AGREEMENT AND PLAN OF MERGER
Dated as of the 1st day of August, 1999
by and between
HEALTHWORLD CORPORATION ("Parent"),
▇▇-▇▇▇▇ ACQUISITION CORP. ("Acquisition"),
▇▇▇▇ COMMUNICATIONS INC. (the "Company"),
▇▇▇▇▇▇▇ ▇▇▇▇ ("▇▇▇▇")
and
the ▇▇▇▇▇▇▇ ▇▇▇▇ GRANTOR RETAINED
ANNUITY TRUST u/t/a/d March 5, 1999 (the "Trust")
TABLE OF CONTENTS
Page No.
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1 The Merger..................................................................7
1.1 Preparation and Filing of Certificate of Merger....................7
1.2 Certificate of Incorporations; Directors; Officers.................8
1.3 Effect of Merger...................................................8
1.4 Conversion.........................................................9
1.5 Closing............................................................9
2 Consideration...............................................................9
2.1 Beneficial Ownership of Shares.....................................9
2.2 Merger Price.......................................................9
2.3 No Fractional Shares..............................................12
2.4 Employee Tax Benefit Adjustment...................................12
5 Representations And Warranties of ▇▇▇▇ and the Company.....................13
3.1 Due Organization..................................................13
3.2 Prohibited Activities.............................................14
3.3 Ownership of the Company..........................................15
3.4 Transactions in Capital Stock.....................................16
3.5 No Bonus Shares...................................................16
3.6 Subsidiaries......................................................16
3.7 Predecessor Status; etc...........................................16
3.8. Spin-off by the Company...........................................16
3.9 Financial Statements..............................................17
3.10 Material Liabilities..............................................17
3.11 Accounts and Notes Receivable.....................................18
3.12 Permits and Intangibles; Intellectual Property....................18
3.13 Environmental Matters.............................................19
3.14 Personal Property.................................................19
3.15 Significant Customers; Material Contracts and Commitments.........20
3.16 Real Property.....................................................21
3.17 Insurance.........................................................21
3.18 Compensation; Employment Agreements; Organized Labor Matters......21
3.19 Employee Plans....................................................25
3.20 Compliance with ERISA.............................................26
3.21 Conformity with Law; Litigation...................................27
3.22 Taxes.............................................................27
3.23 No Violations.....................................................30
3.24 Government Contracts..............................................31
3.25 Absence of Changes................................................31
3.26 Deposit Accounts; Powers of Attorney..............................32
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3.27 Brokers and Agents................................................33
3.28 Relations with Governments........................................33
3.29 Disclosure........................................................33
3.30 Authority.........................................................33
3.31 Validity of Obligations...........................................33
3.32 Year 2000.........................................................33
3.33 Officer Loans.....................................................34
3.34 Marketable Securities.............................................34
4 Representations of Parent..................................................34
4.1 Due Organization..................................................34
4.2 Capital Stock of Parent...........................................35
4.3 Conformity with Law; Litigation...................................35
4.4 Validity of Obligations...........................................35
4.5 SEC Reports.......................................................35
4.6 Absence of Changes................................................35
4.7 Non-Defaults; Non-Contravention...................................36
4.8 Taxes.............................................................36
4.9 Authorization of Agreements.......................................37
4.10 Disclosure........................................................37
5 Closing Deliveries.........................................................37
5.1 Opinions of Counsel...............................................37
5.2 Consents and Approvals............................................37
5.3 Employment and Non-Competition Agreements.........................38
5.4 Verification of Payment of Taxes; Good Standing...................38
5.5 Securities Act Representations by Beneficiaries of Defined
Contribution Plan and Trust.......................................38
5.6 Corporate Minutes of the Company..................................38
6 Post-Closing Covenants.....................................................39
6.1 Board of Directors of Parent......................................39
6.2 Preservation of Tax and Accounting Treatment......................39
6.3 Operation of Acquisition..........................................39
6.4 Tax Returns of Company............................................40
6.5 Employee Benefits.................................................40
6.6 Further Assurances................................................40
6.8 S Corporation Distributions.......................................40
7 Indemnification............................................................40
7.1 General Indemnification by the Company and ▇▇▇▇...................41
7.2 Special Limited Indemnification by ▇▇▇▇...........................41
7.3 Indemnification by Parent.........................................41
7.4 Third Person Claims...............................................42
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7.5 Exclusive Remedy..................................................43
7.6 Limitations on Indemnification....................................43
7.7 Offset and Collection by Parent or Acquisition....................44
8 Federal Securities Act Representations; Compliance with Law................44
9 Registration Rights........................................................45
9.1 Piggyback Registration Rights.....................................45
9.2 Registration Procedures...........................................45
9.3 Underwriting Agreement............................................46
9.4 Availability of Rule 144..........................................46
10 Referral Fees..............................................................46
11 Loss of Revenue by Company as a Result of Client Conflict With Parent......46
12 General....................................................................47
12.1 Cooperation.......................................................47
12.2 Successors and Assigns............................................47
12.3 Entire Agreement..................................................47
12.4 Counterparts......................................................48
12.5 Expenses..........................................................48
12.6 Notices...........................................................48
12.7 Governing Law.....................................................49
12.8 Exercise of Rights and Remedies...................................49
12.9 Time..............................................................49
12.10 Reformation and Severability......................................49
12.11 No Third Party Rights or Remedies.................................49
12.12 Captions..........................................................49
12.13 Amendments and Waivers............................................49
12.14 Attorneys' Fees...................................................50
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the
1st day of August, 1999, by and between HEALTHWORLD CORPORATION, a Delaware
corporation ("Parent"), ▇▇-▇▇▇▇ ACQUISITION CORP., a Delaware corporation
("Acquisition"), ▇▇▇▇ COMMUNICATIONS INC., a Delaware corporation ("Company"),
▇▇▇▇▇▇▇ ▇▇▇▇ ("▇▇▇▇") and ▇▇▇▇▇▇▇ ▇▇▇▇, as trustee under the ▇▇▇▇▇▇▇ ▇▇▇▇
Grantor Retained Annuity Trust u/t/a/d March 5, 1999 (the "Trust").
WITNESSETH
WHEREAS, Acquisition is a wholly-owned subsidiary of Parent; and
WHEREAS, Parent and the Company desire that the Company merge (the
"Merger") into Acquisition, upon the terms and conditions set forth herein and
in accordance with the provisions of the Delaware General Corporation Law, with
Acquisition as the surviving corporation in the Merger; and
WHEREAS, it is intended that the consideration to be received by the
Company Stockholders in the Merger shall consist partly of cash and partly of
shares of Common Stock of Parent ("Parent Stock"), in such amounts as are to be
determined and paid as provided in Section 2.2 hereof; and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization, within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code") for Federal income tax purposes; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any Schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquisition" has the meaning set forth in the introductory paragraphs
of this Agreement.
"Acquisition Stock" means the common stock of Acquisition.
"Actual Contingent Stock Value" means, with respect to any Contingent
Payment, the product of the Contingent Date Price and the number of shares of
Parent Stock payable pursuant to Section 2.2(c)(i).
"Affiliates" has the meaning set forth in Section 3.8.
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP.
"Balance Sheet Date" shall mean May 31, 1999.
"Base Net Fee Revenue" means the Net Fee Revenue attributable to a
client for the twelve (12) month period ending with a Client Termination Event.
"Cash Payment" has the meaning set forth in Section 2.2(a)(i).
"Client Conflict Adjustment" means the adjustment to EBITDA made
pursuant to Section 11.
"Client Referral Adjustment" means the adjustment to EBITDA made
pursuant to Section 10.
"Client Termination Event" has the meaning set forth in Section 11.
"Closing Date" means August 1, 1999.
"Closing Date Price" means $12.25.
"Contingent Date Price" means the average of the daily closing price
per share of the Parent Common Stock, as reported on the NASDAQ National Market
for the twenty (20) trading day period immediately preceding the day which is
three (3) business days prior to the day on which any Contingent Payment is due.
"Contingent Payments" has the meaning set forth in Section 2.2(a)(i).
"Code" has the meaning set forth in the introductory paragraphs of this
Agreement.
"Company" has the meaning set forth in the introductory paragraphs of
this Agreement.
"Company Financial Statements" has the meaning set forth in Section
3.9.
"Company Stock" means the common stock of the Company.
"Company Stockholders" means all of the holders of shares of stock of
the Company as set forth in Schedule 3.3.
"Controlled Group" has the meaning set forth in Section 3.19.
"Defined Contribution Plan and Trust" means the ▇▇▇▇ Communications
Inc. Defined Contribution Plan and the trust pursuant to which the plan is
administered.
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"Designated Key Employees" means ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Disclosure Schedule" has the meaning set forth in the preliminary
paragraph of Section 3.
"Earn-Out Period" means the period commencing with the Closing Date and
concluding with the date that all Contingent Payments have been made.
"EBITDA" means Net Income Before Interest, Taxes, Depreciation and
Amortization of Acquisition as determined by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in accordance with
GAAP. In determining EBITDA, no deduction shall be made to the income of
Acquisition for any expenses of this transaction, management fees, intercompany
charges except for (i) any charges incurred for preparation of tax returns and
accounting audits of Acquisition and (ii) any charges for services or products
which Acquisition requests to receive from Parent or any of its Affiliates or
Subsidiaries, which charges shall be in amounts not less favorable to
Acquisition than to any regular customer or client of the entity which furnishes
the services or products. Furthermore, EBITDA shall be increased for the amount
of the Client Conflict Adjustment and shall be adjusted up or down, as the case
may be, for the Client Referral Adjustment. EBITDA shall not be affected by any
transactions relating to the creation, maintenance and funding of the Defined
Contribution Plan and Trust, including, without limitation, any expenses related
to employee compensation which are reserved for accounting purposes prior to the
Closing Date, including any taxes or withholding imposed on the Company by
reason thereof.
"Effective Time of the Merger" has the meaning set forth in Section
1.1.
"Encumbrance" means a mortgage, charge (whether fixed or floating),
pledge, lien, option, restriction, right of first refusal, right of preemption,
third party right or interest, other encumbrance or security interest of any
kind and whether legal or equitable, or another type of preferential arrangement
(including, without limitation, a title transfer and retention arrangement)
having similar effect.
"ERISA" has the meaning set forth in Section 3.19.
"Expiration Date" has the meaning set forth in Section 3 or 4, as the
case may be.
"Indebtedness" of any Person means all obligations of such Person which
in accordance with GAAP should be classified upon a balance sheet of such Person
as Liabilities of such entity, and in any event, regardless of how classified in
accordance with GAAP, shall include: (i) all obligations of such Person for
borrowed money or which have been incurred in connection with the acquisition of
property or assets; (ii) obligations secured by any Security Interest upon
property or assets owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations; (iii) obligations created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under
3
such agreement in the event of default are limited to repossession or sale of
the property; and (iv) capitalized lease obligations.
"Intellectual Property" means any and all of the following which is
owned by, licensed by, licensed to, used or held for use by a Person (including
all copies and embodiments thereof, in electronic, written or other media): (i)
all registered and unregistered trademarks, trade dress, service marks, logos,
trade names, internet domain names, corporate names, limited liability company
names, partnership names, all derivations thereof and all applications to
register the same (the "Trademarks"); (ii) all issued U.S. and foreign patents
and pending patent applications, patent disclosures and improvements thereto
(the "Patents"); (iii) all registered and unregistered copyrights, mask work
rights and all applications to register the same (the "Copyrights"); (iv) all
computer software and databases owned or used (excluding software and databases
licensed to the Company or its Subsidiaries under standard, non-exclusive
software licenses granted to end-user customers by third parties in the ordinary
course of such third parties' business) by the Company or its Subsidiaries or
under development for the Company or its Subsidiaries by third parties (the
"Software"); (v) all categories of trade secrets, know-how, inventions (whether
or not patentable and whether or not reduced to practice), processes, formulas,
procedures, drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, client and supplier lists and
information and other confidential and proprietary information ("Proprietary
Rights"); (vi) all licenses and agreements pursuant to which the Company or its
Subsidiaries have acquired rights in or to any of the Trademarks, Patents,
Copyrights, Software or Proprietary Rights (excluding software and databases
licensed to the Company or its Subsidiaries under standard, non-exclusive
software licenses granted to end-user customers by third parties in the ordinary
course of such third parties' business) ("Licenses-In"); and (vii) all licenses
and agreements pursuant to which the Company or its Subsidiaries have licensed
or transferred any rights to any of the Trademarks, Patents, Copyrights,
Software or Proprietary Rights ("Licenses-Out"). For the purposes of this
definition, the term "license" also includes "sublicense."
"Key Consultant" means a person engaged under a Key Consultant
Agreement.
"Key Consultant Agreement" means any agreement with a consultant
providing for the services of an individual and requiring payment to the
consultant of not less than $5,000 per annum.
"Key Employee" means any employee whose compensation is not less than
$100,000 per annum.
"Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), obligation or Indebtedness, including without limitation, any
liability for Taxes.
