Exhibit 10.9
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AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
dated as of
October 2, 1998
by and among
USINTERNETWORKING, Inc.,
Advanced Communication Resources, Inc.,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
The ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust,
The ▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust,
and
S. ▇▇▇▇▇ ▇▇▇▇▇▇
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TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS............................................................................................1
1.1. Defined Terms............................................................................1
1.2. Certain Usage............................................................................8
ARTICLE II. PURCHASE AND SALE OF SHARES...........................................................................9
2.1. Purchase and Sale of Shares..............................................................9
2.2. Total Consideration and Terms............................................................9
2.3. Contingent Payments......................................................................9
2.4. Noncompete..............................................................................11
ARTICLE III. CLOSING.............................................................................................11
3.1. Closing.................................................................................11
3.2. Sellers' Closing Deliveries.............................................................11
3.3. Purchaser's Closing Deliveries..........................................................11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS........................................... 11
4.1. Organization............................................................................12
4.2. Subsidiaries............................................................................12
4.3. Capitalization..........................................................................12
4.4. Authorization...........................................................................13
4.5. No Conflict or Violation................................................................13
4.6. Financial Statements....................................................................13
4.7. Books and Records.......................................................................14
4.8. Undisclosed Liabilities.................................................................14
4.9. Absence of Certain Changes or Events....................................................14
4.10. Contracts; No Defaults.................................................................15
4.11. Government Contracts; Backlog..........................................................17
4.12. Tangible Assets........................................................................17
4.13. Intellectual Property..................................................................18
4.14. Real Property..........................................................................20
4.15. Litigation and Proceedings.............................................................21
4.16. Employee Benefit Plans.................................................................21
4.17. Labor Relations........................................................................25
4.18. Legal Compliance.......................................................................26
4.19. Environmental Protection...............................................................26
4.20. Taxes..................................................................................27
4.21. Governmental Authorities: Consents....................................................29
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4.22. Licenses, Permits and Authorizations...................................................29
4.23. Insurance..............................................................................30
4.24. Brokers' Fees..........................................................................30
4.25. No Other Agreements to Sell the Shares.................................................30
4.26. Transactions with Certain Persons......................................................30
4.27. Customers, Distributors and Suppliers..................................................31
4.28. Banking Relationships..................................................................31
4.29. Accounts Receivable....................................................................31
4.30. Year 2000..............................................................................32
4.31. Investment.............................................................................32
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................32
5.1. Organization of Purchaser...............................................................32
5.2. Authorization...........................................................................33
5.3. Warrant Shares..........................................................................33
5.4. No Conflict or Violation................................................................33
5.5. Governmental Authorities; Consents......................................................33
5.6. Brokers' Fees...........................................................................34
ARTICLE VI. COVENANTS OF SELLERS AND THE COMPANY.................................................................34
6.1. Conduct of Business.....................................................................35
6.2. HSR Act.................................................................................35
6.3. No Solicitations........................................................................35
6.4. Notice to Purchaser.....................................................................36
6.5. Consents................................................................................36
6.6. Inspections.............................................................................36
6.7. Employee Benefit Plans..................................................................36
ARTICLE VII. COVENANTS OF PURCHASER..............................................................................36
7.1. HSR Act.................................................................................37
7.2. Consents................................................................................37
ARTICLE VIII. COVENANTS OF SELLERS, THE COMPANY AND PURCHASER....................................................37
8.1. Confidentiality.........................................................................37
8.2. Cooperation and Records Retention.......................................................37
ARTICLE IX. CONDITIONS TO OBLIGATIONS............................................................................38
9.1. Conditions to Obligations of Purchaser, Sellers and the Company.........................38
9.2. Conditions to Obligations of Purchaser..................................................38
9.3. Conditions to the Obligations of Sellers and the Company................................40
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ARTICLE X. TERMINATION...........................................................................................40
10.1. Termination............................................................................40
10.2. Effect of Termination..................................................................41
ARTICLE XI. DEFAULT AND REMEDIES.................................................................................41
11.1. Breach and Opportunity to Cure.........................................................41
11.2. Sellers' Remedies......................................................................41
11.3. Purchaser's Remedies...................................................................42
11.4. Escrow Deposit.........................................................................42
ARTICLE XII. POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION................................................42
12.1. Indemnification........................................................................42
12.1.1. Purchaser's Right to Indemnification...................................................42
12.1.2. Seller's Right to Indemnification......................................................43
12.1.3. Conduct of Proceedings.................................................................43
12.1.4. Limitations on Indemnification.........................................................44
12.1.5. Indemnification Sole Remedy............................................................44
12.2. Right of Offset........................................................................44
12.3. Survival of Representations............................................................44
12.4. Rights of Set-Off......................................................................45
ARTICLE XIII. TAX MATTERS........................................................................................45
13.1. Allocation of Responsibility...........................................................45
13.2. Payment of Taxes.......................................................................45
13.3. Tax Returns............................................................................45
13.4. Refunds................................................................................46
13.5. Contests...............................................................................46
13.6. Allocation of Taxes....................................................................47
13.7. Treatment of Indemnity Payments........................................................47
13.8. Indemnification........................................................................47
13.9. Successors.............................................................................47
ARTICLE XIV. SELLER REPRESENTATIVE...............................................................................47
14.1. Designation of Seller Representative...................................................47
14.2. Authority and Rights of Seller Representative; Limitations on Liability................47
ARTICLE XV. MISCELLANEOUS........................................................................................48
15.1. Waiver.................................................................................48
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15.2. Notices................................................................................48
15.3. Assignment.............................................................................49
15.4. Rights of Third Parties................................................................50
15.5. Reliance...............................................................................50
15.6. Transfer Taxes; Title Costs; Expenses..................................................50
15.7. Construction...........................................................................50
15.8. Captions; Counterparts.................................................................50
15.9. Entire Agreement.......................................................................50
15.10. Amendments............................................................................51
15.11. Severability..........................................................................51
15.12. Publicity.............................................................................51
15.13. Further Assurances....................................................................51
15.14. Attorney's Fees.......................................................................51
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EXHIBITS
Exhibit A Transaction Expenses
Exhibit B Employees
Exhibit C Pro Rata Share
Exhibit D Form of Warrant Agreement
Exhibit E Allocation of Cash Consideration
Exhibit F Secured Promissory Note
Exhibit G Form of Noncompetition Agreement
Exhibit H Form of Opinion of Company and Sellers' Counsel
Exhibit I Form of Employment Agreement
Exhibit J Warrantholder's Agreement
Exhibit K Form of Opinion of Purchaser's Counsel
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SCHEDULES
Schedule 4.1 Foreign Qualifications
Schedule 4.3 Capitalization
Schedule 4.5 Noncontravention
Schedule 4.6 Financial Statements
Schedule 4.8 Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes
Schedule 4.10 Contracts
Schedule 4.13(c) Company Intellectual Property
Schedule 4.14 Real Property
Schedule 4.16 Employee Benefit Plans
Schedule 4.20 Taxes
Schedule 4.22 Licenses, Permits and Authorizations
Schedule 4.23 Insurance
Schedule 4.26 Transactions with Certain Persons
Schedule 4.27 Customers, Distributors & Suppliers
Schedule 4.28 Banking Relationships
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AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (the
"AGREEMENT" or "PURCHASE AGREEMENT") is entered into by and among ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, The ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust, The ▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust,
and S. ▇▇▇▇▇ ▇▇▇▇▇▇ (the "SELLERS" and each a "SELLER"), Advanced Communication
Resources, Inc., a New York corporation (the "Company") and USinternetworking,
Inc., a Delaware corporation (the "Purchaser"), as of this 2d day of October,
1998, and amends and restates the Stock Purchase Agreement between the Sellers
and Purchaser dated as of September 1, 1998 (the "Original Purchase Agreement").
RECITALS:
A. Sellers own of record and beneficially all of the issued
and outstanding shares of common stock, no par value per share (the "COMPANY
COMMON STOCK"), of the Company (the "Shares").
B. Seller and Purchaser desire to amend and restate the
Original Purchase Agreement upon the terms and subject to the conditions set
forth herein.
C. Upon the terms and subject to the conditions set forth
herein, Sellers desire to sell to Purchaser or its designees, and Purchaser
desires to purchase from Sellers the Shares, free and clear of any and all
Encumbrances.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
1.1. DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"AFFILIATE" shall mean with respect to any specified Person,
any other Person that, directly or indirectly, controls, is controlled by, or is
under common control with, such Person, through one or more intermediaries or
otherwise.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"ANCILLARY AGREEMENTS" shall mean all exhibits and schedules
to the Agreement.
"ANTITRUST AUTHORITY" shall mean the Antitrust Division of the
United States Department of Justice or the United States Federal Trade
Commission.
"BALANCE SHEET" shall mean the balance sheet of the Company as
of the date indicated thereon, together with the notes thereto.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in
SECTION 4.16.
"BOOKS AND RECORDS" shall mean all of the following as made
and kept by the Company (a) all records and lists pertaining to customers,
suppliers or personnel of the Company, (b) all product, business and marketing
plans of the Company and (c) all books, ledgers, files, reports, plans, drawings
and operating records of every kind maintained by the Company including, without
limitation, all stock books, stock ledgers and corporate minutes and Real Estate
Records of the Company.
"BUSINESS" shall mean the Company's business of providing
computer consulting services.
"BUSINESS DAY" shall mean any day that is not a Saturday,
Sunday or any other day on which banks are required or authorized by law to be
closed in New York, New York.
"CASH CONSIDERATION" shall have the meaning specified in
SECTION 2.2.
"CLAIMS" shall have the meaning set forth in SECTION 12.1.1.
"CLOSING" shall have the meaning set forth in SECTION 3.1.
"CLOSING DATE" shall have the meaning set forth in SECTION
3.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY COMMON STOCK" shall have the meaning set forth in the
Recitals.
"CONTINGENT PAYMENTS" shall have the meaning set forth in
SECTION 2.3.
"CONTRACTS" shall mean, collectively, all agreements,
contracts, leases, purchase orders, memoranda of understanding and other binding
contractual commitments to which the Company is a party, including those
contracts listed on SCHEDULE 4.10.
"DISCLOSURE SCHEDULE" shall mean the schedules attached
hereto.
"EBITDA" shall mean, with respect to any Person for any
period, the Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with the sale
or disposition of any asset, to the extent such losses were deducted in
computing such Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Net Income, plus (iii)
interest expense of such Person and its
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Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with capital lease obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to hedging obligations), to the
extent that any such expense was deducted in computing such Net Income, plus
(iv) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Net Income, plus (v) cash expenses actually incurred
by the Company in connection with the Transactions as described on EXHIBIT A
hereto, minus (vi) non-cash items increasing such Net Income for such period
(other than items that were accrued in the ordinary course of business), in each
case, on a consolidated basis and determined in accordance with GAAP.
"EMPLOYEE LAWS" shall have the meaning set forth in SECTION
4.17.
"EMPLOYEE PLANS" shall have the meaning set forth in SECTION
4.16(a).
"EMPLOYEE RETENTION PERCENTAGE" shall mean, the percentage
obtained by dividing (i) the aggregate number of the employees of the Company
listed on EXHIBIT B who are employed by the Company as of December 31, 1998
(plus (A) any employees of the Company listed on EXHIBIT B who are employees of
the Purchaser or any Affiliate of the Purchaser other than the Company as of
December 31, 1998, (B) any employees listed on EXHIBIT B who are not employed by
the Company as of December 31, 1998 because of such person's death or disability
or termination by the Company and (C) any employees who are hired after the date
of this Agreement, and are employed by the Company at December 31, 1998, in
replacement or substitution of any of the employees listed on EXHIBIT B) by (ii)
36.
"ENCUMBRANCE" shall mean any mortgage, claim, charge, lien,
easement, right-of-way, covenant, condition, option, pledge, call, commitment,
security interest, conditional sales agreement, title retention agreement,
lease, and any other imperfection of title or restriction of any kind and
nature, ▇▇▇▇▇▇ or inchoate.
"ENVIRONMENTAL CLAIMS" shall mean all accusations,
allegations, notice of violations, liens, claims, demands, suits, or causes of
action for any damage, including without limitation, personal injury, property
damage (including any depreciation of property values), lost use of property, or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws.
"ENVIRONMENTAL CONDITIONS" shall mean the state of the
environment, including natural resources (e.g., flora and fauna), soil, surface
water, wet lands, ground water, any present or potential drinking water supply,
subsurface strata, or ambient air, regulated under
3
Environmental Laws relating to or arising out of the use, handling, storage,
treatment, recycling, generation, transportation, release, spilling, leaking,
pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposal, dumping, or threatened release of Hazardous Materials by the Company
or their predecessors or successors in interest, or by their agents,
representatives, employees, or independent contractors when acting in such
capacity on behalf of the Company. With respect to Environmental Claims by third
parties, Environmental Conditions also include the exposure of persons to
Hazardous Materials at the work place or the exposure of persons or property to
Hazardous Materials migrating from or otherwise emanating from or located on
property owned or occupied by the Company.
"ENVIRONMENTAL EXPENSES" shall mean any liability, loss, cost,
or expense related to an Environmental Claim, incurred in compliance with any
Environmental Laws, or incurred in response to Environmental Conditions,
including without limitation the costs of any investigation, remedial or
response actions, the costs associated with posting financial assurances for the
completion of any such actions, the preparation of any closure or other plans or
analyses, the costs of health assessments or other medical studies, the costs of
retention of expert consultants or legal counsel, capital improvements,
operation and maintenance costs, testing and monitoring costs, power and utility
costs and administrative costs incurred by governmental agencies.
"ENVIRONMENTAL LAWS" shall mean any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, legally binding decrees or other requirement of any
Governmental Authority (including, without limitation, common law) regulating,
relating to or imposing liability or standards of conduct concerning protection
of the environment or of human health relating to exposure of any kind of
Hazardous Materials, as has been, is now, or may at any time hereafter be, in
effect.
