EXHIBIT 10.11
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STOCK PURCHASE AGREEMENT
dated as of March 22, 1999
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TABLE OF CONTENTS
Page
1. DEFINITIONS...............................................................1
1.1. Defined Terms....................................................1
2. PURCHASE AND SALE OF SHARES...............................................3
2.1. Stock Purchase...................................................3
2.2. Consideration for Purchase of Shares.............................4
2.3. Net Worth Target.................................................4
2.4. Post-Closing Adjustment..........................................4
2.5. Stockholder Representative.......................................6
3. CLOSING...................................................................6
3.1. Time and Place of the Closing....................................6
3.2. Procedure at Closing.............................................6
3.3. Payment of Contingent Amount.....................................7
3.4. Holdback of Portion of Cash Payment and Pledge of Stock..........9
3.5. Withholding......................................................9
3.6. Company Incentive Stock Options.................................10
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.......10
4.1. Organization....................................................10
4.2. Power and Authority.............................................10
4.3. Authority for Agreement.........................................10
4.4. No Violation to Result..........................................11
4.5. Capitalization..................................................11
4.6. Financial Statements............................................12
4.7. Liabilities and Obligations.....................................13
4.8. Adverse Changes.................................................13
4.9. Employee Matters................................................13
4.10. Taxes...........................................................15
4.11. Subsidiaries....................................................17
4.12. Property........................................................17
4.13. Contracts.......................................................18
4.14. Government Contracts............................................18
4.15. Litigation......................................................18
4.16. Compliance with Laws............................................18
4.17. Environmental and Safety Matters................................19
4.18. Customers; Suppliers............................................20
4.19. Insurance.......................................................21
4.20. Intellectual Property...........................................21
4.21. Accounts Receivable.............................................23
4.22. Inventory.......................................................23
4.23. Related Party Transactions......................................24
4.24. Brokers.........................................................24
4.25. Accredited Investors; Investment Intent.........................24
4.26. Disclosure......................................................25
5. REPRESENTATIONS AND WARRANTIES OF APPNET.................................25
5.1. Due Organization................................................25
5.2. Power and Authority.............................................25
5.3. Authority for Agreement.........................................26
5.4. No Violation to Result..........................................26
5.5. Brokers and Agents..............................................26
5.6. Capitalization..................................................26
5.7. Shares Issued in Stock Purchase.................................27
5.8. Litigation......................................................27
6. COVENANTS................................................................27
6.1. Access to Properties and Records................................27
6.2. Confidentiality.................................................28
6.3. Interim Covenants of the Company................................29
6.4. No Solicitation.................................................30
6.5. Notification of Certain Matters.................................31
6.6. Cooperation.....................................................31
6.7. Regulatory and Other Approvals..................................32
6.8. Benefits Plans..................................................32
6.9. Reasonable Efforts..............................................32
6.10. Stock Options...................................................32
6.11. Refund of Assumed Option Value..................................33
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF APPNET............................33
7.1. Representations and Warranties True at the Closing Date.........33
7.2. Performance.....................................................33
7.3. Agreements with Employees.......................................33
7.4. No Litigation...................................................34
7.5. No Material Adverse Change......................................34
7.6. Certificates....................................................34
7.7. Opinion of Counsel..............................................34
7.8. Financing.......................................................34
7.9. AppNet's Review.................................................34
7.10. Governmental, Regulatory and Other Consents and Approvals.......34
7.11. Delivery of Good Standing Certificates; Corporate
Resolutions ....................................................34
7.12. Financial Terms.................................................35
7.13. Payment of Loans................................................35
7.14. Purchase of Personal Use Items..................................35
7.15. Stockholders Agreement and Registration Agreement...............35
7.16. Release.........................................................35
7.17. Subordination Agreement.........................................35
7.18. Resignations....................................................36
7.19. Investor Questionnaires.........................................36
7.20. Termination of Factoring Agreement..............................36
7.21. Joinder of Optionholders........................................36
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7.22. Delivery of Stock Pledge and Escrow Agreement...................36
7.23. Maximum Number of Assumed Options...............................36
7.24. Spousal Consents................................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS................................................................37
8.1. Representations and Warranties True as of the Closing Date......37
8.2. AppNet's Performance............................................37
8.3. No Litigation...................................................37
8.4. Certificates....................................................37
8.5. Governmental, Regulatory and Other Consents and Approvals.......37
8.6. Delivery of Good Standing Certificates; Corporate
Resolutions ....................................................38
8.7. Opinion of Counsel..............................................38
8.8. Employment Agreements...........................................38
8.9. No Material Adverse Change......................................38
8.10. Stockholders' Agreement and Registration Agreement..............38
8.11. Offering Memorandum.............................................38
8.12. Consent Letter..................................................38
8.13. Listing of Stock................................................38
9. INDEMNIFICATION..........................................................38
9.1. General Indemnification.........................................38
9.2. Indemnification Procedures......................................41
9.3. Right to Setoff.................................................42
9.4. Stockholder Liability for Indemnification.......................43
9.5. Release.........................................................43
10. NONCOMPETITION........................................................43
10.1. Prohibited Activities...........................................43
10.2. Damages.........................................................44
10.3. Reasonable Restraint............................................44
10.4. Severability; Reformation.......................................44
10.5. Independent Covenant............................................44
10.6. Materiality.....................................................45
11. GENERAL...............................................................45
11.1. Termination.....................................................45
11.2. Effect of Termination...........................................45
11.3. Cooperation.....................................................46
11.4. Successors and Assigns..........................................46
11.5. Entire Agreement................................................46
11.6. Counterparts....................................................46
11.7. Expenses........................................................47
11.8. Specific Performance; Remedies Not Exclusive....................47
11.9. Notices.........................................................47
11.10. Governing Law .................................................48
11.11. Arbitration ...................................................48
11.12. Survival of Representations, Warranties and Covenants .........48
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11.13. Severability ..................................................49
11.14. Absence of Third Party Beneficiary Rights .....................49
11.15. Mutual Drafting ...............................................49
11.16. Further Representations .......................................49
11.17. Amendment; Waiver .............................................49
11.18. Gender ........................................................50
11.19. Headings ......................................................50
11.20. Public Disclosure .............................................50
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (together with the schedules and exhibits
attached hereto, this "Agreement") is entered into effective for all purposes
and in all respects as of March 22, 1999, by and among (i) APPNET SYSTEMS, INC.,
a Delaware corporation ("AppNet"), (ii) INTERNET OUTFITTERS, INC., a California
corporation (the "Company"), and (iii) the undersigned parties listed as
Stockholders (collectively, the "Stockholders").
WHEREAS, the Stockholders are the record and beneficial owners of all of
the issued and outstanding shares (the "Shares") of Common Stock of the Company,
without par value (the "Common Stock"); and
WHEREAS, AppNet desires to purchase all of the Shares from the
Stockholders and the Stockholders desire to sell and transfer the Shares to
AppNet, on the terms and conditions hereinafter set forth (the "Stock
Purchase").
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. DEFINITIONS
1.1 Defined Terms. As used herein, the terms defined below shall have
the following meanings. Any of these terms, unless the context otherwise
requires, may be used in the singular or plural depending on the reference.
"Affiliate" shall mean as to any party, any Person which directly or
indirectly, is in control of, is controlled by, or is under common control with,
such party, including any person who would be treated as a member of a
controlled group under Section 414 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any officer or director of such party and, as to a
party who is a natural person, such person's spouse, parents, siblings and
lineal descendants. For purposes of this definition, an entity shall be deemed
to be "controlled by" a Person if the Person possesses, directly or indirectly,
power either to (i) vote ten percent (10%) or more of the securities (including
convertible securities) having ordinary voting power of such entity or (ii)
direct or cause the direction of the management or policies of such entity
whether by contract or otherwise.
"AppNet Common Stock" shall mean the $.0005 par value per share
common stock of AppNet.
"Assumed Options" shall mean and refer to all options to purchase
shares of Common Stock of the Company (vested or unvested) which are assumed by
AppNet pursuant to Section 3.6 of this Agreement.
"Business" shall mean the business of the Company or AppNet, as
the case may be.
"Contract" shall mean a note, bond, mortgage, contract, license,
lease, sublease, covenant, commitment, power of attorney, proxy, indenture, or
other agreement or arrangement, oral or written, to which the Company is a party
or by which the Company or any of its assets or property is bound, other than
Government Contracts.
"Encumbrance" shall mean any claim, lien, pledge, option,
restriction, charge, easement, security interest, right-of-way, encumbrance,
mortgage or other right.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
"Government" shall mean any agency or instrumentality of the United
States of America, any state or territory or subdivision thereof or any foreign
country and any agency or instrumentality of any of the foregoing.
"Government Contracts" shall mean any contracts between the Company
and the Government, including, without limitation, any grants, cooperative
agreements and other transactions between the Company and the Government, and
any contract to which the Company is a party where the Company knows the
Government is the ultimate customer.
"Governmental or Regulatory Authority" shall mean any court,
tribunal, arbitrator, authority (including any quasi-governmental authority),
agency, commission, official or other instrumentality of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision.
"Intellectual Property Rights" shall mean all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
official and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights, (viii) "technical data" as defined in
48 Code of Federal Regulations, Chapter 1, and (ix) copies and tangible
embodiments thereof (in whatever form or medium).
"Legal Requirement" shall mean (i) with respect to any Person, any
judgment, decree, injunction, order, writ or ruling to or by which such Person
is a party or is bound, or
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(ii) any applicable law, ordinance, statute, rule, regulation, code or other
requirement of any Governmental or Regulatory Authority or the common law.
"Liabilities" shall mean, without limitation, any direct or indirect
liability, indebtedness, guaranty, endorsement, claim, loss, damage, deficiency,
cost, expense, obligation or responsibility, either accrued, absolute,
contingent, mature, unmature or otherwise and whether known or unknown, fixed or
unfixed, ▇▇▇▇▇▇ or inchoate, liquidated or unliquidated, secured or unsecured.
"Material Adverse Effect" shall mean a material adverse effect on
(i) the assets, the business or the condition (financial or otherwise),
properties, liabilities, reserves, working capital, earnings, technology,
prospects or relations with customers, suppliers, distributors, employees or
regulators, or (ii) the right or ability to consummate the transactions
contemplated hereby.
"Material Contract" means any Contract involving the receipt or
payment by the Company of $10,000 or more or any other Contract which, if not
complied with or which, if defaulted by any party thereto, could result in a
Material Adverse Effect on the Company.
"Net Worth" shall mean with regard to the Company total assets of
the Company less total liabilities of the Company determined in accordance with
GAAP, subject to the terms of Section 7.12.
"Oracle Dispute" shall mean and refer to a dispute between the
Company and Oracle Corporation ("Oracle") regarding the amount of licensing and
support fees due pursuant to that certain Full Use Relicensor Authorization
Agreement, dated May 8, 1995, between the Company and Access Graphics, as such
dispute is outlined in a series of letters between Oracle and Company counsel
attached hereto as Exhibit F.
"Oracle Dispute Settlement" shall mean, with respect to the Oracle
Dispute, either of the following: (i) receipt by the Company of a release from
Oracle in form reasonably acceptable to AppNet, in which Oracle irrevocably
waives and releases the Company from any and all claims, causes of action,
damages, costs and expenses in connection with the Oracle Dispute or (ii) such
other settlement of the Oracle Dispute as is reasonably acceptable to AppNet;
provided, however, that if neither of (i) or (ii) have occurred on or before
June 30, 2001, an Oracle Dispute Settlement shall be deemed to have been reached
as of June 30, 2001.
"Person" shall mean any person, limited liability company,
partnership, trust, corporation, business, group, Government or other entity.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other Government charges, including, without limitation, income,
estimated income, business, occupation, franchise, property, sales, transfer,
use, employment, commercial rent or withholding taxes, including interest,
penalties and additions in connection therewith.
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"Tax Return" means any return, report, information return or other
document (including any related or supporting information) required to be
supplied, or actually supplied, to a Governmental or Regulatory Authority with
respect to Taxes.
2. PURCHASE AND SALE OF SHARES
2.1 Stock Purchase. On the basis of the representations, warranties,
covenants and agreements and subject to the satisfaction or waiver of the
conditions set forth herein, each of the Stockholders agrees to and will sell,
transfer, assign and deliver to AppNet on the Closing Date (as defined in
Section 3.1) good title to all of the Shares owned by such Stockholder, free and
clear of all Encumbrances of any kind whatsoever, and AppNet agrees to and will
purchase and accept from the Stockholders all of the Shares owned by each of the
Stockholders. The Shares constitute and will constitute as of the Closing Date
all of the issued and outstanding shares of Common Stock. Notwithstanding the
foregoing, AppNet understands that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or any state securities
laws, and that AppNet cannot resell or transfer the Shares unless they are
subsequently registered under the 1933 Act and applicable state laws or an
exemption from registration is available.
2.2 Consideration for Purchase of Shares. In consideration for the
transfer, sale and delivery to AppNet of all of the issued and outstanding
Shares, AppNet will pay to the Stockholders, in accordance with their pro rata
share of the outstanding share ownership of the Company as set forth on Schedule
4.5 (the "Pro Rata Shares"), the following amounts (in the aggregate, the
"Purchase Price"), subject to reduction pursuant to Sections 2.3, 2.4 or 7.12
consisting of:
(a) $6,800,000 in cash payable at the Closing (as defined in
Section 3.1) (the "Cash Payment"), subject to (i) adjustment as provided herein
and (ii) reduction for the value attributable to the Assumed Options (the
"Assumed Option Value"), being the spread between (A) the aggregate exercise
price of the Assumed Options and (B) an amount equal to (I) the Cash Payment
(without reduction pursuant to this Section 2.2(a)(ii)), plus the aggregate
value of the Stock Payment (based on $6.00 per share), multiplied by, (II) a
fraction, the numerator of which is the number of Assumed Options and the
denominator of which is the number of fully diluted shares of Common Stock prior
to the Closing Date.
(b) An aggregate of 450,000 shares of AppNet Common Stock (the
"Stock Payment"); and
(c) The Contingent Amount (as defined in Section 3.3(a)), if any,
pursuant to the terms and conditions of Section 3.3 hereof.
2.3 Net Worth Target. The Purchase Price has been calculated based upon
several factors, including the assumption that the Net Worth of the Company is
equal to or greater than $450,000 as of the Closing. If on the Closing Financial
Certificate (as defined in Section 7.12), the Net Worth of the Company is less
than $450,000, the Purchase Price to be delivered to the
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Stockholders may, at AppNet's election, be reduced either (i) at the Closing by
the difference between $450,000 and the Net Worth set forth on the Closing
Financial Certificate (which reduction shall be in cash as a reduction of the
Cash Payment) or (ii) after completion of the Post-Closing Audit (as defined in
Section 2.4).
2.4 Post-Closing Adjustment.
(a) Within one hundred twenty (120) days following the Closing
Date, AppNet shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP ("AppNet's Accountant") to audit
the Company's books to determine the accuracy of the information set forth on
the Closing Financial Certificate (the "Post-Closing Audit"). The parties
acknowledge and agree that for purposes of determining the Net Worth of the
Company as of the Closing Date, the value of the assets of the Company shall,
except with the prior written consent of AppNet, be calculated as provided in
the last sentence of Section 7.12. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with AppNet and AppNet's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to AppNet's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. In the event that AppNet's Accountant determines
that the actual Net Worth of the Company as of the Closing Date was less than
the Net Worth set forth as the Net Worth of the Company on the Closing Financial
Certificate, AppNet shall deliver a written notice (the "Financial Adjustment
Notice") to the Stockholder Representative (as defined in Section 2.5) setting
forth (i) the determination made by AppNet's Accountant of the actual Net Worth
of the Company (the "Actual Company Net Worth"), (ii) the Purchase Price that
would have been payable at Closing pursuant to Sections 2.2 and 2.3 had the
Actual Company Net Worth been reflected on the Closing Financial Certificate,
and (iii) the amount, if any, by which the Cash Payment would have been reduced
at Closing had the Actual Company Net Worth been used in the calculations
pursuant to Sections 2.2 and 2.3 (the "Adjustment"). The Adjustment shall take
account of the reduction, if any, to the Purchase Price already taken pursuant
to Section 2.3.
