Exhibit 10.3
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MERGER AGREEMENT
by and among
APPNET SYSTEMS, INC.,
(Buyer)
SSC ACQUISITION SUB #1, INC.,
(Newco)
SOFTWARE SERVICES CORPORATION,
(SSC)
and
THE SHAREHOLDERS OF SOFTWARE SERVICES CORPORATION
(collectively, Sellers)
Dated as of July 31, 1998
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TABLE OF CONTENTS
Page
1. DEFINITIONS...............................................................1
2. THE MERGER................................................................7
(a) The Merger.........................................................7
(b) Effective Time of the Merger.......................................8
(c) Certificate of Incorporation.......................................8
(d) Bylaws.............................................................8
(e) Directors and Officers of Surviving Corporation....................8
(f) Effect of the Merger...............................................8
(g) Conversion of Shares...............................................9
(h) Purchase Price.....................................................9
(i) Net Worth Adjustment..............................................10
(j) Dissenting Shares.................................................10
(k) The Closing.......................................................10
(l) Deliveries at the Closing.........................................10
(m) Shareholders' Representative......................................11
(n) Escrow Arrangements...............................................12
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION...............12
(a) Representations and Warranties of each Seller.....................12
(i) Authorization of Transaction................................12
(ii) Noncontravention...........................................13
(iii) Broker's Fees.............................................13
(iv) Investment.................................................13
(v) SSC Shares..................................................13
(vi) Disclosure.................................................14
(b) Representations and Warranties of the Buyer and Newco.............14
(i) Organization of the Buyer and Newco.........................14
(ii) Authorization of Transaction...............................14
(iii) Noncontravention..........................................14
(iv) Brokers' Fees..............................................15
(v) Investment..................................................15
(vi) Buyer's and Newco's Capitalization.........................15
(vii) Financial Statements......................................15
(viii) Undisclosed Liabilities..................................16
(ix) Tangible Assets............................................16
(x) Litigation..................................................16
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(xi) Guaranties................................................16
(xii) Environment, Health, and Safety...........................17
(xiii) Legal Compliance.........................................18
(xiv) Disclosure................................................19
4. REPRESENTATIONS AND WARRANTIES CONCERNING SELLING CORPORATION............19
(a) Organization, Qualification, and Corporate Power..................20
(b) Capitalization....................................................20
(c) Noncontravention..................................................20
(d) Subsidiaries......................................................21
(e) Financial Statements..............................................21
(f) Events Subsequent to the Most Recent Fiscal Year End..............21
(g) Undisclosed Liabilities...........................................24
(h) Tax Matters.......................................................24
(i) Tangible Assets...................................................26
(j) Owned Real Property...............................................26
(k) Intellectual Property.............................................26
(l) Real Property Leases..............................................27
(m) Contracts.........................................................28
(n) Notes and Accounts Receivable.....................................29
(o) Powers of Attorney................................................29
(p) Insurance.........................................................29
(q) Litigation........................................................30
(r) Employees.........................................................30
(s) Employee Benefits.................................................31
(t) Guaranties........................................................32
(u) Environment, Health, and Safety...................................32
(v) Legal Compliance..................................................33
(w) Certain Business Relationships with SSC...........................34
(x) Brokers' Fees.....................................................34
(y) Disclosure........................................................35
5. PRE-CLOSING COVENANTS....................................................35
(a) General...........................................................35
(b) Notices and Consents..............................................35
(c) Operation of Business.............................................35
(d) Preservation of Business..........................................35
(e) Access............................................................35
(f) Notice of Developments; Delivery of Disclosure Schedules..........36
(g) Exclusivity.......................................................36
(h) Cancellation of Options, Bonus Programs and Phantom
Stock Plans.....................................................36
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6. ADDITIONAL COVENANTS.....................................................37
(a) General...........................................................37
(b) Litigation Support................................................37
(c) Transition........................................................37
(d) Confidentiality...................................................38
(e) Termination of Bank Facilities; Release of Guaranties.............38
(f) Monitoring Information............................................38
(g) Landlords' Consents...............................................38
(h) Additional Tax Matters............................................39
(i) Covenant Not to Compete...........................................39
(j) Right to Attend Board Meetings....................................39
(k) Reorganization Intent.............................................40
(l) Initial Public Offering...........................................40
(m) Sale of Buyer.....................................................40
7. CONDITIONS TO OBLIGATIONS TO CLOSE.......................................41
(a) Conditions to Obligation of the Buyer.............................41
(b) Conditions to Obligations of the Sellers..........................44
8. REMEDIES FOR BREACHES OF THIS AGREEMENT..................................46
(a) Survival..........................................................46
(b) Indemnification Provisions for Benefit of the Buyer...............46
(c) Indemnification Provisions for Benefit of the Sellers.............48
(d) Matters Involving Third Parties...................................48
(e) Exclusive Remedy..................................................49
(f) Payment; General Right of Offset..................................49
(g) Other Indemnification Provisions..................................49
(h) Arbitration with Respect to Certain Indemnification Matters.......49
9. TERMINATION..............................................................50
(a) Termination of Agreement..........................................50
(b) Effect of Termination.............................................51
10. MISCELLANEOUS...........................................................51
(a) [Reserved]........................................................51
(b) Press Releases and Announcements..................................51
(c) No Third-Party Beneficiaries......................................51
(d) Entire Agreement..................................................51
(e) Succession and Assignment.........................................51
(f) Facsimile/Counterparts............................................52
(g) Descriptive Headings..............................................52
(h) Notices...........................................................52
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(i) Governing Law.....................................................53
(j) Amendments and Waivers............................................54
(k) Severability......................................................54
(l) Expenses..........................................................54
(m) Construction......................................................54
(n) Incorporation of Exhibits, Annexes, and Schedules.................54
(o) Specific Performance..............................................55
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Financial Statements
Exhibit C Joinder to Stockholders Agreement
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreement with ▇▇▇▇▇▇▇
Exhibit F Joinder to the Registration Agreement
Exhibit G Form of Opinion of Sellers' Legal Counsel
Exhibit H Form of Opinion of Buyer's Legal Counsel
Exhibit I Form of Option Cancellation Agreement
ANNEXES AND TABLES
Annex I List of SSC Shareholders
Annex II Buyer's Capitalization Schedule and Charter
Annex III Exceptions to Representations and Warranties of Sellers
Annex IV Exceptions to Representations and Warranties of Buyer
Annex V Persons Bound by Non-Competition Covenant
Annex VI List of Optionholders
SCHEDULES
Allocation Schedule
Sellers' and SSC's Disclosure Schedule
Buyer's Disclosure Schedule
Adjustments to EBIT Schedule
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MERGER AGREEMENT
This MERGER AGREEMENT ("Agreement") is entered into as of the 31st
day of July, 1998, by and among APPNET SYSTEMS, INC., a Delaware corporation
(the "Buyer"), SSC ACQUISITION SUB #1, a Delaware corporation and wholly owned
subsidiary of Buyer ("Newco"), SOFTWARE SERVICES CORPORATION, a Michigan
corporation ("SSC"), and THE SHAREHOLDERS OF SSC LISTED ON THE SIGNATURE PAGE
HEREOF (collectively, the "Sellers"). The Buyer, Newco and the Sellers are
referred to herein individually as a "Party" and collectively as the "Parties."
SSC and Newco are sometimes referred to herein as the "Constituent
Corporations." If the context so requires, references herein to SSC shall mean
the Surviving Corporation (as hereinafter defined) for periods after the Closing
Date.
The Sellers in the aggregate own all of the outstanding capital
stock of SSC.
This Agreement contemplates a transaction in which SSC will merge
with and into Newco, with Newco being the surviving corporation, and the shares
of capital stock of SSC being converted into the right to receive the Purchase
Price (as hereinafter identified), and the Parties intend such merger
transaction to be a tax-free reorganization under Section 368 of the Code (as
defined) and intend this Agreement to be a "plan of reorganization" within the
meaning of the regulations promulgated under such section of the Code.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions
"AA" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P.
"AA Determination" shall have the meaning set forth in Section
2(i) below.
"Adjusted EBIT of SSC" shall mean SSC's earnings before gain
on sale of investment in an Affiliate and before interest and taxes in
accordance with GAAP, as adjusted for certain non-recurring costs listed on the
Adjustments to EBIT Schedule attached hereto.
"Adverse Consequences" means all damages from complaints,
actions, suits, proceedings, hearings, investigations, claims, demands,
judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses, and fees, including all reasonable attorneys' fees and
court costs.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Affiliated Group" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms the reasonable basis
for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Common Stock" means the Buyer's Common Stock, par value
$.0005 per share.
"Buyer Preferred Stock" means the Buyer's Class B Preferred
Stock, par value $.01 per share, liquidation value $1,000 per share.
"Buyer's Shares" means collectively the shares of Buyer Common
Stock and Buyer Preferred Stock, which are issued to the Sellers pursuant to
this Agreement.
"Cash Portion of the Purchase Price" has the meaning set forth
in Section 2(h) below.
"Closing" has the meaning set forth in Section 2(k) below.
"Closing Date" has the meaning set forth in Section 2(k)
below.
"Closing Determination" has the meaning set forth in Section
2(i) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means all confidential information
and trade secrets of SSC including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals; provided, that the Confidential
Information shall not include information which (i) was or becomes generally
available to the public other than as a result of a its disclosure by the
receiving party, (ii) was or becomes available to the receiving party on a
non-confidential basis from a source other than the Buyer or its advisors
without breach of this Agreement provided that such source is not known to such
receiving party to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to receiving party by a
contractual, legal or fiduciary obligation known to such receiving party, (iii)
was within receiving party's possession prior to its being furnished to such
receiving party by or on behalf of Buyer without breach of this Agreement,
provided that the source of such information was not bound by a confidentiality
agreement with Buyer or SSC or otherwise prohibited from transmitting the
information to the receiving party by a contractual, legal or fiduciary
obligation, or (iv) which is required to be and actually is disclosed by
operation of law.
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"Constituent Corporations" has the meaning set forth in the
preface above.
"Controlled Group of Corporations" has the meaning set forth
in Code Sec. 1563.
"Customer Contract or Agreement" means any agreement whereby
SSC provides computer support or project services and/or related consulting
services to a third party during the 1998 fiscal year of SSC.
"Deferred Intercompany Transaction" has the meaning set forth
in Treas. Reg. ss.1.1502-13.
"DGCL" has the meaning set forth in Section 2(a) below.
"Disclosure Schedule" has the meaning set forth in Section 4
below.
"Dissenting Shares" has the meaning set forth in Section 2(j)
below.
"Effective Time" has the meaning set forth in Section 2(a)
below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Sec. 3(1).
"Equitable Exceptions" shall have the meaning set forth in
Section 3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means Key Bank, N.A..
"Escrow Agreement" means the Escrow Agreement to be executed
by and among the Sellers, Buyer and the Escrow Agent in the form of Exhibit A.
"Escrow Period" has the meaning specified in Section 2(n).
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"Escrow Sum" has the meaning specified in Section 2(n).
"Extremely Hazardous Substance" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in Section
4(e) below.
"Funded Indebtedness" means all (i) indebtedness of the
Company for borrowed money or other interest-bearing indebtedness; (ii) capital
lease obligations of the Company; (iii) obligations of the Company to pay the
deferred purchase or acquisition price for goods or services, other than trade
accounts payable or accrued expenses in the ordinary course of business on no
more than 90 day payment terms; (iv) indebtedness of others guaranteed by the
Company or secured by an Encumbrance on the Company's property; (v) indebtedness
of the Company under extended credit terms of more than 60 days from vendors
provided to the Company; and (vi) transaction costs of the Company and/or
Sellers associated with this Agreement or the transactions contemplated hereby
that are paid by the Company, including without limitation, the following: (a)
the unpaid balance of the obligation of SSC to ▇▇▇▇▇▇ ▇▇▇▇ under the Termination
of Employment Agreement dated ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇) the unpaid balance of the
obligation of SSC to KeyCorp Leasing, Ltd. under Lease # 10452 and Lease #
10453, both dated March 21, 1996, and (c) the obligation to DeBellas & Co., Inc.
with respect to the transactions contemplated by this Agreement but excluding
the Key Bank, N.A. revolving credit line.
"GAAP" means generally accepted accounting principles,
consistently applied, as in effect from time to time.
"Gross Revenues" means the gross revenue of SSC as normally
calculated on the Financial Statements as calculated in accordance with GAAP.
