1
Exhibit 2.1
REORGANIZATION AGREEMENT
DATED AS OF [ ]
BY AND BETWEEN
TECHNOLOGY SOLUTIONS COMPANY
AND
eLOYALTY CORPORATION
2
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS AND INTERPRETATION...................................-2-
1.1. Definitions................................................-2-
1.2. Interpretation.............................................-9-
ARTICLE II - THE DISTRIBUTION...............................................-10-
2.1. Issuance and Delivery of eLoyalty Shares..................-10-
2.2. Distribution of eLoyalty Shares...........................-10-
2.3. TSC Board Action..........................................-11-
2.4. Additional Approvals......................................-11-
ARTICLE III - FORMATION OF ELOYALTY/CORPORATE GOVERNANCE....................-11-
3.1. Certificate of Incorporation of eLoyalty..................-11-
3.2. By-laws...................................................-11-
3.3. Election of Board of Directors............................-11-
3.4. Appointment of Officers...................................-12-
3.5. Capital Stock of eLoyalty.................................-12-
3.6. Name Reservations and Registrations.......................-12-
3.7. Foreign Qualifications....................................-12-
3.8. Corporate Seal............................................-12-
3.9. Adoption of Stockholders Rights Plan......................-12-
ARTICLE IV - ASSET SEPARATION...............................................-13-
4.1. Transfer of Assets........................................-13-
4.2. Assumption of Liabilities.................................-16-
4.3. Retained Assets...........................................-17-
4.4. Retained Liabilities......................................-18-
4.5. Termination of Existing Intercompany Agreements...........-18-
4.6. Shared Contracts..........................................-18-
ARTICLE V - ASSET SEPARATION CLOSING MATTERS................................-19-
5.1. Delivery of Instruments of Conveyance.....................-19-
5.2. Delivery of Other Agreements..............................-19-
5.3. Provision of Corporate Records............................-19-
ARTICLE VI - NO REPRESENTATIONS AND WARRANTIES..............................-19-
ARTICLE VII - CERTAIN COVENANTS.............................................-20-
7.1. Third Party Consents......................................-20-
7.2. Material Governmental Approvals and Consents..............-20-
7.3. Non-Assignable Contracts..................................-20-
7.4. Novation of Assumed Liabilities...........................-21-
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7.5. Further Assurances........................................-21-
7.6. Nominee Shares............................................-22-
7.7. Collection of Accounts Receivable.........................-23-
7.8. Election of eLoyalty Board of Directors...................-23-
7.9. Late Payments.............................................-23-
7.10. Registration and Listing..................................-23-
7.11. No Noncompetition; Nonhiring; Nonsolicitation.............-24-
7.12. Litigation................................................-24-
7.13. eLoyalty Bank Accounts....................................-25-
7.14. Signs; Use of Company Name................................-25-
7.15. Reasonable Efforts........................................-25-
7.16. Use of Transferred Intellectual Property..................-26-
ARTICLE VIII - CONDITIONS TO THE DISTRIBUTION...............................-26-
8.1. Approval by TSC Board of Directors........................-26-
8.2. Receipt of IRS Private Letter Tax Ruling..................-26-
8.3. Compliance with State and Foreign Securities
and "Blue Sky" Laws.......................................-26-
8.4. SEC Filings and Approvals.................................-26-
8.5. Filing and Effectiveness of Registration Statement;
No Stop Order.............................................-27-
8.6. Dissemination of Information to TSC Stockholders..........-27-
8.7. Approval of NASDAQ Listing Application....................-27-
8.8. Receipt of Viability and Fairness Opinion of
Financial Advisor.........................................-27-
8.9. Operating Agreements......................................-27-
8.10. Resignations..............................................-27-
8.11. Consents..................................................-27-
8.12. No Actions................................................-28-
8.13. Consummation of Pre-Distribution Transactions.............-28-
8.14. No Other Events...........................................-28-
8.15. Satisfaction of Conditions................................-28-
ARTICLE IX - EMPLOYEES AND EMPLOYEE BENEFIT MATTERS.........................-28-
9.1. Employment of eLoyalty Employees..........................-28-
9.2. Severance.................................................-28-
9.3. Withdrawal from Participation in TSC Plans
and Establishment of eLoyalty Plans.......................-29-
9.4. Transfer of Savings Plan Account Balances.................-29-
9.5. Welfare Benefits Provided Under eLoyalty Plans............-29-
9.6. Stock Purchase Plans......................................-30-
9.7. Deferred Compensation Plan................................-30-
9.8. Stock Options.............................................-31-
9.9. Workers' Compensation.....................................-32-
9.10. WARN Act..................................................-32-
9.11. Information to be Provided to TSC.........................-32-
ARTICLE X - INSURANCE MATTERS...............................................-32-
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10.1. Insurance Prior to the Distribution Date..................-32-
10.2. Ownership of Existing Policies and Programs...............-33-
10.3. Procurement of Insurance for eLoyalty.....................-33-
10.4. Acquisition and Maintenance of Post-Distribution eLoyalty
Insurance Policies and Programs...........................-33-
10.5. eLoyalty Directors' and Officers' Insurance...............-34-
10.6. Post-Distribution Insurance Claims Administration.........-34-
10.7. Non-Waiver of Rights to Coverage..........................-35-
10.8. Scope of Affected Policies of Insurance...................-35-
ARTICLE XI - EXPENSES.......................................................-35-
11.1. Allocation of Expenses....................................-35-
ARTICLE XII - INDEMNIFICATION...............................................-36-
12.1. Release of Pre-Distribution Claims........................-36-
12.2. Indemnification by eLoyalty...............................-38-
12.3. Indemnification by TSC....................................-39-
12.4. Applicability of and Limitation on Indemnification........-40-
12.5. Adjustment of Indemnifiable Losses........................-40-
12.6. Procedures for Indemnification of Third Party Claims......-41-
12.7. Procedures for Indemnification of Direct Claims...........-43-
12.8. Contribution..............................................-44-
12.9. Remedies Cumulative.......................................-44-
12.10. Survival..................................................-44-
ARTICLE XIII - DISPUTE RESOLUTION...........................................-44-
13.1. Agreement to Arbitrate....................................-44-
13.2. Escalation and Mediation..................................-45-
13.3. Procedures for Arbitration................................-45-
13.4. Selection of Arbitrator...................................-46-
13.5. Hearings..................................................-47-
13.6. Discovery and Certain Other Matters.......................-47-
13.7. Certain Additional Matters................................-48-
13.8. Continuity of Service and Performance.....................-49-
13.9. Law Governing Arbitration Procedures......................-49-
13.10. Choice of Forum............................................-49-
ARTICLE XIV - ACCESS TO INFORMATION AND SERVICES............................-49-
14.1. Agreement for Exchange of Information.....................-49-
14.2. Ownership of Information..................................-50-
14.3. Compensation for Providing Information....................-50-
14.4. Retention of Records......................................-50-
14.5. Limitation of Liability...................................-50-
14.6. Production of Witnesses...................................-50-
14.7. Confidentiality...........................................-51-
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14.8. Privileged Matters........................................-51-
ARTICLE XV - MISCELLANEOUS..................................................-52-
15.1. Entire Agreement..........................................-52-
15.2. Choice of Law and Forum...................................-53-
15.3. Amendment.................................................-53-
15.4. Waiver....................................................-53-
15.5. Partial Invalidity........................................-53-
15.6. Execution in Counterparts.................................-53-
15.7. Successors and Assigns....................................-53-
15.8. Third Party Beneficiaries.................................-54-
15.9. Notices...................................................-54-
15.10. Performance...............................................-55-
15.11. Force Majeure.............................................-55-
15.12. No Public Announcement....................................-55-
15.13. Termination...............................................-55-
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EXHIBITS
Exhibit A - eLoyalty Business
Exhibit B1 - Form of TSC Intellectual Property License Agreement
Exhibit B2 - Form of eLoyalty Intellectual Property License Agreement
Exhibit C - Form of Shared Services Agreement
Exhibit D - Form of Tax Sharing and Disaffiliation Agreement
Exhibit E - Stockholder Rights Plan
Exhibit F - Balance Sheet Assets
Exhibit G - eLoyalty Board of Directors
Exhibit H - List of Mediators
SCHEDULES
Schedule 4.1(d) - Real Estate Leases
Schedule 4.1(e) - Personal Property Leases
Schedule 4.1(f) - Intellectual Property
Schedule 4.1(g)(i) - Contracts Related to Acquisitions or Divestitures
Schedule 4.1(g)(ii) - Service, License, Maintenance and Support Contracts
Schedule 4.1(g)(iii) - Supplier Contracts
Schedule 4.1(g)(iv) - Joint Development and Alliance Contracts
Schedule 4.1(g)(v) - Third-Party Service Contracts
Schedule 4.1(g)(vi) - Telecommunications Contracts
Schedule 4.1(j) - Subsidiaries, Joint Ventures and Minority Interests
Schedule 4.1(m) - Trademarks
Schedule 4.1(n) - Loans to Transferred Employees
Schedule 4.1(o) - Industry Awards
Schedule 4.5 - Surviving Intercompany Agreements
Schedule 7.13 - eLoyalty Bank Accounts
Schedule 9.1 - Transferred Employees
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REORGANIZATION AGREEMENT
REORGANIZATION AGREEMENT, dated as of [________], 2000, by and
between Technology Solutions Company, a Delaware corporation ("TSC"), and
eLoyalty Corporation, a Delaware corporation ("eLoyalty") and, as of the date
hereof, a wholly-owned Subsidiary (as hereinafter defined) of TSC.
WHEREAS, TSC provides, inter alia, information technology
consulting and strategic business consulting services that help clients improve
operations, transform customer relationships and build and enhance customer
loyalty (as more fully described in Exhibit A hereto, the "eLoyalty Business");
WHEREAS, the Board of Directors of TSC has determined that it
would be advisable and in the best interests of TSC and its stockholders for TSC
to transfer to eLoyalty the business, operations, assets and liabilities related
to the eLoyalty Business;
WHEREAS, TSC has agreed to transfer and assign, or cause to be
transferred and assigned, to eLoyalty substantially all of the assets and
properties of the eLoyalty Business held by TSC and/or one or more of its
Subsidiaries, and eLoyalty has agreed to assume, or cause to be assumed by one
or more of its Subsidiaries, certain liabilities and obligations arising out of
or relating to the eLoyalty Business (collectively, the "Contribution");
WHEREAS, the Board of Directors of TSC has determined that it
would be advisable and in the best interests of TSC and its stockholders for TSC
to distribute on a pro-rata basis to the holders of record of TSC common stock,
par value $.01 per share (the "TSC Common Stock"), without any consideration
being paid by such holders, all of the outstanding shares of eLoyalty common
stock, par value $.01 per share (the "eLoyalty Common Stock") owned directly and
indirectly by TSC (the "Distribution");
WHEREAS, for federal income tax purposes, the Contribution and
Distribution are intended to qualify for tax-free treatment under Sections 355
and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, it is appropriate and desirable to set forth the
principal corporate transactions required to effect the Contribution and
Distribution and certain other agreements that will govern the relationship of
TSC and eLoyalty following the Distribution;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, TSC and eLoyalty
agree as follows:
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ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. In this Agreement, the following terms
have the meanings specified or referred to in this Section 1.1:
"ACTION" means any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative entity,
agency or commission or any arbitration tribunal.
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by or is under common
control with such Person. For the purpose of this definition, the term "control"
means the power to direct the management of an entity, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the term "controlled" has the meaning correlative to the foregoing. After
the Distribution Date, eLoyalty and TSC shall not be deemed to be under common
control for purposes hereof due solely to the fact that eLoyalty and TSC have
common stockholders.
"APPLICABLE DEADLINE" has the meaning specified in Section
13.3(b).
"ARBITRATION ACT" means the United States Arbitration Act, 9
U.S.C. ss.ss.1-16, as the same may be amended from time to time.
"ARBITRATION DEMAND DATE" has the meaning specified in Section
13.3(a).
"ARBITRATION DEMAND NOTICE" has the meaning specified in
Section 13.3(a).
"ASSET TRANSFER DATE" means the date determined by the Board
of Directors of TSC as the date on which the Transferred Assets are transferred
to eLoyalty.
"ASSUMED ACTIONS" has the meaning specified in Section
7.12(a).
"ASSUMED LIABILITIES" has the meaning specified in Section
4.2.
"BALANCE SHEET" has the meaning specified in Section 4.1(a).
"BOARD OF DIRECTORS" means the board of directors of the
referenced corporation or any duly authorized committee thereof.
"CODE" has the meaning specified in the sixth paragraph of
this Agreement.
"COMBINED VALUE" has the meaning specified in Section 9.8(a).
"CONTRACTS" has the meaning specified in Section 4.1(g).
9
"CONTRIBUTION" has the meaning specified in the fourth
paragraph of this Agreement.
"CONVEYANCING INSTRUMENTS" has the meaning specified in
Section 5.1.
"COPYRIGHTS" means United States and foreign copyrights, both
registered and unregistered, along with the registrations and applications to
register any such copyrights.
"DISTRIBUTION" has the meaning specified in the fifth
paragraph of this Agreement.
"DISTRIBUTION DATE" means the date determined by the Board of
Directors of TSC as the date on which the eLoyalty Shares are distributable to
holders of record of TSC Common Stock as of the Record Date.
"ELOYALTY" has the meaning specified in the first paragraph of
this Agreement.
"ELOYALTY BUSINESS" has the meaning specified in the second
paragraph of this Agreement.
"ELOYALTY COMMON STOCK" has the meaning specified in the fifth
paragraph of this Agreement.
"ELOYALTY DEFERRED COMPENSATION PLAN" has the meaning
specified in Section 9.3(b).
"ELOYALTY DISTRIBUTABLE SHARE" means one (1) eLoyalty Share.
"ELOYALTY INDEMNIFIED PARTIES" has the meaning specified in
Section 12.3.
"ELOYALTY SAVINGS PLAN" has the meaning specified in Section
9.3(b).
"ELOYALTY SHARE" means one share of eLoyalty Common Stock.
"ELOYALTY VALUE" has the meaning specified in Section 9.8(a).
"ESCALATION NOTICE" has the meaning specified in Section
13.2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended (together with the rules and regulations promulgated thereunder).
"EXPENSES" means any and all expenses incurred in connection
with investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including court filing
fees, court costs, arbitration fees or costs, witness fees, and reasonable fees
and disbursements of legal counsel, investigators, expert witnesses,
consultants, accountants and other professionals).
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"FOREIGN EXCHANGE RATE" means, with respect to any currency
other than United States dollars, as of any date of determination, the average
of the opening bid and asked rates on such date at which such currency may be
exchanged for United States dollars as quoted by Bank of America, N.A.
"GOVERNMENTAL AUTHORITY" means any foreign, federal, state,
local or other government, governmental, statutory or administrative authority,
regulatory body or commission or any court, tribunal or judicial or arbitral
body.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder.
"INDEMNIFIED PARTY" has the meaning specified in Section
12.5(a).
"INDEMNIFYING PARTY" has the meaning specified in Section
12.5(a).
"INDEMNITY PAYMENT" has the meaning specified in Section
12.5(a).
"INFORMATION" has the meaning specified in Section 14.1(a).
"INFORMATION STATEMENT" has the meaning specified in Section
7.10(a).
"INSURANCE AMOUNT" has the meaning specified in Section 10.5.
"INSURANCE CHARGES" has the meaning specified in Section 10.6.
"INSURANCE POLICIES" means the insurance policies written by
insurance carriers unaffiliated with TSC pursuant to which eLoyalty or one or
more of its Subsidiaries (or their respective officers or directors) will be
insured parties after the Distribution Date.
"INSURANCE PROCEEDS" means those monies (i) received by an
insured from an insurance carrier, (ii) paid by an insurance carrier on behalf
of the insured or (iii) received from any third Person in the nature of
insurance, contribution or indemnification in respect of any Liability, in each
such case net of any applicable premium adjustments (including reserves and
retrospectively-rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
"INSURED CLAIMS" means those Liabilities that, individually or
in the aggregate, are covered within the terms and conditions of any of the TSC
Policies, whether or not subject to deductibles, co-insurance, uncollectability,
premium adjustments (including reserves), retrospectively-rated premium
adjustments or retentions, but only to the extent that such Liabilities are
within applicable TSC Policy limits, including aggregates and deductibles.
"INTELLECTUAL PROPERTY LICENSE AGREEMENTS" means the TSC and
eLoyalty intellectual property license
11
agreements in substantially the forms of Exhibits B-1 and B-2 hereto.
"INTERCOMPANY AGREEMENTS" means any Contract between TSC and
eLoyalty entered into prior to the Distribution Date.
"INTERFACES" means software that creates interfaces between
the Software and third-party software programs.
"INVESTORS" has the meaning specified in Section 3.3.
"IRS" means the Internal Revenue Service.