(b) The Stockholder Representative shall have thirty (30) days
from the receipt of the Financial Adjustment Notice to notify AppNet if the
Stockholders dispute such Financial Adjustment Notice. If AppNet has not
received notice of such a dispute within such 30-day period, AppNet shall be
entitled to receive from the Stockholder Representative the Adjustment, in cash
or, at the option of the Stockholder Representative, in AppNet Common Stock
valued at $6.00 per share, as adjusted pursuant to this Section 2.4(b) (the
"Stock Price"), on the thirtieth day after receipt of the Financial Adjustment
Notice; provided, that if AppNet shall at any time subdivide (by any stock
split, stock dividend or otherwise) its outstanding shares of Common Stock into
a greater number of shares, the Stock Price in effect immediately prior to such
subdivision shall be proportionately reduced and, in case the outstanding shares
of Common Stock shall be combined into a smaller number of shares, the Stock
Price in effect immediately prior to such combination shall be proportionately
increased. If, however, the Stockholder Representative has delivered notice of
such a dispute to AppNet within such 30-day period, then AppNet's Accountant
shall select an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years to review the Company's
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books, the Closing Financial Certificate and Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Adjustment. Such
independent accounting firm shall be confirmed by the Stockholder Representative
and AppNet within five (5) days of its selection, unless there is an actual
conflict of interest. The independent accounting firm shall make its
determination of the Adjustment, if any, within thirty (30) days of its
selection. The determination of the independent accounting firm shall be final
and binding on the parties hereto, and upon such determination, AppNet shall be
entitled to receive from the Stockholder Representative the Adjustment, in cash
or shares of AppNet Common Stock as set forth above. The costs of the
independent accounting firm shall be borne by the party (either AppNet or the
Stockholder Representative) whose determination of the Company's Net Worth at
Closing was further from the determination of the independent accounting firm,
or equally by AppNet and the Stockholder Representative in the event that the
determination by the independent accounting firm is equidistant between the Net
Worth set forth on the Closing Financial Certificate and the Actual Company Net
Worth. If any Adjustment is determined by the independent accounting firm to be
due, the Adjustment shall be payable to AppNet in cash by the Stockholder
Representative within ten (10) days after such determination.
2.5 Stockholder Representative
(a) Each holder of Company Common Stock, by signing this
Agreement, designates ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or in the event that ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
is unable or unwilling to serve, such other Person as is appointed by the
holders of a majority of the Common Stock as of the date hereof, to be the
representative of the Stockholders (the "Stockholder Representative") for
purposes of this Agreement. The Stockholders shall be bound by any and all
actions taken by the Stockholder Representative on their behalf.
(b) AppNet shall be entitled to rely upon any communication or
writings given or executed by the Stockholder Representative. All notices,
communications or writings to be sent to the Stockholders pursuant to this
Agreement may be addressed to the Stockholder Representative and any notice,
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholder Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholder Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholder Representative;
and in general to do all things and to perform all acts including, without
limitation, executing and delivering all agreements, certificates, receipts,
instructions and other instruments contemplated by or deemed advisable in
connection with this Agreement. This power of attorney and all authority hereby
conferred is granted subject to the interest of the other Stockholders hereunder
and in consideration of the mutual covenants and agreements made herein, and
shall be irrevocable and shall not be terminated by any act of any Stockholder,
by operation of law, whether by such Stockholder's death or any other event.
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3. CLOSING
3.1 Time and Place of the Closing. The closing of the Stock Purchase and
the consummation of the other transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇ Flyer, a professional
corporation, at ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, as soon
as practicable after all conditions to the Closing shall have been satisfied or
waived, or at such other time and date as the parties hereto may mutually agree,
which date shall be referred to as the "Closing Date."
3.2 Procedure at Closing. On the Closing Date, the parties agree to take
the following steps listed below (provided, however, that upon their completion
all such steps shall be deemed to have occurred simultaneously):
(a) The Stockholders and the Company shall deliver to AppNet
the closing documents specified in Section 7.
(b) AppNet shall deliver to the Stockholders the closing
documents specified in Section 8.
(c) The Stockholders shall deliver to AppNet certificates in
valid form representing all of the Shares, duly endorsed by the Stockholders in
blank or accompanied by a duly executed stock power in order to convey good
title to all of the Shares, free and clear of all Encumbrances.
(d) AppNet shall pay the Cash Payment by wire transfer of
immediately available funds to accounts designated by the Stockholders,
subject to the terms of Section 3.4(a)
(e) AppNet shall deliver the shares of AppNet Common Stock
comprising the Stock Payment to the Stockholders, subject to the terms of
Section 3.4(b).
3.3 Payment of Contingent Amount.
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(a) In the event that for the period commencing January 1, 1999
and ending December 31, 1999 (the "Earn Out Period"), the Company has (i)
adjusted gross revenue (i.e., gross revenue minus (a) sales and similar taxes
(b) returns and (c) doubtful accounts receivable attributable to such revenue)
("Adjusted Gross Revenue") of at least $4,500,000 and (ii) earnings before
interest, taxes, depreciation and amortization ("EBITDA") (as a percentage of
adjusted gross revenue) of at least 14%, AppNet shall pay to the Stockholders
such portion of $3,500,000 as is determined in accordance with Exhibit A (the
"Contingent Amount"). For purposes of determining the Company's financial
performance during the Earn Out Period, the accounting policies applied shall be
consistent with those applied previously by the Company. In addition, no AppNet
overhead charges shall be allocated in determining the financial results of the
Company during the Earn Out Period. All calculations of Adjusted Gross Revenue
and EBITDA shall be determined on an accrual basis in accordance with GAAP.
(b) Subject to the terms of Section 3.3(c), any Contingent Amount
payable shall be paid by AppNet to the Stockholders not later than fifteen (15)
days after the final determination made pursuant to Section 3.3(d). The
Contingent Amount shall be paid in cash (or, at the Stockholder Representative's
option, 80% in cash and 20% in AppNet Common Stock, valued at $6.00 per share,
as adjusted pursuant to this Section 3.3(b) (the "Stock Price")), up to the
maximum amount specified on Exhibit A. Any Contingent Amount shall be payable to
the Stockholders in accordance with their Pro Rata Shares as of the Closing
Date. In case AppNet shall at any time subdivide (by any stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a greater
number of shares, the Stock Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Stock Price in effect immediately prior to such combination shall be
proportionately increased.
(c) In the event that, on or before the date the Contingent
Amount is payable to the Stockholders pursuant to this Section 3.3 (the
"Contingent Payment Date"), AppNet has sent a Claim Notice (as defined in
Section 9.2(b)), AppNet shall be entitled to withhold from the Contingent Amount
so payable an amount reasonably necessary to reimburse AppNet for Damages (as
defined in Section 9.1(a)) relating to any Claim (as defined in Section 9.2) for
which a Claim Notice has been sent by AppNet prior to the Contingent Payment
Date; provided, however, that AppNet shall not be entitled to withhold any part
of the Contingent Amount in connection with a Claim Notice sent pursuant to
Section 9.2(d). Should AppNet be entitled to indemnification for Damages
pursuant to Article 9, AppNet shall be entitled to offset the Contingent Amount
and, upon resolution of all Claims for which a Claim Notice has been sent on or
before the Contingent Amount Payment Date, AppNet shall pay to the Stockholders
any remaining portion of the Contingent Amount not so offset by AppNet. Any
amount withheld by AppNet from the Contingent Amount on the Contingent Amount
Payment Date pursuant to this Section 3.3(c) shall be held in escrow until
resolution of all such Claims.
(d) On or before March 1, 2000, AppNet shall deliver to the
Stockholder Representative a statement (the "Earn-Out Statement") setting forth
whether any of the Contingent Amount has been earned. The Stockholder
Representative shall have the right to review all work papers and procedures
used to prepare the Earn-Out Statement and shall have the
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right to perform any other reasonable procedures necessary to verify the
accuracy thereof. Unless the Stockholder Representative, within 30 days after
delivery to the Stockholder Representative of the Earn-Out Statement, notifies
AppNet in writing that the Stockholder Representative objects to the Earn-Out
Statement, and specifies the basis for such objection (including the Stockholder
Representative's calculation of the Contingent Amount (the "Objection
Statement")), such Earn-Out Statement shall become final, binding and conclusive
upon the parties hereto for purposes of this Agreement. If AppNet and the
Stockholder Representative are unable to resolve any objections to the Earn-Out
Statement within ten (10) days after any such notification has been given,
AppNet shall pay to the Stockholders any undisputed portion of the Contingent
Amount and the dispute shall be referred to an independent accounting firm that
has not represented any of the parties hereto within the preceding two (2) years
(the "Designated Accountant") for resolution (or, if the Designated Accountant
is unavailable, to another nationally recognized public accounting firm mutually
agreed upon by the Stockholder Representative and AppNet within five (5) days
from the date upon which the Designated Accountant notifies the parties that it
is not available). Within 30 days after its appointment, the Designated
Accountant will make a determination as to each of the items in dispute, which
determination shall be final, conclusive and binding upon each of the parties
hereto. AppNet, the Stockholder Representative and the Stockholders shall
cooperate with each other in order to resolve any and all matters in dispute
under this Section 3.3 as soon as practicable. The costs of the Designated
Accountant shall be borne by the party (either AppNet or the Stockholders, in
accordance with their Pro Rata Shares) whose determination of the Contingent
Amount was further from the determination of the Designated Accountant of the
Contingent Amount, or equally by AppNet and the Stockholders, in accordance with
their Pro Rata Shares, in the event that the determination of the Designated
Accountant is equidistant between the Contingent Amount set forth in the
Earn-Out Statement and the Contingent Amount set forth in the Objection
Statement. The Stockholder Representative shall be responsible for collection
and payment of all amounts due from the Stockholders in connection with the
Designated Accountant's costs.
3.4 Holdback of Portion of Cash Payment and Pledge of Stock.
(a) Notwithstanding anything contained in this Agreement to the
contrary, AppNet shall withhold from the Cash Payment payable at the Closing a
total of $750,000 (the "Holdback Amount"), which shall be held by AppNet as
collateral for any amounts payable by the Company or the Stockholders to AppNet
pursuant to Article 9, including, but not limited to, any amounts payable by the
Company in connection with the Oracle Dispute. Interest shall accrue on the
Holdback Amount (less any amounts offset pursuant to this Section 3.4) at the
applicable Federal rate in effect as of the Closing Date, as determined pursuant
to Section 1274(d) of the Code, with all such accrued interest on the Holdback
Amount (less any interest accrued on amounts offset pursuant to this Section
3.4) being payable to the Stockholders upon release of the Holdback Amount
pursuant to Section 3.4(a)(i) or (ii). In the event any amounts are payable by
the Company or the Stockholders to AppNet pursuant to Article 9, AppNet may
offset such amounts from the Holdback Amount; provided, however, that no
interest shall accrue or be payable with respect to any portion of the Holdback
Amount which is offset by AppNet. Any portion of the Holdback Amount not so
offset by AppNet shall be paid by AppNet to the
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Stockholders in accordance with their Pro Rata Shares as follows: (i) if an
Oracle Dispute Settlement has been reached prior to the first anniversary of the
Closing Date, the Holdback Amount shall be paid to the Stockholders on the later
of (A) the first anniversary of the Closing Date or (B) resolution of any Claim
for which a Claim Notice has been sent by AppNet prior to the first anniversary
of the Closing Date (provided, that if such Claim Notice is sent pursuant to
Section 9.2(d) such Holdback Amount shall be paid in accordance with
3.4(a)(i)(A)); or (ii) if an Oracle Dispute Settlement has not been reached
prior to the first anniversary of the Closing Date, the Holdback Amount shall be
paid to the Stockholders on the later of (A) resolution of any Claim for which a
Claim Notice has been sent by AppNet prior to the first anniversary of the
Closing Date; provided, that if such Claim Notice is sent pursuant to Section
9.2(d) such Holdback Amount shall be paid in accordance with 3.4(a)(i)(A), or
(B) the date on which an Oracle Dispute Settlement is reached; provided, that
AppNet shall retain only so much of the Holdback Amount pursuant to subsections
3.4 (a) (i) and (ii) which is a reasonable estimate of the amount necessary to
satisfy the Damages of AppNet in connection with such unresolved Claim and/or
the Oracle Dispute.
(b) At the Closing, the Stockholders shall pledge an aggregate of
241,667 shares of the Stock Payment (the "Pledged Stock") to satisfy the
Indemnifying Stockholders' obligations to AppNet under this Agreement relating
to the Oracle Dispute and the Oracle Dispute Settlement pursuant to a Stock
Pledge and Escrow Agreement in the form attached hereto as Exhibit E (the "Stock
Pledge and Escrow Agreement"). Each of the Stockholders shall pledge their
respective Pro Rata Share of the Pledged Stock.
3.5 Withholding. AppNet shall be entitled to deduct and withhold from the
Cash Payment or the Contingent Amount otherwise payable pursuant to this
Agreement to any Stockholder such amounts as AppNet is required to deduct and
withhold with respect to the Cash Payment or the Contingent Amount, as the case
may be, under the Code or any provision of applicable state, local or foreign
Tax law. To the extent that such amounts are so withheld by AppNet, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of the Company Common Stock.
3.6 Company Incentive Stock Options. Subject to the terms of Section 7.23,
AppNet shall assume options issued pursuant to the Company's Incentive Stock
Option Plan in such manner that each stock option under the Company's Incentive
Stock Option Plan outstanding as of the Closing Date (the "Company Stock
Options") shall be converted into an option to purchase .151203 shares of AppNet
Common Stock at a price equal to the exercise price of the Company Stock Options
divided by .151203 (an "AppNet Stock Option"). Any AppNet Stock Option
exercisable for a fractional share of AppNet Common Stock shall be rounded to
the nearest whole share. The AppNet Stock Options shall be on such terms as
provided in the Company's Incentive Stock Option Plan and any agreement between
the Company and the optionholder governing the Company Stock Option so assumed.
The AppNet Stock Options shall be delivered to the holders of Company Stock
Options following the Closing Date as set forth on Schedule 3.6 hereof. At
Closing, each holder of Company Stock Options which are being assumed by AppNet
pursuant to this Section 3.6 shall execute a joinder agreement agreeing to be
bound by
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the terms of the AppNet Stockholders' Agreement dated June 29, 1998 and
Registration Agreement dated June 29, 1998. All shares of AppNet Common Stock to
be delivered upon exercise of any such assumed Company Stock Options shall be
bound by and subject to the provisions of the AppNet Stockholders' Agreement and
Registration Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce AppNet to enter into this Agreement and to consummate the
transactions contemplated by this Agreement, the Company and the Stockholders,
jointly and severally, represent and warrant to AppNet, as of the date hereof
and as of the Closing Date, as set forth below:
4.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
4.2 Power and Authority. The Company has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its Business
as it is presently being conducted and as it has been conducted in the past. The
Company is not required to be qualified or licensed as a foreign corporation in
any jurisdiction.
4.3 Authority for Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been authorized by all requisite corporate action on the part of the Company.
The Company has full corporate power, authority and legal right to enter into
this Agreement and to consummate the transactions contemplated hereby. Each of
the Stockholders has the legal capacity to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of the Stockholders and assuming the due
authorization, execution and delivery by AppNet of this Agreement, the Agreement
is a legal, valid and binding obligation of each of the Stockholders enforceable
against each of the Stockholders in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by AppNet of this Agreement, this Agreement is a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general.
