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Exhibit 10.23
MERGER AGREEMENT
by and among
ANSWERTHINK CONSULTING GROUP, INC.,
(BUYER)
ANSWERTHINK ACQUISITION SUB #1, INC.,
(NEWCO)
LEGACY TECHNOLOGY, INC.,
(LEGACY)
AND
THE SHAREHOLDERS OF LEGACY
(COLLECTIVELY, SELLERS)
DATED AS OF APRIL 27, 1998
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TABLE OF CONTENTS
PAGE
1. Definitions...........................................................................................1
2. The Merger............................................................................................7
(a) The Merger......................................................................................7
(b) Effective Time of the Merger....................................................................7
(c) Certificate of Incorporation....................................................................8
(d) Bylaws..........................................................................................8
(e) Directors and Officers of Surviving Corporation.................................................8
(f) Effect of the Merger............................................................................8
(g) Conversion of Shares............................................................................8
(h) Purchase Price..................................................................................9
(i) Earned Payout Amount............................................................................9
(j) Form and Date of Payment of Earned Payout Amount...............................................10
(k) Working Capital Adjustment.....................................................................12
(l) Dissenting Shares..............................................................................13
(m) The Closing....................................................................................13
(n) Deliveries at the Closing......................................................................13
(o) Shareholders' Representative...................................................................14
3. Representations and Warranties Concerning the Transaction............................................15
(a) Representations and Warranties of each Seller..................................................15
(i) Authorization of Transaction..........................................................15
(ii) Noncontravention......................................................................15
(iii) Broker's Fees.........................................................................16
(iv) Investment............................................................................16
(v) Legacy Shares.........................................................................16
(vi) Disclosure............................................................................16
(b) Representations and Warranties of the Buyer and Newco..........................................17
(i) Organization of the Buyer and Newco...................................................17
(ii) Authorization of Transaction..........................................................17
(iii) Noncontravention......................................................................17
(iv) Brokers' Fees.........................................................................17
(v) Investment............................................................................18
(vi) Buyer's and Newco's Capitalization....................................................18
(vii) Disclosure............................................................................18
4. Representations and Warranties Concerning Legacy.....................................................18
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(a) Organization, Qualification, and Corporate Power...............................................19
(b) Capitalization.................................................................................20
(c) Noncontravention...............................................................................20
(d) Subsidiaries...................................................................................20
(e) Financial Statements...........................................................................20
(f) Events Subsequent to the Most Recent Fiscal Year End...........................................21
(g) Undisclosed Liabilities........................................................................23
(h) Tax Matters....................................................................................23
(i) Tangible Assets................................................................................25
(j) Owned Real Property............................................................................25
(k) Intellectual Property..........................................................................25
(l) Real Property Leases...........................................................................26
(m) Contracts......................................................................................27
(n) Notes and Accounts Receivable..................................................................29
(o) Powers of Attorney.............................................................................29
(p) Insurance......................................................................................29
(q) Litigation.....................................................................................30
(r) Employees......................................................................................30
(s) Employee Benefits..............................................................................30
(t) Guaranties.....................................................................................32
(u) Environment, Health, and Safety................................................................32
(v) Legal Compliance...............................................................................33
(w) Certain Business Relationships with Legacy.....................................................34
(x) Brokers' Fees..................................................................................34
(y) Disclosure.....................................................................................34
5. Pre-Closing Covenants................................................................................34
(a) General........................................................................................34
(b) Notices and Consents...........................................................................34
(c) Operation of Business..........................................................................34
(d) Preservation of Business.......................................................................35
(e) Access.........................................................................................35
(f) Notice of Developments.........................................................................35
(g) Exclusivity....................................................................................35
(i) Cancellation of Options, Bonus Programs and Phantom Stock Plans................................35
6. Additional Covenants.................................................................................36
(a) General........................................................................................36
(b) Litigation Support.............................................................................36
(c) Transition.....................................................................................36
(d) Confidentiality................................................................................37
(e) Termination of Bank Facilities; Release of Guaranties..........................................37
(f) Monitoring Information.........................................................................37
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(g) Landlords' Consents............................................................................37
(h) Additional Tax Matters.........................................................................37
(i) Covenant Not to Compete........................................................................38
(j) Conduct During Earned Payout Period............................................................39
7. Conditions to Obligations to Close...................................................................41
(a) Conditions to Obligation of the Buyer..........................................................41
(b) Conditions to Obligations of the Sellers.......................................................44
8. Remedies for Breaches of This Agreement..............................................................45
(a) Survival.......................................................................................45
(b) Indemnification Provisions for Benefit of the Buyer............................................45
(c) Indemnification Provisions for Benefit of the Sellers..........................................48
(d) Matters Involving Third Parties................................................................48
(e) Exclusive Remedy...............................................................................49
(f) Payment; General Right of Offset...............................................................49
(g) Other Indemnification Provisions...............................................................49
(h) Arbitration with Respect to Certain Indemnification Matters....................................50
9. Termination..........................................................................................50
(a) Termination of Agreement.......................................................................50
(b) Effect of Termination..........................................................................51
10. Miscellaneous........................................................................................51
(a) [Reserved].....................................................................................51
(b) Press Releases and Announcements...............................................................51
(c) No Third-Party Beneficiaries...................................................................51
(d) Entire Agreement...............................................................................52
(e) Succession and Assignment......................................................................52
(f) Facsimile/Counterparts.........................................................................52
(g) Descriptive Headings...........................................................................52
(h) Notices........................................................................................52
(i) Governing Law..................................................................................53
(j) Amendments and Waivers.........................................................................54
(k) Severability...................................................................................54
(l) Expenses.......................................................................................54
(m) Construction...................................................................................54
(n) Incorporation of Exhibits, Annexes, and Schedules..............................................54
(o) Specific Performance...........................................................................54
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A-1 Form of Promissory Note for Cash Equivalent Portion of Purchase
Price
Exhibit A-2 Form of Promissory Note for Exchange of Buyer's Shares in May,
2000
Exhibit B Financial Statements
Exhibit C Form of Purchase Price Adjustment Agreement
Exhibit D Form of Pledge Agreement
Exhibit E-1 Form of Employment Agreement with Key Employees
Exhibit E-2 Form of Compliance Agreement
Exhibit F Form of Stock Option Agreement
Exhibit G Confidentiality Agreement
ANNEXES AND TABLES
Annex A Buyer's Audited Financial Statements
Annex I Determination of Adjusted EBITA of Legacy
Annex II Exceptions to Representations and Warranties of Sellers
Annex III Exceptions to Representations and Warranties of Buyer
Annex IV [RESERVED]
Annex V Persons to Deliver Employment Agreements
Annex VI Persons to Deliver Compliance Agreements
Annex VII Persons to Receive Options
Table I Sample Calculations of Earned Payout Amount
SCHEDULES
Allocation Schedule
Disclosure Schedule
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MERGER AGREEMENT
This MERGER AGREEMENT ("AGREEMENT") is entered into as of the 27th day of
April, 1998, by and among ANSWERTHINK CONSULTING GROUP, INC., a Florida
corporation (the "BUYER"), ANSWERTHINK ACQUISITION SUB NO. 1, INC., a
Massachusetts corporation and wholly owned subsidiary of Buyer ("NEWCO"), LEGACY
TECHNOLOGY, INC., a Massachusetts corporation ("LEGACY"), and THE SHAREHOLDERS
OF LEGACY LISTED ON THE SIGNATURE PAGE HEREOF (collectively, the "SELLERS"). The
Buyer, Newco and the Sellers are referred to herein individually as a "PARTY"
and collectively as the "PARTIES." Legacy and Newco are sometimes referred to
herein as the "CONSTITUENT CORPORATIONS." If the context so requires, references
herein to Legacy shall mean the Surviving Corporation (as hereinafter defined)
for periods after the Closing Date.