"LIABILITY" means any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless
otherwise specified in this Agreement), including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any Governmental Authority or any award of
any arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
"LOSSES" means any and all losses, costs, obligations,
liabilities, settlement payments, awards, judgments, fines, penalties, damages,
fees, expenses, deficiencies, claims or other charges, absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown (including, without limitation, the costs and expenses of any and all
Actions, threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
"MATERIAL GOVERNMENTAL APPROVALS AND CONSENTS" means any
material notices, reports or other filings to be made with or to, or any
consents, registrations, approvals, permits, clearances or authorizations to be
obtained from, any Governmental Authority.
"METHODOLOGIES" means methodologies, architectures, processes,
algorithms and technologies, including, without limitation, all related trade
secrets and know-how.
"NASDAQ" means The NASDAQ Stock Market's National Market
System or any successor thereto.
"NON-PERMITTED NAMES" has the meaning specified in Section
7.14.
"OPERATING AGREEMENTS" means the Intellectual Property License
Agreements, the Tax Sharing Agreement, the Shared Services Agreement and any
other agreement regarding the ongoing business and service relationships between
TSC and eLoyalty and their respective Subsidiaries and Affiliates following the
Distribution.
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"PARTY" means TSC or eLoyalty.
"PATENTS" means United States and foreign patents and
applications for patents, including any continuations, continuations-in-part,
divisions, renewals, reissues and extensions thereof.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Authority.
"PERSONAL PROPERTY LEASES" has the meaning specified in
Section 4.1(e).
"PRIME RATE" means the rate that Bank of America, N.A. (or any
successor thereto or other major money center commercial bank agreed to by the
Parties) announces from time to time as its prime lending rate, as in effect
from time to time.
"PRIVILEGE" OR "PRIVILEGES" has the meaning specified in
Section 14.8(a).
"PRIVILEGED INFORMATION" has the meaning specified in Section
14.8(a).
"PURCHASE AGREEMENT" has the meaning specified in Section 3.3.
"REAL ESTATE LEASES" has the meaning specified in Section
4.1(d).
"RECEIVABLES" has the meaning specified in Section 4.1(b)(i).
"RECORD DATE" means the date determined by the Board of
Directors of TSC as the record date for determining stockholders of TSC entitled
to receive shares of eLoyalty Common Stock in the Distribution.
"REGISTRATION STATEMENT" has the meaning specified in Section
7.10(a).
"RETAINED ASSETS" has the meaning specified in Section 4.3.
"RETAINED BUSINESS" means those portions of the business of
TSC and its current Subsidiaries that are not part of the eLoyalty Business.
"RETAINED LIABILITIES" has the meaning specified in Section
4.4.
"RIGHTS PLAN" has the meaning specified in Section 3.9.
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder).
13
"SECURITY INTEREST" means any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer or other encumbrance of any nature whatsoever.
"SHARED CONTRACT" means a Contract with a third Person that
directly benefits both TSC and eLoyalty.
"SHARED CONTRACTUAL LIABILITIES" mean Liabilities in respect
of Shared Contracts.
"SHARED SERVICES AGREEMENT" means the shared services
agreement in substantially the form of Exhibit H hereto.
"SOFTWARE" means computer software programs, in source code
and object code form, including, without limitation, all related source
diagrams, flow charts, specifications, documentation and all other materials and
documentation necessary to allow a reasonably skilled third party programmer or
technician to maintain, support or enhance the Software.
"SUBSIDIARY" means, when used with reference to any Person,
any corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; provided, however, that no Person that is not
directly or indirectly wholly-owned by any other Person shall be a Subsidiary of
such other Person unless such other Person controls, or has the right, power or
ability to control, that Person.
"TAX" (and, with correlative meaning, "Taxes" and "Taxable")
means:
(i) any federal, state, local or foreign net income, gross
income, gross receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add-on minimum, ad valorem,
value-added, transfer, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or penalty, addition
to tax or additional amount imposed by any Governmental Authority; and
(ii) any Liability of either Party for the payment of amounts
with respect to payments of a type described in clause (i) as a result
of being a member of an affiliated, consolidated, combined or unitary
group, or as a result of any obligation of either Party under any Tax
sharing arrangement or Tax indemnity arrangement.
"TAX SHARING AGREEMENT" means the Tax Sharing and
Disaffiliation Agreement in substantially the form of Exhibit B hereto.
14
"THIRD PARTY CLAIM" has the meaning specified in Section
12.6(a).
"THIRD PARTY CONSENTS" has the meaning specified in Section
7.1.
"TRADEMARKS" has the meaning specified in Section 4.1(m).
"TRANSFER AGENT" means ChaseMellon Shareholder Services,
L.L.C., the transfer agent appointed by TSC to distribute shares of eLoyalty
Common Stock pursuant to the Distribution.
"TRANSFERRED ACTIONS" has the meaning specified in Section
7.12(b).
"TRANSFERRED ASSETS" has the meaning specified in Section 4.1.
"TRANSFERRED EMPLOYEES" has the meaning specified in Section
9.1.
"TRANSFERRED INTELLECTUAL PROPERTY" has the meaning specified
in Section 4.1(f).
"TSC" has the meaning specified in the first paragraph of this
Agreement.
"TSC COMMON STOCK" has the meaning specified in the fifth
paragraph of this Agreement.
"TSC DEFERRED COMPENSATION PLAN" has the meaning specified in
Section 9.7.
"TSC INDEMNIFIED PARTIES" has the meaning specified in Section
12.2(a).
"TSC PLANS" has the meaning specified in Section 9.3(a).
"TSC POLICY" and "TSC POLICIES" have the meanings specified in
Section 10.2.
"TSC SAVINGS PLAN" has the meaning specified in Section 9.4.
"TSC VALUE" has the meaning specified in Section 9.8(b).
"VOTING STOCK" means all of the capital stock of eLoyalty
entitled to vote generally in the election of directors but excluding any class
or series of capital stock entitled to vote only in the event of dividend
arrearages thereon, whether or not at the time of determination there are any
such dividend arrearages.
"WARN ACT" has the meaning specified in Section 9.10.
1.2. INTERPRETATION. (a) In this Agreement, unless the context
clearly indicates otherwise:
15
(i) words used in the singular include the plural and words in
the plural include the singular;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement;
(iii) reference to any gender includes the other gender;
(iv) the word "including" means "including but not limited
to";
(v) reference to any Article, Section, Exhibit or Schedule
means such Article or Section of, or such Exhibit or Schedule to, this
Agreement, as the case may be, and references in any Section or
definition to any clause means such clause of such Section or
definition;
(vi) the words "herein," "hereunder," "hereof," "hereto" and
words of similar import shall be deemed references to this Agreement as
a whole and not to any particular Section or other provision hereof;
(vii) reference to any agreement, instrument or other document
means such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by
the provisions thereof and by this Agreement;
(viii) reference to any law (including statutes and
ordinances) means such law (including all rules and regulations
promulgated thereunder) as amended, modified, codified or reenacted, in
whole or in part, and in effect at the time of determining compliance
or applicability;
(ix) relative to the determination of any period of time,
"from" means "from and including," "to" means "to but excluding" and
"through" means "through and including";
(x) accounting terms used herein shall have the meanings
historically ascribed to them by TSC and its Subsidiaries based upon
TSC's internal financial policies and procedures in effect prior to the
date of this Agreement;
(xi) in the event of any conflict between the provisions of
the body of this Agreement and the Exhibits or Schedules hereto, the
provisions of the body of this Agreement shall control; and
(xii) the titles to Articles and headings of Sections
contained in this Agreement have been inserted for convenience of
reference only and shall not be deemed to be a part of or to affect the
meaning or interpretation of this Agreement.
(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 either
Party shall not apply to any construction or
16
interpretation hereof.
ARTICLE II
THE DISTRIBUTION
2.1. ISSUANCE AND DELIVERY OF ELOYALTY SHARES. eLoyalty shall
issue to TSC the number of eLoyalty Shares required so that the total number of
eLoyalty Shares held by TSC on the Distribution Date is equal to the total
number of eLoyalty Shares distributable pursuant to Section 2.2. TSC shall
deliver to the Transfer Agent one or more stock certificates representing all of
the eLoyalty Shares held by TSC, together with one or more stock power(s) duly
endorsed in blank. The Transfer Agent will then transfer and distribute such
shares in the manner described in Section 2.2 below.
2.2. DISTRIBUTION OF ELOYALTY SHARES. eLoyalty shall provide
to the Transfer Agent sufficient certificates in such denominations as the
Transfer Agent may request in order to effect the Distribution. TSC shall
instruct the Transfer Agent (i) to distribute to all holders of record of TSC
Common Stock as of the Record Date the eLoyalty Distributable Share for each
share of TSC Common Stock outstanding and held of record by such holder as of
the Record Date, and (ii) to deliver to eLoyalty, as a contribution to eLoyalty,
all of the remaining eLoyalty Shares, if any, then held by the Transfer Agent.
Any such returned eLoyalty Shares shall be canceled immediately by eLoyalty, and
the Board of Directors of eLoyalty shall take appropriate action so that such
returned shares shall not constitute treasury shares. All of the distributed
eLoyalty Shares shall be validly issued, fully paid and nonassessable and shall
be free of any preemptive rights.
2.3. TSC BOARD ACTION. The Board of Directors of TSC shall, in
its sole discretion, determine the Record Date and the Distribution Date and all
appropriate procedures in connection with the Distribution. The Board of
Directors of TSC also shall have the right to adjust at any time prior to the
Distribution Date the eLoyalty Distributable Share. The consummation of the
transactions provided for in this Article II shall be effected only after the
Distribution has been declared by the Board of Directors of TSC and after all of
the conditions set forth in Article VIII hereof shall have been satisfied or
waived by TSC.
2.4. ADDITIONAL APPROVALS. TSC shall cooperate with eLoyalty
in effecting, and if so requested by eLoyalty, TSC shall, as the majority
stockholder of eLoyalty prior to the Distribution, ratify all actions that are
reasonably necessary or desirable to be taken by eLoyalty to effectuate, the
transactions referenced in or contemplated by this Agreement in a manner
consistent with the terms of this Agreement.
ARTICLE III
FORMATION OF ELOYALTY/CORPORATE GOVERNANCE
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3.1. CERTIFICATE OF INCORPORATION OF ELOYALTY. The original
Certificate of Incorporation of eLoyalty was filed with the Secretary of State
of the State of Delaware on May 11, 1999. On July 9, 1999, an amendment to the
Certificate of Incorporation was filed that (i) changed the name of the company
from TSC/ECM Inc. to eLoyalty Corporation and (ii) increased the number of
authorized shares of capital stock to 110,000,000, consisting of 10,000,000
shares of eLoyalty preferred stock, par value $.01 per share, and 100,000,000
shares of eLoyalty Common Stock. On January 3, 2000 an additional amendment to
the Certificate of Incorporation was filed whereby eLoyalty elected to be
governed by Section 203 of the General Corporation Law of the State of Delaware.
3.2. BY-LAWS. The original By-laws of eLoyalty were adopted on
June 21, 1999 by written action of the sole incorporator of eLoyalty.
3.3. ELECTION OF BOARD OF DIRECTORS. The initial Board of
Directors of eLoyalty, consisting of Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇, was
elected on June 22, 1999 by written action of TSC in its capacity as the sole
stockholder of eLoyalty. On June 25, 1999 the Board of Directors of eLoyalty, by
written action, increased the size of the Board from three to six and elected
Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and Zucchini as additional directors. On August 13, 1999
TSC and eLoyalty entered into a Common Stock Purchase and Sale Agreement (the
"Purchase Agreement") that, among other things, grants each of ▇▇▇▇▇▇ Hill
Ventures and Technology Crossover Management III, L.L.C. (together, the
"Investors") the right to designate a nominee to the Board of Directors of
eLoyalty. The Investors' nominees are Messrs. ▇▇▇▇ and ▇▇▇▇. On January 3, 2000
the Board of Directors of eLoyalty, by written action, accepted the resignations
of Messrs. ▇▇▇▇▇▇▇ and Kohler from the Board and reduced the size of the Board
from six to five. Messrs. Kohler and ▇▇▇▇▇▇▇ were elected as additional
directors on January 3, 2000 by written action of TSC in its capacity as the
sole stockholder of eLoyalty. Messrs. ▇▇▇▇▇▇▇ will resign from the Board of
Directors of eLoyalty on or prior to the Distribution Date.
3.4. APPOINTMENT OF OFFICERS. On June 22, 1999 the Board of
Directors of eLoyalty, by written action, appointed ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as the
President and Chief Executive Officer, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ as the Secretary and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as the Treasurer of eLoyalty. On December 16, 1999, the Board
of Directors of eLoyalty, by written action, appointed ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ as
the Assistant Treasurer and Chief Financial Officer. On January 3, 2000, Messrs.
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ resigned from their respective positions as officers of
eLoyalty and the Board of Directors of eLoyalty, by written action, appointed
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as the Iterim Chairman, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as the President and
Chief Executive Officer and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ as the Chief Financial
Officer, Secretary and Treasurer.
3.5. CAPITAL STOCK OF ELOYALTY. On June 22, 1999 the Board of
Directors of eLoyalty, by written action, approved the issuance and delivery to
TSC of a stock certificate evidencing TSC's ownership of 100 shares of eLoyalty
Common Stock. On December 16, 1999 the Board of Directors of eLoyalty issued
41,399,900 additional shares of eLoyalty Common Stock to TSC in exchange for a
cash payment of $413,999. The Purchase Agreement provides, among other things,
for the sale of 1,200,000 shares of eLoyalty Common Stock to ▇▇▇▇▇▇ ▇▇▇▇
Ventures and an aggregate of 1,200,000 shares of eLoyalty Common Stock to four
entities controlled by Technology Crossover Management III, L.L.C. The number of
shares of eLoyalty Common Stock actually sold to those investors is subject to
adjustment. As of December 31, 1999, options to acquire 5,340,000 shares of
eLoyalty Common Stock have been issued under eLoyalty's 1999 Stock Incentive
Plan.
18
3.6. NAME RESERVATIONS AND REGISTRATIONS. eLoyalty has reserved the name
"eLoyalty Corporation" in all states except for Florida, which does not allow
such a reservation. eLoyalty has registered the name "eLoyalty Corporation" in
South Dakota and New Mexico.
3.7. FOREIGN QUALIFICATIONS. eLoyalty has qualified or will qualify in all
jurisdictions (other than its place of incorporation) in which it intends to
conduct business.
3.8. CORPORATE SEAL. On June 22, 1999 the Board of Directors of eLoyalty,
by written action, approved the form of the corporate seal. Inscribed thereon is
the name "eLoyalty Corporation" and the words "Corporate Seal, Delaware."
3.9. ADOPTION OF STOCKHOLDERS RIGHTS PLAN. On December 16, 1999 the Board
of Directors of eLoyalty met to discuss, among other things, the desirability of
adopting a stockholder rights plan. In connection with that meeting, a
presentation was made to the Board of Directors of eLoyalty to assist them with
their analysis of the merits of taking such action. On January , 2000 the Board
of Directors of eLoyalty, by written action, will consider the adoption of the
Stockholders Rights Plan (the "Rights Plan") in substantially the form attached
as Exhibit C hereto, and the establishment of a committee of the Board of
Directors of eLoyalty to set the strike price under the Rights Plan.
ARTICLE IV
ASSET SEPARATION
4.1. TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, on or prior to the Distribution Date, TSC shall convey, assign,
transfer, contribute and set over, or cause to be conveyed, assigned,
transferred, contributed and set over, to eLoyalty, and eLoyalty shall accept
and receive, all right, title and interest of TSC in and to the tangible and
intangible assets of the eLoyalty Business (all of such assets being hereinafter
referred to as the "Transferred Assets"), including the following:
(a) Balance Sheet Assets. All assets reflected or disclosed on the
unaudited balance sheet of the eLoyalty Business as of September 30, 1999
attached as Exhibit D hereto (the "Balance Sheet"), including all
machinery, equipment, furniture and other tangible personal property,
whether owned or leased, used primarily in the operation of the eLoyalty
Business, subject to acquisitions, dispositions and adjustments in the
ordinary course of the eLoyalty Business, consistent with past practice,
after such date;
(b) Receivables.
(i) All accounts receivable, notes receivable, lease
receivables, prepayments (other than prepaid insurance), advances
and other receivables arising out of or produced by the eLoyalty
Business and owing by any Persons (the "Receivables");
19
(ii) all cash payments received after the Distribution Date
on account of the Receivables;
(iii) all manufacturers' warranties or guarantees related to
the Transferred Assets or related to any of the Assumed
Liabilities; and
(iv) any and all manufacturers' or third party service or
replacement programs relating to the Transferred Assets;
(c) Inventories. All supplies, packaging and other inventories related
to the eLoyalty Business.
