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EXHIBIT 10.45
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
▇▇▇▇▇▇▇▇▇ PUBLISHING COMPANY
"COMPANY"
AND
EARLY ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III
"STOCKHOLDER"
NOVEMBER 11, 1998
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TABLE OF CONTENTS
1. Sale and Purchase......................................................................... 1
1.1. Agreements to Sell and Purchase. ............................................ 1
1.2. Closing. .................................................................... 1
1.3. Purchase Price. ............................................................. 2
1.4. Certificates for Shares. .................................................... 2
2. Representations and Warranties of the Company and the Stockholder......................... 2
2.1. Organization and Good Standing. ............................................. 2
2.2. Ownership of Capital Stock. ................................................. 3
2.3. Authorization of Agreement. ................................................. 3
2.4. Title to Assets. ............................................................ 4
2.5. Financial Condition. ........................................................ 4
2.6. Certain Property of the Company. ............................................ 5
2.7. Year 2000 Compliance. ....................................................... 7
2.8. No Conflict or Violation. ................................................... 8
2.9. Consents. ................................................................... 9
2.10. Labor and Employment Matters. ............................................... 9
2.11. Employee Plans. ............................................................. 9
2.12. Litigation. ................................................................. 12
2.13. Certain Agreements. ......................................................... 12
2.14. Compliance with Applicable Law. ............................................. 13
2.15. Licenses. ................................................................... 13
2.16. Accounts Receivable. ........................................................ 14
2.17. Intercompany and Affiliate Transactions; Insider Interests. ................. 14
2.18. Insurance. .................................................................. 15
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2.19. Customers. .................................................................. 15
2.20. No Undisclosed Liabilities. ................................................. 16
2.21. Taxes. ...................................................................... 16
2.22. Indebtedness. ............................................................... 18
2.23. Environmental Matters. ...................................................... 18
2.24. Securities Matters. ......................................................... 19
2.25. Buyer and the Consolidation Transactions. ................................... 20
2.26. Minute Books and Stock Records. ............................................. 21
2.27. Banks. ...................................................................... 21
2.28. Powers of Attorneys and Suretyships. ........................................ 21
2.29. Brokers. .................................................................... 22
2.30. Summary of Certain Conditions. .............................................. 22
2.31. Accuracy of Information. .................................................... 22
3. Representations and Warranties of Buyer................................................... 22
3.1. Organization and Corporate Authority. ....................................... 22
3.2. No Conflict or Violation. ................................................... 23
3.3. Capitalization. ............................................................. 23
3.4. Notes. ...................................................................... 23
3.5. Litigation. ................................................................. 23
3.6. Buyer's Operations and Financial Condition. ................................. 23
3.7. Accuracy of Information. .................................................... 24
4. Certain Understandings and Agreements of the Parties...................................... 24
4.1. Access. ..................................................................... 24
4.2. Confidentiality. ............................................................ 24
4.3. Certain Changes and Conduct of Business. .................................... 25
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4.4. Restrictive Covenants. ...................................................... 28
4.5. Securities Restrictions. .................................................... 30
4.6. Registration. ............................................................... 31
4.7. Cooperation in Litigation. .................................................. 33
4.8. Tax Matters. ................................................................ 33
4.9. Consolidation Transactions. ................................................. 36
4.10. Supplemental Disclosure. .................................................... 37
4.11. HSR. ........................................................................ 37
4.12. Competing Proposals. ........................................................ 37
4.13. Bonus Plan. ................................................................. 38
4.14. Best Efforts. ............................................................... 38
4.15. Further Assurances. ......................................................... 38
4.16. Notice of Breach. ........................................................... 38
5. Survival; Indemnification................................................................. 38
5.1. Survival. ................................................................... 38
5.2. Indemnification by the Stockholder. ......................................... 39
5.3. Indemnification by Buyer. ................................................... 39
5.4. Indemnification Procedure. .................................................. 40
5.5. Payment. .................................................................... 41
5.6. Limitations. ................................................................ 41
6. Conditions to Closing..................................................................... 42
6.1. Conditions to Obligations of Each Party. .................................... 42
6.2. Conditions to Obligations of Buyer. ......................................... 43
6.3. Conditions to Obligations of the Stockholder. ............................... 45
7. Miscellaneous............................................................................. 47
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7.1. Termination. ................................................................ 47
7.2. Notices. .................................................................... 48
7.3. Assignability and Parties in Interest. ...................................... 48
7.4. Governing Law. .............................................................. 49
7.5. Counterparts. ............................................................... 49
7.6. Publicity. .................................................................. 49
7.7. Complete Agreement. ......................................................... 49
7.8. Modifications, Amendments and Waivers. ...................................... 49
7.9. Headings; References. ....................................................... 50
7.10. Severability. ............................................................... 50
7.11. Investigation. .............................................................. 50
7.12. Expenses of Transactions. ................................................... 50
7.13. Arbitration. ................................................................ 50
7.14. Submission to Jurisdiction. ................................................. 52
7.15. Attorneys' Fees. ............................................................ 53
7.16. Enforcement of the Agreement. ............................................... 54
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EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Conditions
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company and the Stockholder
G Form of Employment Agreement For Key Employees
G-1 Form of Employment Agreement for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Officer's Certificate
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.12 Litigation
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.17 InterCompany and Affiliate Transactions; Insider Interests
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.21(j) 351 Information
2.22 Indebtedness
2.27 Banks
2.28 Powers of Attorney and Suretyships
2.29 Brokers
3.5 Buyer Litigation
3.6 Buyer Debt
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
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4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 11, 1998 by and among ▇▇▇▇▇▇▇▇▇ Publishing Company,
a Texas corporation (the "COMPANY"), Early ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III the sole
stockholder of the Company (the "STOCKHOLDER"), and ProfitSource Corporation, a
Delaware corporation ("BUYER").