The Sellers collectively own all of the outstanding capital stock of
Legacy.
This Agreement contemplates a transaction in which Legacy will merge with
and into Newco, with Newco being the surviving corporation, and the shares of
capital stock of Legacy being converted into the right to receive the Purchase
Price (as hereinafter identified), and the Parties intend such merger
transaction to be a tax-free reorganization under Section 368 of the Code (as
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defined) and intend this Agreement to be a "plan of reorganization" within the
meaning of the regulations promulgated under such section of the Code.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
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"ADJUSTED EBITA OF LEGACY" means adjusted earnings before interest and
taxes and goodwill amortization of Legacy during the Earned Payout Period as
determined by Annex I attached hereto.
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"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCABLE PORTION" means with respect to the share of any Seller in a
particular amount that fraction equal to the number of Legacy Shares the Seller
holds as set forth in the Allocation Schedule over the total number of
outstanding Legacy Shares.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"BUYER'S FINANCIAL STATEMENTS" has the meaning set forth in Section
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3(b) below.
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"BUYER'S SHARES" means the shares of common stock, par value $0.001
per share, of Buyer.
"CASH PORTION OF THE EARNED PAYOUT AMOUNT" has the meaning set forth
in Section 2(j) below.
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"CASH EQUIVALENT PORTION OF THE PURCHASE PRICE" has the meaning set
forth in Section 2(h) below.
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"CLOSING" has the meaning set forth in Section 2(m) below.
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"CLOSING DATE" has the meaning set forth in Section 2(m) below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of Legacy including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals; provided, that the Confidential
Information shall not include information which (i) was or becomes generally
available to the public other than as a result of a its disclosure under this
Agreement, (ii) was or becomes available to the receiving party on a non-
confidential basis from a source other than the Buyer or its advisors without
breach of this Agreement provided that such source is not known to such
receiving party, to any Seller or to any officer of Legacy to be bound by a
confidentiality agreement with Buyer, or otherwise prohibited from transmitting
the information to receiving party by a contractual, legal or fiduciary
obligation, (iii) was within receiving party's possession prior to its being
furnished to such receiving party by or on behalf of Buyer without breach of
this Agreement, provided that the source of such information was not bound by a
confidentiality agreement with Buyer or Legacy or otherwise prohibited from
transmitting the information to the receiving party by a contractual, legal or
fiduciary obligation, or (iv) which is required to be and actually is disclosed
by operation of law.
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"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any agreement whereby Legacy
provides computer data warehousing and/or related consulting services to a third
party during the 1997 or 1998 fiscal years of Legacy.
"C&L EARNOUT DETERMINATION" shall have the meaning set forth in
Section 2(j)(v) below.
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"C&L WORKING CAPITAL DETERMINATION" shall have the meaning set forth
in Section 2(k) below.
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"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. (S)1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
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"DOCUMENTATION" has the meaning set forth in Section 4(k) below.
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"EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2(i)
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below.
"EARNED PAYOUT PERIOD" means the period from May 1, 1998 through April
30, 1999.
"EARNOUT DISAGREEMENT NOTICE" has the meaning set forth in Section
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2(j)(v) below.
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"EFFECTIVE TIME" has the meaning set forth in Section 2(b) below.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section
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3(a)(i) below.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(e)
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below.
"FORFEITED SHARES" has the meaning set forth in Section 2(o) below.
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"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d) below.
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"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d) below.
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"INITIAL PUBLIC OFFERING" shall mean the first underwritten public
offering of Buyer's common stock, pursuant to an effective registration
statement under the Securities Act, with net proceeds to Buyer of not less than
$10 million.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including 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 works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"KEY EMPLOYEES" has the meaning set forth in Section 7(a)(viii) below.
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"Knowledge" means, with respect to Legacy, actual knowledge after
reasonable inquiry by Sellers of the officers of Legacy with responsibility for
the matters in question.
"LEGACY" has the meaning set forth in the preface above.
"LEGACY'S BUSINESS" means the business of providing consulting
services to, writing custom software for, and implementing software in the data
warehousing and OLAP (f/k/a DSS, EIS or Business Intelligence) markets.
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"LEGACY OPTIONHOLDERS" means the holders of options for the purchase
of Legacy Shares listed on the Allocation Schedule hereto.
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"LEGACY OPTIONS" means all the agreements between Legacy and those
persons listed on the Allocation Schedule hereto related to the issuance of
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Legacy Shares.
"LEGACY SHARES" means all outstanding shares of the common stock,
$0.01 par value per share, of Legacy.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"LICENSES" has the meaning set forth in Section 4(k) below.
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"MATERIAL" has the meaning set forth in Section 4 below.
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"MBCL" has the meaning set forth in Section 2(a) below.
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"MERGER" has the meaning set forth in Section 2(a) below.