"ENVIRONMENTAL NONCOMPLIANCE" shall mean: (i) the release of
any Hazardous Materials into the environment, any storm drain, sewer, septic
system or publicly owned treatment works, in violation of any effluent or
emission limitations, standards or other criteria or guidelines established by
any federal, state or local law, regulation, rule, ordinance, plan or order;
(ii) any noncompliance with Environmental Laws including the failure to have
obtained permits, variances or other authorizations required under Environmental
Laws; (iii) any facility operations, procedures and/or designs which do not
conform to the statutory or regulatory requirements of Environmental Laws; and
(iv) the operation of any facility or equipment in violation of any permit
condition, schedule of compliance, administrative or court order and the like.
"ERISA" shall have the meaning set forth in SECTION 4.16(a).
"ERISA AFFILIATE" shall have the meaning set forth in SECTION
4.16(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
SECTION 4.6.
"FIXTURES" shall mean any fixtures, machinery, installations
and building equipment located at or on any Real Property.
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"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"GOLDEN PARACHUTE PAYMENT" shall have the meaning set forth in
SECTION 4.16(c).
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state,
municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
court, tribunal, arbitrator or arbitral body.
"GOVERNMENT CONTRACT" shall have the meaning set forth in
SECTION 4.11.
"GOVERNMENT ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS MATERIALS" shall mean any hazardous substance,
gasoline or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity, and any
other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental law.
"HSR ACT" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvement Act of 1976, as amended.
"IMPROVEMENTS" shall mean any right, title or interest in any
buildings, facilities, other structures and improvements, building systems and
fixtures.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SECTION 12.1.3.
"INDEMNITOR" shall have the meaning set forth in SECTION
12.1.3.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth
in SECTION 2.3(d).
"INSURANCE POLICY" shall have the meaning set forth in SECTION
4.23.
"INTELLECTUAL PROPERTY" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas,
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research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"INTERIM BALANCE SHEET" shall mean the Balance Sheet dated the
Interim Balance Sheet Date.
"INTERIM BALANCE SHEET DATE" shall mean June 30, 1998.
"INTERIM FINANCIAL STATEMENTS" shall mean the Interim Balance
Sheet and the statements of operations, changes in shareholders' equity and cash
flow for the period ended on the Interim Balance Sheet.
"IRS" means the United States Internal Revenue Service.
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the business, assets, liabilities, condition (financial or otherwise),
results of operations or prospects of the Company, taken as a whole.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in
SECTION 4.16(a).
"NET INCOME" shall mean with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP.
"NONCOMPETITION AGREEMENT" shall have the meaning set forth in
SECTION 2.4.
"PBGC" shall have the meaning specified in SECTION 4.16(a).
"PENSION PLAN" shall have the meaning specified in SECTION
4.16(a).
"PERMITS" shall mean any licenses, permits, certificates of
occupancy, approvals, authorizations, variances and waivers issued by any
Governmental Authority.
"PERMITTED ENCUMBRANCE" shall mean any (i) mechanics lien,
materialmen's lien and similar Encumbrance with respect to any amounts not yet
due and payable or which are being contested in good faith through appropriate
proceedings and for which adequate reserves are maintained in accordance with
GAAP, (ii) Encumbrance for Taxes not yet due and payable or which are being
contested in good faith through appropriate proceedings, for which adequate
reserves are maintained in accordance with GAAP, and which are disclosed on the
Disclosure Schedule, (iii) routine utility easements or other non-detrimental
agreements of record affecting
6
the Real Property which do not materially interfere with the use, occupancy or
marketability of the Real Property subject thereto and (iv) other Encumbrances
disclosed in the Schedules to this Agreement.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, labor union or Governmental Authority.
"PERSONNEL" shall have the meaning set forth in SECTION
4.9(b).
"PRE-CLOSING ENVIRONMENTAL MATTER" shall mean any
Environmental Claim, Environmental Condition or any noncompliance with any
Environmental Law on the part of Seller, its Affiliates or any of their
predecessors in interest occurring or in existence on, or arising from actions
occurring prior to, the Closing Date.
"PRE-CLOSING PARTIAL PERIOD" shall have the meaning set forth
in SECTION 13.1.
"PRIME RATE" shall have the meaning set forth in SECTION
12.1.1.
"PRO RATA SHARE" shall mean with respect to each Seller, such
Seller's percentage interest in the equity of the Company as set forth on
EXHIBIT C hereto.
"PURCHASER" shall have the meaning set forth in the Preamble.
"PURCHASER COMMON STOCK" shall have the meaning set forth in
SECTION 5.3.
"PURCHASER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.1.
"REAL ESTATE RECORDS" shall mean, to the extent in the
possession or control of Sellers or the Company, the real estate records, files,
books, blueprints, plans (as-built and otherwise), surveys, specifications,
designs, drawings, and other data associated with the Real Property.
"REAL PROPERTY" shall have the meaning set forth in SECTION
4.14.
"REAL PROPERTY LEASE" shall have the meaning set forth in
SECTION 4.14.
"RECIPIENTS" shall have the meaning set forth in SECTION
4.16(c).
"REVENUE" shall mean the revenue of the Company determined in
accordance with GAAP.
"SELLER REPRESENTATIVE" shall have the meaning set forth in
SECTION 14.1.
"SELLERS" shall have the meaning set forth in the Preamble.
"SELLER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.2.
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"SHARES" shall have the meaning set forth in the Recitals.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company, directly
or indirectly, holds fifty percent (50%) or more of the voting power of all
equity securities or other ownership interests of such entity, or over which the
Company either directly or indirectly exercises actual control.
"TARGET EBITDA" shall mean $679,250.
"TARGET REVENUE" shall mean $7,559,150.
"TAX" or "TAXES" shall mean any federal, state, local or
foreign net or gross income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, (including taxes under Code Sec.
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, governmental fee or like assessment or charge
of any kind whatsoever, including any interest, penalty or additions thereto and
any amount imposed by any governmental authority or arising under any Tax law or
agreement, including, without limitation, any joint venture or partnership
agreement.
"TAX RETURNS" shall mean all reports, returns, declarations,
claims for refund or statements of any kind or nature relating to Taxes, and any
schedule or attachment thereto and any amendment thereof.
"TOTAL CONSIDERATION" shall have the meaning set forth in
SECTION 2.2(a).
"TRANSACTIONS" shall mean the transactions contemplated by
this Agreement and the Ancillary Agreements.
"WARRANTS" shall mean the warrants entitling the holders
thereof to purchase up to 500,000 shares of common stock of Purchaser at a price
of $2.00 per share, subject to the terms and conditions of the Warrant Agreement
attached hereto as EXHIBIT D.
"WELFARE PLAN" shall have the meaning set forth in SECTION
4.16(a).
1.2. CERTAIN USAGE. As used herein the following additional terms
shall have the following meaning:
The term "including" as used herein shall be read to mean
"including, without limitation."
The term "knowledge" as used herein, shall mean with respect
to any person, those facts or circumstances actually known by such person as
well as any facts or circumstances that would be known after due inquiry by a
person holding a comparable office or job or with comparable experience or
responsibilities. For purposes of this Agreement, the knowledge of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and S. ▇▇▇▇▇ ▇▇▇▇▇▇ shall be imputed to the Sellers and the Company, and
8
the knowledge of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and
▇▇▇▇▇▇ ▇▇▇▇▇ shall be imputed to Purchaser.
ARTICLE II.
PURCHASE AND SALE OF SHARES
2.1. PURCHASE AND SALE OF SHARES. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Sellers shall sell, convey and
transfer to Purchaser or Purchaser's designees, and Purchaser or its designee
shall purchase and acquire from Sellers, the Shares, free and clear of all
Encumbrances.
2.2. TOTAL CONSIDERATION AND TERMS.
(a) The aggregate consideration for the Shares to be purchased
by Purchaser hereunder and for the Noncompetition Agreement (the "TOTAL
CONSIDERATION") shall, subject to adjustment as provided in SECTIONS 2.3, and
12.1 hereof, consist of (i) Two Million Five Hundred Thousand Dollars
($2,500,000) in cash (the "CASH CONSIDERATION"); (ii) a $3,500,000 secured
promissory note payable to the Seller Representative, for the benefit of the
Sellers, in the form attached as EXHIBIT F (the "Note"); (iii) Five Million
Dollars ($5,000,000) in Contingent Payments (as defined below), subject to the
rights of set-off as provided in SECTION 12.4 hereof and subject to satisfaction
of the terms and conditions set forth below in SECTION 2.3; and (iv) the
Warrants.
(b) At the Closing, Purchaser will (i) pay to each Seller by
wire transfer of immediately available funds to an account designated in writing
by such Seller the amount set forth opposite each Seller's name on EXHIBIT E;
(ii) execute and deliver to the Sellers the Note; and (iii) issue the Warrants
to each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and S. ▇▇▇▇▇ ▇▇▇▇▇▇.
(c) Purchaser has previously delivered to an escrow account,
pursuant to the Escrow Agreement dated September 1, 1998, the amount of $500,000
as a deposit towards the Cash Consideration (the balance of such account, the
"ESCROW DEPOSIT"). At Closing, the balance of the Escrow Deposit and interest
accrued thereon shall be applied towards the payment of the Cash Consideration.
In the event that this Agreement is terminated pursuant to Article X, the
balance of the Escrow Deposit shall be delivered to the Company or Purchaser in
accordance with the provisions of SECTION 11.4.
2.3. CONTINGENT PAYMENTS.
(a) As further consideration of the agreements set forth
herein and the sale by Sellers of the Shares, if the targets set forth below are
all achieved, Purchaser shall pay to each Seller such Seller's Pro Rata Share of
the applicable amount set forth below: (the "CONTINGENT PAYMENT"):
(i) In the event that (A) the Revenue of the Company
for the twelve months ended December 31, 1998 (the "1998 REVENUE")
exceeds 80% of the Target Revenue but is equal to or less than 100% of
the Target Revenue, (B)
9
the EBITDA of the Company for the twelve months ended December 31,
1998 (the "1998 EBITDA") exceeds 80% of the Target EBITDA but is equal
to or less than 100% of the Target EBITDA, and (C) the Employee
Retention Percentage as of December 31, 1998 exceeds 80%, Purchaser
shall pay to each Seller such Seller's Pro Rata Share of $4,000,000,
or as otherwise directed in writing by the Seller Representative at
least two (2) Business Days prior to receipt of the Contingent
Payment; or
(ii) In the event that (A) the 1998 Revenue is
greater than the Target Revenue, (B) the 1998 EBITDA is greater than
the Target EBITDA, and (C) the Employee Retention Percentage as of
December 31, 1998 exceeds 80%, Purchaser shall pay to each Seller such
Seller's Pro Rata Share of $5,000,000, or as otherwise directed in
writing by the Seller Representative at least two (2) Business Days
prior to receipt of the Contingent Payment.
(b) Within fifteen (15) calendar days following the date on
which Purchaser receives the Company's audited financial statements for the
twelve months ended December 31, 1998 and in no event later than March 31, 1999,
Purchaser shall prepare and deliver to the Seller Representative a calculation
of the 1998 Revenue and 1998 EBITDA and the Employee Retention Percentage as of
December 31, 1998.
(c) The Seller Representative may dispute Purchaser's
calculation of the 1998 Revenue and the 1998 EBITDA but only on the basis that
the amounts reflected in such calculation were not determined in accordance with
GAAP or adjusted in accordance with this Agreement. The Seller Representative
shall notify Purchaser in writing of each disputed item, specifying the amount
of each item in dispute and setting forth, in detail, the basis for each item in
dispute, within fifteen (15) calendar days of the Seller Representative's
receipt of Purchaser's calculation of the Revenue. If the Seller Representative
has not notified Purchaser of any such dispute within such fifteen (15) day
period, then Purchaser's calculation shall be deemed to be final and conclusive
on the parties hereto, and any amount payable under SECTION 2.3(a) shall be paid
by Purchaser within five (5) Business Days thereafter.
(d) In the event of such a dispute, Purchaser and the Seller
Representative shall negotiate in good faith to reconcile their differences. If
such dispute has not been resolved within ten (10) Business Days after
Purchaser's receipt of notice of such dispute, the Seller Representative and
Purchaser shall submit the item(s) remaining in dispute to a mutually acceptable
independent "Big Five" accounting firm (the "INDEPENDENT ACCOUNTING FIRM"),
which shall, as promptly as practical but in no event later than thirty (30)
calendar days after such submission, determine and report upon such remaining
disputed item(s). Such determination and report shall be final, binding and
conclusive on the parties hereto and any amount payable under SECTION 2.3(a)
shall be paid by Purchaser within five (5) Business Days thereafter. The fees
and disbursements of the Independent Accounting Firm shall be allocated between
Purchaser and Sellers in the same proportion that the aggregate amount of such
remaining disputed item(s) so submitted to the Independent Accounting Firm,
which is unsuccessfully disputed by each such
10
party (as determined by the Independent Accounting Firm), bears to the total
amount of such remaining disputed item(s) so submitted.
(e) In order not to interfere with the ability of the Company
to meet the Revenue, EBITDA and Employee Retention Percentage targets set forth
in Section 2.3(a), prior to January 1, 1999, Purchaser shall not (i) transfer
any of the employees, assets, or customers of the Company to Purchaser or any
Affiliate of Purchaser unless Purchaser first makes arrangements for the Company
to receive an allocation of Revenue and EBITDA attributable to such employees,
assets or customers for the period prior to January 1, 1999 or (ii) materially
modify any Company employee's compensation or benefits without the prior written
consent of the Seller Representative.
2.4. NONCOMPETE. As further consideration of the agreements set
forth herein and sale by Sellers of the Shares, at the Closing, each Seller
shall enter into a noncompetition agreement with Purchaser in the form of
EXHIBIT G hereto (the "NONCOMPETITION AGREEMENT"). The Noncompetition Agreement
shall become effective as of the Closing Date and shall continue in effect for a
period of two years after the Closing Date. Purchaser and Sellers agree that the
amount of the Total Consideration allocable to the Noncompetition Agreement
shall be $700,000.
