1
EXHIBIT 10.35
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
NATIONAL REVMAX CONSULTANTS, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 1998
2
TABLE OF CONTENTS
1. Sale and Purchase........................................................................ 1
1.1 Agreements to Sell and Purchase.............................................. 1
1.2 Closing...................................................................... 1
1.3 Purchase Price............................................................... 2
1.4 Certificates for Shares...................................................... 2
2. Representations and Warranties of the Company and the Members............................ 2
2.1 Organization and Good Standing............................................... 2
2.2 Ownership of Seller Interests................................................ 3
2.3 Authorization of Agreement................................................... 3
2.4 Title to Assets.............................................................. 4
2.5 Financial Condition.......................................................... 4
2.6 Certain Property of the Company.............................................. 5
2.7 Year 2000 Compliance......................................................... 7
2.8 No Conflict or Violation..................................................... 8
2.9 Reserved..................................................................... 8
2.10 Labor and Employment Matters................................................. 8
2.11 Employee Plans............................................................... 9
2.12 Litigation................................................................... 11
2.13 Certain Agreements........................................................... 11
2.14 Compliance with Applicable Law............................................... 13
2.15 Licenses..................................................................... 13
2.16 Accounts Receivable.......................................................... 14
2.17 Intercompany and Affiliate Transactions; Insider Interests................... 14
2.18 Insurance.................................................................... 14
2.19 Reserved..................................................................... 15
2.20 No Undisclosed Liabilities................................................... 15
2.21 Taxes........................................................................ 15
2.22 Indebtedness................................................................. 17
2.23 Environmental Matters........................................................ 18
2.24 Securities Matters........................................................... 19
2.25 Buyer and the Consolidation Transactions..................................... 20
2.26 Minute Books and Records..................................................... 21
2.27 Reserved..................................................................... 21
2.28 Powers of Attorneys and Suretyships.......................................... 21
2.29 Brokers...................................................................... 21
2.30 Each Member acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit D.......................... 21
2.31 Accuracy of Information...................................................... 21
3. Representations and Warranties of Buyer.................................................. 22
3.1 Organization and Corporate Authority......................................... 22
3.2 No Conflict or Violation..................................................... 22
3.3 Capitalization............................................................... 22
3.4 Notes........................................................................ 23
3.5 Litigation................................................................... 23
3.6 No Undisclosed Debt.......................................................... 23
i
3
3.7 Accuracy of Information...................................................... 23
4. Certain Understandings and Agreements of the Parties..................................... 23
4.1 Access....................................................................... 23
4.2 Confidentiality.............................................................. 24
4.3 Certain Changes and Conduct of Business...................................... 25
4.4 Restrictive Covenants........................................................ 27
4.5 Securities Restrictions...................................................... 30
4.6 Registration................................................................. 30
4.7 Cooperation in Litigation.................................................... 32
4.8 Tax Matters.................................................................. 32
4.9 Consolidation Transactions................................................... 35
4.10 Supplemental Disclosure...................................................... 35
4.11 HSR.......................................................................... 36
4.12 Competing Proposals.......................................................... 36
4.13 Bonus Plan................................................................... 36
4.14 Best Efforts................................................................. 37
4.15 Further Assurances........................................................... 37
4.16 Notice of Breach............................................................. 37
5. Survival; Indemnification................................................................ 37
5.1 Survival..................................................................... 37
5.2 Indemnification by the Members............................................... 38
5.3 Indemnification by Buyer..................................................... 38
5.4 Indemnification Procedure.................................................... 38
5.5 Payment...................................................................... 40
5.6 Limitations.................................................................. 40
6. Conditions to Closing.................................................................... 41
6.1 Conditions to Obligations of Each Party...................................... 41
6.2 Conditions to Obligations of Buyer........................................... 41
6.3 Conditions to Obligations of the Members..................................... 44