A. The Company is engaged in the business of consulting,
training, and publishing on the organizational aspects of change management (the
"BUSINESS").
B. The Stockholder owns all of the issued and outstanding shares
of capital stock of the Company (the "SELLER SHARES").
C. The Stockholder desires to sell to Buyer, and Buyer desires to
purchase from the Stockholder all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) the Stockholder shall sell
to Buyer, and Buyer shall purchase from the Stockholder, the number of Seller
Shares set forth opposite the Stockholder's name on Schedule 1.3, for the
purchase price set forth in Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Shares (the
"CLOSING") will take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the Stockholder
informing the Company and the Stockholder of the anticipated Closing Date. At
the Closing, the Stockholder shall deliver to Buyer or its designees stock
certificates, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Seller Shares being sold by the Stockholder and each
other instrument of transfer Buyer may reasonably request to vest effectively in
Buyer good and valid title to the Seller Shares, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any
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person or entity, together with any taxes, direct or indirect, attributable to
such transfer of the Seller Shares, and Buyer shall thereupon pay to the
Stockholder the Purchase Price described in part (b) of Section 1.3 for the
Stockholder's Seller Shares.
1.3 Purchase Price.
The consideration to be paid by Buyer to the Stockholder for the Seller
Shares (the "PURCHASE PRICE") is described in Schedule 1.3.
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(c)(vi). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares and
the Buyer shall deliver the certificates representing the Shares to the
Stockholder or his designee after the later of (i) the IPO or (ii) the Shares
are no longer subject to the Stockholder Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Stockholder, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, with full corporate power
and authority to carry on the Business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own, lease
or operate its assets and properties. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
the properties owned or leased by it or the nature of the business conducted by
it makes such qualification necessary, except where failure to be so qualified
would not have a material adverse effect on the Business or the Company's assets
or financial condition (a "MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of
the jurisdictions in which the Company is qualified to do business. Complete and
accurate copies of the charter documents
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and bylaws of the Company, with all amendments thereto to the date hereof, have
been furnished to Buyer or its representatives.
2.2 Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 1,000 shares
of common stock of the Company, $0.01 par value per share, of which 125.1228
shares are issued and outstanding. There is no other issued and outstanding
capital stock of the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. The Seller Shares owned by the Stockholder are set forth in part
(b) of Schedule 1.3. Neither the Stockholder nor the Company has granted, issued
or agreed to grant or issue any other equity interests in the Company and there
are no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholder has good and valid title to, and sole record and
beneficial ownership of, the Seller Shares owned by the Stockholder, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and the
Stockholder has the absolute and unrestricted right, power and authority and
capacity to enter into this Agreement.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Stockholder have all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and instruments to be executed
by the parties hereto in connection herewith (together with all other documents
to be delivered in connection herewith or therewith, collectively the
"TRANSACTION DOCUMENTS") have (except for Transaction
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Documents to be executed and delivered solely by Buyer) been duly and validly
approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") and
the Stockholder and no other proceedings on the part of the Company or the
Stockholder are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be delivered by the Company or the Stockholder have been (or upon
execution will have been) duly executed and delivered by the Company and the
Stockholder, have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of the Company and the Stockholder, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 Title to Assets.
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $25,000; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or the Stockholder
to transfer any of the assets of the Company or rights or interests therein to
any party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of December 1994, 1995, 1996 and 1997 and the related statements
of income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of the Company for the eight-month period ended August 31, 1998 or the
most recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with
the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of the
Company; (ii) were prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied; (iii) fairly present the
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financial condition and the results of the operations of the Company as at the
relevant dates thereof and for the periods covered thereby; (iv) to the extent
required by GAAP, contain and reflect all necessary adjustments and accruals for
a fair presentation of the financial condition and the results of the operations
of the Company for the periods covered by the Financial Statements (except that
the Interim Financial Statements are subject to year-end adjustments, the net
effect of which will not represent a Material Adverse Change); (v) to the extent
required by GAAP, contain and reflect adequate provisions for all reasonably
anticipated liabilities, including without limitation, for all taxes, federal,
state, local or foreign, with respect to the period then ended and all prior
periods; and (vi) do not contain any items of a special or nonrecurring nature,
except as expressly stated therein. The Interim Financial Statements accurately
reflect all information that would normally be reported to the independent
public accountants of the Company for the preparation of its financial
statements. There have been no changes or modifications of revenue recognition,
cost allocation practices or method of, accounting or other financial or
operational practices or principles except for any such change required by
reason of a concurrent change in GAAP during the periods covered by the
Financial Statements.
(b) Absence of Certain Changes. Except as set forth in the Interim
Financial Statements, since December 31, 1997 there has not been any Material
Adverse Change, or any event, action, or circumstance of the kind described in
Section 4.3. For purposes of this Agreement, a "MATERIAL ADVERSE CHANGE" means
any event, circumstance, condition, development or occurrence causing, resulting
in, having, or that could reasonably be expected to have, a Material Adverse
Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or the Stockholder each Real Property Lease
is a valid and binding obligation of each of the other parties thereto, except
as enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor the
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of the Company.