ARTICLE III.
CLOSING
3.1. CLOSING. The consummation of the purchase and sale of the
Shares (the "CLOSING") shall take place at 10:00 a.m., local time, on or before
October 2, 1998 at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP, 450 Park
Avenue, New York, New York, or at such other time or place as the Seller
Representative and Purchaser may agree in writing (the day on which the Closing
takes place being referred to herein as the "CLOSING DATE").
3.2. SELLERS' CLOSING DELIVERIES. At the Closing, Sellers shall
deliver to Purchaser (i) stock certificates evidencing the Shares, duly endorsed
in blank or accompanied by a stock power duly executed in blank, and (ii) the
other documents required to be delivered by Sellers pursuant to Article IX
hereof.
3.3. PURCHASER'S CLOSING DELIVERIES. At the Closing, (i) Purchaser
shall pay to each Seller such Seller's Pro Rata Share of the Cash Consideration
(as provided in Section 2.2 hereof), (ii) Purchaser shall execute and deliver
the Note; (iii) Purchaser shall pay to Merchant's Bank of New York ("Merchant's
Bank") an amount equal to the entire outstanding balance of the Company's line
of credit with Merchant's Bank; (iv) Purchaser shall issue the Warrants and (v)
Purchaser shall deliver to Sellers the other documents required to be delivered
by Purchaser pursuant to Article IX hereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
11
The Company and Sellers hereby jointly and severally represent
and warrant to Purchaser as follows, which representations and warranties were,
as of September 1, 1998, true and correct and, with respect to the
representations and warranties set forth in SECTIONS 4.1 through 4.7, SECTION
4.20, and SECTIONS 4.24 through 4.26, will be, as of the Closing Date, true and
correct:
4.1. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
with full corporate power and authority to conduct the Business as it is
presently being conducted and to own and lease its properties and assets. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of its properties owned or
leased or the nature of its activities make such qualification necessary, except
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. Copies of the certificate of incorporation and bylaws
of the Company, and all amendments thereto, heretofore delivered to Purchaser
are accurate and complete as of the date hereof. SCHEDULE 4.1 contains a true,
correct and complete list of all jurisdictions in which the Company is qualified
to do business as a foreign corporation.
4.2. SUBSIDIARIES. The Company has no direct or indirect stock or
other equity or ownership interest (whether controlling or not) in any
corporation, association, partnership, limited liability company, joint venture
or other entity.
4.3. CAPITALIZATION.
(a) The authorized capital stock of the Company consists
solely of 200 shares of Company Common Stock, of which 100 shares are issued and
outstanding. All of the issued and outstanding shares of the Company Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and are not subject to any preemptive rights. Each of the Sellers
owns of record and beneficially the number of shares of Company Common Stock as
are set forth on SCHEDULE 4.3(a), free and clear of all Encumbrances and such
shares of Company Common Stock constitute all of the issued and outstanding
shares of capital stock of the Company.
(b) The Company has not issued or granted any outstanding
options, warrants, rights or other securities convertible into or exchangeable
or exercisable for shares of the capital stock of the Company, any other
commitments or agreements providing for the issuance of additional shares of the
capital stock of the Company, the sale of treasury shares, or for the repurchase
or redemption of shares of the Company's capital stock, or any obligations
arising from canceled stock. There are no agreements of any kind which may
obligate the Company to issue, purchase, register for sale, redeem or otherwise
acquire any of its securities or interests. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
the Company.
(c) There are no voting trusts, stockholder agreements,
proxies or other agreements in effect with respect to the voting or transfer of
the Shares.
12
4.4. AUTHORIZATION.
(a) The Company has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly approved by the
board of directors and stockholders of the Company. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Ancillary Agreements and the transactions contemplated hereby and
thereby.
(b) This Agreement has been duly executed and delivered by the
Company and each of Sellers and is, and upon execution and delivery of the
Ancillary Agreements each such Ancillary Agreement will be, legal, valid and
binding obligations of the Company and each of Sellers enforceable against them
in accordance with its terms.
4.5. NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement and the Ancillary Agreements nor the consummation
of the transactions contemplated hereby, nor compliance by the Company or any of
Sellers with any of the provisions hereof, does or will violate any provision
of, or result in the breach of, any applicable law, rule or regulation of any
Governmental Authority, the articles of incorporation or bylaws of the Company,
or, except as set forth on SCHEDULE 4.5, any contract, agreement, indenture or
other instrument to which any of the Sellers or the Company is a party or by
which any of the Sellers or the Company may be bound, or of any order, judgment
or decree applicable to any of them, or terminate or result in the termination
of any such agreement, indenture or instrument, or result in the creation of any
lien, charge or Encumbrance upon any of the properties or assets of the Company,
constitute any event which, after notice or lapse of time or both, would result
in any such violation, breach, acceleration, termination or creation of a lien
or result in a violation or revocation of any required license, permit or
approval from any Governmental Authority or other third party.
4.6. FINANCIAL STATEMENTS. Attached as SCHEDULE 4.6 hereto are (i)
the audited balance sheets of the Company as of December 31, 1997 and the
related audited statements of earnings, shareholders equity and cash flows of
the Company for each of the twelve-month periods then ended, together with the
independent auditor's report thereon and (ii) the unaudited balance sheet of the
Company as of June 30, 1998 and the related unaudited statements of earnings,
shareholders' equity and cash flows of the Company for the six month period then
ended (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements
(including the notes thereto) were prepared in accordance with GAAP,
consistently applied throughout the periods indicated, and present fairly and
accurately the financial condition and results of operation of the Company as of
and for the periods indicated; PROVIDED, HOWEVER, that the unaudited Financial
Statements as of and for the periods ending June 30, 1998 are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items.
13
4.7. BOOKS AND RECORDS. The Company has made and kept (and given
Purchaser access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of the Company. The minute
books of the Company previously delivered to Purchaser accurately and adequately
reflect all action previously taken by the shareholders, board of directors and
committees of the board of directors of the Company. The copies of the stock
book records of the Company previously delivered to Purchaser are true, correct
and complete, and accurately reflect all transactions effected in the Company's
capital stock through and including the date hereof. The Company has not engaged
in any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained Books and Records of the Company.
4.8. UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 4.8,
the Company has no material Liabilities except for liabilities and obligations
(a) reflected or reserved for on the Interim Balance Sheet or (b) that have
arisen since the date of the Interim Balance Sheet in the ordinary course of the
operation of the business and consistent with past practice of the Company (all
of which are current liabilities similar in type to those reflected on the
Interim Balance Sheet).
4.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Interim
Balance Sheet Date, except as disclosed on SCHEDULE 4.9, there has not been any:
(a) material adverse change in the business, operations,
condition (financial or otherwise), assets, liabilities, or prospects of the
Company, except as may result from general economic conditions;
(b) (i) except for normal periodic increases in the ordinary
course of business consistent with past practice, increase in the compensation
payable or to become payable by the Company to any of its officers, employees or
agents (collectively, "PERSONNEL"), (ii) bonus, incentive compensation, service
award or other like benefit granted, made or accrued, contingently or otherwise,
for or to the credit of any of the Personnel, (iii) employee welfare, pension,
retirement, profit-sharing or similar payment or arrangement made or agreed to
by the Company for any Personnel except pursuant to the existing plans and
arrangements described in the Disclosure Schedules hereto, or (iv) new
employment agreement to which the Company is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices affecting Personnel other than (i) contributions made
for 1998 in accordance with the normal practices of the Company or (ii) the
extension of coverage to other Personnel who became eligible after the Interim
Balance Sheet Date;
(d) sale, assignment or transfer of any material assets of the
Company other than in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights
of substantial value to the Company, whether or not in the ordinary course of
business;
14
(f) amendment, cancellation or termination of any Contract,
license or other instrument material to the Company;
(g) capital expenditure or the execution of any lease or any
incurring of liability therefor by the Company, involving payments in excess of
Fifty Thousand Dollars ($50,000) in the aggregate;
(h) failure to operate the business of the Company in the
ordinary course so as to use reasonable efforts to preserve the Business intact,
to keep available the services of the Personnel, and to preserve the goodwill of
the Company's suppliers, customers and others having business relations with the
Company;
(i) change in accounting methods or practices by the Company;
(j) revaluation by the Company of any of its respective
assets, including without limitation, writing off notes, inventory or accounts
receivable;
(k) damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties, business or prospects of the
Company;
(l) dividends or distributions in respect of any shares of the
Company's capital stock, or repurchase or redemption of any shares of the
Company's capital stock;
(m) indebtedness incurred by the Company for borrowed money or
commitment to borrow money entered into by the Company, or any loans made or
agreed to be made by the Company; or
(n) increase in the amount outstanding under the Company's
line of credit with Merchant's Bank.
4.10. CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 4.10 contains a listing of all Contracts
described in (i) through (xv) below to which the Company is a party. Such
listing identifies, among other things, the parties to and the expiration date
of the contracts the expiration date of the contract and the office of the
Company where details relating to the contract are located. True, correct and
complete copies of contracts (or a summary thereof, if oral) referred to in
clauses (i) through (xv) below have been delivered to or made available to
Purchaser and its agents and representatives.
(i) Each Contract which involves performance of
services or delivery of goods and/or materials, by or to the Company of
an amount or value in excess of $25,000;
(ii) Each note, debenture, other evidence of
indebtedness, guarantee, loan, letter of credit, surety-bond or
financing agreement or instrument or other contract for money borrowed,
including any agreement or commitment for future loans, credit or
financing;
15
(iii) Each Contract not in the ordinary course of
business;
(iv) Each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other Contract
affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property
constituting fixed assets;
(v) Each material licensing agreement or other
Contract with respect to patents, trademarks, copyrights, or other
intellectual property, including agreements with current or former
employees, consultants or contractors regarding the appropriation or
the nondisclosure of Intellectual Property;
(vi) Each Contract to which any employee of the
Company is bound which in any manner purports to (A) restrict such
Person's freedom to engage in any line of business or to compete with
any other Person, or (B) assign to any other Person its rights to any
material invention, improvement, or discovery;
(vii) Each employment agreement, collective
bargaining agreement or other Contract to or with any employee or any
labor union or other employee representative of a group of employees
relating to wages, hours, and other conditions of employment;
(viii) Each joint venture Contract, partnership
agreement, limited liability company agreement or other Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(ix) Each Contract containing covenants which in any
way purport to restrict the Company's business activity or purport to
limit the freedom of the Company to engage in any line of business or
to compete with any Person;
(x) Each Contract providing for payments to or by any
Person or entity based on sales, purchases or profits, other than
direct payments for goods;
(xi) Each power of attorney which is currently
effective and outstanding;
(xii) Each Contract under which the Company is
obligated to incur capital expenditures after the date hereof in an
aggregate amount in excess of Fifty Thousand Dollars ($50,000);
(xiii) Each written warranty, guaranty or other
similar undertaking with respect to contractual performance extended by
the Company;
16
(xiv) Any other Contract material to the business
or operations of the Company;
(xv) Each amendment, supplement, and modification
(whether written or oral) in respect of any of the foregoing.
(b) Except as set forth on SCHEDULE 4.10, all of the Contracts
listed pursuant to paragraph (a) hereof (i) are in full force and effect, (ii)
represent the legal, valid and binding obligations of the Company and are
enforceable against the Company in accordance with their terms and (iii)
represent the legal, valid and binding obligations of the other parties thereto
and are enforceable against such parties in accordance with their terms. No
condition exists or event has occurred which, with notice or lapse of time or
both, would constitute a default or a basis for force majeure or the claim of
excusable delay or nonperformance under such Contracts.
(c) Except as set forth on SCHEDULE 4.10, there are no
renegotiations of, or attempts to renegotiate, or outstanding rights to
renegotiate, any material amounts paid or payable to the Company under current
or completed Contracts, with any Person having the contractual or statutory
right to require such renegotiation. Neither Sellers, nor the Company, has
received any written demand for such renegotiation in respect of any such
Contract. Except as set forth on SCHEDULE 4.10, no customer or government
contracting officer has asserted that any material adjustments are required to
the terms of any Contracts.
(d) Except as specifically noted on SCHEDULE 4.10, no consent
of any party to any such Contract is required in connection with the
Transactions.
(e) Except as set forth on SCHEDULE 4.10, no Contract has
accrued, or is expected by the Company to result in, any losses. For the
purposes of this subsection (e) a Contract shall be deemed to accrue or result
in losses if the revenues payable to the Company under such Contract exceed the
sum of (i) the cost of goods sold, plus (ii) any commissions payable to
salespersons and allocable to such revenues.
(f) Except as set forth on SCHEDULE 4.10, neither Sellers, nor
the Company, has committed any act or omission which would result in, and there
has been no occurrence which would give rise to, any material product liability
or liability for breach of warranty on the part of the Company.
4.11. GOVERNMENT CONTRACTS; BACKLOG. There is no suit or
investigation pending or, to the best knowledge of the Company, threatened
against the Company asserting or alleging the commission of criminal acts or
bribery by the Company with respect to any Contract between the Company and any
Governmental Authority including the United States Government or any department
or agency thereof (a "GOVERNMENT CONTRACT"). The Company is not a party to any
Government Contract.
4.12. TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from
17
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used
and presently is proposed to be used.
4.13. INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Closing hereunder. The
Company has taken all necessary and desirable action to maintain and protect
each item of Intellectual Property that it owns or uses.
(b) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and none of the Sellers and the directors and officers
(and employees with responsibility for Intellectual Property matters) of the
Company has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of any of the
Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(c) Section 4.13(c) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to any
of its Intellectual Property, identifies each pending patent application or
application for registration which the Company has made with respect to any of
its Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Sellers have
delivered to Purchaser correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to Purchaser correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item. Section 4.13(c) of the Disclosure Schedule also identifies
each trade name or unregistered trademark used by the Company in connection with
any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section 4.13(c) of the Disclosure Schedule:
(i) the Company possess all right, title, and
interest in and to the item, free and clear of any Encumbrance,
license, or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
18
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) the Company has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(d) Section 4.13(d) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission except for
generally available personal computer applications. The Sellers have delivered
to Purchaser correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date) except for generally available
personal computer applications. With respect to each item of Intellectual
Property:
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms following the consummation
of the transactions contemplated hereby;
(iii) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (I) through
(IV) above are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of any of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
19
(viii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
(e) To the Knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(f) None of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the Company
has any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of the Company.
