EXHIBIT 10.7
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STOCK PURCHASE AGREEMENT
dated as of November 25, 1998
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TABLE OF CONTENTS
Page
1. DEFINITIONS..............................................................1
2. PURCHASE AND SALE OF SHARES..............................................3
2.1 Stock Purchase.....................................................3
2.2 Consideration for Purchase of Shares...............................4
2.3 Post-Closing Adjustment............................................5
3. CLOSING .................................................................6
3.1 Time and Place of the Closing......................................6
3.2 Procedure at Closing...............................................6
4. REPRESENTATIONS AND WARRANTIES OF KODIAK AND THE STOCKHOLDERS............7
4.1 Organization.......................................................7
4.2 Power and Authority................................................7
4.3 Authority for Agreement............................................7
4.4 No Violation to Result.............................................8
4.5 Capitalization.....................................................8
4.6 Financial Statements...............................................9
4.7 Liabilities and Obligations........................................9
4.8 Adverse Changes...................................................10
4.9 Employee Matters..................................................10
4.10 Taxes.............................................................12
4.11 Subsidiaries......................................................13
4.12 Property..........................................................13
4.13 Contracts.........................................................14
4.14 Government Contracts..............................................14
4.15 Litigation........................................................14
4.16 Compliance with Laws..............................................14
4.17 Environmental and Safety Matters..................................14
4.18 Customers; Suppliers..............................................16
4.19 Insurance.........................................................16
4.20 Intellectual Property.............................................16
4.21 Accounts Receivable...............................................19
4.22 Inventory.........................................................19
4.23 Related Party Transactions........................................19
4.24 Brokers...........................................................19
4.25 Accredited Investors; Investment Intent...........................20
4.26 Disclosure........................................................20
5. REPRESENTATIONS AND WARRANTIES OF APPNET................................21
5.1 Due Organization..................................................21
5.2 Power and Authority...............................................21
5.3 Authority for Agreement...........................................21
5.4 No Violation to Result............................................22
5.5 Brokers and Agents................................................22
5.6 Capitalization....................................................22
5.7 Shares............................................................23
5.8 Notes.............................................................23
6. COVENANTS ..............................................................23
6.1 Access to Properties and Records..................................23
6.2 Confidentiality...................................................24
6.3 Interim Covenants of Kodiak.......................................25
6.4 No Solicitation...................................................27
6.5 Notification of Certain Matters...................................27
6.6 Tax Returns; Sales, Use and Transfer Taxes........................27
6.7 Regulatory and Other Approvals....................................29
6.8 Termination of Profit Sharing Plan................................29
6.9 Reasonable Efforts................................................29
6.10 Section 338(h)(10) Election.......................................29
6.11 Advances..........................................................35
6.12 Payment of Retention Bonuses......................................35
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF APPNET...........................35
7.1 Representations and Warranties True at the Closing Date...........35
7.2 Performance.......................................................35
7.3 Agreements with Employees.........................................35
7.4 No Litigation.....................................................35
7.5 No Material Adverse Change........................................36
7.6 Certificates......................................................36
7.7 Opinion of Counsel................................................36
7.8 Financing.........................................................36
7.9 AppNet's Review...................................................36
7.10 Governmental, Regulatory and Other Consents and Approvals.........36
7.11 Delivery of Good Standing Certificates; Corporate Resolutions.....36
7.12 Financial Terms...................................................37
7.13 Payment of Loans..................................................37
7.14 Purchase of Personal Use Items....................................37
7.15 Termination of Shareholders' Agreement............................37
7.16 Delivery of Stock Pledge Agreement................................37
7.17 Stockholders Agreement and Registration Agreement.................37
7.18 Resignations......................................................38
7.19 Termination of 401(k) Plan........................................38
7.20 Reimbursement for Professional Fees...............................38
7.21 Release...........................................................38
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF KODIAK...........................38
8.1 Representations and Warranties True as of the Closing Date........38
8.2 AppNet's Performance..............................................38
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8.3 No Litigation.....................................................38
8.4 Certificates......................................................39
8.5 Governmental, Regulatory and Other Consents and Approvals.........39
8.6 Delivery of Good Standing Certificates; Corporate Resolutions.....39
8.7 Kodiak's Review...................................................39
8.8 Opinion of Counsel................................................39
8.9 No Material Adverse Change........................................39
8.10 Senior Management Agreements......................................39
9. INDEMNIFICATION.........................................................39
9.1 General Indemnification...........................................40
9.2 Indemnification Procedures........................................41
9.3 Right to Setoff...................................................43
9.4 Release...........................................................43
10. NONCOMPETITION..........................................................43
10.1 Prohibited Activities.............................................43
10.2 Damages...........................................................44
10.3 Reasonable Restraint..............................................44
10.4 Severability; Reformation.........................................44
10.5 Independent Covenant..............................................44
10.6 Materiality.......................................................45
10.7 Termination of NonCompete.........................................45
11. GENERAL ................................................................45
11.1 Termination.......................................................45
11.2 Effect of Termination.............................................46
11.3 Cooperation.......................................................46
11.4 Successors and Assigns............................................46
11.5 Entire Agreement..................................................47
11.6 Counterparts......................................................47
11.7 Expenses..........................................................47
11.8 Specific Performance; Remedies Not Exclusive......................47
11.9 Notices...........................................................47
11.10 Governing Law.....................................................49
11.11 Arbitration.......................................................49
11.12 Survival of Representations, Warranties and Covenants.............49
11.13 Miscellaneous.....................................................49
11.14 Severability......................................................50
11.15 Absence of Third Party Beneficiary Rights.........................50
11.16 Mutual Drafting...................................................50
11.17 Further Representations...........................................50
11.18 Amendment; Waiver.................................................51
11.19 Gender............................................................51
11.20 Headings..........................................................51
11.21 Public Disclosure.................................................51
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11.22 Audit by Stockholders' Accountants................................51
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (together with the schedules and exhibits
attached hereto, this "Agreement") is entered into effective for all purposes
and in all respects as of November 25, 1998, by and among (i) APPNET SYSTEMS,
INC., a Delaware corporation ("AppNet"), (ii) THE KODIAK GROUP, INC., a
Massachusetts corporation ("Kodiak"), and (iii) those individuals listed on
Schedule 1 attached hereto (collectively, the "Stockholders").
WHEREAS, the Stockholders are the record and beneficial owners of all of
the issued and outstanding shares (the "Shares") of Common Stock of Kodiak, par
value of $0.01 per share (the "Common Stock"); and
WHEREAS, AppNet desires to purchase all of the Shares from Stockholders,
and the Stockholders desire to sell and transfer the Shares to AppNet, on the
terms and conditions hereinafter set forth (the "Stock Purchase").
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. DEFINITIONS
1.1 Defined Terms. As used herein, the terms defined below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending on the reference.
"AAA Distribution" shall have the meaning set forth on Exhibit F
attached hereto.
"Affiliate" shall mean as to any party, any Person which directly or
indirectly, is in control of, is controlled by, or is under common control with,
such party, including any person who would be treated as a member of a
controlled group under Section 414 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any officer or director of such party and, as to a
party who is a natural person, such person's spouse, parents, siblings and
lineal descendants. For purposes of this definition, an entity shall be deemed
to be "controlled by" a Person if the Person possesses, directly or indirectly,
power either to (i) vote ten percent (10%) or more of the securities (including
convertible securities) having ordinary voting power or (ii) direct or cause the
direction of the management or policies of such entity whether by contract or
otherwise.
"AppNet Common Stock" shall mean the $.0005 par value per share
common stock of AppNet.
"Business" shall mean the business of Kodiak or AppNet, as the case
may be, as it is presently being conducted, as it has been conducted in the past
and how it is proposed to be conducted in the future.
"Contract" shall mean a note, bond, mortgage, contract, license,
lease, sublease, covenant, commitment, power of attorney, proxy, indenture, or
other agreement or arrangement, oral or written, to which Kodiak is a party or
by which Kodiak or any of its assets or property is bound, other than Government
Contracts.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, encumbrance, mortgage or other right.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
"Government" shall mean any agency or instrumentality of the United
States of America, any state or territory or subdivision thereof or any foreign
country and any agency or instrumentality of any of the foregoing.
"Government Contracts" shall mean any contracts between Kodiak and
the Government, including, without limitation, any grants, cooperative
agreements and other transactions between Kodiak and the Government, and any
contract to which Kodiak is a party where the Government is the ultimate
customer.
"Governmental or Regulatory Authority" shall mean any court,
tribunal, arbitrator, authority (including any quasi-governmental authority),
agency, commission, official or other instrumentality of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision.
"Intellectual Property Rights" shall mean all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
official and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights, (viii) "technical data" as defined in
48 Code of Federal Regulations, Chapter 1, and (ix) copies and tangible
embodiments thereof (in whatever form or medium).
"Legal Requirement" shall mean (i) with respect to any Person, any
judgment, decree, injunction, order, writ or ruling to or by which such person
is a party or is bound, or (ii) any law, ordinance, statute, rule, regulation,
code or other requirement of any Federal, state, municipal or other
governmental, administrative or judicial body, agency or authority or the common
law.
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"Liabilities" shall mean, without limitation, any direct or indirect
liability, indebtedness, guaranty, endorsement, claim, loss, cost, expense or
obligation, either accrued, absolute, contingent, mature, unmature or otherwise
and whether known or unknown, fixed or unfixed, ▇▇▇▇▇▇ or inchoate, liquidated
or unliquidated, secured or unsecured.
"Material Adverse Effect" shall mean a material adverse effect on
(i) the assets, the business or the condition (financial or otherwise),
properties, liabilities, reserves, working capital, earnings, technology,
prospects or relations with customers, suppliers, distributors, employees or
regulators, or (ii) the right or ability to consummate the transactions
contemplated hereby.
"Material Contract" means any contract involving the receipt or
payment by Kodiak of $10,000 or more or any other contract which, if not
complied with or which, if defaulted by any party thereto, could result in a
Material Adverse Effect.
"Net Worth" shall mean, with regard to Kodiak, total assets
(excluding intangible assets in excess of $83,488) of Kodiak less total
liabilities of Kodiak determined in accordance with GAAP taking into account
Kodiak's status as an S Corporation and not taking into account any (i) accrued
Tax liability of Kodiak attributable to any Section 338(h)(10) Election made
under Section 6.10 or (ii) liability for Taxes resulting from the change, after
AppNet's purchase of the Stockholders' Shares, in Kodiak's method of tax
accounting and reporting from a cash to an accrual basis.
"Permitted Distributions" shall mean distributions by Kodiak to the
Stockholders as set forth on Exhibit F hereof.
"Person" shall mean any person, limited liability company,
partnership, trust, corporation, business, group, Government or other entity.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and
other taxes, assessments or other Government charges, including, without
limitation, income, estimated income, business, occupation, franchise, property,
sales, transfer, use, employment, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
Kodiak or the Stockholders may be liable.
"Tax Distribution" shall have the meaning set forth on Exhibit F
attached hereto.
"Tax Return" means any return, report, information return or other
document (including any related or supporting information) with respect to
Taxes.
2. PURCHASE AND SALE OF SHARES
2.1. Stock Purchase. On the basis of the representations, warranties,
covenants and agreements and subject to the satisfaction or waiver of the
conditions set forth herein, each of the Stockholders agrees to and will sell,
transfer, assign and deliver to AppNet on the Closing Date (as defined in
Section 3.1) good and marketable title to all of the Shares owned by each of the
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Stockholders, free and clear of all liens, claims, restrictions or encumbrances
of any kind whatsoever, and AppNet agrees to and will purchase and accept from
the Stockholders all of the Shares owned by each of the Stockholders. The Shares
constitute and will constitute as of the Closing Date all of the issued and
outstanding shares of Common Stock.
2.2.1 Consideration for Purchase of Shares. In consideration for the
transfer, sale and delivery to AppNet of all of the issued and outstanding
Shares, AppNet will pay to the Stockholders, in accordance with their pro rata
share of the outstanding share ownership of Kodiak as set forth on Schedule 1
(the "Pro Rata Shares"), the following amounts (in the aggregate, the "Purchase
Price"), subject to (a) increase pursuant to Section 6.10 for any Section 338
Adjustment and (b) reduction pursuant to Sections 2.2.2, 2.3 and 7.12,
consisting of:
(a) $11,370,000 in cash payable at the Closing (as defined in
Section 3.1), subject to adjustment as provided herein (the "Cash Payment");
(b) Subordinated Convertible Promissory Notes (the "Notes") to be
dated as of the Closing Date, in the aggregate principal sum of $2,000,000, all
in form and substance substantially identical to Exhibit A attached hereto;
(c) An aggregate of 562,500 shares of common stock of AppNet (the
"AppNet Stock"). At the Closing, the Stockholders shall pledge an aggregate of
125,000 shares of the AppNet Stock (the "Pledged Stock") as security for the
Stockholders' obligations to AppNet under this Agreement pursuant to a Stock
Pledge Agreement in the form attached hereto as Exhibit B (the "Stock Pledge
Agreement"); and
(d) Except as otherwise specified in this Section 2.2.1(d), in the
event that during the three-year period commencing on the Closing Date (the
"Three-Year Sale/Licensing Period"), (i) Kodiak sells, in whole or in part,
Kodiak's "EDI CONTROL/400" or "STAR" products (sometimes collectively referred
to herein as the "Kodiak Products"), the Stockholders shall receive 75% of the
proceeds of such sale or transfer (net of all transaction-related expenses),
and/or (ii) Kodiak licenses the Kodiak Products, the Stockholders shall be paid
75% of the licensing revenues (net of all direct development, sales, marketing
and administrative expenses incurred after the Closing), received during the
Three-Year Sale/Licensing Period (the portion of such net sale and licensing
proceeds payable to the Stockholders are collectively referred to herein as
"Contingent Proceeds"), in accordance with Schedule 2.2.1(d). All payments due
to the Stockholders under this Section 2.2.1(d) shall be made within 30 days
after the end of the quarter in which payment shall be received by Kodiak (or
its successor). In the event of a merger of Kodiak or a sale of all or
substantially all of the stock of Kodiak or all or substantially all of Kodiak's
assets (an "Entity Sale") prior to the end of the Three-Year Sale/Licensing
Period: (a) the Stockholders (i) shall have no right to receive a portion of the
sale proceeds allocated to the Kodiak Products , but (ii) shall retain the
rights to have the terms of this Section 2.2.1(d) remain in effect for the
remainder of the Three-Year Sale/Licensing Period as to the acquirer by a merger
or purchaser of such stock or assets (the "Third-Party Purchaser"); and (b)
AppNet shall, prior to any such sale, provide the Stockholders with the
Third-Party Purchaser's agreement to be bound by the terms of this Section
2.2.1(d). If AppNet shall give an Election Notice under Section
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6.10, the additional amounts shall be payable to the Stockholders as provided in
Section 6.10(k). In the event that Kodiak does not sell or license the Kodiak
Products during the Three-Year Sale/Licensing Period, the Stockholders shall not
be entitled to any Contingent Proceeds. There shall be no payment of Contingent
Proceeds in excess of an aggregate maximum of $4,000,000.
2.2.2 The Purchase Price has been calculated based upon several
factors, including the assumption that the Net Worth of Kodiak as of the Closing
will be equal to or greater than $1,993,865 minus (a) the Permitted
Distributions and (b) $250,000 of bonus payments to employees of Kodiak (the
"Retention Bonuses") to be accrued by Kodiak prior to Closing (but not to be
paid until approximately one year after the Closing Date) (the "Adjusted Net
Value") as of the Closing. If on the Closing Financial Certificate (as defined
in Section 7.12), the Net Worth of Kodiak is less than the Adjusted Net Value,
the Purchase Price to be delivered to the Stockholders may, at AppNet's
election, be reduced either (i) at the Closing by the difference between the
Adjusted Net Value and the Net Worth set forth on the Closing Financial
Certificate (which reduction shall be in cash as a reduction of the Cash
Payment) or (ii) after completion of the Post-Closing Audit (as defined in
Section 2.3).