(d) Real Property Leases. Those certain real estate leases set forth
on Schedule 4.1(d) hereto (the "Real Estate Leases") and any and all
improvements, fixtures, machinery, equipment and other property located on
the premises demised under such Real Estate Leases;
(e) Personal Property Leases. Those certain machinery, equipment or
other tangible personal property leases (the "Personal Property Leases")
set forth on Schedule 4.1(e) hereto;
(f) Intellectual Property. All Copyrights, Interfaces, Methodologies,
Patents and Software to the extent the foregoing are used primarily in
connection with the eLoyalty Business, including (i) those set forth on
Schedule 4.1(f) hereto; (ii) all business and technical information,
nonpatented inventions, discoveries, processes, formulations, trade
secrets, know-how and technical data used primarily in connection with the
eLoyalty Business made or conceived by employees, consultants or
contractors of TSC or its Subsidiaries as to which TSC or its Subsidiaries
have rights under any agreement or otherwise relating to the foregoing;
(iii) all business and technical information, nonpatented inventions,
discoveries, processes, formulations, trade secrets, know-how and technical
data used primarily in connection with the eLoyalty Business made or
conceived by third parties as to which TSC or its Subsidiaries have rights
pursuant to executory agreements with said third parties relating to the
foregoing; and (iv) all permits, grants, contracts, agreements and licenses
running to or from TSC or its Subsidiaries relating to the foregoing; and
all rights that are associated with the foregoing (collectively, the
"Transferred Intellectual Property");
(g) Contracts. All of the following contracts, agreements,
arrangements, leases (other than Real Estate Leases and Personal Property
Leases), manufacturers' warranties, memoranda, understandings and offers
open for acceptance of any nature, whether written or oral (the
"Contracts"):
(i) all Contracts related to acquisitions or divestitures of
assets or stock related primarily to the eLoyalty Business, including
Contracts related to the transactions set forth on Schedule 4.1(g)(i)
hereto, except to the extent any such
20
Contracts relate to the Retained Business and except to the extent
indicated on Schedule 4.1(g)(i);
(ii) all service, license, maintenance and support Contracts with
customers related primarily to the eLoyalty Business, including those
set forth on Schedule 4.1(g)(ii) hereto;
(iii) all supplier Contracts related primarily to the eLoyalty
Business relating either to raw materials or distributed products,
including those set forth on Schedule 4.1(g)(iii) hereto;
(iv) all joint development and alliance Contracts related
primarily to the eLoyalty Business, including those set forth on
Schedule 4.1(g)(iv) hereto;
(v) all Contracts with third-parties related primarily to the
eLoyalty Business relating to services provided to, or for the benefit
of, eLoyalty, including those set forth on Schedule 4.1(g)(v) hereto;
(vi) the telecommunications Contracts related primarily to the
eLoyalty Business, including those set forth on Schedule 4.1(g)(vi)
hereto;
(vii) the Shared Contracts that are designated as being assigned
to eLoyalty; and
(viii) all other Contracts related primarily to the eLoyalty
Business.
(h) Permits and Licenses. All permits, approvals, licenses,
franchises, authorizations or other rights granted by any Governmental
Authority held or applied for by TSC and its Subsidiaries and that are used
primarily in the eLoyalty Business or that relate primarily to the
Transferred Assets, and all other consents, grants and other rights that
are used primarily for the lawful ownership of the Transferred Assets or
the operation of the eLoyalty Business and that are legally transferable to
eLoyalty;
(i) Claims and Indemnities. All rights, claims, demands, causes of
action, judgments, decrees and rights to indemnity or contribution, whether
absolute or contingent, contractual or otherwise, in favor of TSC relating
primarily to the eLoyalty Business, including the right to ▇▇▇, recover and
retain such recoveries and the right to continue in the name of TSC and its
Subsidiaries any pending actions relating to the foregoing, and to recover
and retain any damages therefrom;
(j) Subsidiaries, Joint Ventures and Minority Interests. All shares of
capital stock or equity or debt or other interests owned by TSC or its
Subsidiaries in the Subsidiaries, joint ventures and minority investments
set forth on Schedule 4.1(j) hereto;
(k) Books And Records. All books and records (including all records
21
pertaining to customers, suppliers and personnel), wherever located, that
relate primarily to the operation of the eLoyalty Business;
(l) Supplies. All office supplies, production supplies, spare parts,
purchase orders, forms, labels, shipping material, art work, catalogues,
sales brochures, operating manuals and advertising and promotional material
and all other printed or written material that relate primarily to the
operation of the eLoyalty Business;
(m) Trademarks. All United States, state and foreign trademarks,
service marks, logos, trade dress and trade names (including all assumed or
fictitious names under which TSC is conducting the eLoyalty Business),
whether registered or unregistered, including all goodwill associated with
the foregoing, and all registrations and pending applications to register
the foregoing to the extent the foregoing are used or intended to be used
primarily in connection with the eLoyalty Business, including those set
forth on Schedule 4.1(m) hereto (collectively, the "Trademarks");
(n) Loans to Transferred Employees. All loans, notes or other debts
owed to TSC and its Subsidiaries by any Transferred Employees (as
hereinafter defined), including those set forth on Schedule 4.1(n) hereto;
(o) Industry Awards. All industry awards that are sponsored primarily
by the eLoyalty Business, including those set forth on Schedule 4.1(o)
hereto;
(p) Tax Credits. Any right, title or interest in any tax refund,
credit or benefit to which eLoyalty or any of its Subsidiaries is entitled
in accordance with the terms of the Tax Sharing Agreement; and
(q) Other Assets. All other assets, tangible or intangible, including
all goodwill, that are used primarily in or relate primarily to the
operations of the eLoyalty Business, including, without limitation, e-mail
addresses, domain names and websites.
4.2. ASSUMPTION OF LIABILITIES. Except as expressly limited in this Article
IV, eLoyalty shall assume, effective on or before the Distribution Date, and
pay, comply with and discharge all contractual and other Liabilities of TSC
arising out of or relating to the eLoyalty Business, whether due or to become
due, including:
(a) All Liabilities of TSC that are reflected, disclosed or reserved
for on the Balance Sheet, as such Liabilities may be increased or decreased
in the operation of the eLoyalty Business from the date of the Balance
Sheet through the Distribution Date in the ordinary course of business
consistent with past practice;
(b) All Liabilities of TSC under or related to the Real Estate Leases,
the Personal Property Leases and the Contracts, such assumption to occur as
(i) assignee if such Real Estate Leases, Personal Property Leases and
Contracts are assignable and are assigned or otherwise transferred to
eLoyalty, or (ii) subcontractor, sublessee or sublicensee as
22
provided in Section 7.3 below if assignment of such Real Estate Leases,
Personal Property Leases and Contracts and/or the proceeds thereof is
prohibited by law, by the terms thereof or not permitted by the other
contracting party;
(c) All warranty, performance and similar obligations entered into or
made by TSC prior to the Distribution Date with respect to the products or
services of the eLoyalty Business;
(d) All Liabilities of TSC in connection with claims of past or
current employees of the eLoyalty Business, except as otherwise expressly
provided in this Agreement;
(e) All Liabilities of TSC related to any and all Actions asserting a
violation of any law, rule or regulation related to or arising out of the
operations of the eLoyalty Business, whether before or after the
Distribution Date and the Liabilities relating to any Assumed Actions (as
hereinafter defined);
(f) All Liabilities for which eLoyalty is liable in accordance with
the terms of the Tax Sharing Agreement;
(g) All Liabilities of TSC related to the immigrant and nonimmigrant
status of any foreign national employees who are Transferred Employees (as
hereinafter defined); and
(h) All other Liabilities of TSC relating to the eLoyalty Business,
whether existing on the date hereof or arising at any time or from time to
time after the date hereof, and whether based on circumstances, events or
actions arising heretofore or hereafter, whether or not such Liabilities
shall have been disclosed herein, and whether or not reflected on the books
and records of TSC or eLoyalty or the Balance Sheet.
The Liabilities described in this Section 4.2 are referred to in this
Agreement collectively as the "Assumed Liabilities."
4.3. RETAINED ASSETS. Notwithstanding anything to the contrary herein, the
following assets (the "Retained Assets") are not, and shall not be deemed to be,
Transferred Assets:
(a) Cash and cash equivalents, any cash on hand or in bank accounts,
certificates of deposit, commercial paper and similar securities, except
for (i) deposits securing bonds, letters of credit, leases and all other
obligations related to the eLoyalty Business, (ii) ▇▇▇▇▇ cash and impressed
funds related to the eLoyalty Business, (iii) cash held in foreign bank
accounts and (iv) $20,000,000;
(b) Any right, title or interest in any tax refund, credit or benefit
to which TSC or any of its Subsidiaries is entitled in accordance with the
terms of the Tax Sharing Agreement.
(c) Any amounts accrued on the books and records of TSC and its
Subsidiaries or
23
the eLoyalty Business with respect to any Retained Liabilities (as
hereinafter defined);
(d) Except as provided in Sections 9.4 and 9.7, assets relating to the
provision of benefits to present or former employees of the eLoyalty
Business; and
(e) Any intellectual property rights in and to the name "TSC" and the
related emblem design, and any variants thereof, and the trademarks and
trade names used by TSC or its Subsidiaries in relation to the Retained
Business, except as provided in the Intellectual Property License
Agreements attached as Exhibits B-1 and B-2 hereto.
4.4. RETAINED LIABILITIES. Notwithstanding anything to the contrary in this
Agreement, neither eLoyalty nor any of its Subsidiaries shall assume any of the
following Liabilities of TSC or its Subsidiaries (the "Retained Liabilities"):
(a) Except as provided in Article IX, the Liabilities under all the
TSC Plans; and
(b) All Liabilities for which TSC is liable in accordance with the
terms of the Tax Sharing Agreement.
4.5. TERMINATION OF EXISTING INTERCOMPANY AGREEMENTS. Except as otherwise
expressly provided in this Agreement, the Operating Agreements or the agreements
set forth on Schedule 4.5, all Intercompany Agreements and all other
intercompany arrangements and course of dealings, whether or not in writing and
whether or not binding, in effect immediately prior to the Distribution Date,
shall be terminated and be of no further force and effect from and after the
Distribution Date.
4.6. SHARED CONTRACTS. (a) With respect to Shared Contractual Liabilities
pursuant to, arising under or relating to any Shared Contract, such Shared
Contractual Liabilities shall be allocated between TSC and eLoyalty as follows:
(i) First, if a Liability is incurred exclusively in respect of a
benefit received by one Party, the Party receiving such benefit shall be
responsible for such Liability;
(ii) Second, if a Liability cannot be so allocated under clause (i),
such Liability shall be allocated between the Parties based on the relative
proportions of total benefit received (over the term of the Shared
Contract, measured as of the date of the allocation) under the relevant
Shared Contract. Notwithstanding the foregoing, each Party shall be
responsible for any and all Liabilities arising out of or resulting from
its breach of the relevant Shared Contract.
(b) If either TSC or eLoyalty improperly receives any benefit or payment
under any Shared Contract that was intended for the other Party, the Party
receiving such benefit or payment will use commercially reasonable efforts to
deliver, transfer or otherwise afford such benefit or payment (on an after-tax
basis) to the other Party.
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ARTICLE V
ASSET SEPARATION CLOSING MATTERS
5.1. DELIVERY OF INSTRUMENTS OF CONVEYANCE. In order to
effectuate the transactions contemplated by Article IV, the Parties shall
execute and deliver, or cause to be executed and delivered, prior to or as of
the Distribution Date such deeds, bills of sale, instruments of assumption,
instruments of assignment, stock powers, certificates of title and other
instruments of assignment, transfer, assumption and conveyance (collectively,
the "Conveyancing Instruments") as the Parties shall reasonably deem necessary
or appropriate to effect such transactions.
5.2. DELIVERY OF OTHER AGREEMENTS. Prior to or as of the
Distribution Date, the Parties shall execute and deliver, or shall cause to be
executed and delivered, each of the Operating Agreements.
5.3. PROVISION OF CORPORATE RECORDS. Prior to or as promptly
as practicable after the Distribution Date, TSC shall deliver to eLoyalty all
corporate books and records of eLoyalty and copies of all corporate books and
records of TSC relating to the eLoyalty business, including in each case all
active agreements, litigation files and government filings. From and after the
Distribution Date, all books, records and copies so delivered shall be the
property of eLoyalty.
ARTICLE VI
NO REPRESENTATIONS AND WARRANTIES
Except as expressly set forth herein or in any Operating
Agreement, TSC does not represent or warrant in any way (i) as to the value or
freedom from encumbrance of, or any other matter concerning, any of the
Transferred Assets or (ii) as to the legal sufficiency to convey title to any of
the Transferred Assets on the execution, delivery and filing of the Conveyancing
Instruments. ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN "AS IS, WHERE IS" BASIS
WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY
OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and eLoyalty shall bear
the economic and legal risks that any conveyances of such assets shall prove to
be insufficient or that eLoyalty's title to any such assets shall be other than
good and marketable and free of encumbrances. Except as expressly set forth in
this Agreement or in any Operating Agreement, TSC does not represent or warrant
that the obtaining of the consents or approvals, the execution and delivery of
any amendatory agreements and the making of the filings and applications
contemplated by this Agreement shall satisfy the provisions of all applicable
agreements or the requirements of all applicable laws or judgments, and, subject
to Section 7.4, eLoyalty shall bear
25
the economic and legal risk that any necessary consents or approvals are not
obtained or that any requirements of law or judgments are not complied with.
Notwithstanding the foregoing, the Parties shall fully cooperate and use
reasonable efforts to obtain all consents and enter into all amendatory
agreements and to make all filings and applications that may be required for the
consummation of the transactions contemplated by this Agreement.
ARTICLE VII
CERTAIN COVENANTS
7.1. THIRD PARTY CONSENTS. To the extent that the transactions
contemplated by this Agreement require any material consents, approvals or
waivers from third parties (the "Third Party Consents"), the Parties will use
commercially reasonable efforts to obtain any such Third Party Consents.
7.2. MATERIAL GOVERNMENTAL APPROVALS AND CONSENTS. To the
extent that the transactions contemplated by this Agreement require any
approvals or consents of any Governmental Authority, the Parties will use
commercially reasonable efforts to obtain any Material Governmental Approvals
and Consents.
7.3. NON-ASSIGNABLE CONTRACTS. In the event and to the extent
that TSC is unable to obtain any consent, approval or amendment to any Contract,
lease, license or other rights relating to the eLoyalty Business that would
otherwise be transferred or assigned to eLoyalty as contemplated by this
Agreement or any other agreement or document contemplated hereby, (i) TSC shall
continue to be bound thereby and the purported transfer or assignment to
eLoyalty shall automatically be deemed deferred until such time as all legal
impediments are removed and/or all necessary consents have been obtained, and
(ii) unless not permitted by the terms thereof or by law, eLoyalty shall pay,
perform and discharge fully all of the obligations of TSC thereunder from and
after the Distribution Date, or such earlier date as such transfer or assignment
would otherwise have taken place, and indemnify TSC for all indemnifiable Losses
arising out of such performance by eLoyalty. TSC shall, without further
consideration therefor, pay and remit to eLoyalty promptly all monies, rights
and other considerations received in respect of such performance. TSC shall
exercise or exploit its rights and options under all such Contracts, leases,
licenses and other rights and commitments referred to in this Section 7.3 only
as reasonably directed by eLoyalty and at eLoyalty's expense. If and when any
such consent shall be obtained or such Contract, lease, license or other right
shall otherwise become assignable or be able to be novated, TSC shall promptly
assign and novate (to the extent permissible) all of its rights and obligations
thereunder to eLoyalty without payment of further consideration, and eLoyalty
shall, without the payment of any further consideration therefor, assume such
rights and obligations. To the extent that the assignment of any Contract,
lease, license or other right (or the proceeds thereof) pursuant to this Section
7.3 is prohibited by law, the assignment provisions of this Section 7.3 shall
operate to create a subcontract with eLoyalty to perform each relevant
unassignable TSC Contract at a subcontract price equal to the monies, rights and
other considerations received by TSC with respect to the performance by eLoyalty
under such
26
subcontract.
7.4. NOVATION OF ASSUMED LIABILITIES. (a) Except as otherwise
specifically provided in Section 4.6 with respect to Shared Contracts and
elsewhere in this Agreement, it is expressly understood and agreed to by the
Parties that upon the assumption by eLoyalty of the Assumed Liabilities, TSC,
its Subsidiaries and their respective officers, directors and employees shall be
released unconditionally by eLoyalty from any and all Liability, whether joint,
several or joint and several, for the discharge, performance or observance of
any of the Assumed Liabilities, so that eLoyalty will be solely responsible for
such Assumed Liabilities.
(b) eLoyalty, at the reasonable request of TSC, shall use
commercially reasonable efforts to obtain, or cause to be obtained, any consent,
approval, release, substitution or amendment required to novate (including with
respect to any federal government contract) or assign all obligations under the
Assumed Liabilities, or to obtain in writing the unconditional release of all
parties to such arrangements other than eLoyalty; provided, however, that
eLoyalty shall not be obligated to pay any consideration therefor to any third
party from whom such consents, approvals, releases, substitutions or amendments
are requested.