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(iii) To the knowledge of the Company or the Stockholder all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property of the Company, accurately identifies such Personal
Property as owned or leased, and lists each Personal Property Lease. The Company
is not in material breach of or default, and no event has occurred which, with
due notice or lapse of time or both, may constitute such a material breach or
default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names including, without
limitation, the names ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & Associates and Audience Access and
other names and slogans embodying business or product goodwill or indications of
origin, all applications or registrations in any jurisdiction pertaining to the
foregoing and all goodwill associated therewith, as well as the following: (i)
patents, patentable inventions, discoveries, improvements, ideas, know-how,
formula, methodology, processes, technology and computer programs, software and
databases (including source code, object code, development documentation,
programming tools, drawings, specifications and data), and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof; (ii) trade secrets, know-how, including confidential and
other non-public information, and the right in any jurisdiction to limit the use
or disclosure thereof; (iii) copyrights in writings, designs, mask works or
other works, and registrations or applications for registration of copyrights in
any jurisdiction; (iv) licenses, including, without limitation, software
licenses, immunities, covenants not to ▇▇▇ and the like relating to any of the
foregoing; (v) Internet Web sites, domain names and registrations or
applications for registration thereof; (vi) customer lists; (vii) books and
records describing or used in connection with any of the foregoing; and (viii)
claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges
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and encumbrances or are used by the Company pursuant to a valid and enforceable
license granting rights sufficiently broad to permit the historical and
anticipated uses of the Proprietary Rights in connection with the conduct of the
Business in the manner presently conducted and to convey such right and
authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company. There have not been any actions or other judicial
or adversary proceedings involving the Company concerning any of the Proprietary
Rights, nor to the knowledge of the Company or the Stockholder, is any such
action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or the Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "TRADE SECRETS"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
that the Trade Secrets are proprietary to the Company and not to be divulged or
misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
2.7 Year 2000 Compliance.
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All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents to be
delivered by the Company or the Stockholder and the consummation of the
transactions contemplated hereby and thereby do not and will not: (i) violate or
conflict with any provision of the charter documents or bylaws of the Company;
(ii) violate in any material respect any provision or requirement of any
domestic or foreign, national, federal, state, or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any Governmental
Entity applicable to the Company or the Business; (iii) violate in any material
respect, result in a material breach of, constitute (with due notice or lapse of
time or both) a material default or cause any material obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any material
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity (each a "LICENSE," and collectively, the "LICENSES").
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2.9 Consents.
Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of the Company or the Stockholder before consummation of
the transactions contemplated by this Agreement in compliance with all
applicable laws, rules, regulations, or orders of any Governmental Entity, or
the provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. Except as set forth on Schedule 2.10,
there is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the appropriate Governmental Entities or is holding for payment not yet
due to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Company; material labor
grievance pending against the Company; pending representation question
respecting the employees of the Company; pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Company is a
party. For purposes of this Agreement, "EMPLOYEES" includes employees,
independent contractors and other persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or
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adequate accruals therefor have been made in the Financial Statements, and
adequate accruals for all such obligations will be made through the Closing
Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, the Company has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, (ii) the most
recent determination letter received from the Internal Revenue Service (the
"IRS"), (iii) the most recent application for determination filed with the IRS,
(iv) the latest actuarial valuations, (v) the latest financial statements, (vi)
the three (3) most recent Form 5500 Annual Reports, including Schedule A and
Schedule B thereto, (vii) all related trust agreements, insurance contracts or
other funding arrangements which implement any of such Employee Plans, (viii)
all Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither the Company nor any ERISA Affiliate of the Company has any
liability or contingent liability with respect to the Employee Plans, nor will
any of the Company's assets be subject to any lien, charge or claim relating to
the obligations of the Company with respect to employees or Employee Plans. No
party to any Employee Plan is in default with respect to any material term or
condition thereof, nor has any event occurred which through the passage of time
or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with
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the IRS within the remedial amendment period. Such determination or qualified
status will apply from and after the effective date of any such Employee Plan.
No act or omission has occurred since the date of the last favorable
determination issued with respect to an Employee Plan which could result in a
revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. Neither the Company nor any of its ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
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2.12 Litigation.
Except as set forth on Schedule 2.12, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of the Company
or the Stockholder, threatened by or against the Stockholder, the Company, the
officers, directors, employees, agents of the Company, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or the transactions contemplated
by this Agreement. Neither the Company nor any of the Company's assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of the Company, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
stockholder agreements or agreements relating to the issuance of any securities
of the Company or the granting of any registration rights with respect thereto,
and (xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
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(c) To the knowledge of the Company or the Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or the Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or the Stockholder since January 1, 1996, with
respect to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means
those notices alleging a material breach of a Contract or intention to terminate
or materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or the Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
the Stockholder, there are no proposed changes in any such laws, rules or
regulations (other than laws of general applicability) that would adversely
affect the transactions contemplated by this Agreement or reasonably be expected
to have a Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of
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the Business in the manner now conducted and the ownership, occupancy and
operation of the Company's properties for its present uses and the execution,
delivery and performance of this Agreement. No jurisdiction in which the Company
is not qualified or licensed as a foreign corporation has demanded or requested
in writing that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16 Accounts Receivable.
Schedule 2.16 lists all accounts receivable of the Company (the
"ACCOUNTS RECEIVABLE") as of the third business day prior to date hereof,
including their aging. Schedule 2.16 will be updated at the Closing Date to
reflect all Accounts Receivable as of the Closing Date, including their aging.