7. Miscellaneous............................................................................ 45
7.1 Termination.................................................................. 46
7.2 Notices...................................................................... 46
7.3 Assignability and Parties in Interest........................................ 47
7.4 Governing Law................................................................ 47
7.5 Counterparts................................................................. 48
7.6 Publicity.................................................................... 48
7.7 Complete Agreement........................................................... 48
7.8 Modifications, Amendments and Waivers........................................ 48
7.9 Headings; References......................................................... 48
7.10 Severability................................................................. 49
7.11 Investigation................................................................ 49
7.12 Expenses of Transactions..................................................... 49
7.13 Arbitration.................................................................. 49
7.14 Submission to Jurisdiction................................................... 51
ii
4
7.15 Attorneys' Fees.............................................................. 52
7.16 Enforcement of the Agreement................................................. 52
iii
5
EXHIBITS
A. Form of Assignment and Assumption Agreement
B. Form of Accredited Investor Questionnaire
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Summary of Certain Considerations
E. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Leases of Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.17 Intercompany and Affiliate Transactions
2.18 Insurance
2.21(b) Tax Returns
2.21(i) 351 Information
2.22 Indebtedness
2.29 Brokers
3.5 Litigation
3.6 Liabilities
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
iv
6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 7, 1998 by and among National Revmax Consultants,
L.L.C., a Delaware limited liability company (the "COMPANY"), the members of the
Company listed on the signature page(s) hereof (each such individual a "MEMBER,"
and collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in the business of cost recovery and
reduction (the "BUSINESS").
B. The Members own all of the ownership interests in the Company
(the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Member shall sell to
Buyer, and Buyer shall purchase from each Member, the number of Seller Interests
set forth opposite such Member's name on Schedule 1.3, for the purchase price
set forth in Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Interests (the "CLOSING")
will take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, on a date to be selected by Buyer after all the conditions
set forth in Article 6 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE"). At least five (5) days prior to the Closing
Date, Buyer shall provide written notice (the "CLOSING NOTICE") to the Company
and the Members informing the Company and the Members of the date selected as
the Closing Date. At the Closing, the Members shall deliver to Buyer or its
designees an Assignment and Assumption Agreement in the form of Exhibit A,
transferring the Seller Interests being sold by the Members and each other
instrument of transfer Buyer may reasonably request to vest effectively in Buyer
good and valid title to the Seller Interests, free and clear of any liens,
7
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3 Purchase Price.
The consideration to be paid by Buyer for the Seller Interests (the
"PURCHASE PRICE"), both in the aggregate and to each Member for such Member's
Seller Interests, is described in Schedule 1.3.
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(d)(i). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Article 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Members, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to carry on the Business as it is now and has
since its organization been conducted and as proposed to be conducted, and to
own, lease or operate its assets and properties. The Company is duly qualified
to do business and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where failure to be
so qualified would not have a material adverse effect on the Business or its
prospects or the Company's assets or financial condition (a "MATERIAL ADVERSE
EFFECT"). Schedule 2.1 lists all of the jurisdictions in which the Company is
qualified to do business. Complete and accurate copies of the articles of
organization and operating agreement of the Company, with all amendments thereto
to the date hereof, have been furnished to Buyer or its representatives.
2
8
2.2 Ownership of Seller Interests.
(a) The Seller Interests constitute all of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests, together with the Interests held by CENV, constitute all of the
ownership Interests. The Seller Interests owned by each Member are set forth in
part (b) of Schedule 1.3. Neither the Members nor the Company has granted,
issued or agreed to grant or issue any other equity interests in the Company and
there are no outstanding options, warrants, rights to acquire ownership
interests in the Company, subscription rights, securities that are convertible
into or exchangeable for, or any other commitments of any character relating to,
any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Members have all requisite power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements and instruments to be executed by the parties
hereto in connection herewith (together with all other documents to be delivered
in connection herewith or therewith, collectively the "TRANSACTION DOCUMENTS")
have (except for Transaction Documents to be executed and delivered solely by
Buyer) been duly and validly approved by the Members of the Company and no other
proceedings on the part of the Company or the Members are necessary to approve
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be delivered by the Company or
any Member have been (or upon execution will have been) duly executed and
delivered by the Company and each Member, have been effectively authorized by
all
3
9
necessary action, and constitute (or upon execution will constitute) legal,
valid and binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 Title to Assets.