4.4 No Violation to Result. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof: (i) are not in violation or breach of, do
not conflict with or constitute a default under the Certificate of Incorporation
or Bylaws of the Company or, after obtaining the required third party consents
set forth on Schedule 4.4, any Contract to which the Company or any of the
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Stockholders is a party, except to the extent that such violation or breach
would not have a Material Adverse Effect on the Company; (ii) after obtaining
the required third party consents set forth on Schedule 4.4, will not accelerate
or permit the acceleration of the performance on the part of the Company or any
of the Stockholders required by any of the terms of any Contract to which the
Company or any of the Stockholders is a party or which affects the Company;
(iii) will not be an event which, after notice or lapse of time or both, will
result in any such violation, breach, conflict, default, or acceleration; (iv)
will not result in a violation under any applicable law, judgment, decree,
order, rule, regulation, permit or other legal requirement of any Governmental
or Regulatory Authority, court or arbitration tribunal whether federal, state,
provincial, municipal or local (within the U.S. or otherwise) at law or in
equity, which is applicable to the Company, except to the extent that such
violation would not have a Material Adverse Effect on the Company; and (v) will
not result in the creation or imposition of any Encumbrance in favor of any
Person upon any of the properties or assets of the Company.
4.5 Capitalization.
(a) Schedule 4.5 sets forth, with respect to the Company, (i) the
number of authorized shares of each class of its capital stock, (ii) the number
of issued and outstanding shares of each class of its capital stock and the
record owner thereof, (iii) the number of shares of each class, if any, which
are held in treasury and (iv) the number of Company Stock Options (as defined in
Section 3.6 hereof). All of the issued and outstanding shares of capital stock
of the Company (A) have been duly authorized and validly issued and are fully
paid and non-assessable, (B) were issued in compliance with all applicable state
and federal laws and (C) were not issued in violation of any preemptive rights
or rights of first refusal. No preemptive rights or rights of first refusal
exist with respect to the shares of capital stock of the Company, and no such
rights arise by virtue of or in connection with the transactions contemplated
hereby. There are no outstanding or authorized rights, options, warrants,
convertible securities, subscription rights, conversion rights, exchange rights
or other agreements or commitments of any kind that could require the Company to
issue or sell any shares of the Company Common Stock (or securities convertible
into or exchangeable for shares of its Common Stock), except for the Company
Stock Options set forth on Schedule 4.5. There are no outstanding stock
appreciation, phantom stock, profit participation or other similar rights with
respect to the Company. There are no proxies, voting rights or other agreements
or understandings with respect to the voting or transfer of the capital stock of
the Company. The Company is not obligated to redeem or otherwise acquire any of
its outstanding shares of capital stock.
(b) The Stockholders are the sole legal and beneficial holders of
the issued and outstanding shares of capital stock of the Company, and the
Stockholders own such shares as are set forth opposite their respective names on
Schedule 4.5 free and clear of any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, Encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive right, conversion, put,
call or other claim or right, restriction on transfer, or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the
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foregoing and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction).
4.6 Financial Statements.
(a) Schedule 4.6 includes true, complete and correct copies of (i)
the unaudited balance sheets of the Company as of the end of the periods
identified on Schedule 4.6 (such dates being the end of the Company's three (3)
most recently completed fiscal years ending December 31, 1998), and unaudited
statements of income, cash flows and retained earnings for the year ended
December 31, 1998 (collectively, the "Annual Financials"), and (ii) true,
complete and correct copies of the Company's unaudited interim balance sheet
(the "Current Balance Sheet") as of January 31, 1999 (the "Balance Sheet Date")
[the "Interim Financials" and together with the Annual Financials, the
"Financial Statements"]. The Company has not maintained statements of income,
cash flow and retained earnings for any period other than the twelve (12) month
period ended December 31, 1998. The Financial Statements have been prepared in
accordance with GAAP consistently applied. Each of the balance sheets included
in the Financial Statements presents fairly the financial condition of the
Company as of the dates indicated thereon, and each of the statements of income,
cash flows and retained earnings included in the Financial Statements presents
fairly the results of its operations for the periods indicated thereon. During
the periods covered by the Financial Statements and since the Balance Sheet
Date, there has been no material change in the Company's accounting policies.
There are no material, special or non-recurring items of income or expense
during the periods covered by the Financial Statements and the balance sheets
included in the Financial Statements do not reflect any write-up or revaluation
increasing the book value of any assets, except as specifically disclosed in the
notes thereto.
(b) The books and records, minute books, stock record books, and
other records of the Company, all of which have been made available to AppNet,
are materially complete and correct and have been maintained in accordance with
sound business practices. The minute book(s) of the Company, all of which have
been made available to AppNet, contains materially accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
Board of Directors, and committees of the Board of Directors of the Company, and
no meeting of any such stockholders, Board of Directors, or committee has been
held for which minutes have not been prepared as of the date hereof and are not
contained in such minute book.
4.7 Liabilities and Obligations.
(a) Except as disclosed on Schedule 4.7(a), there are no
Liabilities or obligations of the Company, other than: (i) those Liabilities
reflected on the Current Balance Sheet and not previously paid or discharged;
(ii) those Liabilities incurred after the Balance Sheet Date arising in the
ordinary course of business, which were incurred consistent with past practice
under any contract, commitment or agreement specifically disclosed on any
schedule to this Agreement; and (iii) those liabilities specifically described
in the Material Contracts listed on Schedule 4.13 hereof.
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(b) Schedule 4.7(b) sets forth a summary description of all
advance payments or deposits held by the Company and reflected in the Financial
Statements and the related obligations thereunder.
4.8 Adverse Changes. From December 31, 1998: (i) there has been no change
in the condition (financial or otherwise), Business, net worth, assets,
properties, Liabilities or obligations (fixed, contingent, known, unknown or
otherwise) of the Company which has had or is likely to have a Material Adverse
Effect on the Company, and to the Company's and the Stockholders' knowledge,
there has been no occurrence, circumstance or combination thereof which might
reasonably be expected to result in any such Material Adverse Effect before or
after the Closing Date; (ii) the Company has not declared or paid any dividend
or distribution in respect of the capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of the
Company, and (iii) the Company has materially complied with all of the covenants
set forth in Section 6.3, to the same extent as if this Agreement had been
executed on December 31, 1997.
4.9 Employee Matters.
(a) All employee benefit plans, programs, policies and
arrangements (whether formal or informal, written or unwritten, and whether
maintained for the benefit of a single individual or more than one individual)
maintained or contributed to by the Company for the benefit of any current or
former employee of the Company or in which such employees are entitled to
participate are listed in Schedule 4.9(a) (the "Benefit Plans"). With respect to
each Benefit Plan, true, correct and complete copies of all of the following
documents, if applicable, will be delivered or made available to AppNet prior to
the Closing Date: (i) all plan documents and amendments thereto; (ii) all
written descriptions of any oral plans or policies; (iii) all trust agreements;
(iv) all annuity contracts, insurance policies or contracts and service
agreements; (v) the three (3) most recent Forms 5500 and any financial
statements attached thereto; (vi) the most recent actuarial and valuation
report; (vii) the most recent IRS determination letter; (viii) the most recent
summary plan description; and (ix) copies of all nondiscrimination testing for
the last three (3) years. Except as set forth on Schedule 4.9(a), each Benefit
Plan and the administration thereof complies, and has at all times complied,
with the terms of such Benefit Plan and with the requirements of all applicable
law, including, without limitation, the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the Code. Except as set forth on Schedule
4.9(a), (i) the Internal Revenue Service has issued a favorable determination
letter with respect to each Benefit Plan intended to qualify under Section
401(a) of the Code, and nothing has occurred since the issuance of such
determination letter which could adversely affect the qualified status of each
such Benefit Plan and (ii) each trust which forms a part of any such Benefit
Plan is exempt from taxation under Section 501(a) of the Code. No Benefit Plan
subject to Part 3 of Title I of ERISA has incurred any "accumulated funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of the
Code. No liability has been incurred or is expected to be incurred under Title
IV of ERISA by any party with respect to any Benefit Plan, or any other plan
presently or heretofore maintained or contributed to by the Company, any
predecessor to the Company, or any entity that is or at any time was a member of
a controlled
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group, as defined in Section 412(n)(6)(B) of the Code, which includes or
included the Company ("Controlled Group Member"). Neither the Company, nor any
Controlled Group Member has incurred any liability for any Tax imposed under
Sections 4971 through 4980B of the Code or civil liability under Sections 502(i)
or (l) of ERISA. The "amount of unfunded benefit liabilities" within the meaning
of Section 4001(a)(18) of ERISA does not exceed zero with respect to any Benefit
Plan subject to Title IV of ERISA. No Benefit Plan is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA. No Benefit Plan provides health or
death benefit coverage to any employee or his spouse or dependents beyond the
termination of an employee's employment, except as required by Part 6 of Subpart
B of Title I of ERISA or Section 4980B of the Code. No "reportable event"
(within the meaning of Section 4043 of ERISA) has occurred with respect to any
Benefit Plan or any plan maintained by a Controlled Group Member since the
effective date of said Section 4043. The Company has no liability (whether
actual, contingent or otherwise) with respect to any employee benefit plan or
arrangement sponsored or maintained by a Controlled Group Member. No suit,
actions or other litigation (excluding claims for benefits incurred in the
ordinary course of plan activities) have been brought against or with respect to
any Benefit Plan, and no suit, action, or other litigation is threatened by,
against, or relating to any Benefit Plan and the Company does not have any
knowledge of any fact that could form the basis for any such suit, action or
litigation. No "prohibited transaction" within the meaning of Sections 406 or
407 of ERISA or Section 4975 of the Code has occurred with respect to any
Benefit Plan. No Benefit Plan is presently under audit or examination by the
IRS, the Department of Labor, or any other Governmental or Regulatory Authority,
and no matters are pending with respect to any Benefit Plan under the IRS
Voluntary Compliance Resolution program, its Closing Agreement Program, or any
other similar program. All contributions to Benefit Plans that were required to
be made under such Benefit Plans will have been made as of the Balance Sheet
Date, and all benefits accrued under any unfunded Benefit Plan will have been
paid, accrued or otherwise adequately reserved in accordance with GAAP as of
such date, and the Company will have performed by the Closing Date any
obligations required to be performed as of such date under all Benefit Plans. No
Benefit Plan contains any term or provision or is subject to any law that would
prohibit the transactions contemplated by this Agreement, or that would give
rise to the vesting of benefits, payments, or liabilities as a result of the
transactions contemplated by this Agreement, except to the extent that full
vesting is required under any tax-qualified Benefit Plan under Section 411 of
the Code.
(b) Schedule 4.9(b) contains a complete and correct list of all
employees of the Company as of the date hereof and the current compensation rate
payable to each such employee. Except as set forth in Schedule 4.9(b), (i) the
terms of employment or engagement of all directors, officers, employees, agents,
consultants and professional advisers of the Company are such that their
employment or engagement may be terminated upon not more than two weeks' notice
given at any time and without liability for payment of compensation or damages,
(ii) there are no severance payments which are or could become payable by the
Company to any director, officer or other employee of the Company under the
terms of any oral or written agreement or commitment or any law, custom, trade
or practice, and (iii) there are no agreements, contracts or commitments, oral
or written, between the Company and any employee, consultant or independent
contractor.
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(c) The Company is not bound by or subject to (and none of its
assets or properties are bound by or subject to) any arrangement with any labor
union. No employees of the Company are or ever have been represented by any
labor union or covered by any collective bargaining agreement while employed by
the Company, and no campaign to establish such representation is in progress.
There is no pending or threatened labor dispute involving the Company and any
group of their employees nor has the Company experienced any labor
interruptions. The Company is and has been in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours, including without limitation any such laws
regarding employment documentation, minimum wage and hours, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and the Company has not engaged
in any unfair labor practice. All persons treated by the Company as independent
contractors for any purpose do satisfy and have satisfied the requirements of
law to be so treated, and the Company has fully and accurately reported the
amounts paid by the Company to or on behalf of such persons on IRS Forms 1099
when required to do so. No individual who has performed services for or on
behalf of the Company, and who has been treated by the Company as an independent
contractor, is classified as a "leased employee", within the meaning of Section
414(n)(2) of the Code with respect to the Company.
4.10 Taxes.
(a) The Company has filed or caused to be filed with the
appropriate Governmental or Regulatory Authority any and all Tax Returns
required to be filed by it as of the date hereof, or requests for extensions to
file Tax Returns which have been filed have been timely filed or granted and
have not expired, and all such Tax Returns are true, complete and accurate in
all respects, except to the extent that such failures to file, have extensions
granted that remain in effect or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. The Company has paid all Taxes shown as due, claimed to
be due by any Governmental or Regulatory Authority, or accruable with respect to
periods through the Closing Date, except for such Taxes as (i) are fully
reserved for in the Current Balance Sheet or (ii) were incurred after the
Balance Sheet Date in the ordinary course of business and are not due and
payable as of the Closing Date. No deficiencies for any Taxes have been proposed
against the Company that are not adequately reserved for in the Current Balance
Sheet. No requests for waivers or comparable consents with respect to the time
to assess any Taxes against the Company have been granted or are pending, except
for requests with respect to such Taxes that have been adequately reserved for
in the Current Balance Sheet. The Company has complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign laws
and withholding with respect to employee wages) and has, within the time and
manner prescribed by law, withheld and paid over to the proper Governmental or
Regulatory Authority all amounts required to be withheld and paid over under all
applicable laws. No federal, state, local or foreign audits or other
administrative proceedings or court proceedings ("Audits") exist or have been
initiated with regard to any Taxes or Tax Returns of the Company, and the
Company has not received any notice that such an Audit is pending or threatened
with respect to
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any Taxes due from or with respect to the Company or any Tax
Return filed or required to be filed by or with respect to the Company. The
Company is not a party to, is not bound by, and has no obligation under, any tax
sharing agreement, tax indemnification agreement or similar contract or
arrangement.
(b) The Company has delivered to AppNet complete and accurate
copies of all filed federal income Tax Returns relating to taxable years
beginning on or prior to the Closing Date, and all examination reports and
statements of assessment or deficiency issued relating to such Tax Returns, and
has delivered or made available to AppNet complete and accurate copies of all
other filed Tax Returns of the Company, together with all related examination
reports and statements of assessment or deficiency for all periods beginning on
or prior to the Closing Date.
(c) The Company has not been informed by any Governmental or
Regulatory Authority that such authority believes that the Company was required
to file any Tax Return that has not been filed.
(d) The Company has not filed an election, consent or agreement
under Section 341(f) of the Code, and none of the assets of the Company are
subject to an election under Section 341(f) of the Code.
(e) The Company has no liability for the Taxes of any other person
either as a transferee under Section 6901 of the Code, or any similar provision
of state, local or foreign law, as a successor, or by contract or otherwise.
(f) Neither the Company nor any predecessor has ever been included
or required to be included, on any affiliated, consolidated, combined or unitary
Tax Return.
(g) The Company will not be required to include any amounts in
income for taxable years ending after the Closing Date pursuant to Section
481(a) of the Code or any similar provision of state or local law by reason of a
change in accounting method occurring in a taxable year ending on or before the
Closing Date, and none of the Company nor the Stockholders has any knowledge
that any Governmental or Regulatory Authority has proposed any change in method
of accounting that would require inclusion of such amounts.
(h) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(i) The Company (i) has not made any payments, is not obligated to
make any payments, or is not a party to any agreement that could obligate it to
make any payments that may be treated as an "excess parachute payment" under
Section 280G of the Code; (ii) has no actual or potential liability for any
Taxes of any person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of federal, state, local, or foreign law), or
as a transferee or successor, by contract, or otherwise; or (iii) is not or has
not been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)- 2(b).
