this Agreement that
provide for continuing obligations by or rights of any party thereto (other than
(i) immaterial service and maintenance Contracts entered into in connection with
the Company’s office equipment and machinery, for which the obligations under
each such Contract described in this clause (i) do not exceed $10,000 per year,
(ii) standard commercial software that is licensed to the Company, and (iii)
other Contracts for which the aggregate obligations under each such Contract do
not exceed $25,000 per year or $50,000 in the aggregate) (collectively, the
“Material Contracts”). In addition, Section 2.14(a) of the Shareholder
Disclosure Schedule separately identifies all Contracts for which third party
consents or waivers must be obtained or notifications made on or prior to the
Closing Date in order for such Contracts to continue in effect on the same terms
after the Closing Date as are applicable under those Contracts as of the date
hereof. The Company has provided Purchaser true and complete copies of all
written Material Contracts set forth on Section 2.14(a) of the Shareholder
Disclosure Schedule (including any and all amendments and other modifications to
such Contracts) and true and correct summaries of all non-written Material
Contracts set forth on Section 2.14(a) of the Shareholder Disclosure Schedule
(including such oral Contracts related to Intellectual Property). The Contracts
listed on Section 2.14(a) of the Shareholder Disclosure Schedule consist of all
of the Material Contracts necessary to conduct the Company’s business as
currently conducted and are in full force and effect, and are valid, binding,
and enforceable in accordance with their terms, subject to the Bankruptcy and
Equity Exception. There exists no breach, default or violation on the part of
the Company or, to the Knowledge of the Company, on the part of any other party
to any Contract (including the Material Contracts) nor has the Company received
written or, to the Company’s Knowledge, oral notice of any breach, default or
violation to any Contract (including any Material Contracts). Except as
identified on Section 2.14(a) of the Shareholder Disclosure Schedule the Company
has not received written or, to the Company’s Knowledge, oral notice of an
intention by any party to any Material Contract that provides for a continuing
obligation by any party thereto on the date hereof to terminate such Material
Contract or amend the terms thereof, other than modifications in the ordinary
course of business that do not adversely affect the Company. The Company has not
waived any material rights under any Material Contract. To the Knowledge of the
Company, no event has occurred which either entitles, or would, with notice or
lapse of time or both, entitle any party to any Material Contract (other than
the Company) to declare breach, default or violation under any such Material
Contract or to accelerate, or which does accelerate, the maturity of any
indebtedness of the Company under any such Material Contract. There are no
existing powers of attorney executed on behalf of the Company.

 

(b)          (i)          Section 2.14(b)(i) of the Shareholder Disclosure
Schedule lists all Government Contracts (except for task orders, delivery orders
and purchase orders pursuant to Government Contracts), which are in effect on
the date of this Agreement or were in effect at any time in the past five (5)
years, and with respect to each such listed Government Contract, Section
2.14(b)(i) of the Shareholder Disclosure Schedule accurately lists: (A) the
contract name; (B) the award date; (C) the customer; (D) the contract end date;
(E) the contract ceiling; (F) the contract’s current funded value; and (G) as
applicable, based on one or more of the solicitation, proposal, award documents
or the Company’s most recent certification, whether the current Government
Contract was awarded as a set-aside based on the Company’s small business
status, small disadvantaged business status, service disabled veteran owned
status, protégé status, or other preferential status. Attached to Section
2.14(b)(i) of the Shareholder Disclosure Schedule is the “contract data sheet”
for each current Government Contract listed on Section 2.14(b)(i) of the
Shareholder Disclosure Schedule.

 

(ii)         Section 2.14(b)(ii) of the Shareholder Disclosure Schedule lists
the Company’s current project charge codes, and with respect to each such charge
code, Section 2.14(b)(ii) of the Shareholder Disclosure Schedule accurately
lists: (A) the customer; (B) the customer’s contract number corresponding to the
charge code; (C) the customer’s order number; (D) the Company’s internal project
charge code number; (E) the corresponding project name; (F) the end date;
(G) inception to May 31, 2014 funding; (H) inception to May 31, 2014 revenue
received; (I) the contract’s ceiling; and (J) payments due as of thirty (30)
days or more prior to the date of this Agreement for work previously performed
and billed. Section 2.14(b)(ii) of the Shareholder Disclosure Schedule also
indicates the basis for billing with respect to the charge codes that represent
fixed price task orders.

 

14

 

 

 

(iii)        Section 2.14(b)(iii) of the Shareholder Disclosure Schedule lists
all Government Bids, including task order bids under current Government
Contracts, submitted by the Company and for which no award has been made
thirty (30) days or more prior to the date of this Agreement, and with respect
to each such Government Bid, Section 2.14(b)(iii) of the Shareholder Disclosure
Schedule accurately lists: (A) the customer agency and title; (B) the request
for proposal (RFP) number or, if such Government Bid is for a task order under a
prime contract, the applicable prime contract number, (C) the date of proposal
submission; (D) the expected award date, if known; (E) the estimated period of
performance; (F) the estimated value based on the proposal, if any; and
(G) whether such Government Bid is premised on the Company’s small business
status, small disadvantaged business status, protégé status, or other
preferential status. All Government Bids listed on Sections 2.14(b)(iii) of the
Shareholder Disclosure Schedule: were submitted in the ordinary course of
business; were based on assumptions believed by the management of the Company to
be reasonable; and, to the Knowledge of the Company, (x) as of the date of such
Government Bid, were capable of performance by the Company in accordance with
the terms and conditions of such Government Bid without a financial loss to the
Company (based on the Company’s then current overhead and indirect charges) and
(y) no material change has occurred since the date of such Government Bid that
could reasonably be expected to cause a material financial loss to the Company
(based on the Company’s current overhead and indirect charges) as a result of
performance by the Company in accordance with the terms and conditions of such
Government Bid.

 

(c)          The Company has delivered to Purchaser true and complete copies of
all Government Contracts (other than terms incorporated therein by reference),
including any and all amendments and other modifications thereto, and of all
Government Bids and provided access to Purchaser to true and correct copies of
all documentation related thereto requested by Purchaser. Except as set forth on
Section 2.14(c) of the Shareholder Disclosure Schedule, (i) the Company has not
received written or, to the Company’s Knowledge, oral notification of cost,
schedule, technical or quality problems that could reasonably result in claims
against the Company (or any successors in interest) by a Governmental Body, a
prime contractor or a higher-tier subcontractor; (ii) to the actual knowledge of
any Shareholder, John K. Borland, Arnie Ostrovsky or James Trimble, there are no
Government Contracts pursuant to which the Company is reasonably likely to
experience cost, schedule, technical or quality problems that could reasonably
be expected to result in claims against the Company (or any successors in
interest) by a Governmental Body, a prime contractor or a higher-tier
subcontractor; (iii) to the Knowledge of the Company, all of the Government
Contracts were legally awarded, are binding on the parties thereto, and are in
full force and effect; (iv) to the Knowledge of the Company, the Government
Contracts are not currently the subject of bid or award protest proceedings; and
(v) no Person has notified the Company in writing or, to the Company’s
Knowledge, orally that any Governmental Body, prime contractor or higher-tier
subcontractor under a Government Contract intends to seek the Company’s
agreement to lower rates under any of the Government Contracts or Government
Bids, including but not limited to any task order under any Government Bids.

15

 

 

(d)          Except as set forth on Section 2.14(d) of the Shareholder
Disclosure Schedule: (i) the Company has complied in all material respects with
the terms and conditions of each Government Contract and Government Bid to which
it is a party, and has performed in all material respects all obligations
required to be performed by it thereunder; (ii) the Company has complied in all
material respects with all statutory and regulatory requirements where and as
applicable to each of the Government Contracts and Government Bids, including
all Government Contract Laws; (iii) the representations, certifications, and
warranties made by the Company with respect to the Government Contracts or
Government Bids were accurate in all respects as of their effective date, and
the Company has fully complied with all such certifications; (iv) no termination
for default, cure notice or show cause notice, or similar notice, either in
writing or, to the Company’s Knowledge, orally, has been issued or threatened
and remains unresolved with respect to any Government Contract or Government
Bid; (v) no written past performance evaluation received by the Company with
respect to any such Government Contract has set forth a default or other failure
to perform thereunder or termination or default thereof; (vi) there has not been
any material withholding or set-off, nor has there been any attempt to
materially withhold or set-off, any money due under any Government Contract; and
(vii) all invoices and claims (including requests for progress payments and
provisional costs payments) submitted under each Government Contract were
current, accurate and complete in all material respects as of their submission
date.

 

(e)           Except as set forth in Section 2.14(e) of the Shareholder
Disclosure Schedule, the Company has not engaged in or been charged with, or
received or been advised in writing or, to the Company’s Knowledge, orally of
any charge, investigation, claim or assertion of right arising under any Laws,
including any Government Contract Laws, nor has the Company or any of its
directors, officers or Employees been subject to any criminal indictment or
information, lawsuit, subpoena, civil investigative demand, discovery request,
administrative proceeding, voluntary disclosure, claim, dispute, mediation or
arbitration with regard to, any material violation of any requirement pertaining
to a Government Contract or Government Bid, including material violations of any
Government Contract Laws, nor has the Company conducted any internal
investigation in connection with any facts or circumstances that could
reasonably be expected to constitute any such material violation on its own or
with the assistance of any legal counsel, auditor, accountant or investigator
outside the Company.

 

(f)          Except as set forth in Section 2.14(f) of the Shareholder
Disclosure Schedule, with respect to the Government Contracts, no Governmental
Body, prime contractor or higher-tier subcontractor under a Government Contract
or any other Person has notified the Company, either in writing or, to the
Knowledge of the Company, orally, of any actual or alleged violation or breach
of any statute, regulation, representation, certification, disclosure
obligation, contract term, condition, clause, provision or specification that
could reasonably be expected to cause the Company to incur a loss in excess of
$50,000.

 

(g)          Except as set forth in Section 2.14(g) of the Shareholder
Disclosure Schedule, the Company has not taken any action or is a party to any
pending litigation that could reasonably be expected to give rise to
(i) liability under the False Claims Act; (ii) a claim for price adjustment
under the Truth in Negotiations Act; or (iii) any other request for a reduction
in the price of any Government Contract, including but not limited to claims
based on actual or alleged defective pricing. To the Knowledge of the Company,
there exists no basis for a claim of any liability of the Company by any
Governmental Body as a result of defective cost and pricing data submitted to
any Governmental Body. The Company is not participating in any pending claim and
the Company is unaware of any potential claim under the Contract Disputes Act
against the United States Government or any prime contractor, subcontractor or
vendor arising under or relating to any Government Contract or Government Bid.

16

 

 

 

(h)          Each representation and/or certification made by the Company that
it was a small business concern, service disabled veteran owned business and/or
was qualified for other preferential status in each of its Government Contracts
and Government Bids was current and accurate as of its effective date.

 

(i)          Except as set forth on Section 2.14(i) of the Shareholder
Disclosure Schedule, (i) no Government Contract has been terminated for default
in the past seven (7) years; and (ii) the Company has not received any written
or, to the Knowledge of the Company, oral notice terminating any current
Government Contract for convenience or indicating an intent to terminate any of
current Government Contracts for convenience.

 

(j)          Except as set forth on Section 2.14(j) of the Shareholder
Disclosure Schedule, the Company has not received any written or, to the
Knowledge of the Company, oral notice of any outstanding claims or contract
disputes to which the Company is a party relating to the Government Contracts or
Government Bids and involving either a Governmental Body, any prime contractor,
any higher-tier subcontractor, vendor or any third party.

 

(k)          Except as set forth in Section 2.14(k) of the Shareholder
Disclosure Schedule, neither the Company nor any Shareholder or any of the
Company’s current directors or current officers has ever been, or is currently,
debarred, suspended, proposed for suspension or debarment from bidding on any
Government Contract, declared non-responsible or ineligible, or otherwise
excluded from participation in the award of any Government Contract or for any
reason been listed on the List of Parties Excluded from Federal Procurement and
Non-procurement Programs. To the Company’s Knowledge, none of the Company’s
employees is currently suspended or debarred. No debarment, suspension or
exclusion proceeding has ever been initiated or, to the Knowledge of the
Company, threatened against the Company.

 

(l)          No negative determination of responsibility has been issued against
the Company during the last seven (7) years with respect to any quotation, bid
or proposal submitted to a Governmental Body.

 

(m)          Except as set forth on Section 2.14(m) of the Shareholder
Disclosure Schedule, since January 1, 2008 (i) the Company has not undergone
and, to the Knowledge of the Company, is not undergoing any audit, inspection,
survey or examination of records by any Governmental Body relating to any
Government Contract; (ii) the Company has not received written or, to the
Knowledge of the Company, oral notice of, and the Company has not undergone any
investigation or review relating to any Government Contract; (iii) no such
audit, review, inspection, investigation, survey or examination of records is,
to the Knowledge of the Company, threatened; (iv) the Company has not received
any official written notice that it is or was being specifically audited or
investigated by the General Accounting Office, the DCAA, any state or federal
agency Inspector General, the contracting officer with respect to any Government
Contract, or the Department of Justice (including any United States Attorney);
and (v) the Company has not received any written or, to the Knowledge of the
Company, oral notice that any audit, review, inspection, investigation, survey
or examination of records described in Section 2.14(m) of the Shareholder
Disclosure Schedule, has revealed any fact, occurrence or practice which could
reasonably be expected to cause the Company to incur a loss in excess of
$50,000.

17

 

 

 

(n)          The Company has not, at any time during the last seven (7) years,
made any disclosure to any Governmental Body or other customer or prime
contractor or higher-tier subcontractor related to any suspected, alleged or
possible violation of a contract requirement, any apparent or alleged
irregularity, misstatement or omission arising under or relating to a Government
Contract or Government Bid, or any violation of law or regulation.

 

(o)          All indirect and general and administrative rates are being billed
consistent with DCAA-approved rates or provisional rate agreements.

 

(p)          Except as set forth on Sections 2.14(p) of the Shareholder
Disclosure Schedule, as of the date of this Agreement, no active and currently
funded Government Contract has incurred or, to the Knowledge of the Company,
currently projects losses or cost overruns, based on the Company’s current
overhead and indirect charges, in an amount exceeding $10,000 per individually
funded order (task order, delivery order, etc.) over the remaining period of
performance for such Government Contract. No payment has been made by the
Company, or by a Person acting on the Company’s behalf, to any Person (other
than to any bona fide employee or agent of the Company, as defined in
subpart 3.4 of the FAR) which is or was improperly contingent upon the award of
any Government Contract or which would otherwise be in violation of any
applicable procurement law or regulation or any other Laws. The Company is not
subject to any “forward pricing” agreements.

 

(q)          Except as set forth on Sections 2.14(r) of the Shareholder
Disclosure Schedule, the Company has not assigned or otherwise conveyed or
transferred, or agreed to assign, to any Person, any Government Contracts, or
any account receivable relating thereto, whether a security interest or
otherwise.

 

(r)          Except as set forth on Sections 2.14(r) of the Shareholder
Disclosure Schedule, the Company has reached agreement with the cognizant
government audit agency approving and “closing” all Indirect Costs charged to
Government Contracts for the years 2005 through 2008.

 

(s)          No material personal property, equipment or fixtures are loaned,
bailed or otherwise furnished to the Company by or on behalf of the United
States Government, except as provided pursuant to applicable Government
Contracts.

 

(t)          The Company certifies that (i) no written claims, or claims
threatened in writing, have been received by the Company with respect to express
warranties and guarantees contained in Government Contracts on products or
services provided by the Company; (ii) no such claims have been made against the
Company in the past seven (7) years; and (iii)  no amendment has been made to
any written warranty or guarantee contained in any Government Contract that
would reasonably be expected to result in the Company incurring a loss in excess
of $50,000, individually or in the aggregate.