2.3 Post-Closing Adjustment.
(a) Within one hundred twenty (120) days following the Closing Date,
AppNet shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("AppNet's Accountant") to audit Kodiak's
books to determine the accuracy of the information set forth on the Closing
Financial Certificate (the "Post-Closing Audit"). The parties acknowledge and
agree that for purposes of determining the Net Worth of Kodiak as of the Closing
Date, the value of the assets of Kodiak shall, except with the prior written
consent of AppNet, be calculated as provided in the last sentence of Section
7.12 and in accordance with GAAP taking into account Kodiak's status as an S
Corporation. The Stockholders shall cooperate and shall use their reasonable
efforts to cause the officers and employees of Kodiak to cooperate with AppNet
and AppNet's Accountant after the Closing Date in furnishing information,
documents, evidence and other assistance to AppNet's Accountant to facilitate
the completion of the Post-Closing Audit within the aforementioned time period.
In the event that AppNet's Accountant determines that the actual Net Worth of
Kodiak as of the Closing Date was less than the Net Worth set forth on the
Closing Financial Certificate, AppNet shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders setting forth (i) the
determination made by AppNet's Accountant of the actual Net Worth of Kodiak (the
"Actual Company Net Worth"), (ii) the Purchase Price that would have been
payable at Closing pursuant to Sections 2.2.1 and 2.2.2 had the Actual Company
Net Worth been reflected on the Closing Financial Certificate, and (iii) the
amount by which the Cash Payment would have been reduced at Closing had the
Actual Company Net Worth been used in the calculations pursuant to Sections
2.2.1 and 2.2.2 (the "Adjustment"). The Purchase Price Adjustment shall take
account of the reduction, if any, to the Purchase Price already taken pursuant
to Section 2.2.2.
(b) The Stockholders shall have thirty (30) days from the receipt of
the Financial Adjustment Notice to notify AppNet if the Stockholders dispute
such Financial Adjustment Notice. If AppNet has not received notice of such a
dispute within such 30-day period, AppNet shall be entitled to receive from the
Stockholders the Adjustment, in cash, on the
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thirtieth day after receipt of the Financial Adjustment Notice. If, however, the
Stockholders have delivered notice of such a dispute to AppNet within such
30-day period, then AppNet and the Stockholders shall, by mutual agreement,
select an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years to review Kodiak's books, the
Closing Financial Certificate and Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Adjustment. Such
independent accounting firm shall be confirmed by the Stockholders and AppNet
within five (5) days of its selection, unless there is an actual conflict of
interest. The independent accounting firm shall make its determination and give
AppNet and the Stockholders notice of its determination of the Adjustment, if
any, within thirty (30) days of its selection. The determination of the
independent accounting firm shall be final and binding on the parties hereto,
and upon such determination, AppNet shall be entitled to receive from the
Stockholders the Adjustment, in cash. The costs of the independent accounting
firm shall be borne by the parties in direct proportion to the amount of the
difference between each party's determination of Kodiak's Net Worth at Closing
and the determination of the independent accounting firm, or equally by AppNet
and the Stockholders in the event that the determination by the independent
accounting firm is equidistant between the Net Worth set forth on the Closing
Financial Certificate and the Actual Company Net Worth. If any Adjustment is
determined by the independent accounting firm to be due, the Adjustment shall be
payable to AppNet in cash by the Stockholders within 30 days after such
determination.
3. CLOSING
3.1 Time and Place of the Closing. The closing of the Stock Purchase and
the consummation of the other transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇, Flyer & ▇▇▇▇▇, a
professional corporation, at ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇, as soon as practicable after all conditions to the Closing shall have
been satisfied or waived, or at such other time and date as the parties hereto
may mutually agree, which date shall be referred to as the "Closing Date."
3.2 Procedure at Closing. On the Closing Date, the parties agree to take
the following steps listed below (provided, however, that upon their completion
all such steps shall be deemed to have occurred simultaneously):
(a) The Stockholders and Kodiak shall deliver to AppNet the closing
documents specified in Section 7.
(b) AppNet shall deliver to the Stockholders the closing documents
specified in Section 8.
(c) The Stockholders shall deliver to AppNet certificates in valid
form representing all of the Shares, duly endorsed by the Stockholders in blank
or accompanied by a duly executed stock power in order to convey good and
marketable title to all of the Shares, free and clear of all liens, claims,
restrictions or encumbrances of any kind whatsoever.
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(d) AppNet shall pay the Cash Payment by wire transfer of
immediately available funds to accounts designated by the Stockholders.
(e) AppNet shall deliver the Notes to the Stockholders.
(f) AppNet shall deliver the AppNet Stock to the Stockholders.
4. REPRESENTATIONS AND WARRANTIES OF KODIAK AND THE STOCKHOLDERS.
To induce AppNet to enter into this Agreement and to consummate the
transactions contemplated by this Agreement, Kodiak and the Stockholders,
jointly and severally, each represents and warrants to AppNet, as of the date
hereof and as of the Closing Date, as set forth below:
4.1 Organization. Kodiak is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts. Kodiak
is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect on Kodiak.
4.2 Power and Authority. Kodiak has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its Business
as presently conducted and as proposed to be conducted and is duly qualified or
licensed as a foreign corporation in good standing in each jurisdiction in which
the character of its properties or the nature of its business activities
requires such qualification, except where the failure to be so qualified or
licensed would not have a Material Adverse Effect on Kodiak.
4.3 Authority for Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been authorized by all requisite corporate action on the part of Kodiak. Kodiak
has full corporate power, authority and legal right to enter into this Agreement
and to consummate the transactions contemplated hereby. The Stockholders have
the legal capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Stockholders and is a legal, valid and binding
obligation of the Stockholders enforceable against the Stockholders in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general. This Agreement has
been duly executed and delivered by Kodiak and is a legal, valid and binding
obligation of Kodiak, enforceable against Kodiak in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general.
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4.4 No Violation to Result. Except as set forth on Schedule 4.4, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby and the fulfillment of the terms hereof:
(i) are not in violation or breach of, do not conflict with or constitute a
default under, and will not accelerate or permit the acceleration of the
performance required by, any of the terms of the Articles of Organization or
Bylaws of Kodiak or any Contract to which Kodiak or the Stockholders is a party
or which affects Kodiak; (ii) will not be an event which, after notice or lapse
of time or both, will result in any such violation, breach, conflict, default,
or acceleration; (iii) will not result in a violation under any law, judgment,
decree, order, rule, regulation, permit or other legal requirement of any
Governmental or Regulatory Authority, court or arbitration tribunal, whether
federal, state, provincial, municipal or local (within the U.S. or otherwise),
at law or in equity, and applicable to Kodiak; and (iv) will not result in the
creation or imposition of any Encumbrance in favor of any Person upon any of the
properties or assets of Kodiak.
4.5 Capitalization.
(a) Schedule 4.5 sets forth, with respect to Kodiak, (i) the number
of authorized shares of each class of its capital stock, (ii) the number of
issued and outstanding shares of each class of its capital stock and the record
owner thereof, and (iii) the number of shares of each class, if any, which are
held in treasury. All of the issued and outstanding shares of capital stock of
Kodiak (A) have been duly authorized and validly issued and are fully paid and
non-assessable, (B) were issued in compliance with all applicable state and
federal laws and (C) were not issued in violation of any preemptive rights or
rights of first refusal. No preemptive rights or rights of first refusal exist
with respect to the shares of capital stock of Kodiak, and no such rights arise
by virtue of or in connection with the transactions contemplated hereby. There
are no outstanding or authorized rights, options, warrants, convertible
securities, subscription rights, conversion rights, exchange rights or other
agreements or commitments of any kind that could require Kodiak to issue or sell
any shares of its Common Stock (or securities convertible into or exchangeable
for shares of its Common Stock). There are no outstanding stock appreciation,
phantom stock, profit participation or other similar rights with respect to
Kodiak. There are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock of
Kodiak. Except as set forth on Schedule 4.5, Kodiak is not obligated to redeem
or otherwise acquire any of its outstanding shares of capital stock.
(b) Except as set forth on Schedule 4.5, the Stockholders are the
sole legal and beneficial holders of the issued and outstanding shares of
capital stock of Kodiak, and the Stockholders own such shares as are set forth
on Schedule 4.5 free and clear of any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, Encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive right, conversion, put,
call or other claim or right, restriction on transfer, or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
-8-
4.6 Financial Statements.
(a) Schedule 4.6 includes true, complete and correct copies of (i)
(A) the compiled balance sheet of Kodiak for the 1995 fiscal year, the reviewed
balance sheet of Kodiak for the 1996 fiscal year and the related statements of
income, cash flows and retained earnings for the 1995 and 1996 fiscal years and
(B) the audited balance sheet of Kodiak for the 1997 fiscal year and related
statements of income, cash flows and retained earnings for the 1997 fiscal year
(collectively, the "Annual Financials"), and (ii) true, complete and correct
copies of Kodiak's unaudited interim balance sheet (the "Current Balance Sheet")
as of September 30, 1998 (the "Balance Sheet Date") and Kodiak's related
statement of income, cash flow and retained earnings for the nine (9) months
ended September 30, 1998 (collectively, the "Interim Financials" and together
with the Annual Financials, the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP (subject, in the case of
the Interim Financials, to normal year-end audit adjustments, which individually
or in the aggregate will not be material, except for any adjustments to reflect
the repayment of professional and brokers' fees paid by Kodiak in connection
with the transaction contemplated by this Agreement and the absence of
footnotes). Each of the balance sheets included in the Financial Statements
presents fairly the financial condition of Kodiak as of the dates indicated
thereon, and each of the statements of income, cash flows and retained earnings
included in the Financial Statements presents fairly the results of its
operations for the periods indicated thereon. Except as set forth on Schedule
4.6, during the periods covered by the Financial Statements and since the
Balance Sheet Date, there has been no material change in Kodiak's accounting
policies. There are no material, special or non-recurring items of income or
expense during the periods covered by the Financial Statements and the balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto.
(b) The books and records, minute books, stock record books, and
other records of Kodiak, all of which have been made available to AppNet, are
complete and correct and have been maintained in accordance with sound business
practices. The minute book(s) of Kodiak, all of which have been made available
to AppNet, contains accurate and complete records of all meetings held of, and
corporate action taken by, the Stockholders, the Board of Directors, and
committees of the Board of Directors of Kodiak, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared as of the date hereof and are not contained in such
minute book.
4.7 Liabilities and Obligations.
(a) Except as disclosed on Schedule 4.7(a), there are no Liabilities
of Kodiak, other than: (i) those Liabilities reflected on the Current Balance
Sheet and not previously paid or discharged; (ii) the Liabilities to be incurred
by Kodiak for the payment of the Retention Bonuses, which will be paid in
accordance with Section 6.12; (iii) those Liabilities incurred after the Balance
Sheet Date arising in the ordinary course of business, which were incurred
consistent with past practice under any contract, commitment or agreement
specifically disclosed on any schedule to this Agreement; and (iv) Liabilities
to the Stockholders for the Stockholders' Loans (as defined in Section 6.11).
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(b) Schedule 4.7(b) sets forth a summary description of all advance
payments or deposits held by Kodiak and reflected in the Financial Statements
and the related obligations thereunder.
4.8 Adverse Changes. From December 31, 1997, except as otherwise disclosed
on the Interim Financials or Schedule 4.8: (i) there has been no change in the
condition (financial or otherwise), Business, net worth, assets, properties,
Liabilities of Kodiak which has had or is likely to have a Material Adverse
Effect, and there has been no occurrence, circumstance or combination thereof
which might reasonably be expected to result in any such Material Adverse Effect
before or after the Closing Date; (ii) Kodiak has not declared or paid any
dividend or distribution in respect of the capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of the capital stock
of Kodiak (except for the Tax Distribution, the distributions set forth on
Schedule 4.8 and the AAA Distribution), and (iii) Kodiak has complied with all
of the covenants set forth in ▇▇▇▇▇▇▇ ▇.▇(▇), (▇), (▇), (▇), (▇), (▇), (▇), (▇)
and (q), to the same extent as if this Agreement had been executed on December
31, 1997.
4.9 Employee Matters.
(a) All employee benefit plans, programs, policies and arrangements
(whether formal or informal, written or unwritten, and whether maintained for
the benefit of a single individual or more than one individual) maintained or
contributed to by Kodiak for the benefit of any current or former employee of
Kodiak or in which such employees are entitled to participate are listed in
Schedule 4.9(a) (the "Benefit Plans"). With respect to each Benefit Plan, true,
correct and complete copies of all of the following documents, if applicable,
will be delivered or made available to AppNet substantially prior to the Closing
Date: (i) all plan documents and amendments thereto; (ii) all written
descriptions of any oral plans or policies; (iii) all trust agreements; (iv) all
annuity contracts, insurance policies or contracts and service agreements; (v)
the three (3) most recent Forms 5500 and any financial statements attached
thereto; (vi) the most recent actuarial and valuation report; (vii) the most
recent IRS determination letter; (viii) the most recent summary plan
description; and (ix) copies of all nondiscrimination testing for the last three
(3) years. Except as set forth on Schedule 4.9(a), each Benefit Plan and the
administration thereof complies, and has at all times complied, with the terms
of such Benefit Plan and with the requirements of all applicable law, including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the
"Code"). Except as set forth on Schedule 4.9(a), each Benefit Plan intended to
qualify under Section 401(a) of the Code so qualifies, and each trust which
forms a part of any such Benefit Plan is exempt from taxation under Section
501(a) of the Code. No Benefit Plan subject to Part 3 of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code. No liability has been incurred or is
expected to be incurred under Title IV of ERISA to any party with respect to any
Benefit Plan, or any other plan presently or heretofore maintained or
contributed to by Kodiak, any predecessor to Kodiak, or any entity that is or at
any time was a member of a controlled group, as defined in Section 412(n)(6)(B)
of the Code, which includes or included Kodiak ("Controlled Group Member").
Neither Kodiak, nor any Controlled Group
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Member has incurred any liability for any Tax imposed under Sections 4971
through 4980B of the Code or civil liability under Sections 502(i) or (l) of
ERISA. The "amount of unfunded benefit liabilities" within the meaning of
Section 4001(a)(18) of ERISA does not exceed zero with respect to any Benefit
Plan subject to Title IV of ERISA. No Benefit Plan is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA. No Benefit Plan provides health or
death benefit coverage to any employee or his spouse or dependents beyond the
termination of an employee's employment, except as required by Part 6 of Subpart
B of Title I of ERISA or Section 4980B of the Code. No "reportable event"
(within the meaning of Section 4043 of ERISA) has occurred with respect to any
Benefit Plan or any plan maintained by a Controlled Group Member since the
effective date of said Section 4043. Kodiak has no liability (whether actual,
contingent or otherwise) with respect to any employee benefit plan or
arrangement sponsored or maintained by a Controlled Group Member. No suit,
actions or other litigation (excluding claims for benefits incurred in the
ordinary course of plan activities) have been brought against or with respect to
any Benefit Plan, and no suit, action, or other litigation is threatened by,
against, or relating to any Benefit Plan and Kodiak does not have any knowledge
of any fact that could form the basis for any such suit, action or litigation.
No "prohibited transaction" within the meaning of Sections 406 or 407 of ERISA
or Section 4975 of the Code has occurred with respect to any Benefit Plan. No
Benefit Plan is presently under audit or examination by the IRS, the Department
of Labor, or any other Governmental or Regulatory Authority, and no matters are
pending with respect to any Benefit Plan under the IRS Voluntary Compliance
Resolution program, its Closing Agreement Program, or any other similar program.