"Material Adverse Effect" means (i) with respect to any Person, a
material adverse effect or impact upon the assets, financial condition, results
of operations, business or prospects of such
4
Person, taken as a whole, or (ii) in any case, a material adverse effect or
impact on the ability of the parties to this Agreement to consummate the
transactions contemplated hereby.
"Material Agreements" means, with respect to any Person, all of the
following contracts, agreements, and other arrangements (hereafter collectively
an "Arrangement"), whether written or oral, to which the Person is a party:
1. any arrangement (or group of related arrangements)
for the lease of personal property from or to third
parties with annual payments exceeding $50,000 or
with a term exceeding one year;
2. any arrangement concerning a partnership or joint
venture;
3. any arrangement (or group of related arrangements)
under which the Person has (A) created, incurred,
assumed, or guaranteed (or may create, incur, assume,
or guarantee) Indebtedness in excess of $50,000 or
(B) imposed (or may impose) a Security Interest on
any of its assets, tangible or intangible;
4. any arrangement concerning confidentiality or any
arrangement concerning non-competition;
5. any contract with any labor union or any Key
Consultant Agreement or an agreement with a Key
Employee;
6. any guaranty of any obligation for borrowed money or
otherwise, other than endorsements made for
collection in the Ordinary Course of Business, or any
agreement or commitment with respect to the lending
or investing of funds to or in other Persons;
7. any contract or group of related contracts with the
same party (or group of related parties) for or
relating to the purchase or sale of products or
services, either (A) which is not terminable by the
Person on sixty (60) days or less notice or (B) under
which the undelivered balance of products and
services, at the time of determination of
materiality, has a selling price in excess of
$50,000;
8. any contract or group of related contracts with the
same party (or group of related parties) not relating
to the purchase or sale of products or services
either (A) requiring payments after the date hereof
to or by the Person of more than $50,000 or (B) not
terminable by the Person on sixty (60) days or less
notice;
5
9. any agreement with any employee, the benefits of
which are contingent or the terms of which are
materially altered upon the occurrence of a
transaction of the nature contemplated by this
Agreement;
10. any agreement or plan the benefits of which will be
increased or accelerated by the occurrence of the
transactions contemplated by this Agreement;
11. any arrangement directly or indirectly between the
relevant Person and any of its Affiliates or
Subsidiaries; and
12. any other arrangement or group of related
arrangements not entered into in the Ordinary Course
of Business or the breach, default or termination of
which would have a Material Adverse Effect.
"Material Asset" means any asset, corporeal or incorporeal, with a
value reasonably estimated to exceed $50,000 or the absence of which would cause
a Material Adverse Effect.
"Material Liability" means a Liability in excess of $50,000.
"Merger" means the merger of the Company into Acquisition.
"Merger Price" has the meaning set forth in Section 2.2(a)(i).
"Net Fee Revenue" means the contribution to EBITDA made by reason of
services on behalf of a client.
"Parent" has the meaning set forth in the introductory paragraphs of
this Agreement.
"Parent SEC Reports" means the Parent's 1997 and 1998 Annual Report and
3/31/99 10Q.
"Parent Stock" means the common stock of Parent.
"Ordinary Course of Business" means the ordinary course of business,
consistent with past custom and practice, of Parent or the Company,
respectively, as the context herein may require (including with respect to
quantity and frequency).
"PBGC" has the meaning set forth in Section 3.19.
"Person" means any individual, trust, corporation, partnership, limited
partnership, limited liability company or other business association or entity,
court, governmental body or governmental agency.
"Plans" has the meaning set forth in Section 3.19.
6
"Qualified Plans" has the meaning set forth in Section 3.20.
"Registration Stockholder" has the meaning set forth in Section 9.1.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"S Distribution" has the meaning set forth in Section 5.6.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Securities Regulations" means all laws, regulations, listing rules,
policies or other rules of law applicable to the Company relating in any way to
any action involving securities or otherwise binding on the Company.
"Security Interest" means any mortgage, pledge, security interest,
charge, lien, option or other encumbrance or right of any third party.
"Stock Payment" has the meaning set forth in Section 2.2(a)(i).
"Subsidiary" means any corporation or other entity of which the
relevant corporation or entity owns a controlling voting interest, and any other
corporation or other entity which is similarly controlled by a Subsidiary or
group of Subsidiaries of the relevant corporation or entity.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1 The Merger.
1.1. Preparation and Filing of Certificate of Merger. Simultaneously
herewith, Acquisition and the Company are causing a Certificate of
Merger to be signed, verified and filed with the Secretary of State of
the State of Delaware. The Certificate of Merger
7
provides for such matters as are consistent with this Section 1. Upon
the acceptance of the Certificate of Merger for filing by the Secretary
of State of the State of Delaware (the "Effective Time of the Merger"),
the separate existence of the Company shall cease, and Acquisition
shall be the surviving corporation in the Merger. The Merger will be
effected in a single transaction. Acquisition shall be qualified to do
business in the State of New York.
1.2. Certificate of Incorporations; Directors; Officers. At the
Effective Time of the Merger, (i) the Certificate of Incorporation and
By-Laws of Acquisition then in effect shall be the Certificate of
Incorporation and By-Laws of Acquisition until changed as provided by
law; (ii) the Board of Directors of Acquisition shall consist of
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇. The Board of
Directors of Acquisition shall hold office subject to the provisions of
the laws of the State of Delaware and of the Certificate of
Incorporation and By-laws of Acquisition; and (iii) the officers of
Acquisition shall be ▇▇▇▇ as President and Chief Executive Officer,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as Secretary/ Treasurer and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as
Vice-President, with each of such officers to serve, subject to the
provisions of the Certificate of Incorporation and By-laws of
Acquisition, until his successor is duly elected and qualified.
1.3. Effect of Merger. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the
laws of the State of Delaware. Acquisition shall, pursuant to the
Merger, change its name to "▇▇▇▇ Communications Inc." The identity,
existence, purposes, powers, objects, franchises, privileges, rights
and immunities of Acquisition shall continue unaffected and unimpaired
by the Merger and the corporate franchises, existence and rights of the
Company shall be merged with and into Acquisition, and Acquisition
shall be fully vested therewith. At the Effective Time of the Merger,
the separate existence of the Company shall cease and, in accordance
with the terms of this Agreement, Acquisition shall possess all the
rights, privileges, immunities and franchises, of a public, as well as
of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares,
and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or
belonging to or due to the Company shall be taken and deemed to be
transferred to, and vested in, Acquisition without further act or deed;
and all property, rights and privileges, powers and franchises and all
and every other interest shall be thereafter as effectually the
property of Acquisition as they were of the Company and Acquisition;
and the title to any real estate, or interest therein, whether by deed
or otherwise, under the laws of the state of incorporation vested in
the Company and Acquisition, shall not revert or be in any way impaired
by reason of the Merger. Except as otherwise provided herein,
Acquisition shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Acquisition and any
claim existing, or action or proceeding pending, by or against the
Company or Acquisition may be prosecuted as if the Merger had not taken
place, or Acquisition may be substituted in their place. Neither the
rights of creditors nor any liens upon the property of the Company or
Acquisition shall be impaired by the Merger, and all debts, liabilities
and duties of the Company and Acquisition shall attach to
8
Acquisition, and may be enforced against the Acquisition to the same
extent as if said debts, liabilities and duties had been incurred or
contracted by Acquisition.
1.4. Conversion. As of the Effective Time of the Merger:
1.4.1 Each share of Company Stock issued and outstanding
immediately prior to the Effective Time of the
Merger, by virtue of the Merger and without any
action on the part of the holder thereof,
automatically shall be deemed to represent the right
to receive the number of shares of Parent Stock equal
to the Stock Payment divided by the number of issued
and outstanding shares of Company Stock (other than
treasury shares).
1.4.2 all shares of Company Stock that are held by the
Company as treasury stock shall be cancelled and
retired and no shares of Parent Stock or other
consideration shall be delivered or paid in exchange
therefor; and
1.4.3 each share of Acquisition Stock issued and
outstanding immediately prior to the Effective Time
of the Merger, shall remain issued and outstanding,
completely unaffected by the Merger.
1.5 Closing. Upon the closing of this Agreement, which is
occurring simultaneously with the execution hereof, all of the
shares of stock of the Company which are then issued and
outstanding shall thereupon represent the right to receive the
number of shares of Parent Stock set forth in Section
2.2(a)(i), plus the contingent consideration set forth in
Sections 2.2(a)(ii) through (vi).
2 Consideration.
2.1 Beneficial Ownership of Shares. All Parent Stock to be
received by the Company Stockholders pursuant to this
Agreement shall have the same rights as all other shares of
Parent Stock by reason of the provisions of the Certificate of
Incorporation of Parent or as otherwise provided by the
Delaware General Corporation Law. All voting rights of such
Parent Stock to be received by the Company Stockholders shall
be fully exercisable by the Company Stockholders, and the
Company Stockholders shall not be deprived nor restricted in
exercising those rights.
2.2 Merger Price
(a) Payments. By virtue of the Merger, and without any action
on his part, the Company Stockholders shall be entitled to receive the
following, pro rata in proportion to their relative ownership of Company Stock
as of the Closing Date:
9
(i) on the Closing Date, the sum of $7,550,000, which shall be
in cash (the "Cash Payment") and Six Hundred Forty-Nine Thousand One Hundred
Eleven (649,111) shares of Parent Common Stock (the "Stock Payment"). In
addition Parent shall make additional contingent payments (the "Contingent
Payments") in the amounts and in the manner set forth in subparagraphs (ii)
through (vi) of this Section 2.2(a). The Cash Payment, the Stock Payment and the
Contingent Payments are collectively and in the aggregate referred to hereafter
as the "Merger Price"; and
(ii) an additional payment payable within one hundred
twenty (120) days after December 31, 1999 equal to 5.55 times the amount by
which EBITDA for the period commencing with first day following the Closing Date
and ending December 31, 1999 (the "Initial Stub Period") exceeds the "Target
Threshold." The term "Target Threshold" means the product of $15,050,000 and a
fraction, the numerator of which shall be the number of days in the Initial Stub
Period and the denominator of which shall be three hundred sixty-five (365); and
(iii) an additional payment payable within one hundred twenty
(120) days after December 31, 2000 equal to (x) 5.55 times EBITDA for the twelve
months ended December 31, 2000 minus (y) $15,050,000 minus (z) the payment made
pursuant to Section 2.2(a)(ii).
(iv) an additional payment payable within one hundred twenty
(120) days after December 31, 2001 equal to (x) 5.55 times EBITDA for the twelve
months ended December 31, 2001 minus (y) $15,050,000 minus (z) all payments made
pursuant to Sections 2.2(a)(ii) through (iii).
(v) an additional payment payable within one hundred twenty
(120) days after December 31, 2002 equal to (x) 5.55 times EBITDA for the
twelve months ended December 31, 2002 minus (y) $15,050,000 minus (z) all
payments made pursuant to Sections 2.2(a)(ii) through (iv); and
(vi) an additional payment payable within one hundred twenty
(120) days after December 31, 2003 equal to (x) 5.55 times EBITDA for the twelve
months ended December 31, 2003 minus (y) $15,100,000 minus (z) all payments made
pursuant to Sections 2.2(a)(ii) through (v).
(vii) All additional payments to be made pursuant to Sections
2.2(a)(i) through (vi) shall be subject to offset pursuant to the
indemnification provisions of Section 7.
(viii) During the Earn-Out Period, Acquisition shall maintain
books and records adequate to permit the identification of the amounts necessary
to make the calculations of additional payments hereunder. Parent shall prepare
a computation of the additional payments promptly following completion of
Acquisition's audited financial statements for the applicable period. Parent's
computation shall be submitted to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for review. Such audited
financial statements (which shall be prepared in accordance with U.S. GAAP,
consistently applied) shall be submitted to Parent and ▇▇▇▇ no later than ninety
(90) days after calendar year
10
end. Parent shall forward to ▇▇▇▇ the financial statements, with the EBITDA
calculation in reasonable detail, and the computation of the additional payment
(the financial statements, EBITDA calculation and computation of the additional
payment are together referred to as the "Earn-Out Computation"). ▇▇▇▇ shall have
fifteen (15) days following delivery of the Earn-Out Computation to review same
and notify Parent that he disputes any item in the Earn-Out Computation (an
"Earn-Out Dispute Notice"). In the event that ▇▇▇▇ does not issue an Earn-Out
Dispute Notice within the time set forth in the immediately preceding sentence,
the Earn-Out Computation shall become final and binding upon ▇▇▇▇. If ▇▇▇▇ sends
an Earn-Out Dispute Notice within the time permitted, the parties shall use
their best efforts to resolve any such disagreement relating to the Earn-Out
Computation and, if appropriate, agree on a revised Earn-Out Computation.