 

(u)          Except to the extent prohibited by applicable Law, Sections 2.14(u)
of the Shareholder Disclosure Schedule sets forth all facility security
clearances held by the Company.

 

18

 

 

Section 2.15.         Compliance with Laws; Governmental Authorizations.

 

(a)          Except as set forth in Section 2.15(a) of the Shareholder
Disclosure Schedule, the Company and each Shareholder have complied in all
material respects with all Laws (exclusive of Laws relating to all of its import
and/or export activities, which are addressed in Section 2.15(b) hereof) of any
Governmental Body applicable to the Company, any Shareholder, the Shares, the
Company’s business and the assets of the Company. Specifically, but without
limitation, the Company and each Shareholder have, in the conduct of the
Company’s business, complied in all material respects with all applicable Laws
relating to the employment of labor, including those concerning wages, hours,
equal employment opportunity, pension and welfare benefit plans (including
ERISA, and the payment of Social Security and similar taxes), and the Company is
not liable for any arrearages of wages or any tax penalties due to any failure
to comply with any of the foregoing.

(b)          The Company and each Shareholder have, in the conduct of the
Company’s business, complied in all material respects with all Laws relating to
all of its import and/or export activities, including without limitation those
Laws under the authority of U.S. Departments of Commerce (Bureau of Industry and
Security) codified at 15 Code of Federal Regulations (“CFR”), Parts 700-799;
Homeland Security (Customs and Border Protection) codified at 19 CFR, Parts
1-199; State (Directorate of Defense Trade Controls) codified at 22 CFR, Parts
103, 120-129; and Treasury (Office of Foreign Assets Control) codified at 31
CFR, Parts 500-599; and any other U.S. governmental agency or entity with
authority to regulate the Company, the Shareholders, the Shares, Company’s
business and the Company’s assets.

 

(c)          Section 2.15(c) of the Shareholder Disclosure Schedule identifies
each Governmental Authorization held by the Company, and the Company and the
Shareholders have delivered, or caused to be delivered, to the Purchaser true,
correct and complete copies of all such Governmental Authorizations. The
Governmental Authorizations held by the Company are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted and as presently planned to be conducted by the
Company. The Company is in compliance with the terms and requirements of the
respective Governmental Authorizations held by it. The Company has not received
any notice or other communication from any Governmental Body regarding (i) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.

 

Section 2.16.         Tax Matters.

 

(a)          All Tax Returns due to have been filed by the Company through the
date hereof in accordance with all applicable Laws (pursuant to an extension of
time or otherwise) have been duly filed and are true, correct and complete in
all respects. Section 2.16(a) of the Shareholder Disclosure Schedule contains a
true, correct and complete list of all jurisdictions (whether foreign or
domestic) in which the Company does or is required to file Tax Returns. No
written claim has ever been made by a Governmental Body in a jurisdiction where
the Company does not file Tax Returns that it is or may be subject to taxation
or to a requirement to file Tax Returns in that jurisdiction. Company has
delivered to Purchaser true, correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies for Company’s past three
years, or transactions consummated in the last forty-eight (48) months.

 

19

 

 

(b)          All Taxes, deposits and other payments for which the Company has
liability (whether or not shown on any Tax Return) have been paid in full or are
accrued as liabilities for Taxes on the books and records of the Company.

 

(c)          The amounts so paid, together with all amounts accrued as
liabilities for Taxes (including Taxes accrued as currently payable but
excluding any accrual to reflect timing differences between book and Tax income)
on the books of the Company, shall be adequate based on the tax rates and
applicable Laws in effect to satisfy all liabilities for Taxes of the Company in
any jurisdiction through the Closing Date, including Taxes accruable upon income
earned through the Closing Date.

 

(d)          There are not now any extensions of time in effect with respect to
the dates on which any Tax Returns were or are due to be filed by the Company.

 

(e)          All Tax deficiencies asserted as a result of any examination by a
Governmental Body of a Tax Return of the Company have been paid in full, accrued
on the books of the Company, as applicable, or finally settled and, to the
Knowledge of the Company, no issue has been raised in any such examination that,
by application of the same or similar principles, reasonably could be expected
to result in a proposed Tax deficiency for any other period not so examined.

 

(f)          No claims have been asserted and no written proposals or
deficiencies for any Taxes of the Company are being asserted, proposed or, to
the Knowledge of the Company, threatened, and, to the Knowledge of the Company,
no audit or investigation of any Tax Return of the Company is currently
underway, pending or threatened.

 

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

 

(h)          There are no outstanding waivers or agreements between any
Governmental Body and the Company for the extension of time for the assessment
of any Taxes or deficiency thereof, nor are there any requests for rulings,
outstanding subpoenas or requests for information, notices of proposed
reassessment of any property owned or leased by the Company or any other matter
pending between the Company and any Governmental Body.

 

(i)          The Company is not a party to or bound by any Tax allocation or
sharing agreement.

 

(j)          The Company has not constituted either a “distributing corporation”
or a “controlled corporation” in a distribution of stock qualifying for tax free
treatment under Section 355 of the Code (i) in the two (2) years prior to the
date of this Agreement or (ii) in a distribution which could otherwise
constitute part of a “plan” or “series of related transactions” (within the
meaning of Section 355(e) of the Code) in connection with the transactions
contemplated by this Agreement.

 

20

 

 

(k)          The Company is not, and has not been, a member of an “affiliated
group” of corporations (within the meaning of Section 1504 of the Code) filing a
consolidated federal income tax return (other than a group the common parent of
which was the Company).

 

(l)          The Company is, and has at all times been, in compliance with the
provisions of Section 6011 of the Code relating to tax shelter disclosure,
registration and list maintenance and with the Treasury Regulations thereunder.
The Company has not, at any time, engaged in or entered into a “listed
transaction” within the meaning of Treasury Regulation Sections 1.6011-4(b)(2)
or 301.6111-2(b)(2), and no IRS Form 8886 has been filed with respect to the
Company nor has the Company entered into any tax shelter or listed transaction
with the sole or dominant purpose of the avoidance or reduction of a Tax
liability with respect to which there is a significant risk of challenge of such
transaction by a Governmental Body.

 

(m)          The Company will not be required to include any item of income in,
or exclude any item of deduction from, taxable income for any Tax period after
the Closing Date as a result of any (i) change in method of accounting for a Tax
period ending on or prior to the Closing Date, (ii) “closing agreement” as
described in Section 7121 of the Code (or any corresponding or similar provision
of state, local or foreign income Tax law) executed on or prior to the Closing
Date, (iii) installment sale or open transaction disposition made on or prior to
the Closing Date or (iv) prepaid amount received on or prior to the Closing
Date.

 

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

 

(o)          There are no Encumbrances for Taxes upon the assets or properties
of Company, except for statutory Encumbrances for current Taxes not yet due, and
there are no claims relating to Taxes that, if adversely determined, would
result in any Encumbrance on any of the assets or properties of Company.

 

(p)          Company owns no interest and has owned no interest since Company’s
inception, directly or indirectly, of any Person treated as a partnership for
Tax purposes.

 

(q)          The Company and the Shareholders have made a valid election under
Section 1362 of the Code (or its equivalent) and similar provisions of the
applicable state laws (where required or allowed) to be taxed as an “S”
corporation for all tax years since June 14, 1993. At all times since the
effective date of the “S” corporation election under Section 1362 of the Code,
the Company has qualified as a small business corporation and no action has been
taken or fact exists that would cause a termination of the Company’s status as
an “S” corporation under Section 1362 of the Code, other than the consummation
of the transactions contemplated by this Agreement.

21

 

  

Section 2.17.         Employee Benefit Plans.

 

(a)          Section 2.17(a) of the Shareholder Disclosure Schedule contains a
true, correct and complete list of each Company Benefit Plan and ERISA Affiliate
Plan.

 

(b)          With respect to each Company Benefit Plan and ERISA Affiliate Plan
identified on Section 2.17(a) of the Shareholder Disclosure Schedule, the
Company has heretofore delivered to the Purchaser true, correct and complete
copies of the current plan documents and any amendments thereto (or, in the
event the plan is not written, a written description thereof), any related
trust, insurance contract or other funding vehicle, any reports or summaries
required under all applicable Laws, including ERISA or the Code, the most recent
determination or opinion letter received from the Internal Revenue Service
(“IRS”) with respect to each current Company Benefit Plan or ERISA Affiliate
Plan intended to qualify under Code Section 401, nondiscrimination and coverage
tests for the most recent three (3) full plan years, the three (3) most recent
annual reports (Form 5500) filed with the IRS and financial statements (if
applicable), the three (3) most recent actuarial reports or valuations (if
applicable) and such other documentation with respect to any Company Benefit
Plan or ERISA Affiliate Plan (whether current or not) as is reasonably requested
by the Purchaser.

 

(c)          With respect to each Company Benefit Plan, (i) there has not
occurred any non-exempt “prohibited transaction” within the meaning of Section
4975(c) of the Code or Section 406 of ERISA that would subject the Company or
the Purchaser to any material liability, and (ii) to the Knowledge of the
Company, no fiduciary (within the meaning of Section 3(21) of ERISA) of any
Company Benefit Plan that is subject to Part 4 of Title I of ERISA has committed
a breach of fiduciary duty that would subject the Company or the Purchaser to
any liability. The Company has not incurred any excise taxes under Chapter 43 of
the Code and nothing has occurred with respect to any Company Benefit Plan that
would reasonably be expected to subject the Company or the Purchaser to any such
taxes. The transactions contemplated by this Agreement will not trigger any
Taxes under Section 4978 of the Code. No Company Benefit Plan or ERISA Affiliate
Plan is or was subject to Title IV of ERISA, Section 302 of ERISA or Section 412
of the Code, and no Company Benefit Plan or ERISA Affiliate Plan is or was a
“defined benefit plan” (as defined in Section 414(j) of the Code),
“multiemployer plan” (as defined in Section 3(37) of ERISA), a “multiple
employer plan” (within the meaning of Section 413(c) of the Code), or a
“multiple employer welfare arrangement” (as defined in Section 3(40)(A) of
ERISA), nor have the Company or any of its ERISA Affiliates ever sponsored,
maintained, contributed to, or had any liability or obligation with respect to,
any such Company Benefit Plan or ERISA Affiliate Plan.

 

(d)          Each Company Benefit Plan or ERISA Affiliate Plan has been
established, registered, qualified, invested, operated and administered in all
material respects in accordance with its terms and in compliance with all
Applicable Benefit Laws. The Company has performed and complied in all material
respects with all of its obligations under or with respect to the Company
Benefit Plans. The Company has not incurred any liability to the Company in
excess of $50,000 with respect to any Company Benefit Plan or any ERISA
Affiliate Plan, including any liability, tax, penalty or fee under any
Applicable Benefit Law (other than to pay premiums, contributions or benefits in
the ordinary course of business consistent with past practice). There are no
current or, to the Knowledge of the Company, threatened or reasonably
foreseeable Encumbrances on any assets of any Company Benefit Plan or ERISA
Affiliate Plan.

 

22

 

 

(e)          Each Company Benefit Plan or ERISA Affiliate Plan that is intended
to be “qualified” within the meaning of Section 401(a) of the Code and the
trusts maintained thereunder that are intended to be exempt from taxation under
Section 501(a) of the Code has received a favorable determination or opinion
letter with respect to all Applicable Benefits Laws on which the IRS will issue
a favorable determination letter on its qualification, and nothing has occurred
subsequent to the date of such favorable determination letter that could
reasonably be expected to cause the loss of any such qualification.

 

(f)          There is no pending or, to the Knowledge of the Company, threatened
complaint, claim, charge, suit, audit, investigation, citation or other formal
proceeding or action of any kind with respect to any Company Benefit Plan or
ERISA Affiliate Plan (other than a routine claim for benefits in accordance with
such Company Benefit Plan’s or ERISA Affiliate Plan’s claims procedures and that
have not resulted in any litigation).

 

(g)          All contributions and premium payments (including all employer
contributions and employee salary reduction contributions) that are due with
respect to each Company Benefit Plan have been made within the time periods
prescribed by ERISA and the Code, and all contributions and premium payments for
any period ending on or before the Closing Date that are an obligation of the
Company and not yet due have either been made to such Company Benefit Plan, or
have been accrued on the Company Financial Statements.

 

(h)          With respect to each Company Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA), except as
set forth on Section 2.17(h) of the Shareholder Disclosure Schedule, all claims
incurred by the Company are (i) insured pursuant to a contract of insurance
whereby the insurance company bears any risk of loss with respect to such
claims, (ii) covered under a contract with a health maintenance organization (an
“HMO”), pursuant to which the HMO bears the liability for claims, or (iii)
reflected as a liability or accrued for on the Company Financial Statements.
Except as set forth on Section 2.17(h) of the Shareholder Disclosure Schedule,
no Company Benefit Plan provides or has ever provided benefits, including death,
medical or health benefits (whether or not insured), after an Employee’s
termination of employment, and the Company has no liabilities (contingent or
otherwise) with respect thereto other than (A) continuation coverage required
pursuant to Section 4980B of the Code and Part 6 of Title I of ERISA, and the
regulations thereunder, and any other Applicable Benefit Laws, (B) death
benefits or retirement benefits under any employee pension benefit plan, (C)
deferred compensation benefits, reflected as liabilities on the Company
Financial Statements, or (D) benefits the full cost of which is borne by the
current or former Employee (or the Employee’s beneficiary).

 

(i)          The transactions contemplated by this Agreement will not result
(either alone or in combination with any other event) in (i) any payment of, or
increase in, remuneration or benefits, to any Employee, officer, director or
consultant of the Company, (ii) any cancellation of indebtedness owed to the
Company by any Employee, officer, director or consultant of the Company, (iii)
the acceleration of the vesting, funding or time of any payment or benefit to
any Employee, officer, director or consultant of the Company or (iv) any
“parachute payment” within the meaning of Section 280G of the Code (whether or
not such payment is considered to be reasonable compensation for services
rendered).

 

23

 

 

(j)          The Company has not announced or entered into any plan or binding
commitment to (i) create or cause to exist any additional Company Benefit Plan,
or (ii) adopt, amend or terminate any Company Benefit Plan, other than any
amendment required by Applicable Benefit Laws or in the ordinary course of
business.

 

(k)          Section 2.17(k) of the Shareholder Disclosure Schedule identifies
each Company Benefit Plan that is a “nonqualified deferred compensation plan”
within the meaning of Section 409A of the Code and associated Treasury
Department guidance, including IRS Notice 2005-1 (each a “NQDC Plan”). With
respect to each NQDC Plan, it either (A) has been operated in compliance with
Code Section 409A since January 1, 2009, or (B) does not provide for the payment
of any benefits that have or will be deferred or vested after January 1, 2009
and since January 1, 2009, it has not been “materially modified” within the
meaning of Section 409A of the Code and associated Treasury Department guidance,
including IRS Notice 2005-1, Q&A 18.

 

(l)          To the Knowledge of the Company, excluding any workers’
compensation, disability and other benefits required by applicable Law, and
subject to any advance notice requirements in the Company Benefit Plan delivered
to Purchaser, (i) neither Company nor any ERISA Affiliate is subject to any
legal obligation to continue any Benefit Plan and (ii) any such Benefit Plan
may, without the consent of any employee, beneficiary or other party, be amended
in any respect or terminated in accordance with applicable Law and the Company
Plan documents, either before or after the Closing Date.

 

Section 2.18.         Employee Matters.