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $______; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or any Member to
transfer any of the assets of the Company or rights or interests therein to any
party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the fiscal years then ended of the Company ("FINANCIAL
STATEMENTS"). The Financial Statements (i) were prepared in accordance with the
books and records of the Company; (ii) were prepared in accordance with
generally accepted accounting principles applicable to partnerships ("GAAP") and
were consistently applied; (iii) fairly present the financial condition and the
results of the operations of the Company as at the relevant dates thereof and
for the periods covered thereby; (iv) to the extent required by GAAP, contain
and reflect all necessary adjustments and accruals for a fair presentation of
the financial condition and the results of the operations of the Company for the
periods covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, contingent or otherwise, with respect to the period then ended and
all prior periods; and (vi) do not contain any items of a special or
nonrecurring nature, except as expressly stated therein. There have been no
changes or modifications of revenue
4
10
recognition, cost allocation practices or method of, accounting or other
financial or operational practices or principles except for any such change
required by reason of a concurrent change in GAAP during the periods covered by
the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or any Member each Real Property Lease is a
valid and binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement,
5
11
a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY LEASES").
Schedule 2.6(b) provides a description and the location of each item of Personal
Property of the Company, accurately identifies such Personal Property as owned
or leased, and lists each Personal Property Lease. The Company is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names and other names and
slogans embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to ▇▇▇ and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court,
6
12
arbitrator, federal, state, local or foreign government agency, regulatory body,
or other governmental authority (each a "Governmental Entity," and collectively
"Governmental Entities") with authority to bind the Company. There have not been
any actions or other judicial or adversary proceedings involving the Company
concerning any of the Proprietary Rights, nor to the knowledge of the Company or
any Member, is any such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
Year 2000 Compliance.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
7
13
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the Members
of this Agreement and the other Transaction Documents to be delivered by the
Company or any Member and the consummation of the transactions contemplated
hereby and thereby do not and will not: (i) violate or conflict with any
provision of the charter documents or bylaws of the Company; (ii) violate in any
material respect any provision or requirement of any domestic or foreign,
national, state, or local law, statute, judgment, order, writ, injunction,
decree, award, rule, or regulation of any Governmental Entity applicable to the
Company or the Business; (iii) violate in any material respect, result in a
material breach of, constitute (with due notice or lapse of time or both) a
material default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any material lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of the Company; or
(v) result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9
[Reserved.]
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which the Company is
a party or by which it is bound. The Company has complied in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours, collective
8
14
bargaining and the payment and withholding of taxes and other sums as required
by appropriate Governmental Entities and has withheld and paid to the
appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party. For purposes of
this Agreement, "EMPLOYEES" includes employees, independent contractors and
other persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations, (v) the latest financial statements, (vi) the three (3) most recent
Form 5500 Annual Reports,
9
15
including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which
10
16
is an accurate description of the terms of such plans or policies. The Company
has no affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 Litigation.
There are no claims, actions, suits, proceedings, labor disputes or
investigations of any nature pending or, to the knowledge of the Company or any
Member, threatened by or against the Members, the Company, the officers,
directors, employees, agents of the Company, or any of their respective
Affiliates involving, affecting or relating to the Business or any assets,
properties or operations of the Company or the transactions contemplated by this
Agreement. Neither the Company nor any of the Company's assets is subject to any
order, writ, judgment, award, injunction or decree of any Governmental Entity.