4.14. REAL PROPERTY.
(a) SCHEDULE 4.14 lists and describes all real property
(together with all improvements thereon, the "REAL PROPERTY") now used, operated
or occupied by the Company and the name of the record owner thereof. For each
parcel of Real Property listed on SCHEDULE 4.14, which is owned by the Company,
the Company holds good and marketable fee simple title to such Real Property
free and clear of any Encumbrances except for Permitted Encumbrances. For each
parcel of Real Property listed on SCHEDULE 4.14, which is not owned by the
Company, the Company has made available to Purchaser true and correct copies of
the Real Property lease or sublease (each a "REAL PROPERTY LEASE") with respect
to such Real Property. Each Real Property Lease is legal, valid, binding,
enforceable, and in full force and effect and Seller has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold. The Company enjoys peaceful and undisturbed
possession of all Real Property, and the Company has fulfilled in all material
respects all the obligations required to be performed by it through the date
hereof with respect to each Real Property Lease.
(b) The Company has received all required material approvals
of Governmental Authorities (including Permits and material certificates of
occupancy or other similar certificates permitting lawful occupancy of the Real
Property) required in connection with the present use of the Real Property and
all the Improvements thereon.
(c) All the Real Property are supplied with utilities and
other services necessary for the operation of such facilities as currently
operated.
(d) All Improvements, and all Fixtures and Equipment and other
tangible assets owned, leased, or used by the Company on the Real Property are
in good condition and repair in all material respects, and such Improvements and
Fixtures are free from structural defects.
20
(e) The Company has not received notice of any special
assessment relating to any Real Property or any portion thereof, and the Company
has no knowledge of any pending or threatened special assessment.
(f) There is not now pending, or to the knowledge of the
Company, threatened, any eminent domain or condemnation proceeding affecting the
Real Property or any portion thereof.
4.15. LITIGATION AND PROCEEDINGS. There are no lawsuits, actions,
suits, claims or other proceedings at law or in equity (including, without
limitation, investigations by any Government Authority involving any Government
Contract wherein a claim for improper charges was made), or before or by any
court or Governmental Authority or before any arbitrator pending or, to the
knowledge of the Company, threatened, against either the Sellers or the Company.
There is no unsatisfied judgment, order, injunction or decree binding upon
either of the Sellers or the Company.
4.16. EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. The following terms, when used in this
Section 4.16, shall have the following meanings. Any of these terms may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference.
(i) "BENEFIT ARRANGEMENT" shall mean any employment,
consulting, severance or other similar contract, arrangement or policy
and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without
limitation any self-insured arrangements), workers' compensation,
disability benefits, fringe benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits (including without limitation any
"voluntary employees' beneficiary association" as defined in SECTION
501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options,
restricted stock, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance,
compensation or benefits which (A) is not a Welfare Plan, Pension Plan
or Multiemployer Plan, (B) is entered into, maintained, contributed to
or required to be contributed to, as the case may be, by the Company,
and (C) covers any employee or former employee of the Company (with
respect to their relationship with the Company).
(ii) "EMPLOYEE PLANS" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(iii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
21
(iv) "ERISA AFFILIATE" shall mean any entity which is
(or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, a member of an
"affiliated service group" with, or otherwise required to be aggregated
with, the Company as set forth in Section 414(b), (c), (m) or (o) of
the Code.
(v) "MULTIEMPLOYER PLAN" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, (A)
which the Company or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to and (B) which covers any
employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
(vi) "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(vii) "PENSION PLAN" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to
and (B) which covers any employee or former employee of the Company or
any ERISA Affiliate (with respect to their relationship with such
entities).
(viii) "WELFARE PLAN" shall mean any "EMPLOYEE
WELFARE BENEFIT PLAN" as defined in Section 3(1) of ERISA, (A) which
the Company or any ERISA Affiliate maintains, administers, contributes
to or is required to contribute to, and (B) which covers any employee
or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND
OTHER INFORMATION. SCHEDULE 4.16 contains a complete list of Employee Plans.
(c) REPRESENTATIONS. Except as set forth in SCHEDULE 4.16:
(i) PENSION PLANS.
(A) No "accumulated funding deficiency"
(for which an excise tax is due or would be due in the absence of a
waiver) as defined in Section 412 of the Code or as defined in Section
302(a)(2) of ERISA, whichever may apply, has been incurred with
respect to any Pension Plan with respect to any plan year, whether or
not waived. Neither the Company nor any ERISA Affiliate has failed to
pay when due any "required installment", within the meaning of Section
412(m) of the Code and Section 302(e) of ERISA, whichever may apply,
with respect to any Pension Plan. Neither the Company nor any ERISA
Affiliate is subject to any lien imposed under Section 412(n) of the
Code or Section 302(f) or 4068 of ERISA, whichever may apply, with
respect to any Pension Plan. Neither the Company nor any ERISA
Affiliate has any liability for unpaid contributions
22
with respect to any Pension Plan. All "benefit liabilities," within
the meaning of Section 4001(a)(16) of ERISA, are fully funded as of
the Closing Date with respect to each Pension Plan on a termination
basis with an assumed interest rate of six percent (6%).
(B) Neither the Company nor any ERISA
Affiliate is required to provide security to a Pension Plan under
Section 401(a)(29) of the Code.
(C) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument has been
determined by the Internal Revenue Service to be qualified and
tax-exempt under the provisions of Code Sections 401(a) and 501(a).
(D) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is in material
compliance with its terms and, both as to form and in operation, with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such plans, including without
limitation ERISA and the Code.
(E) The Company or an ERISA Affiliate has
paid all premiums (and interest charges and penalties for late
payment, if applicable) due the PBGC with respect to each Pension Plan
for each plan year thereof for which such premiums are required.
Neither the Company nor any ERISA Affiliate has engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction which, to the best knowledge of the Company, is described
in Section 4069 of ERISA. There has been no "reportable event" (as
defined in Section 4043(b) of ERISA and the PBGC regulations under
such Section) requiring notice to the PBGC with respect to any Pension
Plan. No filing has been made by the Company or any ERISA Affiliate
with the PBGC, and no proceeding has been commenced by the PBGC, to
terminate any Pension Plan. No condition exists and no event has
occurred that could constitute grounds for the termination of any
Pension Plan by the PBGC, or which could reasonably be expected to
result in liability of the Company or any ERISA Affiliate to the PBGC
with respect to any Pension Plan, other than liabilities for premium
payments. Neither the Company nor any ERISA Affiliate has, at any
time, (1) ceased operations at a facility so as to become subject to
the provisions of Section 4062(e) of ERISA, (2) withdrawn as a
substantial employer so as to become subject to the provisions of
Section 4063 of ERISA, or (3) ceased making contributions on or before
the Closing Date to any Pension Plan subject to Section 4064(a) of
ERISA to which the Company or any ERISA Affiliate made contributions
during the six years prior to the Closing Date.
23
(ii) MULTIEMPLOYER PLANS. There are no Multiemployer
Plans, and neither the Company nor any ERISA Affiliate has ever
maintained, contributed to, participated or agreed to participate in a
Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan which covers or has
covered employees or former employees of the Company (with respect to
their relationship with such entities) is in material compliance with
its terms and, both as to form and operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including without
limitation ERISA and the Code.
(B) An estimate of the liabilities of the
Company and any ERISA Affiliate for providing retiree life and medical
benefits coverage to active and retired employees of the Company and
any ERISA Affiliates has been made and is reflected on the appropriate
balance sheet and books and records according to Statement of
Financial Accounting Standards No. 106. The Company or an ERISA
Affiliate has the right to modify and to terminate Welfare Plans which
cover retirees with respect to both retired and active employees.
(C) Each Welfare Plan which is a "group
health plan," as defined in Section 607(1) of ERISA, has been operated
in material compliance with the provisions of Part 6 of Title I,
Subtitle B of ERISA and Section 4980B of the Code at all times.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement
is in material compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which
are applicable to such Benefit Arrangement, including without
limitation the Code.
(v) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS.
Neither the Company has any liability with respect to any transaction
in violation of Sections 404 or 406 of ERISA or any "prohibited
transaction," as defined in Section 4975(c)(1) of the Code, for which
no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code with respect to any Welfare Plan or Pension Plan.
Neither the Company nor any of its Subsidiary has participated in a
violation of Part 4 of Title I, Subtitle B of ERISA by any plan
fiduciary of any Welfare Plan or Pension Plan or has any unpaid civil
penalty under Section 502(l) of ERISA.
(vi) LITIGATION. There is no material action, order,
writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or
investigation relating to or seeking benefits under any Employee Plan
that is pending, threatened or anticipated against the Company or any
ERISA Affiliate other than routine claims for benefits.
24
(vii) UNPAID CONTRIBUTIONS. Neither the Company nor
any ERISA Affiliate has any liability for unpaid contributions with
respect to any Pension Plan, Multiemployer Plan or Welfare Plan. The
Company or an ERISA Affiliate has made all required contributions under
each Employee Plan for all periods through and including the Closing
Date or proper accruals have been made and are reflected on the
appropriate balance sheet and books and records.
(viii) The Company has delivered pursuant to this
Agreement a true and complete set of copies of (a) all Employee Plans
and related trust agreements, annuity contracts or other funding
instruments as in effect immediately prior to the Closing Date,
together with all amendments thereto which shall become effective at a
later date; (b) the latest Internal Revenue Service determination
letter obtained with respect to any such Employee Plan qualified or
exempt under Section 401 or 501 of the Code; (c) Forms 5500 and
certified financial statements for the most recently completed three
fiscal years for each Employee Plan required to file such form,
together with the most recent actuarial report, if any, prepared by the
Employee Plan's enrolled actuary; (d) all summary plan descriptions for
each Employee Plan required to prepare, file and distribute summary
plan descriptions; (e) all summaries furnished employees, officers and
directors of the Company of all incentive compensation, other plans and
fringe benefits for which a summary plan description is not required;
(f) current registration statements on Form S-8 and amendments thereto
with respect to any Employee Plan; and (g) the notifications to
employees of their rights under Section 4980B of the Code.
(ix) No payment made to any Person who constitutes a
"disqualified individual" within the meaning of Section 280G(c) of the
Code with respect to the Company ("RECIPIENTS") pursuant to any
employment contract, severance agreement or other arrangement to which
the Company is a party ("GOLDEN PARACHUTE PAYMENT"), other than any
payment made or to be made under any of the Employment and
Non-Competition Agreements, will be nondeductible to the Company
because of the applicability of Section 280G of the Code to the Golden
Parachute Payment, nor will the Company be required to "gross up" or
otherwise compensate any Recipient because of the imposition of any
excise tax (including any interest or penalties related thereto) on the
Recipient because of the applicability of Sections 280G and 4999 of the
Code.
4.17. LABOR RELATIONS. The persons listed on EXHIBIT B are all of
the employees of the Company as of the date of this Agreement whose services are
billed to customers of the Company on an hourly or other basis. The Company is
not a party to any collective bargaining agreement. The Contracts listed on
SCHEDULE 4.10 also include all written employment or severance agreements to
which the Company is a party with respect to any employee or former employee and
which may not be terminated at will, or by giving notice of 30 days or less,
without cost or penalty including, without limitation, any severance payment.
The Company has delivered or made available to Purchaser true, correct and
complete copies of each such Contract,
25
as amended to date. Neither the Company, nor to the knowledge of the Company,
the other party or parties thereto, is in breach of any term of any such
Contract. The Company has not engaged in any unfair labor practice and there are
no complaints against the Company pending before the National Labor Relations
Board or any similar state or local labor agency by or on behalf of any employee
of the Company. There are no representation questions, arbitration proceedings,
labor strikes, slow downs or stoppages, grievances or other labor disputes
pending or, to the knowledge of the Company, threatened with respect to the
employees of the Company, and the Company has not experienced any attempt by
organized labor to cause the Company to comply or conform to demands of
organized labor relating to its employees. Except as listed on SCHEDULE 4.10,
the Company has not entered into any severance or similar arrangement in respect
of any present employee of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to any present
employee of the Company following termination of employment. The Company has
complied in all material respects with all laws, rules and regulations relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health and plant closings
(hereinafter collectively referred to as the "EMPLOYMENT LAWS"). The Company is
not liable for the payment of taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing Employment Laws.
4.18. LEGAL COMPLIANCE. The Company is, and at all times has been,
in compliance in all material respects with all laws (including rules and
regulations thereunder) of federal, state, and local governments (and all
agencies thereof) applicable thereto.
4.19. ENVIRONMENTAL PROTECTION.
(a) The Company is, and at all times has been, in compliance
with all Environmental Laws.
(b) There are no existing or threatened Environmental Claims
against any of the Sellers or the Company, nor have any of the Sellers or the
Company received any notification or knowledge of any allegation of any actual,
or potential responsibility for, or any inquiry or investigation regarding, any
disposal, release, or threatened release at any location of any Hazardous
Materials generated or transported by the Company.
(c) (i) No underground tank or other underground storage
receptacle for Hazardous Materials is currently located on the Real Property and
there have been no releases of any Hazardous Materials from any such underground
tank or related piping; and (ii) there have been no releases (i.e., any past or
present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing, or dumping) by the
Company of Hazardous Materials on, upon, or into the Real Property. In addition,
there have been no such releases by the Company's corporate predecessors and no
releases on, upon, or into any Real Property in the vicinity of any of the Real
Property which, through soil or ground water contamination, has come to be
located on any of the Real Property.