 

(a)          Section 2.18(a)(1) of the Shareholder Disclosure Schedule contains
a true, correct and complete list of all Employees as of the date hereof, and
accurately reflects their salaries, any other compensation payable to them
pursuant to bonus, deferred compensation and commission arrangements, their
dates of employment and their positions. All of the Employees are employed for
no specific term or period of time. Section 2.18(a)(2) of the Shareholder
Disclosure Schedule lists all Employees who are not citizens or permanent
residents of the United States and identifies the visa or other similar permit
under which such Employee is working and the dates of issuance and expiration of
such visa or other similar permit.

 

(b)          Section 2.18(b) of the Shareholder Disclosure Schedule identifies
each Employee who is not fully available to perform work because of disability
or other leave and sets forth the nature of such leave (STD, LTD or workers
compensation related injury) and, to the Company’s Knowledge, the anticipated
date of return to full service.

 

24

 

 

(c)          Section 2.18(c) of the Shareholder Disclosure Schedule contains a
true, correct and complete list of all independent contractors (excluding
attorneys and accountants) used by the Company as of the date hereof, specifying
the name of the independent contractor, type of services provided, fees paid to
such independent contractor for calendar year 2013 and from January 1, 2014
through May 31, 2014, work location and address. Each independent contractor
listed on Section 2.18(c) has the requisite Governmental Authorizations required
to provide the services such independent contractor provides the Company.

 

(d)          To the Company’s Knowledge, the Company is, and has at all times
been, in compliance in all material respects with all applicable Laws and
Contracts relating to employment, employment practices, wages, bonuses and terms
and conditions of employment, including Laws for job applicants and employee
background checks, meal and rest period for Employees, accrual and payment of
vacation pay and paid time off, classifying Employees as exempt or non-exempt,
crediting all non-exempt Employees for all hours worked, deductions from final
pay of all terminated Employees and classifying independent contractors.

 

(e)          Neither the Company nor any Shareholder has made any legally
enforceable written or verbal commitments to any officer, employee, former
employee, consultant or independent contractor of the Company with respect to
compensation, promotion, retention, termination, severance or similar matter in
connection with the transactions contemplated hereby.

 

Section 2.19.         Labor Matters.

 

(a)          To the Knowledge of the Company, no Employee, since becoming an
Employee, has been, or currently is, represented by a labor organization or
group that was either certified or voluntarily recognized by any labor relations
board (including the NLRB) or certified or voluntarily recognized by any other
Governmental Body. The Company is not or has never been a signatory to a
collective bargaining agreement with any trade union, labor organization or
similar group. To the Knowledge of the Company, no representation election
petition or application for certification has been filed by employees of the
Company or is pending with the NLRB or any other Governmental Body and no union
organizing campaign or other attempt to organize or establish a labor union,
employee organization or labor organization or group involving employees of the
Company has occurred, is in progress or is threatened.

 

(b)          The Company is in compliance in all material respects with all
Labor Laws. Except as set forth on Section 2.19(b) of the Shareholder Disclosure
Schedule, no citations, claims, complaints, grievances, charges, disputes,
proceedings, examinations, audits, inquiries, investigations or other actions
are pending or, to the Knowledge of the Company, threatened under the Labor Laws
with respect to the Company. The Company has good labor relations. To the actual
knowledge of the Shareholders: (i) the consummation of the transactions
contemplated by this Agreement will not have a material adverse effect on the
Company’s labor relations, and (ii) none of the Employees with an annual base
salary in excess of $75,000 has indicated, at any time within the preceding
ninety (90) days, an intent to terminate his or her employment with the Company.

 

25

 

 

(c)          The Company has never effectuated (i) a “plant closing” (as defined
in the WARN) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company or
(ii) a “mass layoff” (as defined in the WARN) affecting any site of employment
or facility of the Company. The Company has not been affected by any transaction
or engaged in layoffs, terminations or relocations sufficient in number to
trigger application of any state, local or foreign law or regulation similar to
the WARN. None of the Employees has suffered an “employment loss” (as defined in
the WARN) in the ninety (90) calendar days prior to the date hereof. Except as
set forth on Section 2.19(c) of the Shareholder Disclosure Schedule, no wrongful
discharge, retaliation, libel, slander or other claim, complaint, charge or
investigation that arises out of the employment relationship between the Company
and any of its employees is pending or, to the Knowledge of the Company,
threatened against the Company under any applicable Law.

 

(d)          Except as set forth on Section 2.19(d) of the Shareholder
Disclosure Schedule, to the Knowledge of the Company, the Company has maintained
and currently maintains adequate insurance as required by applicable Law with
respect to workers’ compensation claims and unemployment benefits claims. The
Company has provided the Purchaser with a copy of its policies of for providing
leaves of absence under FMLA and their FMLA notices.

 

Section 2.20.         Environmental Matters.

 

(a)          The Company is in material compliance with all applicable
Environmental Laws, which compliance includes the possession by the Company of
all Governmental Authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. All Governmental
Authorizations currently held by any of the Company pursuant to Environmental
Laws are identified in Section 2.20(a) of the Shareholder Disclosure Schedule.

 

(b)          The Company has not received any written or, to the Knowledge of
the Company, oral notice, whether from a Governmental Body, citizens group,
Employee or otherwise, that alleges that the Company is not in material
compliance with any Environmental Law.

 

(c)          To the Knowledge of the Company, no current or prior owner of any
property leased or controlled by the Company has received any written notice,
whether from a Governmental Body, citizens group, employee or otherwise, that
alleges that such current or prior owner or the Company is not in material
compliance with any Environmental Law.

 

(d)          Section 2.20(d) of the Shareholder Disclosure Schedule sets forth a
true, correct and complete list of all documents (whether in hard copy or
electronic form) that contain any environmental reports, investigations and/or
audits relating to premises currently or previously owned or operated by the
Company (whether conducted by or on behalf of the Company or a third party, and
whether done at the initiative of the Company or directed by a Governmental Body
or other third party) which were issued or conducted during the past five (5)
years and which the Company has possession of or access to. A complete and
accurate copy of each such document has been provided to the Purchaser.

26

 

 

 

(e)          The Company has not entered into or agreed to enter into, nor has
any present intent to enter into, any consent decree or order, and the Company
is not subject to any judgment, decree or judicial or administrative order
relating to compliance with, or the cleanup of Materials of Environmental
Concern under, any applicable Environmental Law.

 

(f)          There are no investigations, inquiries, administrative proceedings,
actions, suits, claims or other legal proceedings pending or, to the Knowledge
of the Company, threatened against the Company or any Shareholder under or
relating to Environmental Laws including, without limitation, those that relate
to the Release of any Material of Environmental Concern from any plant,
facility, site, area or property currently or previously owned or leased by the
Company.

 

(g)          Except as could not reasonably be expected to result in material
liability to the Company under applicable Environmental Laws, no improvement or
equipment included in the property or assets of the Company contains any
asbestos, polychlorinated biphenyls, underground storage tanks, open or closed
pits, sumps or other containers on or under any property or asset. Except as
could not reasonably be expected to result in material liability to the Company
under applicable Environmental Laws, the Company has not imported, received,
manufactured, produced, processed, labeled, or shipped, stored, used, operated,
transported, treated or disposed of any Materials of Environmental Concern other
than in material compliance with all Environmental Laws.

 

Section 2.21.         Insurance.   Section 2.21 of the Shareholder Disclosure
Schedule sets forth a true, correct and complete list of all insurance policies
and fidelity bonds for the current policy year relating to the Company and its
Employees, officers and directors. The Company maintains, and has maintained,
policies of insurance covering such risk and events, including personal injury,
property damage and general liability, in amounts that are adequate, in light of
prevailing industry practices, for its business and operations. The Company has
not received notice of termination or cancellation of any such policy. The
Company has not reached or exceeded its policy limits for any insurance policy
in effect at any time during the past five (5) years. All premiums required to
be paid with respect thereto covering all periods up to and including the
Closing Date have been or will be paid in a timely fashion. There has been no
lapse in coverage under such policies or failure of payment that will cause
coverage to lapse. The Company does not have any obligation for retrospective
premiums for any period prior to the Closing Date. All such policies are in full
force and effect and will remain in full force and effect up to and including
the Closing Date, unless replaced with comparable insurance policies having
comparable or more favorable terms and conditions. There are no claims pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds or in respect
of which such underwriters have reserved their rights.

 

27

 

 

Section 2.22.         Transactions with Certain Persons. Except as set forth on
Section 2.22 of the Shareholder Disclosure Schedule, none of the Shareholders,
nor any officer or director of the Company, nor any member of any such
individual’s immediate family (whether directly or indirectly through an
Affiliate of such Person) is presently, or within the past three (3) years has
been, a party to any transaction with the Company, including without limitation,
any Contract or other arrangement (i) providing for the furnishing of services
by (other than as officers, directors or Employees of the Company);
(ii) providing for the rental of real or personal property; or (iii) otherwise
requiring payments to (other than for services or expenses as directors,
officers or Employees of the Company in the ordinary course of business
consistent with past practice), any such individual or any corporation,
partnership, trust or other entity in which any such individual has any
interest, including without limitation, as a shareholder, officer, director,
trustee or partner; provided that, for the avoidance of doubt, the foregoing
shall not apply to any transaction or arrangement between a Shareholder and a
corporation, partnership, trust or other entity which is unrelated to the
Company’s business. Other than Contracts listed on Section 2.22 of the
Shareholder Disclosure Schedule, the Company does not have outstanding any
Contract or other arrangement or commitment with any Shareholder or any
director, officer, Employee, trustee or beneficiary of the Company. Except as
set forth on Section 2.22 of the Shareholder Disclosure Schedule, the assets of
the Company do not include any receivable or other obligation from any
Shareholder or any director, officer, Employee, trustee or beneficiary of the
Company and the liabilities of the Company do not include any payable or other
obligation or commitment to any such Person.

 

Section 2.23.         Legal Proceedings; Orders.

 

(a)          Except as set forth on Section 2.23(a) of the Shareholder
Disclosure Schedule, there is no pending Legal Proceeding, and to the Knowledge
of the Company, no Person is currently threatening to commence any Legal
Proceeding (i) that involves any Shareholder, (ii) that involves the Company its
directors or officers, its business, the Shares or any of the assets owned, used
or controlled by the Company, or (iii) that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
the transactions contemplated by this Agreement or any of the Shareholder
Related Agreements. To the Knowledge of the Company, no event has occurred, and
no claim, dispute or other condition or circumstance exists, that will, or that
could reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding.

 

(b)          There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the Knowledge of the Company, no officer or Employee of the Company is subject
to any order, writ, injunction, judgment or decree that prohibits such officer
or Employee from engaging in or continuing any conduct, activity or practice
relating to the business of the Company. Except as set forth on Section 2.23(b)
of the Shareholder Disclosure Schedule, the Company has no obligation to
indemnify any third party for defense, settlement and/or judgment costs incurred
by such third party.

 

28

 

 

Section 2.24.         Customers and Suppliers.    Section 2.24 of the
Shareholder Disclosure Schedule contains a true, correct and complete list of
the names and addresses of the top ten customers and suppliers based on revenues
or payables, as appropriate. The Company maintains good commercial relations
with each of its customers and suppliers and, to the Knowledge of the Company,
no event has occurred that could reasonably be expected to materially and
adversely affect the Company’s relations with any such customer or supplier. No
customer (or former customer) or supplier (or former supplier) during the prior
twelve (12) months has canceled, terminated or, to the Knowledge of the Company,
made any threat to cancel or otherwise terminate any of such customer’s or
supplier’s Contracts with the Company or to decrease such customer’s usage of
the Company’s services or products or such supplier’s supply of services or
products. The Company has not received any written notice and the Company does
not have any Knowledge to the effect that any current customer or supplier may
terminate or materially alter its business relations with the Company, either as
a result of the transactions contemplated hereby or otherwise.

 

Section 2.25.         Finder’s Fee.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with this Agreement or any of the other transactions contemplated hereby based
upon arrangements made by or on behalf of the Company, or any officer, member,
director or Employee of the Company.

 

Section 2.26.         Certain Payments.   None of the Shareholders, the Company,
or any manager, officer, Employee, agent or other Person associated with or
acting for or on behalf of the Company, has at any time, directly or indirectly,
in violation of applicable Law:

 

(a)          used any corporate funds (i) to make any unlawful political
contribution or for any other unlawful purpose or effect relating to any
political activity or (ii) to make any unlawful payment to any governmental
official or employee;

 

(b)          made any unlawful payoff, influence payment, bribe or kickback to
any Person, for the purpose or effect of obtaining (i) favorable treatment in
securing business for the Company or (ii) any other special concession for the
Company; or

 

(c)          agreed, committed, offered or attempted to take any of the actions
described in clauses (a) or (b).

 

Section 2.27.         Insolvency Proceedings.  None of the Shareholders, the
Company, or any of the Shares or the Company’s assets is the subject of any
pending, rendered or threatened insolvency proceedings of any character. None of
the Shareholders or the Company has made an assignment for the benefit of
creditors or taken any action with a view to or that would constitute a valid
basis for the institution of any such insolvency proceedings. None of the
Shareholders or the Company is insolvent or will become insolvent as a result of
entering into this Agreement or consummating the transactions contemplated
hereby.

 

Section 2.28.         No Additional Representations. Other than the
representations and warranties expressly set forth in Article II, the Company
and the Shareholders shall not be deemed to have made any other representation
or warranty in connection with this Agreement or the Shareholder Related
Agreements or the transactions contemplated hereby or thereby.

 

29

 

 

ARTICLE III
Representations and Warranties of the Purchaser

 

The Purchaser represents and warrants to the Company and the Shareholders, as of
the date hereof and as of the Closing Date, as set forth below.

 

Section 3.1.          Corporate Existence and Power.   The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate power required to conduct
its business as now conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on the
Purchaser’s business, financial condition or results of operations.

 

Section 3.2.          Authorization; Binding Nature of Agreement.  The Purchaser
has the absolute and unrestricted right, power and authority to perform its
obligations under this Agreement and under each Purchaser Related Agreement to
which it is a party, and the execution, delivery and performance by the
Purchaser of this Agreement and the Purchaser Related Agreements have been duly
authorized by all necessary action on the part of the Purchaser and its board of
directors. This Agreement constitutes the legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the Bankruptcy and Equity Exception. Upon the execution and delivery
by or on behalf of the Purchaser of each Purchaser Related Agreement, such
Purchaser Related Agreement will constitute the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, subject to the Bankruptcy and Equity Exception.

 

Section 3.3.          Absence of Restrictions; Required Consents.  Neither (1)
the execution, delivery or performance by the Purchaser of this Agreement or any
of the Purchaser Related Agreements, nor (2) the consummation of transactions
contemplated by this Agreement or any of the Purchaser Related Agreements, will
directly or indirectly (with or without notice or lapse of time):

 

(a)          contravene, conflict with or result in a violation of any of the
provisions of the Purchaser Constituent Documents;

 

(b)          contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or any of the Purchaser Related Agreements or to
exercise any remedy or obtain any relief under, any Law or any order, writ,
injunction, judgment or decree to which the Purchaser, or any of the assets
owned, used or controlled by the Purchaser, is subject; or

 

(c)          contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Purchaser or that otherwise relates to the business of the
Purchaser or to any of the assets owned, used or controlled by the Purchaser.

 

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Section 3.4.          Solvency; Ability to Perform Agreement. Purchaser is
solvent, now has, or at the Closing Date will have, available funds necessary to
pay the Purchase Price without the need to obtain additional financing, and to
its Knowledge, there is no occurrence, event or condition with respect to it
that would prevent it from performing this Agreement in all material respects.
Purchaser will not become insolvent as a result of consummating the transactions
contemplated by this Agreement.