For purposes of this Agreement, "AFFILIATE" shall have the meaning ascribed to
such term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
11
17
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale of
any assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the Company or the
granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
12
18
(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
any Member, there are no proposed changes in any such laws, rules or regulations
(other than laws of general applicability) that would adversely affect the
transactions contemplated by this Agreement or reasonably be expected to have a
Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement and the other Transaction Documents. The Licenses are
sufficient and adequate in all material respects to permit the continued lawful
conduct of the Business in the manner now conducted and the ownership, occupancy
and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
13
19
2.16 Accounts Receivable.
Accounts receivable of the Company (the "ACCOUNTS RECEIVABLE") as of the
date hereof are reflected in Schedule 2.5. Schedule 2.5 will be updated at the
Closing Date to reflect all Accounts Receivable as of the Closing Date,
including their aging. All Accounts Receivable as of the date hereof represent,
and all Accounts Receivable as of the Closing Date will represent, valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business that are current and collectible in amounts not
less than the aggregate amount thereof (net of reserves established in
accordance with GAAP applied consistently with prior practice) carried (or to be
carried) on the books of the Company and reflected in the Financial Statements,
and are not and will not be subject to any valid counterclaims or set-offs,
disputes or contingencies.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
14
20
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19
[Reserved.]
2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
15
21
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to be
filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not reflected on such
Tax Returns). All such previously-filed Tax Returns were complete and accurate
in all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
16
22
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether
17
23
or not evidenced by a note or other written instrument) and a description of
each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
18
24
(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company, its operations or the
real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for
19
25
current needs and personal contingencies, and have no need for liquidity and can
sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Members are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
20
26
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26 Minute Books and Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27
[Reserved.]
2.28 Powers of Attorneys and Suretyships.
The Company does not have any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) or any obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person or entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.29 Brokers.
Except as set forth on Schedule 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or any of the
Members.
2.30 EACH MEMBER ACKNOWLEDGES RECEIPT AND UNDERSTANDING OF THE SUMMARY
OF CERTAIN CONSIDERATIONS ATTACHED HERETO AS EXHIBIT D.
2.31 Accuracy of Information.
21
27
None of the representations or warranties or information provided and to
be provided by the Company or any Member to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Members that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
22
28
3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 Litigation.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or
proceedings, including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 No Undisclosed Debt.
Since its date of incorporation, Buyer has had no operations except in
connection with effecting the Consolidation Transactions and preparing for
operation of its business after the Closing. Buyer has no material tangible
assets, and except as set forth on Schedule 3.6, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Members in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
23
29
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period, shall furnish promptly to
Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Members will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including,
without limitation, Deloitte & Touche, LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by the Company
and the Members related to the Company and the Business confidential, and will
not provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. The Company
and the Members acknowledge that Buyer may provide information about the Company
and the Business to other participants in the Consolidation Transactions to the
extent necessary to facilitate the Consolidation Transactions. If this Agreement
terminates without consummation of the Closing, the Company, the Members and
Buyer shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transactions, and
Buyer's business plans (the "INFORMATION"), other than Information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the Members and
the Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such
24
30
material from all other parties with whom it has been shared, and shall
thereafter refrain from using the Information and shall maintain its
confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests, or make any change in other ownership interests or
in the capitalization, whether by reason of a reclassification,
recapitalization, exchange, distribution or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
25
31
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
26
32
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4 Restrictive Covenants.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
27
33
(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or whom the Company was engaged
in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to
modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to make any such
statement or to perform any such act; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any
Member, to any county or any other political subdivision of any state of the
United States of America, or of any other country in the world, where such
Member generated revenue or established goodwill at any time during the two (2)
year period preceding the Closing Date. This Covenant Not to Compete shall bind
the Members until the fifth anniversary of the Closing Date, provided, however,
that if the employment of any Member is terminated by Buyer without Cause or by
such Member for Good Reason (each as defined in such Member's Employment
Agreement delivered pursuant to Section 6.3(c)(iv), and if an IPO of Buyer's
securities has not been consummated by December 31, 1999, then from and after
the later of January 1, 2000 or termination of such Member's employment, such
Member will no longer be subject to the covenant contained in Section
4.4(a)(ii). The parties hereto agree that the duration and area for which the
Covenant Not to Compete set forth in this Section 4.4(a) is to be effective are
reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
28
34
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part thereof. This Section 4.4(c) is in addition to and not by
way of limitation of any other duties the Members may have to Buyer or its
Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages, and (ii) Buyer shall have the right to offset any payment
obligations to the Members, to the extent of any money damages incurred or
suffered by Buyer. The Members shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and
29
35
every country outside the United States of America where the Covenant Not to
Compete is intended to be effective.