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"MINIMUM WORKING CAPITAL" has the meaning set forth in Section 2(k)
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below.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" means the Financial Statements for
and as of the Most Recent Fiscal Year End.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section
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4(e) below.
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"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET SERVICE REVENUES" means the gross revenue of Legacy as normally
calculated on the Financial Statements less the sum of the following: (i)
Legacy's cost of subcontractors, (ii) reimbursed expenses, and (iii) the cost of
software that is resold by Legacy, all as calculated in accordance with GAAP.
"NET WORKING CAPITAL OF LEGACY" means total current assets of Legacy
less the sum of the following: (i) total current liabilities, (ii) any long-term
debt of Legacy, determined in accordance with GAAP, consistently applied and on
the accrual method of accounting; and (iii) all cash to accrual tax liabilities
incurred by Legacy as a result the transactions contemplated by this Agreement.
"NEWCO" has the meaning set forth in the preface above.
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"1998 ADJUSTED EBITA PERCENTAGE" means the Adjusted EBITA of Legacy
during the Earned Payout Period (prepared on an accrual basis of accounting and
in accordance with GAAP) divided by the Net Service Revenues during the Earned
Payout Period.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"OPTION CANCELLATION AGREEMENT" has the meaning set forth in Section
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7(a) herein.
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"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"POST IPO EARNOUT SHARES" has the meaning set forth in Section
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2(j)(ii) below.
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"PRE IPO EARNOUT SHARES" has the meaning set forth in Section
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2(j)(iii) below.
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"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(h) below.
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"PUZZANGHERA" means Xxxx X. Xxxxxxxxxxx.
"REGISTRATION AGREEMENT" means that certain Amended and Restated
Registration Rights Agreement dated April 13, 1998 by and among Buyer and
certain shareholders of Buyer (including Xxxxxx Xxxxxx, Xxxx Xxxxxxxxxx, Xxxxx
Xxxxx and Xxxxx Xxxx) for piggyback registration rights in connection with the
Buyer's Shares.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"SELLERS" has the meaning set forth in the preface above.
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"SHAREHOLDERS' REPRESENTATIVE" has the meaning set forth in
the Section 2(p) below.
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"STOCK PORTION OF THE EARNED PAYOUT AMOUNT" has the meaning
set forth in Section 2(j) below.
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"STOCK PORTION OF THE PURCHASE PRICE" has the meaning set
forth in Section 2(h) below.
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"SURVIVING CORPORATION" has the meaning set forth in Section
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2(a) below.
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"SUBSIDIARY" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto.
"TAX RETURN" means any federal, foreign, state and local
governmental tax return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"WORKING CAPITAL DISAGREEMENT NOTICE" has the meaning set
forth in Section 2(k) below.
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2. THE MERGER.
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(A) THE MERGER. At the Effective Time (as defined below),
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Legacy shall be merged with and into Newco (the "MERGER") and the separate
existence of Legacy shall thereupon cease, and the name of Newco, as the
surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall by
virtue of the Merger be "Legacy Technology, Inc.", and the Surviving Corporation
shall operate as "Legacy Technology, Inc." in the Commonwealth of Massachusetts.
The Merger shall have the effects set forth in the Massachusetts Business
Corporation Law and Chapter 156B of the Massachusetts General Laws
(collectively, the "MBCL").
(B) EFFECTIVE TIME OF THE MERGER. As soon as practicable
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after the satisfaction or waiver of the conditions hereinafter set forth, the
parties hereto will file with the Secretary of the State of the Commonwealth of
Massachusetts a certificate or articles of merger or ownership and other
documents (the "MERGER DOCUMENTS"), in such respective forms as required by, and
executed in accordance with, the relevant provisions of the MBCL in order to
effect the Merger. The Merger shall become effective at such time as the Merger
Documents
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shall have been accepted for filing with the Secretary of the State of the
Commonwealth of Massachusetts or such other times and dates as the parties shall
agree should be specified in the Merger Documents (the "EFFECTIVE TIME").
(C) CERTIFICATE OF INCORPORATION. The Certificate of
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Incorporation of Newco in effect at the time of the Merger shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
amended as provided thereunder and in the MBCL.
(D) BYLAWS. The Bylaws of Newco in effect at the time of
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the Merger shall be the Bylaws of the Surviving Corporation until altered,
amended or repealed, as provided thereunder and in the Certificate of
Incorporation and the MBCL.
(E) DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
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(I) The directors of Newco at the Effective Time shall
be the directors of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors
are duly elected or appointed and qualify in the manner provided
in the Certificate of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
(II) The officers of Legacy at the Effective Time shall
be the officers of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors
are duly elected or appointed and qualify in the manner provided
in the Certificate of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
(F) EFFECT OF THE MERGER. The Merger shall have the effects
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set forth in the MBCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchise of the Constituent Corporations shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Constituent
Corporations shall become the debts, liabilities and duties of the Surviving
Corporation. The purpose of the Surviving Corporation shall be the purposes of
Legacy immediately prior to the Merger. The total number of shares which the
Surviving Corporation is authorized to issue shall be 100 shares of Common
Stock, $.01 par value per share.
(G) CONVERSION OF SHARES. At the Effective Time, by virtue
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of the Merger and without any action on the part of the Sellers:
(I) Each Legacy Share issued and outstanding
immediately prior to the Effective Time (other than Legacy Shares
as to which the holders thereof shall have properly exercised
appraisal rights under the MBCL, if any) shall be converted into
the right to receive in cash its Allocable Portion of the
Purchase Price or as otherwise provided herein.
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(II) Each Legacy Share held in the treasury of Legacy
immediately prior to the Effective Time shall be canceled and
retired and cease to exist.
(III) Each share of common stock, par value $0.01 per
share, of Newco issued and outstanding immediately prior to the
Effective Time shall be converted into and exchangeable for one
share of common stock, par value $0.01 per share, of the
Surviving Corporation ("SURVIVING CORPORATION COMMON STOCK").