26
(d) There are no Environmental Conditions that diminish the
value of any Real Property or that will interfere in any material respect with
the current or reasonably foreseeable use of the Real Property or that would
reasonably be expected to cause the incurrence of any Environmental Expense.
(e) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with, or liens by, any
Governmental Authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate, or bind the Company.
(f) There are no written environmental reports, audits and
assessments on any of the Real Property which have been conducted, by the
Company or any Person engaged by the Company for such purpose, at any facility
owned or formerly owned by the Company.
(g) Neither the Company nor any of the Sellers has released
any other Person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(h) The Company has given all notices and warnings, made all
reports, and has kept and maintained all records required by, and in compliance
with, all Environmental Laws.
4.20. TAXES.
(a) Except as otherwise disclosed in SCHEDULE 4.20:
(i) The Company has timely filed, or been included
in, all Tax Returns required to be filed through the date hereof and
will timely file any such Tax Returns required to be filed on or prior
to the Closing Date, in each case, subject to any applicable
extensions. All such Tax Returns are complete and accurate in all
material respects.
(ii) All Taxes that accrue or are payable by the
Company (i) in respect of taxable periods that end before the Closing
Date and (ii) for any taxable period that begins before the Closing
Date and ends thereafter, to the extent such Taxes are attributable to
the portion of such period ending on or before the day prior to the
Closing Date under the terms of Section 13.6, have or will have been
timely paid on or before the Closing Date unless (A) a reserve for such
amount has been be established therefor in the Interim Balance Sheet
(other than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income), (B) such Taxes are
imposed by the City of New York or the State of New York, are measured
or based upon income and have been incurred by the Company in the
ordinary course of business since the Interim Balance Sheet Date, or
(C) such Taxes are other than any federal, state or local income Tax
and have been incurred by the Company in the ordinary course of
business since the Interim Balance Sheet Date.
27
(iii) The Company has not requested any extension of
time within which to file any Tax Return which is currently pending or
has been granted and is in effect and the Company has not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency;
(iv) There are no pending, or to the best of each
Seller's knowledge, proposed or threatened (whether orally or in
writing), audits, investigations or claims for or relating to any Taxes
of the Company, except to the extent that adequate liabilities or
reserves with respect thereto are accrued on the Interim Balance Sheet
in accordance with GAAP or (i) such deficiency or claim is being
contested in good faith by appropriate proceedings, (ii) no such
accrual is required by GAAP and (iii) the nature and amount of the
disputed Tax is set forth on Schedule 4.20;
(v) No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to taxation by that jurisdiction;
(vi) The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations;
(vii) The Company is not a party to, or is bound by,
or has any obligation under any Tax allocation or sharing agreement
(including indemnity arrangements), and, after the Closing Date, the
Company shall not be a party to, bound by or have any obliteration
under any Tax allocation or sharing agreement or have any liability
thereunder for amounts due in respect of periods prior to the Closing
Date;
(viii) The Company (i) has not been a member of any
affiliated group filing a consolidated federal income Tax Return and
(ii) has no liability for the Taxes of any other person as defined in
Section 7701(a)(1) of the Code under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise;
(ix) None of the assets of the Company (x) are
required to be treated as being owned by any other person pursuant to
the so-called safe harbor lease provisions of former Section 168(f)(8)
of the Code, (y) secures any debt the interest on which is tax-exempt
under Code Section 103(a), or (z) is tax-exempt use property within the
meaning of Code Section 168(h);
(x) The Company has not agreed to nor is it required
to make any adjustment pursuant to Code Section 481(a) by reason of a
change in accounting method initiated by the Company and none of the
Sellers have knowledge that the IRS has proposed any such adjustment or
change in accounting method;
28
(xi) The transactions contemplated herein are not
subject to the Tax withholding provisions of Section 3406 of the Code,
or of Subchapter A of Chapter 3 of the Code or any other provision of
law;
(xii) There are no Encumbrances related to Taxes on
any of the assets of the Company (other than for current Taxes not yet
due and payable);
(xiii) None of the Sellers is a person other than a
United States person within the meaning of the Code;
(xiv) For Federal income Tax purposes, the Company is
an "S Corporation" as defined in Section 1361(a) and has been an S
Corporation for each taxable year since its inception. In addition, the
Company has taken all required steps to be taxed as an S Corporation
under applicable state income tax law in the State of New York and the
Company has been treated as an S Corporation in the State of New York
since its inception; and
(xv) The Company would not recognize any gain under
Section 1374 of the Code in the event that it sold its assets to
Purchaser at Closing in a transaction that constituted an actual sale
of such assets for federal income tax purposes (instead of a deemed
sale of such assets under Code Section 338(h)(10) of the Code).
(b) SCHEDULE 4.20 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company since its inception,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. Correct and complete copies of
all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company for periods since its
inception have been delivered to Purchaser.
4.21. GOVERNMENTAL AUTHORITIES: CONSENTS. Assuming the truth and
completeness of the representations and warranties of Purchaser contained in
this Agreement, no consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority or other third party is
required on the part of the Company with respect to the Company's execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
4.22. LICENSES, PERMITS AND AUTHORIZATIONS. SCHEDULE 4.22 contains a
list of all Permits (including without limitation, all facility security
clearances) of or with any governmental regulatory or administrative authority,
whether foreign, federal, state or local, which are held by the Company. All
such Permits are in full force and effect and there are no proceedings pending
or to the best knowledge of the Company, threatened that seek the revocation,
cancellation, suspension or material adverse modification thereof. Such Permits
constitute all of the Permits necessary to permit the Company to own, operate,
use and maintain their assets in the manner in which they are now operated and
maintained and to conduct the
29
Business as currently conducted. All required filings with respect to such
Permits have been timely made and all required applications for renewal thereof
have been timely filed.
4.23. INSURANCE.
(a) SCHEDULE 4.23 contains an accurate and complete
description of all policies of property, fire and casualty, product liability,
workers' compensation, errors and omissions and other forms of insurance held by
the Company ("INSURANCE POLICIES"). True, correct and complete copies of such
insurance policies have been made available to Purchaser.
(b) All policies listed on SCHEDULE 4.23 (i) are valid,
outstanding, and enforceable policies, (ii) provide coverage for the assets and
the operations of the Company for all material risks normally insured against by
a Person or entity carrying on the same business or businesses as the Company,
and (iii) will not terminate, or lapse by reason of, the transactions
contemplated by this Agreement.
(c) The Company has not received (i) any notice of
cancellation of any policy described in paragraph (a) hereof or refusal of
coverage thereunder, (ii) any notice that any issuer of such policy has filed
for protection under applicable bankruptcy laws or is otherwise in the process
of liquidating or has been liquidated, or (iii) any other notice that such
policies are no longer in full force or effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder.
4.24. BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Purchaser or the Company could become liable in connection with the
transactions contemplated by this Agreement based upon arrangements made by
Seller, the Company or any of their respective Affiliates.
4.25. NO OTHER AGREEMENTS TO SELL THE SHARES.
None of the Sellers, the Company or any officer, director,
shareholder or Affiliate of the Company are subject to any commitment or legal
obligation, absolute or contingent, to any Person other than Purchaser to sell,
assign, transfer or effect a sale of any of the capital stock of the Company, to
effect any merger, consolidation, liquidation, dissolution or other
reorganization of the Company, or to enter into any agreement or cause the
entering into of an agreement with respect to any of the foregoing.
4.26. TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on
SCHEDULE 4.26, no officer, director or employee of the Company or any Seller nor
any Affiliate of any such person is presently, or within the past five (5) years
has been, a party to any transaction with the Company, including without
limitation, any contract, agreement or other arrangement (a) providing for the
furnishing of services by, (b) providing for the rental of real or personal
property from, or (c) otherwise requiring payments to (other than for services
as officers, directors or employees of the Company) any such person or
corporation, partnership, trust or other entity in which any such Person has an
interest as a shareholder, officer, director, trustee or
30
partner. Furthermore, except as set forth on SCHEDULE 4.26, the Company has no
liability or obligation to make any payment on behalf of or for the benefit of
any of the Sellers, or any officer, director or employee of the Company or any
such person's immediate family that is not directly related to, and in
furtherance of, the Business.
4.27. CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.
(a) SCHEDULE 4.27 sets forth a complete and accurate list of
the names and addresses of the Company's (a) 10 largest customers, showing the
approximate total sales in dollars by the Company to each such customer for the
six months ended June 30, 1998; and (b) suppliers with purchases greater than
$250,000 on an annualized basis during the last six months, showing the
approximate total purchases in dollars by the Company from each such supplier
during each such calendar year. Since the Interim Balance Sheet Date there has
been no material adverse change in the business relationship of the Company with
any customer, distributor or supplier named on SCHEDULE 4.27. The Company has
not received any communication from any customer, distributor or supplier named
on SCHEDULE 4.27 notifying the Company of any intention to terminate or
materially reduce purchases from, or supplies to, the Company or to take any
other action which could reasonably be expected to have a Material Adverse
Effect.
(b) Each service provided or product manufactured, sold,
leased, or delivered, by the Company has been in conformity, in all material
respects, with all applicable contractual commitments and all express and
implied warranties, and all applicable industry standards, and the Company has
no Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
the Company giving rise to any Liability) for replacement or repair thereof or
other damages in connection with such products or services subject only to the
reserve for product warranty claims set forth on the face of the Interim Balance
Sheet (rather that in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company. No service provided or product manufactured, sold, leased, or
delivered, by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of service, sale
or lease of the Company. Section 4.27 of the Disclosure Schedule includes copies
of the standard terms and conditions of service or sale for the Company
(containing applicable guaranty, warranty, and indemnity provisions).
4.28. BANKING RELATIONSHIPS. SCHEDULE 4.28 sets forth a complete and
accurate description of all arrangements that the Company has with any banks,
savings and loan associations or other financial institutions providing for
checking accounts, safe deposit boxes, borrowing arrangements, and certificates
of deposit or otherwise, indicating in each case account numbers, if applicable,
and the Person or Persons authorized to act or sign on behalf of the Company in
respect of any of the foregoing.
4.29. ACCOUNTS RECEIVABLE. The amount of accounts receivable,
unbilled receivables, and other debts due or recorded in the records and books
of account of the Company as being due to the Company as of the Closing Date
will be, subject to the reserves reflected on the Interim Balance Sheet and
except for Accounts Receivable required to be written off due to
31
the insolvency of a debtor of the Company, good and collectible in full in the
ordinary course of business and in any event not later than one hundred eighty
(180) days after the Closing Date, and none of such accounts receivable or other
debts is subject to any counterclaim or set-off except to the extent of any such
reserve. Since the Interim Balance Sheet Date, the Company has not made any
change in its credit policies nor has it materially deviated from its credit
policies.
4.30. YEAR 2000. The Company has all systems and software solutions
necessary or appropriate to address and accommodate Year 2000 computer systems
issues, and the Intellectual Property has been tested and is fully capable of
providing accurate results using data having date ranges spanning the twentieth
and twenty-first centuries. Without limiting the generality of the foregoing,
the Intellectual Property is able to (i) manage and manipulate data involving
all dates from the twentieth and twenty-first centuries without functional or
data abnormality related to such dates; (ii) manage and manipulate data
involving all dates from the twentieth and twenty-first centuries without
inaccurate results related to such dates; (iii) have user interfaces and data
fields formatted to distinguish between dates from the twentieth and
twenty-first centuries; and (iv) represent all data related to include
indications of the millennium, century and decade as well as the actual year.
4.31. INVESTMENT. Each of the Sellers that is receiving Warrants (i)
understands that the Warrants have not been, and will not be, registered under
the Securities Act of 1933, as amended, (the "Securities Act") or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Warrants solely for his own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has
received certain information concerning Purchaser and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Warrants, (E) is able to bear the economic risk
and lack of liquidity inherent in holding the Warrants, and (F) is an
"Accredited Investor" as defined by Rule 501 under the Securities Act for the
reasons set forth in the Accredited Investor questionnaire previously delivered
to Purchaser by each of such Sellers.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows,
which representations and warranties are, as of the date hereof, and will be, as
of the Closing Date, true and correct:
5.1. ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its business as it
is presently being conducted and to own and lease its properties and assets.
Purchaser is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on its business.
32
5.2. AUTHORIZATION. Purchaser has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the Transactions and
to perform its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Ancillary Agreements by Purchaser and the consummation
by Purchaser of the Transactions have been duly approved by the board of
directors and stockholders of Purchaser. No other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Purchaser and is, and upon execution and
delivery of the Ancillary Agreements will be, legal, valid and binding
obligations of Purchaser enforceable against it in accordance with its terms.
5.3. WARRANT SHARES. The Warrants have been duly authorized and
when issued in accordance with the terms of this Agreement will be validly
issued, fully paid and non-assessable and free of any liens and Encumbrances
except as set forth in the Warrant Agreement and not subject to any preemptive
rights. The shares of common stock, par value $.001 per share, of Purchaser (the
"Purchaser Common Stock") have been reserved for issuance in connection with the
exercise of the Warrants. The Purchaser Common Stock to be issued pursuant to
the Warrants shall, when issued, (i) be duly authorized, validly issued, fully
paid and non-assessable and free of liens and Encumbrances, (ii) be free and
clear of any transfer restrictions, liens and Encumbrances, except for the
restrictions on transfer in the Warrantholders' Agreement, and (iii) not be
subject to any pre-emptive rights created by statute, the certificate of
incorporation of the Purchaser or the Bylaws of the Purchaser.
5.4. NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Purchaser with any of the provisions
hereof, violates any provision of, or will result in the breach of, any
applicable law, rule or regulation of any governmental body, the certificate of
incorporation, bylaws or other organizational documents of Purchaser, or any
agreement, indenture or other instrument to which Purchaser is a party or by
which Purchaser may be bound, or of any order, judgment or decree applicable to
any of them, or terminate or result in the termination of any such agreement,
indenture or instrument, or constitute any event which, after notice or lapse of
time or both, would result in any such violation, breach, acceleration,
termination or result in a violation or revocation of any required license,
permit or approval from any Governmental Authority or other third party.