"Indemnified Party" has the meaning set forth in Section 8(d)
below. "Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Initial Public Offering" shall mean the first underwritten
public offering of Buyer's common stock, pursuant to an effective registration
statement under the Securities Act, with net proceeds to Buyer of not less than
$10 million.
"Intellectual Property" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
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information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"Key Employees" has the meaning set forth in Section
7(a)(viii) below.
"Knowledge" means, with respect to each Seller, information
which is actually known by such Seller or which a prudent person in the position
of the Seller would reasonably be deemed to know and (b) with respect to Newco,
Buyer or SSC, actual knowledge of the officers of such Party and the employees
of such party with responsibility for the matters in question.
"Liability" means any liability, debt, obligation, amount or
sum due (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, and whether due or to become due) including any
liability for Taxes.
"Material" has the meaning set forth in Section 4 below.
"MBCL" has the meaning set forth in Section 2(a) below.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Documents" has the meaning set forth in Section 2(b)
below.
"Minimum Net Worth" has the meaning set forth in Section 2(i)
below.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" means the Financial
Statements for and as of the Most Recent Fiscal Year End.
"Most Recent Fiscal Year End" has the meaning set forth in
Section 4(e) below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec.
3(37).
"Net Worth of SSC" means the total assets of SSC less the
total liabilities of SSC (including the Key Bank, N.A. revolving credit line),
determined in accordance with GAAP, consistently applied and on the accrual
method of accounting. In calculating the total assets of SSC, no material
increase in the intangible assets of SSC (which intangible assets do not include
accounts receivable or work-in-process) since December 31, 1997 shall be
included in calculating the Net Worth of SSC without the written consent of
Buyer.
"Newco" has the meaning set forth in the preface above.
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"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Option Cancellation Agreement" has the meaning set forth in
Section 7(a) herein.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"Purchase Price" has the meaning set forth in Section 2(b)
below.
"Registration Agreement" means that certain Registration
Agreement dated June 29, 1998 by and among Buyer and the stockholders of Buyer.
"▇▇▇▇▇▇▇ Deferred Compensation Agreement" means that certain
Amended and Restated Deferred Compensation Agreement dated September 1, 1992 by
and between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and SSC, as amended.
"Reportable Event" has the meaning set forth in ERISA Sec.
4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable (or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under workers' compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit, (f) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SSC" has the meaning set forth in the preface above.
"SSC's Business" means the business of providing computer
support or project services to, writing custom software for, and implementing
related consulting services for business customers.
"SSC Optionholders" means the holders of options for the
purchase of SSC Shares listed on the Allocation Schedule hereto.
"SSC Options" means all the agreements between SSC and those
persons listed on the Allocation Schedule hereto related to the issuance of SSC
Shares.
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"SSC Shares" means all outstanding shares of the common stock,
no par value per share, of SSC.
"Sellers" has the meaning set forth in the preface above.
"Sellers' Representative" has the meaning set forth in the
Section 2(m) below.
"Stock Portion of the Purchase Price" has the meaning set
forth in Section 2(h) below.
"Stockholders Agreement" means that certain Stockholders
Agreement dated June 29, 1998 by and among Buyer and the stockholders of Buyer.
"Stub Period Financial Statements" means the Financial
Statements for and as of the Stub Period End.
"Stub Period Balance Sheet" means the balance sheet included
in the Stub Period Financial Statements.
"Stub Period End" has the meaning set forth in Section 4(e)
below.
"Surviving Corporation" has the meaning set forth in Section
2(a) below.
"Subsidiary" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto.
"Tax Return" means any federal, foreign, state and local
governmental tax return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
2. The Merger
(a) The Merger. At the Effective Time (as defined below), SSC
shall be merged with and into Newco (the "Merger") and the separate existence of
SSC shall thereupon cease, and the name of Newco, as the surviving corporation
in the Merger (the "Surviving Corporation"), shall by virtue of the Merger be
"Software Services Corporation"; provided, that such name is available in
Delaware, and the Surviving Corporation shall operate as "Software Services
Corporation" in the State of Michigan. The Merger shall have the effects set
forth in the
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Michigan Business Corporation Laws (the "MBCL") and the General Corporation Law
of the State of Delaware ("DGCL").
(b) Effective Time of the Merger. As soon as practicable after
the satisfaction or waiver of the conditions hereinafter set forth, the parties
hereto will file with the Secretary of the State of the State of Michigan and
the Secretary of State of the State of Delaware a certificate or articles of
merger or ownership and other documents (the "Merger Documents"), in such
respective forms as required by, and executed in accordance with, the relevant
provisions of the MBCL and DGCL in order to effect the Merger. The Merger shall
become effective at such time as the Merger Documents shall have been accepted
for filing with the Secretary of the State of the Michigan and the Secretary of
State of the State of Delaware or such other times and dates as the parties
shall agree should be specified in the Merger Documents (the "Effective Time").
(c) Certificate of Incorporation. The Certificate of
Incorporation of Newco in effect at the time of the Merger shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
amended as provided thereunder and in the DGCL.
(d) Bylaws. The Bylaws of Newco in effect at the time of the
Merger shall be the Bylaws of the Surviving Corporation until altered, amended
or repealed, as provided thereunder and in the Certificate of Incorporation and
the DGCL.
(e) Directors and Officers of Surviving Corporation.
(i) The directors of Newco at the Effective Time shall
be the directors of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
(ii) The officers of SSC at the Effective Time shall be
the officers of the Surviving Corporation and shall hold office from
the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
(f) Effect of the Merger. The Merger shall have the effects
set forth in the MBCL and DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchise of the Constituent Corporations shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Constituent Corporations shall become the debts, liabilities and duties of the
Surviving Corporation. The purpose of the Surviving Corporation shall be the
purposes of SSC immediately prior to the Merger. The total number of shares
which the Surviving Corporation is authorized to issue shall be 1,000 shares of
Common Stock, $.01 par value per share.
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(g) Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the Sellers:
(i) Each SSC Share issued and outstanding immediately
prior to the Effective Time (other than SSC Shares as to which the
holders thereof shall have properly exercised appraisal rights under
the MBCL, if any) shall be converted into the right to receive in
cash and Buyer's Shares its Allocable Portion of the Purchase Price
(as hereinafter defined).
(ii) Each SSC Share held in the treasury of SSC
immediately prior to the Effective Time shall be canceled and
retired and cease to exist.
(iii) No interest, dividends or other distributions
shall be payable upon the surrender of certificates that represented
SSC Shares at the Effective Time.
(h) Purchase Price. The purchase price for SSC Shares shall be
composed of the Cash Portion of the Purchase Price and the Stock Portion of the
Purchase Price. The Buyer agrees to pay to the Sellers and the SSC Optionholders
in the aggregate the sum of (i) $10,900,000 (to be reduced dollar for dollar by
the sum of (A) the payments made by SSC to cancel the stock options described in
Section 5(h); (B) the amount of any outstanding Funded Indebtedness; (C) the
$2,437,050 payable to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ pursuant to the ▇▇▇▇▇▇▇ Deferred
Compensation Agreement; and (D) the Net Worth adjustment, if any, made pursuant
to Section 2(i) below) in cash (the "Cash Portion of the Purchase Price") and
(ii) $12,000,000 in Buyer's Shares, consisting of an aggregate of 3,953,227
shares of Buyer Common Stock and 11,580 shares of Buyer Preferred Stock as set
forth in the Allocation Schedule attached hereto (to be reduced by 118,225
shares of Buyer Common Stock issuable to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ pursuant to the ▇▇▇▇▇▇▇
Deferred Compensation Agreement) (the "Stock Portion of the Purchase Price") in
exchange for the SSC Shares to be purchased by Buyer pursuant to the terms
hereof and the SSC Options to be canceled. Ninety percent (90%) of the Cash
Portion of the Purchase Price shall be paid by Buyer to Sellers at the Closing
by delivery of cash by wire transfer of funds in the amounts set forth on the
Allocation Schedule. Ten percent (10%) of the Cash Portion of the Purchase Price
will be paid in cash by wire transfer of funds to the Escrow Agent to be held in
escrow pursuant to Section 2(n) for satisfaction of Sellers' indemnification
obligations specified in Article VIII. The Stock Portion of the Purchase Price
shall be issued by Buyer to Sellers at the Closing by the delivery of Buyer'
Shares in the amounts set forth on the Allocation Schedule next to such Seller's
name. Each acquirer of Buyer's Shares shall enter into a restricted stock
purchase agreement in the form attached hereto as Exhibit D. The sum of the Cash
Portion of the Purchase Price and the Stock Portion of the Purchase Price shall
be referred to as the "Purchase Price." Each of (i) the Cash Portion of the
Purchase Price and (ii) the Stock Portion of the Purchase Price shall be
allocated among Sellers in dollar amounts set forth on the Allocation Schedule.
Cash will be paid in lieu of any fractional shares which would otherwise be
issued in accordance with this Agreement. In no event will the sum of the (i)
Cash Portion of the Purchase Price, (ii) the cash paid for fractional shares and
(iii) the cash paid for Dissenting Shares in accordance with this Agreement
exceed 50% of the total consideration paid by Buyer hereunder.
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(i) Net Worth Adjustment. The Cash Portion of the Purchase
Price shall be adjusted downward on a dollar-for-dollar basis by the amount by
which the Net Worth of SSC is less than $1,900,000 (the "Minimum Net Worth") as
of the Closing Date. The Net Worth of SSC as of the Closing Date shall initially
be determined prior to the Closing Date by SSC in good faith within two business
days prior to the Closing Date (the "Closing Determination"). Following the
Closing Date, the Net Worth of SSC as of the Closing Date shall be determined by
AA in accordance with the terms of this Agreement (at the expense of the Buyer),
which determination (the "AA Determination") shall be submitted in writing to
the Buyer and the Sellers not later than sixty (60) days after the Closing.
Unless the Sellers' Representative on behalf of all Sellers objects in writing
to the AA Determination within ten business days of the receipt of such
determination, the AA Determination shall be final, conclusive and binding on
the Parties. If no objection is made, Sellers and the SSC Optionholders shall
pay to Buyer by wire transfer the amount, if any, by which the amount of the AA
Determination is less than the Minimum Net Worth (less any deduction against the
Cash Portion of the Purchase Price as a result of the Closing Determination)
within ten (10) days after the AA Determination.
(j) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, SSC Shares which are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have not voted such SSC Shares in favor of the Merger and who shall have
delivered a written demand for appraisal of such Shares in the manner provided
in the MBCL (the "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the consideration provided above, unless
and until such holder shall have failed to perfect or shall have effectively
withdrawn or lost his right to appraisal and payment under the MBCL. If such
holder shall have so failed to perfect or shall have effectively withdrawn or
lost such right, his SSC Shares shall thereupon be deemed to have been converted
into and to have become exchangeable for, at the Effective Time, the right to
receive the consideration provided herein.
(k) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇ &
▇▇▇▇▇▇▇, LLP in Washington, D.C. commencing at 9:00 a.m. local time on the first
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby,
or such other date as the Buyer and the Sellers may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall be no later than
September 30, 1998.
(l) Deliveries at the Closing. At the Closing, (i) the Sellers
will deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers
(as applicable) the various certificates, instruments, and documents referred to
in Section 7(b) below, (iii) each of the Sellers will deliver to the Buyer stock
certificates representing all of its SSC Shares, endorsed in blank or
accompanied by duly executed assignment documents, (iv) the Buyer will deliver
to the Sellers and the SSC Optionholders the consideration specified in Section
2(h) above as may be adjusted after the Closing pursuant to Sections 2(i) above
and Section 2(o) below, and (v) the SSC Optionholders shall each deliver to the
Buyer the Option Cancellation Agreements required by Section 7(a) below, if
applicable.
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(m) Sellers' Representative.
(i) In order to administer efficiently (A) the
implementation of the Agreement by the Sellers, (B) the waiver of
any condition to the obligations of the Sellers to consummate the
transactions contemplated hereby, and (C) the settlement of any
dispute with respect to the Agreement, the Sellers hereby designate
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as their representative (the "Sellers'
Representative").
(ii) The Sellers hereby authorize the Sellers'
Representative (A) to take all action necessary in connection with
the implementation of the Agreement on behalf of the Sellers, the
waiver of any condition to the obligations of the Sellers to
consummate the transactions contemplated hereby, or the settlement
of any dispute, (B) to give and receive all notices required to be
given under the Agreement and (C) to take any and all additional
action as is contemplated to be taken by or on behalf of the Sellers
by the terms of this Agreement.