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(j) The Company has not undergone a change in its method of
accounting resulting in an adjustment to its taxable income pursuant to Section
481(a) of the Code which would be required to be included in income of the
Company for any taxable year ending after the Closing Date.
(k) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of state law occurring prior to the Closing Date.
4.11 Subsidiaries. The Company has no debt, equity or other investment or
interest in any Person or any strategic alliance with any Person. The Company
has no commitments to contribute to the capital of, make loans to or share
losses of, any Person.
4.12 Property.
(a) The Company has never owned any real property. Schedule
4.12(a) sets forth an accurate and complete list of all leases of real property
leased by the Company (collectively, the "Facilities"). Except as otherwise
disclosed on Schedule 4.12(a), (i) there are no outstanding written or oral
leases, rights to occupancy, or tenancies of any kind (including tenancies by
sufferance and/or holdover tenancies arising under expired written or oral
leases) covering or in any way affecting the Facilities or any part or parts
thereof; (ii) to the knowledge of the Company and the Stockholders, no person,
firm or corporation other than the Company has any rights (including rights
arising under an installment contract, option to purchase, easement,
right-of-way, or otherwise) with respect to the Facilities or any part thereof;
and (iii) there have been no improvements to, construction on, work done at,
and/or services or material supplied to, the Facilities or any part or parts
thereof for which payment in full has not been made and which might give rise to
mechanic's liens or other lien rights with respect to the Facilities, except in
the ordinary course of business. All leases set forth on Schedule 4.12(a) are in
full force and effect and constitute valid and binding agreements of the Company
and, to the knowledge of the Company and the Stockholders, the other parties
thereto in accordance with their respective terms.
(b) Schedule 4.12(b) sets forth an accurate list of all the
material Company owned property and all of the Company leased personal property
(i) as of the Balance Sheet Date, or (ii) acquired since the Balance Sheet Date,
including in each case true, complete and correct copies of leases for equipment
and also including an indication as to which assets are currently owned by any
current stockholders of the Company or business or personal Affiliates of the
Company or any current stockholder of the Company. All of the vehicles and other
material machinery and equipment listed on Schedule 4.12(b) are in good working
order and condition, ordinary wear and tear excepted. All fixed assets used by
the Company that are material to the operation of the Business, as it is
presently being conducted are either owned by the Company or leased under an
agreement listed on Schedule 4.12(b).
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(c) Except as set forth on Schedule 4.12(c), the Company has good
and marketable title to its owned assets, free and clear of any and all
Encumbrances and defects in title; except for (i) Encumbrances for Taxes or
governmental assessments, charges or claims the payment of which is not yet due
or, as set forth on Schedule 4.12(c), for Taxes the validity of which are being
contested in good faith by appropriate proceedings; and (ii) statutory
Encumbrances of landlords and Encumbrances of laborers, carriers, warehousemen,
mechanics, materialmen or other similar Persons and other Encumbrances imposed
by Governmental or Regulatory Authority or Legal Requirement incurred in the
ordinary course of business for sums not yet due or, as set forth on Schedule
4.12(c), being contested in good faith. The Company's assets, taken together,
are adequate for the operation of the Business as it is presently being
conducted.
4.13 Contracts. Schedule 4.13 constitutes an accurate and complete list of
each Material Contract. Each Contract is in full force and effect, is a valid,
binding and enforceable obligation by or against the Company and the other
parties thereto and, to the knowledge of the Company and the Stockholders, no
event has occurred which constitutes or, with the giving of notice or passage of
time, or both, would constitute, a default or breach thereunder, except to the
extent such default or breach would not have a Material Adverse Effect on the
Company. Prior to the Closing Date, the Company will deliver or will cause to be
delivered or will make available to AppNet correct and complete copies of each
Material Contract and all amendments thereto. To the knowledge of the Company,
no other party to any Contract is in default thereunder. Except as set forth on
Schedule 4.13, there exists no restrictive covenants of any nature whatsoever in
any of the Contracts. To the knowledge of the Company and the Stockholders, the
Company will not experience a loss on any of the Contracts.
4.14. Government Contracts. The Company is not, and has never been, a
party to any Government Contract.
4.15 Litigation. Except as set forth in Schedule 4.15, there is no
litigation, suit, proceeding, action, claim, demand or investigation, at law or
in equity, pending or to the knowledge of the Company and the Stockholders
threatened against or affecting the Company before any Governmental or
Regulatory Authority including, without limitation, any product liability,
workers' compensation or wrongful dismissal claims, or claims, actions, suits,
demands or proceedings relating to toxic materials, hazardous substances,
pollution or the environment. To the knowledge of the Company and the
Stockholders, there are no facts that would likely result in any such
litigation, suit, proceeding, action, claim or investigation. The Company is not
subject to or in default with respect to any notice, order, writ, injunction or
decree of any court, agency, authority or arbitration tribunal.
4.16 Compliance with Laws. Except as set forth in Schedule 4.16, the
Company has complied and is currently in compliance with all material laws,
regulations, rules, orders, permits, judgments, decrees and other requirements
and policies imposed by any Governmental or Regulatory Authority applicable to
it, its properties or the operation of its Business. The Company has not
received any notice or citation for noncompliance with any of the foregoing and,
to the knowledge of the Company and the Stockholders, there exists no condition,
situation
-19-
or circumstance, nor has there existed such a condition, situation or
circumstance, which, after notice or lapse of time, or both, would constitute
noncompliance with or give rise to future liability with regard to any of the
foregoing. The Company has all material licenses, permits, approvals,
qualifications or the like, from any Government, Governmental or Regulatory
Authority or any third party necessary for the conduct of the Company's
Business, as it is presently being conducted, and all such items are in full
force and effect.
4.17 Environmental and Safety Matters.
(a) For purposes of this Agreement, the term "Environmental and
Safety Requirements" shall mean all applicable federal, state, local and foreign
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law, in each case concerning public
health and safety, worker health and safety and pollution or protection of the
environment (including, without limitation, all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and "Environmental Lien" shall mean any
lien, whether recorded or unrecorded, in favor of any Governmental or Regulatory
Authority, relating to any liability of the Company arising under any
Environmental and Safety Requirements.
(b) Except as set forth on Schedule 4.17:
(i) To the knowledge of the Company and the Stockholders, the
Company has complied with and is currently in compliance with all Environmental
and Safety Requirements, and the Company has not received any oral or written
notice, report or information regarding any Liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) or any corrective,
investigatory or remedial obligations arising under Environmental and Safety
Requirements which relate to the Company or any of its properties or facilities.
(ii) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of its properties or
facilities or the operation of its Businesses as it is presently being
conducted, as it has been conducted in the past. A list of all such permits,
licenses and other authorizations which are material to the Company is set forth
on Schedule 4.17 attached hereto.
(iii) To the knowledge of the Company and the Stockholders,
neither this Agreement nor the consummation of the transactions contemplated by
this Agreement shall impose any obligations on the Company or otherwise for site
investigation or cleanup, or notification to or consent of any Governmental or
Regulatory Authorities or third parties under
-20-
any Environmental and Safety Requirements (including, without limitation, any so
called "transaction-triggered" or "responsible property transfer" laws and
regulations).
(iv) The Company has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or Released any
substance (including, without limitation, any hazardous substance), or owned,
occupied or operated any facility or property, so as to give rise to Liabilities
of the Company for response costs, natural resource damages or attorneys fees
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), or any other Environmental and Safety
Requirements.
(v) To the knowledge of the Company and the Stockholders,
without limiting the generality of the foregoing, no facts, events or conditions
relating to the past or present properties, facilities or operations of the
Company prevent, hinder or limit continued compliance with Environmental and
Safety Requirements, give rise to any corrective, investigatory or remedial
obligations pursuant to Environmental and Safety Requirements or give rise to
any other Liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including, without
limitation, those Liabilities relating to onsite or offsite Releases or
threatened Releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage).
(vi) To the knowledge of the Company and the Stockholders, the
Company has not, either expressly or by operation of law, assumed or undertaken
any material liability or corrective, investigatory or remedial obligation of
any other Person relating to any Environmental and Safety Requirements.
(vii) To the knowledge of the Company and the Stockholders, no
Environmental Lien has attached to any property leased or operated by the
Company.
4.18 Customers; Suppliers.
(a) Except as set forth in Schedule 4.18(a), no single customer
accounted for more than 5% of the Company's revenues for the fiscal years ended
December 31, 1997 or December 31, 1998. Except as set forth on Schedule 4.18(a),
no customer listed on Schedule 4.18(a) (a "Significant Customer") has canceled
or otherwise terminated or threatened to cancel or otherwise terminate its
relationship with the Company, or during such periods has materially decreased
its usage or purchase of the Company's services or products. To the knowledge of
the Company and the Stockholders, no Significant Customer has any plan or
intention to terminate, cancel or otherwise materially modify its relationship
with the Company or materially decrease or limit its usage, purchase or
distribution of the services or products of the Company.
(b) The relationships of the Company with its suppliers are good
commercial working relationships and, except as set forth on Schedule 4.18(b),
no supplier has during the last twelve months terminated or threatened to
terminate, its relationship with the Company or has during the last twelve (12)
months decreased or limited or threatened to decrease or limit, its services,
supplies or materials to the Company. The Company is not obligated to use any
-21-
supplier as a sole source of supply of any good or service to the Company. The
Company does not have any knowledge that any of the suppliers intends to
terminate or otherwise modify adversely to the Company its relationship with the
Company or to decrease or limit its services, supplies or materials to the
Company.
4.19 Insurance. Schedule 4.19 sets forth an accurate list of all insurance
policies carried by the Company (all of which policies remain in full force and
effect) and all insurance loss runs or workers' compensation claims. The Company
has made available to AppNet true, complete and correct copies of all current
insurance policies of the Company, all of which are in full force and effect.
All premiums due and payable under all such policies have been paid and the
Company is otherwise in material compliance with the terms of such policies (or
other policies providing substantially similar insurance coverage). Such
policies of insurance are of the type and in amounts customarily carried by
persons conducting business similar to that of the Company. Neither the Company
nor the Stockholders know of any threatened termination of, or material premium
increase with respect to, any of such policies.
4.20 Intellectual Property.
(a) The Company owns, or possesses valid written licenses to use
all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs and applications and tangible or intangible
proprietary information and material that are used in the Business of the
Company (the "Company Intellectual Property Rights"). Schedule 4.20(a) lists all
Company Intellectual Property Rights owned by the Company, and specifies the
jurisdictions in which the Company Intellectual Property Rights are issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. The filings in respect of all such registrations
and applications (if any) are in good standing, are held solely in the name of
the Company as the exclusive owner of all rights therein, and all necessary
steps have been taken to maintain such filings and to prosecute the applications
in a timely manner.
(b) Schedule 4.20(b) lists (i) all licenses, sublicenses and other
agreements to which the Company is a party and pursuant to which any person is
authorized to use any Company Intellectual Property Rights or any trade secret
material to the Company (and includes the identity of all parties thereto other
than non-exclusive product licenses and sublicenses granted by the Company in
the ordinary course of business); and (ii) all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third party patents, trademarks or copyrights
(including software) which are incorporated in, are, or form a part of, any of
the Company's products or services, or other trade secrets of a third party in
or as to any product or service (collectively, the "Company Third Party
Intellectual Property Rights"), and includes the identity of all parties
thereto, a description of the nature and subject matter thereof, the applicable
royalty and the term thereof. The Company is authorized to use, in the manner
used by the Company, the Company Third Party Intellectual Property Rights.
Except as set forth on Schedule 4.20(b), the Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance of its
-22-
obligations hereunder, after obtaining the required third party consents set
forth on Schedule 4.4, in violation of any license, sublicense or agreement
described on Schedule 4.20(b) or by which it is authorized to use Company Third
Party Intellectual Property Rights.
(c) No claims with respect to Company Intellectual Property
Rights, any trade secrets of the Company, or Company Third Party Intellectual
Property Rights to the extent arising out of any use, reproduction or
distribution of such of Company Third Party Intellectual Property Rights by or
through the Company, have been asserted or are threatened by any person, nor,
except as set out on Schedule 4.20(c), does the Company or any of the
Stockholders know of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any product or service,
as now used, sold or licensed or proposed for use, sale or license by the
Company infringes any copyright, patent, trademark, service ▇▇▇▇, trade secret
or any other intellectual property right; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
Business as it is presently being conducted; (iii) challenging the ownership,
validity or effectiveness of any of Company Intellectual Property Rights or
other trade secrets of the Company; or (iv) challenging the Company's license or
legally enforceable right to use, or the validity or effectiveness of any
Company Third Party Intellectual Property Rights.
(d) The Company has entered into all necessary agreements and
obtained all necessary rights to acquire Company Third Party Intellectual
Property Rights. All agreements relating to Company Third Party Intellectual
Property Rights are in full force and effect.
(e) All registered trademarks, service marks and copyrights held
by the Company are valid and subsisting. To the knowledge of the Company and the
Stockholders, there is no unauthorized use, disclosure, infringement or
misappropriation of any of Company Intellectual Property Rights, any trade
secrets of the Company, or any of Company Third Party Intellectual Property
Rights to the extent licensed by or through the Company, by any third party,
including any employee or former employee of the Company. Except as set out on
Schedule 4.20(e), (i) the Company has not been sued or charged in writing as a
defendant in any claim, suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; (ii) to the
knowledge of the Company and the Stockholders, there is no basis for any such
charge or claim; and (iii) to the knowledge of the Company and the Stockholders,
there is not any infringement liability with respect to, or infringement or
violation by, the Company of any patent, trademark, service ▇▇▇▇, copyright,
trade secret or other proprietary right of another.
(f) No Company Intellectual Property Rights, trade secrets of the
Company or, to the knowledge of the Company and the Stockholders, Company Third
Party Intellectual Property Rights are subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by the Company. Except for contracts licensing the Company's
products executed in the ordinary course of business and in accordance with the
Company's past practices (all of which material contracts are listed on Schedule
4.13), the Company has not entered into any agreement to indemnify any other
person against any charge
-23-
of infringement of any Company Intellectual Property Rights. Except as set forth
on Schedule 4.20(f), each current and former officer of, employee of, and each
consultant to, the Company has executed and delivered to the Company a
non-disclosure agreement, or consultant agreement, respectively, in the
Company's standard forms substantially as set forth in Schedule 4.20(f) hereto
regarding the protection of such confidential or proprietary information and the
assignments of inventions to the Company; copies of all such agreements have
been delivered to AppNet. The Company is not and never has been engaged in any
dispute or litigation with an employee or former employee regarding matters
pertaining to intellectual property or assignment of inventions.
(g) The Company Intellectual Property Rights which were developed
by the Company, at no material additional cost to AppNet (or the Company, after
the Closing Date), and without material human intervention will, by May 1999:
(i) include year 2000 date conversion and capabilities
including, but not limited to, date data century
recognition; calculations which accommodate same century
and multi-century formulas and date values; correct sort
ordering; and date data interface values that reflect
the century;
(ii) automatically compensate for and manage and manipulate
data involving dates, including single century formulas
and multi-century formulas, and will not cause an
abnormal abort within the application or result in the
generation of incorrect values or invalid outputs
involving such dates;
(iii) provide that all date related user interface
functionalities and data fields include the indication
of the correct century;
(iv) provide that all date related software to software or
application to application data interface
functionalities will include the indication of the
correct century; and
(v) provide that all date processing by the Company
Intellectual Property Rights will include four-digit
date format and recognize and correctly process dates
for leap years.
4.21 Accounts Receivable. The accounts receivable of the Company arose in
the ordinary course of business from bona fide transactions and are not subject
to any setoff, counterclaim or defense. The accounts receivable (both billed and
unbilled) shall be fully collectible in accordance with their terms, subject to
any applicable reserves on the Current Balance Sheet.