4.5 Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
4.6 Registration.
(a) No Member will have any rights to demand registration of any of the
Shares, or to participate in any registration undertaken by Buyer except as set
forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for an IPO of its equity securities or any
subsequent public offering within twenty-four (24)
30
36
months of the closing of the IPO (not including a registration statement filed
in connection with an acquisition or employee benefit plan), and if the managing
underwriter of such offering believes that the market will accommodate selling
stockholders in the offering, then the Members in the aggregate shall have the
right to include in such registration statement and offering up to that number
of Shares and other Common Stock not subject to any performance-related
restrictions listed on Schedule 4.6. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions and stockholders who acquired Common Stock in connection with the
formation, or work on behalf of, Buyer) will have rights to include shares of
Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in the
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock they originally sought to include. In general, in such
offerings, no Selling Stockholder will be permitted to include in the aggregate
more than half of the shares of Common Stock held by such Selling Member, or any
shares subject to performance-related restrictions.
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims, costs and liabilities incurred by such
Member as a result of any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by a Member or underwriter expressly
for use therein.
(c) Shares of Common Stock may only be included pursuant to the
underwriting agreement negotiated between Buyer and the underwriters, and
Selling Stockholders must enter into the underwriting agreement with respect to
any shares held by them to be included in the offering. Each Selling Stockholder
shall pay (i) all underwriting discounts and commissions applicable to such
Selling Stockholder's sale of shares of Common Stock, (ii) such Selling
Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all
31
37
conditions applicable to a registrant as are necessary to enable selling
security holders of Buyer to make sales pursuant to Rule 144 under the
Securities Act.
4.7 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or any Member and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in Tax Returns (including federal
Form 1065 and any similar state return) of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and all Taxes attributable to
the Company's income, gains or other taxable items for the Closing Date shall be
reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in
32
38
the Straddle Period; and provided further, if as of the Closing Date the Company
is a partner in any partnership which has a Tax year that does not end as of the
Closing Date, any tax liability attributable to such partnership's activities
shall be allocated between the Pre-Closing Period and the Post-Closing Period in
the same manner based upon the number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company for Pre-Acquisition Taxable Periods which
are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all reasonable
costs and expenses related to the preparation and filing of the Company's Tax
Returns for Pre-Acquisition Taxable Periods described in Section 4.8(c)(i), and
(B) all Taxes shown or reported to be due and payable on such Tax Returns. Each
Member shall pay his or her proportionate share of such costs, expenses and Tax
Liabilities of the Company promptly following receipt by such Member of a notice
from Buyer of Buyer's calculation of such Member's payment obligation hereunder
together with copies of the relevant Tax Returns and other information
supporting Buyer's calculation. If a Member disputes all or any portion of the
payment obligation hereunder as calculated by Buyer, such Member shall
nevertheless promptly pay to Buyer the amount specified in the notice and any
dispute related thereto shall be resolved pursuant to the arbitration provisions
of Section 7.13. Any additional Taxes attributable to the periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Members promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE PERIOD RETURN") reporting and accounting for such Taxes on
an aggregate basis covering both the Pre-Closing Period and the Post-Closing
Period. The Buyer, at its expense, shall cause the Company to prepare and file
such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns.