(H) PURCHASE PRICE. The purchase price for Legacy Shares
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shall be composed of the Cash Equivalent Portion of the Purchase Price, the
Stock Portion of the Purchase Price and the Earned Payout Amount. The Buyer
agrees to pay to the Sellers at the Closing the sum of $2,770,000 (to be reduced
dollar for dollar by the sum of the payments made by Legacy to cancel and
exchange the stock options described in Section 5(i)) in promissory notes (the
"CASH EQUIVALENT PORTION OF THE PURCHASE PRICE") and 538,333 Buyer's Shares
valued at $6.00 per share (the "STOCK PORTION OF THE PURCHASE PRICE") in
exchange for the Legacy Shares. The Cash Equivalent Portion of the Purchase
Price shall be issued by Buyer and payable to Sellers at the Closing by delivery
of promissory notes in the form of and pursuant to the terms of Exhibit A-1
attached hereto in the amounts set forth on the Allocation Schedule; provided,
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however, that each Seller enters into a Purchase Price Adjustment Agreement in
the form attached hereto as Exhibit C. The Stock Portion of the Purchase Price
shall be issued by Buyer to Sellers at the Closing by the delivery of Buyer's
Shares in accordance with the Allocation Schedule; provided, that each Seller
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enters into a Stock Pledge Agreement in the form attached hereto as Exhibit D
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hereto. The sum of the Cash Equivalent Portion of the Purchase Price, the Stock
Portion of the Purchase Price and the Earned Payout Amount shall be referred to
as the "PURCHASE PRICE." Each of (i) the Cash Equivalent Portion of the Purchase
Price and (ii) the Stock Portion of the Purchase Price shall be allocated among
Sellers as set forth on the Allocation Schedule. If, but only if, an Initial
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Public Offering is not completed on or before May 1, 2000, each of the Buyer's
Shares issued as the Stock Portion of the Purchase Price (whether or not such
Buyer's Shares are pledged in accordance with the Pledge Agreement) will be
exchangeable, at the holder's option, into a promissory note, the face amount of
which shall be equal to the number of Buyer's Shares exchanged by such holder
multiplied by 6.0 and such note shall be issued in the form of the promissory
note attached hereto as Exhibit A-2; provided, that such election to exchange
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must be made no later than May 15, 2000 and Buyer shall effect such exchange
promptly after such election; provided, further that, if at the time of such
exchange, any Buyer's Shares are pledged as collateral pursuant to Seller's
Purchase Price Adjustment Agreement in the form attached hereto as Exhibit C the
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required portion of such note shall continue to be held as Pledged Collateral
under his Purchase Price Adjustment Agreement and under his Pledge Agreement in
the form attached hereto as Exhibit D.
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(I) EARNED PAYOUT AMOUNT. In addition to the Cash
--------------------
Equivalent Portion of the Purchase Price and the Stock Portion of the Purchase
Price, the Buyer agrees to pay to the Sellers an amount (the "EARNED PAYOUT
AMOUNT") equal to the product of (A) the
-9-
amount, if any, by which the Net Service Revenues during the Earned Payout
Period exceed $7,500,000 up to a maximum excess amount of $1,250,000 and (B) the
lesser of (i) 1 and (ii) the product of (x) the 1998 Adjusted EBITA Percentage
minus 0.135 and (y) 25; provided, however, that in no event will the Earned
Payout Amount be less than 0. Table 1 attached hereto includes sample
-------
calculations of Earned Payout Amounts.
(J) FORM AND DATE OF PAYMENT OF EARNED PAYOUT AMOUNT. The
------------------------------------------------
Earned Payout Amount, if any, shall be payable in the aggregate as follows: (i)
50% of the Earned Payout Amount in cash (the "CASH PORTION OF THE EARNED PAYOUT
AMOUNT") and (ii) 50% of the Earned Payout Amount in Buyer's Shares, as
determined hereinafter (the "STOCK PORTION OF THE EARNED PAYOUT AMOUNT").
(I) CASH PORTION OF EARNOUT. The Cash Portion of the
-----------------------
Earned Payout Amount, if any, shall be payable (pro rata in
accordance with the percentages set forth on the Allocation
----------
Schedule) to the Sellers; provided, however, that each Seller
--------
enters into a Purchase Price Adjustment Agreement in the form set
forth as Exhibit C attached hereto. The Cash Portion of the
---------
Earned Payout Amount shall be paid by wire transfer or other
delivery of immediately available funds within forty-five (45)
days following the expiration of the Earned Payout Period to an
account or accounts designated by Sellers.
(II) STOCK PORTION OF EARNOUT IF IPO PRIOR TO THE
--------------------------------------------
EXPIRATION OF THE EARNED PAYOUT PERIOD. If the Initial Public
--------------------------------------
Offering is completed on or before the expiration of the Earned
Payout Period, the Stock Portion of the Earned Payout Amount, if
any, will automatically be issued (pro rata in accordance with
the percentages set forth on the Allocation Schedule) to the
-------------------
Sellers, by the delivery to each such Seller of Buyer's Shares as
calculated in this Section 2(j)(ii) ("POST IPO EARNOUT SHARES").
----------------
The aggregate number of Post IPO Earnout Shares under this
Section 2(j)(ii) will be equal to the Stock Portion of the Earned
----------------
Payout Amount divided by the average closing price of the Buyer's
common stock as listed on the NASDAQ National Market System for
the period beginning on the later of (A) the closing of the
Initial Public Offering or (B) February 1, 1999 and ending on the
last day of the Earned Payout Period. The Post IPO Earnout Shares
shall be issued (pro rata in accordance with the percentages set
forth on the Allocation Schedule) to the Sellers (as rounded up
-------------------
or down to the nearest whole number); provided, that each Seller
receiving Post IPO Earnout Shares must enter into a Stock Pledge
Agreement in the form attached hereto Exhibit D.
---------
(III) STOCK PORTION OF EARNOUT IF NO IPO PRIOR TO THE
-----------------------------------------------
EXPIRATION OF THE EARNED PAYOUT PERIOD. If the Initial Public
--------------------------------------
Offering is not completed on or before the expiration of the
Earned Payout Period, the Stock Portion of the Earned Payout
Amount, if any, will be issued (pro rata in accordance with the
percentages set forth on the Allocation Schedule) to the Sellers,
-------------------
by the delivery to each such Seller of Buyer's Shares as
calculated in this
-10-
Section 2(j)(iii) ("PRE IPO EARNOUT SHARES"). The Sellers to
-----------------
receive Pre IPO Earnout Shares will receive that number of
Buyer's Shares equal to his or her percentage share of the Stock
Portion of the Earned Payout Amount (as determined in accordance
with the percentages set forth on the Allocation Schedule)
-------------------
divided by $6.00 (rounded up or down to the nearest whole
number); provided, that each Seller receiving Pre IPO Earnout
Shares must enter into a Stock Pledge Agreement with the Buyer in
the form attached hereto as Exhibit D.