 

Section 3.5.          Brokers. No broker, finder or investment banker or other
Person is directly or indirectly entitled to any brokerage, finder’s or other
fee or commission or any similar charge in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Purchaser.

 

Section 3.6.          SEC Filings. Purchaser has made all filings (collectively
“Public Reports”) with the Securities and Exchange Commission that it has been
required to make under the Securities Exchange Act of 1934 (the “34 Act”). Each
of the Public Reports has complied with the 34 Act in all material respects.
None of the Public Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.

 

ARTICLE IV
Certain Covenants and Agreements

 

Section 4.1.          Tax Matters.

 

(a)          The Shareholders shall prepare or cause to be prepared and timely
file or cause to be timely filed all Tax Returns for the Company and, unless
otherwise required by applicable Law, in a manner consistent with past practice,
applicable non-resident state Tax Returns for the Shareholders for all Tax
periods ending on or prior to the Closing Date which are filed after the Closing
Date (“Pre-Closing Tax Periods”), provided that the Purchaser shall be given a
reasonable opportunity to review and comment on all such Tax Returns at least
fifteen (15) business days prior to the date such Tax Returns are due, and the
Shareholders shall make all changes and modifications to such Tax Returns as are
reasonably requested by the Purchaser, and provided, further, that the Purchaser
shall reimburse the Shareholders for one-half (1/2) of the expenses reasonably
incurred by the Shareholders for preparing such Tax Returns for the Company and
applicable non-resident state Tax Returns for the Shareholders.

 

(b)          The Purchaser shall prepare or cause to be prepared and timely file
or cause to be timely filed any Tax Returns of the Company and, unless otherwise
required by applicable Law, in a manner consistent with past practice,
applicable non-resident state Tax Returns for the Shareholders for Tax periods
which begin before the Closing Date and end after the Closing Date (“Straddle
Tax Periods”), provided that the Shareholders’ Representative shall be given a
reasonable opportunity to review and comment on all such Tax Returns at least
fifteen (15) business days prior to the date such Tax Returns are due, and
Purchaser shall make all changes and modifications to such Tax Returns as are
reasonably requested by the Shareholders’ Representative.

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(c)          The Shareholders shall be responsible for, on a pro rata basis in
proportion to their respective ownership interests in the Company on the Closing
Date, and shall indemnify the Purchaser from and against, any Tax with respect
to the Company that is attributable to a Pre-Closing Tax Period or to that
portion of Straddle Tax Period that ends on the Closing Date, in each case to
the extent that such Tax exceeds the amount (if any) reflected as a current
liability for such Tax in the Final Net Working Capital Schedule. Within five
(5) Business Days prior to the due date for the payment of any such Tax, if the
amount of such Tax for which the Shareholders are responsible pursuant to this
Section 4.1 exceeds the amount reflected as a current liability for such Tax in
the Final Net Working Capital Schedule, the Shareholders (on a pro rata basis in
proportion to their respective ownership interests in the Company on the Closing
Date) shall pay to the Purchaser an amount equal to such excess. For purposes of
this Section  4.1, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Straddle Tax Period, the portion of such Tax which relates
to the portion of such Taxable period ending on the Closing Date shall (i) in
the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire Tax period
multiplied by a fraction the numerator of which is the number of days in the Tax
period ending on the Closing Date and the denominator of which is the number of
days in the entire Tax period, and (ii) in the case of any Tax based upon or
related to income or receipts be deemed equal to the amount which would be
payable if the relevant Tax period ended on the Closing Date.

 

(d)          The Purchaser, the Company and the Shareholders shall cooperate as
and to the extent reasonably requested by any other party, in connection with
the preparation, review and filing of Tax Returns pursuant to this Section 4.1
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon another party's request) the
provision of records and information which are reasonably relevant to any such
Tax Return preparation, Tax Return review, audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. The
Shareholders’ Representative shall direct and control any audit, litigation or
other proceeding with respect to Tax Returns for periods ending on or prior to
the Closing Date. The Purchaser shall direct and control any audit, litigation
or other proceeding with respect to Tax Returns for Straddle Tax Periods.

 

(e)          Any Taxes or recording fees payable as a result of the purchase and
sale of the Shares or any other action contemplated hereby (other than any
federal, state, local or foreign Taxes measured by or based upon income or gains
imposed upon the Purchaser) shall be paid by the Purchaser. The parties shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications and other documents regarding Taxes and all
transfer, recording, registration and other fees that become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed at or prior to the Closing.

 

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(f)          Upon written notice from the Purchaser delivered to the
Shareholders’ Representative on or before the fifteenth (15th) day of the ninth
(9th) month beginning after the calendar month in which the Closing occurs, the
Company and the Shareholders shall join with the Purchaser in making an election
under Section 338(h)(10) of the Code (and any corresponding election under
state, local and foreign Tax law) with respect to the purchase and sale of the
Shares herein (collectively, the “Section 338(h)(10) Election”). The
Shareholders shall include any income, gain, loss, deduction, or other Tax item
resulting from the Section 338(h)(10) Election on their income Tax Returns to
the extent required by law. In the event a Section 338(h)(10) Election is made
by the parties at Purchaser’s request, the Purchaser shall (i) pay the
Shareholders, on an after-Tax basis, for any additional Tax liabilities to the
Shareholders above the applicable federal and state capital gains tax rates,
reflected on their individual income Tax Returns, if any, incurred by the
Shareholders and (ii) if such election is made after March 1, 2015, pay or
reimburse the Shareholders for any additional costs reasonably incurred by the
Shareholders, solely as a result of such election, to amend any Tax Return filed
by the Shareholders after April 15, 2015. If a Section 338(h)(10) Election is
made, the Purchaser and the Shareholders’ Representative shall mutually agree
upon the allocation of the Purchase Price for Tax purposes.

 

(g)          The Company, Purchaser and each Shareholder covenants and agrees to
use the closing of the books method of accounting pursuant to Section 1362(e)(3)
or Section 1377(a)(2) of the Code or Treasury Regulations §1.1368-1(g), as
applicable, to allocate the income of the Company from January 1, 2014 to the
Closing Date to the Shareholders.

 

Section 4.2.          Insurance. The Shareholders shall not terminate or permit
to be terminated any of the insurance policies listed on Section 2.21 of the
Shareholder Disclosure Schedule covering the Company or its property, with
respect to each such policy, for a period of thirty (30) days following the
Closing or until such policy is earlier terminated, replaced or renewed by the
Purchaser.

 

Section 4.3.          Receivables.

 

(a)          During the period commencing on the Closing Date and ending on the
eighteen (18)-month anniversary of the Closing Date, Purchaser and the Company
shall cause the Company to pursue collection of all accounts receivable of the
Company as of the Closing Date other than the accounts receivable of the Company
listed on Section 2.9 of the Shareholder Disclosure Schedule (the “Uncollected
Receivables”) in accordance with commercially reasonable practices and no less
diligent than by the Purchaser in its ordinary course of business. Neither the
Company nor the Purchaser shall be obligated, however, to engage a collection
agency or commence any legal proceeding to collect the Uncollected Receivables.
All such payments from each obligor shall be on a “first-in, first-out” basis
during such eighteen (18)-month period so that each payment from an obligor is
applied first to the oldest outstanding account receivable of such obligor,
unless: (i) otherwise directed in writing by the obligor in the event of
disputed receivables, or (ii) the obligor indicates a specific invoice number on
the check in respect of the payment.

 

(b)          Subject to Section 1.4(d), all amounts payable after the Closing
Date by the prime contractor listed on Section 2.9 of the Shareholder Disclosure
Schedule shall be promptly remitted to the Shareholders, pro rata in accordance
with their respective ownership interests in the Company as of the Closing.
Purchaser may cause the Company to (i) assign to the Shareholders, or a limited
liability company to be formed by the Shareholders, the Settlement Agreement
referenced on Section 2.9 of the Shareholder Disclosure Schedule at any time
after October 15, 2014, if there is a default under the Settlement Agreement
and/or (ii) use commercially reasonable efforts to enforce, at the expense of
the Shareholders (such collection costs to be borne on a pro rata basis in
accordance with their respective ownership interests in the Company as of the
Closing), the Company’s right to receive payments after the Closing Date under
such Settlement Agreement.

 

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(c)          In the event (i) neither the Company nor Purchaser is able to
collect accounts receivable that are included in Net Working Capital for
purposes of the Purchase Price adjustment set forth in Section 1.4 within nine
(9) months following the Closing Date, or (ii) Purchaser makes a claim for
indemnification pursuant to Section 8.1(a) in connection with an alleged breach
of the representation set forth in Section 2.9 regarding the collectability of
such accounts receivable, Purchaser may offset the amount of the Loss against
the Closing Notes pursuant to Section 8.7. If, thereafter, the Company or
Purchaser actually receives payment on any accounts receivable from an account
debtor after satisfaction of an indemnification claim by offset against the
Closing Notes, the Company shall deliver such account debtor’s payment to the
Shareholders’ Representative for distribution to the Shareholders, pro rata in
accordance with each Shareholder’s ownership interest in the Company as of the
Closing Date, in accordance with this Agreement.

 

Section 4.4.          Replacement Bonds. As promptly as practicable following
the Closing Date, the Purchaser shall use its commercially reasonable best
efforts to cause the bonds listed on Section 2.21 of the Shareholder Disclosure
Schedule (the “CES Bonds”) to be discharged and replaced with substitute bonds
obtained by the Purchaser.

 

ARTICLE V
Conditions Precedent to the Obligations of the Purchaser

 

The obligations of the Purchaser to consummate the transactions contemplated by
this Agreement and the Purchaser Related Agreements are subject to the
satisfaction (or written waiver by the Purchaser), at or prior to the Closing,
of each of the following conditions:

 

Section 5.1.          Accuracy of Representations.  Each of the representations
and warranties of the Company and the Shareholders contained in this Agreement
shall be true and correct in all respects as of the date of the Closing Date
(except to the extent that they expressly related to an earlier date), except
where the failure of such representations and warranties to be true and correct
(without giving effect to any limitation as to “materiality” or “Material
Adverse Effect” set forth in such representations and warranties), individually
or in the aggregate, has not had and could not reasonably be expected to have a
Material Adverse Effect.

 

Section 5.2.          Consents.   All consents, approvals, orders or
authorizations of, or registrations, declarations or filings set forth on
Section 5.2 of the Shareholder Disclosure Schedule shall have been obtained or
made and shall be in full force and effect, in each case in form and substance
reasonably satisfactory to the Purchaser.

 

Section 5.3           Compliance with Covenants and Agreements.     All of the
covenants and agreements to be complied with and performed by Company and/or the
Shareholders on or before the Closing Date shall have been duly complied with
and performed in all material respects.

 

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Section 5.4           Ancillary Agreements and Deliveries.   The Shareholders
shall have delivered, or caused to be delivered, to the Purchaser the documents
listed in Section 7.2, each of which shall be in full force and effect.

 

Section 5.5           Payoff Letters.   The Shareholders shall have delivered,
or caused to be delivered, to the Purchaser payoff letters (the “Payoff
Letters”), reasonably satisfactory to the Purchaser, evidencing that the Closing
Date Indebtedness shall be repaid in full by the Company on or prior to the
Closing Date, including a Payoff Letter for the Company’s line of credit.

 

Section 5.6           Release of Encumbrances.   The Shareholders shall have
delivered, or caused to be delivered, to the Purchaser evidence reasonably
satisfactory to the Purchaser that all Encumbrances (other than Permitted
Encumbrances) affecting any of the assets of the Company have been released, or
will be released upon repayment of the Closing Date Indebtedness pursuant
hereto.

 

Section 5.7           Resignation of Officers and Directors. Each officer and
director of the Company shall deliver a letter of resignation to the Company,
effective as of the Closing Date.

 

Section 5.8           No Restraints.   No temporary restraining order,
preliminary or permanent injunction or other Order preventing the consummation
of the transactions contemplated hereby shall have been issued by any
Governmental Body, and there shall not be any Law enacted or deemed applicable
that makes the Closing illegal.

 

Section 5.9           No Litigation.   There shall not be pending or threatened
any Legal Proceeding by or before any Governmental Body against the Purchaser,
any Shareholder or the Company (a) seeking to restrain or prohibit the
Purchaser’s direct or indirect ownership or operation of all or a significant
portion of the business and assets of the Company, or to compel the Purchaser or
any of its Affiliates to dispose of or hold separate any significant portion of
the business or assets of the Company, (b) seeking to restrain or prohibit or
make materially more costly the consummation of the transactions contemplated by
this Agreement, or seeking to obtain from the Purchaser or the Company any
material damages, (c) seeking to impose limitations on the ability of the
Purchaser to acquire or hold, or exercise full rights of ownership of the
Shares, or (d) which otherwise could reasonably be expected to have a Material
Adverse Effect.

 

Section 5.10         Employee Matters.   The Company shall have made, or caused
to be made, all contributions and paid all premiums under each Company Benefit
Plan and ERISA Affiliate Plan, other than a pension benefit plan within the
meaning of ERISA § 3(2), with respect to periods ending on or prior to the
Closing Date.

 

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ARTICLE VI
Conditions Precedent to Obligations of the Company and the ShareholderS

 

The obligations of the Company and the Shareholders to consummate the
transactions contemplated by this Agreement and the Shareholder Related
Agreements are subject to the satisfaction (or written waiver), at or prior to
the Closing, of the following conditions:

 

Section 6.1.          Accuracy of Representations.   Each of the representations
and warranties of the Purchaser contained in this Agreement shall be true and
correct in all respects as of the Closing Date (except to the extent that they
expressly related to an earlier date).

 

Section 6.2.          Ancillary Agreements and Deliveries.   The Purchaser shall
have delivered, or caused to be delivered, to the Shareholders the items listed
in Section 7.3, each of which, in the case of agreements and documents, shall be
in full force and effect.

 

Section 6.3.          No Restraints.  No temporary restraining order,
preliminary or permanent injunction or other Order preventing the consummation
of the transactions contemplated hereunder shall have been issued by any
Governmental Body and shall remain in effect, and there shall not be any Law
enacted or deemed applicable to the transactions contemplated hereunder that
makes the Closing illegal.

 

Section 6.4.          Consents.   All consents approvals, orders or
authorizations of, or registrations, declarations or filings with, any
Governmental Body shall have been obtained or made on terms and conditions
reasonably satisfactory to the Shareholders.

 

ARTICLE VII
Closing

 

Section 7.1.          Closing.  Unless otherwise mutually agreed in writing
between the Purchaser and the Shareholders, the Closing shall take place at the
offices of the Purchaser on June 30, 2014 (the “Closing Date”). The Closing
shall be deemed effective for all purposes as of 11:59 p.m. on the Closing Date.

