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EXHIBIT NO. 10.6
PURCHASE AGREEMENT
by and among
NEXTERA ENTERPRISES, L.L.C.
(Buyer)
PYRAMID IMAGING, INC.
(the Company)
The Holders of the Company
and
Certain Optionholders of the Company
March 31, 1998
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INDEX
Page
SECTION 1. SALE OF SHARES, CANCELLATION OF OPTIONS AND PURCHASE PRICE................1
1.1. CANCELLATION OF OPTIONS.........................................................1
1.2. CONTRIBUTION OF COMPANY SHARES..................................................2
1.3. TIME AND PLACE OF CLOSING.......................................................2
1.4. FURTHER ASSURANCES..............................................................2
1.5. TRANSFER TAXES..................................................................3
1.6. WORKING CAPITAL.................................................................3
1.7 ADDITIONAL CONSIDERATION.........................................................4
1.8 NET WORTH........................................................................5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE HOLDERS.............6
2.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................6
2.2. ORGANIZATION AND QUALIFICATIONS OF THE COMPANY..................................6
2.3. SHARES OF THE COMPANY; BENEFICIAL OWNERSHIP.....................................6
2.4. NO SUBSIDIARIES.................................................................7
2.5. AUTHORITY OF THE COMPANY........................................................7
2.6. REAL AND PERSONAL PROPERTY......................................................8
2.7. FINANCIAL STATEMENTS............................................................9
2.8. TAXES..........................................................................11
2.9. ACCOUNTS RECEIVABLE............................................................14
2.10. ABSENCE OF CERTAIN CHANGES....................................................14
2.11. ORDINARY COURSE...............................................................16
2.12. BANKING RELATIONS.............................................................16
2.13. INTELLECTUAL PROPERTY.........................................................16
2.14. CONTRACTS.....................................................................18
2.15. LITIGATION....................................................................19
2.16. COMPLIANCE WITH LAWS..........................................................19
2.17. INSURANCE.....................................................................20
2.18. WARRANTY OR OTHER CLAIMS......................................................20
2.19. POWERS OF ATTORNEY............................................................20
2.20. FINDER'S FEE..................................................................20
2.21. PERMITS: BURDENSOME AGREEMENTS...............................................20
2.22. COMPANY RECORDS; COPIES OF DOCUMENTS..........................................21
2.23. TRANSACTIONS WITH INTERESTED PERSONS..........................................21
2.24. EMPLOYEE BENEFIT PROGRAMS.....................................................21
2.25. ENVIRONMENTAL MATTERS.........................................................24
2.26. DIRECTORS AND OFFICERS........................................................25
2.27. CUSTOMER REVENUES.............................................................26
2.28. EMPLOYEES; LABOR MATTERS......................................................26
2.29. CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.........................................26
2.30. EQUITY REPURCHASE.............................................................27
2.31. DISCLOSURE....................................................................27
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS............................27
3.1. OWNERSHIP OF SHARES AND OPTIONS................................................27
3.2. AUTHORITY......................................................................28
3.3. FINDER'S FEE...................................................................28
3.4. AGREEMENTS.....................................................................28
3.5. EXPERIENCE; ACCREDITED INVESTOR................................................29
3.6. INVESTMENT.....................................................................29
3.7. NO PUBLIC MARKET...............................................................29
3.8. ACCESS TO DATA.................................................................29
3.9. RESIDENCE......................................................................29
SECTION 4. COVENANTS OF THE COMPANY AND THE HOLDERS.................................30
4.1. MAKING OF COVENANTS AND AGREEMENTS.............................................30
4.2. AUTHORIZATION FROM OTHERS......................................................30
4.3. NOTICE OF DEFAULT..............................................................30
4.4. CONSUMMATION OF AGREEMENT......................................................30
4.5. COOPERATION OF THE COMPANY AND HOLDERS.........................................30
4.6. NO SOLICITATION OF OTHER OFFERS................................................30
4.7. TAX RETURNS....................................................................31
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER..................................31
5.1. MAKING OF REPRESENTATIONS AND WARRANTIES.......................................31
5.2. ORGANIZATION...................................................................31
5.3. AUTHORITY......................................................................31
5.4. LITIGATION.....................................................................32
5.5. FINDER'S FEE...................................................................32
5.6. AVAILABLE FUNDS................................................................32
5.7. MEMBERSHIP INTERESTS OF BUYER..................................................32
5.8. FINANCIAL STATEMENTS...........................................................33
5.9. TAXES..........................................................................33
5.10. ABSENCE OF CERTAIN CHANGES....................................................35
5.11. COMPLIANCE WITH LAWS..........................................................37
5.12. OPERATING AGREEMENTS..........................................................37
SECTION 6. COVENANTS OF BUYER.......................................................37
6.1. CONSUMMATION OF AGREEMENT......................................................37
6.2. OPTION POOL....................................................................37
6.3. BOOKS AND RECORDS; TAX MATTERS.................................................38
6.4. RELEASE OF PERSONAL GUARANTEES.................................................38
6.5. RIGHT OF FIRST OFFER ON DISPOSITIONS OF HOLDERS................................38
SECTION 7. CONDITIONS...............................................................40
7.1. CONDITIONS TO THE OBLIGATIONS OF BUYER.........................................40
7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE HOLDERS.......................42
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.............................42
8.1. SURVIVAL OF WARRANTIES.........................................................42
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8.2. RELEASE........................................................................42
SECTION 9. INDEMNIFICATION..........................................................44
9.1. INDEMNIFICATION BY THE HOLDERS.................................................44
9.2. LIMITATIONS ON INDEMNIFICATION BY THE HOLDERS..................................45
9.3. INDEMNIFICATION BY BUYER.......................................................46
9.4. LIMITATION ON INDEMNIFICATION BY BUYER.........................................46
9.5. NOTICE; DEFENSE OF CLAIMS......................................................47
9.6. SATISFACTION OF HOLDER INDEMNIFICATION OBLIGATIONS.............................47
9.7. VALUATION OF BUYER CLASS A UNITS...............................................48
SECTION 10. MISCELLANEOUS...........................................................48
10.1. RECAPITALIZATION OF BUYER AND HOLDINGS........................................48
10.2. FEES AND EXPENSES.............................................................48
10.3. GOVERNING LAW.................................................................49
10.4. NOTICES.......................................................................49
10.5. ENTIRE AGREEMENT..............................................................50
10.6. ASSIGNABILITY; BINDING EFFECT.................................................50
10.7. CAPTIONS AND GENDER...........................................................50
10.8. EXECUTION IN COUNTERPARTS.....................................................50
10.9. AMENDMENTS....................................................................51
10.10. PUBLICITY AND DISCLOSURES....................................................51
10.11. SPECIFIC PERFORMANCE.........................................................51
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PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is entered into as of March
31, 1998 by and among Nextera Enterprises, L.L.C., a Delaware limited liability
company ("Buyer"), Pyramid Imaging, Inc., a California corporation (the
"Company"), the holders of the Company's capital stock (identified on Exhibit A
as and herein collectively referred to as the "Holders" and individually as a
"Holder").
W I T N E S S E T H
WHEREAS, the Holders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of 4,009,971 shares of
Common Stock (said shares referred to herein as the "Shares");
WHEREAS, the Excluded Optionholders (as hereinafter defined) and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ hold options to purchase shares of Common Stock of the Company, as
more fully described in Section 2.3(b);
WHEREAS, the Holders desire to sell all of the Shares to Buyer, and
Buyer desires to acquire all of the Shares;
WHEREAS, Buyer desires to issue membership interests pursuant to, and
subject to the terms and conditions of, this Agreement; and
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES, CANCELLATION OF OPTIONS AND PURCHASE PRICE.
1.1. Cancellation of Options. At the Closing (as hereinafter defined),
all outstanding options to purchase Common Stock of the Company shall be
canceled. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and all other holders of options to purchase equity
securities of the Company (such other holders of options are identified on
Exhibit B as and referred to herein as "Excluded Optionholders") shall enter
into an Option Cancellation Agreement in the form attached hereto as Exhibit B
with the Company whereby each such optionholder shall agree to have the Company
cancel all options held by such optionholder.
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1.2. Contribution of Company Shares.
(a) Transfer of Shares. At the Closing (as hereinafter defined),
each Holder shall deliver or cause to be delivered to Buyer certificates
representing all of the Shares owned by such Holder, as set forth on Exhibit A.
Such certificates shall be presented with assignments duly executed in blank (or
the equivalent), with such other documents as may reasonably be required by
Buyer to effect a valid transfer of such Shares by such Holder, free and clear
of any and all liens, encumbrances, charges or claims.
(b) Contribution of Shares and Exchange of Buyer Interest. In
return for the contribution from the Holders to Buyer of the Shares and the
cancellation by the Company of the outstanding options to purchase Common Stock
of the Company and in reliance upon the representations and warranties of the
Company and the Holders herein contained and made at the Closing and subject to
the satisfaction of all of the conditions contained herein, Buyer agrees that at
the Closing, it will (a) deliver to the Holders Eight Million Ninety-One
Thousand Six Hundred Sixty Seven Dollars ($8,091,667) in cash and 520,667 Class
A Common Units of Buyer ("Buyer Class A Units") issued pursuant to the Limited
Liability Company Agreement of Nextera Enterprises, L.L.C. dated as of April 9,
1997, as amended on January 6, 1998 (the "Buyer Operating Agreement"), which
shall be distributed in the amounts set forth opposite the name of each Holder
on Exhibit A subject to reductions as provided in Section 1.6 and reductions for
requirements with respect to withholdings under tax or employment laws (the cash
payment to be made by bank cashier's check in Boston Clearing House funds or by
wire transfer of immediately available funds), and (b) deliver to the Escrow
Agent Eight Hundred Twenty Five Thousand Dollars ($825,000) in cash and 66,000
Buyer Class A Units (the "Escrowed Units," together with the Escrowed Cash, the
"Escrow Deposit") to be held by the Escrow Agent pursuant to and in accordance
with the terms of the Escrow Agreement to be executed substantially in the form
attached hereto as Exhibit C.
1.3. Time and Place of Closing. The closing of the purchase and sale
provided for in this Agreement (herein called the "Closing") shall be held at a
mutually agreeable location in San Francisco, California on April 7, 1998 or at
such other date and location as may be mutually agreed upon by the parties. The
Agreement shall be effective as of March 31, 1998 for all purposes.
1.4. Further Assurances. The Holders from time to time after the Closing
at the request of Buyer and without further consideration shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Shares and all rights thereto, and to fully implement
the provisions of this Agreement. From time to time after the Closing, Buyer
shall
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execute and deliver further instruments and take such other action as the
Holders may reasonably request to confirm or perfect or otherwise to carry out
the transactions contemplated hereby.
1.5. Transfer Taxes. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Shares
under this Agreement, if any, will be borne and paid by the Holders.
1.6. Working Capital.
(a) Working Capital Payable. The amount of the cash payments to
be made by Buyer to the Company at the Closing is premised upon the Company
having at least Five Hundred Fifty Thousand Dollars ($550,000) of net working
capital (current assets less current liabilities), determined in accordance with
generally accepted accounting principles, at the Closing (such amount being the
"Minimum Working Capital"), provided, however, that such calculation of $550,000
of working capital shall not take into account any accruals by the Company as of
the Closing of any payroll taxes and similar charges paid by the Company
relating to the compensation deemed to be received as a result of cancellation
of outstanding options to purchase Common Stock of the Company. No later than
two business days prior to the Closing, the Company shall advise Buyer of its
estimate of working capital at the Closing. Without limiting other rights that
Buyer may have under this Agreement, if the amount so estimated is less than the
Minimum Working Capital, the cash payment to the Holders for the transfer of the
Shares at the Closing shall be reduced by the amount of such shortfall.
Within thirty (30) days following the Closing, the Holders and the
Company shall determine the actual working capital as of the Closing Date (the
"Closing Working Capital") and promptly notify Buyer of such amount. If the
Closing Working Capital is less than the lower of the Minimum Working Capital or
the estimated working capital as described in the preceding paragraph, as such
would have resulted in a reduced cash payment to the Holders for the Shares at
the Closing (such shortfall being the "Adjustment Amount"), the Holders shall
pay to Buyer the Adjustment Amount in cash.