(iii) In the event that the Sellers' Representative
dies, becomes legally incapacitated or resigns from such position,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall fill such vacancy and shall be deemed to be
the Sellers' Representative for all purposes of this Agreement;
however, no change in the Sellers' Representative shall be effective
until Buyer is given notice of it by the Sellers.
(iv) All decisions and actions by the Sellers'
Representative shall be binding upon all of the Sellers, and no
Seller shall have the right to object, dissent, protest or otherwise
contest the same, in the absence of fraud, gross negligence or
willful misconduct of the Sellers' Representative.
(v) By their execution of this Agreement, the Sellers
agree that: (A) Buyer shall be able to rely conclusively on the
instructions and decisions of the Sellers' Representative as to any
actions required or permitted to be taken by the Sellers or the
Sellers' Representative hereunder, and no party hereunder shall have
any cause of action against Buyer for action taken by Buyer in
reliance upon the instructions or decisions of the Sellers'
Representative; (B) all actions, decisions and instructions of the
Sellers' Representative shall be conclusive and binding upon all of
the Sellers; no Seller shall have any cause of action against Buyer
or SSC for any action taken or omitted to be taken, decision made or
omitted to be made or any instruction given or omitted to be given
by the Sellers' Representative; and no Seller shall have any cause
of action against the Sellers' Representative for any action taken,
decision made or instruction given by the Sellers' Representative
under this Agreement, except for fraud, gross negligence or willful
breach of this Agreement by the Sellers' Representative; (C) the
Sellers' Representative shall be deemed to fulfill any fiduciary
obligation to the Sellers so long as no Seller is adversely affected
by any action or failure to act of the Sellers' Representative in a
disproportionate measure compared to any other Seller; (D) remedies
available at law for any breach of the provisions of this Section
2(m) are inadequate; therefore,
-11-
Buyer shall be entitled to temporary and permanent injunctive relief
without the necessity of proving damages if Buyer brings an action
to enforce the provisions of this Section 2(m); (E) the provisions
of this Section 2(m) are independent and severable, shall constitute
an irrevocable power of attorney, coupled with an interest and
surviving death, granted by the Sellers to the Sellers'
Representative and shall be binding upon the executors, heirs, legal
representatives and successors of each Seller; and (F) all fees and
expenses incurred by the Sellers' Representative shall be paid by
the Sellers.
(n) Escrow Arrangements. Pursuant to the Escrow Agreement to
be entered into among the Sellers, Buyer and the Escrow Agent, 10% of the Cash
Portion of the Purchase Price shall be delivered to the Escrow Agent at Closing
in immediately available funds. Such monies (which, together with all interest
accrued thereon, is hereinafter referred to as the "Escrow Sum") shall be held
pursuant to the terms of the Escrow Agreement for payment from such Escrow Sum
of the amounts, if any, owing by the Sellers to Buyer pursuant to the
indemnification provisions of Article VIII below. At the conclusion of the
period ending on the first anniversary of the Closing Date (such period being
referred to herein as the "Escrow Period"), such remaining portion of the Escrow
Sum not theretofore paid to Buyer in accordance with the terms of the Escrow
Agreement or subject to a pending claim under the Escrow Agreement and this
Agreement shall be disbursed to the Sellers. The Sellers and Buyer agree that
each will execute and deliver such reasonable instruments and documents as are
furnished by any other party to enable such furnishing party to receive those
portions of the Escrow Sum to which the furnishing party is entitled under the
provisions of the Escrow Agreement and this Agreement.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of each Seller. Each Seller
individually represents and warrants to the Buyer as follows as of the date of
this Agreement and as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(a)):
(i) Authorization of Transaction. The Seller has full
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly
executed and delivered by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws,
decisions or equitable principles now or hereafter in effect
relating to or affecting the enforcement of creditors' rights or
debtors' obligations generally or non-competition arrangements, and
to general equity principles, and (B) the remedy of specific
performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought (the terms of
clause (A) and (B) are sometimes collectively referred to as the
"Equitable
-12-
Exceptions"). The Seller need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement (other than as provided
for in Article 2 of this Agreement).
(ii) Noncontravention. Neither the execution and the
delivery of this Agreement by the Seller, nor the consummation of
the transactions contemplated hereby by the Seller, will (A) violate
any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or (B)
except as set forth in Section 3(a) of the Disclosure Schedule,
conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement
to which the Seller is a party or by which it is bound or to which
any of its assets is subject.
(iii) Broker's Fees. Except for fees payable to DeBellas
& Co., Inc., Seller has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(iv) Investment. The Seller is not acquiring Buyer's
Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(v) SSC Shares. The Seller holds of record and owns
beneficially the number of SSC Shares set forth next to its name in
Section 4(b) of the Disclosure Schedule, and except as set forth in
Section 4(b) of the Disclosure Schedule, such SSC Shares are free
and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws),
claims, Taxes, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities, and demands. Except as set
forth in Section 4(b) of the Disclosure Schedule, the Seller is not
a party to (or has otherwise waived all rights under) any option,
warrant, right, contract, call, put, or other agreement or
commitment providing for the disposition or acquisition of any
capital stock of SSC (other than this Agreement). The Seller is not
a party to (or has otherwise terminated) any voting trust, proxy, or
other agreement or understanding with respect to the voting of any
capital stock of SSC.
(vi) Disclosure. The representations and warranties
contained in this Section 3(a) as amended, modified and/or
supplemented by Annex III do not contain any untrue statement of a
fact or omit to state any Material fact necessary in
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order to make the statements and information contained in this
Section 3(a) not misleading.
(b) Representations and Warranties of the Buyer and Newco. The
Buyer and Newco represent and warrant to the Sellers that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex IV
attached hereto.
(i) Organization of the Buyer and Newco. Each of the
Buyer and Newco is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation. The Buyer has delivered to Sellers correct and
complete copies of the charter and bylaws of Buyer and Newco (as
amended to date). Neither Buyer nor Newco is in default under or in
violation of its charter or bylaws.
(ii) Authorization of Transaction. Each of the Buyer and
Newco has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and to perform
its obligations hereunder and this Agreement has been duly executed
and delivered by the Buyer and Newco. This Agreement constitutes the
valid and legally binding obligation of the Buyer and Newco,
enforceable in accordance with its terms and conditions except for
the Equitable Exceptions. Neither the Buyer nor Newco needs to give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement
(other than as provided for in Article 2 of this Agreement).
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement by the Buyer or Newco, nor the
consummation of the transactions contemplated hereby by the Buyer or
Newco, will (A) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which the Buyer
is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the
Buyer or Newco is a party or by which it is bound or to which any of
its assets is subject and which has a Material adverse effect on
Buyer.
(iv) Brokers' Fees. Neither Newco nor the Buyer has any
Liability or obligation to pay any fees or commissions to any
broker, finder, or agent
-14-
with respect to the transactions contemplated by this Agreement for
which the Sellers could become liable or obligated.
(v) Investment. Neither Newco nor the Buyer is acquiring
SSC Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(vi) Buyer's and Newco's Capitalization. The authorized
capital stock of Buyer consists of (a) 53,000,000 shares of common
stock, (b) 96,621 shares of Class A preferred stock, and (c) 11,580
shares of the Class B preferred stock. The issued and outstanding
shares of and the holders of record of the Common Stock and of the
Class A Preferred Stock are as set forth in Annex II, and as of the
date hereof, there are no issued and outstanding shares of Class B
Preferred Stock. All of the Buyer's issued and outstanding Buyer
Shares have been duly authorized, are validly issued, fully paid,
and nonassessable. The authorized capital stock of Newco consists of
1,000 shares of common stock, of which 1,000 are issued and
outstanding. All of the issued and outstanding shares of Newco
capital stock have been authorized, are validly issued, fully paid
and nonassessable, and are held of record by Buyer.
(vii) Financial Statements. Attached hereto as Exhibit B
are the following Buyer financial statements (collectively the
"Financial Statements"): unaudited consolidated balance sheet and
statement of income and changes in stockholder's equity as of and
for the six month period ended June 30, 1998 for Buyer. The
Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered
thereby, are correct and complete, fairly present the financial
condition of Buyer as of such dates, and are consistent with the
books and records of Buyer (which books and records are correct and
complete), subject to normal adjustments upon audit and the absence
of footnotes.
(viii) Undisclosed Liabilities. Except as set forth on
Section 3(b)(viii) of the Disclosure Schedule hereto, Buyer does not
have any Material Liability (and there is no Basis for any present
or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Buyer giving rise to any
Liability, including, without limitation, Liability under the Fair
Labor Standards Act of 1938, as amended and the rules and
regulations promulgated thereunder) which is individually in excess
of $5,000, except for (i) Liabilities set forth on the face of
Buyer's June 30, 1998 Balance Sheet, and (ii) Liabilities described
on Schedule 3(b)(viii) of the Disclosure Schedule and (iii)
Liabilities which have arisen after June 30, 1998 in the Ordinary
Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose
out of any charge, complaint, action, suit, proceedings, hearing,
investigation, claim, or demand).
-15-
(ix) Tangible Assets. Buyer owns or leases substantially
all tangible assets necessary for the conduct of its businesses as
presently conducted and as presently proposed to be conducted. To
the Knowledge of the Buyer, each such tangible asset is free from
Material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(x) Litigation. Section 3(b)(x) of the Buyer's
Disclosure Schedule sets forth each instance in which Buyer (i) is
subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge or (ii) is a party or, to the Knowledge of the
Buyer, is threatened to be made a party to any charge, complaint,
action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
Except as specifically described on Section 3(b)(x) of the
Disclosure Schedule, no matter listed thereon could reasonably be
expected, individually, to result in a Material adverse effect to
Buyer. Buyer has no reason to believe that any such charge,
complaint, action, suit, proceeding, hearing, or investigation may
be brought or threatened against Buyer.
(xi) Guaranties. Buyer is not a guarantor nor is it
otherwise liable for any Liability or obligation (including
indebtedness) of any other person other than such potential
liabilities to which Buyer is subject based on the acts or omissions
of its employees, subcontractors and other agents performing
services for Buyer in the Ordinary Course of Business (of which
Buyer has no Knowledge of any claim for actual liability therefor).
(xii) Environment, Health, and Safety.
(A) To the Knowledge of the Buyer, Buyer has
complied in all Material respects with all laws (including
rules and regulations thereunder) of federal, state, local,
and foreign governments (and all agencies thereof) concerning
the environment, public health and safety, and employee health
and safety, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice
has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation.
(B) Buyer has no Liability (and to the Knowledge
of the Buyer there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against SSC giving rise to any
Liability) under the Occupational Safety and Health Act, as
amended, or any other law (or rule or regulation thereunder)
of any federal, state, local, or foreign government (or agency
thereof) concerning employee health and safety.
-16-
(C) To the Knowledge of the Buyer, Buyer does not
have any Material Liability (and Buyer has not exposed any
employee to any substance or condition that could form the
Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand
(under the common law or pursuant to statute) against Buyer
giving rise to any Liability) for any illness of or personal
injury to any employee.
(D) To the Knowledge of the Buyer, Buyer has
obtained and been in compliance in all Material respects with
all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and has
complied in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all federal, state, local, and foreign laws
(including rules, regulations, codes, plans, judgments,
orders, decrees, stipulations, injunctions, and charges
thereunder) relating to public health and safety, worker
health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharge,
releases, or threatened releases of pollutants, contaminants,
or chemical, industrial, hazardous, or toxic materials or
wastes into ambient air, surface water, ground water, or lands
or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
(xiii) Legal Compliance. Except as it would not,
individually or in the aggregate, have a Material adverse effect:
(A) Buyer has complied with all laws (including
rules and regulations thereunder) of federal, state, local,
and foreign governments (and all agencies thereof). No charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against
Buyer which is currently pending and alleges any failure to
comply with any such law or regulation
(B) Buyer has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor (including but not limited to the
engagement of independent contractors under the Fair Labor
Standards Act of 1938, as amended, and the rules and
regulations promulgated thereunder), employee civil rights,
hiring of engaging non-United States citizens, and equal
employment opportunities.
(C) To the Knowledge of the Buyer, Buyer has not
violated in any respect or received a notice or charge
asserting any violation
-17-
of the ▇▇▇▇▇▇▇ Act, the ▇▇▇▇▇▇▇ Act, the ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Act,
or the Federal Trade Act, each as amended.