(c) If eLoyalty is unable to obtain, or to cause to be
obtained, any such required consent, approval, release, substitution or
amendment, TSC shall continue to be bound by such Assumed Liability and, unless
not permitted by law or the terms thereof, eLoyalty shall, as agent or
subcontractor for TSC, pay, perform and discharge fully all of the obligations
or other Liabilities of TSC thereunder from and after the date hereof. eLoyalty
shall indemnify and hold harmless TSC against any Liabilities arising in
connection with such Assumed Liability or with eLoyalty's payment, performance
and discharge of such Assumed Liability. Except as otherwise set forth in this
Agreement, TSC shall, without further consideration, pay and remit, or cause to
be paid or remitted, to eLoyalty promptly the after-tax amount of all money,
rights and other consideration received by it in respect of such performance
(unless any such consideration is a Retained Asset), increased by any actual tax
benefit derived by TSC as a result of such payment or remittance (with such tax
benefit determined pursuant to Section 12.5(d)). If and when any such consent,
approval, release, substitution or amendment shall be obtained or such Assumed
Liability shall otherwise become assignable or be able to be novated, TSC shall
thereafter assign, or cause to be assigned, all of its rights, obligations and
other Liabilities thereunder to eLoyalty without payment of further
consideration and eLoyalty shall, without the payment of any further
consideration, assume such rights and obligations.
7.5. FURTHER ASSURANCES. (a) In addition to the actions
specifically provided for elsewhere in this Agreement, each of the Parties shall
use commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the Distribution and the other agreements and documents
contemplated hereby. Without limiting the generality of the foregoing, each
Party shall cooperate with the other Party to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all
instruments, including instruments of conveyance, assignment and transfer, and
to make all filings with, and to obtain all consents, approvals or
authorizations of, any governmental or regulatory authority or any other Person
under any permit, license, Contract or other
27
instrument, and to take all such other actions as such Party may
reasonably be requested to take by the other Party from time to time, consistent
with the terms of this Agreement, in order to confirm the title of eLoyalty to
all of the eLoyalty Business, to put eLoyalty in actual possession and operating
control thereof and to permit eLoyalty to exercise all rights with respect
thereto and to effectuate the provisions and purposes of this Agreement and the
other agreements and documents contemplated hereby or thereby.
(b) If, as a result of mistake or oversight, any asset
reasonably necessary to the conduct of the eLoyalty Business is not transferred
to eLoyalty, or any asset reasonably necessary to the conduct of the Retained
Business is transferred to eLoyalty, TSC and eLoyalty shall negotiate in good
faith after the Distribution Date to determine whether such asset should be
transferred to eLoyalty or to TSC, as the case may be, and/or the terms and
conditions upon which such asset shall be made available to eLoyalty or to TSC,
as the case may be. Unless expressly provided to the contrary in this Agreement
or any Operating Agreement, if, as a result of mistake or oversight, any
Liability arising out of or relating to the eLoyalty Business is retained by
TSC, or any Liability arising out of or relating to the Retained Business is
assumed by eLoyalty, TSC and eLoyalty shall negotiate in good faith after the
Distribution Date to determine whether such Liability should be transferred to
eLoyalty or TSC, as the case may be, and/or the terms and conditions upon which
any such Liability shall be transferred.
(c) If either Party identifies any commercial or other service
that is needed to assure a smooth and orderly transition of the businesses in
connection with the consummation of the transactions contemplated hereby or any
desired modification to any such service, including any service that is governed
by the provisions of any Operating Agreement, the Parties shall give reasonable
notice of such service or proposed modification, and shall cooperate in
implementing any such service or modification and in determining the mutually
acceptable arm's-length basis on which one Party will provide such service to
the other Party.
7.6. NOMINEE SHARES. TSC agrees to use commercially reasonable
efforts to cause to be transferred to, or as directed by, eLoyalty all
director's qualifying or other shares of capital stock of any of the transferred
Subsidiaries held as of the Distribution Date by persons who are not employees
of eLoyalty. eLoyalty agrees to use commercially reasonable efforts to cause to
be transferred to, or as directed by, TSC all director's qualifying or other
shares of capital stock of any TSC Subsidiary other than eLoyalty and the
transferred Subsidiaries held as of the Distribution Date by employees of
eLoyalty.
7.7. COLLECTION OF ACCOUNTS RECEIVABLE. (a) TSC shall be
entitled to control all collection actions related to the Retained Assets,
including the determination of what actions are necessary or appropriate and
when and how to take any such action.
(b) eLoyalty shall be entitled to control all collection
actions related to the Transferred Assets, including the determination of what
actions are necessary or appropriate and when and how to take any such action.
(c) If, after the Distribution Date, eLoyalty shall receive
any remittance from any
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account debtors with respect to the accounts receivable arising out of the
Retained Assets or other amounts due TSC in respect of services rendered by TSC
after the Distribution Date, or TSC shall receive any remittance from any
account debtors with respect to the accounts receivable arising out of the
Transferred Assets or other amounts due eLoyalty in respect of services rendered
by eLoyalty after the Distribution Date, such Party shall receive and deposit
the after-tax amount of such remittance and deliver cash in an amount equal
thereto to the other Party, increased by any actual tax benefit derived by such
Party as a result of payment to such other Party (with such tax benefit
determined pursuant to Section 12.5(d)) as soon as practicable and, in any
event, within five (5) business days of receiving such remittance. The Parties
shall reconcile any amounts due and owed under this Section 7.7 on a daily
basis.
(d) Each Party shall deliver to the other such schedules and
other information with respect to the accounts receivable included in the
Transferred Assets and those not included therein as each shall reasonably
request from time to time in order to permit such Parties to reconcile their
respective records and to monitor the collection of all accounts receivable
(whether or not Transferred Assets). Each Party shall afford the other
reasonable access to its books and records relating to any accounts receivable.
7.8. ELECTION OF ELOYALTY BOARD OF DIRECTORS. Prior to the
Distribution Date, TSC agrees to vote all shares of eLoyalty Common Stock held
by it in favor of the nominees to the Board of Directors of eLoyalty, as set
forth on Exhibit F hereto.
7.9. LATE PAYMENTS. Except as expressly provided to the
contrary in this Agreement or in any Operating Agreement, any amount not paid
when due pursuant to this Agreement or any Operating Agreement (and any amounts
billed or otherwise invoiced or demanded and properly payable that are not paid
within thirty (30) days of such ▇▇▇▇, invoice or other demand) shall accrue
interest at a rate per annum equal to the Prime Rate plus 2%.
7.10. REGISTRATION AND LISTING. Prior to the Distribution
Date:
(a) TSC and eLoyalty shall prepare a registration statement on
Form 10, including such amendments or supplements thereto as may be
necessary (together, the "Registration Statement") to effect the
registration of the eLoyalty Common Stock under the Exchange Act, which
Registration Statement shall include an information statement to be
sent by TSC to its stockholders in connection with the Distribution
(the "Information Statement"). eLoyalty shall file the Registration
Statement with the SEC and shall use commercially reasonable efforts to
cause the Registration Statement to become and remain effective under
the Exchange Act as soon as reasonably practicable. After the
Registration Statement becomes effective, TSC shall mail the
Information Statement to the holders of TSC Common Stock as of the
Record Date.
(b) The Parties shall use commercially reasonable efforts to
take all such action as may be necessary or appropriate under state and
foreign securities and "Blue Sky" laws in connection with the
transactions contemplated by this Agreement.
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(c) TSC and eLoyalty shall prepare, and eLoyalty shall file
and seek to make effective, an application for the listing of the
eLoyalty Common Stock on the NASDAQ, subject to official notice of
issuance.
(d) The Parties shall cooperate in preparing, filing with the
SEC and causing to become effective any registration statements or
amendments thereto that are necessary or appropriate in order to effect
the transactions contemplated hereby or to reflect the establishment
of, or amendments to, any employee benefit plans contemplated hereby.
7.11. NO NONCOMPETITION; NONHIRING; NONSOLICITATION. (a) After
the Distribution Date, neither Party shall have any duty to refrain from (i)
engaging in the same or similar activities or lines of business as the other
Party, (ii) doing business with any potential or actual supplier or customer of
the other Party or (iii) engaging in, or refraining from, any other activities
whatsoever relating to any of the potential or actual suppliers or customers of
the other Party.
(b) During the period beginning on December 1, 1999 and ending
eighteen (18) months after such date, neither TSC nor eLoyalty shall, nor shall
either Party permit any of its respective Subsidiaries, Affiliates or agents to,
directly or indirectly, without the prior written consent of the other, actively
solicit or recruit for employment any then current employee of the other Party
or of any of the other Party's Subsidiaries or Affiliates. However, nothing
contained in this Section 7.11(b) shall (i) prohibit the hiring of any employee
who is seeking employment on his or her own initiative without prior contact
initiated by any employee or agent of the company where employment is sought, or
any of such company's Affiliates, provided that such employee has obtained
authorization from an officer (or a direct report to a current officer) of his
or her current employer; or (ii) prohibit TSC or eLoyalty or any of their
respective Subsidiaries or Affiliates from hiring any person who has terminated
employment with the other Party. The foregoing restriction shall cease to apply
on July 1, 2001.
7.12. LITIGATION. (a) On or as of the Distribution Date,
eLoyalty shall assume and pay all Liabilities that may result from the Assumed
Actions (as hereinafter defined) and all fees and costs relating to the defense
of the Assumed Actions, including attorneys' fees and costs incurred after the
Distribution Date. "Assumed Actions" shall mean those cases, claims and
investigations (on which TSC, its Subsidiaries or its Affiliates, other than
eLoyalty, are a defendant or the party against whom the claim or investigation
is directed) primarily related to the eLoyalty Business.
(b) TSC and its Subsidiaries shall transfer the Transferred
Actions (as hereinafter defined) to eLoyalty, and eLoyalty shall receive and
have the benefit of all of the proceeds of such Transferred Actions.
"Transferred Actions" shall mean those cases and claims (on which TSC, its
Subsidiaries or its Affiliates are a plaintiff or claimant) primarily relating
to the eLoyalty Business.
7.13. ELOYALTY BANK ACCOUNTS. On or prior to the Distribution
Date, TSC and its Subsidiaries shall transfer the bank accounts set forth on
Schedule 7.13 hereto to eLoyalty. eLoyalty shall cause any amounts received, by
mistake or otherwise, in such accounts after the Distribution Date on account of
the Retained Business to be transferred promptly to TSC and its
30
Subsidiaries, as appropriate. TSC shall cause any amounts received, by mistake
or otherwise, after the Distribution Date on account of the eLoyalty Business to
be transferred promptly to eLoyalty.
7.14. SIGNS; USE OF COMPANY NAME. As soon as practicable, and
in any event within sixty (60) days after the Distribution Date, the Parties, at
eLoyalty's expense, shall remove (or, if necessary, on an interim basis cover
up) any and all exterior and interior signs and identifiers that refer or
pertain to TSC or the Retained Business on the Transferred Assets, in the case
of eLoyalty, or that refer or pertain to eLoyalty or the Transferred Business on
the Retained Assets, in the case of TSC. After such period, (i) eLoyalty shall
not use or display the names "TSC," "Technology Solutions Company" or any
variations thereof, or other trademarks, tradenames, logos or identifiers using
any of such names or otherwise owned by or licensed to TSC that have not been
assigned or licensed to eLoyalty, and (ii) TSC shall not use or display the name
"eLoyalty," "eLoyalty Corporation" or any variations thereof, or other
trademarks, tradenames, logos or identifiers using any of such names or
otherwise owned by or licensed to eLoyalty that have not been assigned or
licensed to TSC (collectively, the "Non-Permitted Names"), without the prior
written consent of the other Party; provided, however, that notwithstanding the
foregoing, nothing contained in this Agreement shall prevent either Party from
using the other's name in public filings with Governmental Authorities,
materials intended for distribution to either Party's stockholders or any other
communication in any medium that describes the relationship between the Parties.
7.15. REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the Parties agrees to use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, and to assist and cooperate with the other Parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Authorities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Authority (including those in connection with
the HSR Act, if any), (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Authority vacated or reversed and (iv) the execution and delivery
of any additional instruments necessary to consummate the transactions
contemplated by this Agreement.
7.16. USE OF TRANSFERRED INTELLECTUAL PROPERTY. As of the
Distribution Date, and except as permitted pursuant to the terms and conditions
of the Intellectual Property License Agreements, TSC and its Subsidiaries, other
than eLoyalty and its Subsidiaries, shall cease all use of the Transferred
Intellectual Property, and TSC agrees to terminate any license granted to its
Subsidiaries, other than eLoyalty and its Subsidiaries, with respect to the
foregoing.
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ARTICLE VIII
CONDITIONS TO THE DISTRIBUTION
The obligation of TSC to effect the Distribution is subject to
the satisfaction or the waiver by TSC, at or prior to the Distribution Date, of
each of the following conditions:
8.1. APPROVAL BY TSC BOARD OF DIRECTORS. This Agreement and
the transactions contemplated hereby, including the declaration of the
Distribution, shall have been duly approved by the Board of Directors of TSC in
accordance with applicable law and the Certificate of Incorporation, as amended,
and By-laws of TSC.
8.2. RECEIPT OF IRS PRIVATE LETTER TAX RULING. TSC shall have
received a ruling from the IRS or, at TSC's sole discretion, an opinion of its
tax counsel Sidley & Austin, substantially to the effect that the Contribution
will qualify as a tax-free transaction for federal income tax purposes under
Section 368(a)(1)(D) or Section 351 of the Code, that the Distribution will
qualify as a tax-free distribution for federal income tax purposes under Section
355 of the Code, and that no income, gain or loss will be recognized by TSC,
eLoyalty or their respective stockholders upon the Contribution or the
Distribution.
8.3. COMPLIANCE WITH STATE AND FOREIGN SECURITIES AND "BLUE
SKY" LAWS. The Parties shall have taken all such action as may be necessary or
appropriate under state and foreign securities and "blue sky" laws in connection
with the Distribution.
8.4. SEC FILINGS AND APPROVALS. The Parties shall have
prepared and eLoyalty shall, to the extent required under applicable law, have
filed with the SEC any such documentation and any requisite no action letters
that TSC reasonably determines are necessary or desirable to effectuate the
Distribution, and each Party shall use commercially reasonable efforts to obtain
all necessary approvals from the SEC with respect thereto as soon as
practicable.
8.5. FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT; NO
STOP ORDER. The Registration Statement shall have been filed with and declared
effective by the SEC, and no stop order suspending the effectiveness of the
Registration Statement shall have been initiated or, to the knowledge of either
of the Parties, threatened by the SEC.
8.6. DISSEMINATION OF INFORMATION TO TSC STOCKHOLDERS. Prior
to the Distribution Date, the Parties shall have prepared and mailed to the
holders of TSC Common Stock such information concerning eLoyalty, its business,
operations and management, the Distribution and such other matters as TSC shall
reasonably determine and as may be required by law.
8.7. APPROVAL OF NASDAQ LISTING APPLICATION. The eLoyalty
Common Stock to be distributed in the Distribution shall have been approved for
listing on the NASDAQ, subject to official notice of issuance.
32
8.8. RECEIPT OF VIABILITY AND FAIRNESS OPINION OF FINANCIAL
ADVISOR. The TSC Board of Directors shall have received a written opinion of
Credit Suisse First Boston, in form acceptable to TSC, to the effect that (i)
the Distribution will not have a material adverse effect on the financial
viability of TSC or of eLoyalty through the period ending December 31, 200__,
and (ii) the Distribution is fair to the TSC stockholders from a financial point
of view, which opinion shall not have been withdrawn or modified.
8.9. OPERATING AGREEMENTS. Each of the Operating Agreements
shall have been executed and delivered, and each of such agreements shall be in
full force and effect.
8.10. RESIGNATIONS. On or prior to the Distribution Date, TSC
shall cause all of its designees to resign or to be removed as officers and from
all Boards of Directors or similar governing bodies of eLoyalty and its
Affiliates.
8.11. CONSENTS. (a) All Material Governmental Approvals and
Consents required to permit the valid consummation of the Distribution shall
have been obtained without any conditions being imposed that would have a
material adverse effect on TSC or eLoyalty.
(b) TSC shall have obtained the consent, approval or waiver of
each Person (other than the Governmental Authorities referred to in Section
8.11(a)) whose consent, approval or waiver shall be required in connection with
the Distribution, except those for which the failure to obtain such consents or
approvals would not, in the reasonable opinion of TSC, individually or in the
aggregate have a material adverse effect on TSC, eLoyalty or the consummation of
the Distribution.
8.12. NO ACTIONS. No action, suit or proceeding shall have
been instituted or threatened by or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator to restrain, enjoin or otherwise prevent the Distribution
or the other transactions contemplated this Agreement (including but not limited
to a stop order with respect to the effectiveness of the Registration
Statement), and no order, injunction, judgment, ruling or decree issued by any
court of competent jurisdiction shall be in effect restraining the Distribution
or such other transactions.