All contributions to Benefit Plans that were required to be made under such
Benefit Plans will have been made as of the Balance Sheet Date, and all benefits
accrued under any unfunded Benefit Plan will have been paid, accrued or
otherwise adequately reserved in accordance with GAAP as of such date, and
Kodiak will have performed by the Closing Date any obligations required to be
performed as of such date under all Benefit Plans. No Benefit Plan contains any
term or provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement, or that would give rise to the vesting of
benefits, payments, or liabilities as a result of the transactions contemplated
by this Agreement, except to the extent that full vesting is required under any
tax-qualified Benefit Plan under Section 411 of the Code.
(b) Schedule 4.9(b) contains a complete and correct list of all
employees of Kodiak as of the date hereof and the 1998 compensation paid or
payable to each such employee. Except as set forth in Schedule 4.9(b), (i) the
terms of employment or engagement of all directors, officers, employees, agents,
consultants and professional advisers of Kodiak are such that their employment
or engagement may be terminated upon not more than two weeks' notice given at
any time and without liability for payment of compensation or damages (excluding
a claim for wrongful termination after the Closing), (ii) there are no severance
payments which are or could become payable by Kodiak to any director, officer or
other employee of Kodiak under the terms of any oral or written agreement or
commitment or any law or custom, trade or practice of Kodiak, and (iii) there
are no agreements, contracts or commitments, oral or written, between Kodiak and
any employee, consultant or independent contractor.
(c) Kodiak is not bound by or subject to (and none of its assets or
properties are bound by or subject to) any arrangement with any labor union. No
employees of Kodiak are
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or ever have been represented by any labor union or covered by any collective
bargaining agreement while employed by Kodiak and no campaign to establish such
representation is in progress. There is no pending or threatened labor dispute
involving Kodiak and any group of their employees nor has Kodiak experienced any
labor interruptions. Kodiak is and has been in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours, including without limitation any such laws
regarding employment documentation, minimum wage and hours, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and Kodiak has not engaged in
any unfair labor practice. All persons classified by Kodiak as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and Kodiak has fully and accurately reported their compensation on
IRS Forms 1099 when required to do so.
(d) Prior to Closing, unless otherwise agreed to by AppNet, Kodiak
agrees to take any and all steps necessary in order to cease all accruals of
benefits or contributions under each Benefit Plan, to terminate each Benefit
Plan as of the Closing Date, and to distribute to the participants of each
Benefit Plan their accrued benefits thereunder, in accordance with the terms of
each Benefit Plan and all applicable laws including, without limitation, the
provisions of Section 401(k)(10) of the Code.
4.10 Taxes. Kodiak has, since its incorporation, been an S corporation
within the meaning of Section 1361 of the Code. Kodiak does not have a net
unrealized built-in gain (within the meaning of Section 1374(d)(1) of the Code,
applying the principles of Section 1374(d)(8), or recognized built-in gain
subject to carryover pursuant to Section 1374(d)(2)(B)) which would be subject
to tax under Section 1374(a) of the Code if all of the assets of Kodiak were
sold for an amount equal to their fair market value. Kodiak has filed or caused
to be filed with the appropriate Governmental or Regulatory Authority any and
all Tax Returns required to be filed by it as of the date hereof, or requests
for extensions to file such Tax Returns have been timely filed or granted and
have not expired. All such Tax Returns are true, complete and accurate in all
respects. Kodiak has paid all Taxes shown as due, claimed to be due by any
Governmental or Regulatory Authority, or accruable with respect to periods
through the Closing Date except for such taxes as (i) are fully reserved for in
the Current Balance Sheet or (ii) were incurred after the Balance Sheet Date in
the ordinary course of business and are not due and payable as of the Closing
Date. No deficiencies for any Taxes have been proposed against Kodiak that are
not adequately reserved for in the Current Balance Sheet. No requests for
waivers or comparable consents with respect to the time to assess any Taxes
against Kodiak have been granted or are pending, except for requests with
respect to such Taxes that have been adequately reserved for in the Current
Balance Sheet. Kodiak has complied in all respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
and 1442 of the Code or similar provisions under any foreign laws and
withholding with respect to employee wages) and has, within the time and manner
prescribed by law, withheld and paid over to the proper Governmental or
Regulatory Authority all amounts required to be withheld and paid over under all
applicable laws. No federal, state, local or foreign audits or other
administrative proceedings or court proceedings ("Audits") exist or have been
initiated with regard to any Taxes
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or Tax Returns of Kodiak, and Kodiak has not received any notice that such an
Audit is pending or threatened with respect to any Taxes due from or with
respect to Kodiak or any Tax Return filed or required to be filed by or with
respect to Kodiak. Kodiak is not a party to, is not bound by, and has no
obligation under, any tax sharing agreement, tax indemnification agreement or
similar contract or arrangement.
4.11 Subsidiaries. Kodiak has no debt, equity or other investment or
interest in any Person or any strategic alliance with any Person. Kodiak has no
commitments to contribute to the capital of, make loans to or share losses of,
any Person.
4.12 Property.
(a) Kodiak neither has ever owned nor now owns any real property.
Schedule 4.12(a) sets forth an accurate and complete list of all leaseholds of
real property leased by Kodiak (collectively, the "Facilities"). Except as
otherwise disclosed on Schedule 4.12(a), (i) there are no outstanding written or
oral leases, rights to occupancy, or tenancies of any kind (including tenancies
by sufferance and/or holdover tenancies arising under expired written or oral
leases) covering or in any way affecting the Facilities or any part or parts
thereof; (ii) no person, firm or corporation other than Kodiak has any rights
(including rights arising under an installment contract, option to purchase,
easement, right-of-way, or otherwise) with respect to the Facilities or any part
thereof; and (iii) there have been no improvements to, construction on, work
done at, and/or services or material supplied to, the Facilities or any part or
parts thereof for which payment in full has not been made and which might give
rise to mechanic's liens or other lien rights, except in the ordinary course of
business. All leases set forth on Schedule 4.12(a) are in full force and effect
and constitute valid and binding agreements of Kodiak and, to the knowledge of
Kodiak, the other parties thereto in accordance with their respective terms.
(b) Schedule 4.12(b) sets forth an accurate list of all Kodiak owned
and leased personal property (i) as of the Balance Sheet Date, or (ii) acquired
since the Balance Sheet Date, including in each case true, complete and correct
copies of leases for equipment and also including an indication as to which
assets are currently owned, or were formerly owned, by any current or former
stockholders of Kodiak or business or personal Affiliates of Kodiak or any
current or former stockholder of Kodiak. All of the vehicles and other material
machinery and equipment listed on Schedule 4.12(b) are in good working order and
condition, ordinary wear and tear excepted. All fixed assets used by Kodiak that
are material to the operation of the Business are either owned by Kodiak or
leased under an agreement listed on Schedule 4.12(b).
(c) Except as set forth on Schedule 4.12(c), Kodiak has good and
marketable title to its assets, free and clear of any and all Encumbrances and
defects in title. Kodiak's assets, taken together, are adequate for the
operation of the Business as it is being currently conducted.
4.13 Contracts. Schedule 4.13 constitutes an accurate and complete list
of each Material Contract. Each Contract is in full force and effect, is a
valid, binding and enforceable obligation by or against Kodiak and the other
parties thereto, and no event has occurred which constitutes or, with the giving
of notice or passage of time, or both, would constitute, a default or breach
thereunder. Prior to the Closing Date, Kodiak will deliver or will cause to be
delivered or
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will make available to AppNet correct and complete copies of each Material
Contract and all amendments thereto. To the knowledge of Kodiak, no other party
to any Contract is in default thereunder. None of the non-Material Contracts
contain any restrictive covenants limiting the ability of Kodiak or any
Affiliate of Kodiak to conduct its business. Kodiak will not experience a loss
on any of the Contracts.
4.14 Government Contracts. Kodiak is not, and has never been, a party to
any Government Contract.
4.15 Litigation. Except as set forth in Schedule 4.15, there is no
litigation, suit, proceeding, action, claim, demand or investigation, at law or
in equity, pending or to the knowledge of Kodiak and the Stockholders threatened
against or affecting Kodiak before any court, agency, authority or arbitration
tribunal, including, without limitation, any product liability, workers'
compensation or wrongful dismissal claims, or claims, actions, suits, demands or
proceedings relating to toxic materials, hazardous substances, pollution or the
environment. To the knowledge of Kodiak and the Stockholders, there are no facts
that would likely result in any such litigation, suit, proceeding, action, claim
or investigation. Kodiak is not subject to or in default with respect to any
notice, order, writ, injunction or decree of any court, agency, authority or
arbitration tribunal.
4.16 Compliance with Laws. Except as set forth in Schedule 4.16, Kodiak
has complied and is currently in compliance, in all material respects, with all
laws, regulations, rules, orders, permits, judgments, decrees and other
requirements and policies imposed by any Governmental or Regulatory Authority
applicable to it, its properties or the operation of its business. Kodiak has
not received any notice or citation for noncompliance with any of the foregoing,
and there exists no condition, situation or circumstance, nor has there existed
such a condition, situation or circumstance, which, after notice or lapse of
time, or both, would constitute noncompliance with or give rise to future
liability with regard to any of the foregoing. Kodiak has all licenses, permits,
approvals, qualifications or the like, from any Government, Governmental or
Regulatory Authority or any third party necessary for the conduct of Kodiak's
Business and all such items are in full force and effect.
4.17 Environmental and Safety Matters.
(a) For purposes of this Agreement, the term "Environmental and
Safety Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health and
safety, worker health and safety and pollution or protection of the environment
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as
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defined below); and "Environmental Lien" shall mean any lien, whether recorded
or unrecorded, in favor of any Governmental or Regulatory Authority, relating to
any liability of Kodiak arising under any Environmental and Safety Requirements.
(b) Except as set forth on Schedule 4.17:
(i) Kodiak has complied with and is currently in compliance
with all Environmental and Safety Requirements, and Kodiak has not received any
oral or written notice, report or information regarding any Liabilities or any
corrective, investigatory or remedial obligations arising under Environmental
and Safety Requirements which relate to Kodiak or any of its properties or
facilities.
(ii) Without limiting the generality of the foregoing, Kodiak
has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of its properties or
facilities or the operation of their businesses. A list of all such permits,
licenses and other authorizations which are material to Kodiak is set forth on
Schedule 4.17 attached hereto.
(iii) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on
Kodiak for site investigation or cleanup, or notification to or consent of any
Governmental or Regulatory Authorities or third parties under any Environmental
and Safety Requirements (including, without limitation, any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(iv) Kodiak has not treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled or Released any substance
(including, without limitation, any hazardous substance), or owned, occupied or
operated any facility or property, so as to give rise to Liabilities of Kodiak
for response costs, natural resource damages or attorneys fees pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), or any other Environmental and Safety Requirements.
(v) Without limiting the generality of the foregoing, no
facts, events or conditions relating to the past or present properties,
facilities or operations of Kodiak shall prevent, hinder or limit continued
compliance with Environmental and Safety Requirements, give rise to any
corrective, investigatory or remedial obligations pursuant to Environmental and
Safety Requirements or give rise to any other Liabilities pursuant to
Environmental and Safety Requirements (including, without limitation, those
Liabilities relating to onsite or offsite Releases or threatened Releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage).
(vi) Kodiak has not, either expressly or by operation of law,
assumed or undertaken any material liability or corrective, investigatory or
remedial obligation of any other Person relating to any Environmental and Safety
Requirements.
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(vii) No Environmental Lien has attached to any property
leased or operated by Kodiak.
4.18 Customers; Suppliers.
(a) Except as set forth in Schedule 4.18(a), no single customer
accounted for more than 5% of Kodiak's revenues for the fiscal year ended
December 31, 1997 or for the period January 1, 1998 through September 30, 1998.
Except as set forth in Schedule 4.18(a) or as specifically provided in the
Contract with each customer listed on Schedule 4.18(a) (a "Significant
Customer"), no Significant Customer has canceled or otherwise terminated or
threatened to cancel or otherwise terminate its relationship with Kodiak since
January 1, 1998, or during such periods has materially decreased its usage or
purchase of Kodiak's services or products. To the knowledge of Kodiak and the
Stockholders, no Significant Customer has any plan or intention to terminate,
cancel or otherwise materially modify its relationship with Kodiak or materially
decrease or limit its usage, purchase or distribution of the services or
products of Kodiak.
(b) The relationships of Kodiak with its suppliers are good
commercial working relationships and, except as set forth on Schedule 4.18(b),
no supplier has during the last twelve months terminated, or threatened to
terminate its relationship with Kodiak or has during the last twelve (12) months
decreased or limited, or threatened to decrease or limit, its services, supplies
or materials to Kodiak. No supplier is a sole source of supply of any good or
service to Kodiak. Kodiak does not have any knowledge that any of the suppliers
intends to terminate or otherwise modify adversely to Kodiak its relationship
with Kodiak or to decrease or limit its services, supplies or materials to
Kodiak.
4.19 Insurance. Schedule 4.19 sets forth an accurate list of all insurance
policies carried by Kodiak (all of which policies remain in full force and
effect) and all insurance loss runs or workers' compensation claims. Kodiak has
made available to AppNet true, complete and correct copies of all current
insurance policies of Kodiak, all of which are in full force and effect. All
premiums due and payable under all such policies have been paid and Kodiak is
otherwise in full compliance with the terms of such policies (or other policies
providing substantially similar insurance coverage). Such policies of insurance
are of the type and in amounts customarily carried by persons conducting
businesses similar to that of Kodiak. Neither Kodiak nor the Stockholders know
of any threatened termination of, or material premium increase with respect to,
any of such policies.
4.20 Intellectual Property.
(a) Kodiak owns, or possesses valid written licenses to use, all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs and applications and tangible or intangible
proprietary information and material that are used or proposed to be used in the
Business of Kodiak as currently conducted or as proposed to be conducted by
Kodiak (the "Company Intellectual Property Rights"). Schedule 4.20(a) lists all
Company
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Intellectual Property Rights owned by Kodiak, and specifies the jurisdictions in
which the Company Intellectual Property Rights are issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners. The filings in respect of all such registrations and
applications are in good standing, are held solely in the name of Kodiak as the
exclusive owner of all rights therein, and all necessary steps have been taken
to maintain such filings and to prosecute the applications in a timely manner.
(b) Schedule 4.20(b) lists (i) all licenses, sublicenses and other
agreements to which Kodiak is a party and pursuant to which any person is
authorized to use any Company Intellectual Property Rights or any trade secret
material to Kodiak (and includes the identity of all parties thereto other than
non-exclusive product licenses and sublicenses granted by Kodiak in the ordinary
course of business); and (ii) all licenses, sublicenses and other agreements as
to which Kodiak is a party and pursuant to which Kodiak is authorized to use any
third party patents, trademarks or copyrights (including software) which are
incorporated in, are, or form a part of, any of Kodiak's products or services,
or other trade secrets of a third party in or as to any product or service
(collectively, the "Company Third Party Intellectual Property Rights"), and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty and the term thereof. Kodiak is
authorized to use, in the manner used by Kodiak, the Company Third Party
Intellectual Property Rights. Except as set forth on Schedule 4.20(b), Kodiak is
not, nor will it be as a result of the execution and delivery of this Agreement
or the performance of its obligations hereunder, in violation of any license,
sublicense or agreement described on Schedule 4.20(b) or by which it is
authorized to use Company Third Party Intellectual Property Rights.
(c) No claims with respect to Company Intellectual Property Rights,
any trade secrets of Kodiak, or Company Third Party Intellectual Property Rights
to the extent arising out of any use, reproduction or distribution of such of
Company Third Party Intellectual Property Rights by or through Kodiak, have been
asserted or are threatened by any person, nor, except as set out on Schedule
4.20(c), does Kodiak or any of the Stockholders know of any valid grounds for
any bona fide claims (i) to the effect that the manufacture, sale, licensing or
use of any product or service, as now used, sold or licensed or proposed for
use, sale or license by Kodiak infringes any copyright, patent, trademark,
service ▇▇▇▇, trade secret or any other intellectual property right; (ii)
against the use by Kodiak of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in Kodiak's Business as currently conducted or as proposed to
be conducted by Kodiak; (iii) challenging the ownership, validity or
effectiveness of any of Company Intellectual Property Rights or other trade
secrets of Kodiak; or (iv) challenging Kodiak's license or legally enforceable
right to use, or the validity or effectiveness of, Company Third Party
Intellectual Property Rights.