(b) Disputed Adjustment Amount. If Buyer shall disagree with the amount
determined to be the Closing Working Capital, it shall notify the Holders in
writing of such disagreement within fifteen (15) business days of its receipt of
the determination of Closing Working Capital. Buyer and the Holders shall use
their best efforts for a period of thirty (30) days following the notice of
disagreement to resolve any disagreement. If at the end of such period, Buyer
and the Holders are unable to resolve the disagreement, KPMG Peat Marwick LLP
(the "Arbitrator") shall be retained to make a final and binding determination
of the actual Closing Working Capital. The determination of the Arbitrator shall
be final, binding and conclusive on the parties. The fees and expenses of the
Arbitrator shall be borne equally by Buyer and the Holders.
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1.7 Additional Consideration.
(a) Revenue Earn-Out. As additional consideration, Buyer shall
pay to the Holders an amount not to exceed $833,333 and 53,333 Buyer Class A
Units, calculated as set forth in the Earn-Out Schedule (such amount is referred
to herein as the "Additional Consideration") and subject to the terms set forth
in this Section 1.7; provided, however, that no Additional Consideration shall
be paid unless (a) the Company's earnings before interest, taxes and
depreciation ("EBITDA"), determined in accordance with generally accepted
accounting principles ("GAAP"), as a percentage of revenue is at least 14.8% for
the Earn-Out Period (as hereinafter defined) and (b) the Company's Qualified
Revenue (as hereinafter defined) for the Earn-Out Period is equal to or greater
than the amount that is 128.0% of the Company's 1997 Qualified Revenue. For
purposes of this Section 1.7, the term "Earn Out Period" shall mean the twelve
month period ended March 31, 1999 and the term "Qualified Revenue" shall mean
all revenue earned by the Company (including, without limitation, all payments,
reimbursements, fees or penalties received by the Company after March 31, 1998,
whether or not deemed to be earned by the Company prior to such date, in
connection with the termination, winding down of the system or final settling of
accounts of that certain Consulting & Systems Management Agreement between the
Company and ▇▇▇▇▇▇ Information, Inc. (the "▇▇▇▇▇▇ Agreement"), or that are
intended to pay the company for services performed under such agreement at rates
higher than the earlier invoiced rates of $80.00 per hour, excluding amounts
billed for services through March 31, 1998, and reimbursable expenses incurred
prior to March 31, 1998), less the Company's actual cost of any resold third
party hardware and/or resold third party software. For purposes of this Section
1.7, EBITDA shall not take into account any payments by the Company of any
payroll taxes and similar charges paid by the Company relating to the
compensation deemed to be received by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or the Excluded
Optionholders as a result of cancellation of outstanding options to purchase
Common Stock of the Company.
(b) Earn-Out Statement. Not later than ten (10) days following
the completion of the financial statements of Buyer and the Company for the
period ended March 31, 1999, Buyer shall prepare and deliver to the Holders a
statement setting forth the EBITDA margin of the Company for the Earn-Out
Period, the Qualified Revenue of the Company for the Earn-Out Period, the
percentage growth in Qualified Revenue from 1997 to the end of the Earn-Out
Period and the amount of the Additional Consideration, if any, payable to the
Holders (the "Earn-Out Statement"). The amount of the Additional Consideration
reflected on the Earn-Out Statement shall be paid by Buyer not later than the
thirtieth (30th) business day following the date the Earn-Out Statement is
required to be delivered to the Holders. Notwithstanding the foregoing, the
amount of Additional Consideration, if any, shall be paid to the individuals
listed on Exhibit D (or their heirs or
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estates) not later than July 31, 1999. Any objections made to the calculation of
Additional Consideration shall be resolved in accordance with Section 1.7(d).
(c) Form of Additional Consideration. The Additional
Consideration described on the Earn-Out Schedule shall be paid to the Holders in
accordance with their percentage interests set forth on Exhibit D and in the
form of cash until a total of $833,333 has been paid to such individuals as set
forth on Exhibit D. If the Additional Consideration shall exceed $833,333, Buyer
shall pay such additional amount to the Holders in accordance with their
percentage interests and in the form of Buyer Class A Units to the extent of
53,333 units as set forth on Exhibit D.
Except as set forth in this Section 1, no additional consideration
will be paid to the Holders pursuant to this Agreement.
(d) Disputed Additional Consideration. If the Holders shall
disagree with the amount determined to be the Additional Consideration, the 1998
Qualified Revenue or the EBITDA determination in Section 1.7, it shall notify
Buyer in writing of such disagreement within ten (10) business days of its
receipt of the Earn-Out Statement. Buyer shall pay any undisputed Additional
Consideration in accordance with Section 1.7(b). The parties acknowledge that
the Company's 1997 Qualified Revenue is equal to $6,640,000 and may not dispute
such amount. Buyer and the Holders shall use their best efforts for a period of
thirty (30) days following the notice of disagreement to resolve any
disagreement. If at the end of such period, Buyer and the Holders are unable to
resolve the disagreement, KPMG Peat Marwick LLP (the "Earn-Out Arbitrator")
shall be retained to make a final and binding determination of the Additional
Consideration, if any. The determination of the Earn-Out Arbitrator shall be
final, binding and conclusive on the parties. The fees and expenses of the
Earn-Out Arbitrator shall be borne equally by Buyer and the Holders.
(e) Operation of the Company During the Earn-Out Period. Buyer
shall act in good faith with respect to the operation of the Company during the
Earn-Out Period and shall not take any actions with the aim of diminishing the
ability of the Company to earn Additional Consideration pursuant to this Section
1.7
1.8 Net Worth
As of March 31, 1998, the total shareholders equity of the
Company (as determined in accordance with GAAP and consistent with past
accounting practices of the Company) is at least $1,700,000. No later than
forty-five (45) days following the Closing, the Company shall provide Buyer with
a balance sheet as of March 31, 1998 (the "March Balance Sheet"). If the total
shareholders equity of the Company is determined to be less
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than $1,700,000, the Holders and Buyer shall direct the Escrow Agent to pay to
Buyer the amount of such shortfall from the Escrowed Cash (as such term is
defined in the Escrow agreement). If Buyer or the Holders shall disagree with
the amount of the total shareholders equity set forth on the March Balance
Sheet, such party shall notify the Company of such disagreement within fifteen
(15) days of the receipt of the March Balance Sheet and such dispute shall be
resolved in accordance with Section 1.6(d). This Section 1.8 shall be subject to
the limitations of Section 9.2(b) but none of the other limitations of Section
9.2.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE HOLDERS.
2.1. Making of Representations and Warranties. As a material
inducement to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby and except as set forth on the disclosure schedule delivered
to Buyer, the Company and each of the Holders jointly and severally hereby make
to Buyer the representations and warranties contained in this Section 2;
provided, however, that no Holder shall have any right of indemnity or
contribution from the Company with respect to any breach of representation or
warranty hereunder.
2.2. Organization and Qualifications of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California with corporate power and authority to own or lease
its properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of the Company's Articles of Organization,
as amended to date, certified by the California Secretary of State (the "Company
Articles"), and of the Company's Bylaws, as amended to date, certified by the
Company's Secretary (together with the Company Articles, the "Company
Organizational Documents"), and heretofore delivered to Buyer's counsel, are
complete and correct, and, except as set forth in Schedule 2.2, no amendments
thereto are pending. The Company is not in violation of any term of the Company
Organizational Documents. The Company is duly qualified to do business as a
foreign corporation in the State of New York and, except as set forth in
Schedule 2.2, it is not required to be licensed or qualified to conduct its
business or own its property in any other jurisdiction in which failure to be so
licensed or qualified would have a Material Adverse Effect. "Material Adverse
Effect" shall mean any change or effect that has a material adverse effect on
the financial condition, business or operation of the Company.
2.3. Shares of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists of ten
million (10,000,000) shares of Common Stock, of which four million, nine
thousand, nine
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hundred seventy-one (4,009,971) shares are duly and validly issued, outstanding,
fully paid and non-assessable. Other than as set forth on Exhibit A, there are
no outstanding options, warrants, rights, commitments, preemptive rights or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, any additional shares of capital stock of any class of the
Company. None of the Company's capital stock has been issued in violation of any
federal or state law. There are no voting trusts, voting agreements, proxies or
other agreements, instruments or undertakings with respect to the voting of the
Shares to which the Company or any of the Holders is a party.
(b) The Company has adopted the Pyramid Imaging, Inc. Equity
Incentive Plan (the "1997 Equity Incentive Plan") which provides for the
issuance of options to purchase up to three million (3,000,000) shares of Common
Stock of the Company. As of the date hereof, options to purchase 1,086,999
shares of Common Stock have been granted and are outstanding under the Equity
Incentive Plan to the persons, in the amounts and at the exercise prices set
forth in Schedule 2.3. Options to purchase 454,001 shares were exercisable as of
the date of this Agreement.
2.4. No Subsidiaries. The Company has no subsidiaries or investments
in any other corporation or business organization.
2.5. Authority of the Company. The Company has full right, authority
and power to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by the Company pursuant to this
Agreement and, subject to the representations of Buyer in Section 5.2 hereto, to
carry out the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement and each such other agreement,
document and instrument to which the Company is a party have been duly
authorized by all necessary action of the Company and no other action on the
part of the Company or the Holders is required in connection therewith.
This Agreement and each agreement, document and instrument executed
and delivered by the Company pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, subject
to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject to
the effect of general principles of equity, including, without limitation, the
possible unavailability of specific performance or injunctive relief, regardless
of whether considered in a proceeding in equity or at law. The execution,
delivery and performance by the Company of this Agreement and each such
agreement, document and instrument:
(i) does not and will not violate any provision of the
Company Organizational Documents;
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(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the Company
or require the Company to obtain any approval, consent or waiver of,
or, subject to Sections 2.6 or 2.14, make any filing with, any person
or entity (governmental or otherwise) that has not been obtained or
made; and
(iii) to the knowledge of the Company or the Holders, except
as set forth in Schedule 2.5, does not and will not result in a breach
of, constitute a default under, accelerate any obligation under, or
give rise to a right of termination of any indenture or loan or credit
agreement or any other material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which the
Company is a party or by which the property of the Company is bound or
affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any
of the Company's assets or the Shares.
2.6. Real and Personal Property.
(a) Real Property. The Company does not own any real property.
All of the real property leased by the Company is identified on Schedule 2.6(a)
(herein referred to as the "Leased Real Property").
(i) Leases. All leases of Leased Real Property are
identified on Schedule 2.6(a), and true and complete copies
thereof have been delivered to Buyer. Each of said leases has
been duly authorized and executed by the Company and is in full
force and effect and binding and enforceable against the parties
thereto. The Company is not in default under any of said leases,
nor has any event occurred which, with notice or the passage of
time, or both, would give rise to such a default. To the
knowledge of the Company or the Holders, the other party to each
of said leases is not in default under any of said leases and
there is no event which, with notice or the passage of time, or
both, would give rise to such a default.
(ii) Consents. Except as set forth in Schedule
2.6(a), no consent or approval is required with respect to the
transactions contemplated by this Agreement from the other
parties to any lease of Leased Real Property or from any
regulatory authority, no filing with any regulatory authority is
required in connection therewith.
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(iii) Condition of Leased Real Property. Except as
set forth in Schedule 2.6(a), to the knowledge of the Company or
the Holders (1) there are no material defects in the physical
condition of any portion of the Leased Real Property and (2) all
such Leased Real Property is in good operating condition and
repair, has been well maintained.
(iv) Compliance with the Law. The Company has not
received any notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to the Leased Real Property
that has not been heretofore corrected. The Company has not
received any notice of any real estate tax deficiency or
assessment and is not aware of any proposed deficiency, claim or
assessment with respect to any of the Leased Real Property, or
any pending or threatened condemnation thereof.
(b) Personal Property. A list of the machinery and
equipment of the Company is contained in Schedule 2.6(b) hereto.
Except as specifically disclosed in said Schedule or in the
Company Balance Sheet (as hereinafter defined), and except for
Permitted Encumbrances (as hereinafter defined), the Company owns
all of its personal property free of all liens and claims. Except
as otherwise specified in Schedule 2.6(b) hereto, none of such
personal property or assets is subject to any mortgage, pledge,
lien, conditional sale agreement, security title, encumbrance or
other charge except as specifically disclosed in said Schedule or
in the Company Balance Sheet. Except as otherwise specified in
Schedule 2.6(b) hereto, all leasehold improvements, furnishings,
machinery and equipment of the Company presently necessary to the
conduct of the business of the Company as such business is
currently being conducted are in good repair (ordinary wear and
tear excepted), have been well maintained, and comply in all
material respects with all applicable laws, ordinances and
regulations, and such machinery and equipment is in good working
order. Neither the Company nor any of the Holders has received
notice of any such law, ordinance or regulation which could
adversely affect the Company or its business. "Permitted
Encumbrances" shall mean (a) liens for current taxes or other
governmental assessments or charges not yet due and payable, (b)
materialmen's, mechanics, workmen's, repairmen's, employees',
carriers', warehousemen's and other like liens incurred in the
ordinary course of business, so long as such liens do not
individually or in the aggregate, materially impair the value of
the assets or property subject thereto, and (c) other incidental
liens, claims, charges, security interests, mortgages or other
encumbrances.