However, regardless of whether or not an Earn-Out Dispute Notice is sent, Parent
shall make payment of any amount which is undisputed within fifteen (15) days
following the last date on which ▇▇▇▇ may send an Earn-Out Dispute Notice. If
the parties are unable to agree on the Earn-Out Computation, ▇▇▇▇ and Parent
shall choose a firm of certified public accountants, or if within five (5)
calendar days after first attempting to agree on their choice of certified
public accountants they have been unable to agree on the selection of such a
firm they shall retain Ernst & Young (such agreed upon certified public
accountants are hereafter referred to as the "Independent Auditor") to finalize
the Earn-Out Computation. The Independent Auditor shall make such determination
relating to the Earn-Out Computation within 30 days of its appointment and its
decision shall be final and binding on all parties. If the determination of the
Independent Auditor is that Parent erred in Earn-Out Computation to the
detriment of ▇▇▇▇, and such error resulted in the Earn-Out Computation being
less than ninety (90%) percent of the determination made by the Independent
Auditor, then Parent shall be responsible for all the expenses of the
Independent Auditor plus the reasonable expenses of any auditor engaged by ▇▇▇▇
to assist him in resolving the dispute; otherwise ▇▇▇▇ shall be personally
responsible for all the expenses of the Independent Auditor plus the reasonable
expenses of any auditor engaged by Parent to assist it in resolving the dispute.
Any payment made by the Parent pursuant to this procedure shall not affect
EBITDA.
(b) Maximum Payment. The payments set forth in Sections
2.2(a)(i) through 2.2(a)(vi) shall in no event exceed the sum of $35,100,000.00.
(c) Form of Contingent Payments. Each Contingent Payment
shall be payable in cash or Parent Common Stock or a combination thereof as
follows:
(i) First, payment shall be made with that
number of shares of Parent Company Stock
which results from dividing (x) 48% of the
amount of such Contingent Payment by (y) the
Closing Date Price; provided, however, in no
event shall the Actual Contingent Stock
Value exceed the amount of such Contingent
Payment.
(ii) Second, payment shall be made in cash in the
amount, if any, by which such Contingent
Payment exceeds the Actual Contingent Stock
Value.
11
(d) Exchange Value. Each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than any such
shares held in the treasury of the Company, which shall be canceled) shall be
converted into the right to receive that number of shares of Parent Common Stock
which at the Effective Time results from dividing the Stock Payment by the
number of issued and outstanding shares of Company Common Stock (other than
treasury shares).
2.3 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent shall be issued upon the surrender
and exchange of shares. Each holder of shares who otherwise
would have been entitled to receive a fractional share of
Parent (after taking into account all certificates surrendered
by such holder) shall be entitled to receive, in lieu thereof,
a payment in the amount (without interest) equal to such
fractional part of a share of Parent.
2.4 Employee Tax Benefit Adjustment. The Company is delivering to
the Parent copies of executed Code Section 83(b) elections by
each of the beneficiaries of the Defined Contribution Plan and
Trust. ▇▇▇▇, the Trust and the Company represent and warrant
that the beneficiaries of the Defined Contribution Plan and
Trust will properly and timely file such elections with the
Internal Revenue Service. In reliance upon such representation
and warranty, the Parent shall take a tax deduction for the
taxable year ending December 31, 1999 for the compensation
paid to such beneficiaries in the aggregate amount included in
income by such beneficiaries as set forth in the Code Section
83(b) elections. The amount of the Parent's tax savings by
reason of such deduction and any other deduction for the
Company's employee-related expenses which are recorded for
accounting purposes prior to the Closing Date but reported for
tax purposes after the Closing Date, net of any increase in
taxes by reason of income or adjustments to the Company's
employee-related transactions which are recorded for
accounting purposes prior to the Closing Date but reported for
tax purposes after the Closing Date is hereafter referred to
as the "Employee Tax Benefit Adjustment." To determine the
amount of the Employee Tax Benefit Adjustment, the Parent
shall prepare pro forma tax returns with (the "Inclusive Pro
Forma") and without (the "Exclusive Pro Forma") the items
which relate to the Employee Tax Benefit Adjustment. The
amount of the Employee Tax Benefit Adjustment shall be the
excess, if any, of the taxes payable by the Parent in the
Exclusive Pro Forma minus the taxes payable by the Parent in
the Inclusive Pro Forma. The Parent agrees to pay to the
Company Stockholders the Employee Tax Benefit Adjustment as so
determined. The Parent will pay the sum of $425,000 to the
Company Stockholders on September 15, 1999 on account of the
Employee Tax Benefit Adjustment. On September 15, 2000, the
Parent will make a final determination of the amount of the
Employee Tax Benefit Adjustment and make payment of the
balance thereof to the Company Stockholders. Payment shall be
made in cash and/or stock consistent with the calculation
described in Section 2.2(c). In the event that the amount of
the Employee Tax Benefit Adjustment
12
later changes by reason of any adjustment to the Tax Returns
of the Parent which relate to the calculation thereof, then
the Parent shall pay to the Company Stockholders (to the
extent of any increase in the Employee Tax Benefit Adjustment)
or ▇▇▇▇ and the Trust shall pay to the Company (to the extent
of any decrease in the Employee Tax Benefit Adjustment) the
amount of such change. Any payment under this Section 2.4
shall not be taken into account for determining the amount of
the Contingent Payments. In the event of any dispute related
to the computation of the Employee Tax Benefit Adjustment, the
procedures of Section 2.2(a)(viii) shall be used to resolve
the dispute.
3 Representations And Warranties of ▇▇▇▇, the Trust and the Company.
Preliminary Matters in Respect of Representations and Warranties:
Annexed hereto and made a part hereof is a disclosure schedule
(individually a "Disclosure Schedule" and collectively the "Disclosure
Schedules") for ▇▇▇▇, the Trust and the Company setting forth all exceptions
and/or qualifications to the representations and warranties made herein. It is
understood and agreed that any disclosure made on any Disclosure Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Disclosure Schedule required hereby. ▇▇▇▇, the Trust and the Company
shall make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Disclosure Schedules.
The following representations and warranties in this Section 3 are
represented and warranted to be true at the date of this Agreement. All
representations and warranties contained in this Section 3 shall survive the
Closing Date for a period of three (3) years, except that all representations
and warranties with respect to Taxes shall survive for a period from the Closing
Date until ninety (90) days following the expiration of any statute of
limitations for the assessment and collection of such Taxes (the last day of the
applicable period being referred to hereinafter as the "Expiration Date").
Throughout this Section 3, all references to the Company shall be
construed to mean and include all of the Company's Subsidiaries.
▇▇▇▇, the Trust and the Company jointly and severally warrant and
represent as follows:
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its formation, and is duly authorized and
qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now
conducted except as set forth on Schedule 3.1 or where the
failure to be so authorized or qualified would not have a
Material Adverse Effect. Schedule 3.1 sets forth the
jurisdiction in which the Company was formed and contains a
list of all such jurisdictions in which the Company is
authorized or qualified to do business. Except as set forth in
Schedule 3.1, in all
13
material respects, all accounts, books, ledgers, financial and
other records of whatsoever kind of the Company have been
fully, properly and accurately maintained and are up to date,
are in the possession of the Company and contain true and
accurate records of all matters required by law to be entered
therein and do not contain or reflect any material
inaccuracies or discrepancies. No notice or allegation that
any of the said records is incorrect, or should be rectified,
in any material respects has been received by the Company.
Within the five (5) year period ending with the date hereof,
no order has been made or petition presented or resolution
passed for the winding-up or administration of the Company nor
has any distress, execution or other process been levied
against the Company or action taken to repossess goods in the
Company's possession and the Company is not insolvent or
unable to pay its debts. Within the five (5) year period
ending with the date hereof, no receiver, administrative
receiver or administrator has been appointed of the whole or
any material part of the assets of the Company nor is the
Company aware of any circumstances likely to give rise to the
appointment of any such receiver, administrative receiver or
administrator.
3.2 Prohibited Activities. Except as set forth on Schedule 3.2,
the Company has not, between the Balance Sheet Date and the
date hereof, taken any of the following actions:
3.2.1 made any change in its certificate of incorporation
or by-laws, as the case may be;
3.2.2 issued any securities, options, warrants, calls,
conversion rights or commitments relating to its
securities of any kind;
3.2.3 declared or paid any dividend, or made any
distribution in respect of its stock whether now or
hereafter outstanding, or purchased, redeemed or
otherwise acquired or retired for value any shares of
its stock;
3.2.4 entered into any contract or commitment or incurred
or agreed to incur any liability or make any capital
expenditures, except if it involved an amount not in
excess of $10,000 and except if it involved the
performance of services in the Ordinary Course of
Business;
3.2.5 created, assumed or permitted to exist any mortgage,
pledge or other lien or encumbrance upon any assets
or properties whether now owned or hereafter
acquired, except:
3.2.5.1 with respect to purchase money liens incurred
in connection with the acquisition of equipment with
an aggregate cost not in excess of $10,000,
14
3.2.5.2 liens for taxes either not yet due or being
contested in good faith and by appropriate
proceedings (and for which contested taxes adequate
reserves have been established and are being
maintained)
3.2.5.3 materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising
in the Ordinary Course of Business, or
3.2.5.4 liens set forth on Schedule 3.10 hereto;
3.2.6 sold, assigned, leased or otherwise transferred or
disposed of any material property or equipment except
in the Ordinary Course of Business;
3.2.7 negotiated for the acquisition of any business or the
start-up of any new business;
3.2.8 merged or consolidated or agreed to merge or
consolidate with or into any other entity;
3.2.9 waived any material rights or claims of the Company,
except for the negotiation and adjustment of bills in
the course of good faith disputes with customers in a
manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to
be included in Schedule 3.11 unless specifically
listed thereon;
3.2.10 committed a material breach or amended or terminated
any material agreement, permit, license or other
right of the Company; or
3.2.11 entered into any other transaction outside the
ordinary course of its business or prohibited
hereunder.
3.3 Ownership of the Company. The equity structure of the Company
is as set forth in Schedule 3.3. All of the issued and
outstanding shares of the Company are owned by the persons as
set forth in Schedule 3.3 in the amounts set forth opposite
their names. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, and are
owned of record and beneficially by such persons. Such shares
were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal laws
concerning the issuance of securities. None of such shares
were issued in violation of the preemptive rights of any past
or present stockholder.
15
3.4 Transactions in Capital Stock. Except as set forth on Schedule
3.4,
3.4.1 No person has the right (whether exercisable now or
in the future and whether contingent or not) to call
for the allotment, issue, sale, redemption or
transfer of any share, loan capital or other interest
in the Company under any option or other agreement
(including conversion rights and rights of
pre-preemption);
3.4.2 The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire
or cancel any of its shares or any interests therein
(or of any of its Subsidiaries) or to pay any
dividend or make any distribution in respect thereof,
nor do any of the Subsidiaries have any obligation
(contingent or otherwise) to purchase, redeem or
otherwise acquire or cancel any of their respective
shares or any interest therein or to pay any dividend
or make any distribution in respect thereof;
3.4.3 The Company has no obligation (contingent or
otherwise) to sell any of its shares or any interests
therein; and
3.4.4 Neither the voting rights attaching to the shares in
the capital of the Company nor the relative ownership
of shares among any of the Company's stockholders has
been altered or changed in contemplation of this
Agreement.
3.5 No Bonus Shares. Except as set forth on Schedule 3.5, none of
the shares of stock of the Company was issued pursuant to
awards, grants or bonuses.
3.6 Subsidiaries. Except as set forth on Schedule 3.6, the Company
has no Subsidiaries. Except as set forth in Schedule 3.6, the
Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the
Company, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
3.7 Predecessor Status; etc. Set forth in Schedule 3.7 is a
listing of all names of all predecessor companies of the
Company, including the names of any entities acquired by the
Company (by stock purchase, merger, or otherwise) or owned by
the Company or from whom the Company previously acquired
Material Assets, since January 1, 1994. Except as disclosed on
Schedule 3.7, the Company has not been, within such period of
time, a Subsidiary or division of another corporation or a
part of an acquisition which was later rescinded.
3.8 Spin-off by the Company. Except as set forth on Schedule 3.8,
there has not been any sale, spin-off or split-up of Material
Assets of either the Company or any
16
other Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the Company ("Affiliates") since January
1, 1994.
3.9 Financial Statements. Attached hereto as Schedule 3.9 are
copies of the following financial statements (the "Company
Financial Statements") of the Company: An audited Balance
Sheet and Income Statement for the years ending December 31,
1997 (the "1997 Statement") and December 31, 1998 prepared by
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the "1998 Statement"), the unaudited Balance
Sheet and Income Statement for the interim period of January
1, 1999 through the Balance Sheet Date (the "Interim
Statement") prepared internally by the Company on the same
basis as the 1997 Statement and the 1998 Statement and the
unaudited Balance Sheet and Income Statement for the period of
June, 1999 (the "June Statement") prepared internally by the
Company consistent with the accounting practices with which
the Company historically prepared its financial statements
prior to preparation by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of the 1997 Statement
and the 1998 Statement. Neither the Interim Statement nor the
June Statement discloses any material adverse changes since
the immediately preceding statement, and there have not been
any material adverse changes since June 30, 1999, nor has
there been any increase in borrowings from Citibank, N.A. or
any other financial lending institution since June 30, 1999.