5.5. GOVERNMENTAL AUTHORITIES; CONSENTS. Assuming the truth and
completeness of the representations and warranties of Sellers and the Company
contained in this Agreement, no consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority or other
third party is required on the part of Purchaser with respect to Purchaser's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
5.6. BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Sellers could become
33
liable in connection with the transactions contemplated by this Agreement based
upon arrangements made by Purchaser or any of its Affiliates.
ARTICLE VI.
COVENANTS OF SELLERS AND THE COMPANY
6.1. CONDUCT OF BUSINESS.
(a) From the date hereof through the Closing Date, Sellers
agree that they shall, and shall cause the Company, except as otherwise
contemplated by this Agreement or as consented to by Purchaser in writing, to
operate the Business in the ordinary course and consistent with past practice
and not to take any action inconsistent with this Agreement. Without limiting
the generality of the foregoing, unless consented to by Purchaser in writing,
Sellers shall cause the Company not to, except as contemplated by this
Agreement:
(i) change or amend its articles of incorporation,
bylaws or other organizational documents;
(ii) declare or pay any dividends, or make any
distributions in respect of any shares of its capital stock or other
equity interests, or repurchase or redeem any issued and outstanding
shares of its capital stock or other equity interests;
(iii) issue or sell any shares of capital stock of
the Company or equity interest or any beneficial interest therein
(including, without limitation, any options or warrants);
(iv) enter into, extend, materially modify, terminate
or renew any Contract of a type required to be listed on SCHEDULE 4.10
other than in the ordinary course of business;
(v) sell, assign, transfer, convey, lease or
otherwise dispose of any interest in the Real Property or any other
material asset;
(vi) except as otherwise required by law or
consistent with past practices, take any action with respect to the
grant of any severance or termination pay (other than pursuant to
policies or agreements of the Company as the case may be, in effect on
the date hereof);
(vii) make any change in the management structure of
the Company, including, without limitation, the hiring of additional
officers or the terminations of existing officers;
(viii) acquire by merger or consolidation with, or
merge or consolidate with, or purchase substantially all of the assets
of, or otherwise
34
acquire any material assets or business of any corporation,
partnership, association or other business organization or division
thereof;
(ix) make any loans or advances to any Person;
(x) make any income tax election or settlement or
compromise with tax authorities which would affect the assets of the
Company or the Business after the Closing;
(xi) fail to maintain any material asset in
substantially its current state of repair, normal wear and tear
excepted;
(xii) make any change in its accounting policies or
practices;
(xiii) make aggregate capital expenditures in excess
of Fifty Thousand Dollars ($50,000);
(xiv) waive, settle or release any claim or cause
of action of the Company;
(xv) declare or issue any bonus or other payments,
whether or not in the ordinary course of business, to any management or
executive employees of Company or its Subsidiaries; or
(xvi) enter into any agreement, or otherwise become
obligated, to do any action prohibited hereunder.
(b) Sellers and the Company agree that, prior to the Closing,
they shall use their best efforts to (i) preserve substantially intact the
business organization of the Company, (ii) retain in its employ all of the key
employees of the Company with respect to the periods prior to and after the
Closing Date and (iii) preserve the current relationships of the Company with
the material customers and suppliers of, and other persons which have
significant business relationships with, the Company; subject in all cases to
the exercise of reasonable management discretion.
6.2. HSR ACT. In connection with the Transaction, the Company and
Seller will comply (and, to the extent required, will cause their Affiliates to
comply) with the notification and reporting requirements of the HSR Act and
shall use their respective best efforts to obtain early termination of the
waiting period under the HSR Act. Seller and the Company shall (and, to the
extent required, shall cause their Affiliates to) substantially comply with any
additional requests for information, including requests for production of
documents and production of witnesses for interviews or depositions, by any
Antitrust Authority.
6.3. NO SOLICITATIONS. From the date hereof through the Closing
Date, each of the Sellers and the Company shall not, and shall not knowingly
permit any of their Affiliates, officers, directors, employees, trustees,
representatives and agents to, directly or indirectly,
35
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to, any Person or group of Persons (other than
Purchaser or any of its Affiliates) concerning any merger, sale of assets, sale
of shares of capital stock or similar transactions involving the Company.
Sellers and the Company shall (a) immediately notify Purchaser (orally and in
writing) if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, any information is requested with respect to the
Transaction or any offer is made with respect to the Company, any Real Property,
or any Shares, (b) include in such notification the terms of any such proposal
or offer that it may receive with respect thereto (and provide Purchaser with a
copy thereof in writing), including the identity of the soliciting party and (c)
keep Purchaser informed with respect to the status of the foregoing.
6.4. NOTICE TO PURCHASER. Sellers and the Company will promptly
notify Purchaser of any circumstance, event or action by Sellers, the Company or
otherwise, that causes any statement made by Sellers or the Company in this
Agreement to be inaccurate or incomplete in any material respect or that may
have a Material Adverse Effect and which has not already been disclosed.
6.5. CONSENTS. Unless waived specifically in writing by Purchaser,
Sellers will obtain in writing any consents of any Governmental Authority or
other third party necessary for the consummation of the Transactions.
6.6. INSPECTIONS. Prior to the Closing, Sellers and the Company
shall provide Purchaser and its representatives (including, without limitation,
its engineers, surveyors, attorneys and accountants) access at all reasonable
times to the Real Property and other assets of the Company. At all times prior
to Closing, Purchaser and its representatives, upon reasonable notice to the
Company shall have the right to have access to the Company's employees, agents
and representatives to review all Books and Records of the Company (including
for purposes of conducting an audit of the Company's Financial Statements),
including all the Real Estate Records, to enter onto the Real Property, and to
inspect, examine and survey the Real Property or any other reasonable business
purpose; PROVIDED that such access shall be had in such a manner so as not to
unreasonably interfere with the conduct of the Business.
6.7. EMPLOYEE BENEFIT PLANS. Sellers shall prevent the Company, and
any Welfare Plan or Pension Plan, or any trust created thereunder, from engaging
in any "prohibited transaction" (as such term is defined in Section 406 of
ERISA), and prevent the Company from (a) terminating any Pension Plan in a
manner that results in the imposition of a lien on any property of the Company
pursuant to Section 4068 of ERISA or (b) take any action that adversely affects
the qualification of any Employee Plan or its compliance with the applicable
requirements of ERISA or the Code or results in a "reportable event" (as such
term is defined in Section 4043(b) of ERISA).
ARTICLE VII.
COVENANTS OF PURCHASER
7.1. HSR ACT. In connection with the transactions contemplated by
this Agreement, Purchaser has complied (and, to the extent required, has caused
its Affiliates to
36
comply) with the notification and reporting requirements of the HSR Act and
shall use its reasonable best efforts to obtain early termination of the waiting
period under the HSR Act. Purchaser shall (and, to the extent required, shall
cause its Affiliates to) substantially comply with any additional requests for
information, including requests for production of documents and production of
witnesses for interviews or depositions, by any Antitrust Authority.
7.2. CONSENTS. Purchaser shall cooperate with Sellers in connection
with Sellers' efforts to obtain the consents required by SECTION 6.5.
ARTICLE VIII.
COVENANTS OF SELLERS, THE COMPANY AND PURCHASER
8.1. CONFIDENTIALITY.
(a) Except (i) for any governmental filings required in order
to complete the Transactions, and (ii) as Purchaser, the Company and each of the
Sellers may agree or consent in writing, (x) the fact of the execution of this
Agreement and (y) all information received by Purchaser, the Company or Sellers
and their respective representatives pursuant to the terms of this Agreement or
otherwise heretofore provided to the receiving party in connection with the
transactions contemplated hereby, shall be kept in confidence by the receiving
party and its representatives and shall not be used in any manner by such party
or its representatives except in connection with its performance or preparing to
perform under this Agreement; PROVIDED, HOWEVER, that any party hereto may
disclose such information to its legal and financial advisors, lenders,
financing sources and their respective legal advisors and representatives so
long as such Persons agree to maintain the confidentiality of such information
in accordance with this SECTION 8.1. If the transactions contemplated hereby
shall fail to be consummated, all copies of documents or extracts thereof
containing information and data as to one of the other parties, including all
information prepared by the receiving party or such receiving party's
representatives, shall be turned over to the party furnishing same, except that
such information prepared by the receiving party or such receiving party's
representatives may be destroyed at the option of the receiving party, with
notice of such destruction (or return) to be confirmed in writing to the
disclosing party. Any information not so destroyed (or returned) will remain
subject to these confidentiality provisions (notwithstanding any termination of
this Agreement).
(b) The foregoing confidentiality provisions shall not apply
to such portions of the information received which (i) are or become generally
available to the public through no action by the receiving party or by such
party's representatives or (ii) are or become available to the receiving party
on a nonconfidential basis from a source, other than the disclosing party or its
representatives, which the receiving party believes, after reasonable inquiry,
is not prohibited from disclosing such portions to it by a contractual, legal or
fiduciary obligation, and shall not apply to any disclosure by Purchaser or the
Company after the Closing.
8.2. COOPERATION AND RECORDS RETENTION. After the Closing Date,
Sellers and the Company shall each (i) provide the other party with such
assistance as may reasonably be requested by in connection with the preparation
of any return, audit, or other examination by any taxing authority or judicial
or administrative proceedings relating to liability for any Taxes,
37
(ii) provide the other party with any records or other information that may be
relevant to such return, audit or examination, proceeding or determination, and
(iii) provide the other party with any final determination of any such audit or
examination, proceeding, or determination that affects any amount required to be
shown on any Tax Return of the other for any period. Without limiting the
generality of the foregoing, the Company and Sellers shall each retain, until
the applicable statutes of limitations (including any extensions) have expired,
copies of all Tax Returns, supporting work schedules, and other records or
information that may be relevant to such returns for all tax periods or portions
thereof ending on or before the Closing Date.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS
9.1. CONDITIONS TO OBLIGATIONS OF PURCHASER, SELLERS AND THE
COMPANY. The obligations of Purchaser, Sellers and the Company to consummate, or
cause to be consummated, the Transactions are subject to the satisfaction of the
following conditions, any one or more of which may be waived in writing by such
parties:
(a) There shall not be in force any order or decree, statute,
rule or regulation nor shall there be on file any complaint by a Governmental
Authority seeking an order or decree, restraining, enjoining or prohibiting the
consummation of the Transactions and none of Purchaser, any of the Sellers or
the Company shall have received notice from any Governmental Authority that it
has determined to institute any suit or proceeding to restrain or enjoin the
consummation of the Transactions or to nullify or render ineffective this
Agreement if consummated, or to take any other action which would result in the
prohibition or a material change in the terms of the Transactions.
9.2. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate, or cause to be consummated, the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Purchaser:
(a) Each of the representations and warranties of Sellers and
the Company contained in this Agreement shall be true and correct in all
material respects (except where such representations and warranties are
qualified by materiality) both as of September 1, 1998 and, with respect to the
representations and warranties set forth in SECTIONS 4.1 through 4.7, SECTION
4.20 and SECTIONS 4.24, 4.25, and 4.26, as of the Closing, as if made at and as
of that time, and each of the covenants and agreements of Sellers and the
Company to be performed as of or prior to the Closing shall have been duly
performed in all material respects.
(b) All material permits, approvals, clearances, and consents
of, and all filings with, Governmental Authorities required to be procured by
any of the Sellers or the Company in connection with the Transactions shall have
been procured.
(c) The Company shall have delivered to Purchaser a
certificate signed by an officer of the Company, dated as of the Closing Date,
certifying that, the conditions specified in
38
SECTION 9.1, as they relate to either or both Sellers and the Company, and
SECTION 9.2(a) have been fulfilled.
(d) Any consent required for the consummation of the
Transactions under any Contract required to be listed on SCHEDULE 4.10 hereto or
for the continued enjoyment by the Company of the benefits of any such Contract
after the Closing shall have been obtained.
(e) S. ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have resigned as
directors of the Company, effective as of the Closing Date.
(f) Purchaser shall have received opinions, dated as of the
Closing Date, from counsel to the Company and counsel to Sellers, in the form
attached as Exhibit H.
(g) Purchaser shall have received possession or control of all
corporate, accounting, business and tax records of the Company.
(h) Each of the Sellers shall have entered into a
Non-Competition Agreement containing the terms set forth on EXHIBIT G.
(i) Each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and S. ▇▇▇▇▇ ▇▇▇▇▇▇ shall have
entered into an Employment Agreement with the Company containing the terms set
forth on EXHIBIT I.
(j) Purchaser shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of the
Company of the resolutions duly and validly adopted by the Board of Directors of
the Company evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the Transactions.
(k) Sellers shall have delivered signed UCC-3 termination
statements terminating all security interests in the assets of the Company
except for security interests securing indebtedness to be assumed or satisfied
by Purchaser.
(l) Each of the Sellers shall deliver, or cause to be
delivered, to Purchaser an executed affidavit, dated not more than thirty (30)
days prior to the Closing Date, in accordance with Code Section 1445(b)(2) and
Treasury Regulation section 1.1445-2(b), which statement certifies that the
Seller is not a foreign person and sets forth the Seller's name, identifying
number and address.
(m) Each of the Sellers shall have executed and delivered the
Warrantholders' Agreement in the form attached as EXHIBIT J.
(n) Each of the Sellers shall have executed and delivered the
Warrant Agreement in the form attached as EXHIBIT D.
(o) Each of the employee loans set forth on SCHEDULE 4.16
shall have been repaid.
39
9.3. CONDITIONS TO THE OBLIGATIONS OF SELLERS AND THE COMPANY. The
obligations of Sellers and the Company to consummate the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Sellers:
(a) Each of the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
(except where such representations and warranties are qualified by materiality)
both on the date hereof and as of the Closing, as if made anew at and as of that
time, and each of the covenants and agreements of Purchaser to be performed as
of or prior to the Closing shall have been duly performed in all material
respects.