(D) Buyer has not:
(1) made or agreed to make any contribution,
payment, or gift of funds or property to any
governmental official, employee, or agent where either
the contribution, payment, or gift or the purpose
thereof was illegal under the laws of any federal,
state, local, or foreign jurisdiction;
(2) established or maintained any unrecorded
fund or asset for any purpose, or made any false entries
on any books or records for any reason; or
(3) made or agreed to make any contribution,
or reimbursed any political gift or contribution made by
any other person, to any candidate for federal, state,
local, or foreign public office in excess of $500.
(E) To the Knowledge of the Buyer, Buyer has filed
in a timely manner all reports, documents, and other materials
it was required to file (and the information contained therein
was correct and complete in all respects) under all applicable
laws (including rules and regulations thereunder).
(F) Buyer has possession of all records and
documents it was required to retain under all applicable laws
(including rules and regulations thereunder).
(xiv) Disclosure. To the Knowledge of Buyer, the
representations and warranties contained in this Section 3(b) as
amended, modified and/or supplemented by Annex IV do not contain any
untrue statement of a fact or omit to state any Material fact
necessary in order to make the statements and information contained
in this Section 3(b) not misleading.
4. Representations and Warranties Concerning SSC. The Sellers
jointly and severally represent and warrant to the Buyer that, subject to the
specific qualifications and limitations set forth herein, the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule delivered by the Sellers to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). The Disclosure Schedule may be
updated one or more times prior to the Closing Date. Any updated Disclosure
Schedule shall be delivered at or before the Closing. In the event any such
updated Disclosure Schedule indicates a material adverse change from information
previously provided to the Buyer, Buyer shall
-18-
be entitled to terminate this Agreement (without any liability whatsoever to
SSC) by written notice delivered to SSC following receipt of such updated
Disclosure Schedule. An event or matter that causes any representation or
warranty contained in this Section to be inaccurate, incorrect or false will not
be deemed to be "Material," to have a "Material" change in or in respect of, to
have a "Material" adverse effect or to be "Materially" affected unless the loss
that may reasonably be expected to occur to SSC with respect to such event or
matter, when taken together with all other related losses that may reasonably be
expected to occur to SSC as a result of any such events or matters, would exceed
$50,000 in the aggregate or unless such event or matter constitutes a criminal
violation of law. For purposes of this paragraph, the word "loss" shall mean any
and all direct or indirect payments, obligations, assessments, losses, losses of
income, liabilities, costs and expenses paid or incurred, or reasonably likely
to be paid or incurred, or diminution's in value or reduction in benefits or
rights of any kind or character (whether or not known or asserted before the
date of this Agreement, fixed or unfixed, conditional or unconditional, ▇▇▇▇▇▇
or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise) that are reasonably likely to occur,
including without limitation, penalties, interest on any amount payable to a
third party as a result of the foregoing, and any reasonable legal or other
expenses reasonably expected to be incurred in connection with defending any
demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). A Customer Contract or Agreement is "Material" if during either
calendar year 1998 such Customer Contract or Agreement produced or is expected
to produce $150,000 of Net Service Revenues. Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail as the context requires. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
(a) Organization, Qualification, and Corporate Power. SSC is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. Except as disclosed in Section
4(a) of the Disclosure Schedule, SSC is duly authorized to conduct business and
is in good standing under the laws of the State of Michigan, which is the only
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification. SSC has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. Section 4(a) of the Disclosure Schedule
lists the directors and officers of SSC. The Sellers have delivered to the Buyer
correct and complete copies of the charter and bylaws of SSC (as amended to
date). The minute books containing the records of meetings and/or resolutions of
the stockholders, the board of directors, and any committees of the board of
directors, the stock certificate books and the stock record books of SSC are
correct and complete in all Material respects. SSC is not in default under or in
violation of any provision of its charter or bylaws.
-19-
(b) Capitalization. The entire authorized capital stock of SSC
consists of 10,000,000 shares of common stock, of which 5,667,000 are issued and
outstanding, 48,000 are subject to issuance pursuant to vested options, 178,000
are subject to issuance pursuant to unvested options and 924,000 are reserved
for issuance pursuant to future option grants. All of the issued and outstanding
SSC Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Sellers except as set forth in
Section 4(b)-1 of the Disclosure Schedule. Except as set forth in Section 4(b)-2
of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which SSC is a party or which are
binding upon SSC providing for the issuance, disposition, or acquisition of any
of its capital stock. Except as set forth in Section 4(b)-3 of the Disclosure
Schedule, there are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to SSC. There are no voting trusts,
proxies, or any other agreements or understandings with respect to the voting of
the capital stock of SSC.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which SSC is subject or any provision of the
charter or bylaws of SSC, except to the extent any such violation does not or
could not result in a Material adverse effect on SSC, or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement to which SSC
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets) except
to the extent any such conflict or breach or default does not result in a
Material adverse effect on SSC. SSC does not need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Subsidiaries. SSC has no Subsidiaries.
(e) Financial Statements. Attached hereto as Exhibit B are the
following SSC financial statements (collectively the "Financial Statements"):
consolidated audited balance sheet and statement of income, changes in
stockholder's equity, and cash flow as of and for the fiscal years ended
December 31, 1995 and 1996 and consolidated audited balance sheet and statement
of income, changes in stockholder's equity, and cash flow as of and for the
fiscal year ended December 31, 1997 (the "Most Recent Fiscal Year End") and an
unaudited consolidated balance sheet and statement of income, changes in
stockholder's equity, and cash flow as of and for the six month period ended
June 30, 1998 for SSC (the "Stub Period End"). The Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, are correct and complete, fairly present the
financial condition of SSC as of such dates, and are consistent with the books
and records of SSC (which
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books and records are correct and complete), subject, in the case of the Stub
Period Financial Statements, to normal adjustments upon audit.
(f) Events Subsequent to the Most Recent Fiscal Year End.
Since December 31, 1997, except as set forth on the Disclosure Schedule, there
has not been any Material adverse change in the assets, Liabilities, business,
financial condition, operations, results of operations, or future prospects of
SSC. Without limiting the generality of the foregoing since that date except as
set forth on the Disclosure Schedule:
(i) SSC has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) SSC has not entered into any contract, lease,
sublease, license or sublicense (or series or related contracts,
leases, subleases, licenses and sublicenses) outside the Ordinary
Course of Business;
(iii) SSC has not accelerated, terminated, modified, or
canceled any contract, lease, sublease, license or sublicense (or
series of related contracts, leases, subleases, licenses and
sublicenses) to which SSC is a party or by which it is bound other
than in the Ordinary Course of Business;
(iv) no party has notified SSC of any acceleration,
termination modification or cancellation of any outstanding Customer
Contract or any other contract, agreement, lease, sublease, license
or sublicense (or series of related contracts, leases, subleases,
licenses and sublicenses), other than in the Ordinary Course of
Business;
(v) SSC has not imposed any Security Interest upon any
of its Material assets, tangible or intangible;
(vi) Except as set forth in Section 4(f) - (vi) of the
Disclosure Schedule, SSC has not made any capital expenditure (or
series of related capital expenditures) involving more than $50,000
in the aggregate, or outside the Ordinary Course of Business;
(vii) SSC has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other
person (or series of related capital investments, loans, and
acquisitions) involving more than $35,000 in the aggregate;
(viii) SSC has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease
obligations) involving more than $30,000 individually or in the
aggregate or outside the Ordinary Course of Business;
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(ix) SSC has not delayed or postponed (beyond its normal
practice) the payment of any accounts payable and other Liabilities;
(x) SSC has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $25,000 or outside the Ordinary Course of
Business;
(xi) SSC has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property except
any such license or sublicense as was granted in the Ordinary Course
of Business as "work for hire" under Customer Contracts and
Agreements;
(xii) there has been no change made or authorized in the
charter or bylaws of SSC, other than in connection with this
Agreement and the transactions contemplated hereby;
(xiii) except as set forth in Section 4(f) - (xiii) of
the Disclosure Schedule, SSC has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon
conversion or exercise) any of its capital stock;
(xiv) except as set forth in Section 4(f) - (xiv) of the
Disclosure Schedule, SSC has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock nor
redeemed, purchased, or otherwise acquired any of its capital stock;
(xv) SSC has not made any consulting or other payment to
the Sellers other than in the Ordinary Course of Business;
(xvi) SSC has not experienced any damage, destruction or
loss involving more than $35,000 (whether or not covered by
insurance) to its property;
(xvii) SSC has not made any loan to, or entered into any
other transaction with, any of its officers, directors or employees
(who are not Sellers) outside the Ordinary Course of Business giving
rise to any claim or right on its part against the person or on the
part of the person against it;
(xviii) SSC has not made any loan to, or entered into
any other transaction with, any of the Sellers other than in the
Ordinary Course of Business giving rise to any claim or right on its
part against the person or on the part of such person against it;
(xix) SSC has not entered into any employment contract
other than in the Ordinary Course of Business or collective
bargaining agreement, written or oral, or modified in any material
respect the terms of any existing such contract or
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agreement with any of its full-time staff employees other than in
the Ordinary Course of Business;
(xx) SSC has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees (other than the Sellers);
(xxi) SSC has not granted an increase in the base
compensation, nor has SSC made any payments or promises or
commitments to pay to any of the Sellers to make any other payments
(other than salary and reimbursement of customary expenses) to any
of the Sellers, including without limitation bonuses other than in
the Ordinary Course of Business;
(xxii) SSC has not other than in the Ordinary Course of
Business adopted any (A) bonus, (B) profit-sharing, (C) incentive
compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H)
other plan, contract or commitment for any of its directors,
officers, and employees, or modified or terminated any existing such
plan, contract or commitment;
(xxiii) SSC has not made any other change in employment
terms for any of its directors, officers, and full-time staff
employees other than in the Ordinary Course of Business;
(xxiv) SSC has not made or pledged to make any Material
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxv) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving SSC; and
(xxvi) SSC has not entered into any agreement committing
to any of the foregoing.
(g) Undisclosed Liabilities. Except as set forth on Section
4(g) of the Disclosure Schedule hereto, SSC does not have any Liability (and
there is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against SSC giving rise to
any Liability, including, without limitation, Liability under the Fair Labor
Standards Act of 1938, as amended and the rules and regulations promulgated
thereunder) which is individually in excess of $5,000, except for (i)
Liabilities set forth on the face of the Stub Period 1998 Balance Sheet, (ii)
Liabilities described on Schedule 4(g) of the Disclosure Schedule and (iii)
Liabilities which have arisen after the Stub Period End in the Ordinary Course
of Business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
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(h) Tax Matters. Except as set forth on Exhibit 4(h) of the
Disclosure Schedule,
(i) SSC has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by SSC (whether or not shown on any Tax
Return) based on operations through the Stub Period End have been
paid or accrued on the Stub Period Balance Sheet. SSC currently is
not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by any taxing authority
in a jurisdiction where SSC does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of SSC that arose in
connection with any failure (or alleged failure) to pay any Tax,
other than for Taxes that are not yet due which are accrued for
since the Most Recent Fiscal Year End.
(ii) SSC has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor, or other third
party and SSC has properly reflected the status of all employees and
independent contractors in connection therewith as required by
applicable Tax law and the Fair Labor Standards Act of 1938, as
amended, and the rules and regulations promulgated thereunder.
(iii) Neither Sellers nor any of the officers of SSC
have received, nor do any of them expect to receive, any notice that
any taxing authority intends to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability of SSC either (A) claimed or
raised by any authority in writing or (B) as to which the Sellers or
the officers of SSC or employees responsible for Tax matters of SSC
have Knowledge based upon personal contact with any agent of such
authority. Section 4(h) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with
respect to SSC for taxable periods ended on or after December 31,
1990, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit.
The Sellers have delivered to the Buyer correct and complete copies
of all federal income Tax Returns filed, examination reports
received, and statements of deficiencies assessed against or agreed
to, by SSC since December 31, 1990.
(iv) SSC has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
(v) SSC has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. SSC has not made any payments,
is not obligated to make any payments, nor is a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible to SSC under Code Sec.
280G. SSC has not been a United States real property
-24-
holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). SSC
has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662. SSC is not
a party to any Tax allocation or sharing agreement. SSC has never
been (nor has any Liability for unpaid Taxes because it once was) a
member of an Affiliated Group filing a consolidated federal income
Tax Return and has never incurred any Liability for the Taxes of any
Person under Treas. Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise, during any part of any consolidated return
year within any part of which consolidated return year also was a
member of the Affiliated Group.