2.7. Financial Statements.
(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.7: balance sheets
of the
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Company for its fiscal year ended December 31, 1997, and statements of income
and retained earnings for the year then ended and a balance sheet of the Company
for the interim period ended January 31, 1998 and a statement of income and
retained earnings for the interim period ended January 31, 1998 (the "Financial
Statements"). The December 31, 1997 balance sheet is hereinafter referred to as
the "Company Balance Sheet." Except as set forth on Schedule 2.7, the Financial
Statements, have been prepared in accordance with GAAP applied consistently
during the periods covered thereby, and said Financial Statements, present
fairly in all material respects the financial condition of the Company at the
dates of said statements and the results of its operations for the periods
covered thereby, and all other unaudited financial information provided by the
Company to Buyer since the date of the Company Balance Sheet presents fairly and
completely in all material respects the information purported to be shown
thereon subject to (i) such exceptions as may be indicated in the notes thereto,
(ii) normal year-end adjustments and (iii) the omission of footnotes and other
presentational items that may be required by GAAP.
(b) As of the date of the Company Balance Sheet, the Company did
not have any liabilities of any nature, whether accrued, absolute or contingent
(including without limitation, liabilities as guarantor or otherwise with
respect to obligations of others, liabilities for taxes due or then accrued or
to become due, or contingent or potential liabilities relating to activities of
the Company or the conduct of its business prior to the date of the Company
Balance Sheet), except liabilities stated or adequately reserved against on the
Company Balance Sheet.
(c) The operating results for fiscal year 1997 and the Company's
fiscal year 1998 operating budget which have previously been supplied by the
Company to Buyer have been prepared in good faith on the basis of assumptions by
the Company which the Company believed were reasonable at the time of the
preparation of such projections.
(d) Except as set forth on Schedule 2.7, as of the date hereof
and as of the Closing, the Company has not had and will not have any liabilities
of any nature, whether accrued, absolute or contingent (including without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent or potential liabilities relating to activities of the Company or the
conduct of its business prior to the date hereof or the Closing, as the case may
be, regardless of whether claims in respect thereof had been asserted as of such
date), except liabilities (i) stated or adequately reserved against on the
Company Balance Sheet or the notes thereto, or (ii) incurred in the ordinary
course of business of the Company consistent with the terms of this Agreement.
15
2.8. Taxes.
(a) As used in this Section 2.8, the term "Taxes" means all
taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, VAT,
service, service use, ad valorem, transfer, franchise, profits, license, lease,
withholding, social security, payroll, employment, excise, estimated, severance,
stamp, recording, occupation, real and personal property, gift, windfall profits
or other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, whether computed on a separate, consolidated, unitary, combined or
other basis, together with any interest, fines, penalties, additions to tax or
other additional amounts imposed thereon or with respect thereto imposed by any
taxing authority (domestic or foreign). The term "Taxes" includes any liability
of the Company or any current or former subsidiary of the Company ("Subsidiary")
for the payment of any amounts of any of the foregoing types as a result of
being a member of an affiliated, consolidated, combined or unitary group, or
being a party to any agreement or arrangement whereby liability of the Company
or any Subsidiary for payment of such amounts was determined or taken into
account with reference to the liability of any other person.
(b) All returns, declarations, reports, estimates, statements,
schedules or other information or documents with respect to Taxes (collectively,
"Tax Returns") required to be filed by the Company and each Subsidiary have been
timely filed (giving effect to extensions granted with respect thereto), and all
such Tax Returns are true, correct, and complete in all material respects.
(c) The Company and each Subsidiary have timely paid all Taxes
due or claimed to be due by any federal, state, local, foreign or other taxing
authority.
(d) There are no liens for Taxes upon any of the assets of the
Company or any Subsidiary, except liens for taxes not yet due and payable.
(e) No Tax Returns of the Company or any Subsidiary have been
examined by the relevant taxing authority. No deficiency for any Taxes has been
proposed, asserted or assessed against the Company or any Subsidiary that has
not been resolved and paid in full. There are no outstanding waivers,
extensions, or comparable consents regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns that have been given by the
Company or any Subsidiary (including the time for filing of Tax Returns or
paying Taxes) and neither the Company nor any Subsidiary has pending requests
for any such waivers, extensions, or comparable consents.
16
(f) No audit or other proceeding by any federal, state, local or
foreign court, governmental, regulatory, administrative or similar authority is
presently pending with respect to any Taxes or Tax Return of the Company or any
Subsidiary, and neither the Company nor any Subsidiary has received written
notice of any pending audits or proceedings.
(g) The Company and each Subsidiary has established adequate
reserves in accordance with generally accepted accounting principles for all
Taxes not yet due and payable, which reserves are set forth in Schedule 2.8.
(h) The Company and each Subsidiary uses the accrual method of
accounting for income tax purposes and neither the Company nor any Subsidiary
has made any change in accounting methods, received a ruling from any taxing
authority or signed an agreement with any taxing authority that could reasonably
be expected to have a Material Adverse Effect.
(i) The Company, each Subsidiary, and each Holder has complied in
all respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding of
Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar
provisions under any applicable state and foreign laws) and has, within the time
and the manner prescribed by law, paid over to the proper governmental
authorities all amounts so withheld.
(j) Neither the Company nor any Subsidiary is a party to or bound
by or has any obligation under any Tax sharing allocation or indemnity agreement
or similar contract or arrangement.
(k) No power of attorney granted by the Company with respect to
any Taxes is currently in force.
(l) The Company is not subject to any joint venture, partnership
or other arrangement or contract that is treated as a partnership for U.S.
federal income tax purposes.
(m) There is no expectation that any taxing authority may claim
or assess any additional Taxes payable by the Company or any Subsidiary or any
material amount of Taxes payable by the Holders for any period ending on or
prior to the Closing Date and there are no facts of which the Company or the
Holders are aware which would constitute grounds for the assessment of any Taxes
payable by the Company or any Subsidiary for any period ending on or prior to
the Closing Date.
17
(n) Schedule 2.8 sets forth each state, local and foreign
jurisdiction in which the Company and each Subsidiary is required, or has been
at any time required, to file or be included in a Tax Return. No written claim
has ever been received by the Company or any Subsidiary from a taxing authority
in a jurisdiction where the Company or any of its Subsidiaries does not pay
Taxes or file Tax Returns that the Company or any Subsidiary is or may be
subject to Taxes assessed by such jurisdiction, and, to the knowledge of the
Company, no such claim has been threatened by a taxing authority.
(o) The Company and each Subsidiary have disclosed on their
respective federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Taxes within the
meaning of Section 6662 of the Code.
(p) Other than proposed or directed by Buyer, neither the Company
nor any Subsidiary have agreed, nor is it (or will it be immediately following
the Closing) required, to make any adjustment under Section 481 of the Code by
reason of a change in accounting method or otherwise.
(q) No property of the Company or any Subsidiary is "tax exempt
use property" within the meaning of Section 168(h) of the Code.
(r) Neither the Company nor any Subsidiary has entered into any
installment sale contract pursuant to Section 453 of the Code whereby the
installments have not been fully collected, nor has the Company entered into an
interest rate swap, currency swap, or similar transaction.
(s) Neither the Company, any Subsidiary or any Holder is subject
to liability as a transferee pursuant to Code Section 6901 et seq. or otherwise,
nor will Buyer be subject to such liability as a direct or indirect result of
Buyer's acquisition of the Shares.
(t) Neither the Company nor any Holder has received a notice of
tax lien with respect to a Holder's shares or options.
(u) Neither the Company nor any Subsidiary owns any interest in
real property in any jurisdiction in which a Tax is imposed on the transfer of
the controlling interest in an entity that owns any interest in real property.
(v) Neither the Company, any Subsidiary nor any other person on
behalf of the Company or any Subsidiary has entered into an agreement or consent
pursuant to Section 341(f) of the Code.
18
(w) Neither the Company nor any Subsidiary has been a member of
an affiliated, consolidated, combined or unitary group or participated in any
other arrangement whereby any income, revenues, receipts, gain or loss of the
Company or any Subsidiary was determined or taken into account for Tax purposes
with reference to or in conjunction with any income, revenues, receipts, gain,
loss, asset or liability of any other person.
2.9. Accounts Receivable. Except as set forth on Schedule 2.9 attached
hereto, the accounts receivable of the Company shown or reflected on the Company
Balance Sheet or existing at the date hereof (less the reserve for bad debts set
forth on the Company Balance Sheet) are or will be at the Closing valid and
enforceable claims, fully collectible and subject to no set off or counterclaim
and reflect amounts due or owing to the Company for services performed prior to
such date in the ordinary course of business. The Company has no unbilled
revenue recognized and not yet billed to clients. Except as set forth on
Schedule 2.9, the Company has no accounts or loans receivable from any person,
firm or corporation which is affiliated with the Company or from any
Shareholder, director, officer or employee of the Company.
2.10. Absence of Certain Changes. Except as disclosed in Schedule 2.10
attached hereto, since December 31, 1997, there has not been:
(a) Any change in the business, properties, assets, results of
operations, financial condition, liabilities, or prospects of the Company, which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to the Company;
(b) Any contingent liability incurred by the Company as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Company;
(c) Any mortgage, encumbrance or lien (other than Permitted
Encumbrances) placed on any of the properties of the Company which remains in
existence on the date hereof or will remain on the date of the Closing;
(d) Any obligation or liability of any nature, whether accrued,
absolute or contingent (including without limitation liabilities for Taxes due
or to become due or contingent or potential liabilities relating to products or
services provided by the Company or the conduct of the business of the Company
since the date of the Company Balance Sheet regardless of whether claims in
respect thereof have been asserted), incurred by the Company other than
obligations and liabilities incurred in the ordinary course of business
consistent with the obligations under this Agreement (it being understood that
product or
19
service liability claims shall not be deemed to be incurred in the ordinary
course of business);
(e) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets to the Company other than in the ordinary course of
business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the Company;
(g) Any declaration, setting aside or payment of any dividend by
the Company, or the making of any other distribution in respect of the equity
interests of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its equity interests;
(h) Any labor trouble or claim of unfair labor practices
involving the Company; any change in the compensation payable or to become
payable by the Company to any of its officers, employees, agents or independent
contractors other than normal merit increases in accordance with its usual
practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors;
(i) Any change with respect to the officers or management of the
Company;
(j) Any payment or discharge of a material lien or liability of
the Company which was not shown on the Company Balance Sheet or incurred in the
ordinary course of business thereafter;
(k) Any obligation or liability incurred by the Company to any of
its officers, directors, shareholders or employees, or any loans or advances
made by the Company to any of its officers, directors, Shareholders or
employees, except normal compensation and expense allowances and advances
payable to officers or employees;
(l) Any change in accounting methods or practices, credit
practices or collection policies used by the Company;
(m) Any other transaction entered into by the Company other than
transactions in the ordinary course of business; or
20
(n) Any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (m) above.
2.11. Ordinary Course. Since December 31, 1997, except for matters
described in the Schedules to this Agreement and the negotiation of this
Agreement, the Company has conducted its business only in the ordinary course
and consistently with its prior practices.
2.12. Banking Relations. All of the arrangements which the Company has
with any banking institution are completely and accurately described in Schedule
2.12 attached hereto, indicating with respect to each of such arrangements the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
2.13. Intellectual Property.
(a) Except as described in Schedule 2.13, the Company has
ownership of, or license to use, all patent, copyright, trade secret, trademark,
or other proprietary rights (collectively, "Intellectual Property") used or to
be used in the business of the Company as presently conducted or contemplated by
the Company and all of the rights of the Company in any material Intellectual
Property are freely transferable to a successor of the Company. There are no
claims or demands of any other person pertaining to any of such Intellectual
Property and no proceedings have been instituted, or are pending or, to the
knowledge of the Company or the Holders, threatened, which challenge the rights
of the Company in respect thereof. The Company has the right to use, free and
clear of claims or rights of other persons, all customer lists, designs,
manufacturing or other processes, computer software, systems, data compilations,
research results and other information required for or incident to its products
or its business as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or used or to be used by the Company in its business as
presently conducted or contemplated, and all other items of Intellectual
Property which are material to the business or operations of the Company, are
listed in Schedule 2.13. Except as set forth on Schedule 2.13, all of such
patents, patent applications, trademark registrations, trademark applications
and registered copyrights have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights, or the corresponding offices of other jurisdictions as identified on
said Schedule, and have been properly maintained and renewed in accordance with
all applicable provisions of law and administrative regulations of the United
States and each such jurisdiction.