All Accounts Receivable as of the date hereof represent, and all Accounts
Receivable as of the Closing Date will represent, valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business that are current and collectible in amounts not less than the aggregate
amount thereof (net of reserves established in accordance with GAAP applied
consistently with prior practice) carried (or to be carried) on the books of the
Company and reflected in the Financial Statements, and are not and will not be
subject to any valid counterclaims or set-offs, disputes or contingencies. The
preceding sentence shall not be deemed or construed as a guarantee by the
Company or the Stockholder of the collection of any such Account Receivable.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, stockholder, relative
or Affiliate of the Company or the Stockholder, including, without limitation,
loans, guarantees or pledges to, by or for the Company or from, to, by or for
any of such persons, that are either (i) currently in effect, or (ii) reflected
in the Company's financial results.
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(b) Except as set forth on Schedule 2.17, no officer, director or
stockholder of the Company, or any Affiliate of any such person, now has, or
within the last three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or the Stockholder, no such
cancellation, amendment or increase of premiums is threatened.
2.19 Customers.
Schedule 2.19 lists the ten (10) largest customers of the Company,
together with revenues to the Company from each such customer during the most
recent complete fiscal year and the current fiscal year to the date hereof, and
the scheduled termination dates of their current contracts with the Company.
None of such customers has given written notice to the Company of an intention
to terminate or materially impair its business relationship with the Company and
neither the Company nor the Stockholder has any knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
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2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no
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additional Tax Liabilities for periods covered by such previously-filed Tax
Returns have been assessed on or proposed to the Company. With respect to each
such Tax Return, Schedule 2.21(b) specifies (A) each such Tax Return that (1) is
currently being audited by a Tax authority, or (2) as to which the Company has
received a written and/or oral notice from a Tax authority that such Tax
authority intends to commence an audit or examination of such Tax Return, and
(B) each such Tax Return as to which the Company has given its consent to waive
or extend the applicable statute of limitations for such Tax Return or the
assessment of Taxes required to be reported thereon. The Company has either
delivered to Buyer or made available for inspection by Buyer or its
representatives or agents complete and correct copies of all Tax audit reports
and statements of Tax deficiencies with respect to any delinquent Tax assessed
against or agreed to by the Company for all taxable periods commencing on or
after January 1, 1993, for which audit reports or statements of deficiencies
have been received by the Company.
(c) Withholdings. The Company has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third-party.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 and 1362 at all times since 1993, and the Company will be an S
corporation up to an including
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the day before the Closing Date. The Company will similarly qualify as an S
corporation for state or local income tax purposes.
(k) Section 351. It is acknowledged that the Buyer, the Company and
Stockholders intend that the transfer of the Seller Shares by the Stockholder to
Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholder and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(l) Section 280G. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether or not evidenced by a note or other
written instrument) and a description of each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are
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defined in or otherwise subject to any applicable Environmental Law and
collectively referred to herein as "HAZARDOUS MATERIALS") has been released,
placed, disposed of or otherwise come to be located on, at, beneath or near any
of the assets or properties owned or leased by the Company at any time or any
other property in material violation of any Environmental Laws such that the
Company could be subject to material liability under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or any Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
(a) The Stockholder understands that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholder's representations set forth herein.
(b) The Stockholder acknowledges that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholder may lose his entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
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(c) Buyer has made available to the Stockholder or the Stockholder's
advisors the opportunity to obtain information to evaluate the merits and risks
of the investment in the Securities, and the Stockholder has received all
information requested from Buyer. The Stockholder has had an opportunity to ask
questions and receive answers from Buyer regarding the terms and conditions of
the offering of the Securities and the business, properties, plans, prospects,
and financial condition of Buyer and to obtain additional information as the
Stockholder has deemed appropriate for purposes of investing in the Securities
pursuant to this Agreement.
(d) The Stockholder, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholder has relied solely upon independent
investigations made by the Stockholder, and has consulted his own investment
advisors, counsel and accountants. The Stockholder has adequate means of
providing for current needs and personal contingencies, and have no need for
liquidity and can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholder's own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
(f) The Stockholder understands that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(g) The Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit A hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor the Stockholder has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
the Stockholder aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Stockholder is aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
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(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether the Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholder acknowledges that no assurances have been made to
the Stockholder with respect to any of the foregoing and no representations,
oral or written, have been made to the Stockholder by Buyer or any of its
employees, representatives or agents concerning the potential value or the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.26 Minute Books and Stock Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its
stockholders and the Board of Directors; and
(b) all stock record books of the Company setting forth all transfers of
capital stock.
2.27 Banks.
Schedule 2.27 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.28 Powers of Attorneys and Suretyships.
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Except as set forth on SCHEDULE 2.28, the Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.29 Brokers.
Except as set forth on SCHEDULE 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or the Stockholder.
2.30 Summary of Certain Conditions.
The Stockholder acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit B.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or the Stockholder to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER..
Buyer represents and warrants to the Stockholder that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
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3.2 No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 Litigation.
Except as set forth on SCHEDULE 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or proceedings
including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 Buyer's Operations and Financial Condition.
Since its date of incorporation Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its
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business after Closing. Buyer has no material tangible assets, and except as set
forth on SCHEDULE 3.6, Buyer has no material liabilities or obligations for
borrowed money or payment for services rendered to Buyer. From and after the
Closing, Buyer or its Affiliates may have liabilities or obligations for money
borrowed to effect the Consolidation Transactions and as a result of
acquisitions by Buyer in the Consolidation Transactions, and Buyer makes no
representations or warranties about any such liabilities or obligations or the
absence thereof.