 

Section 7.2.          Closing Deliveries.   At the Closing, the Shareholders and
the Company, as applicable, shall deliver, or cause to be delivered, to the
Purchaser the following:

 

(a)          certificates representing the Shares, duly endorsed in blank or
accompanied by duly executed stock powers or other instruments of assignment
requested by and reasonably satisfactory in form and substance to the Purchaser;

 

(b)          the organizational record books, minute books and corporate seal of
the Company;

 

36

 

 

(c)          Payoff Letters showing satisfaction in full of the Company’s
indebtedness upon disbursement of a portion of the Closing Cash in repayment of
amounts owed under such line (to the extent necessary) and the full release of
any related Encumbrances;

 

(d)          written resignations of the directors and officers of the Company,
effective as of the Closing Date;

 

(e)          a certificate, dated as of the Closing Date, signed by the
Secretary of the Company (i) attaching copies of the articles of incorporation
and bylaws, and any amendments thereto, of the Company, (ii) attaching a true,
correct and complete copy of the stock ledger of the Company from the date of
its incorporation through the Closing Date, (iii) certifying that attached
thereto are true, correct and complete copies of action by written consent or
resolutions duly adopted by the Board of Directors of the Company which
authorize and approve the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, (iv) certifying
the good standing of the Company in its jurisdiction of incorporation and in
each other jurisdiction in which it is qualified to do business, and that there
are no proceedings for the dissolution or liquidation of the Company, (v)
certifying the incumbency, signature and authority of the officers of the
Company authorized to execute, deliver and perform this Agreement and all other
documents, instruments or agreements related thereto executed or to be executed
by the Company, and (vi) attesting that Company and each Shareholder have
complied with all conditions set forth in Articles IV and V hereof or indicating
with specificity any respects in which those conditions have not been complied
with, in a form reasonably satisfactory to Purchaser; and

 

(f)          all other documents required to be entered into by the Company and
the Shareholders pursuant hereto or reasonably requested by the Purchaser to
convey the Shares to the Purchaser or to otherwise consummate the transactions
contemplated hereby, including the documents listed in Section 7.2.

 

Section 7.3.          Purchaser Closing Deliveries.  At the Closing, the
Purchaser shall deliver, or cause to be delivered, to the Shareholders the
following:

 

(a)          the portion of the Purchase Price to be paid at the Closing
pursuant to Section 1.3(a)(i);

 

(b)          the Closing Notes; and

 

(c)          and all other documents required to be entered into or delivered by
the Purchaser at or prior to the Closing pursuant hereto.

 

Section 7.4.          Other Closing Documents and Actions. The parties will also
execute such other documents and perform such other acts, before and after the
Closing Date, as may be necessary for the implementation and consummation of
this Agreement.

 

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ARTICLE VIII
Indemnification

 

Section 8.1.          Indemnification Obligations of the Shareholders.  From and
after the Closing, the Shareholders, severally (on a pro rata basis in
accordance with their respective ownership interests in the Company as of the
Closing), shall indemnify and hold harmless the Purchaser Indemnified Parties
from and against, and compensate, reimburse and pay the Purchaser Indemnified
Parties for, any and all Losses arising out of or relating to:

  

(a)          any breach of any representation or warranty of the Company or any
Shareholder set forth in this Agreement or any other Shareholder Related
Agreement;

 

(b)           any breach of any covenant, agreement or undertaking made by the
Company or any Shareholder in this Agreement or in any Shareholder Related
Agreement;

 

(c)           (i)          any of the Company Benefit Plans in respect of or
relating to any period ending on or prior to the Closing Date; or

 

(ii)         any employee claims against the Company or any of its officers or
directors based solely on or arising solely out of incidents or matters on or
prior to the Closing Date, including any claims based on or arising out of
allegations of wrongful termination, sexual harassment or violations of any
federal, state or local statute relating to discrimination on the basis of
gender, race, age, disability, sexual preference or other protected status;

 

(d)          any liability or obligation of the Company for (i) any Taxes that
are the responsibility of the Shareholders pursuant to Section 4.1, (ii) any
Taxes incurred in any Tax period beginning after the Closing Date but arising
from the settlement or other resolution with any Governmental Body of an
asserted Tax liability which relates to any Tax period or portion thereof ending
on or before the Closing Date, or (iii) the unpaid Taxes of any Person under
Treasury Regulations Section 1.1502-6 (or any similar provision of other
federal, provincial, state, local or foreign Law), as a transferee or successor,
by Contract or otherwise, in each case whether or not disclosed to the Purchaser
in any Schedules to this Agreement, the Company Financial Statements or
otherwise;

 

(e)          the Closing Date Indebtedness or any accounts receivable of the
Company included in Net Working Capital for purposes of the Purchase Price
adjustment which are (after giving effect to any reserves) determined to be
uncollectible (which determination will not be made prior to the nine (9) -month
anniversary of the Closing Date);

 

(f)          any unallowable costs or any other audit disallowances made after
the Closing Date but pertaining to invoices issued by the Company for work
performed prior to the Closing Date or to binding proposals or contract pricing
submitted prior to the Closing Date (but only to the extent the Company or
Purchaser is actually required to reimburse or repay any such costs or
disallowances);

 

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(g)          any matter set forth on Exhibit 8.1; and

 

(h)          enforcing Purchaser Indemnified Parties’ indemnification rights
provided for hereunder.

 

The Losses of the Purchaser Indemnified Parties described in this Section 8.1 as
to which the Purchaser Indemnified Parties are entitled to indemnification are
collectively referred to as “Purchaser Losses.”

 

Section 8.2.          Indemnification Obligations of the Purchaser.

From and after the Closing, the Purchaser shall indemnify and hold harmless the
Shareholder Indemnified Parties from and against, and compensate, reimburse and
pay the Shareholder Indemnified Parties for, any and all Losses arising out of
or relating to:

 

(a)          any breach of any representation or warranty of the Purchaser set
forth in this Agreement or in any Purchaser Related Agreement;

 

(b)          any breach of any covenant, agreement or undertaking made by the
Purchaser in this Agreement or in any Purchaser Related Agreement;

 

(c)          any liability or obligations actually paid by the Shareholders on
account of the CES Bonds arising solely from the Company’s or Purchaser’s
failure to perform, or breach of contract, following the Closing Date; provided,
that, the foregoing indemnification obligation shall have no force or effect if
and to the extent the Company failed to perform or breached the contract
supported by the CES Bonds prior to the Closing Date; and

 

(d)          enforcing Shareholder Indemnified Parties’ indemnification rights
provided for hereunder.

 

The Losses of the Shareholder Indemnified Parties described in this Section 8.2
as to which the Shareholder Indemnified Parties are entitled to indemnification
are collectively referred to as “Shareholder Losses.”

 

39

 

 

Section 8.3.          Indemnification Procedure.

 

(a)          Promptly following receipt by an Indemnified Party of notice by a
third party (including any Governmental Body) of any complaint, dispute or claim
or the commencement of any audit, investigation, action or proceeding with
respect to which such Indemnified Party may be entitled to indemnification
pursuant hereto (a “Third-Party Claim”), such Indemnified Party shall provide
written notice thereof to the party obligated to indemnify under this Agreement
(the “Indemnifying Party”), provided, however, that the failure to so notify the
Indemnifying Party shall relieve the Indemnifying Party from liability hereunder
with respect to such Third-Party Claim only if, and only to the extent that,
such failure to so notify the Indemnifying Party results in the forfeiture by
the Indemnifying Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such Third-Party Claim. The Indemnifying
Party shall have the right, upon written notice delivered to the Indemnified
Party within twenty (20) calendar days thereafter assuming full responsibility
for any Purchaser Losses or Shareholder Losses (as the case may be) resulting
from such Third-Party Claim, to assume the defense of such Third-Party Claim,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of the fees and disbursements of such counsel. In the
event, however, that the Indemnifying Party declines or fails to assume the
defense of such Third-Party Claim on the terms provided above or to employ
counsel reasonably satisfactory to the Indemnified Party, in either case within
such twenty (20)-day period, then any Purchaser Losses or any Shareholder Losses
(as the case may be), shall include the reasonable fees and disbursements of
counsel for the Indemnified Party as incurred. In any Third-Party Claim for
which indemnification is being sought hereunder the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such Third-Party
Claim, shall have the right to participate in such matter and to retain its own
counsel at such Party’s own expense. The Indemnifying Party or the Indemnified
Party (as the case may be) shall at all times use reasonable efforts to keep the
Indemnifying Party or Indemnified Party (as the case may be) reasonably apprised
of the status of the defense of any matter the defense of which it is
maintaining and to cooperate in good faith with each other with respect to the
defense of any such matter.

 

(b)          No Indemnified Party may settle or compromise any Third-Party Claim
or consent to the entry of any judgment with respect to which indemnification is
being sought hereunder without the prior written consent of the Indemnifying
Party (which may not be unreasonably withheld or delayed), unless (i) the
Indemnifying Party fails to assume and maintain diligently the defense of such
Third-Party Claim pursuant to Section 8.3(a) or (ii) such settlement, compromise
or consent includes an unconditional release of the Indemnifying Party and its
officers, directors, employees and Affiliates from all liability arising out of,
or related to, such Third-Party Claim and such release does not contain any
admission or statement acknowledging any wrongdoing or liability on behalf of
the Indemnifying Party. An Indemnifying Party may not, without the prior written
consent of the Indemnified Party, settle or compromise any Third-Party Claim or
consent to the entry of any judgment with respect to which indemnification is
being sought hereunder unless such settlement, compromise or consent (i)
includes an unconditional release of the Indemnified Party and its officers,
directors, employees and Affiliates from all liability arising out of, or
related to, such Third-Party Claim, (ii) does not contain any admission or
statement suggesting any wrongdoing or liability on behalf of the Indemnified
Party, and (iii) does not contain any equitable order, judgment or term that in
any manner affects, restrains or interferes with the business of the Indemnified
Party or any of the Indemnified Party’s Affiliates.

 

40

 

 

(c)          In the event an Indemnified Party claims a right to payment
pursuant hereto with respect to any matter not involving a Third Party Claim (a
“Direct Claim”), such Indemnified Party shall send written notice of such claim
to the appropriate Indemnifying Party (a “Notice of Claim”). Such Notice of
Claim shall specify the basis for such Direct Claim. The failure by any
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability that it may have to such Indemnified Party
with respect to any Direct Claim made pursuant to this Section 8.3(c), it being
understood that Notices of Claim in respect of a breach of a representation or
warranty must be delivered prior to the expiration of the survival period for
such representation or warranty under Section 8.4. In the event the Indemnifying
Party does not notify the Indemnified Party within thirty (30) calendar days
following its receipt of such Notice of Claim that the Indemnifying Party
disputes its liability to the Indemnified Party under this Article VIII or the
amount thereof, the Direct Claim specified by the Indemnified Party in such
Notice of Claim shall be conclusively deemed a liability of the Indemnifying
Party under this Article VIII, and the Indemnifying Party shall pay the amount
of such liability to the Indemnified Party on demand or, in the case of any
notice in which the amount of the Direct Claim (or any portion of the Direct
Claim) is estimated, on such later date when the amount of such Direct Claim (or
such portion of such Direct Claim) becomes finally determined. In the event the
Indemnifying Party has timely disputed its liability with respect to such Direct
Claim as provided above, as promptly as reasonably practicable, such Indemnified
Party and the appropriate Indemnifying Party shall establish the merits and
amount of such Direct Claim (by mutual agreement, litigation or otherwise) and,
within five (5) Business Days following the final determination of the merits
and amount of such Direct Claim, the Indemnifying Party shall pay to the
Indemnified Party immediately available funds in an amount equal to such Direct
Claim as determined hereunder.

 

Section 8.4.          Survival Period.  The representations and warranties made
by the parties herein shall not be extinguished by the Closing, but shall
survive the Closing for, and all claims for indemnification in connection
therewith, and claims for indemnification pursuant to Section 8.1(g), shall be
asserted not later than, (x) the eighteen (18) -month anniversary of the Closing
Date or (y) the date that is forty-five (45) calendar days after the date on
which the Purchaser receives a final audit report for the calendar year ending
on December 31, 2014 that includes the financial results from the Company’s
business for such period, whichever occurs first; provided, however, that (a)
each of the representations and warranties contained in Sections 2.1 through
2.3, 2.4(a), 2.5, 3.1, 3.2 and 3.5, and any claim for fraud, shall survive the
Closing without limitation as to time, and the period during which a claim for
indemnification may be asserted in connection therewith shall continue
indefinitely, (b) each of the representations and warranties contained in
Sections 2.16, 2.17, 2.20, 2.25 and 2.26 shall survive the Closing until, and
all claims for indemnification in connection therewith shall be asserted not
later than, the date that is sixty (60) calendar days after the expiration of
any statute of limitations applicable to the rights of any Person to bring any
claim with respect to such matters and (c) each of the representations and
warranties contained in Section 2.14 shall survive the Closing until, and all
claims for indemnification in connection therewith shall be asserted not later
than, the thirty-six (36) month anniversary of the Closing Date. The covenants
and agreements of the parties hereunder shall survive without limitation as to
time, and the period during which a claim for indemnification may be asserted in
connection therewith shall continue indefinitely. Notwithstanding the foregoing,
if, prior to the close of business on the last day a claim for indemnification
may be asserted hereunder, an Indemnifying Party shall have been properly
notified of a claim for indemnity hereunder and such claim shall not have been
finally resolved or disposed of at such date, such claim shall continue to
survive and shall remain a basis for indemnity hereunder until such claim is
finally resolved or disposed of in accordance with the terms hereof.

 

41

 

 

Section 8.5.          Liability Limits.

 

(a)          An Indemnified Party shall not make a claim against an Indemnifying
Party for indemnification under Sections 8.1(a) or Section 8.2(a), as
appropriate, unless and until the aggregate amount of such Purchaser Losses or
Shareholder Losses, as appropriate, exceeds $50,000 (the “Basket”), in which
event the Indemnified Party may claim indemnification for all Purchaser Losses
or Shareholder Losses, as appropriate, solely to the extent such losses exceed
$50,000. The total aggregate liability of the Indemnifying Parties for Purchaser
Losses or Shareholder Losses, as appropriate, shall be limited to thirty-five
percent (35%) of the aggregate Purchase Price actually paid to the Shareholders
(the “Cap”). Neither the Basket nor the Cap shall apply to any Purchaser Losses
or Shareholder Losses, as appropriate, arising out of fraud or a breach of any
representations and warranties contained in Sections 2.1 through 2.3, Sections
2.4(a), 2.5, 2.9, 2.16, 2.17, 2.20, 2.25, or Sections 3.1 through 3.3 or 3.5, or
the specific indemnification obligations set forth in Sections 8.1(c)(i) or
(ii), (d), (e) or (f) or 8.2(c), and the respective Indemnifying Party shall be
liable for all Purchaser Losses or Shareholder Losses, as appropriate, with
respect thereto; and the Basket shall not apply to any Purchaser Losses arising
out of the specific indemnification obligation set forth in Section 8.1(g);
provided, however, except in the case of fraud, in no event shall the total
liability of any Shareholder for any and all Purchaser Losses under this Article
VIII exceed the pro rata portion of the aggregate Purchase Price actually paid
to such Shareholder.

 

(b)          In case any event shall occur that would otherwise entitle a Party
to assert a claim for indemnification hereunder, no Losses shall be deemed to
have been sustained by such Party to the extent of any Tax savings actually
realized, within eighteen (18) months of such event, by such Party with respect
thereto.

 

(c)          Notwithstanding anything herein to the contrary, no party shall be
entitled to indemnification or reimbursement from any other party under any
provision of this Agreement for any amount to the extent such party or its
Affiliate has been fully indemnified or reimbursed for such amount under any
other provision of this Agreement, the exhibits or the schedules attached
hereto, or any document executed in connection with this Agreement or otherwise.
Furthermore, in the event any Losses related to a claim by the Purchaser are
covered by insurance, the Purchaser agrees to use commercially reasonable
efforts to seek recovery under such insurance and the Purchaser shall not be
entitled to recover from the Shareholders (and shall refund amounts received up
to the amount of indemnification actually received) with respect to such Losses
to the extent the Purchaser recovers the insurance payment specified in the
policy.