33
39
Each Member shall pay his or her proportionate share of Pre-Closing Taxes
promptly following receipt by such Member of a notice from Buyer of Buyer's
calculation of such Member's payment obligation hereunder together with copies
of the relevant Tax Returns and other information supporting Buyer's
calculation. If a Member disputes all or any portion of the payment obligation
hereunder as calculated by Buyer, such Member shall nevertheless promptly pay to
Buyer the amount specified in the notice and any dispute related thereto shall
be resolved pursuant to the arbitration provisions of Section 7.13. Any
additional Taxes attributable to the Pre-Closing Periods covered by such Tax
Returns, whether pursuant to an amended return or any Tax Proceeding, shall be
paid by Members promptly upon demand therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Members of any written communication from a Tax authority with respect to any
pending Tax Proceeding involving a Pre-Acquisition Tax Liability. Buyer shall
include with such notification a copy of the written communication so received
by Company.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Members shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of the Members; and provided further, that, without the prior written
consent of the Members, which shall not be unreasonably withheld, the Buyer
shall not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the one hand, and the Members, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Members provided for hereunder shall be deemed
delivered to each Member upon receipt thereof either directly by the Member. The
Members shall proportionately pay all Tax Liabilities and costs and expenses for
which the Members are responsible hereunder; provided, however, the Members
shall be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
34
40
(iv) The Member shall furnish to Buyer such information and documents as
may be reasonably requested by Buyer, and shall otherwise reasonably cooperate
with Buyer, in connection with Buyer's conduct of any Tax Proceedings described
herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such companies (collectively, the
"CONSOLIDATION TRANSACTIONS"). The Company and the Members acknowledge that as a
result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time designated by Buyer.
Accordingly, the Company and the Members shall upon receipt of the Closing
Notice but prior to the Closing Date (i) provide any outstanding documentation
required to effect the Closing pursuant to this Agreement in escrow pending
release upon authorization of the Members at the Closing, (ii) complete
performance of their respective obligations hereunder and under the other
Transaction Documents to be performed by the Closing, and (iii) update the
schedules hereto and any other documentation or information provided to Buyer
during the course of this transaction such that all such disclosures shall be
accurate and current as of the Closing Date.
4.10 Supplemental Disclosure.
35
41
At the Closing, the Company and the Members shall supplement or amend
each of the schedules hereto with respect to any matter hereafter arising which,
if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.11 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.12 Competing Proposals.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
36
42
4.14 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.15 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.16 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder.
37
43
Completion of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy of any of the parties.
5.2 Indemnification by the Members.
Subject to the limits set forth in this Article 5, the Members and, if
the transactions contemplated hereby are not consummated, the Company, and their
successors and assigns shall jointly and severally indemnify, defend, reimburse
and hold harmless Buyer and its Affiliates and their successors and assigns, and
the officers, directors, employees and agents of any of them, from and against
any and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Members and their successors and assigns from and against any and all Losses
reasonably incurred by any such Members arising out of or in connection with any
of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
38
44
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
39
45
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer on the one
hand, and Buyer, on the other hand to the Members, for all claims arising under
this Agreement
40
46
and the other Transaction Documents shall equal the aggregate Purchase Price.
For purposes of this Section 5.6(b), the value of Shares received shall be (i)
prior to the IPO, the per share Agreed Price (as defined in the Stockholder
Agreement) then prevailing; and (ii) after the IPO, the per share closing price
on the primary exchange or market on which the Common Stock is traded on the
date such indemnifiable Losses become payable, except that the value of any
Shares sold in bona fide third party transactions will be the gross proceeds to
the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Members, on the one hand, and Buyer, on the other
hand, to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Members will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Members from and against, any obligations that
the Members would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
41
47
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members' Representative shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents to be
delivered by the Company and the Members and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Member and the spouse of each
Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24;
42
48
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least One Hundred Thirty Seven
Thousand Dollars ($137,000), and (ii) sufficient working capital to operate the
Company; and at the Closing the Company shall have delivered to Buyer a
certificate dated the Closing Date to such effect with supporting financial
information, signed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. In giving such opinion, such counsel may
rely upon certificates of public
43
49
officials, upon opinions of local counsel and, as to matters of fact, upon a
certificate of the Company, or its officers, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by Buyer.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
(m) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, corporate seals of the Company and documents relating to
the transfer of ownership interests in the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 Conditions to Obligations of the Members.