4.22 Inventory. All items of inventory and supplies of the Company consist
of items of a quality, quantity and condition usable and saleable in the
ordinary course of the business of the Company and for the purpose for which
they are intended, without discount or reduction, and
-24-
conform to generally accepted standards in the industry of which the Company is
a part. The value of each item of inventory and supplies reflected on the
Financial Statements was, in each instance, valued at the lower of cost or
market value and based on the ordinary course of the business consistent with
the historical valuation policy of the Company and is not subject to any
write-down or write-off.
4.23 Related Party Transactions. Schedule 4.23 sets forth all
arrangements, Liabilities, agreements and contracts in effect as of the date
hereof among the Company and (i) any Person who is an officer, director or
Affiliate of the Company, or (ii) any Person who acquired the Company Common
Stock in a private placement.
4.24 Brokers. Except as set forth on Schedule 4.24, no Person has or will
have, as a result of the transactions contemplated by this Agreement, any right,
interest or claim against or upon the Company or, to the knowledge of the
Company or the Stockholders, against or upon AppNet, for any commission, fee or
other compensation payable as a finder or broker because of any act or omission
by the Company or the Stockholders. The Stockholders shall be fully responsible
for the payment of all such commissions, fees and other compensation due by the
Company or by the Stockholders and shall deliver to AppNet at Closing a release
from the party disclosed on Schedule 4.24.
4.25 Accredited Investors; Investment Intent.
(a) AppNet has made available to each Stockholder, during the
course of this transaction and prior to the delivery of the shares of AppNet
Common Stock (the "Securities"), the opportunity to ask questions of and receive
answers from any of the officers of AppNet concerning the terms and conditions
of the offering, and to obtain any documents or additional information necessary
to verify the information provided to each Stockholder or otherwise relative to
the financial data and business of AppNet, to the extent that such parties
possessed such information or could acquire it without unreasonable effort or
expense, and all such questions, if asked, have been answered satisfactorily and
all such documents, if examined, have been found to be fully satisfactory.
(b) Each Stockholder understands and acknowledges that (i) such
Stockholder must bear the economic risk of such Stockholder's investment in the
Securities; (ii) the Securities have not been registered under the 1933 Act or
any state securities laws and are being offered and sold in reliance upon
exemptions provided in the 1933 Act and state securities laws for transactions
not involving any public offering and, therefore, cannot be resold or
transferred unless they are subsequently registered under the 1933 Act and
applicable state laws or unless an exemption from such registration is
available; (iii) such Stockholder is purchasing the Securities for investment
purposes only for such Stockholder's own account and not with any view toward a
distribution thereof; (iv) no Stockholder has any contract, undertaking,
agreement or arrangement with any person to sell, transfer or pledge to such
person or anyone else any of the Securities which such Stockholder hereby
subscribes to purchase or any part thereof, and no Stockholder has any present
plans to enter into any such contract, undertaking, agreement or arrangement;
(v) there will be no public market for the Securities; and (vi) each Stockholder
understands that
-25-
AppNet is not obligated to comply with any reporting requirements under the
Securities Exchange Act of 1934, as amended, and that AppNet makes no
representation or warranty that it will disseminate to the public any current
financial or other information concerning itself, as is required by Rule 144
promulgated under the 1933 Act as one of the conditions of its availability.
(c) Each Stockholder has evaluated the risks of investing in the
Securities, and has determined that the Securities are a suitable investment for
such Stockholder. Each Stockholder can bear the economic risk of this investment
and can afford a complete loss of such Stockholder's investment.
(d) Each Stockholder, by himself or herself, together with a
"Purchaser Representative" (as defined in Rule 501(a) of Regulation D of the
1933 Act), is knowledgeable and experienced in evaluating investments and
experienced in financial and business matters, and is capable of evaluating the
merits and risks of investing in the Securities.
(e) Except as set forth on Schedule 4.25(e), each Stockholder
hereby represents that such Stockholder is a resident of the State of
California. No Stockholder has any present intention of becoming a resident of
any other state or jurisdiction.
4.26 Disclosure. No representation or warranty by the Company and the
Stockholders contained in this Agreement, and no representation, warranty or
statement by the Company or the Stockholders contained in any list, certificate,
schedule or other instrument, document, agreement or writing furnished or to be
furnished to, or made with, AppNet pursuant hereto or in connection with the
negotiation, execution or performance hereof, contains or will contain any
untrue statement by the Company or the Stockholders of a material fact or omits
or will omit to state any material fact necessary to make any statement herein
or therein not misleading. The Company and the Stockholders do not have
knowledge of any material changes reasonably expected to occur within one (1)
year from the date of this Agreement to any of the Company, the Company's
relations with employees, the Company's relations with customers, the Company's
competitive situation or the Company's relations with suppliers, or action of
any Governmental or Regulatory Authority or laws affecting the Company.
5. REPRESENTATIONS AND WARRANTIES OF APPNET
To induce the Company and the Stockholders to enter into this Agreement
and to consummate the transactions contemplated by this Agreement, AppNet
represents and warrants to the Company, as of the date hereof and as of the
Closing Date, as set forth below:
5.1 Due Organization. AppNet is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 Power and Authority. AppNet has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its Business
as it is presently being conducted and as it has been conducted in the past.
AppNet is duly qualified or licensed as a foreign corporation in good standing
in each jurisdiction in which the character of its properties
-26-
or the nature of its business activities requires such qualification, except
where the failure to be so qualified or licensed would not have a Material
Adverse Effect on AppNet.
5.3 Authority for Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been authorized by all requisite corporate action on the part of AppNet. Each of
AppNet has full corporate power, authority and legal right to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by AppNet and, assuming the due
authorization, execution and delivery by the Company and the Stockholders of
this Agreement, this Agreement is a legal, valid and binding obligation of
AppNet enforceable against AppNet, in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general.
5.4 No Violation to Result. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof: (i) are not in violation or breach of, do
not conflict with or constitute a default under the Certificate of Incorporation
or Bylaws of AppNet or any contract to which AppNet is a party; (ii) will not be
an event which, after notice or lapse of time or both, will result in any such
violation, breach, conflict, default, or acceleration; (iii) will not result in
a violation under any law, judgment, decree, order, rule, regulation, permit or
other legal requirement of any Governmental or Regulatory Authority, court or
arbitration tribunal whether federal, state, provincial, municipal or local
(within the U.S. or otherwise) at law or in equity, which is applicable to
AppNet; and (iv) will not result in the creation or imposition of any
Encumbrance in favor of any Person upon any of the properties or assets of
AppNet.
5.5 Brokers and Agents. No Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company or the Stockholders (other than as disclosed in
Section 4.24) for any commission, fee or other compensation payable as a finder
or broker because of any act or omission by AppNet.
5.6 Capitalization. Schedule 5.6 sets forth as of the date hereof, with
respect to AppNet, (i) the number of authorized shares of each class of its
capital stock, (ii) the number of issued and outstanding shares of each class of
its capital stock and the record owner thereof, and (iii) the number of shares
of each class, if any, which are held in treasury. Except as set forth on
Schedule 5.6, no preemptive right or rights of first refusal exist with respect
to the shares of capital stock of AppNet, and no such rights arise by virtue of
or in connection with the transactions contemplated hereby. Except as set forth
on Schedule 5.6, there are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require AppNet to issue or sell any shares of its capital stock (all of the
foregoing, the "AppNet Issuance Agreements"). Schedule 5.6 sets forth the
identity of the holder of each AppNet Issuance Agreement, the type of agreement
to which such holder is a party, the class and number of shares of capital stock
subject to each such agreement, and the exercise price or conversion price, or
other similar information concerning the consideration such holder is required
to tender in
-27-
exchange for such shares of the capital stock of AppNet. Schedule 5.6 identifies
each agreement pursuant to which any of GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇, L.L.C. ("GTCR"),
Smart Technology, L.L.C. ("Smart Technology"), and their respective Affiliates,
has acquired shares of the capital stock of AppNet. There are no outstanding
stock appreciation, phantom stock, profit participation or other similar rights
with respect to AppNet. Except as set forth on Schedule 5.6, AppNet is not
obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock. AppNet shall update the information on Schedule 5.6 as of the
Closing Date to reflect any changes between the date hereof and the Closing
Date.
5.7 Shares Issued in Stock Purchase. All of the shares of AppNet Common
Stock to be issued in connection with the Stock Purchase, upon issuance and
delivery by AppNet to the persons entitled thereto and receipt by AppNet of the
consideration therefor, will (i) be duly authorized and validly issued and fully
paid and non-assessable, and (ii) not have been issued in violation of any
preemptive rights or rights of first refusal.
5.8 Litigation. There is no litigation, suit, proceeding, action, claim,
demand or investigation, at law or in equity, pending, or, except as set forth
on Schedule 5.8, to the actual knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, in his capacity as
a Senior Vice President of AppNet, threatened, against AppNet before any
Governmental or Regulatory Authority.
6. COVENANTS
6.1 Access to Properties and Records.
(a) The Company shall afford to the officers, employees,
attorneys, accountants and other authorized representatives of AppNet, free and
full access to all of the Company's assets, properties, books and records and
employees in order to afford AppNet as full an opportunity of review,
examination and investigation as they shall desire to make of the affairs of the
Company, and AppNet shall be permitted to make extracts from, or take copies of,
such books, records (including the stock record and minute books) or other
documentation as may be reasonably necessary. The Company shall furnish or cause
to be furnished to AppNet such reasonable financial and operating data and other
information about the Company's Business, as it is presently being conducted, as
it has been conducted in the past, properties and assets which any of the
officers, employees, attorneys, accountants or other authorized representatives
of AppNet may reasonably request; provided that AppNet and its agents shall not
unreasonably interfere with the operations of the Company's Business. No
information or knowledge obtained in any investigation pursuant to this Section
6.1 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
transactions contemplated by this Agreement.
(b) AppNet shall afford to the officers, employees, attorneys,
accountants and other authorized representatives of the Company, access to such
of AppNet's assets, properties, books and records and employees in order to
afford the Company as full an opportunity of review, examination and
investigation as they shall reasonably request of the affairs of AppNet, and the
Company shall be permitted to make extracts from, or take copies of, such books,
records (including the stock record and minute books) or other documentation
thereof as may be
-28-
reasonably necessary. AppNet shall furnish or cause to be furnished to the
Company such reasonable financial and operating data and other information about
AppNet's Business, as it is presently being conducted, as it has been conducted
in the past, properties and assets which any of the respective officers,
employees, attorneys, accountants or other authorized representatives of the
Company may reasonably request; provided that the Company and its agents shall
not unreasonably interfere with the operations of AppNet's Business. No
information or knowledge obtained in any investigation pursuant to this Section
6.1 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
transactions contemplated by this Agreement.
6.2 Confidentiality.
(a) The Company and the Stockholders recognize and acknowledge
that they have in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company and/or AppNet, such as
lists of customers, operational policies, and pricing and cost policies, that
are valuable, special and unique assets of the Company's or AppNet's respective
businesses. The Company and the Stockholders agree that they will not disclose
confidential information with respect to the Company and/or AppNet to any Person
for any purpose or reason whatsoever (except to authorized representatives of
the Company, AppNet and to counsel and other advisers, provided that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 6.2), unless (i) such information becomes known to the public generally
through no fault of the Company or the Stockholders, (ii) disclosure is required
by law or the order of any Governmental or Regulatory Authority under color of
law, or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party or for certification or state licensure purposes; provided, that prior to
disclosing any information pursuant to clauses (ii) or (iii) above, the Company
or the Stockholders, shall, if possible, give prior written notice thereof to
AppNet and provide AppNet with the opportunity to contest such disclosure; and
provided, further, that this Section 6.2(a) shall not apply to any information
independently discovered or invented by any Stockholder after such Stockholder's
employment with the Company has been terminated.
(b) AppNet agrees that prior to the Closing (and at all times
after the date hereof if the Closing does not occur) it will not disclose
confidential information with respect to the Company and/or the Stockholders to
any Person, for any purpose or reason whatsoever (except to authorized
representatives of AppNet, the Company, and/or the Stockholders and to counsel
and other advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 6.2), unless (i) such information
becomes known to the public generally through no fault of AppNet, (ii)
disclosure is required by law or the order of any Governmental or Regulatory
Authority under color of law, or (iii) AppNet reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against
AppNet or for certification or state licensure purposes; provided, that prior to
disclosing any information pursuant to clauses (ii) or (iii) above, AppNet,
shall, if possible, give prior written notice thereof to the Company and/or the
Stockholders and provide the Company and/or the Stockholders with the
opportunity to contest such disclosure.
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6.3 Interim Covenants of the Company. From the date of this Agreement
until the Closing Date, except to the extent expressly permitted by this
Agreement or otherwise consented to by an instrument in writing signed by
AppNet, the Company shall (i) keep the Company's Business, as it is presently
being conducted, and organization intact and shall not take or permit to be
taken or do or suffer to be done anything other than in the ordinary course of
its business as the same is presently being conducted, (ii) use its reasonable
best efforts to keep available the services of its directors, officers,
employees, independent contractors and agents and retain and maintain good
relationships with its clients and maintain the Facilities in good condition,
(iii) perform its material obligations under the Contracts and Government
Contracts and (iv) maintain the goodwill and reputation associated with its
Business, as it is presently being conducted. Without limiting the generality of
the foregoing, the Company shall not, without the prior written consent of
AppNet:
(a) Adopt or propose any change in its Certificate of
Incorporation or Bylaws;
(b) Merge or consolidate with any other entity or acquire a
material amount of assets of any other entity;
(c) Issue or sell any stock, bonds, or other securities of which
the Company is the issuer or grant, issue or change any stock options, warrants
or other rights to purchase securities of the Company;
(d) Amend any term of any outstanding security of the Company;
(e) Sell, lease or dispose of or make any contract for the sale,
lease or disposition of or subject to lien or security interest or any other
Encumbrance any of its properties or assets, other than in the ordinary and
usual course of its business, consistent with the representations and warranties
contained herein, and not in breach of any of the provisions of this Section
6.3, in each case for a consideration at least equal to the fair value of such
property or asset;
(f) Grant any salary increase to, or increase the draw of, any of
its officers, directors, employees or agents, or enter into any new, or amend or
alter any existing, employment, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, severance, pension, stock option,
group insurance, death benefit or other fringe benefit plan, trust agreement or
other similar or dissimilar arrangement, or any employment or consulting
agreement except consistent with past compensation practices;
(g) Incur any bank indebtedness or borrowings, whether or not in
the ordinary course of its business, or issue any commercial paper; provided,
however, that the Company may, without AppNet's prior consent, borrow under that
certain Factoring Agreement, dated February 11, 1998, between the Company and
Silicon Valley Financial Services (the "Factoring Agreement) so long as the
aggregate amount of Purchased Receivables (as defined in the Factoring
Agreement) outstanding does not exceed $100,000;
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(h) Enter into any leases of real property or any material
leases of equipment and machinery;
(i) Enter into any contract, (i) which would be required to be
listed on Schedule 4.13 as a Material Contract had it been entered into prior to
the date hereof; or (ii) in which any Affiliate of the Company or any of the
Stockholders has any beneficial interest; provided, that AppNet shall not
unreasonably withhold consent, if the proposed Contract is in the ordinary
course of business consistent with prior practice and, provided that any such
Contract will not have a Material Adverse Effect on the Company.
(j) Redeem, purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock or debt securities or any option, warrant or
other right to purchase or acquire any such shares, or declare or pay any
dividend or other distribution (whether in cash, stock or other property) with
respect to its capital stock;
(k) Create, incur or assume any liability or indebtedness, except
in the ordinary course of business consistent with past practices; or postpone
or defer the creation, incurrence, or assumption of any liability or
indebtedness that would otherwise be created, incurred or assumed in the
ordinary course of business absent the execution of this Agreement;
(l) Pay or apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount, directly or
indirectly, to or for the benefit of the Company or any Affiliate thereof except
for payments to the Company's Affiliates in accordance with past practice,
provided that any such transaction is on terms no less favorable to the Company
than terms generally available with third parties in arm's length transactions;
(m) Split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock;
(n) Acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(o) Commit a breach of or amend or terminate any Contract,
Government Contract, permit, license or other right; provided, that, with
respect to amendments of any Contract, AppNet shall not unreasonably withhold
consent, if the proposed amendment to such Contract is in the ordinary course of
business consistent with prior practice and provided that any such amendment
will not have an adverse effect on the Company.