3.7 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Stockholder in this Agreement, the schedules or
exhibits hereto, or in any of the other Transaction Documents delivered by Buyer
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make the statements
and facts contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period, shall furnish promptly to
Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Stockholder will keep the
matters contemplated herein and all information provided by Buyer related to
Buyer and the Consolidation Transactions and potential participants therein,
including without limitation, Deloitte & Touche LLP, confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer will keep the matters contemplated herein and all information provided by
the Company and the Stockholder related to the Company and the Business
confidential, and will not provide information about such matters to any party
or use such information except to the extent necessary to effect the
transactions contemplated hereby. Buyer and the Company shall each cause their
respective Affiliates, officers, directors, employees, agents, and advisors to
keep confidential all information received in connection with the transactions
contemplated hereby. The Company and the Stockholder acknowledge that Buyer may
provide information about the Company and the Business to other
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participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation Transactions. If this Agreement terminates without
consummation of the Closing, the Company, the Stockholder and Buyer shall, and
shall cause their Affiliates to, each maintain the confidentiality of any
information obtained from the other in connection with the transactions
contemplated hereby, the Consolidation Transactions, and Buyer's business plans
(the "INFORMATION"), other than Information that (i) was in the public domain
before the date of this Agreement or subsequently came into the public domain
other than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Stockholder and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the
Stockholder shall cause the Company to, conduct the Company's business solely in
the ordinary course consistent with past practices. Without limiting the
generality of the preceding sentence, except as required or permitted pursuant
to the terms hereof, the Company shall not, and the Stockholder shall cause the
Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
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(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 per calendar month or to invest, advance, loan, pledge or donate any
monies to any customers or other persons or entities or to make any similar
commitments with respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, the Stockholder or any Affiliate of the Company
or the Stockholder;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(xii);
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(xiii) except as necessary to comply with Section 4.3(b)(iv),
make any change in any revenue recognition or cost allocation practices or
method of accounting or accounting principle, method, estimate or practice
(except for any such change required by reason of a concurrent change in GAAP),
or write down the value of any assets or write-off as uncollectible any Accounts
Receivable except in the ordinary course of business consistent with past
practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or the Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholder shall
cause it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof.
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4.4 Restrictive Covenants.
(a) Non-Competition. The Stockholder recognizes that the covenants of
the Stockholder contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE")
are an essential part of this Agreement and the other Transaction Documents and
that but for the agreement of the Stockholder to comply with such covenants
Buyer would not enter into this Agreement or the other Transaction Documents.
The Stockholder acknowledges and agrees that the Covenant Not to Compete is
necessary to protect the Business acquired by Buyer, including without
limitation, goodwill and the Proprietary Rights and that irreparable harm and
damage will be done to Buyer if the Stockholder competes with Buyer in any way
prohibited by the Covenant Not to Compete. In addition, the Stockholder
acknowledges that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and the
Stockholder and the Covenant Not to Compete is necessary for Buyer to receive
the full benefit of this Agreement. After the Closing, the Stockholder shall not
individually, or in concert, directly or indirectly:
(i) either on his own account or for any other person or entity,
solicit, induce, attempt to induce, interfere with, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition, prospects or operation of the Business, the assets of the
Company or Buyer or any of its Affiliates) any customer, which has utilized the
services of the Company at any time during the two (2) year period preceding the
Closing Date or with whom the Company was engaged in meaningful negotiations as
of the Closing Date (each, a "CUSTOMER"), to modify, amend, terminate or
otherwise alter the terms upon which it acquires services from Buyer or Buyer's
Affiliates, or to acquire from any party other than Buyer or its Affiliates any
services of the kind available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action;
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business; or
(v) use or authorize any third-party to use the name "▇▇▇▇▇
▇▇▇▇▇▇▇▇▇" (or any variation thereof) in connection with (i) the promotion or
marketing of business or
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customer services in connection with the Business or (ii) any books, pamphlets
or promotional materials the content of which is in any way related to the
Business or the services provided by the Company at any time during the two (2)
year period preceding the Closing Date.
This Covenant Not to Compete shall be limited to any county or
any other political subdivision of any state of the United States of America, or
of any other country in the world, where the Company generated revenue or
established goodwill at any time during the two (2) year period preceding the
Closing Date. This Covenant Not to Compete shall bind the Stockholder until
December 31, 2002, provided however, that if the employment of any Stockholder
is terminated by Buyer without Cause or by such Stockholder for Good Reason
(each as defined in such Stockholder's Employment Agreement delivered pursuant
to Section 6.3(c)(iv)), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
such Stockholder's employment with the Company or any of its Affiliates, such
Stockholder will no longer be subject to the covenants contained in Sections
4.4(a)(ii) and (iii), and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties hereto
agree that the duration and area for which the Covenant Not to Compete set forth
in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) the Stockholder shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Stockholder pursuant to Section 4.4(a) the Stockholder shall
not, and shall cause his Affiliates not to, divert or attempt to divert or take
advantage of or attempt to take advantage of any actual or potential business or
opportunities of Buyer or its Affiliates of which the Stockholder becomes aware
as the result of his affiliation with the Business or his relationship with
Buyer or its Affiliates and which relate specifically to the Business, or any
part thereof. This Section 4.4(c) is in addition to and not by way of limitation
of any other duties the Stockholder may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Stockholder pursuant to Section 4.4(a) the Stockholder shall
not, and shall cause his Affiliates not to, hire away, or cause any other person
to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
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(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholder in light of the activities and business
of the Company and future plans of Buyer. The Stockholder acknowledges that if
he violates any of the covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages. The Stockholder shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by the
Stockholder, whether or not litigation is actually commenced and including
litigation of any appeal defended by Buyer where such party succeeds in
enforcing any of the Restrictive Covenants. Buyer may elect to seek one or more
remedies at its discretion on a case by case basis. Failure to seek any or all
remedies in one case shall not restrict Buyer from seeking any remedies in
another situation. Such action by Buyer shall not constitute a waiver of any of
its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
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(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholder will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Stockholder will be required to comply with this lock
up provision if any other stockholder owning more shares of Common Stock than
such Stockholder and who is subject to a contractual lock up provision similar
to this one has been released from such lock up obligation.