(d) Kodiak has entered into all necessary agreements and obtained
all necessary rights to acquire Company Third Party Intellectual Property
Rights. All agreements relating to Company Third Party Intellectual Property
Rights are in full force and effect for the term set forth in each such
agreement.
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(e) All registered trademarks, service marks and copyrights held by
Kodiak are valid and subsisting. There is no unauthorized use, disclosure,
infringement or misappropriation of any of Company Intellectual Property Rights,
any trade secrets of Kodiak, or any of Company Third Party Intellectual Property
Rights to the extent licensed by or through Kodiak, by any third party,
including any employee or former employee of Kodiak. Except as set out on
Schedule 4.20(e), (i) Kodiak has not been sued or charged in writing as a
defendant in any claim, suit, action or proceeding which involves a claim or
infringement of any patent, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; (ii) there is
no basis for any such charge or claim; and (iii) there is not any infringement
liability with respect to, or infringement or violation by, Kodiak of any
patent, trademark, service ▇▇▇▇, copyright, trade secret or other proprietary
right of another.
(f) No Company Intellectual Property Rights, trade secrets of Kodiak
or Company Third Party Intellectual Property Rights are subject to any
outstanding order, judgment, decree, stipulation or agreement restricting in any
manner the licensing thereof by Kodiak. Except for contracts licensing Kodiak's
products executed in the ordinary course of business and in accordance with
Kodiak's past practices (all of which are listed in Schedule 4.13), Kodiak has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Company Intellectual Property Rights. Except as set forth
on Schedule 4.20(f), each current and former officer of, employee of, and each
consultant to, Kodiak has executed and delivered to Kodiak a non-disclosure
agreement, or consultant agreement, respectively, in Kodiak's standard forms
substantially as set forth in Schedule 4.20(f) hereto regarding the protection
of such confidential or proprietary information and the assignments of
inventions to Kodiak; copies of all such agreements have been delivered to
AppNet. Kodiak is not and never has been engaged in any dispute or litigation
with an employee or former employee regarding matters pertaining to intellectual
property or assignment of inventions.
(g) Kodiak has used its best efforts to enforce an adequate trade
secret protection program through contractual agreements with officers,
employees, developers, consultants and other persons dealing with their
businesses. To the knowledge of Kodiak, there has been no material violation of
such program by any Person.
(h) The Company Intellectual Property Rights, at no additional cost
to AppNet (or Kodiak, after the Closing Date), and without human intervention
will:
(i) include year 2000 date conversion and capabilities
including, but not limited to, date data century
recognition; calculations which accommodate same century
and multi-century formulas and date values; correct sort
ordering; and date data interface values that reflect
the century;
(ii) automatically compensate for and manage and manipulate
data involving dates, including single century formulas
and multi-century formulas, and will not cause an
abnormal abort within the
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application or result in the generation of incorrect
values or invalid outputs involving such dates;
(iii) provide that all date related user interface
functionalities and data fields include the indication
of the correct century;
(iv) provide that all date related software to software or
application to application data interface
functionalities will include the indication of the
correct century; and
(v) provide that all date processing by the Company
Intellectual Property Rights will include four-digit
date format and recognize and correctly process dates
for leap years.
4.21 Accounts Receivable. The accounts receivable of Kodiak arose in the
ordinary course of business from bona fide transactions and are not subject to
any setoff, counterclaim or defense. Except as set forth on Schedule 4.21, the
accounts receivable (both billed and unbilled) shall be fully collectible in
accordance with their terms, subject to any applicable reserves on the Current
Balance Sheet.
4.22 Inventory. All items of inventory and supplies consist of items of a
quality, quantity and condition usable and saleable in the ordinary course of
the business of Kodiak and for the purpose for which they are intended, without
discount or reduction and conform to generally accepted standards in the
industry of which Kodiak is a part. The value of each item of inventory and
supplies reflected on the Financial Statements was, in each instance, valued at
the lower of cost or market value and based on the ordinary course of the
business consistent with the historical valuation policy of Kodiak and is not
subject to any write-down or write-off.
4.23 Related Party Transactions. Schedule 4.23 sets forth all
arrangements, Liabilities, agreements and contracts in effect as of the date
hereof among Kodiak and (i) any Person who is an officer, director or Affiliate
of Kodiak, any relative of any of the foregoing or any entity of which any of
the foregoing is an Affiliate, or (ii) any Person who acquired Kodiak Common
Stock in a private placement.
4.24 Brokers. Except as disclosed in Schedule 4.24, no Person has or will
have, as a result of the transactions contemplated by this Agreement, any right,
interest or claim against or upon Kodiak for any commission, fee or other
compensation payable as a finder or broker because of any act or omission by
Kodiak or the Stockholders. The Stockholders shall be fully responsible for and
shall pay all such commissions, fees and other compensation due to, and shall
deliver to AppNet at Closing a release from, the party disclosed on Schedule
4.24.
4.25 Accredited Investors; Investment Intent.
(a) AppNet has made available to each Stockholder, during the course
of this transaction and prior to the delivery of the AppNet Stock, the Notes and
the shares of AppNet Common Stock into which the Notes are convertible
(together, the "Securities"), the opportunity
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to ask questions of and receive answers from any of the officers of AppNet
concerning the terms and conditions of the offering, and to obtain any documents
or additional information necessary to verify the information provided to each
Stockholder or otherwise relative to the financial data and business of AppNet,
to the extent that such parties possessed such information or could acquire it
without unreasonable effort or expense, and all such questions, if asked, have
been answered satisfactorily and all such documents, if examined, have been
found to be fully satisfactory.
(b) Each Stockholder understands and acknowledges that (i) such
Stockholder must bear the economic risk of such Stockholder's investment in the
Securities; (ii) the Securities have not been registered under the Securities
Act of 1933, as amended (the "1933 Act") or any state securities laws and are
being offered and sold in reliance upon exemptions provided in the 1933 Act and
state securities laws for transactions not involving any public offering and,
therefore, cannot be resold or transferred unless they are subsequently
registered under the 1933 Act and applicable state laws or unless an exemption
from such registration is available; (iii) such Stockholder is purchasing the
Securities for investment purposes only for such Stockholder's own account and
not with any view toward a distribution thereof; (iv) no Stockholder has any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else any of the Securities which
such Stockholder hereby subscribes to purchase or any part thereof, and no
Stockholder has any present plans to enter into any such contract, undertaking,
agreement or arrangement; (v) there will be no public market for the Securities;
and (vi) each Stockholder understands that AppNet is not obligated to comply
with any reporting requirements under the Securities Exchange Act of 1934, as
amended, and that AppNet makes no representation or warranty that it will
disseminate to the public any current financial or other information concerning
itself, as is required by Rule 144 promulgated under the 1933 Act as one of the
conditions of its availability.
(c) Each Stockholder has evaluated the risks of investing in the
Securities, and has determined that the Securities are a suitable investment for
such Stockholder. Each Stockholder can bear the economic risk of this investment
and can afford a complete loss of such Stockholder's investment.
(d) Each Stockholder is knowledgeable and experienced in evaluating
investments and experienced in financial and business matters, and is capable of
evaluating the merits and risks of investing in the Securities. The aggregate
amount of the investments of each Stockholder in, and each Stockholder's
commitments to, all similar investments that are illiquid is reasonable in
relation to such Stockholder's net worth.
(e) Each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ is a resident of the Commonwealth of Massachusetts and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ is a resident of the Commonwealth of Virginia. No Stockholder has any
present intention of becoming a resident of any other state or jurisdiction
prior to the Closing Date.
(f) Each Stockholder is an "Accredited Investor" as such term is
defined in Rule 501 of Regulation D promulgated under the 1933 Act in order to
qualify for the purchase of
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the Securities. Any information which each Stockholder has heretofore furnished
to AppNet with respect to such Stockholder is correct and complete as of the
date of this Agreement.
4.26 Disclosure. No representation or warranty by Kodiak and the
Stockholders contained in this Agreement, and no representation, warranty or
statement contained in any list, certificate, Schedule or other instrument,
document, agreement or writing furnished or to be furnished to, or made with,
AppNet pursuant hereto or in connection with the negotiation, execution or
performance hereof, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make any
statement herein or therein not misleading. Kodiak and the Stockholders do not
have knowledge of any changes reasonably expected to occur within one (1) year
from the date of this Agreement to any of Kodiak, Kodiak's relations with
employees, Kodiak's relations with customers, Kodiak's competitive situation or
Kodiak's relations with suppliers, or action of any Governmental or Regulatory
Authority or laws affecting Kodiak.
5. REPRESENTATIONS AND WARRANTIES OF APPNET
To induce Kodiak and the Stockholders to enter into this Agreement and to
consummate the transactions contemplated hereby, AppNet represents and warrants
to Kodiak and the Stockholders, as of the date hereof and as of the Closing
Date, as set forth below:
5.1 Due Organization. AppNet is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 Power and Authority. AppNet has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its Business
as presently conducted and as proposed to be conducted and is duly qualified or
licensed as a foreign corporation in good standing in each jurisdiction in which
the character of its properties or the nature of its business activities
requires such qualification, except where the failure to be so qualified or
licensed would not have a Material Adverse Effect on AppNet.
5.3 Authority for Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been authorized by all requisite corporate action on the part of AppNet. AppNet
has full corporate power, authority and legal right to enter into this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by AppNet and is a legal, valid and binding
obligation of AppNet enforceable against AppNet in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general.
5.4 No Violation to Result. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof: (i) are not in violation or breach of, do
not conflict with or constitute a default under, and will not accelerate or
permit the acceleration of the performance required by, any of
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the terms of the Certificate of Incorporation or Bylaws of AppNet or any
contract to which AppNet is a party or which affects AppNet; (ii) will not be an
event which, after notice or lapse of time or both, will result in any such
violation, breach, conflict, default, or acceleration; (iii) will not result in
a violation under any law, judgment, decree, order, rule, regulation, permit or
other legal requirement of any Governmental or Regulatory Authority, court or
arbitration tribunal, whether federal, state, provincial, municipal or local
(within the U.S. or otherwise), at law or in equity, and applicable to AppNet;
and (iv) will not result in the creation or imposition of any Encumbrance in
favor of any Person upon any of the properties or assets of AppNet.
5.5 Brokers and Agents. No Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon AppNet for any commission, fee or other compensation payable as
a finder or broker because of any act or omission by AppNet.
5.6 Capitalization. Schedule 5.6 sets forth, with respect to AppNet, (i)
the number of authorized shares of each class of its capital stock, (ii) the
number of issued and outstanding shares of each class of its capital stock and
the record owner thereof, and (iii) the number of shares of each class, if any,
which are held in treasury. Except as set forth on Schedule 5.6, no preemptive
right or rights of first refusal exist with respect to the shares of capital
stock of AppNet, and no such rights arise by virtue of or in connection with the
transactions contemplated hereby. Except as set forth on Schedule 5.6, there are
no outstanding or authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require AppNet to issue or sell any shares of
its capital stock (all of the foregoing, the "AppNet Issuance Agreements").
Schedule 5.6 sets forth the identity of the holder of each AppNet Issuance
Agreement, the type of agreement to which such holder is a party, the class and
number of shares of capital stock subject to each such agreement, and the
exercise price or conversion price, or other similar information concerning the
consideration such holder is required to tender in exchange for such shares of
the capital stock of AppNet. Schedule 5.6 identifies each agreement pursuant to
which any of GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇, L.L.C. ("GTCR"), Smart Technology, L.L.C.
("Smart Technology"), and their respective Affiliates, has acquired shares of
the capital stock of AppNet. There are no outstanding stock appreciation,
phantom stock, profit participation or other similar rights with respect to
AppNet. Except as set forth on Schedule 5.6, AppNet is not obligated to redeem
or otherwise acquire any of its outstanding shares of capital stock.
5.7 Shares. All of the shares of capital stock of AppNet to be issued
pursuant to Section 2.2.1(c) and upon conversion of the Notes, upon issuance and
delivery by AppNet to the persons entitled thereto will (i) be duly authorized
and validly issued and fully paid and non-assessable, (ii) subject to the truth
and accuracy of the information to be provided pursuant to Section 4.25 hereof
and the satisfaction of all conditions to Closing, have been issued by AppNet in
compliance with all applicable state and federal laws, and (iii) not have been
issued in violation of any preemptive rights or rights of first refusal.
-22-
5.8 Notes. Neither the Notes nor the AppNet Common Stock to which the
Notes are convertible are part of an issue or series of issues which are readily
tradeable in an established securities market as defined in Treasury Regulation
Section 15A.453-1(e)(4)(ii) through (iv), nor has AppNet issued any other
obligations or securities of a comparable character which are readily tradeable
in an established securities market.
6. COVENANTS.
6.1 Access to Properties and Records.
(a) Kodiak shall afford to the officers, employees, attorneys,
accountants and other authorized representatives of AppNet, free and full access
to all of Kodiak's assets, properties, books and records and employees in order
to afford AppNet as full an opportunity of review, examination and investigation
as they shall desire to make of the affairs of Kodiak, and AppNet shall be
permitted to make extracts from, or take copies of, such books, records
(including the stock record and minute books) or other documentation as may be
reasonably necessary. Kodiak shall furnish or cause to be furnished to AppNet
such reasonable financial and operating data and other information about
Kodiak's Business, properties and assets which any of the respective officers,
employees, attorneys, accountants or other authorized representatives of AppNet
may request; provided that AppNet and its agents shall not unreasonably
interfere with the operations of Kodiak's Business.
(b) AppNet shall afford to the officers, employees, attorneys,
accountants and other authorized representatives of Kodiak and the Stockholders,
free and full access to all of AppNet's and its subsidiaries' assets,
properties, books and records and employees in order to afford Kodiak and the
Stockholders as full an opportunity of review, examination and investigation as
they shall desire to make of the affairs of AppNet and its subsidiaries, and
Kodiak and the Stockholders shall be permitted to make extracts from, or take
copies of, such books, records (including the stock record and minute books) or
other documentation thereof as may be reasonably necessary. AppNet shall furnish
or cause to be furnished to Kodiak and the Stockholders such reasonable
financial and operating data and other information about AppNet's and its
subsidiaries' Business, properties and assets which any of the respective
officers, employees, attorneys, accountants or other authorized representatives
of Kodiak and the Stockholders may request; provided that Kodiak and the
Stockholders and their agents shall not unreasonably interfere with the
operations of AppNet's and its subsidiaries' Business.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 6.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the transactions contemplated by this Agreement;
provided, however, that in the event any party hereto brings a claim for breach
of representation or warranty, the party who made such representation or
warranty may successfully defend against such claim if that party can prove by
clear and convincing evidence that the party asserting such claim had actual
knowledge at Closing that such representation or warranty was false.
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6.2 Confidentiality.
(a) Kodiak and the Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of Kodiak and/or AppNet, such as lists of
customers, operational policies, and pricing and cost policies, that are
valuable, special and unique assets of Kodiak's or AppNet's respective
businesses. Kodiak and the Stockholders agree that they will not disclose
confidential information with respect to Kodiak and/or AppNet to any Person for
any purpose or reason whatsoever (except to authorized representatives of
Kodiak, the Stockholders, AppNet and to counsel and other advisers, provided
that such advisors (other than counsel) agree to the confidentiality provisions
of this Section 6.2), unless (i) such information becomes known to the public
generally through no fault of Kodiak or the Stockholders, (ii) disclosure is
required by law or the order of any Governmental or Regulatory Authority under
color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party or for certification or state licensure purposes; provided,
that prior to disclosing any information pursuant to clauses (ii) or (iii)
above, Kodiak or the Stockholders, shall, if possible, give prior written notice
thereof to AppNet and provide AppNet with the opportunity to contest such
disclosure.