The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout
the periods indicated. The Company Financial Statements
present fairly the financial position of the Company as of the
dates indicated thereon, and the Company Financial Statements
present fairly the results of operations for the periods
indicated thereon.
3.10 Material Liabilities. Except (i) as set forth on Schedule
3.10, (ii) for Liabilities to the extent reflected or reserved
against in the Company Financial Statements and (iii) for
obligations required by this Agreement, since the Balance
Sheet Date the Company has not incurred any Material
Liabilities of any kind, other than Liabilities incurred in
the Ordinary Course of Business. Schedule 3.10 also includes,
in the case of those contingent Material Liabilities related
to pending or threatened litigation, or other Material
Liabilities which are not fixed or otherwise accrued or
reserved, a good faith and reasonable estimate of the maximum
amount which may be payable, together with the following
information:
3.10.1 a summary description of the Material Liability
together with the following:
(1) copies of all relevant documentation
relating thereto;
(2) amounts claimed and any other action or
relief sought; and
(3) name of claimant and all other parties to
the claim, suit or proceeding;
17
3.10.2 where applicable, the name of each court or agency
before which such claim, suit or proceeding is
pending;
3.10.3 where applicable, the date such claim, suit or
proceeding was instituted; and
3.10.4 a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable
with respect to each such Material Liability. If no
estimate is provided, the estimate shall for purposes
of this Agreement be deemed to be zero.
3.11 Accounts and Notes Receivable. Schedule 3.11 includes an
accurate list of the accounts and notes receivable of the
Company, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the
Balance Sheet Date, and including receivables from and
advances to employees, officers and ▇▇▇▇, except for advances
for business expenses which do not exceed $5,000 in the
aggregate. Also annexed to Schedule 3.11 is:
3.11.1 an accurate list of all receivables obtained by the
Company subsequent to the Balance Sheet Date and
3.11.2 an aging of all accounts and notes receivable showing
amounts due in 30 day aging categories.
Such list and such aging report (the "A/R Aging Reports") are accurate as of the
end of the calendar month which immediately precedes the Closing Date.
3.12 Permits and Intangibles; Intellectual Property. The Company
holds all licenses, permits and other governmental
authorizations the absence of any of which could have a
Material Adverse Effect on its business. Schedule 3.12
contains an accurate list and summary description of all such
licenses, permits and other governmental authorizations,
including permits, titles (including motor vehicle titles and
current registrations), licenses, certificates, trademarks,
tradenames, patents, patent applications and copyrights owned
or held by the Company (including interests in software or
other technology systems, programs and intellectual property
other than software generally available in retail markets). To
the knowledge of the Company and ▇▇▇▇, (a) the licenses,
permits and other governmental authorizations listed on
Schedule 3.12 are valid, and (b) the Company has not received
any notice that any governmental authority intends to cancel,
terminate or not renew any such license, permit or other
governmental authorization. The Company has conducted and is
conducting its business in compliance in all material respects
with the requirements, standards, criteria and conditions set
forth in the licenses, permits and other governmental
authorizations listed on Schedule 3.12 and is not in violation
of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse
18
Effect on the Company. Except as specifically provided in
Schedule 3.12, the transactions contemplated by this Agreement
will not result in a material default under or a material
breach or violation of, or materially adversely affect the
rights and benefits afforded to the Company by, any such
licenses, permits or government authorizations. Schedule 3.12
lists and describes in reasonable detail all of the Company's
Intellectual Property (other than standard retail "shrink
wrap" licenses in the Ordinary Course of Business), and all
applications for registrations thereof. There are no claims or
demands, and, to the knowledge of the Company and ▇▇▇▇, no
reasonable basis for any such claim or demand, of any Person
that any of the Company's Intellectual Property or any
products or services sold, marketed, distributed, licensed or
provided by the Company, is invalid or infringes or conflicts
in any way with any Intellectual Property of any other Person.
Except as set forth in Schedule 3.12, the Company has taken
all steps reasonably necessary to protect its Intellectual
Property. The Company owns or has the right to use under valid
and assignable licenses all Intellectual Property necessary to
conduct its business as presently conducted in all material
respects, and the Company is not in default of any obligation
of payment or performance under any such licenses. Except as
set forth in Schedule 3.12, all of the interests of the
Company in its Intellectual Property are free and clear of all
Security Interests and other claims, and are not currently
being challenged or, to the knowledge of the Company and ▇▇▇▇,
infringed in any way or involved in any pending legal or
administrative proceedings before any court or governmental
agency. The Company has not granted any licenses for the use
of any of its Intellectual Property to any third parties which
remain in force and, to the Company's and ▇▇▇▇'▇ knowledge,
none of its Intellectual Property is being used by any other
Person, except in each case, pursuant to end user license
granted by the Company in connection with the sale of its
products in the Ordinary Course of Business. Except as
otherwise specified on Schedule 3.12, the Company is not
obligated to pay any royalty to any other Person or entity for
the use of any such Person's or entity's Intellectual
Property.
3.13 Environmental Matters. Except as set forth on Schedule 3.13,
the Company has, in all material respects, complied with and
is in compliance with all material Federal, state, local and,
so far as it is required, foreign statutes, laws, ordinances,
regulations, rules, notices, permits, judgments, orders and
decrees applicable to it or any of its respective properties,
assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws"). The Company
has no actual or contingent liability in connection with any
Environmental Laws which would have a Material Adverse Effect.
3.14 Personal Property. Schedule 3.14 contains an accurate list of
3.14.1 all personal property with a value in excess of
$10,000 included (or that will be included) in
"depreciable plant, property and equipment" on the
Company Financial Statements.
19
3.14.2 all other personal property owned by the Company with
a value in excess of $10,000 as of the Balance Sheet
Date and acquired since the Balance Sheet Date and
3.14.3 all leases and agreements in respect of personal
property providing for payments of greater than
$10,000 per annum,
including, (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
▇▇▇▇, employees, officers, , relatives of any of the foregoing, or Affiliates of
the Company. Except as set forth on Schedule 3.14,
3.14.4 all personal property used by the Company in its
business is either owned by the Company or leased by
the Company pursuant to a lease included on Schedule
3.14,
3.14.5 all of the personal property listed on Schedule 3.14
is in good working order and condition, ordinary wear
and tear excepted and
3.14.6 all leases and agreements included on Schedule 3.14
are in full force and effect and constitute valid and
binding agreements of the parties (and their
successors) thereto in accordance with their
respective terms.
3.15 Significant Customers; Material Contracts and Commitments.
Schedule 3.15 contains an accurate list of all significant
customers, it being understood and agreed that a "significant
customer," for purposes of this Section 3.15, means any
customer (or person or entity) representing at least $100,000
of the Company's annual gross revenues for the one-year period
ending with the Balance Sheet Date. Except to the extent set
forth on Schedule 3.15, none of the Company's significant
customers have canceled or, to the knowledge of the Company
and ▇▇▇▇, are currently attempting or threatening to cancel a
contract with the Company, nor have any of the Company's
customers conducted an audit of the Company within the
two-year period ending with the Balance Sheet Date. Schedule
3.15 contains a list of all Material Agreements to which the
Company is a party or by which it or any of its properties are
bound, other than agreements listed on Schedule 3.10, 3.14.
3.16 or 3.18, and in each case the Company has delivered true,
complete and correct copies of such agreements to Parent. The
Company has complied with all material commitments and
obligations pertaining to it, and is not in default in any
material respect under any contracts or agreements listed on
Schedule 3.15 and no notice of default under any such contract
or agreement has been received which default would have a
Material Adverse Effect on the Company. Also included in
Schedule 3.15 is a summary description of all material plans
or projects involving the opening of new operations, expansion
of existing operations, or the acquisition of any personal
property, business or assets.
20
3.16 Real Property. Schedule 3.16 includes an accurate list of all
real property owned or leased by the Company as of the Balance
Sheet Date and acquired since the Balance Sheet Date, and all
other real property, if any, used by the Company in the
conduct of its business. The Company has good and insurable
title to the real property owned by it, subject to no
mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except as set forth in Schedule 3.16.
The Company has delivered true, complete and correct copies of
all leases and agreements in respect of real property leased
by the Company. Schedule 3.16 indicates which such properties,
if any, are currently owned, or were formerly owned, by any
Affiliates, by ▇▇▇▇ or any employee or officer of the Company,
by any relative of any of the foregoing or by any entity that
directly, or indirectly through one or more intermediaries, is
controlled by any of the foregoing. All of such leases
included on Schedule 3.16 are in full force and effect and
constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their respective
terms.
3.17 Insurance. Schedule 3.17 includes
3.17.1 an accurate list as of the Balance Sheet Date of all
insurance policies carried by the Company; and
3.17.2 an accurate list of all insurance loss runs or
workers compensation claims received for the past
three (3) policy years.
The Company has delivered to Parent true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all of
the insurance that the Company is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. All of such
insurance policies are currently in full force and effect. Since January 1,
1994, no insurance carried by the Company has been canceled by the insurer and
the Company has not been denied any requested coverage.
3.18 Compensation; Employment Agreements; Organized Labor Matters .
3.18.1 Schedule 3.18 contains an accurate list showing all
officers, directors and Key Employees of the Company,
listing all employment agreements with such officers,
directors and Key Employees and the rate of
compensation (and the portions thereof attributable
to salary, bonus and other compensation,
respectively) of each of such persons as of the
Balance Sheet Date and the date hereof. The Company
has delivered true, complete and correct copies of
any employment agreements for persons listed on
Schedule 3.18.
21
3.18.2 Except as set forth in Schedule 3.18, since the
Balance Sheet Date, there have been no increases in
the compensation payable or any special bonuses to
any officer, director, Key Employee or other
employee, except ordinary salary increases
implemented on a basis consistent with past
practices.
3.18.3 Except as set forth on Schedule 3.18, the Company is
not bound by or subject to (and none of its assets or
properties is bound by or subject to) any arrangement
with any labor union, no employees of the Company are
represented by any labor union or covered by any
collective bargaining agreement, no campaign to
establish such representation is in progress and
there is no pending or, to the best of the Company's
and ▇▇▇▇'▇ knowledge, any threatened labor dispute
involving the Company and any group of its employees
nor has the Company experienced any labor
interruptions over the past three years.
3.18.4 Except as set forth in Schedule 3.18, all appropriate
notices have been issued under all statutes,
regulations and codes of conduct relevant to the
relations between the Company and its employees or
any recognized trade union, except for notices the
absence of which would not have a Material Adverse
Effect upon the Company and the Company has
maintained adequate and suitable records regarding
the service of its employees.
3.18.5 Except as set forth in Schedule 3.18, the Company has
not entered into any currently effective collective
agreement or arrangement (whether legally binding or
not) with a trade union, association of trade unions
or other body representing any of its employees nor
has it done within the two-year period ending with
the date hereof any act which might reasonably be
construed as recognition of such a union or body.
3.18.6 Schedule 3.18 contains a listing of each written
agreement and a summary of the terms and conditions
of each unwritten agreement pursuant to which any
officers, directors and Key Employees and Key
Consultants of the Company (and their dependents) are
engaged. The summary of unwritten agreements shall
include, without limitation, details of all
participation, profit sharing, incentive, bonus,
commission, share option, medical, permanent health
insurance, directors and officers insurance, travel,
car and other benefits, arrangements and
understandings and whether legally binding upon the
Company or not and of all Key Consultant Agreements
with the Company which are in place.
22
3.18.7 Except as set forth in Schedule 3.18, since the
Balance Sheet Date, there have been no increases in
the fringe benefits payable to or changes in the
terms of service (other than compensation or bonuses)
of any officer, director or Key Employee of the
Company.
3.18.8 Except as set forth in Schedule 3.18, there is not in
existence any contract of employment with officers,
directors or employees of the Company (or any
contract for services with any individual) which
cannot be terminated by three months notice or less
or (where such a contract has not been reduced to
writing) by reasonable notice without giving rise to
a claim for damages or compensation (other than
statutory compensation for unfair dismissal).
3.18.9 Except as set forth in Schedule 3.18, no promise has
been made and the Company is not obliged to increase
the fringe benefits payable to or to vary the terms
of service of any of its directors, other officers
and employees.
3.18.10 Except as set forth in Schedule 3.18, there are not
any outstanding offers of employment or consultancy
made by the Company to any Person who would be a Key
Employee or Key Consultant upon acceptance of such
offer and there is no one who has accepted an offer
of employment or consultancy made by the Company but
who has not yet taken up that employment or
consultancy.
3.18.11 Except as set forth in Schedule 3.18, neither the
Company nor any of its employees is involved in any
industrial or trade union dispute and there are no
facts known to the Company or ▇▇▇▇ which might
suggest that there may be any trade union or
industrial dispute involving the Company or that the
disposition of the shares of stock of the Company may
lead to any trade union or industrial dispute.