4.6 Registration.
(a) The Stockholder will not have any rights to demand registration of
any of the Shares, or to participate in any registration undertaken by Buyer
except as set forth in this Section 4.6. If Buyer files a registration statement
with the Securities and Exchange Commission for an underwritten IPO of its
equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
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if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Stockholder shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
of Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in
connection with the formation of, or work on behalf of, Buyer) will have rights
to include shares of Common Stock in such offering, and if the aggregate amount
of shares that all stockholders with such rights (collectively, the "SELLING
STOCKHOLDERS") desire to include exceeds the number of shares of Common Stock
that can be sold by all Selling Stockholders, then all Selling Stockholders
desiring to sell in any such offering will participate pro-rata on the basis of
the relative numbers of shares of Common Stock eligible for inclusion that they
originally sought to include. However, not withstanding the foregoing, no
Selling Stockholder will be permitted to include in any such registration and
offering (i) any Shares subject to performance-related restrictions at the time
of filing of the registration statement for such offering or (ii) more than, in
the aggregate for all such registrations and offerings, half of the shares of
Common Stock held by such Selling Stockholder as of the date hereof.
Furthermore, in no case will the Stockholder hereunder be permitted to include
in all such registrations and offerings, in the aggregate, more than the number
of Shares listed on Schedule 4.6 under the item "Maximum IPO Shares" (such
Shares will be allocated among Stockholders hereunder desiring to participate in
any such registration and offering ratably on the basis of their relative
ownership of Shares and other Common Stock).
(b) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer such Stockholder expressly for use
therein for which the Stockholder will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6, pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated
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stockholder groups) selling the most shares of Common Stock in the offering, and
(iii) the fees and costs of any separate counsel retained by such Selling
Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or the Stockholder and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and that,
in the case of Pre-Acquisition Taxable Periods ending on the Closing Date, all
of the Company's income, gains and other Tax items attributable to the Closing
Date shall be included and reported by the Company in Tax Returns of the Company
for such Pre-Acquisition Taxable Periods to be filed following the Closing and
that all Taxes attributable to the Company's income, gains or other taxable
items for the Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be
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allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated among the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Stockholder shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns to the extent not specifically reserved (excluding reserves for deferred
taxes) against in the Interim Financial Statements. The Stockholder shall pay
such costs, expenses and Tax liabilities promptly following receipt by the
Stockholder of a notice from Buyer of Buyer's calculation of such Stockholder's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If the Stockholder
disputes all or any portion of the payment obligation hereunder as calculated by
Buyer, the Stockholder shall nevertheless promptly pay to Buyer the amount
specified in the notice and any dispute related thereto shall be resolved
pursuant to the arbitration provisions of Section 7.13. Any additional Taxes
attributable to the periods covered by such Tax returns, whether pursuant to an
amended return or any Tax Proceeding, shall be paid by Stockholder promptly upon
demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
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(ii) The Taxes reportable on such Straddle Period Returns that
are attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholder shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against the
Interim Financial Statements. The Stockholder shall pay such Pre-Closing Taxes
promptly following receipt by the Stockholder of a notice from Buyer of Buyer's
calculation of the Stockholder's payment obligation hereunder together with
copies of the relevant Tax Returns and other information supporting Buyer's
calculation. If the Stockholder disputes all or any portion of the payment
obligation hereunder as calculated by Buyer, the Stockholder shall nevertheless
promptly pay to Buyer the amount specified in the notice and any dispute related
thereto shall be resolved pursuant to the arbitration provisions of Section
7.13. Any additional Taxes attributable to the Pre-Closing Periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Stockholder promptly upon demand therefor by Buyer.
(e) Subsequent Tax Filings. Buyer and the Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to Sections 4.8(c) and (d).
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to the filing of such Tax Returns.
(f) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Stockholder of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) Buyer shall have responsibility and authority to represent
the interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Stockholder shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of Stockholder; and provided further, that, without the prior written
consent of Stockholder, which shall not be unreasonably withheld, Buyer shall
not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which Stockholder is responsible hereunder, provided,
however, the consent of Stockholder to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Stockholder, promptly upon
demand from the Buyer, shall pay the reasonable costs and expenses, including
attorney fees, incurred by Buyer in connection with any such Tax Proceedings,
provided, however, in any Tax Proceeding related to a Straddle Period which
involves Tax Liabilities for which Stockholder is responsible hereunder and Tax
Liabilities attributable to the Post-Closing Period for which
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Stockholder is not responsible, the Buyer, on the one hand, and the Stockholder,
on the other hand, shall jointly bear the costs and expenses thereof as
allocated between them on an equitable basis.