(b) AppNet agrees that prior to the Closing it will not disclose
confidential information with respect to Kodiak and/or the Stockholders to any
Person, for any purpose or reason whatsoever (except to authorized
representatives of AppNet, Kodiak, and/or the Stockholders and to counsel and
other advisers, provided that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 6.2), unless (i) such information
becomes known to the public generally through no fault of AppNet, (ii)
disclosure is required by law or the order of any Governmental or Regulatory
Authority under color of law, or (iii) AppNet reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against
AppNet or for certification or state licensure purposes; provided, that prior to
disclosing any information pursuant to clauses (ii) or (iii) above, AppNet,
shall, if possible, give prior written notice thereof to Kodiak and/or the
Stockholders and provide Kodiak and/or the Stockholders with the opportunity to
contest such disclosure.
6.3 Interim Covenants of Kodiak. From the date of this Agreement until the
Closing Date, except to the extent expressly permitted by this Agreement or
otherwise consented to by an instrument in writing signed by AppNet, Kodiak
shall (i) keep Kodiak's Business and organization intact and shall not take or
permit to be taken or do or suffer to be done anything other than in the
ordinary course of its business as the same is presently being conducted, (ii)
use its reasonable best efforts to keep available the services of its directors,
officers, employees, independent contractors and agents and retain and maintain
good relationships with its clients and maintain the Facilities in good
condition, (iii) perform its obligations under the Contracts and (iv) maintain
the goodwill and reputation associated with its Business. Without limiting the
generality of the foregoing, Kodiak shall not, without the prior written consent
of AppNet:
(a) Adopt or propose any change in its Articles of Organization or
Bylaws;
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(b) Merge or consolidate with any other entity or acquire a material
amount of assets of any other entity;
(c) Issue or sell any stock, bonds, or other securities of which
Kodiak is the issuer or grant, issue or change any stock options, warrants or
other rights to purchase securities of Kodiak;
(d) Amend any term of any outstanding security of Kodiak;
(e) Sell, lease or dispose of or make any contract for the sale,
lease or disposition of or subject to lien or security interest or any other
Encumbrance any of its properties or assets, other than in the ordinary and
usual course of its business, consistent with the representations and warranties
contained herein, and not in breach of any of the provisions of this Section 6,
in each case for a consideration at least equal to the fair value of such
property or asset;
(f) Except for the Permitted Distributions and the Retention
Bonuses, grant any salary increase to, or increase the draw of any of its
officers, directors, employees or agents, or enter into any new, or amend or
alter any existing, employment, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, severance, pension, stock option,
group insurance, death benefit or other fringe benefit plan, trust agreement or
other similar or dissimilar arrangement, or any employment or consulting
agreement except consistent with past compensation practices;
(g) Incur any bank indebtedness or borrowings, whether or not in the
ordinary course of its business, or issue any commercial paper;
(h) Enter into any leases of real property or any material leases of
equipment and machinery;
(i) Enter into any contract, (i) which would be required to be
listed on Schedule 4.13 as a Contract had it been entered into prior to the date
hereof (except for Contracts entered into in the ordinary course of business
consistent with prior practice); or (ii) in which any Affiliate of Kodiak or any
of the Stockholders has any beneficial interest;
(j) Redeem, purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock or debt securities or any option, warrant or
other right to purchase or acquire any such shares, or declare or pay any
dividend or other distribution (whether in cash, stock or other property) with
respect to its capital stock;
(k) Create, incur or assume any liability or indebtedness, except in
the ordinary course of business consistent with past practices; or postpone or
defer the creation, incurrence, or assumption of any liability or indebtedness
that would otherwise be created, incurred or assumed in the ordinary course of
business absent the execution of this Agreement;
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(l) Pay or apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount, directly or
indirectly, to or for the benefit of Kodiak or any Affiliate thereof except for
(i) payments to Kodiak's Affiliates in accordance with past practice, provided
that any such transaction is on terms no less favorable to Kodiak than terms
generally available with third parties in arm's length transactions and (ii)
payment in full of the outstanding balance of the loan from Berkshire Bank to
Kodiak described in Item 1 of Schedule 4.12(c);
(m) Declare or pay any dividend, or make any distribution (whether
in cash, stock or property) in respect of its capital stock whether now or
hereafter outstanding (except for the Tax Distribution and the AAA
Distribution), or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its capital stock;
(n) Acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to
Kodiak;
(o) Commit a breach of or terminate any Contract, permit, license or
other right; or amend any Contract (other than in the ordinary course of
business consistent with prior practice);
(p) Enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with Kodiak or any officer,
director of Kodiak or the Stockholders, (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder; or
(q) Fail to maintain its status as an S corporation for federal and
state income tax purposes.
6.4 No Solicitation. Neither Kodiak (its officers or directors), the
Stockholders, nor any agent or any representative thereof, shall during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Closing or the termination of this Agreement in accordance with its
terms, directly or indirectly: (a) solicit, encourage or initiate the submission
of proposals or offers from any person or entity for, (b) participate in any
discussions pertaining to, or (c) furnish any information to any Person, other
than AppNet, relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, Kodiak or a merger,
consolidation or business combination involving Kodiak. If Kodiak or any of the
Stockholders receives any unsolicited offer or proposal relating to any of the
above, Kodiak or the Stockholders shall immediately notify AppNet thereof, and
provide to AppNet all information relating thereto, including a copy of such
offer or proposal, the identity of the party making such offer or proposal and
the specific terms of such offer or proposal.
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6.5 Notification of Certain Matters.
(a) Kodiak shall give prompt notice to AppNet of (a) the occurrence
or non-occurrence of any event the occurrence or non-occurrence of which would
be likely to cause any representation or warranty of Kodiak or the Stockholders
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing Date and (b) any material failure of Kodiak or the Stockholders
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by Kodiak or the Stockholders hereunder. The delivery of any
notice pursuant to this Section 6.5(a) shall not, without the express written
consent of AppNet, be deemed to (A) modify the representations or warranties
hereunder of Kodiak or the Stockholders, (B) modify the conditions set forth in
Section 7 hereof or (C) limit or otherwise affect the remedies available
hereunder to AppNet.
(b) AppNet shall give prompt notice to the Stockholders of (a) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of AppNet
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing Date and (b) any material failure of AppNet to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
AppNet hereunder. The delivery of any notice pursuant to this Section 6.5(b)
shall not, without the express written consent of the Stockholders, be deemed to
(A) modify the representations or warranties hereunder of AppNet, (B) modify the
conditions set forth in Section 8 hereof or (C) limit or otherwise affect the
remedies available hereunder to the Stockholders.
6.6 Tax Returns; Sales, Use and Transfer Taxes.
(a) AppNet, Kodiak 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 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon
reasonable request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding.
(b) Except as otherwise specified in Section 6.10, the Stockholders,
at their sole cost shall be responsible for preparing all initial income Tax
Returns of Kodiak first due after the Closing Date with respect to all taxable
periods ending on or before the Closing Date (the "Pre-Closing Tax Returns").
The Stockholders shall deliver each of the Pre-Closing Tax Returns to AppNet not
later than the earlier of (A) March 15, 1999 or (B) 30 days prior to the date
that each such Pre-Closing Tax Return is required to be filed with the relevant
Governmental or Regulatory Authority (taking into account any applicable
extension thereof, which Kodiak and AppNet shall apply for if requested to do so
by the Stockholders). All Pre-Closing Tax Returns shall be prepared correctly in
accordance with all relevant laws governing the preparation thereof, reflecting
positions consistent with positions reflected in prior Tax Returns filed by
Kodiak, and Kodiak shall not make any change in method of accounting or election
in the Pre-Closing Tax Returns having an effect on any subsequent taxable period
without the consent of AppNet. Upon AppNet's receipt from the Stockholders of
any Pre-Closing Tax Return, AppNet shall review such Pre-Closing Tax Return and,
if AppNet shall
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have any objection to such Pre-Closing Tax Return on the ground that it does not
comply with the provisions of this Section 6.6(b), AppNet shall give notice of
such objection to the Stockholders not later than ten days prior to the due date
of such Pre-Closing Tax Return. Unless notice of such objection shall have been
given in accordance with the preceding sentence, AppNet shall (i) cause such
Pre-Closing Tax Return to be executed and filed with the appropriate
Governmental or Regulatory Authority, (ii) cause Kodiak to pay the tax imposed
at the corporate level (and not the shareholder level), and (iii) provide each
of the Stockholders with a copy of such Pre-Closing Tax Return as filed and with
confirmation of the filing thereof and the payment of any tax due thereon,
provided that such payment shall not be in derogation of AppNet's right to
indemnification, if any, under this Agreement with respect to Kodiak's liability
for such Tax. If AppNet provides notice of objection pursuant to this Section
6.6(b) to any position reflected in a Pre-Closing Tax Return, AppNet and the
Stockholders shall each reasonably cooperate with the others in an attempt to
resolve any dispute regarding the reporting positions to be reflected on such
Tax Return, and if such dispute cannot be so resolved, procedures similar to
those described in Section 6.10 shall be used to submit such dispute to an
independent Big Five accounting firm.
(c) Except as may be required to reflect the effect of any
338(h)(10) Election, AppNet shall not cause or permit Kodiak to file an amended
income Tax Return for any period ended on or prior to the Closing Date without
the prior consent of each of the Stockholders, which consent shall not be
unreasonably withheld.
(d) Each Stockholder shall promptly give notice to AppNet, and
AppNet and Kodiak shall promptly give notice to each Stockholder, of any notice
of audit or proposed adjustment of a Pre-Closing Tax Return, each shall keep the
other parties hereto apprised of any correspondence, communications or
proceedings related to such audit or proposed adjustment and AppNet shall be
authorized by the Stockholders, and the Stockholders shall be authorized by
AppNet and Kodiak, to participate in any proceedings involving such Pre-Closing
Tax Return before the relevant Governmental or Regulatory Authority to the
extent that the outcome of such audit or proposed adjustment may reasonably
affect Kodiak's Tax liabilities or the Tax liabilities of any of the
Stockholders, as the case may be.
6.7 Regulatory and Other Approvals. Subject to the terms and conditions of
this Agreement, each of Kodiak and AppNet will proceed diligently and in good
faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required of
AppNet, Kodiak or the Stockholders to consummate the Stock Purchase and the
other matters contemplated hereby, and (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other public or
private third parties as the other party or such Governmental or Regulatory
Authorities or other public or private third parties may reasonably request in
connection therewith.
6.8 Termination of Profit Sharing Plan . Promptly following receipt of a
written request from AppNet, Kodiak and the Stockholders shall take all action
necessary to terminate Kodiak's 401(k) profit sharing plan (the "401(k) Plan")
effective immediately prior to the Closing.
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6.9 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts
promptly to take, or cause to be taken, all actions and do or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this Agreement
including the satisfaction of all conditions thereto.
6.10 Section 338(h)(10) Election. If in AppNet's sole discretion such
elections are deemed to be desirable, the Stockholders and AppNet shall, subject
to Section 6.10(a) and Section 6.10(b), join in making a timely election (but in
no event later than the 15th day of the ninth full calendar month after the
month in which the Closing Date occurs) under Section 338(h)(10) of the Code and
Treasury Regulation Section 1.338(h)(10)-1(d)(2) and elections under any similar
state law provisions in all applicable states which permit corporations to make
such elections, with respect to the sale and purchase of the Shares pursuant to
this Agreement (all such federal and state income tax elections are collectively
referred to herein as the "338(h)(10) Election"), and each party shall provide
the others all necessary information to permit the 338(h)(10) Election to be
made. If AppNet decides to make the 338(h)(10) Election:
(a) AppNet shall give the Stockholders notice of AppNet's decision to make
the 338(h)(10) Election (an "Election Notice"), which shall be accompanied by
AppNet's proposed allocation of the "deemed sale price" to each asset of Kodiak
in accordance with Treasury Regulation Section 1.338(h)(10)-1(f) and the other
regulations under Section 338 of the Code, no later than sixty (60) days before
the 338(h)(10) Election is to be made. If AppNet shall give an Election Notice
in accordance with the preceding sentence, AppNet and the Stockholders shall, as
promptly as practicable following the Stockholders' receipt of the Election
Notice, take all actions necessary and appropriate (including the preparation
and filing of such forms, returns, schedules and other documents as may be
required) to effect, preserve, or perfect a timely 338(h)(10) Election;
provided, however, that (i) AppNet shall be solely responsible for, and shall
pay all costs and expenses (including professional fees) in connection with, the
preparation and filing of the forms, returns, schedules and other documents
necessary for making any 338(h)(10) Election and (ii) the Stockholders shall not
be obligated to join in such 338(h)(10) Election unless AppNet shall first have
paid to each Stockholder, in cash, an estimate, determined in accordance with
Section 6.10(b) through Section 6.10(f), of the sum of (i) the Section 338
Stockholder Increase (as defined in Section 6.10(b)) and (ii) the Gross-Up Tax
Amount (as defined in Section 6.10(d)) (together, the "Section 338 Adjustment
Amount").
(b) As used herein, "Section 338 Stockholder Increase" shall mean, with
respect to each Stockholder, the amount by which -
(i) the present value (using the interest rate specified by
Section 6.10(c)(v)), on the date the estimate of the Section
338 Adjustment Amount shall be paid by AppNet, of the total
federal and state income tax (plus all applicable interest,
penalties and additions to tax determined under principles set
forth in Section 6.10(c)(vi)) that will be payable by such
Stockholder with respect
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to the sale of such Stockholder's Shares to AppNet if the
338(h)(10) Election is made
exceeds
(ii) the present value (using the interest rate specified by
Section 6.10(c)(v)) on such date of the total federal and
state income tax (plus all applicable interest, penalties and
additions to tax determined under principles set forth in
Section 6.10(c)(vi)) that would have been payable by such
Stockholder had the 338(h)(10) Election not been made.
(c) For purposes of computing the estimate of the Section 338 Stockholder
Increase required by subparagraphs (i) and (ii) of Section 6.10(b):
(i) It shall be assumed that the sale of such Stockholder's Shares
(or the deemed sale of assets of Kodiak and distribution of
the deemed sale proceeds in liquidation to the Stockholders,
as the case may be) is reported on the installment basis for
federal income tax purposes (pursuant to Section 453 of the
Code) and for state income tax purposes only to the extent
that the relevant state permits (or would permit) installment
reporting with respect to such sale without any requirement
that a bond or other security be posted as a condition of such
reporting (except that, if any Stockholder shall have elected,
prior to the date on which the Election Notice shall have been
given, to post a bond or other security with any state and
report such sale on the installment basis in such state, then
it shall be assumed that installment reporting will be used
for such Stockholder for all purposes in such state).
(ii) It shall be assumed that there will be no change after the
date on which the Election Notice shall have been given (the
"Election Notice Date") that would affect the provisions of,
or rates of tax under, any applicable federal or state income
tax laws for any taxable year beginning after December 31,
1998.
(iii) It shall be assumed that there will be no change after the
Election Notice Date in the state(s) in which such Stockholder
shall be required to pay income tax (by reason of change of
such Stockholder's domicile or residence) on the Purchase
Price during each of the years in which any payment (or deemed
payment) for such Stockholder's Shares pursuant to this
Agreement shall be received.
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(iv) It shall be assumed that no payment (except for any payment
that shall have already been made, or can be calculated with
certainty, as of the Election Notice Date) shall be received
by such Stockholder pursuant to Section 2.2.1(d), relating to
the payment of Contingent Proceeds to the Stockholders, as
part of the Purchase Price.
(v) The present value of any future tax obligations of the
Stockholder shall be calculated using the annual Applicable
Federal Rate for short-term obligations in effect as of the
date the estimate of the Section 338 Adjustment Amount shall
be paid to the Stockholder.