---------
(IV) PAYOUT. The Stock Portion of the Earned Payout
------
Amount shall be payable by the delivery of the certificates
representing such shares calculated in accordance with this
Section 2(j)(iii) to the Sellers on or before sixty (60) days
-----------------
following the expiration of the Earned Payout Period, subject to
Section 2(j)(v) below.
---------------
(V) DETERMINATION. The Earned Payout Amount shall be
-------------
determined by Coopers & Xxxxxxx, L.L.P. in accordance with the
terms of this Agreement and Annex I hereto which determination
-------
(the "C&L EARNOUT DETERMINATION") shall be submitted in writing
to the Buyer and the Sellers not later than sixty (60) days after
the expiration of the Earned Payout Period. If, within five (5)
business days after receipt of the C&L Earnout Determination and
reasonably requested basic support information (which Buyer
hereby agrees to use its best efforts to cause Coopers & Xxxxxxx,
L.L.P. to promptly provide), Shareholders' Representative
delivers written notice to the Buyer that Sellers disagree with
the C&L Earnout Determination (an "EARNOUT DISAGREEMENT NOTICE"),
then Buyer and Shareholders' Representative shall attempt in good
faith to mutually determine the correct amount of the Earned
Payout Amount within five (5) business days after Shareholders'
Representative delivers the Earnout Disagreement Notice to the
Buyer. If Buyer and Shareholders' Representative cannot in good
faith mutually determine the amount of the Earned Payout Amount
within such period, then Shareholders' Representative shall have
ten (10) days following their receipt of the C&L Earnout
Determination to object in good faith to the Earned Payout
Amount, in which event the item or items in dispute shall be
resolved by Deloitte & Touche, as combined from time to time;
provided that neither Buyer nor any Seller has any direct or
indirect conflict or relationship with Deloitte & Touche, in
which case such dispute shall be resolved by Ernst & Young, as
combined from time to time; provided that neither Buyer nor any
Seller has any direct or indirect conflict or relationship with
Ernst & Young, in which case such dispute shall be resolved by
another "Big Six" accounting firm, as combined from time to time,
mutually acceptable to Buyer and Puzzanghera on behalf of
Sellers. The determination made by the applicable "Big Six"
accounting firm" (whether Deloitte & Touche, Ernst & Young or
another accounting firm) shall be conclusive and binding on the
Parties with respect to such disputed items(s). Any adjustment in
the Earned Payout Amount determined by such accounting firm shall
be made within ten (10) days following such resolution. The cost
of
-11-
such other accounting firm shall be borne as follows: (i) if the
review of such other accounting firm would result in an increase
in the Earned Payout Amount of more than $5,000, then Buyer shall
bear such cost; or (ii) if the review of such other accounting
firm would result in an increase in the Earned Payout Amount of
$5,000 or less, in no change to the Earned Payout Amount, or in a
decrease in the Earned Payout Amount, then Sellers shall bear
such cost.
(K) WORKING CAPITAL ADJUSTMENT. The Cash Equivalent Portion
--------------------------
of the Purchase Price shall be adjusted downward on a dollar-for-dollar basis by
the amount by which the Net Working Capital of Legacy as of the Closing Date
(plus the aggregate severance amounts specifically set forth on Section 4(f) of
---- ------------
the Disclosure Schedule up to a maximum of $135,000) is less than $100,000 (the
"MINIMUM WORKING CAPITAL"). At the Closing Date, the Sellers shall use their
best estimate of the Net Working Capital and such Net Working Capital of Legacy
as of the Closing Date shall be determined subsequent to the Closing by Coopers
& Xxxxxxx, L.L.P. in accordance with the terms of this Agreement (at the expense
of the Buyer), which determination (the "C&L WORKING CAPITAL DETERMINATION")
shall be submitted in writing to the Buyer and the Sellers not later than sixty
(60) days after the Closing. Unless Puzzanghera on behalf of all Sellers objects
in writing to the C&L Working Capital Determination within five business days of
the receipt of such determination, the C&L Working Capital Determination shall
be final, conclusive and binding on the Parties. If no objection is made,
Sellers shall pay to Buyer either (i) by wire transfer to Buyer, or (ii) at
Seller's option if the promissory notes representing the Cash Equivalent Portion
of the Purchase Price have not been paid off, reduce such promissory notes, the
amount, if any, by which the amount of the C&L Working Capital Determination is
less than the Minimum Working Capital within ten (10) days after the C&L Working
Capital Determination. If Shareholders' Representative makes an objection to the
C&L Working Capital Determination then Shareholders' Representative must deliver
written notice to the Buyer that Sellers disagree with the C&L Working Capital
Determination (an "WORKING CAPITAL DISAGREEMENT NOTICE"), then Buyer and
Shareholders' Representative shall attempt in good faith to mutually determine
the correct amount of the Net Working Capital as of the Closing Date within five
(5) business days after Shareholders' Representative delivers the Working
Capital Disagreement Notice to the Buyer. If Buyer and Shareholders'
Representative cannot in good faith mutually determine the amount of the Net
Working Capital as of the Closing Date within such period, then Shareholders'
Representative shall have ten (10) days following their receipt of the C&L
Working Capital Determination to object in good faith to the Net Working Capital
as of the Closing Date, in which event the item or items in dispute shall be
resolved by Deloitte & Touche, as combined from time to time; provided that
neither Buyer nor any Seller has any direct or indirect conflict or relationship
with Deloitte & Touche, in which case such dispute shall be resolved by Ernst &
Young, as combined from time to time; provided that neither Buyer nor any Seller
has any direct or indirect conflict or relationship with Ernst & Young, in which
case such dispute shall be resolved by another "Big Six" accounting firm, as
combined from time to time, mutually acceptable to Buyer and Puzzanghera on
behalf of Sellers. The determination made by the applicable "Big Six accounting
firm" (whether Deloitte & Touche, Ernst & Young or another accounting firm)
shall be conclusive and binding on the Parties with respect to such disputed
-12-
items(s). Any adjustment in the Net Working Capital as of the Closing Date
determined by such other accounting firm shall be made within ten (10) days
following such resolution. The cost of such other accounting firm shall be borne
as follows: (i) if the review of such other accounting firm would result in an
increase in the Net Working Capital as of the Closing Date of more than $5,000,
then Buyer shall bear such cost; or (ii) if the review of such other accounting
firm would result in an increase in the Net Working Capital as of the Closing
Date of $5,000 or less, in no change to the Net Working Capital as of the
Closing Date, or in a decrease in the Net Working Capital as of the Closing
Date, then Sellers shall bear such cost.