8.13. CONSUMMATION OF PRE-DISTRIBUTION TRANSACTIONS. The
pre-Distribution transactions contemplated by Articles III-V of this Agreement
shall have been consummated in all material respects.
8.14. NO OTHER EVENTS. No other events or developments shall
have occurred that, in the judgment of the TSC Board of Directors, would result
in the Distribution having a material adverse effect on TSC or its stockholders.
8.15. SATISFACTION OF CONDITIONS. The satisfaction of the
foregoing conditions are for the sole benefit of TSC and shall not give rise to
or create any duty on the part of TSC or the TSC Board of Directors to waive or
not waive any such condition, to effect the Distribution
33
or in any way limit TSC's power of termination set forth in Section 15.13 .
ARTICLE IX
EMPLOYEES AND EMPLOYEE BENEFIT MATTERS
9.1. EMPLOYMENT OF ELOYALTY EMPLOYEES. On the Asset Transfer
Date, eLoyalty shall, or shall cause its Subsidiaries to, employ each employee
of the eLoyalty Business ("Transferred Employees") set forth on Schedule 9.1
hereto, and TSC shall cause all such Transferred Employees to resign from all
positions as officers or employees of TSC and its Subsidiaries. eLoyalty and TSC
(and their respective Subsidiaries) shall use commercially reasonable efforts to
accomplish any transfers of employment required by this Section 9.1 in a timely
manner. As of the Asset Transfer Date, eLoyalty shall assume each employment
agreement between TSC and a Transferred Employee and shall be solely responsible
for all of the obligations of the employer thereunder.
9.2. SEVERANCE. (a) Transferred Employees shall not be
eligible for any severance benefits from TSC or its Subsidiaries or Affiliates
as a result of either their employment with eLoyalty or its Subsidiaries or
Affiliates or their subsequent termination of employment with eLoyalty or its
Subsidiaries or Affiliates.
(b) eLoyalty (or the applicable eLoyalty Subsidiary) shall
have the obligation to pay severance benefits to any employee or former employee
of the eLoyalty Business whose employment terminates on or after January 1,
2000. TSC shall continue to have the obligation to pay severance benefits to any
employee or former employee of the eLoyalty Business whose employment terminated
prior to January 1, 2000.
9.3. WITHDRAWAL FROM PARTICIPATION IN TSC PLANS AND
ESTABLISHMENT OF ELOYALTY PLANS. (a) No later than the Distribution Date,
Transferred Employees shall cease to participate in the TSC employee benefit
plans and programs (the "TSC Plans"), except as otherwise specifically provided
in this Article IX.
(b) No later than the Distribution Date, eLoyalty or an
eLoyalty Subsidiary shall establish its own employee benefit plans and programs
for the benefit of eligible employees of eLoyalty and its Subsidiaries that
shall be substantially similar to the TSC Plans, including but not limited to a
401(k) savings plan (the "eLoyalty Savings Plan"), a nonqualified executive
deferred compensation plan (the "eLoyalty Deferred Compensation Plan"), a
medical and dental plan, a group vision care plan, a cafeteria plan, a group
term life and accidental death and dismemberment plan, a long-term disability
plan and a group legal expense plan.
9.4. TRANSFER OF SAVINGS PLAN ACCOUNT BALANCES. Subject to
applicable law and the provisions of the Technology Solutions Company d.b.a. TSC
401(k) Plan (the "TSC Savings Plan"), as soon as administratively practicable
following the establishment of the eLoyalty Savings Plan, or effective as of any
other date as agreed to in writing by the plan administrator for
34
the TSC Savings Plan and the plan administrator for the eLoyalty Savings Plan,
the account balances (including outstanding loans) of all TSC Savings Plan
participants who are Transferred Employees shall be transferred from the TSC
Savings Plan to the eLoyalty Savings Plan. Each Transferred Employee shall
receive credit for all purposes under the eLoyalty Savings Plan for periods of
service with TSC or any of its Affiliates. The plan administrator for the
eLoyalty Savings Plan shall take any other action reasonably requested by the
plan administrator for the TSC Savings Plan that is necessary or advisable, in
the opinion of the plan administrator for the TSC Savings Plan, to maintain the
tax-qualified status of the TSC Savings Plan or to avoid the imposition of any
penalties with respect to such plan.
9.5. WELFARE BENEFITS PROVIDED UNDER ELOYALTY PLANS. (a) Each
Transferred Employee who becomes eligible to participate in an eLoyalty welfare
benefit plan shall be credited under such plan with (i) any deductibles and
copayments paid by such employee during the same plan year under the medical or
dental plan maintained by TSC and (ii) periods of service with TSC or any of its
Affiliates for all purposes under such plan. Amounts paid under a TSC medical or
dental plan that are taken into account for purposes of determining each
eLoyalty employee's lifetime maximum benefits under such plan shall be taken
into account for purposes of determining such eLoyalty employee's lifetime
maximum benefits under the eLoyalty medical or dental plan.
(b) eLoyalty (or the applicable eLoyalty Subsidiary) shall pay
all costs associated with the provision of disability benefits to any employee
or former employee of the eLoyalty Business, other than an employee or former
employee whose long-term disability benefits commenced prior to the earlier of
(i) the Distribution Date or (ii) the effective date of the eLoyalty long-term
disability insurance plan. Any employee or former employee of the eLoyalty
Business receiving benefits under the TSC long-term disability insurance plan
prior to such date shall continue to receive benefits under the terms of such
plan and the insurance contract used to fund such plan, and neither eLoyalty nor
any eLoyalty Subsidiary shall be charged for the payment of such benefits.
(c) TSC (or the applicable TSC Subsidiary) shall pay all
claims under the TSC medical plan (including dental benefits) relating to
Transferred Employees that have been incurred but not paid prior to the earlier
of (i) the Distribution Date or (ii) the effective date of the eLoyalty medical
plan, but only if claims for such costs are submitted in written form to the
authorized agents of TSC (or the applicable TSC Subsidiary) during the
nine-month period beginning on such date.
(d) As of the earlier of (i) the Distribution Date or (ii) the
date eLoyalty adopts a cafeteria plan, within the meaning of Section 125 of the
Code, for the benefit of its employees, eLoyalty (or the applicable eLoyalty
Subsidiary) shall assume all of the obligations of TSC under its cafeteria plan
with respect to participants who are Transferred Employees.
9.6. STOCK PURCHASE PLANS. No later than the record date of
the Distribution, Transferred Employees shall cease to be eligible to purchase
TSC Common Stock under the terms of the TSC 1995 Employee Stock Purchase Plan,
and as of the later of (i) the first business day after the record date of the
Distribution or (ii) the first day on which eLoyalty Common Stock is
35
traded on a "when issued" basis, Transferred Employees shall become eligible to
participate in the eLoyalty 1999 Employee Stock Purchase Plan.
9.7. DEFERRED COMPENSATION PLAN. No later than the
Distribution Date, eLoyalty shall establish the eLoyalty Deferred Compensation
Plan, which shall be substantially similar to the TSC Executive Deferred
Compensation Plan (the "TSC Deferred Compensation Plan") in effect immediately
prior to the date the eLoyalty Deferred Compensation Plan is established. As of
its effective date, the eLoyalty Deferred Compensation Plan shall assume all
Liabilities with respect to amounts credited to the accounts of Transferred
Employees under the TSC Deferred Compensation Plan, and the TSC Deferred
Compensation Plan shall be relieved of all Liabilities for such benefits and
payments thereof. On or before the Distribution Date, TSC shall direct the
trustee of the trust established by TSC with respect to the TSC Deferred
Compensation Plan to transfer to the trust established by eLoyalty with respect
to the eLoyalty Deferred Compensation Plan an amount equal to the fair market
value (determined as of the date of transfer) of the amount credited to the
accounts of Transferred Employees under the TSC Deferred Compensation Plan.
9.8. STOCK OPTIONS. (a) As of the Distribution, each outstanding
nonqualified option to purchase shares of TSC Common Stock held by a Transferred
Employee or a director of eLoyalty (who is not also a director of TSC) shall be
converted into a substitute option to purchase shares of eLoyalty Common Stock.
The exercise price of each substitute option, and the number of shares of
eLoyalty Common Stock subject thereto, shall be equal to the exercise price of
the existing TSC option and the number of shares subject thereto, adjusted to
reflect the Distribution based on a comparison of (i) the trading price of TSC
Common Stock prior to the Distribution (the "Combined Value") and (ii) the
trading price of eLoyalty Common Stock after the Distribution (the "eLoyalty
Value").
(b) As of the Distribution, each outstanding nonqualified
option to purchase shares of TSC Common Stock that was granted on or before June
21, 1999 to a person other than a person described in Section 9.8(a) shall be
converted into an adjusted option to purchase TSC Common Stock and a substitute
option to purchase shares of eLoyalty Common Stock. Such options shall be
converted in a manner that preserves the aggregate exercise price of each
option, and allocates the exercise price between the TSC option and the eLoyalty
option based on a comparison of (i) the eLoyalty Value and (ii) the trading
price of TSC Common Stock after the Distribution (the "TSC Value").
(c) Each nonqualified option to purchase TSC Common Stock
granted after June 21, 1999 to a person other than a person described in Section
9.8(a) and each option to purchase eLoyalty Common Stock (other than an option
granted in substitution of an outstanding option to purchase TSC Common Stock)
shall continue solely as an option to purchase TSC Common Stock or eLoyalty
Common Stock, as the case may be. Each such option to purchase TSC Common Stock
shall be adjusted to reflect the Distribution, based on a comparison of (i) the
Combined Value and (ii) the TSC Value. Each such option to purchase eLoyalty
Common Stock shall not be adjusted.
36
(d) Each option to purchase TSC Common Stock that is an
incentive stock option, within the meaning of Section 422 of the Code, shall be
converted into an incentive stock option to purchase the stock of the
corporation with which the optionee is employed immediately after the
Distribution. Such options converted into substitute options to purchase
eLoyalty Common Stock shall be adjusted in the manner described in Section
9.8(a) and such options converted into adjusted options to purchase TSC Common
Stock shall be adjusted in the manner described in Section 9.8(c).
(e) TSC and eLoyalty agree to assist each other as appropriate
with respect to the ongoing administration of the outstanding options issued to
employees of the other Party, or issued by the other Party to its employees,
under the TSC stock incentive plans and the eLoyalty stock incentive plans, as
applicable.
9.9. WORKERS' COMPENSATION. eLoyalty shall assume the
Liability for any workers' compensation or similar workers' protection claims
with respect to any employee of the eLoyalty Business, whether incurred prior
to, on or after the Distribution Date which are the result of an injury or
illness originating prior to or on the Distribution Date.
9.10. WARN ACT. eLoyalty and its Subsidiaries agree that they
shall not, at any time during the 90-day period following the Distribution Date,
(i) effectuate a "plant closing" as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act") affecting any site of
employment or operating units within any site of employment of the eLoyalty
Business, or (ii) take any action to precipitate a "mass layoff" as defined in
the WARN Act affecting any site of employment of the eLoyalty Business, except,
in either case, after complying fully with the notice and other requirements of
the WARN Act. eLoyalty agrees to indemnify TSC and its Subsidiaries and to
defend and hold harmless TSC and its Subsidiaries from and against any and all
claims, losses, damages, expenses, obligations and liabilities (including
attorney's fees and other costs of defense) that TSC and its Subsidiaries may
incur in connection with any suit or claim of violation brought against TSC
under the WARN Act, which relates in whole or in part to actions taken by
eLoyalty or its Subsidiaries with regard to any site of employment of eLoyalty
or operating units within any site of employment of the eLoyalty Business.
9.11. INFORMATION TO BE PROVIDED TO TSC. eLoyalty (or the
applicable eLoyalty Subsidiary) shall provide any information that TSC (or any
TSC Subsidiary) may reasonably request, including but not limited to information
relating to dates of termination of employment, in order to provide benefits to
any eligible employee of eLoyalty or any of its Subsidiaries under the terms and
conditions described herein or under the applicable TSC Plans. Any information
relating to an employee's termination of employment shall be provided by
eLoyalty (or the applicable eLoyalty Subsidiary) to TSC as soon as available to
eLoyalty or any of its Subsidiaries, but in any event no later than 30 days
after such information is made available to eLoyalty or any such Subsidiaries.
eLoyalty (or the applicable eLoyalty Subsidiary) shall, as necessary, update the
system used to keep such information in such timely manner as is required to
administer the TSC Plans.
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ARTICLE X
INSURANCE MATTERS
10.1. INSURANCE PRIOR TO THE DISTRIBUTION DATE. eLoyalty does
hereby agree that TSC shall not have any Liability whatsoever as a result of the
insurance policies and practices of TSC in effect at any time prior to the
Distribution Date, including as a result of the level or scope of any such
insurance, the creditworthiness of any insurance carrier, the terms and
conditions of any policy and the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
10.2. OWNERSHIP OF EXISTING POLICIES AND PROGRAMS. TSC or one
or more of its Subsidiaries shall continue to own all property, casualty and
liability insurance policies and programs, including, without limitation,
primary and excess general liability, errors and omissions, automobile, workers'
compensation, property, fire, crime and surety insurance policies, in effect on
or before the Distribution Date (collectively, the "TSC Policies" and
individually, a "TSC Policy"). TSC shall use reasonable efforts to maintain the
TSC Policies in full force and effect up to and including the Distribution Date,
and, subject to the provisions of this Agreement, TSC and its Subsidiaries shall
retain all of their respective rights, benefits and privileges, if any, under
the TSC Policies. Nothing contained herein shall be construed to be an attempted
assignment of or to change the ownership of the TSC Policies.
10.3. PROCUREMENT OF INSURANCE FOR ELOYALTY. To the extent not
already provided for by the terms of a TSC Policy, TSC shall use reasonable
efforts to cause eLoyalty to be named as an additional insured under TSC
Policies whose effective policy periods include the Distribution Date, in
respect of claims arising out of or relating to periods prior to the
Distribution Date; provided, however, that nothing contained herein shall be
construed to require TSC or any of its Subsidiaries to pay any additional
premium or other charges in respect to, or waive or otherwise limit any of its
rights, benefits or privileges under, any TSC Policy in order to effect the
naming of eLoyalty as such an additional insured.
10.4. ACQUISITION AND MAINTENANCE OF POST-DISTRIBUTION
ELOYALTY INSURANCE POLICIES AND PROGRAMS. Commencing on and as of the
Distribution Date, eLoyalty shall be responsible for establishing and
maintaining separate property, casualty and liability insurance policies and
programs (including, without limitation, primary and excess general liability,
errors and omissions, automobile, workers' compensation, property, fire, crime,
surety and other similar insurance policies) for activities and claims involving
eLoyalty or any of its Subsidiaries or Affiliates. In addition to the foregoing,
eLoyalty shall obtain insurance covering its contractual obligations to
indemnify TSC and the TSC Indemnified Parties under this Agreement and shall
arrange for TSC and the TSC Indemnified Parties to be named insureds under such
policies. All insurance policies required to be maintained by eLoyalty shall be
with insurers reasonably acceptable to TSC with respect to financial condition
and claims paying ability. eLoyalty will exercise commercially reasonable
efforts to secure liability insurance to avoid potential gaps in coverage for
claims arising from events prior to the Distribution Date, which gap would not
exist
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had the eLoyalty Business continued to be covered with the same retroactive
dates existing in the TSC Policies in effect on the Distribution Date. eLoyalty
and each of its Subsidiaries and Affiliates, as appropriate, shall be
responsible for all administrative and financial matters relating to insurance
policies established and maintained by eLoyalty and its Subsidiaries or
Affiliates for claims relating to any period on or after the Distribution Date
involving eLoyalty or any of its Subsidiaries or Affiliates. Notwithstanding any
other agreement or understanding to the contrary, except as set forth in Section
10.6 with respect to claims administration and financial administration of the
TSC Policies, neither TSC nor any of its Subsidiaries or Affiliates shall have
any responsibility for or obligation to eLoyalty or any of its Subsidiaries or
Affiliates relating to property and casualty insurance matters for any period,
whether prior to, on or after the Distribution Date.
10.5. ELOYALTY DIRECTORS' AND OFFICERS' INSURANCE. TSC shall
use commercially reasonable efforts to cause the persons currently serving as
officers and/or directors of TSC or any of its Subsidiaries to be covered for a
period of three (3) years from the Distribution Date by the directors' and
officers' liability insurance policy maintained by TSC (including corporate
reimbursement) (provided that TSC may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions that are not
less advantageous than such policy) with respect to matters covered under the
existing policy occurring prior to the Distribution Date that were committed by
such officers and/or directors in their capacity as such; provided, however,
that in no event shall TSC be required to expend with respect to any year more
than 200% of the current annual premium expended by TSC (the "Insurance Amount")
to maintain or procure insurance coverage pursuant hereto; and provided,
further, that if TSC is unable to maintain or obtain the insurance called for by
this Section 10.5, TSC shall use commercially reasonable efforts to obtain as
much comparable insurance as available for the Insurance Amount. In the event
TSC or any of its successors or assigns (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of TSC assume the obligations set forth in this Section
10.5. The provisions of this Section 10.5 are intended to be for the benefit of,
and shall be enforceable by, each such officer and director and his or her heirs
and representatives. As provided in Section 12.5, any amount eLoyalty is
required to pay to TSC as an indemnity under this Agreement is reduced to the
extent TSC receives insurance proceeds from the above coverage, but only to the
extent such proceeds are actually received by TSC.