(vi) Section 4(h) of the Disclosure Schedule sets forth
the following information with respect to SSC as of the most recent
practicable date (as well as on an estimated pro forma basis as of
the Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to SSC; and (B) the
amount of any deferred gain or loss allocable to SSC arising out of
any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of SSC through the Stub Period
End do not exceed the reserve for Tax Liability set forth on the
face of the Stub Period Balance Sheet.
(i) Tangible Assets. SSC owns or leases substantially all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. To the Knowledge of the
Sellers, each such tangible asset is free from Material defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(j) Owned Real Property. SSC does not own nor does it have any
interest in any real property or improvements thereon (other than the leases
disclosed in Section 4(j) of the Disclosure Schedule, and the leasehold
improvements relating to the same) nor does SSC have any options, agreements or
contracts under which it has the right or obligation to acquire any interest in
any real property or improvements (other than as disclosed in Section 4(j) of
the Disclosure Schedule)
(k) Intellectual Property.
(i) Attached hereto as Section 4(k) of the Disclosure
Schedule is a list and brief description of all Intellectual
Property owned or utilized by SSC. SSC has furnished Buyer with
copies of all license agreements to which SSC is a party, either as
licensor or licensee, with respect to any Intellectual Property. SSC
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has good title to or the right to use all the Intellectual Property
and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of the SSC's business, in its
business as presently conducted or currently proposed to be
conducted without the payment of any royalty or similar payment, and
SSC is not infringing on any Intellectual Property right of others,
and neither SSC nor Sellers have Knowledge of any infringement by
others of any such rights owned by SSC.
(ii) All licenses set forth on Section 4(k) of the
Disclosure Schedule are valid and binding obligations of SSC, and to
the Knowledge of the Sellers and SSC, of the other parties thereto,
and enforceable against SSC, and to the Knowledge of the Sellers and
SSC, the other parties thereto in accordance with their respective
terms, except for the Equitable Exceptions. SSC owns and possesses
all right, title and interest in and to, or has the right to use
pursuant to a valid license, all Intellectual Property necessary for
the operation of the business of SSC as presently conducted.
(iii) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or
participated in the conception and development of any Intellectual
Property have executed the nondisclosure agreements the current form
of which is set forth in Section 4(k) of the Disclosure Schedule and
either (1) have been party to a written agreement with SSC that has
accorded SSC full, effective, exclusive and original ownership of
all material Intellectual Property, or (2) have executed appropriate
instruments of assignment in favor of SSC as assignee that have
conveyed to SSC full, effective, and exclusive ownership of all
material Intellectual Property.
(iv) The Sellers have also delivered to the Buyer
correct and complete samples or copies of all trademarks, service
marks, trade names, copyrights, patents, registrations and, as
relate to the foregoing, applications, licenses, agreements, and
permissions (as amended to date) held by SSC, and have made
available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if
applicable) of each such item. With respect to each item of
Intellectual Property used in, or otherwise necessary for the
conduct of, the business of SSC as heretofore conducted: (A) the
identified owner possesses all right, title, and interest in and to
the item; (B) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge; (C) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim,
or demand is pending or, to the Knowledge of any of the Sellers or
officers (and employees with responsibility for Intellectual
Property matters) of SSC, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item;
and (D) SSC has not agreed to indemnify any person or entity for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
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(v) SSC has been making and will continue to make
diligent and good faith efforts to ensure that none of the Material
computer software, computer firmware, computer hardware (whether
general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or
relied on by SSC in the conduct of its business will in any Material
respect malfunction, cease to function, generate incorrect data, or
produce incorrect results when processing, providing, and/or
receiving (i) date-related data into and between the twentieth and
twenty-first centuries and (ii) date-related data in connection with
any valid date in the twentieth and twenty-first centuries.
(l) Real Property Leases. Section 4(l) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
SSC. The Sellers have delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 4(l) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section 4(l)
of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable
Exceptions;
(ii) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms immediately following the Closing;
(iii) SSC is not and, to the Knowledge of Sellers, no
other party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(iv) SSC has not, and to the Knowledge of the Sellers no
other party to the lease or sublease has, repudiated any provision
thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) SSC has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold; and
(vii) to the Knowledge of SSC and the Sellers after due
inquiry, all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations.
-27-
(m) Contracts. Section 4(m) of the Disclosure Schedule lists
the following contracts, agreements, Customer Contracts or Agreements and other
written arrangements to which SSC is a party:
(i) any written agreement (or group of related written
agreements) for the lease of personal property from or to third
parties providing for lease payments in excess of $35,000 per annum;
(ii) any written agreement (or group of related written
agreements) for the furnishing or receipt of services which SSC
reasonably projects will involve more than the sum of $150,000 per
annum;
(iii) any written agreement concerning a partnership or
joint venture;
(iv) any written agreement (or group of related written
agreement) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than
$35,000 or under which it has imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
(v) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees or
subcontractors in the Ordinary Course of Business;
(vi) any written arrangement with any of its directors,
officers, or employees, or any of its Affiliates other than standard
contracts for service as employees or subcontractors in the Ordinary
Course of Business; and
(vii) any other written arrangement (or group of related
written arrangements) either involving more than $150,000 per annum
or not entered into in the Ordinary Course of Business.
The Sellers have delivered to the Buyer a correct and complete copy
of each written arrangement listed in Section 4(m) of the Disclosure Schedule
(as amended to date). With respect to each written arrangement so listed: (A)
the written arrangement is legal, valid, binding, enforceable, and in full force
and effect, subject to the Equitable Exceptions; (B) except as set forth in
Section 4(m) of the Disclosure Schedule, the written arrangement will continue
to be legal, valid, binding, enforceable and in full force and effect on
identical terms immediately following the Closing; subject to Equitable
Exceptions, (C) SSC is not, nor to the Knowledge of Sellers is any other party,
in breach or default, and no event has occurred which to the Knowledge of the
Sellers with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (D) SSC has not, nor to the Knowledge of Sellers has any other
party, repudiated any provision of the written arrangement. SSC is not a party
to any oral contract, agreement, or other arrangement which, if reduced to
written form, would be required to be listed in Section 4(m) of the Disclosure
Schedule under the
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terms of this Section 4(m). Except as set forth in Section 4(m) of the
Disclosure Schedule, to the knowledge of SSC and the Sellers, no unfilled
Customer Contract or Agreement obligating SSC to perform services will result in
a loss to SSC upon completion of performance. Except as set forth in Section
4(m) of the Disclosure Schedule, SSC has not been notified that any of its
customers intends either to dispute charges under or to terminate early a
Material Customer Contract or Agreement.
(n) Notes and Accounts Receivable. All notes and accounts
receivable of SSC are reflected properly on its books and records, are valid
receivables and to the Knowledge of Sellers and SSC are subject to no setoffs or
counterclaims, are presently current and collectible, and will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Stub Period Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of SSC.
(o) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of SSC.
(p) Insurance. Section 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which SSC has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past two (2) years:
(i) the name address and telephone number of the agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope and amount (including a description of
how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any material retroactive premium
adjustments or other loss sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect; (B) the policy
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms immediately following the Closing Date; (C) SSC is not
in breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
modification, or acceleration under the policy; and (D) SSC has not and to the
Knowledge of Sellers and SSC, no other party to the policy has repudiated any
provision thereof. SSC has been covered during the past three years by
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insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Except as set forth in
Section 4(p) of the Disclosure Schedule, SSC currently has no and has never had
any self-insurance arrangements.
(q) Litigation. Section 4(q) of the Disclosure Schedule sets
forth each instance in which SSC (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of the Sellers and the directors and officers (and employees with
responsibility for litigation matters) of SSC, is threatened to be made a party
to any charge, complaint, action, suit, proceeding, hearing, or investigation of
or in any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as
specifically described on Section 4(q) of the Disclosure Schedule, no matter
listed thereon could reasonably be expected, individually, to result in a
Material adverse effect to SSC. Neither the Sellers nor any of the directors or
the officers (or employees with responsibility for litigation matters) of SSC
has any reason to believe that any such charge, complaint, action, suit,
proceeding, hearing, or investigation may be brought or threatened against SSC.
(r) Employees. To the Knowledge of the Sellers and SSC, no key
employee or full-time group of employees has any plans to terminate employment
with SSC. SSC is not a party to or bound by any collective bargaining agreement,
nor has it experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. SSC has not committed any
unfair labor practice. None of the Sellers nor any officer of SSC has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of SSC.
(s) Employee Benefits. Section 4(s) of the Disclosure Schedule
lists all Employee Benefit Plans that SSC maintains or to which SSC contributes
for the benefit of any current or former employee of SSC.
(i) Each Employee Benefit Plan (and each related trust
or insurance contract) complies in form and in operation in all
respects with the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions, if any,
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met with respect to each Employee
Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each Employee Pension
Benefit Plan or accrued in accordance with the past custom and
practice of SSC. All premiums or other payments which are due for
all periods ending on or
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before the Closing Date have been paid with respect to each Employee
Welfare Benefit Plan.
(iv) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a) and has received a currently valid and
favorable determination letter from the Internal Revenue Service,
and that nothing has occurred since the receipt of such letter that
would materially affect the tax qualified status of each such
Employee Pension Benefit Plan.
(v) The market value of assets under each Employee
Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of Liabilities thereunder (determined on
an accumulated benefit obligation basis) as of the last day of the
most recent plan year. No Employee Pension Benefit Plan (other than
any Multiemployer Plan) has been completely or partially terminated
or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to
terminate any Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or, to the Knowledge of the
Sellers and directors and officers (and employees with
responsibility for employee benefits matters) of SSC, threatened.
(vi) There have been no Prohibited Transactions with
respect to any Employee Benefit Plan. No Fiduciary has any Liability
for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of
any Employee Benefit Plans. No charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand with respect to
the administration or the investment of the assets of any Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of the Sellers and the directors and officers (and
employees with responsibility for employee benefits matters) of SSC,
threatened. Neither the Sellers nor any of the directors or the
officers (or employees with responsibility for litigation matters)
of SSC has any Knowledge of any Basis for any such charge,
complaint, action, suit, proceeding, hearing, investigation, claim,
or demand.
(vii) The Sellers have delivered to the Buyer correct
and complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received from
the Internal Revenue Service, (C) the most recent Form 5500 Annual
Report, and (D) all related trust agreements, insurance contracts,
and other funding agreements which implement each Employee Benefit
Plan.
SSC does not contribute to, has never contributed to, nor ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan. SSC has not
incurred, and neither the Sellers nor any of the directors or the officers (or
employees with responsibility for litigation matters) of SSC has any reason to
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expect that SSC will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any Employee Pension Benefit Plan
that SSC and the Controlled Group of Corporations which includes SSC maintains
or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute. SSC does not maintain, nor
has it ever maintained or contributed to, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing health, accident, or
life insurance benefits to former employees, their spouses, or their dependents
(other than in accordance with Code Sec. 162(k)).
(t) Guaranties. SSC is not a guarantor nor is it otherwise
liable for any Liability or obligation (including indebtedness) of any other
person other than such potential liabilities to which SSC is subject based on
the acts or omissions of its employees, subcontractors and other agents
performing services for SSC in the Ordinary Course of Business (of which SSC has
no Knowledge of any claim for actual liability therefor).
(u) Environment, Health, and Safety.
(i) To the Knowledge of the Sellers, SSC and its
Affiliates have complied in all Material respects with all laws
(including rules and regulations thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning
the environment, public health and safety, and employee health and
safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply with any such law
or regulation.
(ii) SSC has no Liability (and to the Knowledge of the
Sellers there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim,
or demand against SSC giving rise to any Liability) under the
Occupational Safety and Health Act, as amended, or any other law (or
rule or regulation thereunder) of any federal, state, local, or
foreign government (or agency thereof) concerning employee health
and safety.
(iii) To the Knowledge of the Sellers, SSC does not have
any Material Liability (and SSC has not exposed any employee to any
substance or condition that could form the Basis for any present or
future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
statute) against SSC giving rise to any Liability) for any illness
of or personal injury to any employee.
(iv) To the Knowledge of the Sellers, SSC has obtained
and been in compliance in all material respects with all of the
terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied in all
material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal,
state, local, and foreign laws (including rules, regulations, codes,
plans, judgments, orders, decrees, stipulations, injunctions, and
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charges thereunder) relating to public health and safety, worker
health and safety, and pollution or protection of the environment,
including laws relating to emissions, discharge, releases, or
threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient
air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
(v) Legal Compliance. Except as it would not, individually or
in the aggregate, have a Material adverse effect:
(i) SSC has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign
governments (and all agencies thereof). No charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against SSC which is currently
pending and alleges any failure to comply with any such law or
regulation.