21
(c) All licenses or other agreements under which the Company is
granted rights in Intellectual Property are listed in Schedule 2.13 other than
generally commercially available third party software, that has not been
materially modified by the Company, for which the Company can freely assign its
rights to a successor of the Company that is either: (i) only subject to a
shrink wrap license agreement, or (ii) is immaterial to the Company's business.
All said licenses or other agreements are in full force and effect, there is no
material default by the Company or, to the knowledge of the Company or the
Holders, any other party thereto, and, except as set forth on Schedule 2.13, all
of the rights of the Company thereunder are freely assignable. To the knowledge
of Company, the licensors under said licenses and other agreements have and had
all requisite power and authority to grant the rights purported to be conferred
thereby. True and complete copies of all such licenses or other agreements, and
any amendments thereto, have been provided to Buyer.
(d) All material licenses or other material agreements under
which the Company has granted rights to others in Intellectual Property owned or
licensed by the Company are listed in Schedule 2.13. All of said licenses or
other agreements are in full force and effect, there is no material default by
the Company or, to the knowledge of the Company or the Holders, any other party
thereto, and, except as set forth on Schedule 2.13, all of the rights of Company
thereunder are freely assignable to a successor of the Company. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, have been provided to Buyer.
(e) The Company has taken all steps required in accordance with
sound business practice to establish and preserve its ownership of all
Intellectual Property rights with respect to its products, services and
technology except where failure to take such steps would not have a Material
Adverse Effect. The Company has required all professional and technical
employees and other employees having access to valuable non-public information
of Company, to execute agreements under which such employees are required to
convey to the Company ownership of all inventions and developments conceived or
created by them in the course of their employment and to maintain the
confidentiality of all such information of Company. The Company has not made any
such information available to any person other than employees of Company except
pursuant to written agreements requiring the recipients to maintain the
confidentiality of such information and appropriately restricting the use
thereof. The Company has no knowledge of any infringement by others of any
Intellectual Property rights of the Company.
(f) The present and contemplated business, activities and
products of the Company do not infringe any Intellectual Property of any other
person. To the knowledge of the Company or the Holders, no proceeding charging
the Company with
22
infringement of any adversely held Intellectual Property has been filed or is
threatened to be filed. To the knowledge of the Company or the Holders, there
exists no unexpired patent or patent application which includes claims that
would be infringed by or otherwise adversely affect the products, activities or
business of the Company. The Company is not making unauthorized use of any
confidential information or trade secrets of any person, including without
limitation, any former employer of any past or present employee of Company.
Neither the Company nor, to the knowledge of the Company or the Holders, any of
the Company's employees have any agreements or arrangements with any persons
other than the Company related to confidential information or trade secrets of
such persons or restricting any such employee's ability to engage in business
activities of any nature. The activities of the Company's employees on behalf of
the Company do not violate any such agreements or arrangements known to the
Company or the Holders.
2.14. Contracts. Except for contracts, commitments, plans, agreements
and licenses described in Schedule 2.14 (true and complete copies of which have
been delivered to Buyer), the Company is not a party to or subject to:
(a) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;
(b) any employment contract or contract for services which
requires the payment of more than $25,000 annually or which is not terminable
within 30 days by the Company without liability for any penalty or severance
payment;
(c) any contract or agreement for the purchase of any commodity,
material or equipment with a purchase price or commitment in excess of $25,000;
(d) any contract or agreement with a client or customer of the
Company providing for an aggregate payment by such client or customer of more
than $25,000;
(e) any other contracts or agreements creating any obligations of
the Company of $25,000 or more with respect to any such contract or agreement
not specifically disclosed elsewhere under this Agreement;
(f) any contract or agreement providing for the purchase of all
or substantially all of its requirements of a particular product from a
supplier;
23
(g) any contract or agreement that requires obligations of the
Company for more than one year other than insignificant contracts or contracts
otherwise listed on Schedule 2.14;
(h) any contract or agreement for the sale or lease of its
products not made in the ordinary course of business;
(i) any contract with any sales agent or distributor of products
of the Company;
(j) any contract containing covenants limiting the freedom of the
Company to compete in any line of business or with any person or entity;
(k) any contract or agreement for the purchase of any fixed asset
for a price in excess of $25,000 whether or not such purchase is in the ordinary
course of business;
(l) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee,
director or Holder of the Company or with any persons or organizations
controlled by or affiliated with any of them.
The Company is not in default under any such contracts, commitments,
plans, agreements or licenses described in said Schedule or has any knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute a default.
2.15. Litigation. There is no litigation or governmental or
administrative proceeding or investigation pending or, to the knowledge of the
Company or any of the Holders, threatened against the Company or its affiliates.
There have been no claims made or, to the knowledge of the Company or any of the
Holders, threatened by a client or customer of the Company nor, to the knowledge
of the Company or any of the Holders, are there any such claims that may be
asserted.
2.16. Compliance with Laws. The Company is in compliance with all
applicable statutes, ordinances, orders, judgments, decrees, rules and
regulations promulgated by any federal, state, municipal entity, agency, court
or other governmental authority which apply to the Company or to the conduct of
its business, except where noncompliance with such statute, ordinance, order,
judgment, decree, rule or regulation would not have a Material Adverse Effect,
24
and the Company has not received notice of a violation or alleged violation of
any such statute, ordinance, order, rule or regulation.
2.17. Insurance. The physical properties, assets and business of the
Company are insured to the extent disclosed in Schedule 2.17 attached hereto and
all such insurance policies and arrangements are disclosed in said Schedule.
Said insurance policies and arrangements are in full force and effect, all
premiums with respect thereto are currently paid, and the Company is in
compliance in all material respects with the terms thereof. To the knowledge of
the Company and the Holders, said insurance is adequate and customary for the
business engaged in by the Company and is sufficient for compliance by the
Company with all requirements of law and all agreements and leases to which the
Company is a party.
2.18. Warranty or Other Claims. Except as set forth in Schedule 2.18
hereto, there are no existing or threatened product or service liability,
warranty or other similar claims, or any facts upon which a material claim of
such nature could be based, against the Company for products or services which
are defective or fail to meet any product or service warranties. No request has
been made to the Company to lower the previously agreed to price for the same
services or product with respect to any business understanding, and to the
knowledge of the Company and each of the Holders there are no facts upon which
any such claim could be based.
2.19. Powers of Attorney. Neither the Company or any of the Holders
has any outstanding power of attorney with respect to or affecting any
transaction contemplated by this Agreement.
2.20. Finder's Fee. Except pursuant to a letter agreement dated May
16, 1997 with Alliant Partners, the Company has not incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement. The Holders shall be
responsible for any fee due Alliant Partners from the Company.
2.21. Permits: Burdensome Agreements. Schedule 2.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business. The Company has
obtained all such Approvals, which are valid and in full force and effect, and
is operating in compliance therewith. Such Approvals include, but are not
limited to, those required under federal, state or local statutes, ordinances,
orders, requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. Except as disclosed in Schedule 2.21 or in any other
Schedule hereto, the Company is not subject to or bound by any agreement with a
regulatory body or court, judgment, decree or order which may materially and
adversely affect its business or prospects, its condition, financial or
otherwise, or any of its assets or properties.
25
2.22. Company Records; Copies of Documents. The record books of the
Company accurately record all action taken by its shareholders and Board of
Directors and committees. The copies of the records of the Company, as made
available to Buyer for review, are true and complete copies of the originals of
such documents. The Company has made available for inspection and copying by
Buyer and its counsel true and correct copies of all documents referred to in
this Section or in the Schedules delivered to Buyer pursuant to this Agreement.
2.23. Transactions with Interested Persons. Neither the Company, any
of its Subsidiaries, any Shareholder, officer, supervisory employee or director
of the Company or any of its Subsidiaries owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of
Company or any of its Subsidiaries, or any organization which has a material
contract or arrangement with the Company or any of its Subsidiaries.
2.24. Employee Benefit Programs.
(a) Schedule 2.24 lists every Employee Program (as defined below)
that has been maintained (as defined below) by the Company at any time during
the three-year period ending on the date of the Closing.
(b) Each Employee Program which has ever been maintained by the
Company and which has at any time been intended to qualify under Section 401(a)
of the Code, and each associated trust which at any time has been intended to be
exempt from taxation pursuant to Section 501(a) of the Code is the subject of a
favorable determination, opinion or approval letter from the Internal Revenue
Service ("IRS") regarding its qualification or exemption from taxation, as
applicable, under such section and has, in fact, been qualified or tax exempt,
as applicable, under the applicable section of the Code through and including
the Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification under the applicable Code section.
(c) The Company does not know and has no reason to know, of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by the Company. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any Employee Program.
26
(d) Neither the Company nor any Affiliate (as defined below) has
ever (i) maintained any Employee Program which has been subject to Title IV of
ERISA; (ii) maintained any Multiemployer Plan (as defined below); or (iii)
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of subtitle B
of title I of ERISA or benefits that continue for a brief period of time after
termination of employment, for example for the balance of the month in which an
employee terminates, or has ever promised to provide such post-termination
benefits).
(e) With respect to each Employee Program maintained by the
Company within the three years preceding the Closing, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Buyer: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended;
(ii) the most recent IRS determination, opinion or approval letter with respect
to such Employee Program under Code Sections 401 and 501(a), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program; (vi) any documents evidencing any loan to an Employee Program
that is a leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for Buyer to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(f) Neither the Company nor any Affiliate has any announced plan
or legally binding commitment to create any additional Employee Program which is
intended to cover employees or former employees of the Company or any Affiliate
(with respect to their relationship with such entities) or to amend or modify
any existing Employee Program which covers or has covered employees or former
employees of the Company or any Affiliate (with respect to their relationship
with such entities).
(g) Each Employee Plan listed on Schedule 2.24 may be amended,
terminated, modified or otherwise revised prospectively by the Company including
the elimination of any and all future benefit accruals under any Employee Plan.
(h) No event has occurred in connection with which the Company,
any Affiliate or any Employee Program, directly or indirectly, could be subject
to any material liability (A) under any statute, regulation or governmental
order relating to any Employee
27
Programs or (B) pursuant to any obligation of the Company or any Affiliate to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Programs.
(i) Neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby will result
in the acceleration or creation of any rights of any person to benefits under
any Employee Program (including, without limitation, the acceleration of the
vesting or exercisability of any stock options, the acceleration of the vesting
of any restricted stock, or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(j) Each Employee Program and related trust agreement or other
funding instrument, as applicable, which covers or has covered employees or
former employees of the Company or any Affiliate (with respect to their
relationship with such entities) is legally valid and binding and in full force
and effect.
(k) There is no contract, agreement, plan or arrangement covering
any employee or former employee of the Company or any Affiliate (with respect to
its relationship with such entities) that, individually or collectively,
provides for the payment by the Company or any Affiliate of any amount (i) that
is not deductible under Section 162(a)(1) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to Section 280G of the Code.
(l) All contributions required to be made by the Company or any
Affiliate with respect to any Employee Program due as of any date through and
including the Closing Date have been made when due.
(m) For purposes of this section:
(i) "Employee Program" means (A) any employee benefit plan
within the meaning of ERISA Section 3(3), including, but not limited
to, any multiple employer welfare arrangement (within the meaning of
ERISA Section 3(4)), plan to which more than one unaffiliated employer
contributes and any employee benefit plan (such as a foreign or excess
benefit plan) which is not subject to ERISA; and (B) any employment,
consulting, severance or other similar contract, arrangement or
policy, any stock option plan, bonus or incentive award plan, deferred
compensation agreement, supplemental income arrangement, vacation
plan, any employee benefit arrangement described in Code Section
501(c)(9), and any other employee benefit plan, agreement, and
arrangement not described in (A) above. In the case of an Employee
Program funded through a
28
trust described in Code Section 501(a), each reference to such
Employee Program shall include a reference to such trust.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity, or
their spouses, dependents, or beneficiaries.
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the
Company or any of its Subsidiaries for purposes of ERISA Section
302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and
which is maintained pursuant to one or more collective bargaining
agreements as defined in Section 3(37) of ERISA.