 

(d)          Notwithstanding anything to the contrary contained in this
Agreement, none of the parties hereto shall have any liability under any
provision of this Agreement for any punitive, consequential, special or indirect
damages, including diminution in value, loss of business reputation or
opportunity or (except to the extent provided below) loss of future profits,
revenue or income, relating to the breach or alleged breach of any provision of
this Agreement, regardless of whether such damages were foreseeable, except to
the extent such damages are payable to a third party; provided, however, the
foregoing limitation shall not prohibit or preclude recovery by a Purchaser
Indemnified Party for lost profits on any Contracts that are active and funded
as of the date of this Agreement to the extent arising from a breach of the
representations and warranties contained in Sections 2.14. Each of the parties
agrees to take commercially reasonable steps to mitigate their respective Losses
upon and after becoming aware of any event or condition which could reasonably
be expected to give rise to any Losses that are indemnifiable hereunder.

 

42

 

 

Section 8.6.          Investigations.  The respective representations and
warranties of the parties contained in this Agreement or any certificate or
other document delivered by any party at or prior to the Closing and the rights
to indemnification set forth in this Article VIII shall not be deemed waived or
otherwise affected by any investigation made, or Knowledge acquired, by a party.

 

Section 8.7.          Offset Against Closing Notes.   In the event Purchaser
suffers any Purchaser Losses for which Purchaser is entitled to recovery under
this Article VIII, Purchaser may, subject to compliance with the procedures set
forth in Section 8.3, offset an amount equal to the aggregate amount of such
Losses against the total principal and accrued interest outstanding under the
Closing Notes, pro rata in accordance with each Shareholder’s ownership interest
in the Company as of the Closing.

 

Section 8.8.          Exclusive Remedy.   Except for actions grounded in fraud
or willful misconduct from and after the Closing, the indemnities provided in
this Article VIII shall constitute the sole and exclusive remedy of any
Indemnified Party for Losses arising out of, resulting from or incurred in
connection with any claims related to this Agreement or arising out of the
transactions contemplated hereby; provided, however, that this exclusive remedy
for Losses does not preclude a party from bringing an action for specific
performance or other equitable remedy to require a party to perform its
obligations under this Agreement or any agreement entered into in connection
herewith.

 

Section 8.9           Tax Treatment. Unless otherwise required by applicable
law, all indemnification payments shall constitute adjustments to the Purchase
Price for all Tax purposes, and no party shall take any position inconsistent
with such characterization.

 

Section 8.10         No Right of Contribution. The Shareholders shall have no
rights to seek contribution from the Company or Purchaser with respect to all or
any part of any of the Shareholders’ indemnification obligations under this
Article VIII.

 

ARTICLE IX
Miscellaneous Provisions

 

Section 9.1.          Further Assurances.   Each party hereto shall execute and
cause to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may reasonably
request (prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.

 

Section 9.2.          Fees and Expenses.  Each party to this Agreement shall
bear and pay all fees, costs and expenses (including legal fees and accounting
fees) that have been incurred or that are incurred by such party in connection
with the transactions contemplated by this Agreement; provided, however, that
the Shareholders shall be responsible for, and satisfy at or prior to the
Closing, all Transaction Expenses.

 

43

 

 

Section 9.3.          Waiver; Amendment.  Any agreement on the part of a party
to any extension or waiver of any provision hereof shall be valid only if set
forth in an instrument in writing signed on behalf of such party. A waiver by a
party of the performance of any covenant, agreement, obligation, condition,
representation or warranty shall not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or warranty. A waiver
by any party of the performance of any act shall not constitute a waiver of the
performance of any other act or an identical act required to be performed at a
later time. This Agreement may not be amended, modified or supplemented except
by written agreement of the parties.

 

Section 9.4.          Entire Agreement.   This Agreement, together with the
Related Agreements, constitutes the entire agreement among the parties to this
Agreement and supersedes all other prior agreements and understandings, both
written and oral, among or between any of the parties with respect to the
subject matter hereof and thereof.

 

Section 9.5.          Execution of Agreement; Counterparts; Electronic
Signatures.

 

(a)          This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument, and shall become effective when counterparts have been signed
by each of the parties and delivered to the other parties; it being understood
that all parties need not sign the same counterparts.

 

(b)          The exchange of copies of this Agreement and of signature pages by
facsimile transmission (whether directly from one facsimile device to another by
means of a dial-up connection or whether mediated by the worldwide web), by
electronic mail in “portable document format” (“.pdf”) form, or by any other
electronic means intended to preserve the original graphic and pictorial
appearance of a document, or by combination of such means, shall constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile shall be deemed to be their original signatures
for all purposes.

 

Section 9.6.          Governing Law.   This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the
Commonwealth of Virginia (without giving effect to principles of conflicts of
laws). The parties agree that venue for any suit, action, proceeding or
litigation arising out of or in relation to this Agreement shall be in any
federal or state court in Fairfax County in the Commonwealth of Virginia having
subject matter jurisdiction and that service of process in any such suit,
action, proceeding or litigation may be completed in the manner set forth in
Section 9.10.

 

Section 9.7.          WAIVER OF JURY TRIAL.   EACH OF THE PARTIES IRREVOCABLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN
THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.

 

44

 

 

Section 9.8.          Assignment and Successors.   No party may assign any of
its rights or delegate any of its obligations under this Agreement without the
prior written consent of the other parties, except that the Purchaser may assign
any of its rights and delegate any of its obligations under this Agreement to
any Affiliate of the Purchaser. If Purchaser assigns its obligations under any
of the Closing Notes or otherwise under this Agreement to an Affiliate, such
Affiliate’s obligations shall be unconditionally guaranteed by Purchaser.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon and inure to the benefit of the successors and permitted
assigns of the parties.

 

Section 9.9.          Parties in Interest.   Except for the provisions of
Article VIII, none of the provisions of this Agreement is intended to provide
any rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).

 

Section 9.10.         Notices.   All notices, consents, waivers and other
communications required or permitted by this Agreement shall be in writing and
shall be deemed given to a party when (a) delivered to the appropriate address
by hand or by nationally recognized overnight courier service (costs prepaid),
or (b) sent by facsimile or e-mail with confirmation of transmission by the
transmitting equipment confirmed with a copy delivered as provided in clause
(a), in each case to the following addresses, facsimile numbers or e-mail
addresses and marked to the attention of the person (by name or title)
designated below (or to such other address, facsimile number, e-mail address or
person as a party may designate by notice to the other parties):

 

Company (prior to the Closing):

 

J.M. Waller Associates, Inc.

11325 Random Hills Road Suite 210

Fairfax, Virginia 22030

Attention: James W. Emery, Jr.
Fax no.: (703) 912-2905
E-mail address: jim.emery@jmwaller.com

 

any Shareholder (after the Closing):

 

James W. Emery, Jr.,

Shareholder Representative

6326 Wilmington Drive

Burke, Virginia 22015
E-mail address: jwe429@msn.com

 

45

 

 

with a mandatory copy to (which copy shall not constitute notice):

 

Nixon Peabody LLP

401 9th Street, NW

Suite 900

Washington, DC 20004-2128

Attention: John C. Partigan

Fax no.: (866) 947-3586

E-mail address: jpartigan@nixonpeabody.com

 

Purchaser:

 

Versar, Inc.

6850 Versar Center

Springfield, Virginia 22151

Attention: James D. Villa

Fax no.: (703) 997-6588

E-mail address: jvilla@versar.com

 

with a mandatory copy to (which copy shall not constitute notice):

 

Rees Broome, PC

1900 Gallows Road, Seventh Floor

Tysons Corner, Virginia 22182

Attention: David J. Charles

Fax no.: (703) 848-2530

E-mail address: dcharles@reesbroome.com

 

Section 9.11.         Construction; Usage.

 

(a)          In this Agreement, unless a clear contrary intention appears:

 

(i)          the singular number includes the plural number and vice versa;

 

(ii)         reference to any Person includes such Person’s successors and
assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;

 

(iii)        reference to any gender includes each other gender;

 

(iv)        reference to any agreement, document or instrument means such
agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof;

 

46

 

 

(v)         reference to any Law means such Law as amended, modified, codified,
replaced or reenacted, in whole or in part, and in effect from time to time,
including rules and regulations promulgated thereunder, and reference to any
section or other provision of any Law means that provision of such Law from time
to time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other provision;

 

(vi)        “hereunder,” “hereof,” “hereto,” and words of similar import shall
be deemed references to this Agreement as a whole and not to any particular
Article, Section or other provision hereof;

 

(vii)       “including” means including without limiting the generality of any
description preceding such term; and

 

(viii)      references to documents, instruments or agreements shall be deemed
to refer as well to all addenda, exhibits, schedules or amendments thereto.

 

(b)          This Agreement was negotiated by the parties with the benefit of
legal representation and any rule of construction or interpretation otherwise
requiring this Agreement to be construed or interpreted against any party shall
not apply to any construction or interpretation hereof.

 

(c)          The headings contained in this Agreement are for the convenience of
reference only, shall not be deemed to be a part of this Agreement and shall not
be referred to in connection with the construction or interpretation of this
Agreement.

 

Section 9.12.         Enforcement of Agreement.  The parties acknowledge and
agree that the Purchaser would be irreparably damaged if any of the provisions
of this Agreement are not performed in accordance with their specific terms and
that any breach of this Agreement by the Company or the Shareholders could not
be adequately compensated in all cases by monetary damages alone. Accordingly,
in addition to any other right or remedy to which the Purchaser may be entitled,
at law or in equity, it shall be entitled to enforce any provision of this
Agreement by a decree of specific performance and temporary, preliminary and
permanent injunctive relief to prevent breaches or threatened breaches of any of
the provisions of this Agreement, without showing any measure of actual damages,
posting any bond or other undertaking. The parties also acknowledge and agree
that the Shareholders would be irreparably damaged if any of the provisions of
this Agreement are not performed in accordance with their specific terms and
that any breach of this Agreement by the Purchaser or its Affiliates could not
be adequately compensated in all cases by monetary damages alone. Accordingly,
in addition to any other right or remedy to which the Shareholders may be
entitled, at law or in equity, they shall be entitled to enforce any provision
of this Agreement by a decree of specific performance and temporary, preliminary
and permanent injunctive relief to prevent breaches or threatened breaches of
any of the provisions of this Agreement, without showing any measure of actual
damages, posting any bond or other undertaking.

47

 

 

 

Section 9.13.         Severability.   If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.

 

Section 9.14.         Schedules and Exhibits.   The Schedules and Exhibits
(including the Shareholder Disclosure Schedule) are hereby incorporated into
this Agreement and are hereby made a part hereof as if set out in full herein.

 

Section 9.15.         Appointment of Representative.

 

(a)          Upon execution of this Agreement, the Shareholders shall have been
deemed to appoint Emery as their agent and attorney-in-fact (the “Shareholders’
Representative”), with full power and authority (including power of
substitution), except as otherwise expressly provided in this Agreement, in the
name of and for and on behalf the Shareholders, or in such person’s own name as
the Shareholders’ Representative, to take all actions required or permitted
under this Agreement (including giving and receiving all accountings, reports,
notices and consents); provided, that, (i) any such action by the Shareholders’
Representative pursuant to the foregoing appointment must be in writing and
(ii) the Shareholders’ Representative shall not have the right to approve any
amendment to this Agreement that would increase in any material respect the
liabilities or obligations of any Shareholder unless the written consent of such
Shareholder is obtained. The holders of a majority in interest of the Company
Common Stock outstanding immediately prior to the Closing Date shall have the
right to appoint, in writing, a new Shareholders’ Representative from among the
Shareholders, with a copy of such appointment to promptly thereafter be provided
in writing to the Purchaser. If any individual Shareholder dies or becomes
incapacitated, any action taken by the Shareholders’ Representative pursuant to
this Section 9.15 shall be as valid as if such death or incapacity had not
occurred, regardless of whether or not the Shareholders’ Representative received
notice of such death or incapacity. Any notice given to the Shareholders’
Representative pursuant to Section 9.10 shall constitute effective notice to the
Shareholders, and any other party to this Agreement and any other Person may
rely on any notice, consent, election or other communication received in writing
from such Shareholders’ Representative as if such notice, consent, election or
other communication had been received from all of the Shareholders. A decision,
act, consent or instruction of the Shareholders’ Representative, acting in such
capacity pursuant to the terms of this Agreement, shall constitute a decision of
all Shareholders and shall be final, binding and conclusive upon each such
Shareholder, and the Purchaser may rely upon any written decision, act, consent
or instruction of the Shareholders’ Representative as being the decision, act,
consent or instruction of all of the Shareholders.

 

48

 

 

(b)          The Shareholders’ Representative shall not be liable to the
Shareholders for any act done or omitted hereunder as the Shareholders’
Representative while acting in good faith and in the absence of gross negligence
or willful misconduct. The Shareholders’ Representative may consult with legal
counsel, independent public accountants and other experts selected by it, and
compensate such counsel, accountants and experts with proceeds in the
Shareholders’ Representative Fund established by the Shareholders. The
Shareholders’ Representative shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts. The Shareholders’ Representative shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement. The Shareholders shall
indemnify the Shareholders’ Representative and hold the Shareholders’
Representative harmless against any loss, liability or expense incurred without
gross negligence or bad faith on the part of the Shareholders’ Representative
and arising out of or in connection with the acceptance or administration of the
Shareholders’ Representative’s duties hereunder, including reasonable expenses
incurred by the Shareholders’ Representative.

 

[Signature Page Follows]

 

49

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed,
as of the date first above written.

 

  PURCHASER       VERSAR, INC.           By: /s/Anthony L. Otten     Name:
Anthony L. Otten     Title: Chief Executive Officer           COMPANY       J.M.
WALLER ASSOCIATES, INC.           By: /s/ James W. Emery, Jr.     Name: James W.
Emery, Jr.     Title: Secretary           SHAREHOLDERS       /s/Charles W. Scott
  Charles W. Scott       /s/James W. Emery, Jr.   James W. Emery, Jr.      
/s/Wendell A. Newton   Wendell A. Newton

 

50

 

  

ACKNOWLEDGMENT

 

Agreed and acknowledged by the following persons who are not themselves parties
to this Agreement, but who are the spouses of the Shareholders, and who
themselves have read this Agreement and who agree that they shall be bound by
all of its provisions, including (but not limited to) to sale of the Shares to
the Purchaser in consideration of the Purchase Price set forth in the Agreement.

 

  /s/ Boonnom Scott   Boonnom Scott       /s/ Margaret C. Emery   Margaret C.
Emery       /s/ Sandra M. Newton   Sandra M. Newton

 

51

 

Exhibit A

DEFINITIONS

 

For purposes of the Agreement (including this Exhibit A):

 

“Accounting Referee” has the meaning set forth in Section 1.4(c).

 

“Affiliate” means, with respect to any Person, any other Person, directly or
indirectly, controlling, controlled by or under common control with such Person.

 

“Agreement” means this Stock Purchase Agreement, as amended from time to time.

 

“Applicable Benefit Laws” mean all Laws applicable to any Company Benefit Plan
or ERISA Affiliate Plan.

 

“Bankruptcy and Equity Exception” has the meaning set forth in Section 2.3.

 

“Basket” has the meaning set forth in Section 8.5(a).

 

“Business Day” means any day except Saturday, Sunday or any day on which banks
are generally not open for business in the City of New York, New York.

 

“Cap” has the meaning set forth in Section 8.5(a).

 

“CES Bonds” has the meaning set forth in Section 4.4.

 

“CFR” has the meaning set forth in Section 2.15(b).

 

“Closing” means the consummation of the purchase and sale of the Shares, as set
forth in Article VII of this Agreement.

 

“Closing Cash” has the meaning set forth in Section 1.3(a)(i).

 

“Closing Date” has the meaning set forth in Section 7.1.