(vi) Federal and state income tax considered to be payable by the
Stockholder shall include interest, penalties and additions to
tax ("Additional Amounts"), but only to the extent that such
Additional Amounts are incurred by the Stockholder as a result
of delay in filing or payment solely and directly attributable
to changes in filing or payment obligations incident to the
making of the Section 338(h)(10) Election (assuming for this
purpose that all other filing and payment obligations have
been duly and timely complied with by the Stockholder, that
payment of Additional Amounts that are excusable for
reasonable cause will be waived under the principles of
Treasury Regulation Section 1.338-1(f), and that payment of
any additional federal and state income taxes due as a result
of the 338(h)(10) Election is made by the Stockholder on the
date that the estimate of the Section 338 Adjustment Amount is
paid to the Stockholder).
(d) As used herein, "Gross-Up Tax Amount" shall mean, with respect
to each Stockholder, the total federal and state income tax (plus interest,
penalties and additions to tax determined under principles set forth in Section
6.10(c)(vi)) that will be payable by such Stockholder on the portion of the
adjusted Purchase Price consisting of the Section 338 Stockholder Increase.
(e) As soon as practicable (and in any event within ten days) after
AppNet shall have given an Election Notice in accordance with Section 6.10(a),
the Stockholders shall, at AppNet's sole expense, engage a single accounting
firm (the "Stockholders' Accountants") to determine (i) the amount of the
Section 338 Stockholder Increase for each Stockholder and (ii) the amount of the
Gross-Up Tax Amount for each Stockholder. Notice of the estimate of the Section
338 Adjustment Amount for each Stockholder shall be given by the Stockholders to
AppNet within 40 days after the Election Notice shall have been given, which
shall be accompanied by an explanation, and appropriate backup, of the amounts
so determined, and shall, subject to Section 6.10(g), be final and binding on
both AppNet and the Stockholders unless, within twenty (20) days after notice of
such determination shall have been given to AppNet, AppNet shall give notice (a
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"Dispute Notice") to the Stockholders setting forth (i) the fact that AppNet
disputes the amounts determined by the Stockholders' Accountants, (ii) the
amount in dispute (the "Disputed Amount"), and (iii) an explanation of the basis
for the dispute. If AppNet shall give a Dispute Notice in accordance with the
preceding sentence, then, notwithstanding the provisions of Section 6.10(a),
AppNet shall pay the Disputed Amount, on or before the time specified in Section
6.10(a) for the payment of the estimate of the Section 338 Adjustment Amount, to
Cain, Hibbard, ▇▇▇▇▇ & ▇▇▇▇, P.C. (the "Escrow Agent"), to be held in escrow
until the dispute raised in the Dispute Notice about the Stockholders'
Accountants' determination of the Section 338 Stockholder Increase and/or the
Gross-Up Tax Amount shall have been resolved pursuant to Section 6.10(f). If
AppNet shall (A) pay the Disputed Amount to the Escrow Agent pursuant to this
Section 6.10(e) and (B) pay to the Stockholders, in accordance with Section
6.10(a), the entire undisputed balance of the estimated Section 338 Adjustment
Amount for each Stockholder, AppNet shall be deemed to have satisfied the
requirements of subparagraph (ii) of Section 6.10(a) and all of the Stockholders
shall be obligated to join in the 338(h)(10) Election notwithstanding the
payment to the Stockholders of less than the entire estimated Section 338
Adjustment Amount determined by the Stockholders' Accountants with respect to
each Stockholder. If any Stockholder does not timely provide notice to AppNet of
his or her estimated Section 338 Adjustment Amount within 40 days of timely
delivery of the Election Notice, the Stockholders shall be obligated to join in
the 338(h)(10) Election notwithstanding the nonpayment of the estimated Section
338 Adjustment Amount to such delinquent Stockholder, and AppNet shall be
obligated to pay the estimated Section 338 Adjustment Amount to such delinquent
Stockholder (or the Escrow Agent in the case of a dispute) not later than 20
days after notice to AppNet of the determination of such Stockholder's estimated
Section 338 Adjustment Amount (treating, for purposes of the computations
thereof, the date of the filing of the 338 Election as the payment date of the
estimated Section 338 Adjustment Amount to such Stockholder).
(f) If a Dispute Notice shall be given by AppNet in accordance with
Section 6.10(e), AppNet and the Stockholders shall each reasonably cooperate
with the others in an attempt to resolve the dispute as to whether AppNet or the
Stockholders shall be entitled to the Disputed Amount. In the event that AppNet
and the Stockholders shall be unable to agree as to the disposition of the
Disputed Amount within thirty (30) days after the Dispute Notice shall have been
given, AppNet and the Stockholders shall immediately appoint from among the "Big
Five" public accounting firms an accounting firm that shall not have been
engaged for any purpose by AppNet, Kodiak, any Affiliate of AppNet or any of the
Stockholders within the then previous three years (the "Section 338 Arbiter"),
and the Section 338 Arbiter shall, within thirty (30) days after its engagement,
resolve the dispute about the proper disposition of the Disputed Amount under
the provisions of Section 6.10(b), Sections 6.10(c) and 6.10(d) in a written
report delivered to AppNet, the Stockholders and the Escrow Agent, which
resolution shall, subject to Section 6.10(g), be final and binding on both
AppNet and the Stockholders. Upon receipt of the report of the Section 338
Arbiter, AppNet and the Stockholders shall provide the Escrow Agent with joint
written instructions, consistent with such report, as to the release from escrow
of the Disputed Amount and all accrued interest thereon. The Section 338 Arbiter
shall be provided with all available information reasonably necessary to make
its determination and shall have full access to all books and records of Kodiak
and the Tax Returns and workpapers of the Stockholders. The fees and other costs
of the Section 338 Arbiter shall be allocated among the Stockholders and AppNet
in inverse
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proportion to the proportion in which the Disputed Amount shall be distributed
by the Escrow Agent to AppNet and the Stockholder.
(g) If the Section 338 Adjustment Amount payable to any of the
Stockholders by AppNet shall subsequently be finally determined (by audit or
otherwise) to be more or less than the estimated Section 338 Adjustment Amount
paid to such Stockholder pursuant to Sections 6.10(a) and (e), the appropriate
party shall remit to the other party the amount of such excess or deficit, as
the case may be, within thirty (30) days after the Stockholders and AppNet shall
receive notice of such final determination. AppNet and the Stockholders shall
each reasonably cooperate with the others in connection with the determination
of the amount of the Section 338 Adjustment Amount and any administrative or
judicial proceedings concerning the existence or amount of Taxes. Each
Stockholder shall promptly give notice to AppNet, and AppNet shall promptly give
notice to each Stockholder, of any subsequent adjustment to Tax liability which
is relevant to the determination of the Section 338 Adjustment Amount, and
AppNet shall be authorized by such Stockholder, and each Stockholder shall be
authorized by AppNet, to participate in any proceedings involving such Tax
before the relevant Governmental or Regulatory Authority, and failure to give
such notice and permit such participation shall result in a waiver of any rights
of the breaching party to further adjustment of the Section 338 Adjustment
Amount with respect to such Stockholder.
(h) In connection with the 338(h)(10) Election, AppNet and the
Stockholders shall act together in good faith to determine and agree upon (as
soon as practicable, and in any event, within ten days after AppNet shall have
given an Election Notice in accordance with Section 6.10(a)) the "deemed sale
price" to be allocated to each asset of Kodiak in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section 338
of the Code. For purposes of computing the deemed sale price, each share of
AppNet stock delivered under Section 2.2.1(c) shall be treated as having a fair
market value of $4.00 per share on the Closing Date, or such lower amount as
AppNet shall reasonably determine to be correct. Notwithstanding the generality
of the first sentence of this Section 6.10(h), AppNet and the Stockholders agree
that an aggregate of $50,000 shall be allocated to the covenants not to compete
contained in Section 10 hereof, and the balance of the "deemed sale price" shall
be allocated to the fixed assets, goodwill and other intangible assets of
Kodiak. If the 338(h)(10) Election shall be made, both AppNet and the
Stockholders shall report the tax consequences of the transactions contemplated
by this Agreement consistently with such allocations and shall not take any
position inconsistent with such allocations in any Tax Return or otherwise. In
the event that AppNet and the Stockholders shall be unable to agree as to the
computation of the deemed sale price or such allocations, AppNet's reasonable
positions with respect to such matters shall control.
(i) Kodiak and the Stockholders shall not be in breach of the
representations and warranties contained in Sections 4.6, 4.7 and 4.10 as a
result of any increased Tax liability caused by the 338(h)(10) Election;
provided, however, that the liability of Kodiak and the Stockholders for any
other breach of such representations or warranties, including, without
limitation, inaccuracy of Tax reserves, other than as a result of the 338(h)(10)
Election, shall remain unaffected by the 338(h)(10) Election.
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(j) Notwithstanding anything to the contrary in this Agreement,
AppNet shall indemnify and hold harmless the Stockholders from and against any
Damages (as defined in Section 9.1), Taxes or other costs (including
professional fees) resulting from or arising out of any audit of the
Stockholders and/or Kodiak in connection with the 338(h)(10) Election, but only
to the extent such Damages, Taxes or costs relate to the 338(h)(10) Election,
and only to the extent that such Damages, Taxes or other costs were not already
taken into account in the determination of the Section 338 Adjustment Amount.
(k) Notwithstanding anything to the contrary in this Agreement,
AppNet shall pay to each of the Stockholders, at the time of each payment
pursuant to Section 2.2.1(d) (each a "Software-Related Payment"), an additional
payment (determined under principles and procedures described in Section
6.10(b), (c) and (d) other than Section 6.10(c)(iv), (v) and (vi)) equal to the
sum of:
(i) the amount by which -
(A) the total federal and state income tax payable by
such Stockholder with respect to the Software-Related Payment
exceeds
(B) the total federal and state income tax that would
have been payable by such Stockholder with respect to the
Software-Related Payment had the 338(h)(10) Election not been made;
and
(ii) the total federal and state income tax that will be
payable by such Stockholder with respect to the additional payment described in
subparagraph (i) of this Section 6.10(k).
6.11 Cash Advances. At the Closing, each of the Stockholders shall loan to
Kodiak from the AAA Distribution $37,500 (or a total of $150,000, collectively
the "Stockholders' Loans") to be used for working capital. The Stockholders'
Loans shall be repayable from time to time, without interest, as funds become
available from operations, with any outstanding balance to be paid no later than
ninety (90) days after the Closing Date.
6.12 Payment of Retention Bonuses. On the date specified by the
Stockholders (by notice given at least 30 days prior to the specified payment
date) but in no event later than the first anniversary of the Closing, AppNet
shall pay or cause Kodiak to pay the entire amount of the Retention Bonuses to
Kodiak employees.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF APPNET.
The obligations of AppNet to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or partial or complete waiver (in
AppNet's sole and absolute discretion), at or before the Closing Date, of the
following conditions:
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7.1 Representations and Warranties True at the Closing Date. All of the
representations and warranties of Kodiak and the Stockholders contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, except for those representations and warranties which by
their terms are made as of a specific date which shall be true, correct and
complete on and as of such date.
7.2 Performance. All of the terms, covenants, agreements and conditions of
this Agreement to be complied with, performed or satisfied by Kodiak and/or the
Stockholders on or before the Closing Date shall have been duly complied with,
performed or satisfied by the Closing Date.
7.3 Agreements with Employees. All employees of Kodiak shall have executed
and delivered employment and/or non-competition/non-disclosure agreements, in
the form attached hereto as Exhibit C1. In addition, those key employees of
Kodiak designated by AppNet and listed on Schedule 7.3 shall have executed and
delivered Employment Agreements, in the form attached hereto as Exhibit C2, and
each of the Stockholders shall have executed and delivered a Senior Management
Agreement in the form attached hereto as Exhibit C3.
7.4 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
transactions contemplated hereunder or limiting or restricting the conduct or
operation of the Business of AppNet or Kodiak following the transactions shall
be in effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental or Regulatory Authority or other
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit, claim or proceeding of any nature pending or
threatened, against any of the Stockholders, Kodiak or AppNet, their respective
properties or any of their officers or directors, that could have a Material
Adverse Effect on Kodiak or AppNet.
7.5 No Material Adverse Change. There shall have been, between the Balance
Sheet Date and the Closing Date, no change in the Business, financial condition
or prospects of Kodiak which would have a Material Adverse Effect on Kodiak.
7.6 Certificates. Kodiak and the Stockholders shall have furnished AppNet
with such certificates of the Stockholders, the officers of Kodiak and others to
evidence compliance with the conditions set forth in this Section 7 as may be
reasonably requested by AppNet.
7.7 Opinion of Counsel. AppNet shall have received an opinion of counsel
to Kodiak and the Stockholders in form attached hereto as Exhibit D.
7.8 Financing. AppNet shall have secured all financing necessary to pay
the Cash Payment on terms satisfactory to AppNet.
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7.9 AppNet's Review. AppNet shall be fully satisfied in its sole and
absolute discretion with the results of its review of, and its other due
diligence investigations with respect to, the Business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise) of Kodiak.
7.10 Governmental, Regulatory and Other Consents and Approvals. All
consents, approvals and actions of, filings with and notices to any Governmental
or Regulatory Authority or any other public or private third parties required of
the Stockholders, AppNet or Kodiak to consummate the Stock Purchase and the
other matters contemplated hereby shall have been obtained.
7.11 Delivery of Good Standing Certificates; Corporate Resolutions. AppNet
shall have received certificates of good standing with respect to Kodiak issued
by the Massachusetts, Virginia, Illinois, Connecticut, Colorado and California
Secretaries of State. AppNet shall have received copies of the resolutions of
Kodiak approving the Stock Purchase and the other transactions contemplated
herein, certified by the appropriate corporate officers.
7.12 Financial Terms. AppNet shall have received a certificate (the
"Closing Financial Certificate"), dated as of the Closing Date, signed on behalf
of Kodiak and by each Stockholder, stating that: (i) sales, net of bad debt
expense, for Kodiak's most recent fiscal year ending December 31, 1997, shall
have been no less than $3.4 million, and for the nine-month period ending as of
September 30, 1998 (the "Interim Period") shall be no less than $4.2 million;
(ii) earnings before interest, taxes, depreciation and amortization ("EBITDA")
for Kodiak's most recent fiscal year shall have been no less than $536,000 (or
15.8% of sales, net of bad debt expense, for such fiscal year), and EBITDA
(without reduction for the Retention Bonus) for the Interim Period shall be no
less than 26.8% of sales for the Interim Period; (iii) Kodiak's Net Worth as of
the Closing shall be no less than the Adjusted Net Value; and (iv) Kodiak shall
have no outstanding long-term or short-term indebtedness to banks, stockholders,
or other financial institutions and creditors as of the Closing (in each case
including the current portions of such indebtedness, but excluding trade
payables, obligations under capitalized leases and other ordinary course
accounts payable); provided, however, that AppNet may, in its sole discretion,
waive the foregoing condition in whole or in part and, in such case, the
Purchase Price shall be reduced by the amount of any such indebtedness of Kodiak
(including principal and accrued interest, costs and fees). In calculating
Kodiak's Net Worth as of the Closing, any intangible assets in excess of $83,488
shall be excluded.
7.13 Payment of Loans. All notes receivable from the Stockholders, other
Affiliates of Kodiak, and employees of Kodiak shall have been repaid in full in
accordance with their terms.
7.14 Purchase of Personal Use Items. The Stockholders shall have purchased
any personal use assets (e.g., automobiles) from Kodiak at a purchase price
equal to the greater of the net book value of such assets as of Closing or the
outstanding indebtedness secured by such assets.
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7.15 Termination of Kodiak Shareholders Agreement. The Stockholders shall
deliver to AppNet evidence of termination of that certain Shareholders Agreement
between the Stockholders and Kodiak dated August 7, 1996.
7.16 Delivery of Stock Pledge Agreement. AppNet shall have received the
Stock Pledge Agreement, together with stock powers executed in blank,
representing the shares of AppNet Stock subject to the Stock Pledge Agreement.