2.25. Environmental Matters.
(a) (i) The Company has never generated, transported, used,
stored, treated, disposed of, or managed any Hazardous Waste (as defined below);
(ii) to the knowledge of the Company and each of the Holders, no Hazardous
Material (as defined below) has ever been or is threatened to be spilled,
released, or disposed of at any site presently or formerly owned, operated,
leased, or used by the Company, or has ever been located in the soil or
groundwater at any such site; (iii) to the knowledge of the Company and each of
the Holders, no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by the Company for
treatment, storage, or disposal at any other place; (iv) to the knowledge of the
Company and each of the Holders, the Company does not presently own, operate,
lease, or use, nor has it previously owned, operated, leased, or used any site
on which underground storage tanks are or were located; and (v) to the knowledge
of the Company or the Holders, no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by the Company in connection with the presence of any Hazardous
Material.
(b) (i) The Company has no liability under, nor has it ever
violated, any Environmental Law (as defined below); (ii) the Company, any
property owned, operated, leased, or used by any of it, and any facilities and
operations thereon, are presently in
29
compliance with all applicable Environmental Laws; (iii) the Company has never
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) the Company has no reason to believe that any of the
items enumerated in clause of this subsection will be forthcoming.
(c) To the knowledge of the Company and each of the Holders, no
site owned, operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls ("PCBs") or
equipment containing PCBs; or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents,
records, and information of the Company concerning any environmental or health
and safety matter relevant to the Company or any of its Subsidiaries, whether
generated by the Company or others, including without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 2.25, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted; and (iv) "Company" shall mean and
include Company and all other entities for whose conduct the Company is or may
be held responsible under any Environmental Law.
2.26. Directors and Officers. Schedule 2.26 hereto contains a true and
complete list of all current members of the Board of Directors and each of the
officers of the Company. In addition, Schedule 2.26 hereto contains a list of
all managers, employees and consultants of the Company who, individually, have
received or are scheduled to receive compensation from the Company for the
fiscal years ending December 31, 1997 and December 31, 1998, in excess of
$25,000. In each case such Schedule includes the current job title and aggregate
annual compensation of each such individual.
30
2.27. Customer Revenues. Schedule 2.27 sets forth, as of the date
hereof, a list of the customers from which the Company has agreements for the
provision of services and the dollar amount of such obligations and remaining
fees on the contract or agreement with such customers.
2.28. Employees; Labor Matters. As of March 1, 1998, the Company
employed a total of approximately fifty-six (56) full-time employees and one (1)
part-time employee. Except as set forth in Schedule 2.28(a), neither the Company
nor any Holder has received any notice that any employee intends to terminate
his or her employment with the Company following the Closing. The Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of the employment of any of said employees, neither the Company
nor Buyer will by reason of the transactions contemplated under this Agreement
or anything done prior to the Closing be liable to any of said employees for
so-called "severance pay" or any other payments. The Company has no policy,
practice, plan or program of paying severance pay or any form of severance
compensation in connection with the termination of employment, except as set
forth in Schedule 2.28(b). The Company is in material compliance with all
applicable laws and regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations which are existing, pending
or, to the knowledge of the Company or the Holders, threatened against or
involving the Company. To the knowledge of the Company or any of the Holders, no
question concerning union representation exists respecting any employees of the
Company. There are no grievances, complaints or charges that have been filed
against the Company under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might have an adverse effect on the
Company or the conduct of its business, and there is no arbitration or similar
proceeding pending and, to the knowledge of the Company or any of the Holders,
no claim therefor has been asserted. No collective bargaining agreement is in
effect or is currently being or is about to be negotiated by the Company. The
Company has not received any information indicating that any of its employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency. The Company is, and at all times has been, in
compliance with the requirements of the Immigration Reform Control Act of 1986.
2.29. Customers, Distributors and Suppliers. Schedule 2.29(a) sets
forth any customer, sales representative or distributor (whether pursuant to a
commission, royalty or other arrangement) which will account for more than
$25,000 in revenue for the Company for the twelve months ending December 31,
1997 (collectively, the "Customers and Distributors").
31
Schedule 2.29(b) lists all of the suppliers of the Company to whom during the
fiscal year ending December 31, 1997 the Company will make payments aggregating
$25,000 or more showing, with respect to each, the name and dollar volume
involved (the "Suppliers"). Except as set forth in Schedule 2.29(a), the
relationships of the Company with its Customers, Distributors and Suppliers are
good commercial working relationships. Except as set forth on Schedule 2.29(c),
no Customer, Distributor or Supplier has canceled, materially modified, or
otherwise terminated (other than in accordance with the terms of a valid
contract) its relationship with the Company, or has during the last twelve
months decreased materially its services, supplies or materials to the Company
or its usage or purchase of the services or products of the Company, nor to the
knowledge of Company, does any Customer, Distributor or Supplier have any plan
or intention to do any of the foregoing.
2.30. Equity Repurchase. The Company has not redeemed or repurchased
any of its shares. The Company has no remaining obligations or liabilities,
whether absolute, contingent or otherwise, related to or arising out of any such
redemption or repurchase of its shares.
2.31. Disclosure. The representations, warranties and statements
contained in this Agreement and in the exhibits and schedules hereto do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made. There are no facts,
including any contract, which presently or, to the knowledge of the Company or
any of the Holders, are reasonably likely in the future to have a material
adverse effect on the business, properties, prospects, operations or condition
of the Company which have not been specifically disclosed herein or in a
Schedule furnished herewith, other than general economic conditions affecting
the industries in which the Company operates.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS.
As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Holder hereby severally,
but not jointly, makes to Buyer each of the representations and warranties set
forth in this Section 3 with respect to such Holder. No Holder shall have any
right of indemnity or contribution from the Company with respect to the breach
of any representation or warranty hereunder.
3.1. Ownership of Shares and Options. If such Holder is a Shareholder,
such Holder owns of record and beneficially the number of the Shares set forth
opposite such Holder's name in Exhibit A. Such Shares are or will be, and when
delivered by such Shareholder to Buyer pursuant to this Agreement will be, free
and clear of any and all liens, encumbrances, charges or claims. If such Holder
is an Optionholder, such Holder owns the number of options set forth opposite
such Holder's name in Exhibit A. Such options are or will be, and when canceled
by the
32
Company pursuant to this Agreement will be, free and clear of any and all liens,
encumbrances, charges or claims.
3.2. Authority. Such Holder has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Holder pursuant
to this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument executed and
delivered by such Holder pursuant to this Agreement constitutes a valid and
binding obligation of such Holder, enforceable in accordance with their
respective terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject to the effect of general principles of equity,
including, without limitation, the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law, and such Holder has full power and authority to
transfer, sell and deliver the Shares to Buyer pursuant to this Agreement. The
execution, delivery and performance of this Agreement and each such agreement,
document and instrument:
(i) does not and will not violate any provision of any laws
of the United States or any state or other jurisdiction applicable to
such Holder, or require such Holder to obtain any approval, consent or
waiver from, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute
a default under, accelerate any obligation under, or give rise to a
right of termination of, any indenture or loan or credit agreement or
any other material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which such Holder is a
party or by which the property of such Holder is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any assets of the
Company or on Shares owned by such Holder.
3.3. Finder's Fee. Except as disclosed in Section 2.20, such Holder
has not incurred or become liable for any broker's commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement.
3.4. Agreements. Other than as set forth on Schedule 3.4 and except
for agreements unrelated to the business of the Company (so long as any such
agreements could not be deemed to have an adverse effect on the Company), each
such Holder is not a party to any non-competition, trade secret or
confidentiality agreement with any party other than the
33
Company, other than any such agreement that may be entered into in connection
with such Holder's employment by the Company. There are no agreements or
arrangements not contained herein or disclosed in a Schedule hereto, to which
such Holder is a party relating to the business of the Company or to such
Holder's rights and obligations as a shareholder, director or officer of the
Company. Except as set forth on Schedule 3.4, such Holder does not own, directly
or indirectly, on an individual or joint basis, any material interest in, or
serve as an officer or director of, any customer, competitor or supplier of the
Company, or any organization which has a contract or arrangement with the
Company.
3.5. Experience; Accredited Investor. Each Holder has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Buyer so that he is capable of evaluating
the merits and risks of acquiring the Buyer Class A Units as partial
consideration for sale of the Shares and has the capacity to protect his own
interests. Each Holder must bear the economic risk of holding the Buyer Class A
Units indefinitely unless such securities are registered pursuant to the
Securities Act, or an exemption from registration is available for the
disposition thereof. Each Holder understands that there is no assurance that any
exemption from registration under the Securities Act will be available. Except
as set forth on Schedule 3.5, each Holder is an "accredited investor" as defined
in Rule 501 under the Securities Act.
3.6. Investment. Such Holder is acquiring the Buyer Class A Units for
such Holder's own account for investment only, and not with the view to, or for
resale in connection with, any distribution thereof. It understands that the
Buyer Class A Units acquired have not been, and will not be, registered under
the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Holder's representations as express herein.
3.7. No Public Market. Such Holder understands that no public market
now exists for any of the securities issued by Buyer has not made any assurances
that a public market will ever exist for such securities.
3.8. Access to Data. Such Holder has received and read the Buyer
Operating Agreement, the Buyer business plan and financial statements and has
had an opportunity to discuss Buyer's business, management and financial affairs
with its management. Such Holder has also had an opportunity to ask questions of
and receive answers from officers of Buyer regarding the terms and conditions of
acquiring the Buyer Class A Units, which questions were answered to such
Holder's satisfaction.
3.9. Residence. The residence of the Holder in which its investment
decision was made is located at the address of the Holder set forth on the
signature page hereto.
34
SECTION 4. COVENANTS OF THE COMPANY AND THE HOLDERS.
4.1. Making of Covenants and Agreements. The Holders jointly and
severally hereby make the covenants and agreements set forth in this Section 4
and the Holders agree to cause the Company to comply with such agreements and
covenants. No Holder shall have any right of indemnity or contribution from the
Company with respect to the breach of any covenant or agreement hereunder.
4.2. Authorization from Others. Prior to the date of the Closing, the
Holders and the Company will use commercially reasonable efforts to obtain all
authorizations, consents and permits of others required to permit the
consummation by the Holders and the Company of the transactions contemplated by
this Agreement (including, without limitation, the consent of ▇▇▇▇▇▇▇ ▇▇▇▇▇
Business Financial Services, Inc. and Informix Software, Inc.).
4.3. Notice of Default. Promptly upon the occurrence of, or promptly
upon the Company or a Holder becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach or default of
any of the representations, warranties or covenants of the Company or the
Holders contained in or referred to in this Agreement or in any Schedule or
Exhibit referred to in this Agreement, the Holders shall give detailed written
notice thereof to Buyer and the Company and the Holders shall use their
commercially reasonable efforts to prevent or promptly remedy the same.
4.4. Consummation of Agreement. The Company and each of the Holders
shall use their commercially reasonable efforts to perform and fulfill all
conditions and obligations on their parts to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by this Agreement
shall be fully carried out. To this end, the Company will obtain prior to the
Closing all necessary authorizations or approvals of its shareholders and Board
of Directors.
4.5. Cooperation of the Company and Holders. The Company and each of
the Holders shall cooperate with all reasonable requests of Buyer and Buyer's
counsel in connection with the consummation of the transactions contemplated
hereby.
4.6. No Solicitation of Other Offers. Neither the Company, the
Holders, nor any of their officers, directors, agents, employees or
representatives will, directly or indirectly, solicit, encourage, assist,
initiate discussions or engage in negotiations with, provide any information
concerning the operations, properties or assets of the Company to, entertain or
enter into any agreement or transaction with, any person, other than Buyer,
relating to the possible acquisition of the Shares, the Company or any of its
assets, except for the sale of assets in the ordinary course of business of the
Company consistent with the terms of this Agreement. If such
35
a proposal is received, the Holders will promptly notify Buyer of the terms of
such proposal and the identity of the party making the proposal.
4.7. Tax Returns. The parties shall cooperate in all reasonable
respects with each other to permit the Company in accordance with applicable law
to promptly prepare and file on or before the due date or any extension thereof
all federal, state and local tax returns relating to the Company required to be
filed by the Company and shall cooperate with respect to all tax matters,
including, but not limited to, any federal or state tax audit.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
5.1. Making of Representations and Warranties. As a material
inducement to the Company and the Holders to enter into this Agreement and
consummate the transactions contemplated hereby, Buyer hereby makes the
representations and warranties to the Company and the Holders contained in this
Section 5.
5.2. Organization. Buyer is a limited liability company organized,
validly existing and in good standing under the laws of the State of Delaware
with full limited liability company power to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it. Buyer is duly qualified to
do business as a foreign corporation and in good standing to do business in each
jurisdiction in which the nature or leasing of its properties makes such
qualification necessary, other than where the failure to be duly qualified or
have such good standing, as the case may be, would not have a material adverse
effect on the financial condition, business or operation of Buyer.