10.6. POST-DISTRIBUTION INSURANCE CLAIMS ADMINISTRATION. TSC
and its Subsidiaries shall have the primary right, responsibility and authority
for claims administration and financial administration of claims that relate to
or affect the TSC Policies. Upon notification by eLoyalty or one of its
Subsidiaries or Affiliates of a claim relating to eLoyalty or a Subsidiary or
Affiliate thereof under one or more of the TSC Policies, TSC shall cooperate
with eLoyalty in asserting and pursuing coverage and payment for such claim by
the appropriate insurance carrier(s). In asserting and pursuing such coverage
and payment, TSC shall have sole power and authority to make binding decisions,
determinations, commitments and stipulations on its own
39
behalf and on behalf of eLoyalty and its Subsidiaries and Affiliates, which
decisions, determinations, commitments and stipulations shall be final and
conclusive if reasonably made to maximize the overall economic benefit of the
TSC Policies. eLoyalty and its Subsidiaries and Affiliates shall assume
responsibility for, and shall pay to the appropriate insurance carriers or
otherwise, any premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges (collectively,
"Insurance Charges") whenever arising, which shall become due and payable under
the terms and conditions of any applicable TSC Policy in respect of any
liabilities, losses, claims, actions or occurrences, whenever arising or
becoming known, involving or relating to any of the assets, businesses,
operations or liabilities of eLoyalty or any of its Subsidiaries or Affiliates,
whether the same relate to the period prior to, on or after the Distribution
Date. To the extent that the terms of any applicable TSC Policy provide that TSC
or any of its Subsidiaries shall have an obligation to pay or guarantee the
payment of any Insurance Charges relating to eLoyalty or any of its
Subsidiaries, TSC shall be entitled to demand that eLoyalty make such payment
directly to the Person or entity entitled thereto. In connection with any such
demand, TSC shall submit to eLoyalty a copy of any invoice received by TSC
pertaining to such Insurance Charges together with appropriate supporting
documentation, to the extent available. In the event that eLoyalty fails to pay
any such Insurance Charges when due and payable, whether at the request of the
Person entitled to payment or upon demand by TSC, TSC and its Subsidiaries may
(but shall not be required to) pay such insurance charges for and on behalf of
eLoyalty and, thereafter, eLoyalty shall forthwith reimburse TSC for such
payment. Subject to the other provisions of this Article X, the retention by TSC
of the TSC Policies and the responsibility for claims administration and
financial administration of such policies are in no way intended to limit,
inhibit or preclude any right of eLoyalty, TSC or any other insured to insurance
coverage for any Insured Claims under the TSC Policies.
10.7. NON-WAIVER OF RIGHTS TO COVERAGE. An insurance carrier
that would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the provisions of
this Article X, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurance carrier or any third party
shall be entitled to a windfall (i.e., a benefit they would not be entitled to
receive had no Distribution occurred or in the absence of the provisions of this
Article X) by virtue of the provisions hereof.
10.8. SCOPE OF AFFECTED POLICIES OF INSURANCE. The provisions
of this Article X relate solely to matters involving liability, casualty and
workers' compensation insurance, and shall not be construed to affect any
obligation of or impose any obligation on the Parties with respect to any life,
health and accident, dental or medical insurance policies applicable to any of
the officers, directors, employees or other representatives of the Parties or
their Affiliates.
ARTICLE XI
EXPENSES
11.1. ALLOCATION OF EXPENSES. (a) Except as otherwise provided
in this
40
Agreement or any other agreement contemplated hereby, or as otherwise
agreed to in writing by the Parties, all fees and expenses incurred in
connection with the transactions contemplated hereby or thereby shall be paid by
TSC. Specifically, (i) TSC shall absorb all of the costs associated with the
dedication of internal resources and personnel to such transaction at all times
prior to the Distribution Date, and (ii) TSC shall pay all fees and expenses
that are related directly to the implementation of the Distribution transactions
on or prior to the Distribution Date.
(b) Without limiting the generality of the foregoing, TSC shall
be solely responsible for the following costs incurred in connection with the
transactions contemplated hereby: (i) the reasonable fees and expenses of Sidley
& Austin in connection with its representation of TSC; (ii) the reasonable fees
and expenses of investment banks relating to their financial advisory services
rendered to TSC and eLoyalty in connection with the Distribution; (iii) the
reasonable fees and expenses of PricewaterhouseCoopers LLP in connection with
its audit and tax services rendered to TSC; (iv) all SEC registration and "blue
sky" filing fees associated with the Registration Statement; (v) the printing,
mailing and distribution of the Information Statement to TSC's stockholders;
(vi) the reasonable fees and expenses of eLoyalty's Transfer Agent and registrar
relating to the initial issuance of eLoyalty Shares as a dividend to TSC's
stockholders; (vii) the NASDAQ listing fees for the eLoyalty Shares; (viii) the
design and initial printing of certificates of the eLoyalty Shares; (ix) the
design and initial printing of certificates of eLoyalty Common Stock as a
dividend to TSC stockholders; (x) the development, search and registration of
the name "eLoyalty"; (xi) third party vendors for software licenses; and (xii)
various international professional services related directly to the
Distribution.
(c) Notwithstanding Section 11.1(a) (i) above, eLoyalty shall
be solely responsible for all fees, expenses and other costs incurred in
connection with the transactions contemplated hereby related to: (i) the
reasonable fees and expenses of Sidley & Austin in connection with its
representation of eLoyalty related to the creation of benefits plans; (ii) the
reasonable fees and expenses relating to the syndication and arrangement of
revolving credit facilities for eLoyalty; and (iii) the reasonable fees or
expenses of any financial advisors, other than those approved by TSC, retained
by eLoyalty in connection with any "road shows" or presentations to investors.
ARTICLE XII
INDEMNIFICATION
12.1. RELEASE OF PRE-DISTRIBUTION CLAIMS. (a) Except as
provided in Section 12.1(b), effective as of the Distribution Date, each Party
does hereby, on behalf of itself and its respective Subsidiaries and Affiliates,
successors and assigns and all Persons who at any time prior to the Distribution
Date have been shareholders, directors, officers, agents or employees of either
Party (in each case, in their respective capacities as such), remise, release
and forever discharge the other Party, its respective Subsidiaries and
Affiliates, successors and assigns and all Persons who at any time prior to the
Distribution Date have been shareholders, directors, officers, agents or
employees of such Party (in each case, in their respective capacities as such),
and their respective heirs, executors, administrators, successors and assigns,
from any and all Liabilities
41
whatsoever, whether at law or in equity (including any right of contribution),
whether arising under any contract or agreement, by operation of law or
otherwise, existing or arising from any acts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur or any conditions
existing or alleged to have existed on or before the Distribution Date,
including in connection with the transactions and all other activities to
implement the Distribution.
(b) Nothing contained in Section 12.1(a) shall impair any
right of any Person to enforce this Agreement, any Operating Agreement or any
agreements, arrangements, commitments or understandings that are specified in
Section 4.5 or the applicable Schedules thereto not to terminate as of the
Distribution Date, in each case in accordance with its terms.
Nothing contained in Section 12.1(a) shall release any Person from:
(i) any Liability provided in or resulting from any
agreement of the Parties that is specified in Section 4.5 or
the applicable Schedules thereto as not to terminate as of the
Distribution Date, or any other Liability specified in Section
4.5 as not to terminate as of the Distribution Date;
(ii) any Liability, contingent or otherwise, assumed,
transferred, assigned, retained or allocated to a Party in
accordance with, or any other Liability of any Party under,
this Agreement or any Operating Agreement;
(iii) any Liability for the sale, lease, construction
or receipt of goods, property or services purchased, obtained
or used in the ordinary course of business by one Party from
the other Party prior to the Distribution Date;
(iv) any Liability for unpaid amounts for products or
services or refunds owing on products or services due on a
value-received basis for work done by one Party at the request
or on behalf of the other Party; or
(v) any Liability that the Parties may have with
respect to indemnification or contribution pursuant to this
Agreement for claims brought against the Parties by third
Persons, which Liability shall be governed by the provisions
of this Article XIII and, if applicable, the appropriate
provisions of the Operating Agreements.
(c) Neither Party shall make, nor permit any of its
Subsidiaries or Affiliates to make, any claim or demand, or commence any Action
asserting any claim or demand, including any claim of contribution or
indemnification, against the other Party, or any other Person released pursuant
to Section 12.1(a), with respect to any Liability released pursuant to Section
12.1(a).
(d) It is the intent of each of the Parties by virtue of the
provisions of this Section 12.1 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Distribution Date, between the Parties (including any contractual agreements or
arrangements existing or alleged to exist between the Parties on or before the
Distribution Date), except as expressly set forth in Section 12.1(b). At any
time, at the reasonable request of either Party, the other Party shall
42
execute and deliver releases reflecting the provisions hereof.
12.2. INDEMNIFICATION BY ELOYALTY. (a) Except as provided in
Section 12.5, eLoyalty shall indemnify, defend and hold harmless TSC and each of
its Affiliates, directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "TSC Indemnified Parties"), from and against any and all Expenses or Losses
incurred or suffered by TSC (and/or one or more of the TSC Indemnified Parties),
in connection with, relating to, arising out of or due to, directly or
indirectly, any of the following items:
(i) any claim that the information included in the
Registration Statement or the Information Statement that
relates to the eLoyalty Business or any other information
relating to the eLoyalty Business provided to TSC or
distributed to third parties by employees of eLoyalty or
individuals who were employees of the eLoyalty Business prior
to the Distribution Date, is or was false or misleading with
respect to any material fact or omits or omitted to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading,
regardless of whether the occurrence, action or other event
giving rise to the applicable matter took place prior to or
subsequent to the Distribution Date;
(ii) the eLoyalty Business as conducted by TSC or its
Subsidiaries, Affiliates or predecessors on or at any time
prior to the Distribution Date;
(iii) the Transferred Assets;
(iv) the Assumed Liabilities;
(v) the breach by eLoyalty or any of its Subsidiaries
of any covenant or agreement set forth in this Agreement, any
Operating Agreement or any Conveyancing Instrument, regardless
of when or where the loss, claim, accident, occurrence, event
or happening giving rise to the Expense or Loss took place, or
whether any such loss, claim, accident, occurrence, event or
happening is known or unknown, or reported or unreported;
(vi) the employee benefits provided or the actions
taken or omitted to be taken with respect thereto in
connection with this Agreement or otherwise relating to the
provision of employee benefits to employees or former
employees of eLoyalty (or its Subsidiaries), their
beneficiaries, alternate payees or any other person claiming
benefits through them (except to the extent such Expenses or
Losses are specifically allocated to TSC pursuant to Article
IX), including, without limitation, Expenses or Losses arising
in connection with (A) eLoyalty's reduction, elimination or
failure to provide any benefit provided prior to or after the
Distribution Date to its employees or employees of any of its
Subsidiaries or (B) the transfer of account balances from the
TSC Savings Plan to the eLoyalty Savings Plan where such
Expenses or Losses are incurred as a result of (1) any act
43
or omission by eLoyalty (or eLoyalty's representative) or
(2) a determination by the IRS that the eLoyalty Savings
Plan is not a tax-qualified plan; or
(vii) any use of, access to or reliance upon the
technical information or data made available to eLoyalty or
its Subsidiaries pursuant to Section 14.1.
(b) In addition, except as provided in Section 12.5, eLoyalty
shall indemnify, defend and hold harmless the TSC Indemnified Parties from and
against fifty percent (50%) of any Expenses or Losses incurred or suffered by
TSC (and/or one or more of the TSC Indemnified Parties), in connection with,
relating to, arising out of or due to, directly or indirectly, any claims of any
infrastructure employee of TSC to the extent such claim relates to the period
prior to the Distribution Date.
12.3. INDEMNIFICATION BY TSC. Except as provided in Section
12.5, TSC shall indemnify, defend and hold harmless eLoyalty and each of its
Affiliates, directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"eLoyalty Indemnified Parties"), from and against any and all Expenses or Losses
incurred or suffered by eLoyalty (and/or one or more of the eLoyalty Indemnified
Parties) in connection with, relating to, arising out of or due to, directly or
indirectly, any of the following items:
(a) the business (other than the eLoyalty Business) conducted
by TSC or its Subsidiaries, Affiliates or predecessors on or at any
time prior to the Distribution Date;
(b) the assets owned by TSC or its Subsidiaries other than the
Transferred Assets;
(c) the Liabilities (including the Retained Liabilities) of
TSC or its Subsidiaries other than the Assumed Liabilities;
(d) the breach by TSC or any of its Subsidiaries of any
covenant or agreement set forth in this Agreement, any Operating
Agreement or any Conveyancing Instrument, regardless of when or where
the loss, claim, accident, occurrence, event or happening giving rise
to the Expense or Loss took place, or whether any such loss, claim,
accident, occurrence, event or happening is known or unknown, or
reported or unreported; and
(e) TSC's reduction, elimination or failure to provide any
benefit provided prior to or after the Distribution Date to its
employees (or employees of its Subsidiaries), other than a benefit
assumed by eLoyalty pursuant to Article IX, or any act or omission by
TSC in connection with the transfer of assets and liabilities from the
TSC Savings Plan to the eLoyalty Savings Plan.
12.4. APPLICABILITY OF AND LIMITATION ON INDEMNIFICATION. EXCEPT
AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATION UNDER THIS ARTICLE XII
SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR ON BEHALF OF ANY
INDEMNIFIED PARTY AND SHALL APPLY WITHOUT
44
REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH
INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY
OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
12.5. ADJUSTMENT OF INDEMNIFIABLE LOSSES. (a) The amount that
any Party (an "Indemnifying Party") is required to pay to any Person entitled to
indemnification hereunder (an "Indemnified Party") shall be reduced (including,
without limitation, retroactively) by any Insurance Proceeds and other amounts
actually recovered by or on behalf of such Indemnified Party in reduction of the
related Expense or Loss. If an Indemnified Party receives a payment (an
"Indemnity Payment") required by this Agreement from an Indemnifying Party in
respect of any Expense or Loss and subsequently actually receives Insurance
Proceeds or other amounts in respect of such Expense or Loss, then such
Indemnified Party shall pay to the Indemnifying Party a sum equal to the lesser
of (1) the after-tax amount of such Insurance Proceeds or other amounts actually
received or (2) the net amount of Indemnity Payments actually received
previously, in each case increased by any actual tax benefit derived by the
Indemnified Party as a result of such payment (with such tax benefit determined
pursuant to Section 12.5(d)). The Indemnified Party agrees that the Indemnifying
Party shall be subrogated to such Indemnified Party under any insurance policy.
(b) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto, or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall" (i.e., a
benefit he or she would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
(c) If any Indemnified Party realizes a Tax benefit or
detriment in one or more Tax periods by reason of having incurred an Expense or
a Loss for which such Indemnified Party receives an Indemnity Payment from an
Indemnifying Party (or by reason of the receipt of any Indemnity Payment), then
such Indemnified Party shall pay to such Indemnifying Party an amount equal to
the Tax benefit or such Indemnifying Party shall pay to such Indemnified Party
an additional amount equal to the Tax detriment (taking into account, without
limitation, any Tax detriment resulting from the receipt of such additional
amounts), as the case may be. The amount of any Tax benefit or any Tax detriment
for a Tax period realized by an Indemnified Party by reason of having incurred
an Expense or a Loss (or by reason of the receipt of any Indemnity Payment)
shall be deemed to equal the product obtained by multiplying (i) the amount of
any deduction or loss or inclusion in income for such period resulting from such
Expense or Loss (or the receipt of any Indemnity Payment or additional amount),
as the case may be without regard to whether such deduction or loss or such
inclusion in income results in any actual decrease or increase in Tax liability
for such period (with the amount of any deduction or loss or inclusion in income
determined in accordance with Section 12.5(d) below), by (ii) the highest
applicable marginal Tax rate for such period (provided, however, that the amount
of any Tax benefit attributable to an amount that is creditable shall be deemed
to equal the amount of such creditable item). Any payment due under this Section
12.5(c) with respect to a Tax benefit or Tax detriment realized by an
Indemnified Party in a Tax period shall be due and payable within 30 days from
the
45
time the return for such Tax period is due, without taking into account any
extension of time granted to the Party filing such return.
(d) Amounts paid by TSC to or for the benefit of eLoyalty, or
by eLoyalty to or for the benefit of TSC, under this Article XII (and under
other specified provisions of this Agreement) shall be treated by the Parties,
for all applicable Tax purposes, as adjustments to the amount of Transferred
Assets.