7.17 Stockholders Agreement and Registration Agreement. The Stockholders
shall have executed such agreements as shall be necessary to subject the AppNet
Stock to be delivered to the Stockholders hereunder and to be delivered to the
Stockholders upon conversion of the Notes to AppNet's Stockholders Agreement and
Registration Agreement.
7.18 Resignations. Each of the Stockholders have executed and delivered
resignations as directors of Kodiak, effective as of the Closing Date, and ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ shall have executed and delivered his resignation as Treasurer of
Kodiak, effective as of the Closing Date.
7.19 Termination of 401(k) Plan. If AppNet requests that the 401(k) Plan
be terminated pursuant to Section 6.8, the Stockholders shall deliver evidence
of such termination, effective prior to the Closing Date.
7.20 Reimbursement for Professional Fees. Prior to Closing, the
Stockholders shall reimburse Kodiak for the following professional fees: (a)
$50,000 paid by Kodiak to Carreden Group, Inc. and (b) $6,610 paid by Kodiak to
Riley, Haddad, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ (collectively, the "Professional Fees").
7.21 Release. The Stockholders shall deliver the release from the party
set forth on Schedule 4.24, as required pursuant to Section 4.24.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF KODIAK AND THE STOCKHOLDERS
The obligations of Kodiak and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction or
partial or complete waiver (in Kodiak's and the Stockholders' sole and absolute
discretion), at or before the Closing Date, of the following conditions:
8.1 Representations and Warranties True as of the Closing Date. All of the
representations and warranties of AppNet contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
except for those representations and warranties which by their terms are made as
of a specific date which shall be true, correct and complete on and as of such
date.
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8.2 AppNet's Performance. All of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by
AppNet on or before the Closing Date shall have been duly complied with,
performed or satisfied by the Closing Date.
8.3 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
transactions contemplated hereunder or limiting or restricting the conduct or
operation of the Business of AppNet or its subsidiaries or Kodiak following the
transactions shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other Governmental or Regulatory
Authority or other instrumentality, domestic or foreign seeking any of the
foregoing be pending. There shall be no action, suit, claim or proceeding of any
nature pending or threatened, against Kodiak or AppNet or its subsidiaries,
their respective properties or any of their officers or directors, that could
have a Material Adverse Effect on Kodiak, AppNet or its subsidiaries.
8.4 Certificates. AppNet shall have furnished Kodiak and the Stockholders
with such certificates of the officers of AppNet and others to evidence
compliance with the conditions set forth in this Section 8 as may be reasonably
requested by the Stockholders.
8.5 Governmental, Regulatory and Other Consents and Approvals. All
consents, approvals and actions of, filings with and notices to any Governmental
or Regulatory Authority or any other public or private third parties required of
AppNet, the Stockholders or Kodiak to consummate the Stock Purchase and the
other matters contemplated hereby shall have been obtained.
8.6 Delivery of Good Standing Certificates; Corporate Resolutions. Kodiak
shall have received certificates of good standing with respect to AppNet issued
by Delaware and any other jurisdiction in which AppNet is required to be
qualified to conduct business. Kodiak shall have received copies of the
resolutions of AppNet approving the Stock Purchase and the other transactions
contemplated herein, certified by the appropriate corporate officers.
8.7 Kodiak's Review. Kodiak shall be fully satisfied in its sole and
absolute discretion with the results of its review of, and its other due
diligence investigations with respect to, the Business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise) of AppNet; provided, however, that
this condition shall be deemed to be fully satisfied unless Kodiak delivers
notice by the date hereof that this condition has not been satisfied.
8.8 Opinion of Counsel. The Stockholders shall have received an opinion of
counsel to AppNet in the form attached hereto as Exhibit E.
8.9 No Material Adverse Change. Since the date of this Agreement, there
shall have been no change in the Business, financial condition or prospects of
AppNet which would have a Material Adverse Effect on AppNet.
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8.10 Senior Management Agreements. AppNet shall have consented to Kodiak
executing and delivering the Senior Management Agreements in the form attached
hereto as Exhibit C3.
9. INDEMNIFICATION.
9.1 General Indemnification.
(a) Kodiak and each of the Stockholders, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless AppNet and
its officers, directors, employees, stockholders, assigns, successors and
affiliates (individually, a "Buyer Party" and collectively, the "Buyer Parties")
from, against and in respect of all liabilities, losses, claims, damages,
punitive damages, causes of actions, lawsuits, administrative proceedings
(including informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
excise taxes, interest (including interest from the date of such damages) and
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements of every kind, nature and description) (collectively,
"Damages") suffered, sustained, incurred or paid by the Buyer Parties, in any
action or proceeding between Kodiak and all or any of the Stockholders and the
Buyer Parties or between the Buyer Parties and a third party, in connection
with, resulting from or arising out of, directly or indirectly: (i) the
inaccuracy of any representation or the breach of any warranty set forth in this
Agreement or certificates delivered on the part of Kodiak or the Stockholders in
connection with the Closing; (ii) the nonfulfillment of any covenant or
agreement on the part of Kodiak or the Stockholders set forth in this Agreement
or in any agreement or certificate executed and delivered by Kodiak or the
Stockholders pursuant to this Agreement or in the transactions contemplated
hereby; (iii) any and all benefits accrued under the Benefit Plans or
multiemployer plans as of the Closing Date and any and all other liabilities
arising out of, or in connection with the operation of the Benefit Plans or
multiemployer plans through the Closing Date; (iv) any and all liabilities under
the Environmental and Safety Requirements in connection with or arising out of
Releases that occurred on or prior to the Closing Date; (v) failure of Kodiak or
any Kodiak employee prior to the Closing Date to maintain all licenses, permits,
approvals and qualifications from any Government or Government Regulatory
Authority; (vi) any and all Taxes (other than as a result of AppNet's actions
pursuant to Section 6.10 hereof ) which are imposed on Kodiak in respect of its
income, business, property or operations or for which Kodiak may otherwise be
liable for any taxable period ending on or prior to the Closing Date; and (vii)
the business, operations or assets of Kodiak on or before the Closing Date
(except as otherwise disclosed in the Financial Statements or the Schedules to
this Agreement) or the actions of Kodiak's directors, officers, shareholders,
employees or agents before the Closing Date.
(b) AppNet covenants and agrees to indemnify, defend, protect and
hold harmless (i) any Stockholder and his or her assigns, successors and
affiliates and (ii) Kodiak and its officers, directors, employees, stockholders,
assigns, successors and affiliates (individually, a "Seller Party" and
collectively, the "Seller Parties") from, against and in respect of all Damages
suffered, sustained, incurred or paid by the Seller Parties, in any action or
proceeding between the Seller Parties and the Buyer Parties or between the
Seller Parties and a third party, in
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connection with, resulting from or arising out of, directly or indirectly: (i)
the inaccuracy of any representation or the breach of any warranty set forth in
this Agreement or certificates delivered on the part of AppNet in connection
with the Closing; (ii) the nonfulfillment of any covenant or agreement on the
part of AppNet set forth in this Agreement or in any agreement or certificate
executed and delivered by AppNet or pursuant to this Agreement or in the
transactions contemplated hereby and (iii) any claims of third parties against
the Stockholders arising out of or based upon an occurrence (1) happening after
the Closing Date, (2) not involving a negligent or willful act of any of the
Stockholders, and (3) which is asserted against a Stockholder in his capacity as
former stockholder of Kodiak; provided, however, that this Section 9.1(b)(iii)
shall not apply to any claims asserted against any Stockholder in his capacity
as a current or former director or officer of Kodiak (which claims shall be
treated in the manner specified in the Kodiak Articles of Organization and
bylaws and the AppNet Certificate of Incorporation and bylaws, as the case may
be).
(c) Notwithstanding the foregoing provisions of Section 9.1(a) and
(b), if Closing occurs, (i) Kodiak shall not be an Indemnifying Party (as
defined below) or otherwise be subject to the indemnification and other
obligations contained in Section 9.1(a), and the Stockholders, if Closing
occurs, hereby waive any right to contribution, reimbursement or other right to
recovery that they might otherwise have against Kodiak in connection with any
such indemnification or other obligations, and (ii) Kodiak shall be deemed to be
a Buyer Party.
9.2. Indemnification Procedures. All claims or demands for indemnification
under this Section 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event a Buyer Party or a Seller Party (an "Indemnified
Party") has a Claim against the other party (an "Indemnifying Party") hereunder
which does not involve a Claim being asserted against or sought to be collected
by a third party, the Indemnified Party shall with reasonable promptness send a
Claim Notice (as defined in Section 9.2(b)) with respect to such Claim to the
Indemnifying Party. If the Indemnifying Party does not notify the Indemnified
Party within the Notice Period (as defined in Section 9.2(b)) that the
Indemnifying Party disputes such Claim, the amount of such Claim shall be
conclusively deemed a liability of the Indemnifying Party hereunder. In case the
Indemnifying Party shall object in writing to any Claim made in accordance with
this Section 9.2(a), the Indemnified Party shall have thirty (30) days to
respond in a written statement to the objection of the Indemnifying Party. If
after such thirty (30)-day period there remains a dispute as to any Claims, the
parties shall attempt in good faith for thirty (30) days to agree upon the
rights of the respective parties with respect to each of such Claims. If the
parties should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties. If no such agreement can be reached after
good faith negotiation, either the Indemnified Party or the Indemnifying Party
may arbitrate such claim in accordance with the terms of Section 11.11 hereof.
(b) In the event that any Claim for which an Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party shall with reasonable
promptness notify the Indemnifying Party of such Claim, specifying the nature of
such claim and the amount or the estimated amount thereof to the
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extent then feasible (which estimate shall not be conclusive of the final amount
of such Claim) (the "Claim Notice"). The Indemnifying Party shall have thirty
(30) days from the receipt of the Claim Notice (the "Notice Period") to notify
the Indemnified Party (i) whether or not the Indemnifying Party disputes the
Indemnifying Party's liability to the Indemnified Party hereunder with respect
to such Claim and (ii) if the Indemnifying Party does not dispute such
liability, whether or not the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend against such Claim. In the event
that the Indemnifying Party notifies the Indemnified Party within the Notice
Period that the Indemnifying Party does not dispute the Indemnifying Party's
obligation to indemnify hereunder and desires to defend the Indemnified Party
against such Claim and except as hereinafter provided, the Indemnifying Party
shall have the right to defend by appropriate proceedings, which proceedings
shall be promptly settled or prosecuted by the Indemnifying Party to a final
conclusion; provided that, unless the Indemnified Party otherwise agrees in
writing, the Indemnifying Party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement, the Indemnified Party may do so at the
Indemnified Party's sole cost and expense. If the Indemnifying Party elects not
to defend the Indemnified Party against such Claim, whether by failure of the
Indemnifying Party to give the Indemnified Party timely notice as provided above
or otherwise, then the Indemnified Party, without waiving any rights against the
Indemnifying Party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the Indemnifying Party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(c) Notwithstanding the provisions of Section 9.2(b), if at any
time, in the reasonable opinion of the Indemnified Party, notice of which shall
be given in writing to the Indemnifying Party, any such Claim seeks relief which
could have a Material Adverse Effect on any Indemnified Party (if AppNet shall
be the Indemnified Party "Material Adverse Effect" shall mean a Claim, which
individually, or when aggregated with all other Claims, is in excess of
$2,500,000), the Indemnified Party shall have the right to control or assume (as
the case may be) the defense of any such Claim and the amount of any judgment or
settlement and the reasonable costs and expenses of defense shall be included as
part of the indemnification obligations of the Indemnifying Party hereunder;
provided, however, that the Indemnified Party may not settle or compromise any
such claim without the prior written consent of the Indemnifying Party (which
consent shall not be unreasonably withheld). If the Indemnified Party should
elect to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such claim or demand at the sole
cost and expense of the Indemnifying Party. Notwithstanding any limits on
liability provided for elsewhere in this Agreement, in the event that the
Indemnifying Party does not consent to a proposed settlement or compromise, for
any reason, and the Claim is ultimately determined to be in excess of such
proposed settlement or compromise, the Indemnifying Party shall be liable to the
Indemnified Party for the entire Claim.
(d) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or
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contingent Claims or demands provided the Claim Notice sets forth the specific
basis for any such potential or contingent claim or demand to the extent then
feasible and the Indemnified Party has reasonable grounds to believe that such a
claim or demand may be made. In the event any such Claim is made pursuant to
this Section 9.2(d), the Indemnified Party making such Claim shall promptly send
written notice of the facts and circumstances and details of such Claim to the
Indemnifying Party as they develop and become available to the Indemnified
Party.
9.3. Right to Setoff. In the event Kodiak or the Stockholders shall be in
breach of any representation, warranty, covenant or shall have an
indemnification obligation to AppNet, AppNet shall be permitted to seek
satisfaction of such amounts through an offset against the Notes and the
Contingent Proceeds. No limitation on such right of offset shall otherwise
affect AppNet's rights hereunder or otherwise. In the event the Note is, in
accordance with its terms, converted into AppNet Common Stock, such shares shall
at the time of, and as a condition to, such conversion be pledged to AppNet (and
shall become part of the Pledged Stock under the Stock Pledge Agreement) as
security for the Stockholders' obligations to AppNet under this Agreement and
shall be held pursuant to the terms of the Stock Pledge Agreement. The remedy of
offset shall be in addition to and not in limitation of any injunctive relief or
other rights or remedies to which AppNet is or may be entitled at law or equity,
under this Agreement.
9.4. Release. Effective as of Closing, the Stockholders hereby irrevocably
waive and release Kodiak of, from and against any and all claims or causes of
actions for Damages that they may have, have had or may at any time on or before
Closing have against Kodiak.
10. NONCOMPETITION.
10.1. Prohibited Activities.
(a) For the period commencing with Closing and ending on the fifth
(5th) year anniversary of Closing, none of the Stockholders shall, for any
reason whatsoever, directly or indirectly, for himself, herself or on behalf of
or in conjunction with any other Person:
(i) engage as a stockholder, officer, director, owner,
partner, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, in any business selling any
products or services in direct competition with Kodiak, AppNet or their
Affiliates (a "Competing Business"); provided, however, each of the Stockholders
shall not be precluded from the ownership of securities of corporations that are
listed on a national securities exchange or traded in the national
over-the-counter market in an amount that shall not exceed one percent (1%) of
the outstanding shares of any such corporation;
(ii) call upon any Person who is, at that time, or was within
one (1) year prior to that time, an employee of Kodiak, AppNet or their
Affiliates for the purpose or with the intent of enticing such employee away
from or out of the employ of AppNet or its Affiliates;
(iii) call upon any Person who or that is, at that time, or
has been, within one (1) year prior to that time, a customer of Kodiak, AppNet
or their Affiliates for the
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purpose of soliciting or selling products or services in competition with
Kodiak, AppNet or their Affiliates;
(iv) publish any statement or make any statement (under any
circumstances reasonably likely to become public) critical of Kodiak, AppNet or
their Affiliates, or in any way adversely affecting or otherwise maligning the
reputation of Kodiak, AppNet or their Affiliates; or
(v) accept any offer of employment from any customer of Kodiak
who or that is, at that time, or was within the two (2) year period prior to
that time, (A) a customer of Kodiak or (B) a prospective customer of Kodiak
which Kodiak contacted regarding the provision of services and which prospective
customer responded to Kodiak by agreeing to discuss such potential provision of
services.
; provided, however, that, notwithstanding any limitation contained in Section
10.1(a)(i), after the fourth (4th) anniversary of the Closing Date, the
limitations contained in Section 10.1(a)(i) will no longer apply to AppNet or
its Affiliates, other than Kodiak or any Affiliate of AppNet for which the
Stockholder is providing substantial services at that time.