(iii) All notices to the Stockholder provided for hereunder shall
be deemed delivered to the Stockholder upon receipt thereof either directly by
the Stockholder. The Stockholder shall proportionately pay all Tax Liabilities
and costs and expenses for which the Stockholder is responsible hereunder.
(iv) The Stockholder shall furnish to Buyer such information and
documents as may be reasonably requested by Buyer, and shall otherwise
reasonably cooperate with Buyer, in connection with Buyer's conduct of any Tax
Proceedings described herein.
(g) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Stockholder shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(h) Section 351. For all federal and state income tax purposes the
Stockholder and Buyer shall (i) treat and report the transfer of the Seller
Shares in a manner consistent with its qualification as a transfer of property
to a controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
(i) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(j) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such
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companies (collectively, the "CONSOLIDATION TRANSACTIONS"). The Company and the
Stockholder acknowledge that as a result of the complexity of the transactions
contemplated hereby and the Consolidation Transactions, the Closing contemplated
hereby and the closing of the Consolidation Transactions must be concurrent at a
time designated by Buyer. Accordingly, the Company and the Stockholder shall at
any time upon or after execution of this Agreement, but prior to the Closing
Date (i) provide any outstanding documentation required to effect the Closing
pursuant to this Agreement in escrow pending release upon authorization of the
Stockholder at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.10 Supplemental Disclosure.
At the Closing, the Company and the Stockholder shall supplement or
amend each of the schedules hereto with respect to any matter hereafter arising
which, if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.11 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.12 Competing Proposals.
(a) Neither the Company nor the Stockholder shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any assets thereof or interests therein, or any other
transaction or arrangement that would interfere with the transactions
contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Stockholder shall promptly communicate to Buyer
the existence or occurrence and terms of any Competing Proposal or contact
related thereto which the Stockholder or the Company or any of its employees,
directors, or agents may
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receive in respect of any such proposed transaction and the identity of the
person, entity or group from whom such proposal or contact was received.
(c) The Company and the Stockholder shall not transfer or hypothecate
the Business or any assets thereof or interests therein except to Buyer, or
enter into any agreement with any person other than Buyer in connection with any
of the foregoing.
4.13 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.14 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.15 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.16 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the
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second anniversary of the Closing Date, except those representations and
warranties contained in (i) Sections 2.21 (Taxes) and 2.29 (Brokers), which will
survive until the expiration (including extensions) of the applicable statute of
limitations; and (ii) Sections 2.2 (Ownership of Capital Stock), 2.4 (Title to
Assets) and 2.22 (Indebtedness) which will survive indefinitely. As to any
matter or claim which is based upon fraud by the indemnifying party, the
representations and warranties set forth in this Agreement shall expire only
upon expiration of the applicable statute of limitations. No party will be
liable to another under any warranty or representation after the applicable
expiration of such warranty or representation; provided however, if a claim or
notice is given under this Article 5 with respect to any representation or
warranty prior to the applicable expiration date, such claim may be pursued to
resolution notwithstanding expiration of the representation or warranty under
which the claim was brought. Any investigations made by or on behalf of any of
the parties prior to the date hereof shall not affect any of the parties'
obligations hereunder. Completion of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy of any of the
parties.
5.2 Indemnification by the Stockholder.
Subject to the limits set forth in this Article 5, the Stockholder and,
if the transactions contemplated hereby are not consummated, the Company, and
their successors and assigns shall jointly and severally indemnify, defend,
reimburse and hold harmless Buyer and its Affiliates and their successors and
assigns, and the officers, directors, employees and agents of any of them, from
and against any and all claims, losses, damages, liabilities, obligations,
assessments, penalties and interest, demands, actions and expenses, whether
direct or indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the Closing,
provided that such Loss is not an obligation for payment of money in an amount
reflected as a liability of the Company in the Interim Financial Statements or a
trade payable incurred in the ordinary course of business since the date of the
Interim Financial Statements but prior to the Closing;
(b) any untruth or inaccuracy of any representation warranty or
certification made by the Company or the Stockholder in this Agreement or any
other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the Company
or the Stockholder contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer shall
indemnify, defend and hold harmless the Stockholder and his successors and
assigns from and against any and all
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Losses reasonably incurred by the Stockholder arising out of or in connection
with any of the following:
(a) the ownership and operation of the Company after the Closing (other
than Losses arising as a result of acts or omissions of any Stockholder,
including without limitation in such Stockholder's capacity as an employee of or
consultant to Buyer or its Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality
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with respect to all such information consistent with the conduct of a defense
hereunder. The Indemnitor shall have the right to elect to settle any claim for
monetary damages only without the Indemnitee's consent, if the settlement
includes a complete release of the Indemnitee. If the settlement does not
include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest , the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
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(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Stockholders on the one hand,
to Buyer, and Buyer, on the other hand to the Stockholders, for all claims
arising under this Agreement and the other Transaction Documents shall equal the
aggregate Purchase Price. For purposes of this Section 5.6(b), the value of
Shares received shall be (i) prior to the IPO, the per share Agreed Price (as
defined in the Stockholder Agreement) then prevailing; and (ii) after the IPO,
the per share closing price on the primary exchange or market on which the
Common Stock is traded on the date such indemnifiable Losses become payable,
except that the value of any Shares sold in bona fide third party transactions
will be the gross proceeds to the Stockholders of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Stockholder, on the one hand, and Buyer, on the
other hand, to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Stockholder will be required to
perform his obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Stockholder from and against, in any
obligations that the Stockholder would incur as a result of consummating the
transactions contemplated hereby notwithstanding the fact that the conditions in
this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations,
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net income or financial condition of the Company, is in effect; and no action or
proceeding has been instituted or threatened by any Governmental Entity, other
person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholder contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Stockholder.