(L) DISSENTING SHARES. Notwithstanding anything in this
-----------------
Agreement to the contrary, Legacy Shares which are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have not voted such Legacy Shares in favor of the Merger and who shall have
delivered a written demand for appraisal of such Shares in the manner provided
in the MBCL (the "DISSENTING SHARES") shall not be converted into or be
exchangeable for the right to receive the cash consideration provided above,
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost his right to appraisal and payment under the MBCL.
If such holder shall have so failed to perfect or shall have effectively
withdrawn or lost such right, his Legacy Shares shall thereupon be deemed to
have been converted into and to have become exchangeable for, at the Effective
Time, the right to receive the cash consideration provided herein.
(M) THE CLOSING. The closing of the transactions
-----------
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Xxxxx & Xxxxxxx, LLP in Washington, D.C. commencing at 9:00 a.m. local time
on April 30, 1998 or on the first business day following the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, or such other date as the Buyer and the
Sellers may mutually determine (the "CLOSING DATE"); provided, however, that the
Closing Date shall be no later than May 15, 1998.
(N) DELIVERIES AT THE CLOSING. At the Closing, (A) the
-------------------------
Sellers will deliver to the Buyer the various certificates, instruments, and
documents referred to in Section 7(a) below, (B) the Buyer will deliver to the
------------
Sellers the various certificates, instruments, and documents referred to in
Section 7(b) below, (C) the Sellers will deliver to the Buyer stock certificates
------------
representing all of the Legacy Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (D) the Buyer will deliver to the Sellers the
consideration specified in Section 2(h) above as may be adjusted after the
------------
Closing pursuant to Section 2(k) above.
------------
(O) POST-CLOSING ADJUSTMENT. If, but only if, the Initial
-----------------------
Public Offering is completed on or before December 31, 1998, the Sellers shall
forfeit to Buyer (pro rata in accordance with the percentages set forth on the
Allocation Schedule) the number of Buyer's Shares (collectively, the "FORFEITED
--------------------
SHARES") equal to (i) 538,333 less (ii) the quotient of (A) $3,230,000 divided
by (B) the price of the Buyer's Shares at the closing of the Initial Public
-13-
Offering; provided, however, that the number of Forfeited Shares shall not
exceed 158,300 in the aggregate. The Sellers agree to execute such other
certificates, instruments and documents as reasonably requested by the Buyer to
effect the transfer of the Forfeited Shares hereunder. All forfeitures under
this Section 2(o) shall be treated as a reduction to the Purchase Price.
------------
(P) SHAREHOLDERS' REPRESENTATIVE.
----------------------------
(I) In order to administer efficiently (A) the
implementation of the Agreement by the Sellers, (B) the waiver of
any condition to the obligations of the Sellers to consummate the
transactions contemplated hereby, and (C) the settlement of any
dispute with respect to the Agreement, the Sellers hereby
designate Puzzanghera as their representative (the "SHAREHOLDERS'
REPRESENTATIVE").
(II) The Sellers hereby authorize the Shareholders'
Representative (A) to take all action necessary in connection
with the implementation of the Agreement on behalf of the
Sellers, the waiver of any condition to the obligations of the
Sellers to consummate the transactions contemplated hereby, or
the settlement of any dispute, (B) to give and receive all
notices required to be given under the Agreement and (C) to take
any and all additional action as is contemplated to be taken by
or on behalf of the Sellers by the terms of this Agreement.
(III) In the event that the Shareholders'
Representative dies, becomes legally incapacitated or resigns
from such position, Xxxxxxx XxXxxxxx shall fill such vacancy and
shall be deemed to be the Shareholders' Representative for all
purposes of this Agreement; however, no change in the
Shareholders' Representative shall be effective until Buyer is
given notice of it by the Sellers.
(IV) All decisions and actions by the Shareholders'
Representative shall be binding upon all of the Sellers, and no
Seller shall have the right to object, dissent, protest or
otherwise contest the same, in the absence of fraud, gross
negligence or willful misconduct of the Shareholders'
Representative.
(V) By their execution of this Agreement, the Sellers
agree that: (A) Buyer shall be able to rely conclusively on the
instructions and decisions of the Shareholders' Representative as
to any actions required or permitted to be taken by the Sellers
or the Shareholders' Representative hereunder, and no party
hereunder shall have any cause of action against Buyer for action
taken by Buyer in reliance upon the instructions or decisions of
the Shareholders' Representative; (B) all actions, decisions and
instructions of the Shareholders' Representative shall be
conclusive and binding upon all of the Sellers; no Seller shall
have any cause of action against Buyer or Legacy for any action
taken or omitted to be taken, decision made or omitted to be made
or any instruction given or omitted to be
-14-
given by the Shareholders' Representative; and no Seller shall
have any cause of action against the Shareholders' Representative
for any action taken, decision made or instruction given by the
Shareholders' Representative under this Agreement, except for
fraud, gross negligence or willful breach of this Agreement by
the Shareholders' Representative; (C) the Shareholders'
Representative shall be deemed to fulfill any fiduciary
obligation to the Sellers so long as no Seller is adversely
affected by any action or failure to act of the Shareholders'
Representative in a disproportionate measure compared to any
other Seller; (D) the provisions of this Section 2(p) are
------------
independent and severable, shall constitute an irrevocable power
of attorney, coupled with an interest and surviving death,
granted by the Sellers to the Shareholders' Representative and
shall be binding upon the executors, heirs, legal representatives
and successors of each Seller; and (E) All fees and expenses
incurred by the Shareholders' Representative as such shall be
paid by the Sellers.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
---------------------------------------------------------
(A) REPRESENTATIONS AND WARRANTIES OF EACH SELLER. Each
---------------------------------------------
Seller represents and warrants to the Buyer as follows as of the date of this
Agreement and as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(a)):
-------------
(I) AUTHORIZATION OF TRANSACTION. The Seller has full
----------------------------
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been
duly executed and delivered by the Seller. This Agreement
constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and conditions,
except that (A) such enforceability may be subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other laws, decisions or equitable principles now or hereafter in
effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally or non-competition
arrangements, and to general equity principles, and (B) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may
be brought (the terms of clause (A) and (B) are sometimes
collectively referred to as the "EQUITABLE EXCEPTIONS"). The
Seller for himself personally need not give any notice to, make
any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement (other
than as provided for in Article 2 of this Agreement).