(e) In the event that an Indemnity Payment shall be
denominated in a currency other than United States dollars, the amount of such
payment shall be translated into United States dollars using the Foreign
Exchange Rate for such currency determined in accordance with the following
rules:
(i) with respect to an Expense or a Loss arising from payment
by a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the Foreign
Exchange Rate for such currency shall be determined as of the date on
which such financial institution shall have been reimbursed;
(ii) with respect to an Expense or a Loss covered by
insurance, the Foreign Exchange Rate for such currency shall be the
Foreign Exchange Rate employed by the insurance company providing such
insurance in settling such Expense or Loss with the Indemnifying Party;
and
(iii) with respect to an Expense or a Loss not covered by
clause (i) or (ii) above, the Foreign Exchange Rate for such currency
shall be determined as of the date that notice of the claim with
respect to such Expense or Loss shall be given to the Indemnified
Party.
12.6. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If any third party shall make any claim or commence any arbitration
proceeding or suit (collectively, a "Third Party Claim") against any one or more
of the Indemnified Parties with respect to which an Indemnified Party intends to
make any claim for indemnification against eLoyalty under Section 12.2 or
against TSC under Section 12.3, such Indemnified Party shall promptly give
written notice to the Indemnifying Party describing such Third Party Claim in
reasonable detail, and the following provisions shall apply. Notwithstanding the
foregoing, the failure of any Indemnified Party to provide notice in accordance
with this Section 12.6(a) shall not relieve the related Indemnifying Party of
its obligations under this Article XII, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to provide notice.
(b) The Indemnifying Party shall have 20 business days after
receipt of the notice referred to in Section 12.6(a) to notify the Indemnified
Party that it elects to conduct and control the defense of such Third Party
Claim. If the Indemnifying Party does not give the foregoing notice, the
Indemnified Party shall have the right to defend, contest, settle or compromise
such Third Party Claim in the exercise of its exclusive discretion subject to
the provisions of Section 12.6(c), and the Indemnifying Party shall, upon
request from any of the Indemnified Parties, promptly pay to such Indemnified
Parties in accordance with the other terms of this Section
46
12.6(b) the amount of any Expense or Loss resulting from their liability to the
third party claimant. If the Indemnifying Party gives the foregoing notice, the
Indemnifying Party shall have the right to undertake, conduct and control,
through counsel reasonably acceptable to the Indemnified Party, and at its sole
expense, the conduct and settlement of such Third Party Claim, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith, provided that (i) the Indemnifying Party shall not thereby permit any
lien, encumbrance or other adverse charge to thereafter attach to any asset of
any Indemnified Party; (ii) the Indemnifying Party shall not thereby permit any
injunction against any Indemnified Party; (iii) the Indemnifying Party shall
permit the Indemnified Party and counsel chosen by the Indemnified Party and
reasonably acceptable to the Indemnifying Party to monitor such conduct or
settlement and shall provide the Indemnified Party and such counsel with such
information regarding such Third Party Claim as either of them may reasonably
request (which request may be general or specific), but the fees and expenses of
such counsel (including allocated costs of in-house counsel and other personnel)
shall be borne by the Indemnified Party unless (A) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (B) the named parties to any such Third Party Claim include the
Indemnified Party and the Indemnifying Party and in the reasonable opinion of
counsel to the Indemnified Party representation of both parties by the same
counsel would be inappropriate due to actual or likely conflicts of interest
between them, in either of which cases the reasonable fees and disbursements of
counsel for such Indemnified Party (including allocated costs of in-house
counsel and other personnel) shall be reimbursed by the Indemnifying Party to
the Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to
reimburse to the extent required under this Article XII the Indemnified Party
for the full amount of any Expense or Loss resulting from such Third Party Claim
and all related expenses incurred by the Indemnified Party. In no event shall
the Indemnifying Party, without the prior written consent of the Indemnified
Party, settle or compromise any claim or consent to the entry of any judgment
that does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a release from all liability
in respect of such claim.
If the Indemnifying Party shall not have undertaken the
conduct and control of the defense of any Third Party Claim as provided above,
the Indemnifying Party shall nevertheless be entitled through counsel chosen by
the Indemnifying Party and reasonably acceptable to the Indemnified Party to
monitor the conduct or settlement of such claim by the Indemnified Party, and
the Indemnified Party shall provide the Indemnifying Party and such counsel with
such information regarding such Third Party Claim as either of them may
reasonably request (which request may be general or specific), but all costs and
expenses incurred in connection with such monitoring shall be borne by the
Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such
Third Party Claim in good faith, the Indemnified Party shall not pay or settle
any such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such Third Party Claim, provided that
in such event the Indemnified Party shall waive any right to indemnity therefor
by the Indemnifying Party, and no amount in respect thereof shall be claimed as
an Expense or a Loss under this Article XII.
If the Indemnified Party shall have undertaken the conduct and
control of the defense of any Third Party Claim as provided above, the
Indemnified Party, on not less than 30
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days prior written notice to the Indemnifying Party, may make settlement
(including payment in full) of such Third Party Claim, and such settlement shall
be binding upon the Parties for the purposes hereof, unless within said 30-day
period the Indemnifying Party shall have requested the Indemnified Party to
contest such Third Party Claim at the expense of the Indemnifying Party. In such
event, the Indemnified Party shall promptly comply with such request and the
Indemnifying Party shall have the right to direct the defense of such claim or
any litigation based thereon subject to all of the conditions of Section
12.6(b). Notwithstanding anything in this Section 12.6(c) to the contrary, if
the Indemnified Party, in the belief that a claim may materially and adversely
affect it other than as a result of money damages or other money payments,
advises the Indemnifying Party that it has determined to settle a claim, the
Indemnified Party shall have the right to do so at its own cost and expense,
without any requirement to contest such claim at the request of the Indemnifying
Party, but without any right under the provisions of this Article XII for
indemnification by the Indemnifying Party.
(d) To the extent that, with respect to any Claim (as defined
in the Tax Sharing Agreement) governed by Article V of the Tax Sharing
Agreement, there is any inconsistency between the provisions of such Article V
and of this Section 12.6, the provisions of Article V of the Tax Sharing
Agreement shall control with respect to such Claim (as defined in the Tax
Sharing Agreement).
12.7. PROCEDURES FOR INDEMNIFICATION OF DIRECT CLAIMS. Any
claim for indemnification on account of an Expense or a Loss made directly by
the Indemnified Party against the Indemnifying Party and that does not result
from a Third Party Claim shall be asserted by written notice from the
Indemnified Party to the Indemnifying Party specifically claiming
indemnification hereunder. Such Indemnifying Party shall have a period of 30
business days after the receipt of such notice within which to respond thereto.
If such Indemnifying Party does not respond within such 30 business-day period,
such Indemnifying Party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such claim.
If such Indemnifying Party does respond within such 30 business-day period and
rejects such claim in whole or in part, such Indemnified Party shall be free to
pursue resolution as provided in Article XIII.
12.8. CONTRIBUTION. If the indemnification provided for in
this Article XII is unavailable to an Indemnified Party in respect of any
Expense or Loss arising out of or related to information contained in the
Registration Statement or the Information Statement, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Expense or
Loss in such proportion as is appropriate to reflect the relative fault of the
eLoyalty Indemnified Parties, on the one hand, or the TSC Indemnified Parties,
on the other hand, in connection with the statements or omissions that resulted
in such Expense or Loss. The relative fault of any eLoyalty Indemnified Party,
on the one hand, and of any TSC Indemnified Party, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact relates to information about or supplied by the eLoyalty Business
or an eLoyalty Indemnified Party, on the one hand, or about or by the Retained
Business or a TSC Indemnified Party, on the other hand.
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12.9. REMEDIES CUMULATIVE. The remedies provided in this
Article XII shall be cumulative and, subject to the provisions of Article XIII
below, shall not preclude assertion by an Indemnified Party of any other rights
or the seeking of any and all other remedies against any Indemnifying Party.
12.10. SURVIVAL. All covenants and agreements of the Parties
contained in this Agreement relating to indemnification shall survive the
Distribution Date indefinitely, unless a specific survival or other applicable
period is expressly set forth herein.
ARTICLE XIII
DISPUTE RESOLUTION
13.1. AGREEMENT TO ARBITRATE. Except as otherwise specifically
provided in any Operating Agreement, the procedures for discussion, negotiation
and arbitration set forth in this Article XIII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with, this
Agreement or any Operating Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the Parties. Each Party agrees on behalf
of itself and its respective Subsidiaries and Affiliates that the procedures set
forth in this Article XIII shall be the sole and exclusive remedy in connection
with any dispute, controversy or claim relating to any of the foregoing matters
and irrevocably waives any right to commence any Action in or before any
Governmental Authority, except as expressly provided in Section 13.7(b) and
except to the extent provided under the Arbitration Act in the case of judicial
review of arbitration results or awards. EACH PARTY ON BEHALF OF ITSELF AND ITS
RESPECTIVE SUBSIDIARIES AND AFFILIATES IRREVOCABLY WAIVES ANY RIGHT TO ANY TRIAL
IN A COURT THAT WOULD OTHERWISE HAVE JURISDICTION OVER ANY CLAIM, CONTROVERSY OR
DISPUTE SET FORTH IN THE FIRST SENTENCE OF THIS SECTION 13.1.
13.2. ESCALATION AND MEDIATION. (a) The Parties agree to use
commercially reasonable efforts to resolve expeditiously any dispute,
controversy or claim between them with respect to the matters covered hereby
that may arise from time to time on a mutually acceptable negotiated basis. In
furtherance of the foregoing, any Party involved in a dispute, controversy or
claim may deliver a notice (an "Escalation Notice") demanding an in-person
meeting involving representatives of the Parties at a senior level of management
of the Parties (or if the Parties agree, of the appropriate strategic business
unit or division within such entity). A copy of any such Escalation Notice shall
be given to the General Counsel, or like officer or official, of each Party
involved in the dispute, controversy or claim (which copy shall state that it is
an Escalation Notice pursuant to this Agreement). Any agenda, location or
procedures for such discussions or negotiations between the Parties may be
established by the Parties from time to time; provided, however, that the
Parties shall use commercially reasonable efforts to meet within 30 days of the
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Escalation Notice.
(b) The Parties must retain a mediator to aid the Parties in
their discussions and negotiations by informally providing advice to the
Parties. Any opinion expressed by the mediator shall be strictly advisory and
shall not be binding on the Parties, nor shall any opinion expressed by the
mediator be admissible in any arbitration proceeding. The mediator shall be
selected by the Party that did not deliver the applicable Escalation Notice from
the list of individuals set forth on Exhibit I, the names of which individuals
were supplied to the Parties by JAMS/Endispute. Costs of the mediation shall be
borne equally by the Parties involved in the matter, except that each Party
shall be responsible for its own expenses. Mediation is a prerequisite to a
demand for arbitration under Section 13.3.
13.3. PROCEDURES FOR ARBITRATION. (a) At any time after the
completion of the mediation required by Section 13.2(b) (the "Arbitration Demand
Date"), any Party involved in the dispute, controversy or claim (regardless of
whether such Party delivered the Escalation Notice) may, unless the Applicable
Deadline (as hereinafter defined) has occurred, make a written demand (the
"Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the Parties to
the dispute, controversy or claim in the manner set forth in Section 15.9. In
the event that any Party shall deliver an Arbitration Demand Notice to another
Party, such other Party may itself deliver an Arbitration Demand Notice to such
first Party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No Party may assert that the failure to
resolve any matter during any discussions or negotiations, the course of conduct
during the discussions or negotiations or the failure to agree on a mutually
acceptable time, agenda, location or procedures for the meeting, in each case,
as contemplated by Section 13.2, is a prerequisite to a demand for arbitration
under this Section 13.3. In the event that any Party delivers an Arbitration
Demand Notice with respect to any dispute, controversy or claim that is the
subject of any then pending arbitration proceeding or of a previously delivered
Arbitration Demand Notice, all such disputes, controversies and claims shall be
resolved in the arbitration proceeding for which an Arbitration Demand Notice
was first delivered unless the arbitrator in his or her sole discretion
determines that it is impracticable or otherwise inadvisable to do so.
(b) Except as may be expressly provided in any Operating
Agreement, any Arbitration Demand Notice may be given until one year and 45 days
after the later of (i) the occurrence of the act or event giving rise to the
underlying claim or (ii) the date on which such act or event was, or should have
been, in the exercise of reasonable due diligence, discovered by the Party
asserting the claim (as applicable and as it may in a particular case be
specifically extended by the Parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the Parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the Parties. Each Party agrees on behalf of itself and its
respective Subsidiaries and Affiliates that if an Arbitration Demand Notice with
respect to a dispute, controversy or claim is not given prior to the expiration
of the Applicable Deadline, such dispute, controversy or claim will be barred.
Subject to Section 13.7(d), upon delivery of an Arbitration Demand Notice
pursuant to Section 13.3(a) prior to the Applicable Deadline, the
50
dispute, controversy or claim shall be decided by a sole arbitrator in
accordance with the rules set forth in this Article XIII.
13.4. SELECTION OF ARBITRATOR. (a) If the amount in dispute is
less than $500,000, the mediator selected by the provisions set forth in Section
13.2(b) above shall also serve as the sole arbitrator. If the amount is dispute
equals or exceeds $500,000, the mediator selected by the provisions set forth in
Section 13.2(b) above shall select a sole arbitrator from a list provided by
JAMS/Endispute. After selection of such sole arbitrator, the mediator shall have
no further role with respect to the dispute. Any arbitrator selected pursuant to
this paragraph (a) shall be disinterested with respect to any of the Parties and
the matter and shall be reasonably competent in the applicable subject matter.
(b) The sole arbitrator selected pursuant to paragraph (a)
above will set a time for the hearing of the matter which will commence no later
than 90 days after the date of appointment of the sole arbitrator pursuant to
paragraph (a) above, and such hearing will be no longer than 30 days (unless in
the judgment of the arbitrator the matter is unusually complex and sophisticated
and thereby requires a longer time, in which event such hearing shall be no
longer than 90 days). The final decision of such arbitrator will be rendered in
writing to the Parties not later than 60 days after the last hearing date,
unless otherwise agreed by the Parties in writing.
13.5. HEARINGS. Within the time period specified in Section
13.4(d), the matter shall be presented to the arbitrator at a hearing by means
of written submissions of memoranda and verified witness statements, filed
simultaneously, and responses, if necessary in the judgment of the arbitrator or
both of the Parties. If the arbitrator deems it to be essential to a fair
resolution of the dispute, live cross-examination or direct examination may be
permitted, but is not generally contemplated to be necessary. The arbitrator
shall actively manage the arbitration with a view to achieving a just, speedy
and cost-effective resolution of the dispute, claim or controversy. The
arbitrator may, in his or her sole discretion, set time and other limits on the
presentation of each Party's case, its memoranda or other submissions, and
refuse to receive any proffered evidence that the arbitrator, in his or her sole
discretion, finds to be cumulative, unnecessary, irrelevant or of low probative
nature. Except as otherwise set forth herein, any arbitration hereunder will be
conducted in accordance with the JAMS/Endispute Streamlined Rules for
Commercial, Real Estate and Construction Cases then prevailing. The decision of
the arbitrator will be final and binding on the Parties, and judgment thereon
may be had and will be enforceable in any court having jurisdiction over the
Parties. Arbitration awards will bear interest at an annual rate of the
Prime Rate plus 2% per annum. To the extent that the provisions of this
Agreement and the prevailing rules of JAMS/Endispute conflict, the provisions of
this Agreement shall govern.
13.6. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any Party
involved in the applicable dispute may request limited document production from
the other Party of specific and expressly relevant documents, with the
reasonable expenses of the producing Party incurred in such production paid by
the requesting Party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 13.5 to be adjourned except upon consent of
all of the Parties or upon an extraordinary
51
showing of cause demonstrating that such adjournment is necessary to permit
discovery essential to a Party to the proceeding. Depositions, interrogatories
or other forms of discovery (other than the document production set forth above)
shall not occur except by consent of all of the Parties. Disputes concerning the
scope of document production and enforcement of the document production requests
will be determined by written agreement of the Parties or, failing such
agreement, will be referred to the arbitrator for resolution. All discovery
requests will be subject to the Parties' rights to claim any applicable
privilege. The arbitrator will adopt procedures to protect the proprietary
rights of the Parties and to maintain the confidential treatment of the
arbitration proceedings (except as may be required by law). Subject to the
foregoing, the arbitrator shall have the power to issue subpoenas to compel the
production of documents relevant to the dispute, controversy or claim.