(b) Performance of the Company and the Stockholder. The Company and the
Stockholder shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing the Company and the Stockholder, as the case
may be, shall each have delivered to Buyer a certificate to such effect dated
the Closing Date and signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company or the Stockholder, as
applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholder
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents
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to be delivered by the Company and the Stockholder and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Stockholder. Buyer has
received, or is receiving at the Closing, all of the following, each duly
executed by the Stockholder and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by the Stockholder and the spouse of
the Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.28;
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3);
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least Six Million Nine Hundred and
Twenty-Six Thousand Dollars ($6,926,000), and (ii) sufficient working capital to
operate the Company and at the Closing the Company shall have delivered to Buyer
a certificate dated the Closing
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Date to such effect with supporting financial information, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Stockholder in
substantially the form of Exhibit F. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
(l) Certificates. The Stockholder shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received an Employment
Agreement substantially in the form attached hereto as Exhibit G for each key
employee designated by Buyer or Exhibit G-1 for other employees (each with
conforming changes as appropriate for the employee), duly executed and delivered
by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Stockholder or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
6.3 Conditions to Obligations of the Stockholder.
The obligations of the Stockholder to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Stockholder in writing in
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their discretion; provided however, such waiver will not waive or diminish the
right of the Stockholder to indemnification pursuant to Article 5, unless so
stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
(ii) The Note; and
(iii) A photocopy of the certificates representing the Shares
issued in the name of the Stockholder as set forth in Schedule 1.3 and
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G for each key employee designated by Buyer or Exhibit G-1 for
other employees (each with conforming changes as appropriate for the employee),
with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholder shall have received the Cash
Payment (as described in Schedule 1.3).
(e) Opinion of Counsel. The Stockholder shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholder.
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(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million
and at the Closing Buyer shall have delivered to the Stockholders a certificate
to such effect in substantially the form of Exhibit I, dated the Closing Date,
signed by the President or any Vice President and the Secretary or any Assistant
Secretary of Buyer. For these purposes, "PRE-TAX INCOME" of any particular
company means that company's projected 1998 pre-tax income, as adjusted pursuant
to agreement between Buyer and that company to reflect certain cost reductions
and modified business practices and accounting methods expected to take effect
after the closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller's shares
contemplated hereby should qualify for treatment under Section 351 of the Code
which opinion will permit reliance thereon by the Stockholders.
7. MISCELLANEOUS.
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholder fail to comply in
any material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Stockholder is breached or is inaccurate in any material way; (b) by the Company
or the Stockholder if (i) Buyer fails to comply in any material respect with any
of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998, provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Consolidation Transactions, it may extend such
date by thirty-five (35) days. Notwithstanding the foregoing, a party may not
terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.27 (Brokers), 4.2 (Confidentiality), 7.12
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(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company
or the Stockholder: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Publishing Company
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(which shall not Gardere & ▇▇▇▇▇, L.L.P.
constitute notice) ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
7.3 Assignability and Parties in Interest.
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This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon the Stockholder and his executors, administrators, heirs, legal
representatives and permitted successors and assigns. Nothing in this Agreement
will confer upon any person or entity not a party to this Agreement, or the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
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At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Stockholder only and no
other person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs and expenses incurred by the Company or the Stockholder in
connection with the transactions contemplated by this Agreement shall be borne
by the Stockholder.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions.
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Notwithstanding the previous sentence, the parties hereto may seek provisional
remedies in courts of appropriate jurisdiction, and such request shall not be
deemed a waiver of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
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(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
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All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or the Stockholder, or if the Company or any of its Affiliates, successors and
assigns or the Stockholder brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against Buyer or any of its
Affiliates, successors or assigns, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "ACTION"), in
addition to any damages and costs which the prevailing party otherwise would be
entitled, the non-prevailing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs (at the prevailing party's
attorneys' then-prevailing rates) incurred in bringing and prosecuting such
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"DECISION") granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained
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the greater relief in connection with any particular claim, although, with
respect to any claim, it may be determined that there is no prevailing party.
7.16 Enforcement of the Agreement.
The Company, the Stockholder and Buyer acknowledge that irreparable
damage would occur if any of the obligations of the Company and the Stockholder
under this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Buyer will be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the Company or the
Stockholder and to enforce specifically the terms and provisions hereto, this
being in addition to any other remedy to which Buyer is entitled at law or in
equity.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Title: SVP
-----------------------------------
▇▇▇▇▇▇▇▇▇ PUBLISHING COMPANY
"COMPANY"
By: /s/ EARLY ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III
-----------------------------------
Name: Early ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III
-----------------------------------
Title: President
-----------------------------------
STOCKHOLDER
"STOCKHOLDER"
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EARLY ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III
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SCHEDULE 1.3
PURCHASE PRICE
(i) Two Million Dollars ($2,000,000) (the "CASH PAYMENT").
(ii) Promissory note of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate of Six Million Dollars
($6,000,000) (the "NOTE")
(iii) 117,500 shares of Series A Common Stock of Buyer (the
"SHARES"), certificates for which will be retained by Buyer pending release
pursuant to Section 1.4.
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