(p) Enter into any other transaction (i) that is not negotiated at
arm's length with an Affiliate of the Company or any officer or director of the
Company or the Stockholders, (ii) outside the ordinary course of business
consistent with past practice or (iii) prohibited hereunder.
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6.4 No Solicitation. Neither the Company (its officers or directors), the
Stockholders, nor any agent or any representative thereof, shall during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Closing or the termination of this Agreement in accordance with its
terms, directly or indirectly: (a) solicit, encourage or initiate the submission
of proposals or offers from any person or entity for, (b) participate in any
discussions pertaining to, or (c) furnish any information to any Person, other
than AppNet, relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, the Company or a merger,
consolidation or business combination involving the Company. If the Company or
any of the Stockholders receives any unsolicited offer or proposal relating to
any of the above, the Company or the Stockholders shall immediately notify
AppNet thereof, and provide to AppNet all information relating thereto,
including a copy of such offer or proposal, the identity of the party making
such offer or proposal and the specific terms of such offer or proposal.
6.5 Notification of Certain Matters. The Company shall give prompt notice
(the "Company Notice") to AppNet of (a) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (b) any material failure of the Company or the Stockholders to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by the Company or the Stockholders hereunder. AppNet shall give prompt
notice to the Company of (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of AppNet contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing Date and (b) any material
failure of AppNet to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by AppNet hereunder. The delivery of any notice
pursuant to this Section 6.5 shall not, without the express written consent of
the receiving party, be deemed to (A) modify the representations or warranties
hereunder, (B) modify the conditions set forth in Sections 7 or 8 hereof, as the
case may be, or (C) limit or otherwise affect the remedies available hereunder
to any party hereto; provided, however, that (i) a Company Notice shall modify
the representation or warranty to which it relates to the extent that the
aggregate amount of Damages attributable to the events or failure disclosed in
such Company Notice does not exceed the Indemnity Basket (as defined in Section
9.1(d)), in which case the Indemnity Basket shall be reduced by the amount of
such Damages resulting from the change in the representation or warranty
disclosed in the Company Notice; and (ii) the Company Notice shall not be deemed
to modify the representation or warranty to which it relates to the extent the
aggregate amount of Damages attributable to the events or failure disclosed in
such Company Notice exceeds the Indemnity Basket, in which case the Buyer may,
in its sole discretion, (a) proceed with Closing, reduce the Indemnity Basket by
the amount of such Damages resulting from the change in the representation or
warranty disclosed in the Company Notice and waive the breach of such
representation or warranty and all claims for Damages related thereto in excess
of the Indemnity Basket or (b) not consummate the transactions in this Agreement
based on the Company's and the Stockholders' failure to meet the condition
precedent in Section 7.1.
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6.6 Cooperation. AppNet, the Company and the Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon reasonable request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding.
6.7 Regulatory and Other Approvals. Subject to the terms and conditions of
this Agreement, each of the Company and AppNet will proceed diligently and in
good faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required of
AppNet, the Company or the Stockholders to consummate the Stock Purchase and the
other matters contemplated hereby, and (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other public or
private third parties as the other party or such Governmental or Regulatory
Authorities or other public or private third parties may reasonably request in
connection therewith.
6.8 Benefits Plans. Prior to Closing, if requested by AppNet, the Company
agrees to take any and all steps necessary in order to cease all accruals of
benefits or contributions under each Benefit Plan and to terminate each Benefit
Plan as of the day immediately preceding the Closing Date. The Company further
agrees that in the event of the termination of the Company's 401(k) plan, in
accordance with the preceding sentence, the Company shall promptly file with the
Internal Revenue Service a request for a determination letter with respect to
such transaction, and upon receipt of such letter, the Company shall
expeditiously distribute to the participants of the 401(k) plan their benefits
thereunder, in accordance with the terms of the 401(k) plan and all applicable
laws. Any and all actions taken by the Company pursuant to this Section 6.8
shall be solely at the Company's cost and expense. AppNet agrees to take any and
all steps necessary so that all Company employees (post-Closing) shall be
entitled to immediately participate in any AppNet standard benefits (including,
life insurance, medical insurance, disability insurance, and vacation, sick and
holiday leave) in accordance with AppNet's policies, subject to such changes,
additions or deletions as AppNet may make generally from time to time, and (i)
AppNet shall waive any limitations on benefits relating to pre-existing
conditions to the extent permitted under the applicable AppNet employee benefit
plan; and (ii) such employees shall be credited with their years of service with
the Company to the extent permitted under the applicable AppNet employee benefit
plan.
6.9 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts
promptly to take, or cause to be taken, all actions and do or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this Agreement
including the satisfaction of all conditions thereto. If applicable, the
Company, the Stockholders and AppNet shall file all notices and other
information and documents required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvement Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇") as promptly as practicable after the
date hereof.
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6.10 Stock Options. Options to purchase 100,000 shares of AppNet Common
Stock shall be made available promptly after the Closing Date for issuance to
key employees of the Company at a price of $6.00 per share, as determined by the
President of the Company in accordance with AppNet's policies, and authorized
and issued under the terms of AppNet's Incentive Stock Option Plan. None of
these options may be granted to Stockholders (except for Duncan Essex) or other
Persons who, as of the Closing Date, owned or had options to purchase more than
two percent (2%) of the Common Stock of the Company.
6.11 Refund of Assumed Option Value. In the event that any holder of
Company Stock Options being assumed pursuant to Section 3.6 does not exercise
his or her AppNet Stock Options due to failure to vest or failure to exercise
prior to the expiration thereof, the value of the AppNet Stock Options which
have not vested or have expired unexercised (the "Terminated Options") shall be
paid in cash to the Stockholders, in accordance with their Pro Rata Shares,
within 60 days after the first date the Terminated Options are no longer
exercisable. For purposes of this Section 6.11, the value of any Terminated
Options shall be equal to (a) the $6.00 per share value of AppNet Stock as of
the Closing Date, as adjusted (the "Stock Price"), multiplied by, the number of
shares of AppNet Stock for which the Terminated Options are exercisable, minus
(b) the aggregate exercise price of the Terminated Options. If AppNet shall at
any time subdivide (by any stock split, stock dividend or otherwise) its
outstanding shares of Common Stock into a greater number of shares, the Stock
Price in effect immediately prior to such subdivision shall be proportionately
reduced and, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Stock Price in effect immediately prior to
such combination shall be proportionately increased.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF APPNET
The obligations of AppNet to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or partial or complete waiver (in
AppNet's sole and absolute discretion), at or before the Closing Date, of the
following conditions:
7.1 Representations and Warranties True at the Closing Date. All of the
representations and warranties of the Company and the Stockholders contained in
this Agreement shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date, except for those representations and warranties which by their
terms are made as of a specific date which shall be true and correct on and as
of such date.
7.2 Performance. All of the terms, covenants, agreements and conditions of
this Agreement to be complied with, performed or satisfied by the Company and/or
the Stockholders on or before the Closing Date shall have been duly complied
with, performed or satisfied by the Closing Date.
7.3 Agreements with Employees. Those senior managers of the Company listed
on Schedule 7.3 shall have executed and delivered Senior Management Agreements
in the form attached hereto as Exhibit B. Those employees of the Company listed
on Schedule 7.3 shall
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have executed and delivered Employment Agreements in the form attached hereto as
Exhibit C. All other employees of the Company, who have not previously executed
a Nondisclosure Agreement with the Company, as set forth on Schedule 7.3, shall
have executed and delivered employment and/or non-disclosure agreements, in the
form attached hereto as Exhibit D.
7.4 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
transactions contemplated hereunder or limiting or restricting the conduct or
operation of the Business of AppNet or the Company following the transactions
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental or Regulatory Authority or other
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit, claim or proceeding of any nature pending or
threatened, against any of the Stockholders, the Company or AppNet, their
respective properties or any of their officers or directors, that could
reasonably be expected to have a Material Adverse Effect on the Company or
AppNet.
7.5 No Material Adverse Change. There shall have been, between the Balance
Sheet Date and the Closing Date, no change in the Business, financial condition
or prospects of the Company which reasonably could have a Material Adverse
Effect on the Company.
7.6 Certificates. The Company and the Stockholders shall have furnished
AppNet with such certificates of the officers of the Company and others to
evidence compliance with the conditions set forth in this Section 7 as may be
reasonably requested by AppNet.
7.7 Opinion of Counsel. AppNet shall have received an opinion of counsel
in form and substance reasonably acceptable to AppNet.
7.8 Financing. AppNet shall have secured all financing necessary to pay
the Cash Payment on terms satisfactory to AppNet.
7.9 AppNet's Review. AppNet shall be fully satisfied in its sole and
absolute discretion with the results of its review of, and its other due
diligence investigations with respect to, the Business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise) of the Company.
7.10 Governmental, Regulatory and Other Consents and Approvals. All
consents, approvals and actions of, filings with and notices to any Governmental
or Regulatory Authority or any other public or private third parties required of
the Stockholders, AppNet, or the Company to consummate the Stock Purchase and
the other matters contemplated hereby shall have been obtained. Any waiting
period applicable to the consummation of the Stock Purchase under the HSR Act
shall have expired or been terminated, and no action by the Department of
Justice or the Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be pending.
7.11 Delivery of Good Standing Certificates; Corporate Resolutions. AppNet
shall have received a certificate of good standing with respect to the Company
issued by the State of
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California. AppNet shall have received copies of the resolutions of the Company
approving this Agreement and the other transactions contemplated herein,
certified by the appropriate corporate officers.
7.12 Financial Terms. AppNet shall have received a certificate (the
"Closing Financial Certificate"), dated as of the Closing Date, signed on behalf
of the Company and by each Stockholder, stating that: (i) sales, net of bad debt
expense, for the Company's fiscal year ended December 31, 1998 were no less than
$2,700,000; (ii) earnings before interest and taxes ("EBIT") for the Company's
fiscal year ended December 31, 1998 were no less than $328,000 (or 12% of sales,
net of bad debt expense, for such fiscal year); (iii) the Company's Net Worth as
of the Closing is no less than $450,000; and (iv) the Company has no outstanding
long-term or short-term indebtedness to banks, stockholders, or other financial
institutions and creditors as of the Closing (in each case including the current
portions of such indebtedness, but excluding trade payables and other ordinary
course accounts payable); provided, however, that AppNet may, in its sole
discretion, waive the foregoing condition in whole or in part and, in such case,
the Cash Payment shall be reduced by the amount of any such indebtedness of the
Company (including principal and accrued interest, costs and fees). In
calculating the Company's Net Worth as of the Closing, any material increase in
intangible assets since December 31, 1997 shall be excluded, except with the
prior written agreement of AppNet.
7.13 Payment of Loans. All notes receivable from the Stockholders, other
Affiliates of the Company, and employees of the Company shall have been repaid
in full in accordance with their terms. AppNet shall have received, with respect
to each of the loans set forth on Schedule 4.23, a cancelled promissory note or
other evidence acceptable to AppNet from the lender acknowledging receipt of
full payment of each such loan.
7.14 Purchase of Personal Use Items. The Stockholders shall have purchased
any personal use assets (e.g., automobiles) from the Company at a purchase price
equal to the greater of the net book value of such assets as of Closing or the
outstanding indebtedness secured by such assets. Cell phones and pagers
purchased by the Company for use by its officers and employees are not personal
use assets within the meaning of this Section 7.14.
7.15 Stockholders Agreement and Registration Agreement. The Stockholders
shall have executed such agreements as shall be necessary to subject the AppNet
Common Stock to be delivered as the Stock Payment and as part of the Contingent
Amount to the Stockholders to AppNet's Stockholders Agreement and Registration
Agreement. Each holder of Company Stock Options which are converted into AppNet
Stock Options pursuant to Section 3.6 hereof shall have executed the joinder to
the AppNet Stockholders' Agreement and the Registration Agreement, as set forth
in Section 3.6.
7.16 Release. The Stockholders shall have delivered the release described
in Section 4.24.
7.17 Subordination Agreement. The Stockholders shall have delivered a
subordination agreement and the Company shall have delivered a perfection
certificate in form and substance acceptable to BankBoston, N.A. pursuant to
AppNet's line of credit with BankBoston, N.A.
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7.18 Resignations. Each of the directors of the Company shall have
executed and delivered resignations effective as of the Closing Date, and each
of the officers of the Company, except for ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, in his capacity as
President of the Company, shall have executed and delivered resignations
effective as of the Closing Date.
7.19 Investor Questionnaires. The Company shall have received and provided
to AppNet properly executed Investor Questionnaires from each of holders of
Common Stock of the Company or Company Stock Options such that as of the Closing
Date the Company shall not have more than 35 stockholders and optionholders who
are not Accredited Investors (as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended).
7.20 Termination of Factoring Agreement. The Company shall have terminated
that certain Factoring Agreement, dated February 11, 1998, between the Company
and Silicon Valley Financial Services (the "Bank") and all amounts due
thereunder shall have been repaid in full in accordance with the terms of such
agreement. The Company and the Stockholders shall have prepared for filing and
shall deliver at Closing a UCC-3 Termination Statement executed by the Bank,
evidencing that all amounts due under the Factoring Agreement have been fully
paid. After Closing, the Stockholders shall coordinate with the Bank in filing
such UCC-3 Termination Statement in the appropriate states, cities and counties.
7.21 Joinder of Optionholders. Each holder of Company Stock Options who
exercises such Options and receives shares of Company Common Stock prior to the
Closing Date shall have executed a joinder to this Agreement agreeing to be
bound by the terms and conditions hereof.
7.22 Delivery of Stock Pledge and Escrow Agreement. AppNet shall have
received from each Stockholder a Stock Pledge and Escrow Agreement, together
with stock powers executed in blank, representing each Stockholders' respective
Pro Rata Share of the Pledged Stock.
7.23 Maximum Number of Assumed Options. As of Closing, the maximum number
of shares of Common Stock underlying outstanding Company Stock Options to be
assumed by AppNet pursuant to Section 3.6 shall be 420,333.
7.24 Spousal Consents. The Company shall have received and provided to
AppNet properly executed Spousal Consents from each Stockholder's spouse, as
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS
The obligations of the Company and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction or
partial or complete waiver (in the Company's and the Stockholders' sole and
absolute discretion), at or before the Closing Date, of the following
conditions:
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8.1 Representations and Warranties True as of the Closing Date. All of the
representations and warranties of AppNet contained in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date, except
for those representations and warranties which by their terms are made as of a
specific date which shall be true and correct on and as of such date.
8.2 AppNet's Performance. All of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by
AppNet on or before the Closing Date shall have been duly complied with,
performed or satisfied by the Closing Date.
8.3 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
transactions contemplated hereunder or limiting or restricting the conduct or
operation of the Business of AppNet or the Company following the transactions
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental or Regulatory Authority seeking any of the
foregoing be pending. There shall be no action, suit, claim or proceeding of any
nature pending or threatened, against the Company, AppNet or its subsidiaries,
their respective properties or any of their officers or directors, that could
reasonably be expected to have a Material Adverse Effect on the Company or
AppNet.
8.4 Certificates. AppNet shall have furnished the Stockholders with such
certificates of the officers of AppNet and others to evidence compliance with
the conditions set forth in this Section 8 as may be reasonably requested by the
Stockholders.