3.18.12 Except as set forth in Schedule 3.18, there are no
amounts in excess of $500.00 owing or promised to any
present or former directors, employees or consultants
of the Company other than remuneration accrued or due
for reimbursement of business expenses and no
directors, employees or consultants of the Company
have given or been given notice terminating their
contracts of employment or consultancy.
3.18.13 Except as set forth in Schedule 3.18, no claim has
been made and no liability has been incurred by the
Company (a) for breach of any contract of service or
for compensation for wrongful dismissal or
23
unfair dismissal or for failure to comply with any
order for the reinstatement or re-engagement of any
employee or for the actual or proposed termination or
suspension of employment or variation of any terms of
employment of any present or former employee of the
Company or (b) in respect of any payment to be made
or benefit to be provided to any present or former
director, employee or consultant of the Company in
connection with the consummation of the transactions
contemplated hereby, or (c) for the breach of or the
actual or proposed termination or variation of any
contract for services or consultancy agreement for
any present or former consultant to the Company.
3.18.14 Except as set forth in Schedule 3.18, no gratuitous
payment has been made or promised by the Company in
connection with the disposition of the shares of
stock of the Company or in connection with the actual
or proposed termination or suspension of employment
or variation of any contract or employment of any
present or former director or employee or in
connection with the proposed termination or
suspension or variation of any contract for services
or consultancy agreement.
3.18.15 Except as set forth in Schedule 3.18, there are no
material claims pending or, to the knowledge of the
Company and ▇▇▇▇, threatened against the Company:
(i) by a present or former employee, director,
consultant or third party, in respect of an
accident or injury which is not fully
covered by insurance; or
(ii) by a present or former employee, director or
consultant in relation to his terms and
conditions of employment or (as the case may
be) consultancy.
3.18.16 Except as set forth in Schedule 3.18, the Company has
in relation to each of its employees (and so far as
relevant to each of its former employees and persons
seeking employment) complied with in all material
respects:
(i) all laws and codes of conduct and practice
relevant to the relations between it and its
employees, prospective employees or any
trade union;
(ii) all collective agreements and customs and
practices for the time being dealing with
the terms and conditions of service of its
employees; and
24
(iii) all relevant orders, declarations and awards
made under any relevant law or code of
conduct and practice affecting the
conditions of service of its employees.
3.18.17 Except as set forth in Schedule 3.18, no Key
Employee has ceased to be employed by the
Company (other than through death or
retirement at normal retirement age) during
the twelve months prior to the date hereof
and the Company has no reason to believe
that such employees intend or are likely to
leave their employment otherwise than
through retirement as aforesaid within the
twelve months following the Closing Date.
3.18.18 Except as set forth in Schedule 3.18, there
are no agreements, arrangements or schemes
in operation by or in relation to the
Company pursuant to which any of its
employees or officers and/or former
employees or officers and/or their relatives
and dependents is entitled to shares or a
commission or remuneration of any kind
calculated by reference in whole or in part
to revenues, profits or sales.
3.18.19 Except as set forth in Schedule 3.18, there
is no liability whatsoever to make payment
to or for the benefit of any director or
employee or ex-director or ex-employee or
the wife or widow or any other relative of
any director, ex-director, employee or
ex-employee of the Company in respect of
past service, retirement, death or
disability by way of pension contribution,
pension, retirement benefit lump sum,
gratuity or otherwise.
3.18.20 Except as set forth in Schedule 3.18, the
Company has not within a period of one year
preceding the date of this Agreement started
consultations with any independent trade
union or association of unions.
3.19 Employee Plans. Schedule 3.19 contains an accurate list and
summary of all employee benefit plans (the "Plans") maintained
by the Company ( or any member of the Company's Controlled
Group) or to which the Company or any member of its Controlled
Group contributes or is obligated to contribute, including all
employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and
deferred compensation agreements. The Company has delivered
true, complete and correct copies of each of the Plans and any
agreements or trusts related thereto. Except for the Plans,
the Company does not sponsor, maintain or contribute to any
plan, program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has the Company any
obligation to contribute to or accrue or pay any
25
benefits under any deferred compensation or retirement funding
arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement
account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit
plan" shall have the same meaning as is given that term in
Section 3(2) of ERISA and the term "Controlled Group" shall
mean the Company and each other corporation or other entity
aggregated within the Company under the provisions of Section
414(b), (c), (m) or (o) of the Code. The Company has not
sponsored, maintained or contributed to any employee pension
benefit plan other than the Plans, nor is the Company required
to contribute to any retirement plan pursuant to the
provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of Company's
employees. The Company is not now, nor can it as a result of
its past activities become, liable to the Pension Benefit
Guaranty Corporation (the "PBGC") or to any multi-employer
employee pension benefit plan under the provisions of Title IV
of ERISA. All Plans and the administration thereof are in
compliance in all material respects with their terms and all
applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal,
state and local statutes, ordinances and regulations. All
accrued contribution obligations of the Company with respect
to any Plan have either been fulfilled in their entirety or
are fully reflected on the balance sheet of the Company as of
the Balance Sheet Date.
3.20 Compliance with ERISA. All the Plans that are intended to
qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined
by the Internal Revenue Service to be so qualified, and true,
correct and complete copies of such determination letters have
been delivered to Parent by the Company. All reports and other
documents required to be filed with any governmental agency or
distributed to Plan participants or beneficiaries (including,
but not limited to, actuarial reports, audits or tax returns)
have been timely filed or distributed, and true, correct and
complete copies thereof have been delivered by the Company.
Neither the Company nor any Plan has engaged in any
transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No Plan has incurred an
accumulated funding deficiency (whether or not waived), as
defined in Section 412(a) of the Code and Section 302(l) of
ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor
any liability to the PBGC. The Company further represents
that: there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without
notice to and approval by the Internal Revenue Service; no
Plan subject to the provisions of Title IV of ERISA has been
terminated; there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to
any Plan; neither the Company nor any
26
member of its Controlled Group has incurred liability under
Sections 4062 or 4069 of ERISA; and no circumstances exist
pursuant to which the Company could have any direct or
indirect liability whatsoever (including, but not limited to,
any liability to any multi-employer plan or penalty, or
payment of any such liability) with respect to any plan
maintained by any member of the Controlled Group. The Company
is not subject to any legal, contractual, equitable, or other
obligation to (i) establish as of any date any employee
benefit plan of any nature, including, without limitation, any
pension, profit sharing, welfare, post-retirement welfare,
stock option, stock or cash award, non-qualified deferred
compensation or executive compensation plan, policy or
practice or (ii) continue any employee benefit plan of any
nature, including, without limitation any employee benefit or
any other pension, profit sharing , welfare, or
post-retirement welfare, plan, or any stock option, stock or
cash award, non-qualified deferred compensation or executive
compensation plan, policy or practice (or to continue their
participation in any such benefit plan, policy or practice) on
or after the Closing Date; and (b) the Company may, in any
manner, and without the consent of any employee, beneficiary
or other person, terminate, modify or amend any such employee
benefit plan or any other plan, program or practice (or its
participation in such employee benefit plan or any other plan,
program or practice) effective as of any date before, on or
after the Closing Date, subject to any right which may have
vested under any such plan, program or practice.
3.21 Conformity with Law; Litigation. Except to the extent set
forth on Schedule 3.10 or 3.13, the Company is not in
violation or contravention of any law or regulation or any
order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over the Company which
would have a Material Adverse Effect; and except to the extent
set forth on Schedule 3.10 or 3.13, there are no material
claims, actions, suits or proceedings, commenced or, to the
knowledge of the Company and ▇▇▇▇, threatened, against or
affecting the Company, at law or in equity, or before or by
any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality having jurisdiction over the Company and no
notice of any material claim, action, suit or proceeding,
whether pending or threatened, has been received. The Company
has conducted and is conducting its business in compliance, in
all material respects, with the requirements, standards,
criteria and conditions set forth in applicable Federal, state
and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental
approvals set forth on Schedules 3.12 and 3.13, and is not in
violation of any of the foregoing which might have a Material
Adverse Effect.
3.22 Taxes. Except to the extent reflected or reserved against in
the Company Financial Statements, full details of every matter
or circumstance which (whether of itself or by reason of any
connection with any other one or more transaction or events)
will or may give rise to any liability to taxation for which
the Company is
27
or will or may become liable is contained in Schedule 3.22 and
the following warranties are without prejudice to the
generality of the foregoing. Except as set forth in Schedule
3.22:
3.22.1 The Company's maintains its books and records and
reports its income for Tax purposes on the accrual
basis of accounting, and its methods of accounting
have not changed in the past five years. The
Company's methods of accounting may have to be
changed to reflect the changes in the accounting
methods reflected in the Company's Financial
Statements and any financial statement to be prepared
for the period July 1, 1999 through July 29, 1999 as
required by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ from the methods of
accounting reflected in the prior financial
statements of the Company as prepared by the
Company's certified public accountants.
3.22.2 There have been properly completed and filed on a
timely basis and in correct form all Returns required
to be filed on or prior to the date hereof. As of the
time of filing, the foregoing Returns correctly
reflected the facts regarding the income, business,
assets, operations, activities, status or other
matters of the Company or any other information
required to be shown thereon. In particular, the
foregoing returns are not subject to penalties under
section 6662 of the Code, relating to
accuracy-related penalties (or any corresponding
provision of the state, local or foreign Tax law). An
extension of time within which to file any Return
which has not been filed has not been requested or
granted.
3.22.3 With respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is
or could be liable, with respect to all taxable
periods or portions of periods ending on or before
the Balance Sheet Date, all applicable tax laws and
agreements have been complied with in all material
respects, and all such amounts required to be paid by
the Company to taxing authorities in respect of all
periods ending on or before the Balance Sheet Date
have been paid.
3.22.4 No issues have been raised (and are currently
pending) by any taxing authority in connection with
any of the Returns. No waivers of statutes of
limitation with respect to the Returns for any
taxable years for which the statute of limitations
has not yet expired have been given by or requested
from the Company. Schedule 3.22 sets forth (with
respect to taxable years for which the statute of
limitations has not yet expired, either by reason of
waiver or otherwise) those years for which
examinations have been completed, those years for
which examinations are presently being
28
conducted, those years for which examinations have
not been initiated, and those years for which
required Returns have not yet been filed. Except to
the extent shown on Schedule 3.22, all deficiencies
asserted or assessments made as a result of any
examinations have been fully paid, or are fully
reflected as a liability in the Company Financial
Statements or are being contested and an adequate
reserve therefor has been established and is fully
reflected in the Financial Statements of the Company.
3.22.5 There are no outstanding liens for Taxes upon the
assets of the Company.
3.22.6 The Company has never been a member of an affiliated
group of corporations, within the meaning of section
1504 of the Code.
3.22.7 All material elections with respect to Taxes
affecting the Company as of the date hereof are set
forth in Schedule 3.22. Schedule 3.22 sets forth the
date the Company commenced operations.
3.22.8 The Company has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f)
of the Code (or any corresponding provision of state,
local or foreign income Tax law) or agreed to have
section 341(f)(2) of the Code (or any corresponding
provision of state, local or foreign income Tax law)
apply to any disposition of any asset owned by it.
3.22.9 None of the assets of the Company is property which
the Company is required to treat 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.
3.22.10 None of the assets of the Company directly or
indirectly secures any debt the interest on which is
tax exempt under section 103(a) of the Code.
3.22.11 None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the
Code.
3.22.12 The Company has not participated in an international
boycott within the meaning of section 999 of the
Code.
3.22.13 The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the
meaning of section 280G of the Code.
29
3.22.14 The Company is not, and has not been a United States
real property holding corporation (as defined in
section 897(c)((2) of the Code) during the applicable
period specified in section 897(c)(1)(A)(ii) of the
Code.
3.22.15 The transaction contemplated herein is not subject to
the tax withholding provisions of Code section 3406,
or of subchapter A of Chapter 3 of the Code or of any
other provision of law.
3.22.16 The Company does not have and has not had a permanent
establishment in any foreign country, as defined in
any applicable Tax treaty or convention between the
United States of America and such foreign country.
3.22.17 Except as set forth in Schedule 3.22, the Company is
not a party to any joint venture, partnership, or
other arrangement or contract which could be treated
as a partnership for federal income tax purposes.
3.22.18 The Company's election to be treated as an S
Corporation has been in effect since its date of
incorporation until July 29, 1999, which is the date
which is one day prior to the date upon which ▇▇▇▇
conveyed a portion of his Company Stock to the
Defined Contribution Trust. The execution of this
Agreement and the effectuation of the transactions
contemplated hereby will not cause the Company to
incur or be subjected to any Taxes by reason thereof.