5.3. Authority. Buyer has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by Buyer pursuant to this Agreement and, subject to the
representation of the Company and the Holders in Section 2.2 hereto, to carry
out the transactions contemplated hereby. The execution, delivery and
performance by Buyer of this Agreement and each such other agreement, document
and instrument have been duly authorized by all necessary organizational action
of Buyer and no other action on the part of Buyer is required in connection
therewith. This Agreement and each other agreement, document and instrument
executed and delivered by Buyer pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of Buyer,
as applicable, enforceable in accordance with their terms, subject to the effect
of any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject to the effect of general
principles of equity, including, without limitation, the possible unavailability
of specific performance or injunctive relief, regardless of whether considered
in a proceeding in equity or at law. The execution, delivery and performance by
Buyer of this Agreement and each such agreement, document and instrument:
36
(i) does not and will not violate any provision of the
certificate of formation of Buyer or the Buyer Operating Agreement;
(ii) does not and will not violate any laws of the United
States or of any state or any other jurisdiction applicable to Buyer
or require Buyer to obtain any approval, consent or waiver of, or make
any filing with, any person or entity (governmental or otherwise)
which has not been obtained or made; and
(iii) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture, loan or credit
agreement, or other agreement mortgage, lease, permit, order, judgment
or decree to which Buyer is a party and which is material to the
business and financial condition of Buyer.
5.4. Litigation. There is no litigation pending or, to its knowledge,
threatened against Buyer which would prevent or hinder the consummation of the
transactions contemplated by this Agreement which could reasonably be expected
to have a material adverse effect on Buyer. There have been no claims made or
threatened by a client or customer of Buyer nor, to the knowledge of Buyer, are
there any such claims that may be asserted which could reasonably be expected to
have a material adverse effect on Buyer.
5.5. Finder's Fee. Buyer has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
5.6. Available Funds. Buyer has sufficient capital available to
consummate the transactions contemplated by this Agreement and is not relying on
obtaining additional financing in connection with such transactions.
5.7. Membership Interests of Buyer. Schedule 5.7 sets forth all of the
issued and outstanding membership interests of Buyer and the capital
contributions for each member of Buyer. Except as set forth on Schedule 5.7,
there are no outstanding options, warrants, rights, commitments, preemptive
rights or agreements of any kind for the issuance and sale of, or outstanding
securities convertible into, any additional membership interests of any class of
Buyer. All of the Buyer Class A Units to be issued to the Holders as partial
consideration for sale of the Shares will be duly issued under the Buyer
Operating Agreement.
37
5.8. Financial Statements.
(a) Buyer has delivered to the Company the following financial
statements, copies of which are attached hereto as Schedule 5.8: a balance sheet
of Buyer and a statement of profit and loss of Buyer as of December 31, 1997
(the "Buyer Financial Statements"). The December 31, 1997, balance sheet is
hereinafter referred to as the "Buyer Balance Sheet." The Buyer Financial
Statements have been prepared in accordance with GAAP applied consistently
during the period covered thereby, and the Buyer Financial Statements present
fairly in all material respects the financial condition of Buyer at the date of
said statements and the results of its operations for the period covered thereby
subject to (i) such exceptions as may be indicated in the notes thereto, (ii)
normal year-end adjustments, and (iii) the omission of footnotes and other
presentational items that may be required by GAAP.
(b) As of the date of the Buyer Balance Sheet, Buyer did not have
any liabilities of any nature, whether accrued, absolute or contingent
(including without limitation, liabilities as guarantor or otherwise with
respect to obligations of others, liabilities for taxes due or then accrued or
to become due, or contingent or potential liabilities relating to activities of
Buyer or the conduct of its business prior to the date of the Buyer Balance
Sheet), except liabilities stated or adequately reserved against on the Buyer
Balance Sheet.
(c) As of the date hereof and as of the Closing, Buyer has not
had and will not have any liabilities of any nature, whether accrued, absolute
or contingent (including without limitation, liabilities as guarantor or
otherwise with respect to obligations of others, or liabilities for taxes due or
then accrued or to become due or contingent or potential liabilities relating to
activities of Buyer or the conduct of its business prior to the date hereof or
the Closing, as the case may be, regardless of whether claims in respect thereof
had been asserted as of such date), except liabilities (i) stated or adequately
reserved against on the Buyer Balance Sheet or the notes thereto, or (ii)
incurred in the ordinary course of business of Buyer.
5.9. Taxes.
(a) As used in this Section 5.9, the term "Taxes" means all
taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, VAT,
service, service use, ad valorem, transfer, franchise, profits, license, lease,
withholding, social security, payroll, employment, excise, estimated, severance,
stamp, recording, occupation, real and personal property, gift, windfall profits
or other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, whether computed on a separate, consolidated, unitary, combined or
other basis, together with any interest, fines, penalties, additions to tax or
other additional amounts imposed thereon or with respect thereto imposed by any
taxing authority (domestic or foreign).
38
(b) All returns, declarations, reports, estimates, statements,
schedules or other information or documents with respect to Taxes (collectively,
"Tax Returns") required to be filed by Buyer have been timely filed (giving
effect to extensions granted with respect thereto), and all such Tax Returns are
true, correct, and complete in all material respects.
(c) Buyer has timely paid all Taxes due from them or claimed to
be due from then by any federal, state, local, foreign or other taxing
authority.
(d) There are no liens for Taxes upon any of the assets of Buyer,
except liens for taxes not yet due and payable.
(e) No Tax Returns of Buyer have been examined by the relevant
taxing authority. No deficiency for any Taxes has been proposed, asserted or
assessed against Buyer that has not been resolved and paid in full. There are no
outstanding waivers, extensions, or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns that have been given by Buyer (including the time for filing of Tax
Returns or paying Taxes) and Buyer does not have pending requests for any such
waivers, extensions, or comparable consents.
(f) No audit or other proceeding by any federal, state, local or
foreign court, governmental, regulatory, administrative or similar authority is
presently pending with respect to any Taxes or Tax Return of Buyer, and Buyer
has not received written notice of any pending audits or proceedings.
(g) Buyer has established adequate reserves in accordance with
generally accepted accounting principles for all Taxes not yet due and payable,
which reserves are set forth in Schedule 5.9.
(h) Buyer has complied in all respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441,
1442, 1445 and 1446 of the Code or similar provisions under any applicable state
and foreign laws) and has, within the time and the manner prescribed by law,
paid over to the proper governmental authorities all amounts so withheld.
(i) Buyer is not a party to or is bound by or has any obligation
under any Tax sharing allocation or indemnity agreement or similar contract or
arrangement.
(j) Buyer is, and has been at all times since its formation,
properly characterized as partnerships for federal and applicable state and
local income tax purposes and has filed all appropriate elections to be taxed as
such.
39
(k) No power of attorney granted by Buyer with respect to any
Taxes is currently in force.
(l) Other than its own operating agreement, Buyer is not subject
to any joint venture, partnership or other arrangement or contract that is
treated as a partnership for U.S. federal income tax purposes.
(m) There is no expectation that any taxing authority may claim
or assess any additional Taxes payable by Buyer for any period ending on or
prior to the Closing Date and there are no facts of which Buyer is aware which
would constitute grounds for the assessment of any Taxes payable by Buyer for
any period ending on or prior to the Closing Date.
(n) Schedule 5.9 sets forth each state, local and foreign
jurisdiction in which Buyer is required, or has been at any time required, to
file or be included in a Tax Return. No written claim has ever been received by
Buyer from a taxing authority in a jurisdiction where Buyer does not pay Taxes
or files Tax Returns that Buyer is or may be subject to Taxes assessed by such
jurisdiction, and, to the knowledge of Buyer, no such claim has been threatened
by a taxing authority.
(o) Buyer has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Taxes within the meaning of Section 6662 of the Code.
(p) Buyer has not agreed, or is required, to make any adjustment
under Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(q) No property of Buyer is "tax exempt use property" within the
meaning of Section 168(h) of the Code.
(r) Buyer has not entered into any installment sale contract
pursuant to Section 453 of the Code whereby the installments have not been fully
collected, and Buyer has not entered into an interest rate swap, currency swap,
or similar transaction.
5.10. Absence of Certain Changes.
Except as disclosed in Schedule 5.10 attached hereto, since December
31, 1997, there has not been:
(a) Any change in the business, properties, assets, results of
operations, financial condition, liabilities, or prospects of Buyer, which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to Buyer;
40
(b) Any contingent liability incurred by Buyer as guarantor or
otherwise with respect to the obligations of others or any cancellation of any
material debt or claim owing to, or waiver of any material right of, Buyer;
(c) Any mortgage, encumbrance or lien placed on any of the
properties of Buyer which remains in existence on the date hereof or will remain
on the date of the Closing;
(d) Any obligation or liability of any nature, whether accrued,
absolute or contingent (including without limitation liabilities for Taxes due
or to become due or contingent or potential liabilities relating to products or
services provided by Buyer or the conduct of the business of Buyer since the
date of the Buyer Balance Sheet regardless of whether claims in respect thereof
have been asserted), incurred by Buyer other than obligations and liabilities
incurred in the ordinary course of business (it being understood that product or
service liability claims shall not be deemed to be incurred in the ordinary
course of business);
(e) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Buyer other than in the ordinary course of business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Buyer;
(g) Any declaration, setting aside or payment of any dividend by
Buyer, or the making of any other distribution in respect of the membership
interests of Buyer, or any direct or indirect redemption, purchase or other
acquisition by Buyer of its respective membership interests;
(h) Any labor trouble or claim of unfair labor practices
involving Buyer; any change in the compensation payable or to become payable by
Buyer to any of its officers, employees, agents or independent contractors other
than normal merit increases in accordance with its usual practices; or any bonus
payment or arrangement made to or with any of such officers, employees, agents
or independent contractors;
(i) Any change with respect to the officers or management of
Buyer;
(j) Any payment or discharge of a material lien or liability of
Buyer which was not shown on the Buyer Balance Sheet or incurred in the ordinary
course of business thereafter;
(k) Any obligation or liability incurred by Buyer to any of its
officers, directors,
41
members or employees, or any loans or advances made by Buyer to any of its
officers, directors, members or employees, except normal compensation and
expense allowances and advances payable to officers or employees;
(l) Any change in accounting methods or practices, credit
practices or collection policies used by Buyer;
(m) Any other transaction entered into by Buyer other than
transactions in the ordinary course of business; or
(n) Any agreement or understanding whether in writing or
otherwise, for Buyer to take any of the actions specified in paragraphs (a)
through (m) above.
5.11. Compliance with Laws. Buyer is in compliance with all applicable
statutes, ordinances, orders, judgments, decrees, rules and regulations
promulgated by any federal, state, municipal entity, agency, court or other
governmental authority which apply to Buyer or to the conduct of its business,
except where noncompliance with such statute, ordinance, order, judgment,
decree, rule or regulation would not have a material adverse effect on Buyer,
and Buyer has not received notice of a violation or alleged violation of any
such statute, ordinance, order, rule or regulation.
5.12. Operating Agreements. The Buyer Operating Agreement attached as
Schedule 5.12 is in full force and effect.
SECTION 6. COVENANTS OF BUYER.
6.1. Consummation of Agreement. Buyer shall use its commercially
reasonable efforts to perform and fulfill all conditions and obligations on its
part to be performed and fulfilled under this agreement, to the end that the
transactions contemplated by this agreement shall be fully carried out.
6.2. Option Pool. Buyer agrees to make available for distribution to
Company employees and new hires a pool of options to purchase 168,000 Buyer
Class A Units or stock appreciation rights with respect to Buyer Class A Units
(the "SARs"). The allocation of such options or SARs is set forth on Schedule
6.2 attached hereto. The options or SARs shall have an exercise price of $5.00
per share and shall vest at the rate of twenty-five percent (25%) per year over
four (4) years. The Holders acknowledge that (a) under the Buyer Operating
Agreement, the Board of Directors of Nextera Enterprises Holdings, L.L.C., a
Delaware limited liability company, will have the authority to determine the
remaining terms and conditions of such options and stock appreciation rights,
including making amendments to the Buyer Operating Agreement, and (b) the tax
consequences of the options and stock appreciation rights are materially
different in a limited liability company as compared to a corporate structure.
42
6.3. Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will cooperate
with and make available to the other parties, during normal business hours, all
books and records, information and employees (without substantial disruption of
employment) which are necessary or useful in connection with any tax inquiry,
audit, investigation or dispute, any litigation or investigation or any other
matter requiring any such books and records, information or employees for any
reasonable business purpose. The party requesting any such books and records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such books and records, information or employees. All
information received pursuant to this Section 6.4(a) shall be subject to the
terms of the Confidentiality Agreement.