(ii) SSC has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor (including but not limited to the engagement of
independent contractors under the Fair Labor Standards Act of 1938,
as amended, and the rules and regulations promulgated thereunder),
employee civil rights, hiring of engaging non-United States
citizens, and equal employment opportunities.
(iii) To the Knowledge of the Sellers, SSC has not
violated in any respect or received a notice or charge asserting any
violation of the ▇▇▇▇▇▇▇ Act, the ▇▇▇▇▇▇▇ Act, the ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇
Act, or the Federal Trade Act, each as amended.
(iv) SSC has not:
(A) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent where either the contribution,
payment, or gift or the purpose thereof was illegal under the
laws of any federal, state, local, or foreign jurisdiction;
(B) established or maintained any unrecorded fund
or asset for any purpose, or made any false entries on any
books or records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local, or
foreign public office in excess of $500.
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(v) To the Knowledge of the Sellers, SSC has filed in a
timely manner all reports, documents, and other materials it was
required to file (and the information contained therein was correct
and complete in all respects) under all applicable laws (including
rules and regulations thereunder).
(vi) SSC has possession of all records and documents it
was required to retain under all applicable laws (including rules
and regulations thereunder).
(w) Certain Business Relationships with SSC. Except as set
forth in Section 4(w) of the Disclosure Schedule, neither the Sellers nor its
Affiliates has been involved in any business arrangement or relationship with
SSC within the past twelve (12) months other than service relationships in the
Ordinary Course of Business, and neither the Sellers nor its Affiliates owns any
material property or right, tangible or intangible, which is used in the
business of SSC.
(x) Brokers' Fees. Except for payments to DeBellas & Co.,
Inc., which shall be deemed to be Funded Indebtedness, SSC does not have any
Liability or obligation to pay any fees or commissions to any broker, finder, or
similar representative with respect to the transactions contemplated by this
Agreement.
(y) Disclosure. To the Knowledge of the Sellers, the
representations and warranties contained in this Section 4 as amended, modified
and/or supplemented by the Disclosure Schedules do not contain any untrue
statement of a fact or omit to state any Material fact necessary in order to
make the statements and information contained in this Section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect
to the period between the execution of this Agreement and the Closing or the
earlier termination of this Agreement.
(a) General. Each of the Parties will use its reasonable
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 7 below).
(b) Notices and Consents. Each of the Parties will (and the
Sellers will cause SSC to) give any notices to third parties, and will use best
efforts to obtain third party consents, that the other Party may reasonably
request in connection with matters disclosed or required to be disclosed in the
Disclosure Schedule. Each of the Parties will take any additional action (and
the Sellers will cause SSC to take any additional action) that may be necessary,
proper, or advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that he, she or it may be required to give, make, or obtain.
(c) Operation of Business. Except as contemplated hereby, or
as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set
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forth herein or in the Disclosure Schedule, neither Party will (and Sellers will
not cause or permit SSC to) engage in any practice, take any action, embark on
any course of inaction, or enter into any transaction outside the Ordinary
Course of Business.
(d) Preservation of Business. Except as contemplated hereby,
or as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set forth herein or in the Disclosure Schedule, the
Sellers will cause SSC to use reasonable commercial efforts to keep its business
and properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
(e) Access.
(i) Only in the event that neither Buyer or Sellers
exercised its right to terminate this Agreement as provided in
Section 9 herein, each Party will permit, (and the Sellers will
cause SSC) to permit, representatives of the other Party to have
access at reasonable times, and in a manner so as not to interfere
with the normal business operations of such Party, to the
headquarters of such Party and to all books, records, contracts, Tax
records, and documents of or pertaining to such Party; provided,
however, that Buyer shall direct all requests for information and
material only through Sellers' Representative, unless otherwise
agreed to by Buyer and Seller's Representative in writing.
(ii) Buyer shall proceed to arrange with the Sellers a
mutually agreeable time and place at which Buyer may conduct
interviews with key employees and/or customers of SSC mutually
agreed to by Buyer and the Sellers' Representative.
(f) Notice of Developments; Delivery of Disclosure Schedules.
Each Party will give prompt written notice to the other Party of any Material
development affecting the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of such Party. Each Party
will give prompt written notice to the others of any Material development
affecting the ability of the Parties to consummate the transactions contemplated
by this Agreement. The Parties understand that the Disclosure Schedule has not
been delivered by Sellers as of the date of this Agreement. Sellers shall
deliver to Buyer the Disclosure Schedule provided in Section 4 hereof on or
prior to August 7, 1998. Upon receipt thereof, Buyer shall have five (5)
business days to accept or reject the Disclosure Schedule at Buyer's sole
discretion. In the event that Buyer rejects the Disclosure Schedule, Buyer shall
be entitled to terminate this Agreement (without any liability whatsoever to
Sellers or SSC) by written notice delivered to the Shareholders' Representative
within five (5) business days after receipt of the Disclosure Schedule. Except
for the right of the Sellers to update any Disclosure Schedule as provided in
Section 4 hereof, no disclosure by any Party pursuant to this Section 5(f) shall
be deemed to amend or supplement Annex III or the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, and/or breach of
covenant.
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(g) Exclusivity. The Sellers will not (and the Sellers will
not cause or permit SSC to) (i) solicit, initiate, or encourage the submission
of any proposal or offer from any person relating to any (A) liquidation,
dissolution, or recapitalization, (B) merger or consolidation, (C) acquisition
or purchase of securities or assets, or (D) similar transaction or business
combination involving SSC or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or seek
any of the foregoing. The Sellers will notify the Buyer immediately if any
person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
(h) Cancellation of Options, Bonus Programs and Phantom Stock
Plans. SSC shall have provided for the cancellation, at or prior to the Closing,
of all SSC stock options, deferred bonus programs or phantom equity plans. The
amounts payable for the cancellation of the SSC Options and ▇▇▇▇▇▇▇ Deferred
Compensation Agreement will be a reduction of the Cash Portion of the Purchase
Price pursuant to Section 2(h), will be funded by Buyer to SSC at Closing and
will be paid by SSC to the recipients at Closing. In conjunction with the
cancellation of such programs, all eligible employees who have not executed new
employment agreements shall have signed cancellation agreements which include
provisions that each employee will not, for a period of one year from the date
of Closing or one year from the termination of his or her employment with his or
her employer (i.e., SSC) whichever period is longer: (i) service or solicit any
customers of his or her employer, or (ii) solicit for employment any employee of
his or her employer. In addition, each of the SSC Optionholders shall have
received options at the Closing for the purchase of the Buyer's Common Stock
(the "Buyer Options") for all SSC Options which would have vested after February
1999 (the "Unvested SSC Options"). The Buyer Options shall be in an aggregate
amount equal to the number of shares of Buyer Common Stock that would have been
issued to the SSC Optionholders if all the Unvested SSC Options had become
vested as of the Closing Date. The exercise price for the Buyer Options shall be
$.1055 per share and the Buyer Options shall become exercisable by the SSC
Optionholders in accordance with the original vesting schedule for the Unvested
SSC Options, all in accordance with the terms and conditions of Buyer's stock
option plan to be adopted by Buyer prior to the Closing Date.
6. Additional Covenants. The Parties further covenant and agree as
follows:
(a) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below). The Sellers acknowledge and agree that from and after the
Closing the Buyer will be entitled to possession of all documents, books,
records, agreements, and financial data of any sort relating to SSC; provided
that Sellers may retain any copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing,
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investigation, claim, or demand in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
SSC, each of the other Parties will cooperate with him or it and his, her or its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 8 below).
(c) Transition. The Sellers will not take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licenser, customer, supplier, or other business associate of SSC from
maintaining the same business relationships with SSC after the Closing for a
period of twenty-four (24) months thereafter as it maintained with SSC prior to
the Closing. The Sellers will refer all customer inquiries relating to SSC's
Business to the Buyer and/or SSC from and after the Closing for a period of
twenty-four (24) months thereafter.
(d) Confidentiality. The Sellers will treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement for a period of three (3)
years from the Closing, and except as otherwise permitted hereunder or as may be
required by law, deliver promptly to the Buyer or destroy, at the reasonable
request and option of the Buyer, all tangible embodiments (and all copies) of
the Confidential Information which are in its possession. In the event that the
Sellers are requested or required (by request for information or documents in
any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar legal process) to disclose any Confidential Information, the Sellers
will notify the Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the provisions
of this Section 6(d). If, in the absence of a protective order or the receipt of
a waiver hereunder, the Sellers are compelled to disclose any Confidential
Information or else stand liable for contempt, then Sellers may disclose the
Confidential Information; provided, however, that the Sellers shall use their
reasonable efforts to obtain, at the reasonable request of the Buyer, an order
or other assurance that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as the Buyer shall
reasonably designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public immediately
prior to the time of disclosure.
(e) Termination of Bank Facilities; Release of Guaranties.
Sellers shall take all reasonable best efforts necessary to (i) retire all of
SSC's outstanding bank indebtedness and (ii) fully, completely and
unconditionally release and/or substitute Buyer or SSC at or prior to Closing as
guarantor for the Sellers on all banking facilities of SSC or other guarantees.
(f) Monitoring Information. Prior to the Closing each Party
shall deliver such information to the other Party as may reasonably be requested
by Buyer or Sellers.
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(g) Landlords' Consents. Sellers shall cause SSC on or before
the Closing Date to obtain from its landlords (to the extent required under the
pertinent premises lease) written consent to the assignment of all leases being
assumed by Buyer, which assignments are deemed to have resulted from the
transactions contemplated by this Agreement.
(h) Additional Tax Matters. Buyer and Sellers recognize that
each of them will need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by the Buyer and/or SSC
to the extent such records and information pertain to events occurring on or
prior to the Closing Date; therefore, Buyer agrees to cause SSC to (A) use its
best efforts to properly retain and maintain such records for a period of six
(6) years from the date the Tax Returns for the year in which the Closing occurs
are filed or until the expiration of the statute of limitations as may be
extended by law from time to time that applies to the Tax Return in question
(i.e., including Tax Returns for years preceding the year in which the Closing
occurs), whichever is later, and (B) allow the Sellers and their agents and
representatives at times and dates mutually acceptable to the Parties, to
inspect, review and make copies of such records as such other party may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the other Party's expense.
(i) Covenant Not to Compete. For a period of four (4) years
from and after the Closing Date, the Sellers' Representative will not, directly
or indirectly, as principal, agent, trustee or through the agency of any
corporation, partnership, association or agent or agency, (i) own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any activity or business competing with the Business in the United
States of America and Canada, (ii) service or solicit any of SSC's Business from
any customer of SSC, (iii) request or advise any customer of SSC to withdraw,
curtail or cancel such customer's business with SSC, or (iv) solicit for
employment any person employed by SSC at any time within the two (2) year period
immediately preceding such solicitation; provided, however, that no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses and any Seller who directly or indirectly functions in the capacity
of a general partner or similar capacity for a venture capital fund (including,
without limitation, the Enterprise Development Fund) shall not solely by reason
thereof be deemed to engage in the business of any company in which that fund is
invested. For purposes of this Agreement, the Parties have agreed to allocate
$50,000 of the Purchase Price to the covenant not to compete contained in this
Section 6(i).
(j) Right to Attend Board Meetings. Until the earlier of (i)
consummation of the Buyer's initial public offering of its common stock under
the Securities Act of 1933 or (ii) the fifth anniversary of the Closing Date,
the Sellers' Representative shall have the right to attend and to participate in
discussions (but not vote at) each meeting of the Board of Directors of the
Buyer. The Buyer shall deliver notice to the Sellers' Representative of the time
and place of each such meeting in the same manner and at the same time as it
shall send such notice to its Directors. The Buyer shall also provide to the
Sellers' Representative copies of all notices, reports, minutes and consents of
the Board of Directors and each Committee of the Board of Directors and at the
same time and manner as they are provided to its Directors. The Buyer shall
reimburse the Sellers' Representative for reasonable travel and related costs
incurred
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in attending each such meeting of the Board of Directors. The Sellers'
Representative, as a condition to such attendance and participation, shall be
subject to and shall abide by all restrictions of confidentiality and
nondisclosure as are imposed upon the Directors of the Buyer with respect to
information disclosed at any meeting of the Board of Directors or Committee of
the Buyer. As applicable, the Chairman of the Board of Directors may require
that the Sellers' Representative absent himself from part or all of any meeting
of the Board of Directors if and to the extent that the subject matter of
discussion raises questions which would present a conflict of interest for the
Sellers' Representative in his capacity as representative of the Sellers or
which addresses information which is competitively sensitive when evaluated in
light of other investments or affiliations of the Sellers' Representative.