10.2. Damages. Because of the difficulty of measuring economic losses to
AppNet and its Affiliates as a result of a breach of the foregoing covenants,
and because of the immediate and irreparable damage that could be caused to
Kodiak, AppNet and its Affiliates for which it would have no other adequate
remedy, the Stockholders agree that the foregoing covenants may be enforced by
Kodiak or AppNet in the event of breach by any of the Stockholders, in addition
to, but not in lieu of, any other available remedies, by injunctions and
restraining orders and other equitable remedies.
10.3. Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Section 10 impose a reasonable restraint on the Stockholders
in light of the activities and business of Kodiak, AppNet and their Affiliates
on the date of the execution of this Agreement and the current plans of Kodiak,
AppNet and their Affiliates; but it is also the intent of the parties, that such
covenants be construed and enforced in accordance with the changing activities
and business of Kodiak, AppNet and their Affiliates throughout the term of this
covenant.
10.4. Severability; Reformation. The covenants in this Section 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5. Independent Covenant. All of the covenants in this Section 10 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any of the
Stockholders against Kodiak, AppNet or an Affiliate
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thereof, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by AppNet of such covenants. It is understood by
the parties hereto that the covenants contained in this Section 10 are essential
elements of this Agreement and that, but for the agreement of the Stockholders
to comply with such covenants, AppNet would not have agreed to enter into this
Agreement. The Stockholders and AppNet have independently consulted with their
respective counsel and have been advised concerning the reasonableness and
propriety of such covenants with specific regard to the nature of the business
conducted by AppNet. The Stockholders hereby agree that all covenants contained
in this Section 10 are reasonable and valid and waive all defenses to the strict
enforcement hereof by AppNet. The covenants contained in this Section 10 hereof
shall not be affected by any breach of any other provision hereof by any party
hereto and shall have no effect if the transactions contemplated by this
Agreement are not performed.
10.6. Materiality. Each of the Stockholders hereby agrees that the
covenants set forth in this Section 10 are a material and substantial part of
the transactions contemplated by this Agreement.
10.7. Termination of NonCompete. In the event that AppNet defaults in its
obligations under the Notes, the covenant contained in Section 10.1(a)(i) is
hereby terminated; provided, however, that if AppNet has exercised its right to
setoff pursuant to Section 9.3 and it is determined that AppNet did not properly
exercise such setoff right, in whole or in part, the covenants in Section
10.1(a)(i) shall remain in full force and effect if AppNet repays to the
Stockholders all amounts not paid due to such setoff within thirty (30) days of
a final, non-appealable determination that AppNet's exercise of its setoff right
was improper.
11. GENERAL
11.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of the Boards of Directors of AppNet and
Kodiak;
(b) by Kodiak, on the one hand, or by AppNet, on the other hand, if
the Closing shall not have occurred on or before December 15, 1998; provided
that the right to terminate this Agreement under this Section 11.1(b) shall not
be available to either party whose material misrepresentation, breach of
warranty or failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date;
(c) by Kodiak, on the one hand, or by AppNet, on the other hand, if
there is or has been a material breach, failure to fulfill or default on the
part of the other party of any of the representations and warranties contained
herein or in the due and timely performance and satisfaction of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made or shall not reasonably be expected to occur
before the Closing Date; or
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(d) by Kodiak, on the one hand, or by AppNet, on the other hand, if
there shall be a final nonappealable order of a federal or state court in effect
preventing the consummation of the transactions contemplated by this Agreement;
or there shall be any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the transactions by any
governmental entity which would make the consummation of the transactions
illegal.
11.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 11.1, this Agreement shall forthwith become void,
and there shall be no liability or obligation on the part of any party hereto or
its officers, directors or stockholders. Notwithstanding the foregoing sentence,
(i) the provisions of this Section 11, Section 6.2(a) (except for Kodiak's
obligation to keep information regarding Kodiak confidential thereunder) and
Section 6.2(b) shall remain in full force and effect and survive any termination
of this Agreement; (ii) each party shall remain liable for any intentional
breach of this Agreement prior to its termination; and (iii) in the event of
termination of this Agreement pursuant to Section 11.1(c), then notwithstanding
the provisions of Section 11.7, the breaching party (if such breach was in
effect as of the date hereof) shall be liable to the other party to the extent
of the expenses incurred by such other party in connection with this Agreement
and the transactions contemplated by this Agreement, as well as any damages in
accordance with applicable law.
11.3. Cooperation. Kodiak and the Stockholders, on the one hand, and
AppNet, on the other hand, shall each deliver or cause to be delivered to the
other on the Closing Date, and at such other times and places as shall be
reasonably agreed to, such additional instruments as the other may reasonably
request for the purpose of carrying out this Agreement. In connection therewith,
if required, each of AppNet, Kodiak and the Stockholders will execute any
documentation reasonably required by AppNet's or Kodiak's independent certified
public accountants (in connection with such accountant's audit of AppNet or
Kodiak). Each of Kodiak and AppNet will also cooperate and use their reasonable
efforts to have their respective officers and employees cooperate with AppNet
and Kodiak, as the case may be, on and after the Closing Date in furnishing
information, accounting records, evidence, testimony and other assistance in
connection with any Tax return filing obligations, audits, actions, proceedings,
arrangements or disputes of any nature.
11.4. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors, assigns,
heirs and personal representatives; provided, however, that Kodiak and the
Stockholders may not make any assignment of this Agreement or any interest
herein (other than the right to assign rights to receive payments due hereunder
to family members or trusts for family members) without the prior written
consent of AppNet. This Agreement or any of the severable rights and obligations
inuring to the benefit or to be performed by AppNet hereunder may be assigned by
AppNet prior to the Closing Date, to any Affiliate of AppNet and, after the
Closing Date, to any Affiliate of AppNet or to any entity which merges with or
into AppNet or Kodiak or to which AppNet may sell all or substantially all of
the stock or assets of Kodiak, and to the extent so assigned, Kodiak and the
Stockholders hereby recognize said assignee as the party-in-interest with
respect to the
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rights and obligations assigned and agrees to look solely to said assignee for
the purpose of conferring benefits, or requiring performance of obligations,
assigned to it by AppNet.
11.5. Entire Agreement. This Agreement (which includes the schedules and
exhibits hereto), sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby and thereby. This Agreement
shall not be amended or modified except by a written instrument duly executed by
each of the parties hereto. Any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement.
11.6. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties.
11.7. Expenses. AppNet has and shall pay the fees, expenses and
disbursements of AppNet and its brokers, agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement.
The Stockholders have paid and shall pay the fees, expenses and disbursements of
Kodiak and the Stockholders and each of their respective brokers, agents,
representatives, financial advisors, accountants and counsel incurred in
connection with the subject matter of this Agreement.
11.8. Specific Performance; Remedies Not Exclusive. Each party hereto
acknowledges that the other parties shall be irreparably harmed and that there
shall be no adequate remedy at law for any violation by any of them of any of
the covenants or agreements contained in this Agreement, including, without
limitation, the confidentiality obligations set forth in Section 6.2(a) and (b)
and the noncompetition provisions set forth in Section 10. It is accordingly
agreed that, in addition to, but not in lieu of, any other remedies which may be
available upon the breach of any such covenants or agreements, each party hereto
shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties' covenants and agreements contained in this Agreement. All rights and
remedies of the parties under this Agreement shall be cumulative, and the
exercise of one or more rights or remedies will not preclude the exercise of any
other right or remedy available under this Agreement (including the Annexes
hereto) or applicable law.
11.9. Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if (1) delivered personally, or (2) sent
by registered or certified mail, postage prepaid, return receipt requested, or
(3) by nationally recognized overnight courier service, or (4) transmitted by
telefax with a confirming copy sent by a nationally recognized overnight courier
service, as follows:
If to AppNet to:
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AppNet Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, President
Fax No: ▇▇▇-▇▇▇-▇▇▇▇
with a required copy to:
▇▇▇▇▇▇, Flyer & ▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax No: ▇▇▇-▇▇▇-▇▇▇▇
If to Kodiak or the Stockholders to:
The Kodiak Group, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, President
Fax No: ▇▇▇-▇▇▇-▇▇▇▇
with a required copy to:
Cain, Hibbard, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: C. ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
Fax No: ▇▇▇-▇▇▇-▇▇▇▇
and with an additional copy to:
▇▇▇▇▇▇ & ▇▇▇▇, P.C.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. May, Jr., Esq.
Fax. No: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so personally delivered, mailed,
telefaxed (with an original thereof by overnight delivery), or sent
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by overnight courier and, if given by any other means, shall be deemed given
only when actually received by the addressees. Notice by counsel shall, for
purposes of this Section 11. 9, be deemed notice from the party represented by
such counsel.
11.10. Governing Law.. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with, the laws of the State of Delaware
(without regard to its laws relating to choice-of-law or conflicts-of-law).
11.11. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement arising after the Closing shall be settled
exclusively by a three (3) person arbitration panel selected in accordance with
the American Arbitration Association (the "AAA") Commercial Arbitration Rules
(the "CA Rules") from the Information Technology Panel (the "ITP") established
by the Philadelphia Regional Office of the AAA, with such arbitration proceeding
conducted in accordance with the CA Rules then in effect. In the event that the
ITP is not yet formed, the arbitration panel shall consist of individuals who
have significant experience in the information technology industry. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof. A decision by a majority of the arbitration panel shall be
final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The arbitration proceeding shall be held in
Wilmington, Delaware. Notwithstanding the foregoing, the parties shall be
entitled to seek injunctive or other equitable relief from any court of
competent jurisdiction, without the need to resort to arbitration.
11.12. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made by either party in or pursuant to
this Agreement or in any document delivered pursuant hereto shall survive for
two (2) years after the Closing; provided, however, that (i) in the event of
fraud, by any party, the representations and warranties of that party shall
survive the Closing for an indefinite period, and (ii) the representations and
warranties in Sections 4.5 or 4.10 shall survive until the expiration of the
applicable statute of limitations, or if there is no applicable statute of
limitations, such representations and warranties shall survive indefinitely.
Notwithstanding the foregoing, if a Claim Notice is sent pursuant to Section
9.2(a) or (b), the representation, warranty or covenant with respect to which
such Claim Notice is sent shall survive until the resolution of the Claim to
which such Claim Notice relates, or such longer period as provided in
subsections (i) and (ii) hereof.
11.13. Miscellaneous.
(a) Notwithstanding anything contained in Section 9 to the contrary,
there shall be no liability for indemnification under Section 9, (i) unless and
to the extent the aggregate amount of Damages exceeds $100,000, and (ii), to the
extent that an Indemnified Party has suffered, incurred, sustained, or become
subject to, Damages by reason of all such claims in excess of $2.5 million, no
Indemnifying Party (and for the purpose of this sentence, all Seller Parties
shall be considered one and the same Indemnifying Party) shall be obligated to
pay more than $2.5 million under Section 9 (the "Indemnity Cap"); provided,
however, that the Indemnity Cap shall not apply in the event that liability for
indemnification arises out of or in connection
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with the breach of any representations and warranties contained in Sections 4.5
or 4.10 for any amounts payable pursuant to Section 2.3.
(b) The indemnification provisions of Section 9 shall constitute the
sole and exclusive remedy of the parties hereto for any inaccuracy, untruth,
incompleteness or other breach of any representation or warranty contained in or
made pursuant to this Agreement or for any breach of or failure to perform any
covenant or agreement made in this Agreement (other than a claim based upon
fraud or for injunctive relief under Section 10), and the parties each waive any
other remedy, which they or any other person entitled to indemnification
hereunder may have at law or in equity with respect thereto. The amount of
Damages suffered by any person entitled to indemnification shall be reduced by
an amount equal to any insurance recovery received by such person with respect
to such Damages; provided, however, that no Indemnified Party shall be obligated
to pursue, beyond the submission of a statement of claim with appropriate
supporting material, or continue to pursue any payment pursuant to the terms of
any insurance policy and the Indemnifying Party shall be subrogated to an
Indemnified Party's claims under such policy. The Indemnified Party shall
execute and deliver such documents as the Indemnifying Party may reasonably
request to evidence such subrogation and to assist the Indemnifying Party in any
claim in respect of such insurance policy at the expense of the Indemnifying
Party.
11.14. Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any jurisdiction, shall not be affected thereby,
and to this end the provisions of this Agreement shall be severable. The
preceding sentence is in addition to and not in place of the severability
provisions in Section 10.4.
11.15. Absence of Third Party Beneficiary Rights. Except as expressly
provided herein, no provision of this Agreement is intended, nor will be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, shareholder,
employee or partner of any party hereto or any other person or entity.
11.16. Mutual Drafting. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
11.17. Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax or
securities consequences of the transactions contemplated by this Agreement and
is not relying on any representation or statements made by the other party as to
such tax and securities consequences.
11.18. Amendment; Waiver. This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
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Any extension or waiver by any party of any provision hereto shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
11.19. Gender. Unless the context clearly indicates otherwise, where
appropriate the singular shall include the plural and the masculine shall
include the feminine or neuter, and vice versa, to the extent necessary to give
the terms defined herein and/or the terms otherwise used in this Agreement the
proper meanings.
11.20. Headings. The headings and other captions in this Agreement are for
convenience and reference only and shall not be used in interpreting, construing
or enforcing any of the provisions of this Agreement.
11.21. Public Disclosure. Prior to the Closing Date, neither party shall
make any disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement unless previously approved by Kodiak and AppNet.
11.22 Audit by Stockholders' Accountants. AppNet shall cooperate and shall
use its reasonable efforts to cause the officers and employees of Kodiak and
AppNet to cooperate with the Stockholders' independent accountants (the
"Stockholders' Audit Accountants") after the Closing Date in furnishing
information, documents, evidence and other assistance to the
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Stockholders' Audit Accountants to facilitate the completion of the
Stockholders' Audit Accountants' audit of the books of Kodiak for the period
from January 1, 1998 through the Closing Date.
[EXECUTION PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
APPNET:
APPNET SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Senior Vice President
--------------------------------
KODIAK:
THE KODIAK GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: President
--------------------------------
STOCKHOLDERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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SCHEDULES
Schedule 1 Stockholders
Schedule 2.2.1(d) Contingent Proceeds
Schedule 4.4 No Violation
Schedule 4.5 Stock of Kodiak
Schedule 4.6 Financial Statements
Schedule 4.7(a) Liabilities and Obligations
Schedule 4.7(b) Advance Payments or Deposits
Schedule 4.8 Adverse Changes
Schedule 4.9(a) Benefit Plans
Schedule 4.9(b) List of Employees
Schedule 4.11 Subsidiaries
Schedule 4.12(a) Real Property
Schedule 4.12(b) Personal Property
Schedule 4.12(c) Encumbrances
Schedule 4.13 Contracts
Schedule 4.15 Litigation
Schedule 4.16 Noncompliance List
Schedule 4.17 Environmental Disclosure
Schedule 4.18(a) Significant Customers
Schedule 4.18(b) Suppliers Who Have Threatened Termination
Schedule 4.19 Insurance
Schedule 4.20(a) Company Intellectual Property Rights
Schedule 4.20(b) Licenses to Use Kodiak Intellectual Property
Schedule 4.20(c) Third Party Intellectual Property Claims
Schedule 4.20(e) Unauthorized Intellectual Property Use
Schedule 4.20(f) Kodiak Nondisclosure Agreement
Schedule 4.21 Accounts Receivable
Schedule 4.23 Related Party Transactions
Schedule 4.24 Brokers
Schedule 5.6 AppNet Capitalization
Schedule 7.3 Key Employees
EXHIBITS
Exhibit A Form of Subordinated Convertible Promissory Notes
Exhibit B Form of Stock Pledge Agreement
Exhibit C1 Form of Employment Agreement; Form of
Non-Competition/Non-Disclosure Agreement
Exhibit C2 Form of Employment Agreement
Exhibit C3 Form of Senior Management Agreement
Exhibit D Form of Opinion of Kodiak's and the Stockholder's Counsel
Exhibit E Form of Opinion of AppNet's Counsel