(b) Cooperation and Records Retention. The Holders and Buyer
shall (i) each provide the other with such assistance as may reasonably be
requested in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the others with
any records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the others with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the others for any period. Without limiting the generality of the foregoing, the
Holders and Buyer shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other parties with a reasonable opportunity to
review and copy the same.
6.4. Release of Personal Guarantees. Buyer agrees to use its
commercially reasonable efforts to have Messrs. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ released
from those guarantees listed on Schedule 6.4 hereto (the "Guarantees"),
including the offer by Buyer to substitute Buyer for Messrs. ▇▇▇▇▇▇▇▇▇ and
Shepherd on each such guaranty. To the extent that Buyer has not obtained all
such releases on or prior to the Closing, then Buyer shall indemnify and hold
harmless Messrs. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ for any losses, costs, claims and
liabilities and expenses (including reasonable attorney's fees) resulting from
any of the obligations of Messrs. ▇▇▇▇▇▇▇▇▇ and Shepherd under the Guarantees.
6.5. Right of First Offer on Dispositions of Holders.
43
(a) Termination of Employment for other than Cause.
Notwithstanding Section 6.4 of the Buyer Operating Agreement, in the event a
Holder's employment with the Company is terminated by the Company for other than
Cause (as hereinafter defined), Buyer shall not have the right to repurchase the
Buyer Class A Units issued to such Holder in connection with this Agreement as
provided by Section 6.4 of the Buyer Operating Agreement; provided, however,
that Buyer shall have the right of first offer to purchase any such Buyer Class
A Units which such Holder, from time to time, proposes to sell or transfer as
set forth in Section 6.5(c) below (the "Right of First Offer"). Each Holder
acknowledges that in the event such Holder terminates such Holder's employment
with the Company, Buyer shall have the right, but not the obligation, to
repurchase such Holder's Buyer Class A Units as set forth in Section 6.4 of the
Buyer Operating Agreement. For purposes of this Section 6.5, Cause shall have
the meaning ascribed to such term in the Holder's written employment agreement
with the Company, if any. If the Holder has not entered into a written
employment agreement with the Company, Cause shall have the meaning ascribed to
such term in Buyer's form of Employee Equity Participation Agreement (which
definition is set forth on Schedule 6.5 hereto).
(b) Sale by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ Van
Straatum. Notwithstanding the foregoing and Section 6.4 of the Buyer Operating
Agreement, Buyer shall not have the right to repurchase the Buyer Class A Units
issued to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ Van Straatum in
connection with this Agreement as provided by Section 6.4 of the Buyer Operating
Agreement, provided, however, that Buyer shall have the Right of First Offer to
purchase any such Buyer Class A Units which ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ Van Straatum, from time to time, propose to sell or transfer as set
forth in Section 6.5(c) below.
(c) Right of First Offer. If at any time the Holder wishes to
sell, assign, transfer or otherwise dispose of any or all of the Buyer Class A
Units owned by him, the Holder shall give a written notice (the "Transfer
Notice") to Buyer, describing fully the proposed transfer, including the number
of the Buyer Class A Units proposed to be transferred, the proposed transfer
price, other terms and conditions, if any, and the name and address of the
proposed transferee (the "Proposed Transferee"). The Transfer Notice shall be
signed both by the Holder and the Proposed Transferee and must constitute a
binding commitment of both such parties for the transfer of such Buyer Class A
Units. Buyer shall have the right to purchase the Buyer Class A Units subject to
the Transfer Notice at a price per share equal to the proposed per unit transfer
price and upon such other terms and conditions as are stated in the Transfer
Notice, by delivery of a notice of exercise of Buyer's Right of First Offer
within thirty (30) days after the date the Transfer Notice
44
is delivered to Buyer. Buyer's rights under this Section 6.5 shall be freely
assignable, in whole or in part.
SECTION 7. CONDITIONS.
7.1. Conditions to the Obligations of Buyer.
The obligation of Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company and the Holders contained in
Section 2 shall be true and correct in all material respects as of the date of
this Agreement and as of the date of the Closing as though made on and as of the
Closing; and the Company and each of the Holders shall, on or before the
Closing, have performed all of their obligations hereunder which by the terms
hereof are to be performed on or before the Closing.
(b) No Material Change. There shall have been no material adverse
change in the business, properties, assets, results of operations, financial
condition, liabilities, or prospects of the Company since the date hereof,
whether or not in the ordinary course of business.
(c) Certificate from Officers. The Holders shall have delivered
to Buyer a certificate of the Company's Chief Executive Officer dated as of the
Closing to the effect that the statements set forth in paragraph (a) and (b)
above in this Section 7.1 are true and correct.
(d) Escrow Agreement. Each of the Company, Buyer, the Holders and
the Escrow Agent shall have executed and delivered the Escrow Agreement,
substantially in the form attached hereto as Exhibit C.
(e) Opinion of Counsel. On the date of the Closing, Buyer shall
have received from Pillsbury Madison & Sutro LLP, as counsel for the Company and
the Holders, an opinion as of said date, in the form attached hereto as Exhibit
E.
(f) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(g) Consents. The Company or the Holders shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by the Company or the Holders in
connection with the execution and
45
delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the business of the Company by Buyer
subsequent to the Closing; and the Company, the Holders and Buyer shall have
received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and the consummation of the transactions
contemplated by this Agreement, and to avoid a breach, default, termination,
acceleration or modification of any material indenture, loan or credit agreement
or any other material agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award as a result of, or in connection with, the execution and
performance of this Agreement.
(h) Employment Agreements. Each of Messrs. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
shall have executed and delivered to Buyer an Employment Agreement in
substantially the form of Exhibit F-1 and F-2, respectively.
(i) Payment of Indebtedness; Lien Release. The Company shall have
obtained written confirmation in form and substance satisfactory to Buyer of the
outstanding balance under that certain WCMA Note, Loan and Security Agreement
between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇ business Financial Systems, dated as of
April 21, 1997 (the "Credit Agreement") and confirmation that upon payment of
such balance all liens under such Credit Agreement shall be released.
(j) Noncompetition, Non-Solicitation, Proprietary Information,
Confidentiality and Inventions Agreement. Each of the ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have executed and
delivered to Buyer a Noncompetition, Non-Solicitation, Proprietary Information,
Confidentiality and Inventions Agreement in substantially the form of Exhibit G,
respectively.
(k) All holders of options to purchase common stock of the
Company shall have agreed to the cancellation of such options and entered into a
form of Option Cancellation Agreement attached hereto as Exhibit B.
(l) The Company shall have caused its 401(k) plan to terminate.
(m) Consent to Recapitalization. Each of the members of Buyer
shall have delivered to Buyer a signed letter of consent acknowledging his
agreement and consent to the Recapitalization (as defined in Section 10.1).
46
7.2. Conditions to Obligations of the Company and the Holders. The
obligation of the Company and the Holders to consummate this Agreement and the
transactions contemplated hereby is subject to the fulfillment, prior to or at
the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Buyer contained in Section 5 shall be true and
correct in all material respects as though made on and as of the Closing; Buyer
shall, on or before the Closing, each have performed all of its obligations
hereunder which by the terms hereof are to be performed on or before the
Closing.
(b) No Material Change. There shall have been no material adverse
change in the business, properties, assets, results of operations, financial
condition, liabilities, or prospects of the Company since the date hereof,
whether or not in the ordinary course of business.
(c) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(d) Employment Agreements. Buyer shall have executed and
delivered to Messrs. ▇▇▇▇▇▇▇▇▇ and Shepherd Employment Agreements in
substantially the forms of Exhibit F-1 and F-2.
(e) Opinion of Counsel. On the date of the Closing, the Company
and the Holders shall have received from Maron & Sandler, counsel for Buyer, an
opinion as of said date, in form attached hereto as Exhibit G.
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
8.1. Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein are material, shall be deemed to
have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations
and warranties shall expire on the same dates as and to the extent that the
rights to indemnification with respect thereto under Section 9 shall expire.
8.2. Release. Each Holder hereby releases and discharges
(i) the Company, Buyer and any and all affiliates of the
Company, Buyer and any of their respective successors and assigns, of
and from
47
any and all commitments, indebtedness, suits, demands, obligations and
liabilities of every kind and nature, including claims and causes of
action both in law and in equity, and
(ii) each of the present and former shareholders, directors,
officers, employees, attorneys and agents of the Company, and any of
their respective successors and assigns (each, together with the
Company and Buyer, a "Released Party"), of and from any and all
commitments, indebtedness, suits, demands, obligations and liabilities
relating to the business of the Company, Buyer and relating to this
transaction, including claims and causes of action both in law and in
equity,
which such Holder and/or his heirs, executors, administrators, successors or
assigns ever had, now has, to the extent arising from or in connection with any
action, omission or state of facts taken or existing on or prior to the date
hereof or prior to the Closing, against any Released Party, whether asserted,
unasserted, absolute, contingent, known or unknown, including without limitation
commitments, obligations, liabilities and claims arising under or pursuant to
(1) the Company Organizational Documents, as amended through the date hereof and
through the date of the Closing of the Company and (2) any contracts to which
such Holder and any Released Party are parties, including, without limitation,
the Company Organizational Documents and any agreement between such Holder and
the Company, with respect to the employment of such Holder prior to the date of
the Closing; provided, however, that such Holder does not release any Released
Party from (A) commitments, obligations, liabilities and claims arising under or
pursuant to the following provisions of this Agreement: Section 1 (Sale of
Shares and Purchase Price), Section 5 (Representations and Warranties of Buyer),
Section 10 (Indemnification) and Section 11 (Miscellaneous), (B) commitments,
obligations, liabilities and claims, if any, arising under or pursuant to the
employment agreement, entered into by such Holder and Buyer or the Company
pursuant to the Agreement, (C) commitments, obligations, liabilities and claims
arising under or pursuant to agreements entered into after the date hereof with
the written consent of the Company, and (D) any claims for accrued vacation
benefits and claims for compensation earned prior to the date of the Closing.
Such Holder represents and warrants to each Released Party that he (i)
has received such information as he has deemed relevant regarding the
properties, assets, business, condition (financial or otherwise), results of
operations or prospects of the Company and its affiliates, (ii) has such
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of his or her sale of equity interests in the
Company hereunder and/or has engaged and consulted with one or more advisers
with such capabilities, and (iii) has been afforded the opportunity to ask
questions and receive answers from management of the
48
Company and its advisers regarding the transactions contemplated by this
Agreement and the properties, assets, business, condition (financial and
otherwise), results of operations and prospects of the Company. In furtherance
and not in limitation of the foregoing, such Holder represents that he has read
carefully, fully understood, and if appropriate, discussed with his legal and
financial advisers, (A) materials described in clause (i) above and, (B) the
financial statements and projections set forth in Schedule 2.7 to this Agreement
and such Holder hereby represents that he has not relied upon any
representations, warranties or agreements of any person other than those set
forth in this Agreement.
Such Holder acknowledges and agrees that the provisions hereof are
reasonable in context and scope, are a material condition to the Company's
willingness to enter into and effect this Agreement and effect the transactions
contemplated hereby and are intended to be and shall be enforced to the full
extent set forth herein.
SECTION 9. INDEMNIFICATION.
9.1. Indemnification by the Holders. The Holders jointly and severally
agree subsequent to the Closing to indemnify and hold the Company, Buyer and
their respective subsidiaries and affiliates and persons serving as officers,
directors, partners, managers, stockholders, members, employees and agents
thereof (other than the Holders, except to the extent of liabilities incurred in
their capacities as such an officer, director or employee after the Closing)
(individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon any of the following
matters:
(a) fraud, intentional misrepresentation or the cause or
knowledge of a deliberate or willful breach of any representations, warranties
or covenants of the Company or the Holders under this Agreement or in any
certificate, schedule or exhibit delivered pursuant hereto (collectively, "Fraud
Claims");
(b) any breach of any representation or warranty of the Holders
set forth in Section 2.3 of this Agreement (collectively, "Ownership Claims");
(c) any liability of the Company or the Holders for Taxes arising
from the activities of the Company and all events and transactions on or prior
to the Closing and any breach of the representations and warranties set forth in
Section 2.8 hereof and any covenant with respect to Taxes or tax related matters
(collectively, "Tax Claims"); and
49
(d) other than Fraud Claims, Ownership Claims or Tax Claims, any
other breach of any representation, warranty or covenant of the Holders under
this Agreement or in any schedule or exhibit delivered pursuant hereto, or by
reason of any claim, action or proceeding asserted or instituted growing out of
any matter or thing constituting a breach of such representations, warranties or
covenants (collectively, "General Claims").