(k) Reorganization Intent. The Parties agree that the Merger
is intended to be a tax-free reorganization under Section 368 of the Code, and
this Agreement is intended to be a "plan of reorganization" within the meaning
of the regulations promulgated under such section of the Code. None of the
Parties has taken, shall take or fail to take any action that would jeopardize
the qualification of the Merger as such a tax-free reorganization (other than
actions contemplated by this Agreement or as may be otherwise legally required).
In no event will the sum of the (i) Cash Portion of the Purchase Price, (ii) the
cash paid for fractional shares and (iii) the cash paid for Dissenting Shares in
accordance with this Agreement exceed 50% of the total consideration paid by
Buyer hereunder.
(l) Initial Public Offering. In the event of an Initial Public
Offering, the Buyer shall take all actions necessary to consummate either a
reorganization, exchange or recapitalization of its capital stock such that the
Buyer Preferred Stock issued to the Sellers is either (i) converted into Buyer
Common Stock at a conversion price equal to the liquidation value of each share
of Buyer Preferred Stock divided by the initial public offering price per share
of Buyer Common Stock or (ii) at the Buyer's option, receives the same
consideration per share paid to the holders of the Buyer's Class A Preferred
Stock. Sellers and Buyer each agree to take all necessary and desirable actions
reasonably requested by the underwriters of such Initial Public Offering in
connection with the consummation of such reorganization, exchange and/or the
recapitalization, including the obligation to vote for, consent to and raise no
objections against the Initial Public Offering and the reorganization, exchange
and/or recapitalization; provided, however, that (i) the resulting securities
reflect and are consistent with the relative rights and preferences among the
outstanding classes of securities set forth in the Buyer's Fourth Amended and
Restated Certificate of Incorporation and such recapitalization, reorganization
or exchange is otherwise fair and reasonable to the Buyer and the holders of
each class of the Buyer's equity securities taking into account each of the
relative rights and preferences; and (ii) each share of the Buyer's Class B
Preferred Stock shall receive the same consideration per share or, if an option
is provided, the same options, as the holders of the Buyer's Class A Preferred
Stock are provided in the Initial Public Offering. Prior to the Closing Date,
Buyer shall cause GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇, L.L.C. to agree to be bound by the terms
and conditions of this Section 6(l) as if it were a Party to this Agreement.
(m) Sale of Buyer. In the event of an Approved Sale (as such
term is defined in Section 5(a) of the Stockholders Agreement), the Buyer shall
take all actions necessary
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to either (a) cause the purchaser in such Approved Sale to purchase all
outstanding shares of Buyer Preferred Stock at a price per share in cash not
less than the liquidation value per share of the Buyer's Class B Preferred Stock
or (b) cause the purchaser in such Approved Sale to purchase all outstanding
shares of Buyer Preferred Stock issued to the Sellers at the same consideration
per share paid to the holders of the Buyer's Class A Preferred Stock in such
Approved Sale. Sellers and Buyer each agree to take all necessary and desirable
actions reasonably requested in order to vote for, consent to and raise no
objections against the Approved Sale; provided, however, that each share of the
Buyer's Class B Preferred Stock shall receive the same consideration per share
or, if an option is provided, the same options, as the holders of the Buyer's
Class A Preferred Stock are provided in the Approved Sale. Prior to the Closing
Date, Buyer shall cause GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇, L.L.C. to agree to be bound by the
terms and conditions of this Section 6(m) as if it were a Party to this
Agreement.
7. Conditions to Obligations to Close.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with
all of their covenants hereunder in all Material respects through
the Closing;
(iii) SSC will have procured all third party consents
and given all notices required in connection with this Agreement and
the transactions contemplated hereby, including without limitation
all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals
of governments, governmental agencies, and third parties as set
forth herein or in the Disclosure Schedule including any Filing
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own,
operate, or control SSC Shares or SSC (and no such judgment, order,
decree, stipulation, injunction, or charge shall be in effect);
(v) the Sellers shall have delivered to the Buyer a
certificate (without qualification as to knowledge or Materiality or
otherwise) to the effect that
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each of the conditions specified above in Section 7(a)(i)-(iv) is
satisfied in all respects;
(vi) the acquisition by the Buyer of SSC Shares shall
represent one hundred percent (100%) of the issued and outstanding
capital stock of SSC and all of such SSC Shares shall be free and
clear of any Security Interests or other liens, claims or
encumbrances of any nature whatsoever;
(vii) the Sellers shall have purchased any personal use
assets (e.g., automobiles) from SSC at a purchase price equal to the
greater of (A) the net book value of such assets as of the Closing
or (B) the outstanding Funded Indebtedness secured by such assets;
(viii) the Buyer shall have received from each Seller an
executed joinder to the Stockholders Agreement in the form and
substance set forth as Exhibit C attached hereto;
(ix) the Buyer and SSC shall have received from ▇▇▇▇ ▇.
▇▇▇▇▇▇▇ an executed employment agreement in the form and substance
attached hereto as Exhibit E;
(x) the Buyer shall have received from each Seller an
executed joinder to the Registration Agreement in the form and
substance set forth as Exhibit F attached hereto;
(xi) the Buyer shall have received the resignations,
effective as of the Closing, of each director of SSC prior to the
Closing and the termination of any consulting or management
agreements with EDM, Inc. or its Affiliates;
(xii) the Buyer shall be satisfied that the Net Worth of
SSC on the Stub Period End equaled or exceeded $1,900,000 or an
appropriate adjustment shall have been made to the Purchase Price as
provided in Section 2(i);
(xiii) the Buyer shall be satisfied that the Gross
Revenues of SSC during the fiscal year ended December 31, 1997
equaled or exceeded $13,297,710 and during the twelve month period
ended on the Stub Period End equaled or exceeded $14,000,000;
(xiv) the Buyer shall be satisfied that the Adjusted
EBIT of SSC during the fiscal year ended December 31, 1997 equaled
or exceeded $648,900 and during the twelve month period ended on the
Stub Period End equaled or exceeded $1,470,000;
(xv) the Buyer shall be satisfied in its sole discretion
with the results of its continuing legal, financial and business due
diligence investigations of
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SSC, all of which shall be final and completed to Buyer's
satisfaction prior to Closing;
(xvi) no material adverse change shall have occurred in
SSC's Business or its future prospects;
(xvii) Sellers shall have caused SSC to cancel each
outstanding phantom stock, deferred bonus or option plan, if any,
and all outstanding SSC Options shall have been canceled pursuant to
the Option Cancellation Agreement in the form of Exhibit I hereto
(individually a "Option Cancellation Agreement" and collectively the
"Option Cancellation Agreements"), with the cost of such
cancellation being a reduction of the Cash Portion of the Purchase
Price pursuant to Section 2(h) (such reduction to be funded by the
Buyer to SSC at the Closing and paid by SSC to the SSC Optionholders
at the Closing);
(xviii) Sellers shall have caused each party receiving
Buyer's Shares under this Agreement to execute an Equity
Subscription Agreement in the form of Exhibit D hereto;
(xix) subject to Section (7)(b)(xiii), all liens and
Security Interests securing debts of SSC which have been paid in
full prior to or at the Closing shall have been fully released of
record to the reasonable satisfaction of the Buyer and all Uniform
Commercial Code financing statements covering such debts shall have
been terminated;
(xx) no unsatisfied liens for the failure to pay Taxes
of any nature whatsoever shall exist against SSC, or against or in
any way affecting any SSC Share;
(xxi) the Sellers shall and SSC shall have caused all of
SSC's officers, directors and/or Key Employees of SSC to, have
repaid in full all debts and other obligations, if any, owed to SSC;
(xxii) the Buyer shall have received from SSC the
Financial Statements;
(xxiii) all appropriate corporate and shareholder
authorizations of SSC shall have been obtained;
(xxiv) since December 31, 1997, SSC shall have made no
dividend, consulting or other payment to the Sellers, except as set
forth on Section 4(m) of the Disclosure Schedule and bonuses as set
forth on Section 4(m) of the Disclosure Schedule;
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(xxv) except as set forth on the Disclosure Schedule,
since December 31, 1997, SSC shall not have transferred, conveyed,
disposed of and/or sold any of Material assets, except in the
Ordinary Course of Business;
(xxvi) all Intellectual Property created or developed by
any Seller and any other current employee of SSC that has been used
historically by SSC or is being used currently by SSC (other than
"work for hire" which has been developed by SSC for a customer and
continues to be used by SSC in the performance of continuing
services for that customer) shall be one hundred percent (100%)
owned by SSC as of the Closing Date;
(xxvii) the Buyer and Newco shall have received from the
Sellers an opinion of counsel in the form and substance set forth as
Exhibit G hereto; and
(xxviii) at least ninety-five percent (95%) of all
shareholders of SSC shall have agreed to participate in the Merger
without any dissenter's rights exercised.
The Buyer may waive any condition specified in this Section 7(a) if
it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligations of the Sellers. The obligations
of the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all Material
respects at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all Material respects through the
Closing;
(iii) Buyer will have procured all third party consents
needed by Buyer and given all notices required in connection with
this Agreement and the transactions contemplated hereby, including
without limitation all action necessary in connection with and/or
the receipt of any notices to, filings with, and authorizations,
consents and approvals of governments, governmental agencies, and
third parties as set forth herein or in the Disclosure Schedule
including any filing required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act;
(iv) the Buyer shall have satisfied SSC's obligation
under the ▇▇▇▇▇▇▇ Deferred Compensation Agreement by payment of
$2,437,050 to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and by issuance of 118,225 shares of
the Buyer Common Stock to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(v) the Buyer, to the extent of the reduction in the
Cash Portion of the Purchase Price in Section 2(h)(i)(A), shall have
provided funding to SSC
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sufficient to fund the payments required to the SSC Optionholders to
satisfy and secure the cancellation of the SSC Options and shall
have issued to the SSC Optionholders the Buyer Options.
(vi) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(vii) the Buyer shall have delivered to the Sellers a
certificate (without qualification as to knowledge or Materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects;
(viii) each Seller shall have received from the Buyer an
executed joinder to the Stockholders Agreement in the form and
substance set forth as Exhibit C attached hereto;
(ix) the Buyer shall execute and deliver an Equity
Subscription Agreement in the form of Exhibit D hereto, with each of
the Sellers acquiring Buyer Shares;
(x) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall have received from the Buyer
an executed employment agreement, in the form and substance attached
hereto as Exhibit E;
(xi) the Sellers' Representative shall be satisfied in
its sole discretion with the results of its continuing legal,
financial and business due diligence investigations of Buyer,
including without limitation, the final terms and conditions of the
Buyer's Class B Preferred Stock, all of which shall be final and
completed to Buyer's satisfaction prior to Closing;
(xii) no material adverse change shall have occurred in
Buyer's Business or its future prospects;
(xiii) the Buyer shall have provided funding to SSC to
pay in full the Revolving Credit Loan with Key Bank, N.A.;
(xiv) each Seller shall have received from the Buyer an
executed joinder to the Registration Agreement in the form and
substance set forth as Exhibit F attached hereto;
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(xv) the Sellers shall have received from Buyer and
Newco an opinion of counsel in the form and substance set forth as
Exhibit H hereto; and
(xvi) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Sellers.