 

“Closing Date Indebtedness” means any indebtedness of the Company of any kind as
of the Closing Date, including without limitation, with respect to (a) borrowed
money and (b) notes payable.

 

“Closing Note” and “Closing Notes” have the meanings set forth in Section
1.3(a)(ii).

 

“Code” means the United States Internal Revenue Code of 1986.

 

“Company” has the meaning set forth in the Preamble.

A-1

 

 

“Company Benefit Plan” means each Employee Benefit Plan sponsored or maintained
or required to be sponsored or maintained at any time by the Company or to which
the Company makes or has made, or has or has had an obligation to make,
contributions at any time, or with respect to which the Company has any
liability or obligation.

 

“Company Constituent Documents” has the meaning set forth in Section 2.2.

 

“Company Common Stock” has the meaning set forth in the Recitals.

 

“Company Contract” means any Contract, including any amendment or supplement
thereto, (a) to which any of the Company is a party, (b) by which any of the
Company or any of their respective assets is or may become bound or under which
any of the Company has, or may become subject to, any obligation or (c) under
which any of the Company has or may acquire any right or interest.

 

“Company Financial Statements” has the meaning set forth in Section 2.6(a).

 

“Company Intellectual Property” means all Intellectual Property owned by,
licensed to or used by any of the Company.

 

“Company Proprietary Software” means all Software developed or being developed
by the Company and owned by the Company.

 

“Company Registered Intellectual Property” means all of the Registered
Intellectual Property owned by, filed in the name of, or licensed to the
Company.

 

“Confidential Information” means any data or information concerning the Company
(including trade secrets), without regard to form, regarding (for example and
including) (a) business process models, (b) proprietary software, (c) research,
development, products, services, marketing, selling, business plans, budgets,
unpublished financial statements, licenses, prices, costs, Contracts, suppliers,
customers, and customer lists, (d) the identity, skills and compensation of
employees, contractors, and consultants, (e) specialized training or
(f) discoveries, developments, trade secrets, processes, formulas, data, lists,
and all other works of authorship, mask works, ideas, concepts, know-how,
designs, and techniques, whether or not any of the foregoing is or are
patentable, copyrightable, or registrable under any intellectual property Laws
or industrial property Laws in the United States or elsewhere. Notwithstanding
the foregoing, no data or information constitutes “Confidential Information” if
such data or information is publicly known and in the public domain through
means that do not involve a breach by the Company or any Shareholder of any
covenant or obligation set forth in this Agreement.

 

“Contract” means any written, oral or other agreement, contract, subcontract,
task or delivery order, lease, understanding, instrument, note, warranty,
license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature, whether express or implied.

A-2

 

 

“DCAA” means the Defense Contract Audit Agency of the United States Government.

 

“Direct Claim” has the meaning set forth in Section 8.3(c).

 

“Direct Contract Costs” means, with respect to any period, the aggregate amounts
of labor and other direct expenses, including, without limitation, expenses for
materials, subcontracts, consultants and travel.

 

“Emery” has the meaning set forth in the Preamble.

 

“Employee” means an employee of the Company.

 

“Employee Benefit Plan” means with respect to any Person, each plan, fund,
program, agreement, arrangement or scheme, including each plan, fund, program,
agreement, arrangement or scheme maintained or required to be maintained under
applicable Laws, that is at any time sponsored or maintained or required to be
sponsored or maintained by such Person or to which such Person makes or has
made, or has or has had an obligation to make, contributions providing benefits
to the current and former employees, directors, managers, officers, consultants,
independent contractors, contingent workers or leased employees of such Person
or the dependents of any of them (whether written or oral), or with respect to
which such Person has any liability or obligation, including (a) each deferred
compensation, bonus, incentive compensation, pension, retirement, employee stock
ownership, stock purchase, stock option, profit sharing or deferred profit
sharing, stock appreciation, phantom stock plan and other equity compensation
plan, “welfare” plan (within the meaning of Section 3(1) of ERISA, determined
without regard to whether such plan is subject to ERISA), (b) each “pension”
plan (within the meaning of Section 3(2) of ERISA, determined without regard to
whether such plan is either subject to ERISA or is tax-qualified under the
Code), (c) each severance plan or agreement, and each other plan providing
health, vacation, supplemental unemployment benefit, hospitalization insurance,
medical, dental, disability, life insurance, death or survivor benefits, fringe
benefits or legal benefits, and (d) each other employee benefit plan, fund,
program, agreement or arrangement.

 

“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, security
interest, encumbrance, claim, infringement, interference, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature affecting property, real or personal, tangible or intangible, including
any restriction on the voting of any security, any restriction on the transfer
of any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset, any restriction
on the possession, exercise or transfer of any other attribute of ownership of
any asset, any lease in the nature thereof and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statute of any jurisdiction).

 

“Entity” means any corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization or entity.

A-3

 

 

“Environmental Law” means any federal, state, local or foreign Law relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.

 

“ERISA” means the United States Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” means any Person that together with the Company would be
deemed a “single employer” within the meaning of Section 414 of the Code.

 

“ERISA Affiliate Plan” means each Employee Benefit Plan sponsored or maintained
or required to be sponsored or maintained at any time by any ERISA Affiliate, or
to which such ERISA Affiliate makes or has made, or has or has had an obligation
to make, contributions at any time, or with respect to which such ERISA
Affiliate has any liability or obligation.

 

“Final Net Working Capital Schedule” means the Net Working Capital Schedule, as
finally determined pursuant to Section 1.5.

 

“FAR” means the Federal Acquisition Regulation.

 

“FMLA” means the United States Family and Medical Leave Act.

 

“FYE 2013 Balance Sheet” has the meaning set forth in Section 2.6(a).

 

“GAAP” means United States generally accepted accounting principles as in effect
from time to time.

 

“Governmental Authorization” means any approval, permit, license, certificate,
franchise, permission, clearance, registration, qualification or other
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Law.

 

“Government Bid” means any proposal or offer, solicited or unsolicited made by
the Company prior to the Closing Date which, if accepted, would result in a
Government Contract. A Government Bid: (i) includes any proposal or offer made
by the Company that has been accepted by a Government Body but has not resulted
in a Government Contract prior to the Closing Date; and (ii) does not include
any proposal or offer made by the Company that has been accepted and has
resulted in a Government Contract prior to the Closing Date.

 

“Governmental Body” means any (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature,
(b) federal, state, local, municipal, foreign, supranational or other government
or (c) governmental, self-regulatory or quasi-Governmental Body of any nature
(including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).

A-4

 

  

“Government Contract” means any prime contract, subcontract, purchase order,
task order, delivery order, teaming agreement, joint venture agreement,
strategic alliance agreement, basic ordering agreement, pricing agreement,
letter contract or other similar arrangement of any kind, that is currently
active in performance, or that has otherwise not been closed out and released
with no further liability to the Company, or that has or had been active in
performance at any time in the seven (7) year period prior to the Closing Date,
between the Company or any other entity in which the Company had at least a five
percent (5%) interest during such period, on the one hand, and: (i) any
Governmental Body; (ii) any prime contractor of a Governmental Body in its
capacity as a prime contractor; or (iii) any subcontractor at any tier with
respect to any contract of a type described in clauses (i) or (ii) above, on the
other hand. A task, purchase or delivery order under a Government Contract shall
not constitute a separate Government Contract, for purposes of this definition,
but shall be part of the Government Contract to which it relates.

 

“Government Contract Laws” means all Laws governing or concerning the
procurement of goods or services by any Governmental Body including (in each
case as amended from time to time): (A) the False Statements Act (18 U.S.C.
1001), (B) the False Claims Act (18 U.S.C. 287), (C) the False Claims Act (31
U.S.C. 3729), (D) the Bribery, Gratuities and Conflicts of Interest Act (18
U.S.C. 201 and 5 U.S.C. 7353), (E) the Anti-Kickback Act (41 U.S.C. 51, 54), (F)
the Anti-Kickback Enforcement Act of 1986 (Pub. L. 99-634), (G) the Arms Export
Control Act (22 U.S.C. 277 et. seq.), (H) the Foreign Corrupt Practices Act (15
U.S.C. 78 m, 78 dd-1, 78 ff), (I) the Export Administration Act (50 U.S.C. App.
2401 et. seq.), (J) the War and National Defense Act (18 U.S.C. 793), (K) the
Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. 1961-68) or of any
statute the violation of which would constitute “racketeering activity” within
the meaning of such act, (L) the Conspiracy to Defraud the Government Act (18
U.S.C. 371), (M) the Program Fraud Civil Remedies Act (Pub. L. 99-509), (N) the
Byrd Amendment, Pub. L. 101-121, § 319, (O) "revolving door" legislation (37
U.S.C. 801, 41 U.S.C. 423, 18 U.S.C. 207, 18 U.S.C. 208, 18 U.S.C. 218, 18
U.S.C. 281, 10 U.S.C. 2397, 10 U.S.C. 2397a, 10 U.S.C. 2397b, 10 U.S.C. 2397),
(P) the Defense Production Act (50 U.S.C. App. 2061), (Q) United States
antiboycott laws (the Ribicoff Amendment to the 1976 Tax Reform Act, and the
1979 Export Administration Act), (R) the Defense Industrial Regulation (DoD
5220.22-R) or National Industrial Security Program Operating Manual (DoD
5220.22-M), (S) the FAR and any applicable supplements thereto, alternative
regulations applicable in lieu thereof, or applicable predecessor regulations,
(T) the Service Contract Act of 1965, as amended, (U) Cost Accounting Standards,
(V) Treasury Department embargo and sanctions regulations, 31 C.F.R. Part 500
et. seq., (W) the Small Business Act, (X) Executive Order 11246, and
corresponding Department of Labor regulations, (Y) the Anti-Assignment Act, 41
U.S.C. § 15, (Z) the Davis-Bacon Act, (AA) the Fair Labor Standards Act, (BB)
the Walsh-Healey Act and (CC) the Drug-Free Workplace Act.

 

“Holdback Amount” has the meaning set forth in Section 1.3(a)(i).

 

“HMO” has the meaning set forth in Section 2.17(i).

A-5

 

  

“Indemnified Party” means a Purchaser Indemnified Party or a Shareholder
Indemnified Party.

 

“Indemnifying Party” has the meaning set forth in Section 8.3(a).

 

“Indirect Costs” means any fringe benefits, general and administrative expenses
and overhead expenses or any other costs defined as “indirect costs” within any
section of Subpart 3.12 of the FAR.

“Intellectual Property” means any or all of the following and all rights,
arising out of or associated therewith: (a) all patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements, proprietary
information, know-how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (c) all copyrights, copyright
registrations and applications therefor, and all other rights corresponding
thereto; (d) all industrial designs and any registrations and applications
therefor; (e) all internet uniform resource locators, domain names, trade names,
logos, slogans, designs, common law trademarks and service marks, trademark and
service mark registrations and applications therefor; (f) all software,
databases and data collections and all rights therein; (g) all moral and
economic rights of authors and inventors, however denominated; and (h) any
similar or equivalent rights to any of the foregoing.

 

“Interim Balance Sheet” has the meaning set forth in Section 2.6(a).

 

“IRS” has the meaning set forth in Section 2.17(b).

 

“Knowledge.” An individual shall be deemed to have “Knowledge” of a particular
fact or other matter if:

 

(a)          such individual is actually aware of such fact or other matter; or

 

(b)          such individual reasonably should have been aware of such fact in
the performance of such individual’s duties as a director, officer or
shareholder of the Company.

 

The Company shall be deemed to have “Knowledge” of a particular fact or other
matter if any of the Shareholders or either of Reginald King or Paula Peterson
has Knowledge of such fact or other matter.

 

“Labor Laws” means all Laws governing or concerning labor relations, unions and
collective bargaining, conditions of employment, employee classification,
employment discrimination and harassment, wages, hours or occupational safety
and health, including ERISA, the United States Immigration Reform and Control
Act of 1986, the United States National Labor Relations Act, the United States
Civil Rights Acts of 1866 and 1964, the United States Equal Pay Act, the United
States Americans with Disabilities Act, the United States Age Discrimination in
Employment Act, FMLA, WARN, the Occupational Safety and Health Act of 1970, the
United States Davis Bacon Act, the United States Walsh-Healy Act, the United
States Service Contract Act, United States Executive Order 11246, the United
States Fair Labor Standards Act and the United States Rehabilitation Act of
1973.

A-6

 

  

“Law” means any federal, state, local, municipal, foreign or international,
multinational other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.

 

“Leased Real Property” means the parcels of real property of which the Company
is the lessee or sublessee (together with all fixtures and improvements
thereon).

 

“Leases” has the meaning set forth in Section 2.11(b).

 

“Legal Proceeding” means any ongoing or threatened action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any court or other Governmental Body or any arbitrator or arbitration
panel.

 

“Losses” means any and all claims, liabilities, obligations, damages, losses,
penalties, fines, judgments, costs and expenses (including amounts paid in
settlement, costs of investigation and attorney’s fees and expenses), whenever
arising or incurred, and whether arising out of a third party claim.

 

“Material Adverse Effect” means any state of facts, change, event, effect,
occurrence or circumstance that, individually or in the aggregate (considered
together with all other state of facts, change, event, effect, occurrence or
circumstance) has had, or could reasonably be expected to have, a material
adverse effect on (a) the business, financial condition, capitalization, assets,
liabilities, results, or operations of the Company, (b) the ability of the
Company or any Shareholder to consummate the transactions contemplated by this
Agreement or to perform any of its material obligations under this Agreement, or
(c) the Purchaser’s ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the capital stock of the
Company; provided, however, that Material Adverse Effect shall not include any
material adverse change, effect, event, occurrence, circumstance, state of facts
or development (i) relating to or resulting from the industry in which the
Company operates generally or the U.S. economy in general, only to the extent
such adverse change, effect, occurrence, circumstance, state of facts or
development does not affect the Company more adversely than comparable Entities;
(ii) resulting from any worldwide, national or local crisis (political,
economic, financial or regulatory), including, without limitation, acts of God,
an outbreak or escalation of war, armed hostilities, acts of terrorism,
political instability or other national or international calamity, crisis or
emergency occurring within or outside the United States; or (iii) resulting from
changes in GAAP or the application thereof.

 

A-7

 

“Materials of Environmental Concern” means any chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substances that are now or hereafter regulated by any Environmental Law or
that are otherwise a danger to health, reproduction or the environment.

 

“Net Working Capital” means the difference (whether positive or negative) of
(a) the current assets of Company as of the Closing Date, minus (b) the current
liabilities of Company as of the Closing Date, in each case as determined in
accordance with GAAP immediately prior to the consummation of the purchase and
sale of the Shares contemplated hereby. Notwithstanding the foregoing to the
contrary: (i) all Closing Date Indebtedness which is paid on or prior to the
Closing Date shall be excluded from current liabilities; and (ii) the accounts
receivable listed on Section 2.9 of the Shareholder Disclosure Schedule shall be
excluded from current assets.

 

“Net Working Capital Deficit” means the amount by which the Net Working Capital
is less than the Target Net Working Capital.

 

“Net Working Capital Schedule” means a statement of the New Working Capital of
the Company as of the close of business on the Closing Date.

 

“Net Working Capital Surplus” means the amount by which the Net Working Capital
is greater than the Target Net Working Capital.

 

“Newton” has the meaning set forth in the Preamble.

 

“NLRB” means the United States National Labor Relations Board.

 

“Notice of Claim” has the meaning set forth in Section 8.3(c).

 

“NQDC Plan” has the meaning set forth in Section 2.17(k).

 

“Order” means any decree, permanent injunction, order or similar action.