3.23 No Violations. Neither the Company nor, to the knowledge of
the Company and ▇▇▇▇, any other party thereto, is in default
in any material respect under any lease, instrument,
agreement, license, or permit set forth on Schedule 3.12,
3.13, 3.14, 3.15, 3.16 or 3.18, or any other material
agreement to which it is a party or by which its properties
are bound (the "Material Documents"). Except as set forth in
Schedule 3.23,
3.23.1 The rights and benefits of the Company under the
Material Documents will not be materially adversely
affected by the transactions contemplated hereby;
3.23.2 The execution of this Agreement and the performance
of the obligations hereunder and the consummation of
the transactions contemplated hereby will not result
in any material violation or breach or constitute a
material default under, any of the terms or
30
provisions of the Material Documents or the Company's
certificate of incorporation or by-laws, as the case
may be;
3.23.3 None of the Material Documents requires notice to or
the consent or approval of, any governmental agency
or other third party with respect to any of the
transactions contemplated hereby in order to remain
in full force and effect; and
3.23.4 Consummation of the transactions contemplated hereby
will not give rise to any right to termination,
cancellation or acceleration or loss of any material
right or benefit.
Except as set forth on Schedule 3.23, none of the Material Documents prohibits
the use or publication by Parent or any of its Subsidiaries of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, Parent, or any of their
respective Subsidiaries.
3.24 Government Contracts. Except as set forth on Schedule 3.24,
the Company is not now a party to any governmental contract
subject to price redetermination or renegotiation.
3.25 Absence of Changes. Since the Balance Sheet Date, except as
set forth on Schedule 3.25, there has not been:
3.25.1 any material adverse change in the financial
condition, assets, liabilities (contingent or
otherwise), income or business of the Company;
3.25.2 any damage, destruction or loss (whether or not
covered by insurance) materially adversely affecting
the properties or business of the Company;
3.25.3 any change in the authorized capital of the Company
or its outstanding securities or any change in its
ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
3.25.4 any declaration or payment of any dividend or
distribution in respect of the capital stock or any
direct or indirect redemption, purchase or other
acquisition or cancellation of any of the capital
stock of the Company;
3.25.5 any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become
payable by the Company to any
31
of its officers, directors, stockholders, employees,
consultants or agents, except for ordinary and
customary bonuses and salary increases for employees
in accordance with past practice;
3.25.6 any work interruptions, labor grievances or claims
filed, or any other event or condition causing a
Material Adverse Effect to the Company;
3.25.7 any sale or transfer, or any agreement to sell or
transfer, any Material Assets, property or rights of
the Company to any Person;
3.25.8 any cancellation, or agreement to cancel, any
material indebtedness or other obligation owing to
the Company;
3.25.9 any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any
interest in any of the assets, property or rights of
the Company or requiring consent of any party to the
transfer and assignment of any such assets, property
or rights, other than sales of inventory in the
Ordinary Course of Business;
3.25.10 any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property,
rights or assets outside of the ordinary course of
the Company's business;
3.25.11 any waiver of any material rights or claims of the
Company;
3.25.12 any material breach, amendment or termination of any
material contract, agreement, license, permit or
other right to which the Company is a party;
3.25.13 any transaction by the Company outside the ordinary
course of its businesses;
3.25.14 any cancellation or termination of a material
contract with a customer or client prior to the
scheduled termination date; or
3.25.15 any other distribution to or for the benefit of any
of the Company Stockholders of property or assets by
the Company.
3.26 Deposit Accounts; Powers of Attorney. Schedule 3.26 contains
an accurate schedule as of the date of the Agreement of:
3.26.1 the name of each financial institution in which the
Company has accounts or safe deposit boxes;
32
3.26.2 the names in which the accounts or boxes are held;
3.26.3 the type of account and account number; and
3.26.4 the name of each person authorized to draw thereon or
have access thereto.
Schedule 3.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
3.27 Brokers and Agents. Except as disclosed on Schedule 3.27, the
Company did not employ any broker or agent in connection with
this transaction.
3.28 Relations with Governments. The Company has not made, offered
or agreed to offer anything of value to any governmental
official, political party or candidate for government office
nor has it otherwise taken any action which would cause the
Company to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended or any law of similar effect in any
jurisdiction.
3.29 Disclosure. No representation or warranty by the Company made
in this Agreement and no statement made in any certificate,
financial statement, exhibit or schedule made a part hereof is
false or misleading in any material respect or knowingly omits
to state any fact necessary to make any such representation or
statement not misleading in any way which would materially
affect the Company's business. There is no fact known to the
Company or ▇▇▇▇, and neither the Company nor ▇▇▇▇ has any
reason to know of any fact, which materially adversely affects
the Company's business or the value of its business and which
has not been set forth in this Agreement or an exhibit or
schedule hereto.
3.30 Authority. The Company has the full legal right, power and
authority to enter into this Agreement.
3.31 Validity of Obligations. The execution and delivery of this
Agreement by the Company and the performance of the
transactions contemplated herein have been duly and validly
authorized by the Board of Directors of the Company. This
Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding
obligation of the Company, enforceable in accordance with its
terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting the enforcement of creditors=
rights generally, now or hereafter in effect and subject to
the application of equitable principles and the availability
of equitable remedies.
3.32 Year 2000. The Company has conducted discussions with outside
consultants,
33
has taken all commercially reasonable steps in order to cause
all Date Data and Date-Sensitive Systems owned or used by the
Company to be Year 2000 Compliant. All such Date Data and
Date-Sensitive Systems are, as of the date hereof, Year 2000
Compliant, except where any failure to be Year 2000 Compliant
will not have a Material Adverse Effect on the business of the
Company as currently conducted. Without making independent
inquiry, the Company is not aware that any of its customers or
suppliers or any other Person with which the Company conducts
business expects to encounter problems with Year 2000
Compliance that may have a Material Adverse Effect on the
business of the Company as currently conducted. For purposes
of this Section, "Date Data" means any data of any kind that
includes date information or which is otherwise derived from,
dependent on or related to date information; "Date-Sensitive
System" means any software, microcode or hardware system or
component, including any electronic or electronically
controlled system or component, that processes any Date Data
and that is for internal or external use, for sale, lease,
license, assignment or other provision, or the provision or
operation of which provides a benefit to customers, vendors,
suppliers, Affiliates or any other party; and "Year 2000
Compliant" means (1) with respect to Date Data, that such data
is in proper format and accurate for all dates in the
twentieth and twenty-first centuries, and (2) with respect to
Date-Sensitive Systems, that each such system accurately
processes all Date Data, including for the twentieth and
twenty-first centuries, without loss of any functionality or
performance, including, without limitation, calculating,
comparing, sequencing, storing and displaying such Date Data
(including all leap year considerations).
3.33 Officer Loans. All loans to officers have been repaid to the
Company.
3.34 Marketable Securities. The Company has sold and converted to
cash or has distributed to its stockholders all marketable
securities which it owned as of the Balance Sheet Date or
which it may have acquired since the Balance Sheet Date.
4 Representations of Parent.
Parent represents and warrants that all of the following
representations and warranties in this Section 4 are true at the date of this
Agreement. All such representations and warranties shall survive the Closing
Date for a period of three (3) years, except that all representations and
warranties with respect to Taxes shall survive for a period from the Closing
Date until ninety (90) days following the expiration of any statute of
limitations for the assessment and collection of such Taxes (the last day of the
applicable period being referred to hereinafter as the "Expiration Date").
4.1 Due Organization. Parent and Acquisition are corporations duly
organized, validly existing and in good standing under the
laws of the jurisdiction of their formation, and are duly
authorized and qualified to do business under all applicable
laws, regulations, ordinances and orders of public authorities
to carry
34
on their business in the places and in the manner as now
conducted except where the failure to be so authorized or
qualified would not have a Material Adverse Effect; provided,
however, Acquisition is not yet authorized to do business in
the State of New York and covenants to do so immediately after
the Merger. Acquisition is a newly formed, wholly owned
Subsidiary of Parent and has no liabilities of any kind except
for liabilities being assumed pursuant to the Merger and any
liabilities and obligations under this Agreement.
4.2 Capital Stock of Parent. The authorized capital stock of
Parent and Acquisition is as set forth in Schedule 4.2. All of
the issued and outstanding shares of the capital stock of
Parent and Acquisition have been duly authorized and validly
issued, and are fully paid and non-assessable. Such shares
were offered, issued, sold and delivered by Parent in
compliance with all applicable state and Federal laws
concerning the issuance of securities. All shares of Parent to
be issued pursuant to the Merger are validly authorized, fully
paid and non-assessable.
4.3 Conformity with Law; Litigation. Parent and Acquisition are
not in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality having jurisdiction over them which would have
a Material Adverse Effect; and there are no material claims,
actions, suits or proceedings pending or, to the knowledge of
Parent, threatened against or affecting Parent or Acquisition,
at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Parent and
Acquisition are not in violation of their certificate of
incorporation, by-laws or any other corporate governing
instrument.
4.4 Validity of Obligations. The execution and delivery of this
Agreement by Parent and the performance of the transactions
contemplated herein have been duly and validly authorized by
the Board of Directors of Parent. This Agreement has been duly
and validly authorized by all necessary corporate action and
is a legal, valid and binding obligation of Parent,
enforceable in accordance with its terms, except as the same
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or
affecting the enforcement of creditors rights generally, now
or hereafter in effect and subject to the application of
equitable principles and the availability of equitable
remedies.
4.5 SEC Reports. As of their respective dates, the Parent SEC
Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not
misleading.
4.6 Absence of Changes. Except as set forth in Schedule 4.6, since
the date of the
35
3/31/99 10Q, Parent has not incurred any liabilities or
obligations and there has not been any change in the capital
stock of, or any incurrence of long-term debt by, Parent, or
any issuance of options, warrants or other rights to purchase
the capital stock of Parent, or any adverse change or any
development involving, so far as Parent can now reasonably
foresee, a prospective adverse change in the condition
(financial or otherwise), net worth, results of operations,
business, key personnel or properties which would be material
to the business or financial condition of Parent, and Parent
has not become a party to, and neither the business nor the
property of Parent has become the subject of, any material
litigation.
4.7 Non-Defaults; Non-Contravention. Parent and Acquisition are
not in violation of or default under, nor will the execution
and delivery of this Agreement or consummation of the
transactions contemplated herein or therein result in a
violation of or constitute a default in the performance or
observance of any obligation (i) under their Certificate of
Incorporation or By-laws, or any indenture, mortgage,
contract, material purchase order or other agreement or
instrument to which Parent or Acquisition is a party or by
which it or any of its properties are bound or affected or
(ii) with respect to any material order, writ, injunction or
decree of any court of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there exists no
condition, event or act which constitutes, nor which after
notice, the lapse of time or both, could constitute a default
under any of the foregoing, which in either case would have a
Material Adverse Effect on the business, financial condition
or prospects of Parent or Acquisition. The execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby will not violate, result in a
breach of, conflict with or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under or accelerate performance
under any contract, agreement, instrument, lease, license,
arrangement or understanding or violate, result in a breach of
or conflict with any law, rule, regulation, order, judgment or
decree binding on Parent or Acquisition, or to which its
operations, business or proposed business, properties or
assets are subject.
4.8 Taxes. Parent and Acquisition have filed all Federal, state,
local and foreign tax returns which are required to be filed
by them and all such returns are true and correct in all
material respects. Parent and Acquisition have paid all taxes
pursuant to such returns or pursuant to any assessments
received by it or which it is obligated to withhold from
amounts owing to any employee, creditor or third party. Parent
and Acquisition have properly accrued all taxes required to be
accrued. The tax returns of Parent and Acquisition have never
been audited by any state, local or Federal authorities.
Parent and Acquisition have not waived any statute of
limitations with respect to taxes or agreed to any extension
of time with respect to any tax assessment or deficiency.
36
4.9 Authorization of Agreements. Parent has all the requisite
power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated by
such agreements. All necessary corporate proceedings of Parent
have been duly taken to authorize the execution, delivery and
performance by Parent of such agreements. This Agreement has
been duly authorized, executed and delivered by the Board of
Directors of Parent, is the legal, valid and binding
obligations of Parent, enforceable in accordance with its
terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting the enforcement of creditors
rights generally, now or hereafter in effect and subject to
the application of equitable principles and the availability
of equitable remedies. No consent, authorization, approval,
order, license, certificate or permit of or from, or
registration, qualification, declaration or filing with, any
Federal, state, local, foreign or other governmental authority
or any court or other tribunal is required by Parent for the
execution, delivery or performance by Parent of this Agreement
or the consummation of the transactions contemplated hereby.
No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or understanding to
which Parent is a party or to which any of its properties or
assets are subject is required for the execution, delivery or
performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.10 Disclosure. No representation or warranty by Parent made in
this Agreement and no statement made in any certificate,
financial statement, exhibit or schedule made a part hereof is
false or misleading in any material respect or knowingly omits
to state any fact necessary to make any such representation or
statement not misleading in any way which would materially
affect Parent's business. There is no fact known to Parent,
and Parent has no reason to know of any fact, which materially
adversely affects its business and which has not been set
forth in this Agreement or an exhibit or schedule hereto.