---------
(II) NONCONTRAVENTION. Neither the execution and the
----------------
delivery of this Agreement by the Seller, nor the consummation of
the transactions contemplated hereby by the Seller, will (A)
violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
-15-
government, governmental agency, or court to which the Seller is
subject, except as would not have a Material adverse effect on
Legacy or the transactions contemplated by this Agreement or (B)
except as set forth in Annex II, conflict with, result in a
breach of, constitute a default under, result in the acceleration
of, create in any part the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract,
lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument
of indebtedness, Security Interest, or other arrangement to which
the Seller is a party or by which it is bound or to which any of
its assets is subject and which has a Material adverse effect on
Legacy.
(III) BROKER'S FEES. Seller has no Liability or
-------------
obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
(IV) INVESTMENT. Seller is acquiring Buyer's Shares
----------
for his own account, with no present intention of distributing or
reselling such shares or any part thereof, and that he is
prepared to bear the economic risk of retaining the Buyer's
Shares for an indefinite period, all without prejudice, however,
to his right at any time, in accordance with this Agreement and
the transactions contemplated hereby, lawfully to sell or
otherwise dispose of all or any part of the Buyer's Shares held
by him. The Seller also represents and warrants that he is an
accredited investor, as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act, and that he
has had the opportunity to ask questions of the Buyer's
management with respect to his investment. The Seller agrees that
if, and to the extent, he elects to sell the Buyer's Shares, he
will do so in compliance with the provisions and requirements of
the Securities Act and applicable state securities laws.
(V) LEGACY SHARES. The Seller holds of record and
-------------
owns beneficially the number of Legacy Shares set forth next to
its name in Section 4(b) of the Disclosure Schedule, free and
clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws),
claims, Taxes, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities, and demands. The Seller
is not a party to (or has otherwise waived all rights under) any
option, warrant, right, contract, call, put, or other agreement
or commitment providing for the disposition or acquisition of any
capital stock of Legacy (other than this Agreement). Except as
set forth on Annex II, The Seller is not a party to (or has
--------
otherwise terminated) any voting trust, proxy, or other agreement
or understanding with respect to the voting of any capital stock
of Legacy.
(VI) DISCLOSURE. The representations and warranties
----------
regarding the Seller contained in this Section 3(a) as amended,
modified and/or
-16-
supplemented by ANNEX II do not contain any untrue statement of a fact
--------
or omit to state any Material fact necessary in order to make the
statements and information contained in this SECTION 3(A) not
------------
misleading.
(B) REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO. The
-----------------------------------------------------
Buyer and Newco represent and warrant to the Sellers that the statements
contained in this SECTION 3(B) are correct and complete as of the date of this
------------
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 3(B)), except as set forth in ANNEX III
------------- ---------
attached hereto.
(I) ORGANIZATION OF THE BUYER AND NEWCO. Each of the Buyer
-----------------------------------
and Newco is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation.
Buyer is not in default under or in violation of any provision of its
charter or bylaws.
(II) AUTHORIZATION OF TRANSACTION. Each of the Buyer and
----------------------------
Newco has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder and this Agreement has been duly executed and
delivered by the Buyer and Newco. This Agreement constitutes the valid
and legally binding obligation of the Buyer and Newco, enforceable in
accordance with its terms and conditions except for the Equitable
Exceptions. Neither the Buyer nor Newco needs to give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement (other than
as provided for in ARTICLE 2 of this Agreement).
(III) NONCONTRAVENTION. Neither the execution and the
----------------
delivery of this Agreement by the Buyer, nor the consummation of the
transactions contemplated hereby by the Buyer, will (A) violate any
statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws, except as would not have a
Material adverse effect on Buyer or the transactions contemplated by
this Agreement or (B) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other
arrangement to which the Buyer is a party or by which it is bound or
to which any of its assets is subject and which has a Material adverse
effect on Buyer.
(IV) BROKERS' FEES. The Buyer has no Liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with
respect to the
-17-
transactions contemplated by this Agreement for which the Sellers
could become liable or obligated.
(V) INVESTMENT. The Buyer is acquiring the Legacy Shares
----------
for its own account, with no present intention of distributing or
reselling such shares or any part thereof (except for the Merger), and
that it is prepared to bear the economic risk of retaining the Legacy
Shares for an indefinite period, all without prejudice, however, to
its right at any time, in accordance with this Agreement and the
transactions contemplated hereby, lawfully to sell or otherwise
dispose of all or any part of the Legacy held by it.
(VI) BUYER'S AND NEWCO'S CAPITALIZATION. The authorized
----------------------------------
capital stock of Buyer consists of (a) 100,000,000 shares of common
stock, of which 46,400,083.88 shares are issued and outstanding; (b)
7,200,000 shares of the Class A preferred stock, of which 3,546,732
shares are issued and outstanding; and (c) 100,000 shares of the Class
B preferred stock, of which 33,333 shares are issued and outstanding.
All of the issued and outstanding Buyer's Shares have been duly
authorized, are validly issued, fully paid, and nonassessable. The
authorized capital stock of Newco consists of 1,000 shares of common
stock, of which 100 shares are issued and outstanding. All of the
issued and outstanding shares of Newco capital stock have been
authorized, are validly issued, fully paid and nonassessable, and are
held of record by Buyer.