 

“OSHA” means the United States Occupational Safety and Health Administration.

 

“Payoff Letters” has the meaning set forth in Section 5.5.

 

“Permitted Encumbrance” means any (a) Encumbrance for Taxes not yet due and
payable, (b) Encumbrances of carriers, warehousemen, mechanics, materialmen and
repairmen incurred in the ordinary course of business consistent with past
practice and not yet delinquent and (c) in the case of the Leased Real Property,
zoning, building, or other restrictions, variances, covenants, rights of way,
encumbrances, easements and other minor irregularities in title, none of which,
individually or in the aggregate, (i) interfere in any material respect with the
present use of or occupancy of the affected parcel by the Company, (ii) have
more than an immaterial effect on the value thereof or its use, or (iii) would
impair the ability of such parcel to be sold for its present use.

 

“Person” means any individual, corporation, partnership, joint venture, limited
liability company, trust, Governmental Body or other organization.

A-8

 

  

“Pre-Closing Tax Periods” has the meaning set forth in Section 4.1(a).

 

“Purchase Price” has the meaning set forth in Section 1.2.

 

“Purchaser” has the meaning set forth in the Preamble.

 

“Purchaser Constituent Documents” means the certificate of incorporation and the
bylaws, including all amendments thereto, of the Purchaser.

 

“Purchaser Indemnified Parties” means the Purchaser and its Affiliates
(including the Company), their respective officers, directors, employees, agents
and representatives and the heirs, executors, successors and assigns of any of
the foregoing.

 

“Purchaser Losses” has the meaning set forth in Section 8.1.

 

“Purchaser Related Agreement” means any certificate, agreement, document or
other instrument, other than this Agreement, to be executed and delivered by the
Purchaser in connection with the transactions contemplated hereby.

 

“Registered Intellectual Property” means all (a) patents and patent applications
(including provisional applications), (b) registered trademarks and service
marks, applications to register trademarks and service marks, intent-to-use
applications, or other registrations or applications related to trademarks and
service marks, (c) registered copyrights and applications for copyright
registration, (d) domain name registrations and (e) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded with or by any
Governmental Body.

 

“Related Agreements” means the Purchaser Related Agreements and the Shareholder
Related Agreements.

 

“Related Party” means (a) each Shareholder, (b) each individual who is, or who
has at any time been, an officer or director of the Company, (c) each member of
the immediate family of each of the individuals referred to in clause (a) or (b)
above and (d) any trust or other Entity (other than the Company) in which any
one of the individuals referred to in clauses (a), (b) and (c) above holds (or
in which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary, equity or other financial interest.

 

“Release” means with respect to any Materials of Environmental Concern, any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into any surface or ground water,
drinking water supply, soil, surface or subsurface strata or medium or the
ambient air.

 

“Scott” has the meaning set forth in the Preamble.

 

“Section 338(h)(10) Election” has the meaning set forth in Section 4.1(f).

A-9

 

  

“Shareholder” and “Shareholders” have the meanings set forth in the Preamble.

 

“Shareholder Disclosure Schedule” means the disclosure schedule (dated as of the
date of the Agreement) delivered to the Purchaser on behalf of the Shareholder
and the Company on the date of this Agreement.

 

“Shareholder Indemnified Parties” means the Shareholders and their respective
heirs, executors, successors and assigns.

 

“Shareholder Losses” has the meaning set forth in Section 8.2.

 

“Shareholder Related Agreement” means any certificate, agreement, document or
other instrument, other than this Agreement, to be executed and delivered by the
Company or any Shareholder in connection with the transactions contemplated
hereby.

 

“Shareholders’ Representative” has the meaning set forth in Section 9.15.

 

“Shares” has the meaning set forth in the Recitals.

 

“Straddle Tax Periods” has the meaning set forth in Section 4.1(b).

 

“Subsidiary.” Any Entity shall be deemed to be a “Subsidiary” of another Person
if such Person directly or indirectly (a) has the power to direct the management
or policies of such Entity or (b) owns, beneficially or of record, (i) an amount
of voting securities or other interests in such Entity that is sufficient to
enable such Person to elect at least a majority of the members of such Entity’s
board of directors or other governing body, or (ii) at least fifty percent (50%)
of the outstanding equity or financial interests of such Entity.

 

“Target Net Working Capital” means an amount equal to $2,000,000.

 

“Tax” means any (a) tax (including income, franchise, business, corporate,
capital, excise, gross receipts, ad valorem, property, sales, use, turnover,
value added, stamp and transfer taxes), deduction, withholding, levy, charge,
assessment, tariff, duty, impost, deficiency or other fee of any kind imposed by
any Governmental Body, (b) all interest, penalties, fines, additions to tax or
additional amounts imposed by any Governmental Body in connection with any item
described in clause (a) or for failure to file any Tax Return, (c) any successor
or transferee liability in respect of any items described in clauses (a) and/or
(b) under Treasury Regulation 1502-6 (or any similar provision of state, local
or foreign Law) and (d) any amounts payable under any tax sharing agreement or
other contractual arrangement.

 

“Tax Return” means any return (including any K-1 or other information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Law relating to any Tax.

A-10

 

 

 

“Third-Party Claim” has the meaning set forth in Section 8.3(a).

 

“Transaction Expenses” means the sum of all fees, costs and expenses (including
legal fees and accounting fees and including the amount of all special bonuses
and other amounts that may become payable to any officers of the Company in
connection with the consummation of the transactions contemplated by this
Agreement) that are incurred by the Company for the benefit of the Company or
any Shareholder in connection with the transactions contemplated by this
Agreement.

 

“Treasury Regulations” means the temporary and final income Tax regulations
promulgated under the Code.

 

“WARN” means the United States Worker Adjustment and Retraining Notification Act
and similar state Laws.

 

 

A-11

 

  

Exhibit B

Form of Closing Note

 

(See attached.)

 

B-1

 

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN
ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM AS PROVIDED HEREIN.

 

PROMISSORY NOTE

 

$____________

Springfield, Virginia

June 30, 2014

 

FOR VALUE RECEIVED, the undersigned, Versar, Inc., a Delaware corporation
(“Maker”), hereby promises to pay to the order of ________________, a resident
of the _______________ of _____________ (“Holder”), at such place as Holder
shall designate in writing, in lawful money of the United States of America, the
principal sum of _______________________________________________ Dollars and
__________ Cents ($________________) subject to the terms hereof, together with
interest thereon, at the rate hereinafter set forth below, with such principal
sum and interest being payable as set forth below. This promissory note (“Note”)
is being delivered pursuant to Section 1.3(a)(ii) of that certain Stock Purchase
Agreement, dated as of June 30, 2014, by and among Maker, J.M. Waller
Associates, Inc., a Virginia corporation (the “Company”), Holder and the other
shareholders named therein (the “Purchase Agreement”), and is subject in all
respects to the terms and conditions thereof, including, without limitation,
adjustment or offset pursuant to Sections 1.4 and 8.7 thereof. Terms not
otherwise defined in this Note shall have the meaning set forth in the Purchase
Agreement.

 

Section I.           Rate of Interest

 

From and after the date hereof, simple interest shall accrue on the outstanding
principal balance of this Note at a rate equal to five percent (5%) per annum,
calculated on the basis of 365 days per year and actual days elapsed.

 

Section II.          Payment of Principal and Interest

 

Subject to the payments set forth in subsection (b) below, the remaining
outstanding principal amount evidenced by this Note and all accrued, unpaid
interest thereon shall be due and payable in full by Maker on the third Business
Day of January 2019.

 

Maker shall have the right to prepay the indebtedness evidenced by this Note, in
full or in part, at any time, without penalty, fee or charge.

 

Installment payments of principal and interest of ____________________________
Dollars and ___________ Cents ($____________) shall be due and payable quarterly
on or before the third Business Day of April, July, October and January of each
year of the term hereof, with the first installment due on October 3, 2014.

 

Section III.         Events of Default

 

For purposes of this Note, the occurrence of any of the following events or
conditions shall constitute an event of default hereunder:

 

B-2

 

 

(a)          Maker shall fail to pay in full any amount under this Note when due
and such default shall continue uncured for a period of fifteen (15) calendar
days; or

 

(b)          Maker shall: (i) file a voluntary petition or assignment in
bankruptcy or a voluntary petition or assignment or answer seeking liquidation,
reorganization, arrangement, readjustment of its debts, or any other relief
under the bankruptcy laws of the United States, or under any other act or law
pertaining to insolvency or debtor relief, whether now or hereafter existing;
(ii) enter into any agreement indicating consent to, approval of, or
acquiescence in, any such petition or proceeding; (iii) apply for or permit the
appointment, by consent or acquiescence, of a receiver, custodian or trustee of
all or a substantial part of its property; (iv) make an assignment for the
benefit of creditors; (v) be unable or shall fail to pay its debts generally as
such debts become due, or (vi) admit in writing its inability or failure to pay
its debts generally as such debts become due; or

 

(c)          There occurs (i) a filing or issuance against Maker of an
involuntary petition in bankruptcy or seeking liquidation, reorganization,
arrangement, readjustment of its debts or any other relief under any act or law
pertaining to insolvency or debtor relief, whether now or hereafter existing;
(ii) the involuntary appointment of a receiver, liquidator, custodian or trustee
of Maker or for all or a substantial part of its property; or (iii) the issuance
of a warrant of attachment, execution or similar process against all or any
substantial part of the property of Maker and such shall not have been
discharged (or provision shall not have been made for such discharge), or stay
of execution thereof shall not have been procured, within sixty (60) calendar
days from the date of entry thereof.

 

Upon any such event of default, the total remaining outstanding principal and
accrued, unpaid interest shall become immediately due and payable.

 

All agreements between Maker and Holder, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
event, whether by reason of acceleration of maturity hereof or otherwise, shall
the amount paid or agreed to be paid to the Holder for the use, forbearance, or
detention of the money to be loaned hereunder, or otherwise, exceed the maximum
non-usurious rate of interest permitted by the governing law of this Note. If
fulfillment of any provision hereof or of the Purchase Agreement or other
document evidencing or securing the indebtedness evidenced hereby, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, automatically and without the requirement
for affirmative action, the obligation to be fulfilled shall be reduced to the
limit of such validity. Should Holder ever receive anything of value deemed
interest under this Note under applicable law which would exceed interest at the
highest lawful rate, an amount equal to any excessive interest shall be applied
to the reduction of the principal amount owing hereunder and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to the Maker. All sums paid or
agreed to be paid to Holder for the use, forbearance, or detention of the
indebtedness of Maker to Holder shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full term of
such indebtedness until payment in full so that the rate of interest on account
of such indebtedness is uniform throughout the term thereof. The provisions of
this paragraph shall control all agreements between Maker and Holder.

B-3

 

 

Section IV.          General Provisions

 

Time is of the essence of this Note and, in case this Note is collected by law
or through an attorney at law, or under advice herefrom, Maker agrees to pay all
costs of collection, including reasonable attorneys’ fees and expenses.

 

This Note is governed by the laws of the Commonwealth of Virginia.

 

MAKER AND HOLDER HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE NOW OR HEREAFTER
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE.

 

Section 9.16.         Holder will execute this Note for purpose of acknowledging
the provisions hereof and Holder’s receipt of the Note, but the execution of
this Note by Holder shall in no event be deemed to constitute Holder as an
endorser of this Note. Holder acknowledges (i) that the issuance of this Note is
not being registered under the Securities Act on the ground that the issuance
hereof is exempt from registration under Section 4(2) of the Securities Act as
not involving any public offering and (ii) that Holder is acquiring this Note
for investment for Holder’s own account, with no present intention of dividing
Holder’s participation with others or reselling or otherwise distributing the
same, subject, nevertheless, to any requirement of law that the disposition of
Holder’s property shall at all times be within Holder’s control.

 

This Note shall not be sold or transferred, in whole or in part, (i) without the
prior written consent of Maker (which consent will not be unreasonably withheld,
delayed or conditioned; provided, that, the parties agree that any refusal by
Maker to grant consent to the transfer of the Note to a competitor of Maker
shall not constitute unreasonable withholding of consent; provided, further,
that Maker hereby consents to any transfer of the Note, in whole or in part, to
any trust or trusts that are revocable solely by Holder, to Holder’s guardian or
conservator and, in the event of Holder’s death, to Holder’s executor(s) or
administrator(s) or to trustee(s) under Holder’s will) and (ii) unless and until
Holder shall first have given notice to Maker describing such sale or transfer
and furnished it either (A) an opinion, reasonably satisfactory to counsel for
Maker, of counsel skilled in securities matters (selected by the Holder and
reasonably satisfactory to Maker) to the effect that the proposed sale or
transfer may be made without registration under the Securities Act or (B) an
interpretive letter from the staff of the Securities and Exchange Commission to
the effect that no enforcement action will be recommended if the proposed sale
or transfer is made without registration under the Securities Act, in either
case accompanied by evidence that such transfer will be in compliance with
applicable state securities (“blue sky”) laws.

 

[Signature Page Follows]

 

B-4

 

 

IN WITNESS WHEREOF, the undersigned Maker has hereunto executed and sealed this
instrument as of the day and year first above written.

 

  MAKER:       VERSAR, INC.         By:       Name:     Title:  

  

  AGREED AND ACKNOWLEDGED BY:       HOLDER:        

 

(Signature Page to Promissory Note)

 

B-5

 

Exhibit C

Wire Transfer Instructions

 

 

 

Charles W. Scott

 

Bank: XXXXXXXXXXX Address: XXXXXXXX8209 ABA Routing No: XXXXXXXXX Account No:
XXXXXXX

 

 

 

James W. Emery, Jr.

 

Bank: XXXXXXXXXX Address: XXXXXXXXX ABA Routing No.: XXXXXXXXX Account No.:
XXXXXXXX

 

 

 

Wendell A. Newton

 

Bank: XXXXXXXXXXX Address: XXXXXXXXXX   XXXXXXXXX ABA Routing No.: XXXXXXXXX
Account No.: XXXXXXXXXX

  

C-1

 

  

Exhibit D

Policies and Procedures for Calculating

Net Working Capital

 

1.For purposes of calculating Net Working Capital pursuant to this Agreement:
(x) “current assets” include cash, but exclude any receivables from any current
or former shareholder of the Company or any Affiliate of any such Person, or any
Tax asset resulting from the payment of bonuses prior to Closing other than in
the ordinary course of business; and (y) “current liabilities” include (without
limitation) all liabilities for accrued or deferred Taxes, balance sheet
reserves for billings in excess of revenues, 401(k) plan withholdings, bonus
plan accruals, the amount of retention bonuses (excludes any bonuses or other
incentive compensation offered by the Purchaser), if any, approved by the
Company prior to Closing that may become payable to Company Employees after
Closing. The Purchaser understands and agrees that the Company does not accrue
as current liabilities anticipated losses under Contracts based on the estimated
costs at completion, and that such treatment is US GAAP compliant for the
purposes of the Stock Purchase Agreement.

 

2.All bona fide accounts receivable as of the Closing Date (other than amounts
payable by MacDonald-Bedford LLC to the Company pursuant to that certain
Settlement Agreement) will be included as “current assets” without any discounts
or reserves.

 

3.All amounts payable by MacDonald-Bedford LLC to the Company pursuant to the
Settlement Agreement will be excluded from the Company’s “current assets” as of
the Closing.

 

4.Attached is an example of a Net Working Capital Schedule, including a
calculation of Net Working Capital Deficit or Net Working Capital Surplus, as
the case may be, based on the Company’s balance sheet as of April 30, 2014, and
included solely to illustrate the parties’ intentions regarding the provisions
of Section 1.4(a) and this Exhibit D.

 

D-1