(b) Sellers shall have received an opinion, dated as of the
Closing Date, from counsel to Purchaser, in the form attached as EXHIBIT K.
(c) Purchaser shall have delivered to Sellers and the Company
a certificate signed by an officer of Purchaser, dated as of the Closing Date,
certifying that, the conditions specified in SECTION 9.1, as they relate to
Purchaser, and subsection 9.3(a) have been fulfilled.
(d) Sellers shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of
Purchaser, of the resolutions duly and validly adopted by the Board of Directors
of Purchaser evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(e) Purchaser shall have paid to Merchant's Bank of New York
an amount equal to the entire outstanding balance of the Company's line of
credit (the "LINE OF CREDIT") and the Sellers shall have been released from
their respective guarantees of the Line of Credit.
(f) Purchaser shall have executed and delivered the
Warrantholders' Agreement in the form attached as EXHIBIT J.
(g) Purchaser shall have executed and delivered the Warrant
Agreement in the form attached as EXHIBIT D and shall have issued 250,000
Warrants to each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and S. ▇▇▇▇▇ ▇▇▇▇▇▇.
(h) Purchaser shall have executed and delivered the Note in
the form attached as Exhibit F.
ARTICLE X.
TERMINATION
10.1. TERMINATION. This Agreement may be terminated and the
Transactions abandoned:
(a) By mutual written consent of the parties at any time prior
to the Closing.
40
(b) Prior to the Closing, by written notice to Sellers from
Purchaser, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 2, 1998 and Purchaser is not in material breach of a
representation, warranty, covenant or agreement or (iii) if consummation of the
Transactions is enjoined, prohibited or otherwise restrained by the terms of a
final, non-appealable order or judgment of a court of competent jurisdiction.
(c) Prior to the Closing, by written notice to Purchaser from
Sellers, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 2, 1998 and neither Sellers nor the Company are in material
breach of a representation, warranty, covenant or agreement of either Sellers or
the Company or (iii) if consummation of the Transactions is enjoined, prohibited
or otherwise restrained by the terms of a final, non-appealable order or
judgment of a court of competent jurisdiction.
10.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to SECTION 10.1, this Agreement shall forthwith become void
and have no effect, without liability on the part of any party hereto or their
respective Affiliates, officers, directors or stockholders. The provisions of
SECTION 10.1, this SECTION 10.2 and ARTICLE XI shall survive any termination of
this Agreement.
ARTICLE XI.
DEFAULT AND REMEDIES
11.1. BREACH AND OPPORTUNITY TO CURE. If any party shall breach the
terms of this Agreement or default in the performance of its obligations
hereunder, the nondefaulting party shall have the right to provide the
defaulting party with notice specifying in reasonable detail the nature of such
breach or default. If such breach or default has not been cured by the later of
(a) the Closing Date and (b) thirty (30) days after delivery of such notice,
then the party giving such notice may (i) terminate this Agreement by giving
written notice to the defaulting party hereunder, (ii) extend the Closing Date
if such default has not been cured by the Closing Date (but no such extension
shall constitute a waiver of such nondefaulting party's right to terminate as a
result of such default), (iii) exercise the remedies available to such party
pursuant to SECTIONS 11.2 or 11.3, subject to the right of the other party to
contest such action through appropriate proceedings, and/or (iv) proceed to
Closing, but which shall not constitute a waiver of such breach or default.
11.2. SELLERS' REMEDIES. Purchaser recognizes that if the
Transactions are not consummated solely as a result of Purchaser's default,
Sellers would incur damages, the extent of which is extremely difficult and
impractical to ascertain. The parties, therefore, agree that if this Agreement
is terminated or otherwise is not consummated due to the material default of
Purchaser and Sellers were ready, willing and able to consummate the
Transactions, Purchaser shall pay to each of the Sellers his or its Pro Rata
Share of $500,000, as Sellers' sole and exclusive remedy in full settlement of
any damages of any nature or kind that Sellers may suffer or allege to suffer as
the result of any default or breach by Purchaser. The parties agree that this
sum shall be in lieu of any and all other relief to which Sellers might
otherwise be entitled due to Purchaser's breach of, or default under, this
Agreement. Notwithstanding the provisions of this
41
Section 11.2, in the event that Purchaser takes any action to delay the release
of the Escrow Deposit after termination of this Agreement by the Sellers
pursuant to Section 10.1(c)(i), and it is determined that Purchaser was in
material default of its obligations under this Agreement, then, in addition to
the $500,000 in liquidated damages and any amounts to which Sellers are entitled
pursuant to SECTION 15.14, Sellers shall be entitled to interest at the Prime
Rate plus 200 basis points from the date the Seller Representative submitted its
demand for release of the Escrow Deposit until the date the amount of the Escrow
Deposit was received by the Seller Representative.
11.3. PURCHASER'S REMEDIES. Sellers agree that the Shares represent
unique property that cannot be readily obtained on the open market and that
Purchaser would be irreparably injured if this Agreement is not specifically
enforced after default. Therefore, Purchaser shall have the right to
specifically enforce Sellers' performance under this Agreement, and Sellers
agree to waive the defense in any such suit that Purchaser has an adequate
remedy at law and to interpose no opposition, legal or otherwise, as to the
propriety of specific performance as a remedy, and that Purchaser shall have the
right to obtain specific performance of the terms of this Agreement without
being required to prove actual damages, post bond or furnish other security. As
a condition to seeking specific performance, Purchaser shall not be required to
have tendered the Cash Consideration, but shall be ready, willing and able to do
so.
11.4. ESCROW DEPOSIT. In the event that all of the conditions to
Closing are satisfied but Purchaser fails to tender the Cash Consideration or to
purchase the Shares on the Closing Date, the $500,000 liquidated damages set
forth in SECTION 11.2 shall be paid by Purchaser to the Company from the Escrow
Deposit. In the event that the Closing does not occur due to no fault or breach
by Purchaser, then Purchaser shall be entitled to a return of the Escrow Deposit
and interest accrued thereon.
ARTICLE XII.
POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION
The parties covenant and agree as follows with respect to the
period subsequent to the Closing Date:
12.1. INDEMNIFICATION.
12.1.1. PURCHASER'S RIGHT TO INDEMNIFICATION. The Sellers,
jointly and severally, undertake and agree to indemnify, defend by counsel
reasonably acceptable to Purchaser, and hold harmless Purchaser, its parent,
affiliates, successors and assigns and their respective directors, officers,
employees, shareholders, representatives and agents (hereinafter referred to
collectively as "Purchaser Indemnitees") from and against and in respect of any
and all losses, costs, liabilities, claims, obligations, diminution in value and
expenses, including reasonable attorneys' fees ("Claims"), incurred or suffered
by a Purchaser Indemnitee arising from (a) the claims of third parties with
respect to operation of the Company prior to Closing; (b) a breach,
misrepresentation, or other violation of any of the Sellers' or the Company's
42
covenants, warranties or representations contained in this Agreement excluding
those that are to be indemnified pursuant to SECTION 13.8; (c) any breach or
default by the Company under any Contract prior to Closing; (d) any Pre-Closing
Environmental Matters; and (e) any and all actions, suits, proceedings, claims
demands, assessments, judgments, costs and expenses, incident to any of the
foregoing or incurred to oppose the imposition thereof, or in enforcing this
indemnity; together with interest at the Prime Rate (as defined below) on any
such Claim from the date of incurrence by such Purchaser Indemnitee(s) until the
date of reimbursement by Sellers. "Prime Rate" shall mean the prime rate as
published in the Money Rates column of the Eastern Edition of the Wall Street
Journal (or the average of such rates if more than one rate is indicated), in
effect on the date of incurrence of such Claim. The foregoing indemnity is
intended by Sellers to cover all acts, suits, proceedings, claims, demands,
assessments, adjustments, diminution in value, costs, and expenses with respect
to any and all of the specific matters set forth in this indemnity.
12.1.2. SELLER'S RIGHT TO INDEMNIFICATION. Purchaser
undertakes and agrees to indemnify, defend by counsel reasonably acceptable to
Sellers and hold harmless Sellers, their representatives and agents (hereinafter
referred to collectively as "Seller Indemnitees") from and against and in
respect of any and all Claims incurred or suffered by a Seller Indemnitee after
Closing arising from; (a) a breach, misrepresentation, or other violation of any
of Purchaser's covenants, warranties and representations contained in this
Agreement excluding those that are to be indemnified pursuant to Section 13.8;
(b) any claims of third parties with respect to the operation of the Company on
or after the Closing Date; and (c) any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs and expenses, incident to any of
the foregoing or incurred to oppose the imposition thereof; together with
interest at the Prime Rate on any such claim from the date of incurrence by such
Seller Indemnitee(s) to the date of reimbursement by Purchaser. The foregoing
indemnity is intended by Purchaser to cover all acts, suits, proceedings,
claims, demands, assessments, adjustments, costs, and expenses with respect to
any and all of the specific matters set forth in this indemnity.
12.1.3. CONDUCT OF PROCEEDINGS. If any claim or proceeding
covered by the foregoing agreements to indemnify and hold harmless shall arise,
the party who seeks indemnification (the "Indemnified Party") shall give written
notice thereof to the other party (the "Indemnitor") promptly after the
Indemnified Party learns of the existence of such claim or proceeding; PROVIDED,
HOWEVER, that the Indemnified Party's failure to give the Indemnitor prompt
notice shall not bar the Indemnified Party's right to indemnification unless
such failure has materially prejudiced the Indemnitor's ability to defend the
claim or proceeding. The Indemnitor shall have the right to employ counsel
reasonably acceptable to the Indemnified Party to defend against any such claim
or proceeding, or to compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the Indemnitor;
PROVIDED that the Indemnitor shall not have the right to control the defense of
any such claim or proceeding unless it has acknowledged in writing its
obligation to indemnify the Indemnified Party fully from all liabilities
incurred as a result of such claim or proceeding and then and periodically
thereafter provides the Indemnified Party with reasonably sufficient evidence of
the ability of the Indemnitor to satisfy any such liabilities. The parties will
fully cooperate in any such action, and shall make available to each other any
books or records useful for the defense of
43
any such claim or proceeding. If the Indemnitor fails to acknowledge in writing
its obligation to defend against or settle such claim or proceeding within
twenty (20) days after receiving notice thereof from the Indemnified Party (or
such shorter time specified in the notice as the circumstances of the matter may
dictate), the Indemnified Party shall be free to dispose of the matter, at the
expense of the Indemnitor, in any way in which the Indemnified Party deems to be
in its best interest.
12.1.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding
anything to the contrary in this Section 12.1:
(a) An Indemnitor shall have no obligation with respect to any
Claims for breach of representation or warranty under this Section 12.1, except
for the representations set forth in Sections 4.3 and 4.20, until the aggregate
amount of all Claims against such Indemnitor exceeds $150,000, at which time the
amount of all Claims against such Indemnitor in excess of such amount shall be
due; and
(b) In no event shall either Party's indemnity obligations for
breaches of representations or warranties under this Section 12.1 apply to any
Claim first asserted after the survival period set forth for such Claim in
Section 12.3.
(c) Notwithstanding any other provision contained in this
Agreement, in no event shall: (i) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, The ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997
QSST Trust, and The ▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust be liable in the aggregate to
the Purchaser or any other Person in an amount in excess of 25% of the Total
Consideration received by all Sellers, and (ii) S. ▇▇▇▇▇ ▇▇▇▇▇▇ be liable to the
Purchaser or any other Person in an amount in excess of 25% of the Total
Consideration received by all Sellers.
12.1.5. INDEMNIFICATION SOLE REMEDY. The right to
indemnification under this Article XII subject to the limitations set forth in
Section 12.1.4, and Purchaser's right to indemnification under the Lease
Assignment Indemnification Agreement dated the date hereof (the "Lease
Assignment Agreement"), shall be the exclusive remedy of any party in connection
with any breach by another party of its representations, warranties, or
covenants or any other default under this Agreement, and neither party shall
make or assert any claim under this Agreement or related to the Transactions,
regardless of the form of action, except under and in accordance with this
Article XII, provided that this shall not affect the right of Purchaser to make
a claim for specific performance or of either party to make a claim for damages
arising from the other party's willful misrepresentation or willful misconduct
or under Article XIII up to a limit equal to the Total Consideration paid to
Sellers under this Agreement.
12.2. RIGHT OF OFFSET. Each of Purchaser and Sellers shall have the
right to offset against amounts owing to the other any amounts owing to such
party pursuant to SECTION 12.1.
12.3. SURVIVAL OF REPRESENTATIONS. The representations and
warranties contained herein shall survive for twelve months after the Closing
without limitation and without regard to any investigation made by any of the
parties hereto; PROVIDED, HOWEVER, that the representations
44
and warranties made by the Company and Sellers in Sections 4.1, 4.3, 4.4 and
4.19, shall survive without limitation and the representations and warranties in
Section 4.20 shall survive for the period set forth in Section 13.8.
12.4. RIGHTS OF SET-OFF. Any Contingent Payments owed by Purchaser
to Sellers pursuant to Section 2.3 are subject to reduction for any Claims
pursuant to Section 12.1 above and Section 13.8.
ARTICLE XIII.
TAX MATTERS
13.1. ALLOCATION OF RESPONSIBILITY. From and after the Closing Date,
the Sellers shall pay any Taxes payable by the Company (i) for all taxable
periods ending prior to the Closing Date, (ii) for all taxable periods beginning
prior to the Closing Date and ending on or after the Closing Date, for that
portion of such taxable period up to and including the day prior to the Closing
Date (a "PRE-CLOSING PARTIAL PERIOD"), and (iii) as a result of any breach of
any representation, warranty or covenant in SECTION 4.20, SECTION 6.1(x) or
Article XIII of this Agreement. Notwithstanding the foregoing, no payment shall
be required to be paid hereunder for Taxes to the extent (i) reserves for such
Taxes are established on the Interim Balance Sheet (other than any reserves for
deferred Taxes established to reflect timing differences between book and Tax
income), (ii) Taxes imposed by the City of New York or the State of New York
that are measured or based upon income incurred by the Company in the ordinary
course of business since the Interim Balance Sheet Date, or (iii) in the case of
Taxes other than any federal, income tax, such Taxes have been incurred by the
Company in the ordinary course of business since the Interim Balance Sheet Date
(the taxes in clauses (ii) and (iii) are collectively referred to as, "Assumed
Interim Taxes").