8.5 Governmental, Regulatory and Other Consents and Approvals. All
consents, approvals and actions of, filings with and notices to any Governmental
or Regulatory Authority or any other public or private third parties required of
AppNet, the Stockholders or the Company to consummate the Stock Purchase and the
other matters contemplated hereby shall have been obtained. Any waiting period
applicable to the consummation of the Stock Purchase under the HSR Act shall
have expired or been terminated, and no action by the Department of Justice or
the Federal Trade Commission challenging or seeking to enjoin the consummation
of the transactions contemplated hereby shall be pending.
8.6 Delivery of Good Standing Certificates; Corporate Resolutions. The
Company shall have received certificates of good standing with respect to AppNet
issued by the State of Delaware. The Company shall have received copies of the
resolutions of AppNet approving the Stock Purchase and the other transactions
contemplated herein, certified by the appropriate corporate officers.
8.7 Opinion of Counsel. The Company shall have received an opinion of
counsel in form and substance reasonably acceptable to the Company.
8.8 Employment Agreements. AppNet shall have executed and delivered the
Senior Management Agreements and the Employment Agreement.
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8.9 No Material Adverse Change. There shall have been, between the date
hereof and the Closing Date, no change in the financial condition of AppNet
which would have a Material Adverse Effect on AppNet.
8.10 Stockholders' Agreement and Registration Agreement. AppNet shall have
delivered to the Stockholders and to the holders of the Assumed Options a letter
executed by GTCR reflecting GTCR's consent to the Stockholders' and the
optionholders' joinder to the AppNet Stockholders' Agreement and Registration
Agreement.
8.11 Offering Memorandum. AppNet shall have delivered to each Stockholder
and holder of options to purchase shares of Common Stock a Confidential Offering
Memorandum and Investor Questionnaire.
8.12 Consent Letter. AppNet shall have delivered to the Stockholders a
letter executed by GTCR and ▇▇▇ ▇. ▇▇▇▇▇ reflecting their consent under the
Stockholders Agreement to each Stockholder's pledge of his or her respective
portion of the Pledged Stock.
8.13 Listing of Stock. In the event that AppNet shall determine to
register any of its securities in an initial public offering of the AppNet
Common Stock on a firm commitment underwritten basis, AppNet shall, prior to the
closing of such offering, file an application to list on the Nasdaq National
Market System or a national securities exchange (a) all of the AppNet Common
Stock to be sold in such offering and (b) all of the issued and outstanding
AppNet Common Stock (including the shares issued in connection with the Stock
Payment).
9. INDEMNIFICATION
9.1 General Indemnification.
(a) Each of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (together, the
"Indemnifying Stockholders") and the Company, severally, covenants and agrees to
indemnify, defend, protect and hold harmless AppNet and its respective officers,
directors, employees, stockholders, assigns, successors and affiliates
(individually, a "Buyer Party" and collectively, the "Buyer Parties") from,
against and in respect of all liabilities, losses, claims, damages, punitive
damages, causes of actions, lawsuits, administrative proceedings (including
informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
excise taxes, interest (including interest from the date of such damages) and
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements of every kind, nature and description) (collectively,
"Damages") suffered, sustained, incurred or paid by the Buyer Parties, in any
action or proceeding against the Seller Parties (as defined in Section 9.1(b))
by the Buyer Parties or between the Buyer Parties and a third party, in
connection with, resulting from or arising out of, directly or indirectly: (i)
the inaccuracy of any representation or the breach of any warranty set forth in
this Agreement or certificates delivered on the part of the Company or the
Stockholders in connection with the Closing; (ii) the nonfulfillment of any
covenant or agreement on the part of the Company or the Stockholders set forth
in this Agreement or in any agreement or certificate executed and
-39-
delivered by the Company or the Stockholders pursuant to this Agreement or in
the transactions contemplated hereby; (iii) any and all benefits accrued under
the Benefit Plans or multiemployer plans as of the Closing Date and any and all
other liabilities arising out of, or in connection with the operation of the
Benefit Plans or multiemployer plans through the Closing Date; (iv) any and all
liabilities under the Environmental and Safety Requirements in connection with
or arising out of Releases by the Company or the Stockholders in or on the
property and facilities occupied by the Company that occurred on or prior to the
Closing Date; (v) failure of the Company or any Company employee to maintain all
licenses, permits, approvals and qualifications from any Government or
Government Regulatory Authority; (vi) any and all Taxes which are (A) imposed on
the Stockholders or any member (other than the Company) of the consolidated,
unitary or combined group which includes or included the Company, that AppNet or
the Company pays or otherwise satisfies in whole or in part; and (B) imposed on
a Buyer Party in respect of the Company's income, business, property or
operations or for which a Buyer Party may otherwise be liable as a successor to
the Company (x) for any taxable period or portion thereof ending on or prior to
the Closing Date, or (y) resulting by reason of the several liability of the
Company pursuant to Treasury Regulations Section 1.1502-6 or any analogous
state, local or foreign law or regulation or by reason of the Company having
been a member of any consolidated, combined or unitary group on or prior to the
Closing Date [other than (A) Taxes imposed on the Company on gain recognized by
the Company due to an election under Section 338 of the Code with respect to a
qualified stock purchase of the Company (as so determined in such Section)
resulting from the Stock Purchase, or corresponding provisions of State or local
law, or (B) Taxes imposed on the Company due to transactions outside the
ordinary course of the Company's business on the Closing Date which were
undertaken at the direction or control of AppNet; (vii) the business, operations
or assets of the Company on or before the Closing Date (except as otherwise
disclosed in the Financial Statements or the schedules to this Agreement) or the
actions of the Company's directors, officers, shareholders, employees or agents
before the Closing Date; and (viii) the Oracle Dispute and the Oracle Dispute
Settlement. Nothing in this Section 9.1(a) shall be deemed to extend the
survival period for any representation or warranty to which an indemnification
obligation most directly relates, as set forth in Section 11.12 hereof.
(b) AppNet covenants and agrees to indemnify, defend, protect and
hold harmless (i) each of the Stockholders and their respective assigns,
successors and affiliates and (ii) the Company and its officers, directors,
employees, stockholders, assigns, successors and affiliates (individually, a
"Seller Party" and collectively, the "Seller Parties") from, against and in
respect of all Damages suffered, sustained, incurred or paid by the Seller
Parties, in any action or proceeding against the Seller Parties by the Buyer
Parties or between the Seller Parties and a third party, in connection with,
resulting from or arising out of, directly or indirectly: (i) the inaccuracy of
any representation or the breach of any warranty set forth in this Agreement or
certificates delivered on the part of AppNet in connection with the Closing; and
(ii) the nonfulfillment of any covenant or agreement on the part of AppNet set
forth in this Agreement or in any agreement or certificate executed and
delivered by AppNet or pursuant to this Agreement or in the transactions
contemplated hereby.
(c) Notwithstanding the foregoing provisions of Section 9.1(a) and
(b), if Closing occurs, (i) the Stockholders hereby waive any right to
contribution, reimbursement or
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other right to recovery that they might otherwise have against the Company in
connection with any such indemnification or other obligations, and (ii) the
Company shall be deemed to be a Buyer Party.
(d) Notwithstanding anything contained in Section 9 to the
contrary, there shall be no liability for indemnification under this Section 9,
(i) unless the aggregate amount of Damages exceeds $50,000 (the "Indemnity
Basket"), but if the amount of such Damages exceeds $50,000, then
indemnification shall be made by the Indemnifying Party (as defined in Section
9.2) hereunder to the fullest extent of such Damages, including the first
$50,000 thereof or (ii) to the extent that an Indemnified Party has suffered,
incurred, sustained or become subject to, Damages by reason of all such claims
in excess of seventy-five percent (75%) of the Purchase Price (the
"Indemnification Cap") and no Indemnifying Party (and for the purpose of this
sentence, all Seller Parties shall be considered one and the same Indemnifying
Party) shall be obligated to pay more than seventy-five percent (75%) of the
Purchase Price under Section 9; provided, however, that the Indemnity Basket
shall not apply in the event that liability arises out of or in connection with
a breach of the representations or warranties in Sections 4.2, 4.3, 4.5, 4.10 or
4.17, for amounts payable pursuant to Sections 2.3 or 2.4, indemnification
pursuant to Section 9.1(a)(vi), for breach of covenants of Section 10 or for
amounts payable in connection with the Oracle Dispute or the Oracle Dispute
Settlement. Notwithstanding anything contained in Section 9 to the contrary, the
amount of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇'▇ liability as to a particular Claim shall not
exceed 65% of the Damages attributable to such Claim and the amount of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇'▇ liability as to a particular Claim shall not exceed 35% of the
Damages attributable to such Claim; and the aggregate amount of ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇'▇ liability on all Claims shall not exceed 65% of the Indemnification Cap
and the aggregate amount of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ liability on all Claims shall not
exceed 35% of the Indemnification Cap.
(e) For purposes of determining whether the Company or the
Stockholders have breached a representation or warranty solely for purposes of
determining whether a Buyer has incurred Damages for which it is entitled to be
indemnified, defended, protected and held harmless, all representations and
warranties of the Company and the Stockholders shall be deemed to be re-written
as if any qualifications to such representations and warranties regarding
materiality or Material Adverse Effect were not contained therein (i.e., such
representations and warranties shall be absolute).
9.2 Indemnification Procedures. All claims or demands for indemnification
under this Section 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event a Buyer Party or a Seller Party (an "Indemnified
Party") has a Claim against the other party (an "Indemnifying Party") hereunder
which does not involve a Claim being asserted against or sought to be collected
by a third party, the Indemnified Party shall with reasonable promptness send a
Claim Notice (as defined in Section 9.2(b)) with respect to such Claim to the
Indemnifying Party; provided, however, that AppNet shall not send a Claim Notice
with respect to the Oracle Dispute and/or the Oracle Dispute Settlement unless
and until such time as Oracle has made an actual claim against the Company
and/or any Buyer Party relating to the Oracle Dispute. If the Indemnifying Party
does not notify the Indemnified Party
-41-
within the Notice Period (as defined in Section 9.2(b)) that the Indemnifying
Party disputes such Claim, the amount of such Claim shall be conclusively deemed
a liability of the Indemnifying Party hereunder. In case the Indemnifying Party
shall object in writing to any Claim made in accordance with this Section
9.2(a), the Indemnified Party shall have fifteen (15) days to respond in a
written statement to the objection of the Indemnifying Party. If after such
fifteen (15)-day period there remains a dispute as to any Claims, the parties
shall attempt in good faith for thirty (30) days to agree upon the rights of the
respective parties with respect to each of such Claims. If the parties should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties. If no such agreement can be reached after good faith negotiation,
either the Indemnified Party or the Indemnifying Party may arbitrate such claim
in accordance with the terms of Section 11.11 hereof. For purposes of this
Section 9.2, (i) any notices or other communications required to be sent by the
Buyer Parties to the Seller Parties shall be sent directly to the Stockholder
Representative who shall then be required to forward such notices to each of the
Stockholders and (ii) any notices or other communications required to be sent by
the Seller Parties shall be sent by the Stockholder Representative to the Buyer
Parties.
(b) In the event that any Claim for which an Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party shall with reasonable
promptness notify the Indemnifying Party of such Claim, specifying the nature of
such claim and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
Claim) (the "Claim Notice"). The Indemnifying Party shall have fifteen (15) days
from the receipt of the Claim Notice (the "Notice Period") to notify the
Indemnified Party (i) whether or not the Indemnifying Party disputes the
Indemnifying Party's liability to the Indemnified Party hereunder with respect
to such Claim and (ii) if the Indemnifying Party does not dispute such
liability, whether or not the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend against such Claim. In the event
that the Indemnifying Party notifies the Indemnified Party within the Notice
Period that the Indemnifying Party does not dispute the Indemnifying Party's
obligation to indemnify hereunder and desires to defend the Indemnified Party
against such Claim and except as hereinafter provided, the Indemnifying Party
shall have the right to defend by appropriate proceedings, which proceedings
shall be promptly settled or prosecuted by the Indemnifying Party to a final
conclusion; provided that, unless the Indemnified Party otherwise agrees in
writing, the Indemnifying Party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement, the Indemnified Party may do so at the
Indemnified Party's sole cost and expense. If the Indemnifying Party elects not
to defend the Indemnified Party against such Claim, whether by failure of the
Indemnifying Party to give the Indemnified Party timely notice as provided above
or otherwise, then the Indemnified Party, without waiving any rights against the
Indemnifying Party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the Indemnifying Party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
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(c) Notwithstanding the provisions of Section 9.2(b), if at any
time, in the reasonable opinion of the Indemnified Party, notice of which shall
be given in writing to the Indemnifying Party, any such Claim seeks relief which
could have a Material Adverse Effect on any Indemnified Party, the Indemnified
Party shall have the right to control or assume (as the case may be) the defense
of any such Claim and the amount of any judgment or settlement and the
reasonable costs and expenses of defense shall be included as part of the
indemnification obligations of the Indemnifying Party hereunder. If the
Indemnified Party should elect to exercise such right, the Indemnifying Party
shall have the right to participate in, but not control, the defense of such
claim or demand at the sole cost and expense of the Indemnifying Party. For
purposes of this Section 9.2(c), any Claim with respect to the Oracle Dispute
and/or the Oracle Dispute Settlement shall be deemed not to have a Material
Adverse Effect if, at the time a Claim Notice is sent by AppNet with respect to
such Oracle Dispute and/or the Oracle Dispute Settlement, the amount of such
Claim does not, as of the date of such Claim Notice, exceed the product of (i)
the Holdback Amount, plus the value of the Pledged Stock as determined pursuant
to the Stock Pledge and Escrow Agreement (and any cash substituted in lieu
thereof), multiplied by (ii) one hundred fifteen percent (115%).
(d) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Claims or demands provided the Claim Notice sets
forth the specific basis for any such potential or contingent claim or demand to
the extent then feasible and the Indemnified Party has reasonable grounds to
believe that such a claim or demand may be made. Notwithstanding that the
Holdback Amount and the Contingent Amount may not be withheld by AppNet after
the first anniversary of the Closing Date to satisfy Claims asserted by AppNet
pursuant to this Section 9.2(d), the Indemnifying Stockholders shall, subject to
Section 11.12, continue to be liable for any indemnifiable Claims made by AppNet
pursuant with this Section 9.2(d).
9.3 Right to Setoff. In the event the Stockholders or the Indemnifying
Stockholders shall have an indemnification obligation to AppNet or the Company
(post-Closing, other than with respect to the Oracle Dispute or Oracle Dispute
Settlement) AppNet shall satisfy such indemnification obligations in the
following order: (i) first, through an offset of the Holdback Amount and (ii)
second, through an offset of the Contingent Amount. In the event that the
Stockholders or the Indemnifying Stockholders shall have an indemnification
obligation to AppNet or the Company (post-Closing) with respect to the Oracle
Dispute or Oracle Dispute Settlement, AppNet shall satisfy such indemnification
obligations in the following order: (i) first, through an offset of the Holdback
Amount; (ii) second, through an offset of the Contingent Amount and (iii) third,
through an offset of the Collateral (as defined in the Stock Pledge and Escrow
Agreement), pursuant to the terms of the Stock Pledge and Escrow Agreement. No
limitation on such right of offset shall otherwise affect a Buyer Party's rights
hereunder or otherwise. The remedy of offset shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which AppNet
or any other Buyer Party is or may be entitled at law or equity, under this
Agreement.
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9.4 Stockholder Liability for Indemnification. Each of the Stockholders
hereby acknowledges and agrees that each such Stockholders' Pro Rata Share of
(a) the Holdback Amount and the Contingent Amount shall be subject to setoff
pursuant to Section 9.3 hereof to satisfy the indemnification obligations of the
Indemnifying Stockholders pursuant to this Section 9 (including, without
limitation, the Oracle Dispute and the Oracle Dispute Settlement) and (b) the
Pledged Stock shall be subject to setoff pursuant to the terms of the Stock
Pledge and Escrow Agreement to satisfy the indemnification obligations of the
Indemnifying Stockholders in connection with Oracle Dispute and the Oracle
Dispute Settlement.