The obligations of the Members to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Members in writing in their discretion; provided however,
such waiver will not waive or diminish the right of the Members to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate
44
50
to such effect dated the Closing Date signed by the President or any Vice
President and the Secretary or any Assistant Secretary of Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3; and
(iv) Employment Agreements substantially in the form of Exhibit H
(with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million.
For these purposes, "PRE-TAX INCOME" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
7. MISCELLANEOUS.
45
51
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Members fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Members is breached or is inaccurate in any material way; (b) by the Company or
the Members if (i) Buyer fails to comply in any material respect with any of its
covenants or agreements contained herein, or (ii) any of the representations and
warranties of Buyer is breached or is inaccurate in any material way; or (c) by
the Company or Buyer if (i) a Governmental Entity has issued a non-appealable
order, decree or ruling or taken any other action (which order, decree or ruling
the parties hereto have used their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the transactions contemplated by this
Agreement; or (ii) a condition to its performance hereunder has not been
satisfied or waived prior to November 30, 1998; provided however, that if the
board of directors of Buyer should, in good faith, determine that it is
necessary to extend the Closing for the purpose of facilitating the financing of
the Consolidation Transactions, it may extend such date by thirty-two (32) days.
Notwithstanding the foregoing, a party may not terminate this Agreement if the
event giving rise to the termination right results from the willful failure of
such party to perform or observe any of the covenants or agreements set forth
herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
46
52
If to Buyer: Chief Executive Officer
ProfitSource Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company
or any Member: ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Day, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
7.3 Assignability and Parties in Interest.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon each Member and his or her executors, administrators, heirs,
legal representatives and permitted successors and assigns. Nothing in this
Agreement will confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
47
53
7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
48
54
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Members only and no other
person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne Buyer, and all fees,
costs and expenses incurred by the Company or the Members in connection with the
transactions contemplated by this Agreement shall be borne by the Members
jointly and severally.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the
49
55
aggregate, together with other arbitrations that are consolidated pursuant to
Section 7.13(f), exceed Five Hundred Thousand Dollars ($500,000) (the
"ARBITRATION THRESHOLD"), exclusive of interest and attorney's fees, the dispute
shall be heard and determined by three (3) arbitrators as provided herein (such
arbitrator or arbitrators are hereinafter referred to as the "ARBITRATOR"). The
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the
50
56
deponent, and must be concluded within eight (8) hours and all depositions must
be taken within forty-five (45) days following the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return
51
57
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in Section 7.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or any Member, or if the Company or any of its Affiliates, successors or assigns
or any Member brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 Enforcement of the Agreement.
The Company, the Members and Buyer acknowledge that irreparable damage
would occur if any of the obligations of the Company and the Members under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer will be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the Company or the Members and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
52
58
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: SVP
NATIONAL REVMAX CONSULTANTS, L.L.C.
BY: IM COMET, LLC
Its: Manager
By COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Manager
MEMBER(S):
IM COMET, LLC
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Manager
53
59
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Five-Hundred Thousand Dollars ($500,000) (the
"CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount of no
Dollars ($0) (the "NOTES")
(iii) An aggregate of 507,714 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer pending
release pursuant to Section 1.4.
(b) Consideration per Member.
Seller Interests Common
Name of Owned and to Cash Note Stock
Member be sold to Buyer Consideration Consideration Consideration
------ ---------------- ------------- ------------- -------------
IM Comet LLC 100% $500,000 $0 507,714