(b) The arbitrator shall have full power and authority to
determine issues of arbitrability but shall otherwise be limited to interpreting
or construing the applicable provisions of this Agreement or any Operating
Agreement, and will have no authority or power to limit, expand, alter, amend,
modify, revoke or suspend any condition or provision of this Agreement or any
Operating Agreement; it being understood, however, that the arbitrator will have
full authority to implement the provisions of this Agreement or any Operating
Agreement and to fashion appropriate remedies for breaches of this Agreement
(including interim or permanent injunctive relief); provided, however, that the
arbitrator shall not have any authority in excess of the authority a court
having jurisdiction over the Parties and the controversy or dispute would have
absent these arbitration provisions. It is the intention of the Parties that in
rendering a decision the arbitrator give effect to the applicable provisions of
this Agreement and the Operating Agreements and follow applicable law (it being
understood and agreed that this sentence shall not give rise to a right of
judicial review of the arbitrator's award).
(c) If a Party fails or refuses to appear at and participate
in an arbitration hearing after due notice, the arbitrator may hear and
determine the controversy upon evidence produced by the appearing Party.
(d) Arbitration costs will be borne equally by each Party
involved in the matter, except that each Party will be responsible for its own
attorney's fees and other costs and expenses, including the costs of witnesses
selected by such Party.
13.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award
shall be a bare award limited to a holding for or against a Party and shall be
without findings as to facts, issues or conclusions of law (including with
respect to any matters relating to the validity or infringement of patents or
patent applications) and shall be without a statement of the reasoning on which
the award rests, but must be in adequate form so that a judgment of a court may
be entered thereupon. Judgment upon any arbitration award hereunder may be
entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed
pursuant to Section 13.4, any Party may seek one or more temporary restraining
orders in a court of competent jurisdiction if necessary in order to preserve
and protect the status quo. Neither the request for, nor the grant or denial of,
any such temporary restraining order shall be deemed a waiver of the obligation
to
52
arbitrate as set forth herein, and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the Parties shall hold, and
shall cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article XIV and
except as may be required in order to enforce any award. Each of the Parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the Parties shall select a new
arbitrator who shall be disinterested as to the Parties and the matter in
accordance with the procedure set forth herein for the selection of the initial
arbitrator. The extent, if any, to which testimony previously given shall be
repeated or as to which the replacement arbitrator elects to rely on the
stenographic record (if there is one) of such testimony shall be determined by
the replacement arbitrator.
13.8. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the Parties will continue to provide service and honor all
other commitments under this Agreement and each Operating Agreement during the
course of dispute resolution pursuant to the provisions of this Article XIII
with respect to all matters not subject to such dispute, controversy or claim.
13.9. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation
of the provisions of this Article XIII, only insofar as they relate to the
agreement to arbitrate and any procedures pursuant thereto, shall be governed by
the Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 15.2.
13.10. CHOICE OF FORUM. Any arbitration hereunder shall take
place in Chicago, Illinois, unless otherwise agreed in writing by the Parties.
ARTICLE XIV
ACCESS TO INFORMATION AND SERVICES
14.1. AGREEMENT FOR EXCHANGE OF INFORMATION. (a) At all times
from and after the Distribution Date for a period of ten (10) years, as soon as
reasonably practicable after written request: (i) TSC shall afford to eLoyalty,
its Subsidiaries and their authorized accountants, counsel and other designated
representatives reasonable access during normal business hours to, or, at
eLoyalty's expense, provide copies of, all records, books, contracts,
instruments, data, documents and other information (collectively, "Information")
in the possession or under the control of TSC immediately following the
Distribution Date that relates to eLoyalty, the eLoyalty Business or the
eLoyalty Employees; and (ii) eLoyalty shall afford to TSC, its Subsidiaries and
their authorized accountants, counsel and other designated representatives
reasonable access
53
during normal business hours to, or, at TSC's expense, provide copies of, all
Information in the possession or under the control of eLoyalty immediately
following the Distribution Date that relates to TSC, the TSC Business or the TSC
Employees; provided, however, that in the event that either Party determines
that any such provision of or access to Information could be commercially
detrimental, violate any law or agreement or waive any attorney-client
privilege, the Parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.
(b) Either Party may request Information under Section 14.1(a)
(i) to comply with reporting, disclosure, filing or other requirements imposed
on the requesting party (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii) for
use in any other judicial, regulatory, administrative, tax or other proceeding
or in order to satisfy audit, accounting, claims defense, regulatory filings,
litigation, tax or other similar requirements, (iii) for use in compensation,
benefit or welfare plan administration or other bona fide business purposes or
(iv) to comply with its obligations under this Agreement or any Operating
Agreement.
14.2. OWNERSHIP OF INFORMATION. Any Information owned by one
Party that is provided to a requesting Party pursuant to Section 14.1 shall be
deemed to remain the property of the providing Party. Unless specifically set
forth herein, nothing contained in this Agreement shall be construed to grant or
confer rights of license or otherwise in any such Information.
14.3. COMPENSATION FOR PROVIDING INFORMATION. The Party
requesting Information agrees to reimburse the providing Party for the
reasonable costs, if any, of creating, gathering and copying such Information,
to the extent that such costs are incurred for the benefit of the requesting
Party. Except as otherwise specifically provided in this Agreement, such costs
shall be computed in accordance with the providing Party's standard methodology
and procedures.
14.4. RETENTION OF RECORDS. To facilitate the possible
exchange of Information pursuant to this Article XIV after the Distribution
Date, the Parties agree to use commercially reasonable efforts to retain all
Information in their respective possession or control on the Distribution Date
in accordance with the policies and procedures of TSC as in effect on the
Distribution Date. No party will destroy, or permit any of its Subsidiaries or
Affiliates to destroy, any Information that the other Party may have the right
to obtain pursuant to this Agreement prior to the seventh anniversary of the
date hereof, and thereafter without first using commercially reasonable efforts
to notify the other Party of the proposed destruction and giving the other Party
the opportunity to take possession of such Information prior to such
destruction; provided, however, that in the case of any Information relating to
Taxes, such period shall be extended to one year after the expiration of the
applicable statute of limitations (giving effect to any extensions thereof).
14.5. LIMITATION OF LIABILITY. No Party shall have any
liability to the other Party (i) if any Information exchanged or provided
pursuant to this Agreement that is an estimate or forecast, or that is based on
an estimate or forecast, is found to be inaccurate, in the absence of
54
willful misconduct by the Party providing such Information, or (ii) if any
Information is destroyed after commercially reasonable efforts to comply with
the provisions of Section 14.4.
14.6. PRODUCTION OF WITNESSES. At all times from and after the
Distribution Date, each Party shall use commercially reasonable efforts to make
available to the other Party (without cost (other than reimbursement of actual
out-of-pocket expenses) to, and upon prior written request of, the other Party)
its directors, officers, employees and agents as witnesses to the extent that
the same may reasonably be required by the other Party in connection with any
legal, administrative or other proceeding in which the requesting Party may from
time to time be involved with respect to the eLoyalty Business, the Retained
Business or any transactions contemplated hereby.
14.7. CONFIDENTIALITY. (a) From and after the Distribution
Date, each of TSC and eLoyalty shall hold, and shall cause their respective
directors, officers, employees, agents, consultants, advisors and other
representatives to hold, in strict confidence, with at least the same degree of
care that applies to TSC's confidential and proprietary information pursuant to
policies in effect as of the Distribution Date, all non-public information
concerning or belonging to the other Party or any of its Subsidiaries or
Affiliates obtained by it prior to the Distribution Date, accessed by it
pursuant to Section 14.1 hereof, or furnished to it by the other Party or any of
its Subsidiaries or Affiliates pursuant to this Agreement or any agreement or
document contemplated hereby, including, without limitation, any trade secrets,
technology, know-how and other non-public, proprietary intellectual property
rights licensed pursuant to the Intellectual Property License Agreements and
shall not release or disclose such information to any other Person, except its
representatives, who shall be bound by the provisions of this Section 14.7;
provided, however, that TSC and eLoyalty and their respective directors,
officers, employees, agents, consultants, advisors and other representatives may
disclose such information if, and only to the extent that, (i) a disclosure of
such information is compelled by judicial or administrative process or, in the
opinion of such Party's counsel, by other requirements of law (in which case the
disclosing Party will provide, to the extent practicable under the
circumstances, advance written notice to the other Party of its intent to make
such disclosure), or (ii) such Party can show that such information (A) is
published or is or otherwise becomes available to the general public as part of
the public domain without breach of this Agreement; (B) has been furnished or
made known to the recipient without any obligation to keep it confidential by a
third party under circumstances which are not known to the recipient to involve
a breach of the third party's obligations to a Party hereto; (C) was developed
independently of information furnished to the recipient under this Agreement; or
(D) in the case of information furnished after the Distribution Date, was not
known to the recipient at the time of the Distribution but became known to the
recipient prior to the time of receipt thereof from the other Party.
(b) Each Party acknowledges that the other Party would not
have an adequate remedy at law for the breach by the acknowledging Party of any
one or more of the covenants contained in this Section 14.7 and agrees that, in
the event of such breach, the other Party may, in addition to the other remedies
that may be available to it, apply to a court for an injunction to prevent
breaches of this Section 14.7 and to enforce specifically the terms and
provisions of this Section. Notwithstanding any other Section hereof, the
provisions of this Section 14.7 shall survive the Distribution Date
indefinitely.
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14.8. PRIVILEGED MATTERS. (a) Each of TSC and eLoyalty agrees
to maintain, preserve and assert all privileges, including, without limitation,
privileges arising under or relating to the attorney-client relationship (which
shall include without limitation the attorney-client and work product
privileges), not heretofore waived, that relate to the eLoyalty Business and the
Transferred Assets for any period prior to the Distribution Date ("Privilege" or
"Privileges"). Each Party agrees that it shall not waive any Privilege that
could be asserted under applicable law without the prior written consent of the
other Party. The rights and obligations created by this Section 14.8 shall apply
to all information relating to the eLoyalty Business as to which, but for the
Distribution, either Party would have been entitled to assert or did assert the
protection of a Privilege ("Privileged Information"), including without
limitation, (i) any and all information generated prior to the Distribution Date
but which, after the Distribution, is in the possession of either Party; and
(ii) all information generated, received or arising after the Distribution Date
that refers to or relates to Privileged Information generated, received or
arising prior to the Distribution Date.
(b) Upon receipt by either Party of any subpoena, discovery or
other request that may call for the production or disclosure of Privileged
Information or if either Party obtains knowledge that any current or former
employee of TSC or eLoyalty has received any subpoena, discovery or other
request that may call for the production or disclosure of Privileged
Information, such Party shall notify promptly the other Party of the existence
of the request and shall provide the other Party a reasonable opportunity to
review the information and to assert any rights it may have under this Section
14.8 or otherwise to prevent the production or disclosure of Privileged
Information. Each Party agrees that it will not produce or disclose any
information that may be covered by a Privilege under this Section 14.8 unless
(i) the other Party has provided its written consent to such production or
disclosure (which consent shall not be unreasonably withheld), or (ii) a court
of competent jurisdiction has entered a final, nonappealable order finding that
the information is not entitled to protection under any applicable Privilege.
(c) TSC's transfer of books and records and other information
to eLoyalty, and TSC's agreement to permit eLoyalty to possess Privileged
Information existing or generated prior to the Distribution Date, are made in
reliance on eLoyalty's agreement, as set forth in Sections 14.7 and 14.8, to
maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The access to information being granted
pursuant to Section 14.1, the agreement to provide witnesses and individuals
pursuant to Section 14.6 and the transfer of Privileged Information to eLoyalty
pursuant to this Agreement shall not be deemed a waiver of any Privilege that
has been or may be asserted under this Section 14.8 or otherwise. Nothing in
this Agreement shall operate to reduce, minimize or condition the rights granted
to TSC in, or the obligations imposed upon eLoyalty by, this Section 14.8.
ARTICLE XV
MISCELLANEOUS
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15.1. ENTIRE AGREEMENT. This Agreement and the Operating
Agreements, including the Schedules and Exhibits referred to herein and therein
and the documents delivered pursuant hereto and thereto, constitute the entire
agreement between the Parties with respect to the subject matter contained
herein or therein, and supersede all prior agreements, negotiations,
discussions, understandings, writings and commitments between the Parties with
respect to such subject matter.
15.2. CHOICE OF LAW AND FORUM. This Agreement shall be
governed by and construed and enforced in accordance with the substantive laws
(except for any otherwise applicable conflicts of law provisions) of the State
of Illinois and the federal laws of the United States of America applicable
therein, as though all acts and omissions related hereto occurred in Illinois.
Any lawsuit arising from or related to this Agreement or any of the Operating
Agreements shall be brought only in the United States District Court for the
Northern District of Illinois or the Circuit Court of ▇▇▇▇ County, Illinois. To
the extent permissible by law, the Parties hereby consent to the jurisdiction
and venue of such courts. Each Party hereby waives, releases and agrees not to
assert, and agrees to cause its Affiliates to waive, release and not to assert,
any rights such Party or its Affiliates may have under any foreign law or
regulation that would be inconsistent with the terms of this Agreement as
governed by Illinois law.
15.3. AMENDMENT. This Agreement shall not be amended, modified
or supplemented except by a written instrument signed by an authorized
representative of each of the Parties.
15.4. WAIVER. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the Party or Parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently given for the purposes of this Agreement if, as to any Party, it is
in writing signed by an authorized representative of such Party. The failure of
any Party to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, or in any way to affect the validity
of this Agreement or any part hereof or the right of any Party thereafter to
enforce each and every such provision. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach.
15.5. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such a manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision or provisions shall be ineffective to the extent, but
only to the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
15.6. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by and
delivered to each of the Parties.
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15.7. SUCCESSORS AND ASSIGNS. (a) This Agreement and each
Operating Agreement shall be binding upon and inure to the benefit of the
Parties hereto and thereto, respectively, and their successors and permitted
assigns; provided, however, that the rights of either Party under this Agreement
and each Operating Agreement shall not be assignable by such Party without the
prior written consent of the other Party. The successors and permitted assigns
hereunder shall include, without limitation, any permitted assignee as well as
the successors in interest to such permitted assignee (whether by merger,
liquidation (including successive mergers or liquidations) or otherwise).
15.8. THIRD PARTY BENEFICIARIES. Except to the extent
otherwise provided in Section 10.5 or Article XII hereof or in any Operating
Agreement, the provisions of this Agreement and each Operating Agreement are
solely for the benefit of the Parties and their respective Affiliates,
successors and permitted assigns and shall not confer upon any third Person any
remedy, claim, liability, reimbursement or other right in excess of those
existing without reference to this Agreement or any Operating Agreement. Nothing
in this Agreement or any Operating Agreement shall obligate TSC or eLoyalty to
assist any eLoyalty Employee to enforce any rights such employee may have with
respect to any of the employee benefits described in this Agreement.
15.9. NOTICES. All notices, requests, claims, demands and
other communications required or permitted hereunder shall be in writing and
shall be deemed given or delivered (i) when delivered personally, (ii) if
transmitted by facsimile when confirmation of transmission is received, (iii) if
sent by registered or certified mail, postage prepaid, return receipt requested,
on the third business day after mailing or (iv) if sent by private courier when
received; and shall be addressed as follows:
If to TSC, to:
Technology Solutions Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to eLoyalty, to:
eLoyalty Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
58
or to such other address as such Party may indicate by a notice delivered to the
other Party.
15.10. PERFORMANCE. Each Party shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary or Affiliate of
such Party.
15.11. FORCE MAJEURE. No Party shall be deemed in fault of
this Agreement or any Operating Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement or any
Operating Agreement results from any cause beyond its reasonable control and
without its fault or negligence, including, without limitation, acts of God,
acts of civil or military authority, embargoes, epidemics, war, riots,
insurrections, fires, explosions, earthquakes, floods, unusually severe weather
conditions, labor problems or unavailability of parts, or, in the case of
computer systems, any failure in electrical or air conditioning equipment. In
the event of any such excused delay, the time for performance shall be extended
for a period equal to the time lost by reason of the delay.
15.12. NO PUBLIC ANNOUNCEMENT. Neither TSC nor eLoyalty shall,
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that any such Party shall be so obligated by law or the
rules of any stock exchange or quotation system, in which case the other Party
shall be advised and the Parties shall use commercially reasonable efforts to
cause a mutually agreeable release or announcement to be issued; provided,
however, that the foregoing shall not preclude communications or disclosures
necessary to implement the provisions of this Agreement or to comply with the
accounting and SEC disclosure obligations or the rules of any stock exchange.
15.13. TERMINATION. Notwithstanding any provisions hereof,
this Agreement may be terminated and the Distribution abandoned at any time
prior to the Distribution Date by and in the sole discretion of the Board of
Directors of TSC without the prior the approval of any Person. In the event of
such termination, this Agreement shall forthwith become void and no Party shall
have any liability to any Person by reason of this Agreement, except that TSC
shall be liable for any costs and expenses, including attorneys' fees, incurred
by eLoyalty or its Subsidiaries prior to or arising out of such termination.
59
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed by their authorized representatives as of the date first above
written.
TECHNOLOGY SOLUTIONS COMPANY
By: _____________________________________________
▇▇▇▇ ▇▇▇▇▇▇
[Title]
eLOYALTY CORPORATION
By: _____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
SIGNATURE PAGE
TO THE
REORGANIZATION AGREEMENT