In addition, each Holder severally, but not jointly, agrees subsequent
to the Closing to indemnify and hold all Buyer Indemnified Parties harmless from
and against any damages, liabilities, losses, taxes, fines, penalties, costs,
and expenses (including, without limitation, reasonable fees of counsel) of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) which may be sustained or suffered by any of them arising out of or
based upon fraud, intentional misrepresentation or any breach (whether or not
deliberate or willful) of any representation or warranty of such Holder
contained in Section 3, or by reason of any claim, action or proceeding asserted
or instituted growing out of any matter or thing constituting a breach of such
representation or warranty (collectively, "Individual Claims").
9.2. Limitations on Indemnification by the Holders. Anything contained
in this Agreement to the contrary notwithstanding, the liability of the Holders
to provide any indemnification to any Buyer Indemnified Party and right of Buyer
Indemnified Parties to indemnification under Section 9.1 shall be subject to the
following provisions:
(a) Other than any claim for breach of any representation or
warranty of the Company or the Holders set forth in Section 2.24 of this
Agreement, no claims for indemnification shall be made under this Agreement
against any Holder, and no indemnification shall be payable to any Buyer
Indemnified Party, with respect to General Claims after the date which is
eighteen (18) months following the Closing.
(b) The amount to be payable by a Holder to all Buyer Indemnified
Parties for claims for indemnification hereunder shall in no event exceed such
Holder's pro rata share of the total amount to be paid to all Buyer Indemnified
Parties for claims for indemnification hereunder. The pro rata shares of the
Holders for this purpose shall be the same percentages as the Holders'
respective interests in the Additional Consideration as set forth on Exhibit D.
(c) The aggregate amount to be payable to all Buyer Indemnified
Parties by each Holder for claims for indemnification with respect to General
Claims shall in no event exceed such Holder's pro rata portion of $4,583,333 and
293,333 Buyer Class A Units and one half of the amount determined to be the
Additional Consideration pursuant to Section 1.7.
50
(d) In the event that any claim for indemnification arises from a
breach of representation, warranty or covenant which was made or undertaken by a
Holder, by the express terms of this Agreement severally and not jointly, the
Holders shall be severally, but not jointly, liable for indemnification in
respect of such a claim.
(e) The Holders shall have no obligation for indemnification with
respect to General Claims hereunder until aggregate claims for indemnification
with respect to General Claims hereunder exceed $50,000, in which case the
Holders shall be obligated for indemnification of all General Claims including
the initial $50,000 of such claims.
(f) Claims for indemnification with respect to Fraud Claims,
Ownership Claims, Individual Claims, or Tax Claims made under this Agreement by
any Buyer Indemnified Party shall not be subject to any of the limitations set
forth in this Section 9.2.
9.3. Indemnification by Buyer. Buyer agrees to indemnify and hold the
Holders (individually a "Holder Indemnified Party" and collectively the "Holder
Indemnified Parties") harmless from and against any damages, liabilities, losses
and expenses (including, without limitation, reasonable fees of counsel) of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) which may be sustained or suffered by any of them arising out of or
based upon any breach of any representation, warranty or covenant made by Buyer
in this Agreement or in any certificate delivered by Buyer hereunder, or by
reason of any claim, action or proceeding asserted or instituted growing out of
any matter or thing constituting such a breach.
9.4. Limitation on Indemnification by Buyer. Notwithstanding the
foregoing, (a) no indemnification shall be payable to the Holders with respect
to claims asserted pursuant to Section 9.3 above after the date which is
eighteen (18) months after the Closing, and the aggregate amount to be payable
to Holders pursuant to Section 9.3 shall not exceed $4,583,333 and 293,333 Buyer
Class A Units and one half of the amount determined to be the Additional
Consideration pursuant to Section 1.7 and (b) Buyer shall have no obligation for
indemnification hereunder until aggregate claims for indemnification hereunder
exceed $50,000, in which case Buyer shall be obligated for indemnification of
all claims, including the initial $50,000 of such claims; provided, however,
that the limitations set forth herein shall not apply to a claim for
indemnification based upon a breach of Section 5.2 or 5.3 or covenants to be
performed post-Closing. Claims for indemnification with respect to fraud,
intentional misrepresentation or the cause or knowledge of a deliberate or
willful breach of any representations, warranties or covenants of Buyer under
this Agreement or in any certificate, schedule or exhibit delivered pursuant
hereto made under this Agreement by any Holder Indemnified Party shall not be
subject to any of the limitations set forth in this Section 9.4.
51
9.5. Notice; Defense of Claims. An indemnified party shall make claims
for indemnification hereunder by giving written notice thereof to the
indemnifying party within the period in which indemnification claims can be made
hereunder. If indemnification is sought for a claim or liability asserted by a
third party, the indemnified party shall also give written notice thereof to the
indemnifying party promptly after it receives notice of the claim or liability
being asserted, but the failure to do so shall not relieve the indemnifying
party from any liability except to the extent that it is prejudiced by the
failure or delay in giving such notice. Such notice shall summarize the bases
for the claim for indemnification and any claim or liability being asserted by a
third party. Within 20 days after receiving such notice the indemnifying party
shall give written notice to the indemnified party stating whether it disputes
the claim for indemnification and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice that it disputes an indemnification claim within 20 days after
receipt of notice thereof, it shall be deemed to have accepted and agreed to the
claim, which shall become immediately due and payable. The indemnifying party
shall be entitled to direct the defense against a third party claim or liability
with counsel selected by it (subject to the consent of the indemnified party,
which consent shall not be unreasonably withheld) as long as the indemnifying
party is conducting a good faith and diligent defense. The indemnified party
shall at all times have the right to fully participate in the defense of a third
party claim or liability at its own expense directly or through counsel;
provided, however, that if the named parties to the action or proceeding include
both the indemnifying party and the indemnified party and the indemnified party
is advised that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no such notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party, or if such good faith and diligent
defense is not being or ceases to be conducted by the indemnifying party, the
indemnified party shall have the right, at the expense of the indemnifying
party, to undertake the defense of such claim or liability (with counsel
selected by the indemnified party), and to compromise or settle it, exercising
reasonable business judgment. If the third party claim or liability is one that
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available such information and assistance as the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense, at the expense of the indemnifying party.
9.6. Satisfaction of Holder Indemnification Obligations. In order to
satisfy the indemnification obligations of the Holders hereunder, a Buyer
Indemnified Party shall proceed first directly against the Escrow Deposit as
further set forth in the Escrow Agreement and then directly against the Holders,
subject to the limitations set forth in Section 9.2, as applicable. As further
set forth in the Escrow Agreement, all claims against the Escrow Deposit shall
be satisfied first against the cash portion thereof and then against the Buyer
Class A Units.
52
9.7. Valuation of Buyer Class A Units. Except as provided in the
Escrow Agreement, the Holders may, at their option, elect to satisfy any
indemnification claims under this Agreement by delivering Buyer Class A Units to
the Buyer Indemnified Parties up to a maximum of 293,333 Buyer Class A Units. To
the extent that Buyer Class A Units are used to satisfy indemnification claims
under this Agreement, such units shall be valued in accordance with the terms of
the Escrow Agreement.
SECTION 10. MISCELLANEOUS.
10.1. Recapitalization of Buyer and Holdings. The Company and each of
the Holders hereby agree and acknowledge that they have been informed that Buyer
and Holdings have adopted a recapitalization plan (the "Recapitalization") which
has not yet been effectuated. It is the intention of Buyer, Holdings, and their
members to effectuate the Recapitalization as soon as practicable following the
Closing. The Company and each of the Holders hereby consents and agrees to each
and every element of the Recapitalization which is set forth on Schedule 10.1
attached hereto; the results of the Recapitalization are shown on Exhibit I
attached hereto in the form of a structure chart. Buyer and each Holder agree
and acknowledge that the terms of the Recapitalization as set forth on Schedule
10.1 and illustrated in Exhibit I do not incorporate or reflect the fact that
there are employee equity participation rights (" Buyer SARs") in Buyer which
may be converted into Class A Common Units of Buyer. There are currently 944,000
Buyer SARs outstanding with an equivalent strike price of $5.00 per unit and
927,010 Buyer SARs outstanding with an equivalent strike price of $7.50 per unit
and additional Buyer SARs may be issued. Additional Class A Common Units of
Buyer may be issued in future acquisitions. In addition, the terms of the
Recapitalization as set forth on Schedule 10.1 and illustrated on Exhibit I have
been prepared on the assumption that both this transaction and the so-called
"PTG" transaction will be consummated; in the event that the "PTG" transaction
does not close either prior to or after the Recapitalization, then the terms of
the Recapitalization will be adjusted accordingly. The Company and each Holder
further agree and acknowledge that no further consents need be obtained from
them to effectuate the Recapitalization after the Closing Date and that they
agree and consent to the necessary steps that will be taken and to the
documentation that will be prepared and executed to complete the
Recapitalization.
10.2. Fees and Expenses. The Company will pay the reasonable fees and
out-of-pocket expenses of Pillsbury Madison & Sutro LLP for services as counsel
to the Company and the Holders in connection with the transactions contemplated
herein up to a maximum of $60,000 after submission of a reasonably detailed
invoice. At the Closing and for administrative convenience, Nextera will make a
payment by wire transfer on behalf of the Holders of $250,000 from the proceeds
otherwise due the Holders in full satisfaction of the investment banking fees of
Alliant Partners with respect to this transaction. The Holders shall bear all
other fees,
53
commissions and expenses of the Company and the Holders incurred in connection
with the negotiation and the consummation of the transactions contemplated by
this Agreement.
10.3. Governing Law. This Agreement shall be construed under and
governed by the internal laws of the Commonwealth of Massachusetts without
regard to its conflict of laws provisions.
10.4. Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
TO BUYER: Nextera Enterprises, L.L.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ "▇" ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With an additional copy to: Maron & Sandler
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
TO COMPANY: Pyramid Imaging, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
54
With a copy to: Pillsbury Madison & Sutro LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
TO ANY HOLDER: To the address last provided by such
Holder to the Company
With a copy to: Pillsbury Madison & Sutro LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
10.5. Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, reflects the entire agreement of the parties with respect to
its subject matter, and supersedes all previous written or oral negotiations,
commitments and writings. No promises, representations, understandings,
warranties and agreements have been made by any of the parties hereto except as
referred to herein or in such Schedules and Exhibits; and all inducements to the
making of this Agreement relied upon by either party hereto have been expressed
herein or in such Schedules or Exhibits.
10.6. Assignability; Binding Effect. This Agreement (including any
obligation of Buyer to pay Additional Consideration to the Holders) shall only
be assignable by Buyer to a corporation or partnership controlling, controlled
by or under common control with Buyer upon written notice to the Company and the
Holders. This Agreement may not be assigned by any Holder or the Company without
the prior written consent of Buyer. This Agreement shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
10.7. Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
10.8. Execution in Counterparts. For the convenience of the parties
and to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
55
10.9. Amendments. This Agreement may not be amended or modified, nor
may compliance with any condition or covenant set forth herein be waived, except
by a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
10.10. Publicity and Disclosures. No press releases or public
disclosure, either written or oral, of the transactions contemplated by this
Agreement, shall be made by a party to this Agreement without the prior
knowledge and written consent of Buyer and the Company.
10.11. Specific Performance. The parties agree that it would be
difficult to measure damages which might result from a breach of this Agreement
by the Company or the Holders and that money damages would be an inadequate
remedy for such a breach. Accordingly, if there is a breach or proposed breach
of any provision of this Agreement by the Company or the Holders, and Buyer does
not elect to terminate under Section 8, Buyer shall be entitled, in addition to
any other remedies which it may have, to an injunction or other appropriate
equitable relief to restrain such breach without having to show or prove actual
damage to Buyer.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
56
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives, as of the date first written
above.
BUYER:
NEXTERA ENTERPRISES, L.L.C., a Delaware limited
liability company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------
Title:
-------------------------------------
COMPANY:
PYRAMID IMAGING, INC., a California corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
Title: President
-------------------------------------
HOLDERS:
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Residence: California
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Residence: California
57
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Residence: Vancouver, Canada
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Residence: Vancouver, Canada
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Residence: California
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Residence: California
/s/ ▇▇▇▇▇ ▇. VAN STRAATUM
-----------------------------------------------
▇▇▇▇▇ ▇. Van Straatum
Residence: California
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
Residence: California