The Sellers' Representative may waive any condition specified in
this Section 7(b) if they execute a writing so stating at or prior to the
Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival. All of the representations and warranties of the
Sellers contained in Section 4 above (other than the representations and
warranties of the Sellers contained in Section 4(h) above) shall survive the
Closing hereunder (even if the Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of the Closing) and continue
in full force and effect for a period of two (2) years thereafter. The other
representations, warranties, and covenants of the Parties contained in this
Agreement (including the representations and warranties of the Sellers contained
in Section 4(h) above) shall survive the Closing (even if the damaged Party knew
or had reason to know of any misrepresentation or breach of warranty or covenant
at the time of the Closing) and continue in full force and effect for a period
of five (5) years thereafter, except as otherwise provided elsewhere in this
Agreement.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Sellers breach any of their
representations, warranties, agreements, and covenants contained
herein, (other than a breach by a Seller of his/her individual
representations and warranties, which are addressed in Section
(8)(b)(ii) below) and provided that the particular representation,
warranty, agreement, or covenant survives the Closing and that the
Buyer makes a written claim for indemnification against the Sellers
pursuant to Section 10(h) below within the applicable survival
period, then the Sellers agree to jointly and severally indemnify
the Buyer from and against the entirety of any Adverse Consequences
the Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may
suffer after the end of the applicable survival period resulting
from, arising out of, relating to, in the nature of, or caused by
the breach; provided, however, that the Sellers shall not have any
obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the
nature of, or caused by the breach of any representation or warranty
or covenant of Sellers in this Agreement (i) until the Buyer has
suffered aggregate losses by reason of all such breaches in excess
of a $250,000 threshold (at which point the Sellers will be
obligated to indemnify the Buyer from and against all such aggregate
indemnifiable losses including losses in excess of a $100,000
threshold) or (ii) in excess of the Purchase Price (after which
point Sellers shall have no obligation to indemnify Buyer from and
against further such Adverse Consequences); provided, further,
however, that the limitations set
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forth (a) in (i) and (ii) above specifically shall not apply to the
liability of Sellers with respect to Adverse Consequences resulting
from or attributable to intentional fraud or any willful misconduct
by the Sellers and (b) in (i) above specifically shall not apply to
the liability of Sellers with respect to any breaches of the
representations and warranties contained in Section 4(h) and Section
4(n) hereof. Notwithstanding the foregoing, the liability of each
Seller shall, in all events, be limited to the portion of the
Purchase Price actually received by such Seller (other than the
breach by a Seller of his/her individual representatives and
warranties in Section 3(a)).
(ii) In the event any Seller breaches any of its
representations and warranties, contained in Section 3(a) herein,
and provided that the particular representation, warranty, or
covenant survives the Closing and that the Buyer makes a written
claim for indemnification against such Seller pursuant to Section
10(h) below within the applicable survival period, then such Seller
agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach.
(iii) The Sellers agree to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may
suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Liability of SSC arising under Reg. ss.1.1502-6
(because SSC once was a member of an Affiliated Group during any
part of any consolidated return year within any part of which
consolidated return year any corporation other than SSC also was a
member of the Affiliated Group).
(iv) The Sellers agree to indemnify the Buyer from and
against the entirety of any transfer Taxes which may become due and
owing by reason of the transactions contemplated by this Agreement.
(v) The Sellers agree to indemnify the Buyer from and
against the entirety of any brokerage fees or investment banking
commissions due by Sellers or SSC by reason of the transactions
contemplated by this Agreement, excluding only the fees payable to
DeBellas & Co., Inc. which shall be deemed to be Funded
Indebtedness.
(vi) The Parties shall make appropriate adjustments for
tax benefits in determining the liability of the Sellers under this
Section 8.
(c) Indemnification Provisions for Benefit of the Sellers. In
the event the Buyer breaches any of its representations, warranties, and
covenants contained herein, and provided that the particular representation,
warranty, or covenant survives the Closing and that the Sellers make a written
claim for indemnification against the Buyer pursuant to Section 10(h) below
-46-
within the applicable survival period, then the Buyer agrees to indemnify the
Sellers from and against the entirety of any Adverse Consequences in excess of
$250,000 threshold (at which point the Buyer will be obligated to indemnify the
Sellers from and against all such aggregate indemnifiable losses including
losses relating back to the first dollar) the Sellers may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Sellers may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach; provided, however, that the limitation set forth above shall not
apply to the liability of Buyer with respect to Adverse Consequences resulting
from or attributable to intentional fraud or willful misconduct by the Buyer.
(d) Matters Involving Third Parties. If any third party shall
notify any Party (the "Indemnified Party") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly, which notice shall
describe the matter in reasonable detail, including relevant evidence and
estimated loss; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any liability or obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is damaged and materially prejudiced from
adequately defending such claim. In the event any Indemnifying Party notifies
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the matter that the Indemnifying party is assuming the defense
thereof, (A) the Indemnifying Party will defend the Indemnified Party against
the matter with counsel of its choice reasonably satisfactory to the Indemnified
Party, (B) the Indemnified Party may retain separate co-counsel at its sole cost
and expense (except that the Indemnifying Party will be responsible for the fees
and expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (C) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement or compromise with respect to the
matter without the written consent of the Indemnifying Party (not to be withheld
unreasonably), and (D) the Indemnifying Party will not consent to the entry of
any judgment with respect to the matter, or enter into any settlement or
compromise which does not include a provision whereby the plaintiff or claimant
in the matter releases the Indemnified Party from all Liability with respect
thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies in writing
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the matter that the Indemnifying Party is assuming the defense
thereof, however, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate. At any time after commencement of any such action, any Indemnifying
Party may request an Indemnified Party to accept a bona fide offer from the
other Party(ies) to the action for a monetary settlement payable solely by such
Indemnifying Party (which does not burden or restrict the Indemnified Party nor
otherwise prejudice him or her) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, the
Indemnifying Party shall be liable for indemnity hereunder only to the extent of
the lesser of (i) the amount of the settlement offer or (ii) the amount for
which the Indemnified Party may be liable with respect to such action. In
addition, the Party controlling the defense of any third party claim shall
deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written
-47-
statements relating to or submitted in connection with the defense of the third
party claim, and timely notices of, and the right to participate in (as an
observer) any hearing or other court proceeding relating to the third party
claim.
(e) Exclusive Remedy. The Parties acknowledge and agree that
the foregoing indemnification provisions in this Section 8 shall be the
exclusive remedy of the Parties for any breach of the representations,
warranties and covenants of the Parties contained in this Agreement.
(f) Payment; General Right of Offset. The Indemnifying Parties
shall promptly pay to the Indemnified Party as may be entitled to indemnity
hereunder in cash the amount of any Adverse Consequences to which such
Indemnified Party may become entitled to by reason of the provisions of Section
2 or Section 8 of this Agreement. Notwithstanding the foregoing, in connection
with the indemnification of Buyer pursuant to Section 8(b)(i), Section
8(b)(iii), Section 8(b)(iv) or Section 8(b)(v), (i) Buyer shall have the option
to first seek indemnification payments through offset against the Escrow Sum,
after an indemnification claim has been made therefor, for the amount of any
Adverse Consequences or any other payments to which Buyer may become entitled to
by reason of the provisions of this Agreement and (ii) any one or more of the
Sellers shall have the option to satisfy such Seller's obligation to the Buyer
under Section 8(b) by surrendering to Buyer that portion of the Stock Portion of
the Purchase Price required to fund that obligation (with such surrendered Stock
valued at the lesser of (A) such Stock's then fair market value or (B) the value
stated in Section 2(h)).
(g) Other Indemnification Provisions. Subject in all events to
the time limitations set forth in Section 8(a) and the monetary and other
limitations in Section 8(b) and 8(d), the foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory or common law remedy
any Party may have for breach of representation, warranty, or covenant.
(h) Arbitration with Respect to Certain Indemnification
Matters. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN ACCORDANCE WITH THESE
PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING FROM OR RELATED TO THE
ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED INDEMNIFICATION CLAIM MADE
PURSUANT TO THIS SECTION 8. THE PARTIES FURTHER AGREE THAT THE ARBITRATION
PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE MEANS FOR RESOLVING ALL
DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO ARBITRATOR SHALL HAVE
AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION PROVISIONS. ANY ARBITRATION
HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY MAY INVOKE ARBITRATION
PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION CONTAINING A STATEMENT OF
THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN (14) DAYS IN
WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR. AFTER THE
FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL PREPARE AND SUBMIT TO
THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE HALF OF THE
APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT AGREE UPON A
NEUTRAL ARBITRATOR WITHIN
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FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR ARBITRATION IS RECEIVED, THEIR JOINT
SUBMISSION TO THE AAA SHALL REQUEST ARBITRATORS WHO ARE PRACTICING ATTORNEYS
WITH PROFESSIONAL EXPERIENCE IN THE FIELD OF CORPORATE LAW, AND THE PARTIES
SHALL ATTEMPT TO SELECT AN ARBITRATOR FROM THE PANEL ACCORDING TO AAA
PROCEDURES. UNLESS OTHERWISE AGREED BY THE PARTIES, THE ARBITRATION HEARING
SHALL TAKE PLACE IN THE ▇▇▇ ARBOR/DETROIT METROPOLITAN AREA, AT A PLACE
DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES HEREUNDER SHALL BE
CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS INCURRED IN ANY
ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO INCLUDE ALL OR ANY
PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY PREVAILS. THE
ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION AWARDED SHALL BE
ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE ISSUES IN
CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE REASONS FOR
THE AWARD.
9. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the
Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in
the event the Sellers are in breach of any representation, warranty,
or covenant contained in this Agreement in any Material respect and
such breach has not been cured within ten (10) days of written
notice thereof, and the Sellers may terminate this Agreement by
giving written notice to the Buyer at any time prior to the Closing
in the event the Buyer is in breach of any representation, warranty,
or covenant contained in this Agreement in any Material respect and
such breach has not been cured within ten (10) days of written
notice thereof;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing if
the Closing shall not have occurred on or before September 30, 1998
by reason of the failure of any condition precedent under Section
7(a) hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant contained
in this Agreement) or pursuant to Section 5(f) hereof; or
(iv) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if the
Closing shall not have occurred on or before September 30, 1998 by
reason of the failure of any condition precedent under Section 7(b)
hereof (unless the failure results primarily from the Sellers
himself or itself breaching any representation, warranty, or
covenant contained in this Agreement).
-49-
Nothing contained in this Section 9(a) shall alter, affect, modify
or restrict any Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) Effect of Termination. If either Buyer or Sellers
terminate this Agreement pursuant to Section 9(a) above, all obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
10. Miscellaneous.
(a) [Reserved]
(b) Press Releases and Announcements. Except as may be
required by applicable securities laws or stock exchange requirements, no Party
shall issue any press release or public announcement relating to the subject
matter of this Agreement prior to, at or about the Closing without the prior
written approval of the Buyer and the Sellers, which written approval will not
be unreasonably withheld; provided, however, that any Party may make any public
disclosure it believes in good faith is required by law or regulation (in which
case the disclosing Party will advise the other Parties prior to making the
disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof; provided, however, that unless and until the consummation of the
purchase and sale transaction contemplated hereunder occurs, the Confidentiality
Agreement shall remain in full force and effect.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests, or obligations hereunder without the
prior written approval of the Buyer and the Sellers; provided, however, that the
Buyer or Newco may assign (i) any or all of its rights and interests hereunder
to a wholly-owned Subsidiary of Buyer (in any or all of which cases the Buyer
and Newco nonetheless shall remain liable and responsible for the performance of
all of its respective obligations hereunder) or (ii) any or all of its rights
under Section 8 of the Agreement to any lender providing debt financing to the
Buyer or its Affiliates.
(f) Facsimile/Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
parties hereto, and an executed copy of this Agreement may be delivered by one
or more parties hereto by facsimile or similar instantaneous electronic
-50-
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto, all
parties hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
(g) Descriptive Headings. The descriptive section headings
contained in this Agreement are inserted for convenience or reference only and
shall not control or affect in any way the meaning, interpretation, or
construction of any of the provisions of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to SSC or the Sellers:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Sellers' Representative
c/o Enterprise Development Fund
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Hooper, Hathaway, Price, Beuche & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer:
c/o AppNet Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
(i) Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(j) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
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(l) Expenses. Each of the Parties and SSC will bear his, her
or its own costs and expenses (including legal fees and expenses and investment
banking fees) incurred in connection with this Agreement and the transactions
contemplated hereby. Buyer and Sellers agree that SSC's expenses shall be
included as Funded Indebtedness. The Sellers acknowledge and agree that SSC has
not borne or will bear any of the Sellers' costs and expenses (including any of
its legal fees and expenses and investment banking fees) in connection with this
Agreement or any of the transactions contemplated hereby.
(m) Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant relating to the
same subject matter as any other representation, warranty or covenant
(regardless of the relative levels of specificity) which the Party has not
breached, it shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the date first above written.
BUYER:
APPNET SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Title: Vice President, Secretary
and Treasurer
-------------------------------
NEWCO:
SSC ACQUISITION SUB #1, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Title: Vice President, Secretary
and Treasurer
-------------------------------
SSC:
SOFTWARE SERVICES CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
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SELLERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇
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