9.5 Release. Effective as of the Closing, each of the Stockholders hereby
irrevocably waives and releases the Company of, from and against any and all
claims or causes of actions for Damages that he has, may have, or has had at any
time on or before Closing.
10. NONCOMPETITION
10.1 Prohibited Activities. For the period commencing with Closing and
ending on the fifth (5th) year anniversary of Closing, none of the Indemnifying
Stockholders shall, for any reason whatsoever, directly or indirectly, for
himself or on behalf of or in conjunction with any other Person:
(a) engage as a stockholder, officer, director, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, in any business selling any products or
services in direct competition with AppNet, the Company or their Affiliates (a
"Competing Business") which is located in the counties in California listed on
Schedule 10.1(a) or in any other state within the United States; provided,
however, each of the Indemnifying Stockholders shall not be precluded from the
ownership of securities of corporations that are listed on a national securities
exchange or traded in the national over-the-counter market in an amount that
shall not exceed one percent (1%) of the outstanding shares of any such
corporation;
(b) call upon any Person who is, at that time or was within one
(1) year prior to that time, an employee of AppNet, the Company or their
Affiliates for the purpose or with the intent of enticing such employee away
from or out of the employ of AppNet, the Company or their Affiliates;
(c) call upon any Person who or that is, at that time, or has
been, within one (1) year prior to that time, a customer of AppNet, the Company
or their Affiliates for the purpose of soliciting or selling products or
services in competition with AppNet, the Company or their Affiliates; or
(d) publish any statement or make any statement (under any
circumstances reasonably likely to become public) critical of AppNet, the
Company or their Affiliates, or in any way adversely affecting or otherwise
maligning the reputation of AppNet, the Company or their Affiliates.
-44-
10.2 Damages. Because of the difficulty of measuring economic losses to
AppNet, the Company and their Affiliates as a result of a breach of the
foregoing covenants, and because of the immediate and irreparable damage that
could be caused to AppNet, the Company and their Affiliates for which it would
have no other adequate remedy, the Indemnifying Stockholders agree that the
foregoing covenants may be enforced by AppNet or the Company in the event of
breach by any of the Principal Stockholders, in addition to, but not in lieu of,
any other available remedies, by injunctions and restraining orders and other
equitable remedies.
10.3 Reasonable Restraint. It is agreed by AppNet and the Indemnifying
Stockholders that the foregoing covenants in this Section 10 impose a reasonable
restraint on the Indemnifying Stockholders in light of the activities and
business of AppNet, the Company and their Affiliates on the date of the
execution of this Agreement and the current plans of AppNet, the Company and
their Affiliates; but it is also the intent of the parties, that such covenants
be construed and enforced in accordance with the changing activities and
business of AppNet, the Company and their Affiliates throughout the term of this
covenant.
10.4 Severability; Reformation. The covenants in this Section 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
AppNet and the Indemnifying Stockholders that such restrictions be enforced to
the fullest extent which the court deems reasonable, and the Agreement shall
thereby be reformed.
10.5 Independent Covenant. All of the covenants in this Section 10 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any of the
Indemnifying Stockholders against AppNet, the Company or an Affiliate thereof,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by AppNet or the Company of such covenants. It is
understood by the parties hereto that the covenants contained in this Section 10
are essential elements of this Agreement and that, but for the agreement of the
Indemnifying Stockholders to comply with such covenants, AppNet would not have
agreed to enter into this Agreement. The Indemnifying Stockholders and AppNet
have independently consulted with their respective counsel and have been advised
concerning the reasonableness and propriety of such covenants with specific
regard to the nature of the business conducted by AppNet and the Company. The
Indemnifying Stockholders hereby agree that all covenants contained in this
Section 10 are reasonable and valid and waive all defenses to the strict
enforcement hereof by AppNet or the Company. The covenants contained in this
Section 10 hereof shall not be affected by any breach of any other provision
hereof by any party hereto and shall have no effect if this Agreement is
terminated pursuant to its terms.
10.6 Materiality. Each of the Indemnifying Stockholders hereby agrees that
the covenants set forth in this Section 10 are a material and substantial part
of the transactions contemplated by this Agreement.
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11. GENERAL
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of the Board of Directors of AppNet and
the Stockholder Representative;
(b) by the Stockholder Representative, on the one hand, or by
AppNet, on the other hand, if the Closing shall not have occurred on or before
April 15, 1999; provided that the right to terminate this Agreement under this
Section 11.1(b) shall not be available to either party whose material
misrepresentation, breach of warranty or failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before such date;
(c) by the Stockholder Representative, on the one hand, or by
AppNet, on the other hand, if there is or has been a material breach, failure to
fulfill or default on the part of the other party of any of the representations
and warranties contained herein or in the due and timely performance and
satisfaction of any of the covenants, agreements or conditions contained herein,
and the curing of such default shall not have been made or shall not reasonably
be expected to occur before the Closing Date;
(d) by the Stockholder Representative, on the one hand, or by
AppNet, on the other hand, if there shall be a final nonappealable order of a
federal or state court in effect preventing the consummation of the transactions
contemplated by this Agreement; or there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions by any governmental entity which would make the
consummation of the transactions illegal; or
(e) by AppNet pursuant to Section 6.5.
11.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 11.1, this Agreement shall forthwith become void,
and there shall be no liability or obligation on the part of any party hereto or
its officers, directors or stockholders. Notwithstanding the foregoing sentence,
(i) the provisions of this Section 11 (except that the time periods set forth in
Section 11.12 shall expire in accordance with their terms), Section 9, Section
6.2(a) (except for the Company's obligation to keep information regarding the
Company confidential thereunder) and Section 6.2(b) shall remain in full force
and effect and survive any termination of this Agreement; (ii) each party shall
remain liable for any intentional breach of this Agreement prior to its
termination; and (iii) in the event of termination of this Agreement pursuant to
Section 11.1(c) or (e), then notwithstanding the provisions of Section 11.7, the
breaching party (if such breach was in effect as of the date hereof) shall be
liable to the other party for reasonable expenses up to an aggregate of $100,000
incurred by such other party in connection with this Agreement and the
transactions contemplated by this Agreement.
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11.3 Cooperation. The Company and the Stockholders, on the one hand, and
AppNet, on the other hand, shall each deliver or cause to be delivered to the
other on the Closing Date, and at such other times and places as shall be
reasonably agreed to, such additional instruments as the other may reasonably
request for the purpose of carrying out this Agreement. In connection therewith,
if required, each of AppNet, the Company and the Stockholders will execute any
documentation reasonably required by AppNet's or the Company's independent
certified public accountants (in connection with such accountant's audit of
AppNet or the Company). Each of the Company and AppNet will also cooperate and
use their reasonable efforts to have their respective officers and employees
cooperate with AppNet and the Company, as the case may be, on and after the
Closing Date in furnishing information, accounting records, evidence, testimony
and other assistance in connection with any Tax return filing obligations,
audits, actions, proceedings, arrangements or disputes of any nature.
11.4 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that the Company and the Stockholders may not make
any assignment of this Agreement or any interest herein without the prior
written consent of AppNet. This Agreement or any of the severable rights and
obligations inuring to the benefit of or to be performed by AppNet hereunder may
be assigned by AppNet prior to the Closing Date, to any wholly-owned subsidiary
of AppNet, and after the Closing Date, to any wholly-owned subsidiary of AppNet
or to any entity to which AppNet may sell all or substantially all of the assets
of AppNet and which assumes all of the obligations of AppNet, and to the extent
so assigned, the Company and the Stockholders hereby recognize said entity as
the party-in-interest with respect to the rights and obligations assigned. In
the event of such assignment to an entity which acquires all or substantially
all of the assets of AppNet, the Stockholders agree to look solely to said
entity for the purpose of conferring benefits, or requiring performance of
obligations, assigned to it by AppNet if and to the extent such entity has
expressly assumed such obligations.
11.5 Entire Agreement. This Agreement (which includes the schedules and
exhibits hereto), sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby and thereby. Any and all
previous and contemporaneous agreements and understandings between or among the
parties regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument.
11.7 Expenses. AppNet has paid and shall pay the fees, expenses and
disbursements of AppNet and its brokers, agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement.
The Stockholders have paid and shall pay the fees, expenses and disbursements of
the Company and the Stockholders and each of their respective brokers, agents,
representatives, financial advisors, accountants and counsel incurred in
connection with the subject matter of this Agreement.
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11.8 Specific Performance; Remedies Not Exclusive. Each party hereto
acknowledges that the other parties shall be irreparably harmed and that there
shall be no adequate remedy at law for any violation by any of them of any of
the covenants or agreements contained in this Agreement, including, without
limitation, the confidentiality obligations set forth in Section 6.2(a) and (b)
and the noncompetition provisions set forth in Section 10. It is accordingly
agreed that, in addition to, but not in lieu of, any other remedies which may be
available upon the breach of any such covenants or agreements, each party hereto
shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties' covenants and agreements contained in this Agreement. All rights and
remedies of the parties under this Agreement shall be cumulative, and the
exercise of one or more rights or remedies will not preclude the exercise of any
other right or remedy available under this Agreement or applicable law.
11.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
facsimile transmission with receipt of delivery, sent by registered or certified
mail (postage prepaid, return receipt requested), or by nationally recognized
overnight courier service, as follows:
If to AppNet or the Company (post-Closing) to:
AppNet Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a required copy to:
▇▇▇▇▇▇ Flyer
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company (pre-Closing) to:
Internet Outfitters, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
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with a required copy to:
Manatt ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esquire
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Stockholders, to the Stockholder Representative:
Internet Outfitters, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed or
dispatched, and if given by mail, shall be deemed to have been given three (3)
days after the date of mailing such notice by registered or certified mail, and
if given by any other means, shall be deemed given only when actually received
by the addressees.
11.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware
(without regard to its laws relating to choice-of-law or conflicts-of-law).
11.11 Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement arising after the Closing shall be settled
exclusively by a three (3) person arbitration panel, with such arbitration
proceeding conducted in accordance with the rules of the American Arbitration
Association then in effect. The arbitrators shall not have the authority to add
to, detract from, or modify any provision hereof. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The arbitration proceeding
shall be held in Bethesda, Maryland. Notwithstanding the foregoing, the parties
shall be entitled to seek injunctive or other equitable relief from any court of
competent jurisdiction, without the need to resort to arbitration.
11.12 Survival of Representations, Warranties and Covenants. All
representations and warranties made by either party in or pursuant to this
Agreement or in any document delivered pursuant hereto shall survive for two (2)
years after the Closing; provided, however, that (i) in the event of fraud by
any party, the fraudulent representations and warranties of that party shall
survive the Closing for an indefinite period; (ii) the representations and
warranties in Sections 4.2, 4.3, 4.5, 4.10 and 4.17 shall survive until the
expiration of the applicable statute of limitations if longer than two (2)
years, or if there is no applicable statute of limitations, such
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representations and warranties shall survive indefinitely; and (iii) the
representations and warranties in Section 4.15 applicable to the Oracle Dispute
and the obligation of the Indemnifying Stockholders pursuant to Section
9.1(a)(viii) shall survive until such time as an Oracle Dispute Settlement has
been reached and any obligation of the Indemnifying Stockholders to make payment
to the Buyer Parties pursuant to Section 9.1(a) with respect thereto has been
satisfied. Notwithstanding the foregoing, if a Claim Notice is sent pursuant to
Section 9.2(a) or (b), the representation or warranty with respect to which such
Claim Notice is sent, and the related indemnification obligations set forth in
Section 9 with respect to the Claim Notice, shall survive until the resolution
of the Claim to which such Claim Notice relates and any obligation of the
Indemnifying Party to make payment to the Indemnified Party with respect thereto
has been satisfied, or such longer period as provided in subsections (i) and
(ii) hereof. All covenants, which by their own terms are intended to survive the
Closing, made by either party pursuant to this Agreement or in any document
delivered pursuant hereto shall survive the Closing pursuant to their terms.
11.13 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any jurisdiction, shall not be affected thereby,
and to this end the provisions of this Agreement shall be severable. The
preceding sentence is in addition to and not in place of the severability
provisions in Section 10.4.
11.14 Absence of Third Party Beneficiary Rights. Except as expressly
provided herein, no provision of this Agreement is intended, nor will be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, shareholder,
employee or partner of any party hereto or any other person or entity.
11.15 Mutual Drafting. This Agreement is the mutual product of the parties
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
11.16 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax or
securities consequences of the transactions contemplated by this Agreement and
is not relying on any representation or statements made by the other party as to
such tax and securities consequences.
11.17 Amendment; Waiver. This Agreement may be amended by the parties
hereto at any time only by execution of an instrument in writing signed by
AppNet and the Stockholder Representative. Any extension or waiver by any party
of any provision hereto shall be valid only if set forth in an instrument in
writing signed by AppNet and the Stockholder Representative.
11.18 Gender. Unless the context clearly indicates otherwise, where
appropriate the singular shall include the plural and the masculine shall
include the feminine or neuter, and vice
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versa, to the extent necessary to give the terms defined herein and/or the terms
otherwise used in this Agreement the proper meanings.
11.19 Headings. The headings and other captions in this Agreement are for
convenience and reference only and shall not be used in interpreting, construing
or enforcing any of the provisions of this Agreement.
11.20 Public Disclosure. Prior to the Closing Date, neither party shall
make any disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement unless previously approved by the Company and AppNet.
[EXECUTION PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
APPNET:
ATTEST: APPNET SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ Tobaccawala
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇ Tobaccawala
--------------------, Secretary ---------------------------------------
Title: Senior Vice President
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THE COMPANY:
ATTEST: INTERNET OUTFITTERS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------, Secretary ---------------------------------------
Title: CEO
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STOCKHOLDERS:
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/s/ Duncan Essex
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Duncan Essex
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SCHEDULES
Schedule 3.6 Company Stock Options
Schedule 4.4 Third Party Consents
Schedule 4.5 Company Capitalization
Schedule 4.6 Financial Statements
Schedule 4.7(a) Liabilities and Obligations
Schedule 4.7(b) Advance Payments or Deposits
Schedule 4.9(a) Benefit Plans
Schedule 4.9(b) List of Employees
Schedule 4.12(a) Real Property
Schedule 4.12(b) Personal Property
Schedule 4.12(c) Permitted Encumbrances
Schedule 4.13 Contracts
Schedule 4.15 Litigation
Schedule 4.16 Violations of Law
Schedule 4.17 Environmental Disclosure
Schedule 4.18(a) Significant Customers
Schedule 4.18(b) Suppliers Who Have Threatened Termination
Schedule 4.19 Insurance
Schedule 4.20(a) Company Intellectual Property Rights
Schedule 4.20(b) Licenses to Use Company Intellectual Property
Schedule 4.20(c) Third Party Intellectual Property Claims
Schedule 4.20(e) Unauthorized Intellectual Property Use
Schedule 4.20(f) Company Nondisclosure Agreement
Schedule 4.23 Related Party Transactions
Schedule 4.24 Brokers
Schedule 4.25(e) Residency of Stockholders
Schedule 4.26 Transfers of Assets Occurring Prior to the
Closing
Schedule 5.6 AppNet Capitalization
Schedule 5.8 Litigation
Schedule 7.3 Designated Employees
Schedule 10.1 (a) List of California Counties
EXHIBITS
Exhibit A Contingent Amount
Exhibit B Form of Senior Management Agreement
Exhibit C Form of Employment Agreement
Exhibit D Form of on-Disclosure Agreement
Exhibit E Stock Pledge and Escrow Agreement
Exhibit F Oracle Dispute Letters