13.2. PAYMENT OF TAXES. Purchaser shall notify the Seller
Representative of any Tax obligation of the Company at least thirty (30) days
before such obligation is due to be paid. Seller Representative shall wire
transfer funds to Purchaser for value no later than three (3) days before such
payments are due.
13.3. TAX RETURNS. The Seller Representative shall prepare or cause
to be prepared, in a manner consistent with past practices all Tax Returns for
the Company for all taxable years or periods ending before the Closing Date but
which are due to be filed after the Closing Date (taking into account all
applicable extensions of time for filing). The Seller Representative shall cause
such Tax Returns to be delivered to Purchaser for comment and approval, which
approval shall not be unreasonably withheld, no later than fifteen (15) days
prior to the due date for filing any such Tax Return (taking into account any
applicable extensions of time to file). The parties hereto acknowledge and agree
that, for federal and New York State income tax purposes, the Company's election
pursuant to section 1362(a) of the Code and the corresponding provisions of the
New York State Tax Law shall be terminated upon the closing of the transactions
contemplated hereby. Accordingly, and in accordance with Code section 1362(e)
and Treas. Reg. section 1.1362-3, the Company's short taxable year for the
Company as an S corporation will end on the day prior to the Closing Date.
45
13.4. REFUNDS. Seller Representative shall be entitled to retain, or
receive payment from Purchaser within five (5) days of the receipt of any Tax
refunds or credits relating to the Company that were paid with respect to (i)
all taxable periods ending prior to the Closing Date and (ii) Pre-Closing
Partial Periods, provided, however, Seller Representative shall not be entitled
to Tax refunds or credits relating to Assumed Interim Taxes. Purchaser shall, if
Seller Representative so requests and at Seller Representative's expense, cause
the Company to file for and obtain any refund to which Seller Representative is
entitled to under this Section 13.4, provided that Seller Representative shall
not file, and Purchaser shall not be obligated to file, to obtain any refund
that would have the effect of (x) increasing any Tax liability of the Company or
(y) otherwise materially and adversely affect any item or Tax attribute of the
Company, in each case for any taxable period ending on or after the Closing
Date, without Seller Representative first obtaining the Company's consent, which
consent shall not be unreasonably withheld. Purchaser shall permit Seller
Representative to control (at the Seller Representative's expense) the
prosecution of such refund claim, and shall cause powers of attorney authorizing
Seller Representative to represent the Company before the relevant taxing
authority with respect to such refund to be executed, provided that Seller
Representative (i) shall keep Purchaser informed regarding the progress and
substantive aspect of any such refund and (ii) shall not compromise or settle
any such refund without obtaining Purchaser's consent, which consent shall not
be unreasonably withheld, if such compromise or settlement would have the effect
of (x) increasing any Tax liability of the Company or (y) otherwise materially
and adversely affect any item or Tax attribute of the Company, in each case for
any taxable period ending after the Closing Date. In the event that any refund
or credit of Taxes for which a payment has been made pursuant to this Section
13.4 is subsequently reduced or disallowed, the Sellers shall indemnify and hold
Purchaser harmless for any Taxes assessed against the Company by reason of the
reduction or disallowance.
13.5. CONTESTS. Purchaser and the Seller Representative agree to
give prompt notice to each other of any proposed adjustment to Taxes for any
periods of the Company ending prior to the Closing Date or any Pre-Closing
Partial Period. Purchaser and the Seller Representative shall cooperate with
each other in the conduct of any audit or other proceeding involving the Company
for such periods and each party may participate at its own expense. Seller
Representative shall have the right to control the conduct of any such audit or
proceeding for which the Sellers agree that any resulting Tax allocable to any
period prior to the Closing Date is covered by the indemnity set forth in
Section 13.8 of this Agreement, (such audit or proceeding, a "Seller's Contest")
provided that: (i) Seller Representative shall keep Purchaser informed regarding
the progress and substantive aspects of any Seller's Contest and (ii) Seller
Representative shall not compromise or settle any Seller's Contest if such
compromise or settlement would have the effect of (x) increasing any Tax
liability of the Company or (y) otherwise materially and adversely affect any
item or Tax attribute of the Company, in each case for any taxable period ending
after the Closing Date, without obtaining Purchaser's consent, which consent
shall not be unreasonably withheld. If Seller Representative chooses to direct a
Seller's Contest, Purchaser shall cause powers of attorney authorizing Seller
Representative to represent the Company before the relevant taxing authority and
such other documents as are reasonably necessary for Seller Representative to
control the conduct of any Sellers' Contest, consistent with the terms of this
Section 13.5
46
13.6. ALLOCATION OF TAXES. For purposes of Section 4.20 and this
Article XIII, in the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of such Taxes payable for the period ending on the day prior to the
Closing Date shall be (a) in the case of any Tax based upon or measured by
income, and in the case of sale or use tax, the amount which would be payable if
the taxable year ended as of the end of said date and (b) in the case of any
other Tax, such as personal or real property, the amount of such tax for the
entire period multiplied by a fraction, the numerator of which is the number of
days in the period ending on the day prior to the Closing Date and the
denominator of which is the number of days in the entire period.
13.7. TREATMENT OF INDEMNITY PAYMENTS. All indemnity and other
payments made under this Agreement shall be considered to be adjustments to the
Total Consideration.
13.8. INDEMNIFICATION. The covenants and agreements of the parties
contained in this Article XIII and the representations and warranties contained
in Section 4.20 of this Agreement shall survive the Closing and shall remain in
full force and effect until sixty (60) days following the expiration of the
applicable statutes of limitations with respect to any Taxes that would be
indemnifiable under this Article XIII. The procedures set forth in Section
12.1.3 of this Agreement shall apply to any claims made by the parties to this
Agreement pursuant to this Article XIII. The Sellers shall, jointly and
severally, undertake and agree to indemnify, defend by counsel reasonably
acceptable to Purchaser, and hold Purchaser and the Company harmless from and
against all Claims arising out of, any breach of representation or warranty in
Section 4.20 of this Agreement or any covenant made by the Sellers or Seller
Representative in this Article XIII or in Section 6.1(x) of this Agreement,
together with interest at the Prime Rate on any such Claim from the date of
incurrence by the Purchaser or the Company until the date of reimbursement by
Sellers. Purchaser undertakes and agree to indemnify, defend by counsel
reasonably acceptable to Sellers, and hold Sellers harmless from and against all
Claims arising out of breach of any covenant made by Purchaser under this
Article XIII, together with interest at the Prime Rate on any such Claim from
the date of incurrence by the Sellers until the date of reimbursement by
Purchaser. Notwithstanding anything to the contrary in this Agreement, to the
extent that the provisions contained in this Article XIII conflict with any
provision of Article XII of this Agreement, the provisions contained in this
Article XIII shall control.
13.9. SUCCESSORS. For purposes of this Article XIII, all references
to the Purchaser, the Sellers and the Company shall include successors.
ARTICLE XIV.
SELLER REPRESENTATIVE
14.1. DESIGNATION OF SELLER REPRESENTATIVE. The parties agree that
it is desirable to designate a representative to act on behalf of Sellers (the
"SELLER REPRESENTATIVE"). The parties have designated ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as the
Seller Representative, and approval of this Agreement by Sellers shall
constitute certification and approval of such designation.
14.2. AUTHORITY AND RIGHTS OF SELLER REPRESENTATIVE; LIMITATIONS ON
LIABILITY. The Seller Representative shall have full power, authority and
discretion to act on
47
behalf of the Sellers for all purposes under this Agreement and the Ancillary
Agreements. The Seller Representative will have no liability to the Sellers with
respect to actions taken or omitted to be taken in its capacity as Seller
Representative, except with respect to the Seller Representative's gross
negligence or willful misconduct. The Seller Representative shall be entitled to
reimbursement, from the Sellers for all reasonable expenses, disbursements and
advances (including fees and disbursements of its counsel, experts and other
agents and consultants) incurred by the Seller Representative in such capacity,
and for indemnification against any loss, liability or expenses arising out of
actions taken or omitted to be taken in its capacity as Seller Representative
(except for those arising out of Seller Representative's gross negligence or
willful misconduct).
ARTICLE XV.
MISCELLANEOUS
15.1. WAIVER. Either party to this Agreement may, at any time prior
to the Closing, waive any of the terms or conditions of this Agreement;
PROVIDED, HOWEVER, any such waiver must be in writing, executed in the same
manner as this Agreement.
15.2. NOTICES. All notices and other communications among the
parties shall be in writing and shall be deemed to have been duly given when (i)
delivered in person, or (ii) five (5) days after posting in the United States
mail having been sent registered or certified mail return receipt requested, or
(iii) delivered by telecopy and promptly confirmed by delivery in person or post
as aforesaid in each case, with postage prepaid, addressed as follows:
If to Purchaser, to:
USinternetworking, Inc.
One USi Plaza
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to (which shall not constitute notice):
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Sellers, to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
The ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust
c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
The ▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST Trust
c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
S. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to (which shall not constitute notice):
Morse, Zelnick, Rose & Lander, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company, to:
Advanced Communication Resources, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to (which shall not constitute notice):
Morse, Zelnick, Rose & Lander, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or addresses as the parties may from time to time
designate in writing.
15.3. ASSIGNMENT. Either party hereto may assign its rights (but not
its obligations) under this Agreement without the consent of the other party
hereto; PROVIDED; HOWEVER in the event that Purchaser conveys the Shares or
substantially all of the assets of the
49
Business after the Closing Date, Purchaser may assign its rights and obligations
under this Agreement to the transferee thereof.
15.4. RIGHTS OF THIRD PARTIES. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any Person,
other than the parties hereto, any right or remedies under or by reason of this
Agreement.
15.5. RELIANCE. Each of the parties to this Agreement shall be
deemed to have relied upon the accuracy of the written representations and
warranties made to it in or pursuant to this Agreement, notwithstanding any
investigations conducted by or on its behalf or notice, knowledge or belief to
the contrary.
15.6. TRANSFER TAXES; TITLE COSTS; EXPENSES. Notwithstanding any
other provision hereof, Sellers shall be solely responsible for the costs and
expenses of all recording fees (on a per-page basis or otherwise), transfer
taxes, conveyance taxes, sales and use taxes, stamp taxes and other taxes
incurred or otherwise payable in connection with the Transaction. Such payments
shall be made by Sellers promptly after incurred, but in any event on or prior
to the Closing Date or, in the case of taxes, fees and charges that may accrue
or arise after the Closing Date, promptly after the date that such obligation so
accrues or arises. Any filing fees payable in connection with the parties'
compliance with the HSR Act shall be paid one half by Purchaser. All other costs
and expenses incurred by the parties in connection with the transactions
contemplated hereby shall be borne by the party incurring such expense.
15.7. CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York. Unless otherwise stated,
references to Sections, Articles, Exhibits or Schedules refer to the Sections,
Articles, Exhibits and Schedules to this Agreement. The parties to this
Agreement participated jointly in the negotiation and drafting of this
Agreement. If any ambiguity or question of intent or interpretation shall arise
with respect to this Agreement, then this Agreement shall be construed as if
drafted jointly by the parties and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the authorship
of any provision of this Agreement.
15.8. CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
15.9. ENTIRE AGREEMENT. This Agreement (together with the Schedules
and Exhibits to this Agreement, the Escrow Agreement and the Lease Assignment
Agreement, which constitute part of this Agreement) constitutes the entire
agreement among the parties and supersede any other agreements, whether written
or oral, that may have been made or entered into by or among any of the parties
hereto or any of their respective Subsidiaries relating to the Transactions. No
representations, warranties, covenants, understandings, agreements, oral or
otherwise, relating to the transactions contemplated by this Agreement exist
between the parties except as expressly set forth in this Agreement.
50
15.10. AMENDMENTS. This Agreement may be amended or modified in whole
or in part, only by a duly authorized agreement in writing executed in the same
manner as this Agreement and which makes reference to this Agreement.
15.11. SEVERABILITY. If any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction, then all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
15.12. PUBLICITY. All press releases or other public communications
of any nature whatsoever, or other notices to third parties except as
contemplated by Section 8.1 relating to the transactions contemplated by this
Agreement, and the method of the release for publication thereof, shall be
subject to the prior mutual approval of Purchaser and the Company which approval
shall not be unreasonably withheld by any party; PROVIDED, HOWEVER, that,
nothing herein shall prevent any party from publishing such press releases or
other public communications as such party may consider necessary in order to
satisfy such party's legal or contractual obligations after such consultation
with the other parties hereto as is reasonable under the circumstances.
15.13. FURTHER ASSURANCES. The parties agree to: (a) furnish upon
request to each other such further information, (b) execute and deliver such
other documents, and (c) do such other acts and things, all as the other party
may reasonably request for the purpose of carrying out the intent of this
Agreement, including providing to Purchaser all of the rights, benefits and
services enjoyed by the Company in the operation of the Business from whatever
source.
15.14. ATTORNEY'S FEES. In the event of any litigation arising under
this Agreement, the prevailing party shall be entitled to recover his or its
reasonable attorney's fees from the non-prevailing party.
51
IN WITNESS WHEREOF the parties have hereunto caused this
Agreement to be duly executed as of the date first above written.
ADVANCED COMMUNICATION RESOURCES, INC.
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SELLERS:
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
THE ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST TRUST
By:
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustee
THE ▇▇▇▇▇▇ ▇▇▇▇▇▇ 1997 QSST TRUST
By:
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustee
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S. ▇▇▇▇▇ ▇▇▇▇▇▇
USINTERNETWORKING, INC.
By:
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Name:
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Title:
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