5 Closing Deliveries.
In addition to the surrender and exchange of stock certificates
pursuant to the Merger, the delivery of consideration as set forth in Section 2
and the execution and delivery of all documents necessary to effectuate the
Merger, the following are being delivered simultaneously herewith:
5.1 Opinions of Counsel. The Company and ▇▇▇▇ are delivering to
Parent, and Parent is delivering to ▇▇▇▇, opinions of their
respective counsel.
5.2 Consents and Approvals. Except as otherwise set forth in
Schedule 3.23, all necessary consents of and filings with any
governmental authority or agency or any third party relating
to the consummation of the transaction contemplated herein
have been obtained and made, and copies thereof have been
delivered by
37
the respective party obtaining same.
5.3 Employment and Non-Competition Agreements. Acquisition and the
Designated Key Employees have executed and delivered to one
another Employment and Non-Competition Agreements.
5.4 Verification of Payment of Taxes; Good Standing. The Company
has provided to Parent proof of payment of all Taxes by the
Company and a Certificate of Good Standing of the Company in
the State of Delaware, dated not earlier than thirty (30) days
prior to the date hereof.
5.5 Securities Act Representations and Code Section 83(b) by
Beneficiaries of Defined Contribution Plan and Trust. The
Company is providing to the Parent Securities Act
representations and covenants, consistent with those set forth
in Section 8, by the Defined Contribution Plan and Trust and
by all of the beneficiaries of the Defined Contribution Plan
and Trust, as well as copies of Code Section 83(b) elections
executed by each of such beneficiaries.
5.6 Corporate Minutes of the Company. The Company is delivering a
certified copy of minutes of a shareholder meeting dated July
29, 1999, providing, among other things, (a) authorization of
the execution of this Agreement and consummation of the
transactions contemplated hereby, (b) declaration of
compensation to ▇▇▇▇ for the period commencing January 1, 1999
and concluding July 31, 1999 in the amount of $729,167, (c)
declaration of the S Distribution to ▇▇▇▇ and the Trust and
(d) approval by the shareholders of all employee compensation
in such manner as will prevent the application of Code section
280G to cause any of such compensation to be treated as an
excess parachute payment. The "S Distribution" means a
distribution to ▇▇▇▇ and the Trust with respect to their stock
in the Company equal to (x) the amount by which total
stockholders equity (net worth) of the Company as at July 29,
1999 exceeds $500,000, minus (y) distributions previously made
to the Company Stockholders with respect to total stockholders
equity which have not already been reflected as reductions
thereof. Total stockholders equity shall not be reduced for
any compensation related deduction for contributions made to
the Defined Contribution Plan and Trust. The minutes delivered
simultaneously herewith provide for a tentative calculation of
the S Distribution, based on the Interim Statement, in the
amount of $3,690,000. Subsequent to the Closing Date, the
estimated calculation of the amount of the S Distribution will
be adjusted up or down to actual, based on financials of the
Company as of the Closing Date. The Parent will cause the S
Distribution, as adjusted, to be paid to ▇▇▇▇ and the Trust by
Acquisition, without interest, not later than July 27, 2000;
provided, however, that ▇▇▇▇ and the Trust may, at their
election, compel faster distributions of the S Distribution on
a quarterly basis to the extent that Acquisition has EBITDA
since the Closing Date. The computation of the S Distribution
shall be made by the Parent causing ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to prepare
financial statements for the Company through July 31, 1999,
and such
38
financial statements shall be pro-rated through July 29, 1999
for purposes of computation of the S Distribution. In the
event of any dispute related to the computation of the S
Distribution, the procedures of Section 2.2(a)(viii) shall be
used to resolve the dispute.
6 Post-Closing Covenants.
6.1 Board of Directors of Parent. ▇▇▇▇ shall become a member of
the Board of Directors and the Executive Committee of Parent.
▇▇▇▇ shall become a director of Acquisition and shall remain
so during the Earn-Out Period.
6.2 Preservation of Tax and Accounting Treatment. Parent shall not
and shall not permit any of its Subsidiaries to undertake any
act that would jeopardize the tax-free status of the Merger.
6.3 Operation of Acquisition. During the Earn-Out Period and
subject to the terms of ▇▇▇▇'▇ employment agreement with
Acquisition which is being executed and delivered
simultaneously herewith, (i) ▇▇▇▇ shall remain the President
and Chief Executive Officer of Acquisition, (ii) ▇▇▇▇ shall
manage the operations of Acquisition, including but not
limited to the hiring and firing of employees and consultants,
(iii) Parent shall not cause any other entity to be merged
with or combined with Acquisition, (iv) Parent shall not cause
substantially all the assets of Acquisition to be sold, (v)
Acquisition shall be run as an independent and separate entity
from Parent and all other Affiliates and Subsidiaries of
Parent (vi) neither Acquisition nor Parent shall pay any
compensation (including without limitation any stock or stock
options of Parent or Acquisition) to any employee of
Acquisition without the approval of ▇▇▇▇ and (vii) Acquisition
shall not make and Parent shall not cause Acquisition to make
any distributions to Parent. Notwithstanding the foregoing:
6.3.1 If Parent determines that any product representation
by Acquisition conflicts with any product
representation by Parent or any of its Affiliates or
Subsidiaries, then Parent may notify ▇▇▇▇ in writing
of such conflict. Upon any such notification,
Acquisition shall cease to provide such product
representation.
6.3.2 If Parent determines that it is in Parent's best
interest to make any dividend or distribution from
Acquisition to Parent, it may do so; provided that
Parent shall ensure that Acquisition retains
sufficient working capital to maintain its
operations, as determined in Parent's reasonable
discretion; and provided, further, that ▇▇▇▇ shall be
relieved of his special indemnification obligation
under Section 7.2 if and to the extent that
borrowings to finance Acquisition's operations are
caused by any such dividend or distribution. Parent
guarantees payment to ▇▇▇▇ of the S Distribution to
the extent of any such dividend or distribution made
on or
39
before July 27, 2000.
6.3.3 None of the restrictions described in this Section
6.3 shall be construed to impose any limitations on
the business or operations of Parent, including
without limitation any transactions involving a
merger or consolidation by Parent or any transactions
involving the sale by Parent of any of its assets or
capital stock.
6.4 Tax Returns of Company. ▇▇▇▇ shall be responsible for filing
all Tax Returns of Company for all taxable periods ending on
or before the Closing Date. ▇▇▇▇ shall have the right, subject
to his indemnification obligations, to defend any audit with
respect to any of such taxable periods. At least thirty (30)
business days prior to filing, ▇▇▇▇ shall submit each of such
Tax Returns to Parent for review and comment. All of such Tax
Returns shall be prepared and filed in a manner consistent
with the Company Financial Statements prepared by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, including but not limited to the manner of revenue
recognition set forth therein. Neither Acquisition nor Parent
shall make any Tax election, consent or compromise with
respect to any of such periods without the consent of ▇▇▇▇.
Parent shall make the books and records of the Company for all
periods prior to the Closing Date available to ▇▇▇▇, at
reasonable times and upon reasonable advance notice, for
purposes of preparing and filing Tax Returns for such periods.
6.5 Employee Benefits. The Company's Profit Sharing Plan shall be
frozen, but participants thereunder shall continue to vest in
accordance with the terms of the plan. The Company's 401(k)
Plan shall be merged into Parent's 401(k) Plan, and the
Company's employees shall be provided with past service credit
to the extent permitted by law. The Defined Contribution Plan
and Trust shall not be amended and shall remain in full force
and effect for the period set forth therein, except amendments
may be made as required by law or which do not reduce the
rights of any beneficiary thereof. The beneficiaries of the
Defined Contribution Plan and Trust shall be considered third
party beneficiaries of this Agreement for the purposes of
enforcing the immediately preceding sentence.
6.6 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be
reasonably necessary or convenient to carry out the
transactions contemplated hereby.
6.7 S Corporation Distributions. Acquisition shall pay to ▇▇▇▇ the
S Distribution in the manner described in the corporate
minutes of the Company, referred to in Section 5.6.
7 Indemnification. No claim for breach of warranty or representation may
be made unless written notice identifying the relevant breach of
warranty is given not later than the Expiration Date. Any payment
pursuant to any indemnification hereunder shall be
40
treated as an adjustment to the Merger Price and shall not affect
EBITDA. A party providing a warranty will be released from any breach
if the terms of that breach are not settled or proceedings commenced in
a court of competent jurisdiction within six (6) months following the
giving of such written notice. The Company, ▇▇▇▇, the Trust and Parent
each make the following covenants that are applicable to them,
respectively:
7.1 General Indemnification by the Trust and ▇▇▇▇. The Trust and
▇▇▇▇ jointly and severally covenant and agree that they will
indemnify, defend, protect and hold harmless Parent and
Acquisition for the period of time described above in this
Section 11 from and against all claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation)
incurred by Parent or Acquisition as a result of or arising
from:
7.1.1 any breach of the representations and warranties of
the Company, ▇▇▇▇ or the Trust set forth herein or on
the Disclosure Schedules or certificates delivered in
connection herewith,
7.1.2 any breach of any covenant or agreement on the part
of ▇▇▇▇, the Trust or the Company under this
Agreement,
7.1.3 any representation or warranty relating to the right,
authority or capacity of ▇▇▇▇, the Trust or the
Company to enter into and consummate the terms of
this Agreement, and
7.1.4 any claim made by any of the Company Stockholders
(other than ▇▇▇▇ or the Trust) related to or with
respect to the Merger, this Agreement, or any of the
transactions contemplated hereby.
Any indemnification obligation of the Trust and ▇▇▇▇ hereunder
shall be reduced to the extent (a) Acquisition or the Parent
receive insurance proceeds with respect to any claim or (b)
Acquisition or the Parent realizes a reduction in taxes with
respect to any claim. In the even that any reduction in taxes
is to be realized over time (e.g., by way of depreciation or
amortization) then such reduction shall be measured by
calculating the present value thereof, utilizing a discount
rate equal to the prevailing rate at which Parent then borrows
money.
7.2 Special Limited Indemnification by ▇▇▇▇. During the Earn-Out
Period and subject to Section 6.3.2, ▇▇▇▇ will indemnify and
pay to Acquisition, upon demand by Parent, any and all
interest payments made or incurred by Acquisition, Parent or
any of their respective Affiliates or Subsidiaries as a result
of borrowings to finance Acquisition's operations.
7.3 Indemnification by Parent and Acquisition. Parent and
Acquisition jointly and severally covenant and agree that they
will indemnify, defend, protect and hold
41
harmless the Company Stockholders for the period of time
described above in this Section 7 from and against all claims,
damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys, fees and expenses of
investigation) incurred by the Company Stockholders as a
result of or arising from:
7.3.1 any breach by Parent or Acquisition of their
representations and warranties set forth herein or on
the Disclosure Schedules or certificates attached
hereto,
7.3.2 any breach of any covenant or agreement on the part
of Parent or Acquisition under this Agreement,
7.3.3 any representation or warranty relating to Parent's
or Acquisition's right, authority or capacity to
enter into and consummate the terms of this
Agreement, and
7.3.4 any personal guarantee which ▇▇▇▇ may have made with
respect to any obligation of the Company.
7.4 Third Person Claims. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of
or has knowledge of any claim by a person not a party to this
Agreement ("Third Person"), or the commencement of any action
or proceeding by a Third Person, the Indemnified Party shall,
as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification
pursuant to Section 7.1 or 7.3 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis
of such claim and a reasonable estimate of the amount thereof.
The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying
Party shall not settle any criminal proceeding or any other
proceeding to the extent that relief other than the payment of
money is sought, without the written consent of the
Indemnified Party. If the Indemnifying Party undertakes to
defend or settle, it shall promptly notify the Indemnified
Party of its intention to do so, and the Indemnified Party
shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be
the counsel selected by Indemnifying Party, provided that if
counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from
representing Indemnified Party, Indemnified Party shall
42
have the right to participate in such matter through counsel
of its own choosing and Indemnifying Party shall reimburse the
Indemnified Party for the reasonable expenses of its counsel.
After the Indemnifying Party has notified the Indemnified
Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying
Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred
by the Indemnified Party in connection with any defense or
settlement of such asserted liability, except as set forth in
the preceding sentence and to the extent such participation is
requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying
Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third
Person claim and the Indemnified Party refuses to consent to
such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be
limited to the amount so offered in settlement by said Third
Person. Upon agreement as to such settlement between said
Third Person and the Indemnifying Party, the Indemnifying
Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement and the Indemnified Party
shall, from that moment on, bear full responsibility for any
additional costs of defense which it subsequently incurs with
respect to such claim and all additional costs of settlement
or judgment. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled
to indemnification hereunder, or fails diligently to pursue
such defense, the Indemnified Party may undertake such defense
through counsel of its choice, at the cost and expense of the
Indemnifying Party, and the Indemnified Party may settle such
matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified
Party in connection therewith, provided, however, that under
no circumstances shall the Indemnified Party settle any Third
Person claim without the written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete
release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make
appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this
Section.
7.5 Exclusive Remedy. The indemnification provided for in this
Section 7 shall (except as prohibited by ERISA) be the
exclusive remedy in any action seeking damages or any other
form of monetary relief brought by any party to this Agreement
against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to
seek injunctive relief for a breach of this Agreement.
7.6 Limitations on Indemnification.
43
7.6.1 Except for the obligation in 7.2 herein, the Parent
shall not assert any claim for indemnification
hereunder until such time as, and solely to the
extent that, the aggregate of all claims which Parent
may have shall exceed $50,000 (the "Indemnification
Threshold"). Furthermore, the aggregate amount of any
indemnification in favor of Parent and/or Acquisition
shall not exceed the Merger Price.
7.6.2 No Company Stockholder shall assert any claim for
indemnification hereunder against Parent until such
time as, and solely to the extent that, the aggregate
of all claims all the Company Stockholders may have
against Parent shall exceed the Indemnification
Threshold.
7.6.3 No person shall be entitled to indemnification under
this Section 7 if and to the extent that such
person's claim for indemnification is directly or
indirectly related to a breach by such person of any
representation, warranty, covenant or other agreement
set forth in this Agreement.
7.7 Offset and Collection by Parent or Acquisition. In the event
of any claim for indemnification by Parent or Acquisition
hereunder, Parent shall first offset the amount claimed
against any additional payment which it would otherwise be
required to make on the next succeeding date for making any
such additional payment, as provided in Section 2.2(a). Any
such offset shall by applied to the aggregate additional
payment which is then payable to all of the Company
Stockholders on such date. If and to the extent that such
additional payment exceeds the amount to be offset, then the
excess shall be paid on the date provided in Section 2.2(a) to
all of the Company Stockholders in proportion to their
relative ownership of Company Stock as set forth in Schedule
3.3. If and to the extent that such additional payment is less
than the amount of the claim made by Parent or Acquisition,
then the entire amount of such additional payment shall be
used to partially offset the claim, and Parent or Acquisition
may proceed to collect the difference from ▇▇▇▇ and/or the
Trust.
8 Federal Securities Act Representations; Compliance with Law. ▇▇▇▇ and
the Company acknowledge that the shares of Parent Stock to be delivered
to the Company Stockholders pursuant to this Agreement have not been
and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be
acquired by the Company Stockholders pursuant to this Agreement is
being acquired solely for their own account, for investment purposes
only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution. ▇▇▇▇ and
the Company covenant, warrant and represent that none of the shares of
Parent Stock issued to the Company Stockholders may be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of
the 1933 Act and the rules and regulations of the SEC. All the Parent
Stock shall bear the following legend: THE
44
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAWS.
9 Registration Rights.
9.1 Piggyback Registration Rights. At any time commencing six (6)
months following the Closing Date, whenever Parent proposes to
register any Parent Stock for its own or others' account under
the 1933 Act for a public offering, other than any
registration of shares to be used as consideration for
acquisitions of additional businesses by Parent (shelf or
otherwise), registrations relating to employee benefit plans,
or any other form of registration statement not generally
available for securities for sale to the public, Parent shall
give the Company Stockholders and any beneficiary of the
Defined Contribution Plan and Trust (collectively the
"Registration Stockholders") prompt written notice of its
intent to do so. Upon the written request of any Registration
Stockholder given within five (5) days after receipt of such
notice, Parent shall cause to be included in such registration
all of the Parent Stock issued to such Registration
Stockholder pursuant to this Agreement which such Registration
Stockholder requests. Parent shall have the right to refuse to
permit all or reduce the number of shares included in such
registration if and to the extent Parent is advised by the
underwriters of an underwritten offering of the securities
being offered pursuant to any registration statement under
this Section 9.1 that the number of shares to be sold by
persons other than Parent is greater than the number of such
shares which can be offered without adversely affecting the
offering. Any such reduction shall be made pro rata based on
the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a
number deemed satisfactory by the underwriters.
9.2 Registration Procedures. All expenses incurred in connection
with the registrations under this Article (including all
registration, filing, qualification, legal, printer and
accounting fees) shall be borne by Parent (other than
underwriting commissions and discounts, fees of the
Registration Stockholders' counsel and transfer taxes). In
connection with registrations under Section 9.1, Parent shall
use its best efforts to prepare and file with the SEC as soon
as reasonably practicable, a registration statement with
respect to the Parent Stock and use its best efforts to cause
such registration to promptly become and remain effective for
a period of at least 90 days (or such shorter period during
which holders shall have sold all Parent Stock which they
requested to be registered); use its best efforts to register
and qualify the Parent Stock covered by such registration
statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the
Parent Stock; and take such other actions as are reasonable
and necessary to comply with the requirements of the 1933 Act
and the regulations thereunder. Notwithstanding the terms of
this
45
Section 9, the Parent may elect at any time after the giving
of notice to the Registration Stockholders not to file the
proposed registration statement, or to withdraw the same after
filing.
9.3 Underwriting Agreement. In connection with each registration
pursuant to Section 9.1 covering an underwritten public
offering, Parent and each Registration Stockholder agree to
enter into a written agreement with the underwriter in such
form and containing such provisions as are customary in the
securities business for such an arrangement between the
underwriter and companies of Parent's size and investment
stature, including indemnification.
9.4 Availability of Rule 144. Parent shall not be obligated to
register shares of Parent Stock held by a Registration
Stockholder at any time when the resale provisions of Rule
144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such Registration
Stockholder.
10 Referral Fees. Following the Effective Date, in the event that the Parent or
Acquisition refer new business to one another, EBITDA for purposes of the
earn-out calculation of the Contingent Payments shall be adjusted (the "Client
Referral Adjustment") by calculating a deemed referral fee paid to the referring
entity by the other. The amount of the deemed referral fee shall be five (5%)
percent of the Net Fee Revenues derived from said referral during the first
twelve (12) month period following the date of the referral (the "Referral
Date") and two and one-half (2.5%) percent of the Net Fee Revenues derived from
said referral during the next successive twelve (12) month period. The deemed
referral fee for the first twelve-month period shall be applied to the EBITDA
calculation for the calendar year in which the Referral Date falls by
multiplying such referral fee by a fraction, the numerator of which shall be the
number of days from the Referral Date through December 31 of such calendar year
and the denominator of which shall be three hundred sixty-five (365), and the
balance of such referral fee shall be applied to the EBITDA calculation for the
next succeeding calendar year. The deemed referral fee for the next twelve (12)
month period shall be allocated to EBITDA in the same manner.
11 Loss of Revenue by Company as a Result of Client Conflict With Parent. In the
event that on or after the Closing Date the Parent requests pursuant to Section
6.3 that Acquisition ceases to represent a client with respect to a product by
reason of a conflict with the product of another client represented by the
Parent or any of its Affiliates or Subsidiaries, then Acquisition shall cease to
represent such client with respect to such product. If Acquisition ceases to
represent a client pursuant to such a request by Parent, or if any client of
Acquisition notifies Acquisition in writing that it is terminating Acquisition's
representation of the client with respect to a product because the client
believes that there is a conflict with the product of another client represented
by the Parent or any of its Affiliates or Subsidiaries, then a "Client
Termination Event" shall be deemed to have occurred. Upon any Client Termination
Event, EBITDA shall be increased (the "Client Conflict Adjustment") in the first
twelve (12) month period following the date that revenue ceases (the "Revenue
Cessation Date") by reason of a Client Termination Event by fifty (50%) percent
of the Base Net Fee Revenue and in the next successive twelve (12) month period
by twenty (20%) percent of the Base Net Fee Revenue. The deemed increase in
EBITDA
46
for the first twelve-month period shall be applied to the EBITDA calculation for
the calendar year in which the Revenue Cessation Date falls by multiplying such
deemed increase by a fraction, the numerator of which shall be the number of
days from the Revenue Cessation Date through December 31 of such calendar year
and the denominator of which shall be three hundred sixty-five (365), and the
balance of such deemed increase shall be applied to the EBITDA calculation for
the next succeeding calendar year. The deemed increase in EBITDA for the next
twelve (12) month period shall be allocated to EBITDA in the same manner.
.
12 General.
12.1 Cooperation. The Company and Parent shall each deliver or
cause to be delivered to the other at such times and places as
shall be reasonably agreed to, such additional instruments as
the other may reasonably request for the purpose of carrying
out this Agreement.
12.2 Successors and Assigns. Neither ▇▇▇▇▇▇▇, the Trust nor any of
the Company Stockholders may assign any of their rights or
obligations under this Agreement without the consent of
Parent, including without limitation any rights to Contingent
Payments. Neither Parent nor Acquisition may assign any of
their respective rights or obligations under this Agreement
except to an Affiliate, Subsidiary, or a purchaser of
substantially all of the assets of Parent or Acquisition
(subject to the restriction against sale of assets of
Acquisition contained in Section 6.3(iv)), which Affiliate,
Subsidiary or purchaser agrees in writing to be bound by the
terms of this Agreement; and upon any such assignment, the
assignee shall be primarily liable for the obligations
assigned but the assignor shall not be relieved of liability
unless so agreed by ▇▇▇▇. Except as set forth herein, this
Agreement and the rights of the parties hereunder may not be
assigned (except by operation of law) and shall be binding
upon and inure to the benefit of the parties hereto and their
successors, heirs, legal representatives and permitted
assigns.
12.3 Entire Agreement. This Agreement and the Addendum hereto dated
of even date herewith (including the schedules, exhibits and
annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among
the Company and Parent and supersede any prior agreement and
understanding relating to the subject matter of this
Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only
by a written instrument executed by all the signatories hereto
(in the case of a corporate party, acting through their
respective officers, duly authorized by their respective
Boards of Directors).
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12.4 Counterparts. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one
and the same-instrument.
12.5 Expenses. Each party will be responsible for the payment of
its respective expenses and professional fees incurred in
connection with and allocable to the negotiation and
preparation of this Agreement as well as the consummation of
the transactions contemplated hereby. ▇▇▇▇ and the Trust
covenant and agree to cause the Company to pay or accrue all
of such expenses on or prior to the Closing Date.
12.6 Notices. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing
the same in United States mail, addressed to the party to be
notified, postage prepaid and registered or certified with
return receipt requested, or by delivering the same in person
to an officer or agent of such party.
If to Parent:
Healthworld Corporation
100 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Chief Executive Officer
With copies to:
Todtman, Nachamie, Spizz & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇, Esq.
If to the Company, the Trust or ▇▇▇▇:
▇▇▇▇▇▇▇ ▇▇▇▇,
Chief Executive Officer
▇▇▇▇ Communications Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Hall, Dickler, Kent, ▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address or counsel as any party hereto shall
specify pursuant to this Section 12.6 from time to time.
48
12.7 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York, without giving effect
to any requirements thereof which might otherwise cause the
application of the law of another jurisdiction, and the
parties consent to New York as the exclusive venue for
resolving any and all disputes that may arise concerning this
Agreement.
12.8 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right,
power or remedy accruing to any party as a result of any
breach or default by any other party under this Agreement
shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or
default, or of any similar breach or default occurring later;
nor shall any waiver of any single breach or default be deemed
a waiver of any other breach or default occurring before or
after that waiver.
12.9 Time. Time is of the essence with respect to this Agreement.
12.10 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent possible, be modified in such manner as
to be valid, legal and enforceable but so as to most nearly
retain the intent of the parties, and if such modification is
not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and
enforceability of the remaining provisions of this Agreement
shall not in any way be affected or impaired thereby.
12.11 No Third Party Rights or Remedies. This Agreement is not
intended to benefit or to afford any rights or remedies to any
Persons who are not parties to this Agreement except for (a)
whatever rights that Company Stockholders may have pursuant to
the Merger, (b) registration rights of the Registration
Stockholders set forth in Section 9 and (c) rights of the
beneficiaries of the Defined Contribution Plan and Trust
pursuant to Section 6.5.
12.12 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this
Agreement or be used to construe or interpret any provision
hereof.
12.13 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may
be waived only by mutual consent of all the signatories
hereto.
49
12.14 Attorneys' Fees. In the event of any controversy, claim or
dispute between the parties affecting or relating to this
Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party all of its costs and expenses,
including, without limitation, reasonable attorneys' fees. For
the purposes of this section, attorneys' fees shall include,
without limitation, fees incurred in the following: (1)
arbitration and mediation proceedings in addition to trial,
(2) pre-trial; (3) trial; (4) appeals; (5) post-judgment
motions; (6) contempt proceedings; (7) garnishment, levy and
debtor and third party examinations; (8) discovery; and (9)
bankruptcy litigation. The provisions of this Section shall
survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HEALTHWORLD CORPORATION. ("Parent")
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
▇▇-▇▇▇▇ ACQUISITION CORP. ("Acquisition")
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
▇▇▇▇ COMMUNICATIONS INC. ("Company")
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
-----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
50
THE ▇▇▇▇▇▇▇ ▇▇▇▇ GRANTOR RETAINED ANNUITY TRUST
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇, Trustee
51