(VII) BUYER'S FINANCIAL STATEMENTS. Attached hereto as ANNEX
---------------------------- -----
A are the following financial statements of Buyer: audited
-
consolidated balance sheet and the related consolidated statements of
operations, stockholders' equity, and cash flows as of and for the
period beginning April 23, 1997 (date of inception) and ending (and
through) January 2, 1998 (the "BUYER'S FINANCIAL STATEMENTS"). The
Buyer's Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis throughout the period covered
thereby and fairly present the financial condition of Buyer as of such
dates, and are consistent with the books and records of Buyer (which
books and records are correct and complete). Since January 2, 1998,
except as set forth on ANNEX III or the notes to the Buyer's Financial
Statements, there has not been any Material adverse change in the
assets, Liabilities, business, financial condition, operations, or
results of operations of Buyer.
(VIII) DISCLOSURE. The representations and warranties
----------
contained in this SECTION 3(B) as amended, modified and/or
------------
supplemented by ANNEX III, and/or ANNEX A do not contain any untrue
-------
statement of a fact or omit to state any Material fact necessary in
order to make the statements and information contained in this SECTION
-------
3(B) not misleading.
----
4. REPRESENTATIONS AND WARRANTIES CONCERNING LEGACY. The Sellers
------------------------------------------------
jointly and severally represent and warrant to the Buyer that, subject to the
specific qualifications
-18-
and limitations set forth herein, the statements contained in this SECTION 4 are
---------
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this SECTION 4),
---------
except as set forth in the Disclosure Schedule delivered by the Sellers to the
Buyer on the date hereof (or on a later date as provided in SECTION 5(I)) (the
-------------
"DISCLOSURE SCHEDULE"). The Disclosure Schedule may be updated (after their
delivery and acceptance) one or more times prior to the Closing Date. Any
updated Disclosure Schedule shall be delivered at or before the Closing. In the
event any such updated Disclosure Schedule indicates a material adverse change
in Legacy from information previously provided to the Buyer, Buyer shall be
entitled to terminate this Agreement (without any liability whatsoever to
Legacy) by written notice delivered to Legacy following receipt of such updated
Disclosure Schedule. An event or matter that causes any representation or
warranty contained in this Section to be inaccurate, incorrect or false will not
be deemed to be "MATERIAL," to have a "MATERIAL" change in or in respect of, to
have a "MATERIAL" adverse effect or to be "MATERIALLY" affected unless the loss
to Legacy with respect to such event or matter, when taken together with all
other related losses exceeds or will exceed $45,000 in the aggregate or unless
such event or matter constitutes a criminal violation of law. For purposes of
this paragraph, the word "loss" shall mean any and all direct or indirect
payments, obligations, assessments, losses, losses of income, liabilities, costs
and expenses paid or incurred or to be paid or incurred; provided, however, that
losses shall be net of any insurance proceeds entitled to be received from a
nonaffiliated insurance company on account of such loss (after taking into
account any cost incurred in obtaining such proceeds or any increases in
insurance premiums as a direct result thereof). A Customer Contract or Agreement
is "Material" if during either calendar year 1997 or 1998 such Customer Contract
or Agreement produced or is expected to produce $50,000 of Net Service Revenues.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
Disclosure Schedule identifies the exception with reasonable particularity
(unless the specific context allows otherwise). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this SECTION 4.
---------
(A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.
Legacy is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. Except as disclosed in
SECTION 4(A) of the Disclosure Schedule, Legacy is duly authorized to conduct
business and is in good standing under the laws of the States of Michigan, New
Jersey and Wisconsin, which are the only jurisdictions in which the nature of
its businesses or the ownership or leasing of its properties requires such
qualification except where the failure to qualify would not have a Material
adverse effect. Legacy has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. SECTION 4(a) of the Disclosure Schedule lists the directors and
officers of Legacy. The Sellers have delivered to the Buyer correct and complete
copies of the charter and bylaws of Legacy (as amended to date). The minute
books containing the records of meetings and/or resolutions of the stockholders,
the board of directors, and any committees of the board of directors, the stock
certificate books and the stock record books of Legacy are correct
-19-
and complete in all material respects. Legacy is not in default under or in
violation of any provision of its charter or bylaws.
(B) CAPITALIZATION. The entire authorized capital stock of
--------------
Legacy consists of 200,000 shares of capital stock, 106,800 of which are issued
and outstanding and no Legacy Shares are held in treasury. All of the issued and
outstanding Legacy Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Sellers except as set
forth in SECTION 4(B)-1 of the Disclosure Schedule. Except as set forth in
--------------
SECTION 4(B)-2 of the Disclosure Schedule, there are no outstanding or
--------------
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which Legacy
is a party or which are binding upon Legacy providing for the issuance,
disposition, or acquisition of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, or similar rights
with respect to Legacy. There are no voting trusts, proxies, or any other
agreements or understandings with respect to the voting of the capital stock of
Legacy.
(C) NONCONTRAVENTION. Neither the execution and the
----------------
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which Legacy is subject or any
provision of the charter or bylaws of Legacy, except to the extent any such
violation does not result in a Material adverse effect on Legacy, or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other arrangement to
which Legacy is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets), except to the extent any such conflict or breach does not result in a
Material adverse effect on Legacy. Legacy does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(D) SUBSIDIARIES. Legacy has no Subsidiaries.
------------
(E) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
-------------------- ---------
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
unaudited balance sheet and statement of income, changes in stockholder's
equity, and cash flow as of and for the fiscal year ended December 31, 1996 and
unaudited balance sheet and statement of income, changes in stockholder's
equity, and cash flow as of and for the fiscal year ended December 31, 1997 (the
"MOST RECENT FISCAL YEAR END") and an unaudited balance sheet and statement of
income, changes in stockholder's equity, and cash flow as of and for the two (2)
month period ended February 28, 1998 for Legacy. Except as set forth on SECTION
-------
4(E) of the Disclosure Schedule, the Financial Statements have been prepared in
----
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, are correct and complete, fairly present the
-20-
financial condition of Legacy as of such dates, and are consistent with the
books and records of Legacy (which books and records are correct and complete).
(F) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END.
----------------------------------------------------
Since Legacy's Most Recent Fiscal Year End, except as set forth on the
Disclosure Schedule, there has not been any Material adverse change in the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of Legacy. Without limiting the generality of
the foregoing since that date except as set forth on the Disclosure Schedule:
(I) Legacy has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
(II) Legacy has not entered into any contract, lease,
sublease, license or sublicense (or series or related contracts,
leases, subleases, licenses and sublicenses) either involving
more than $35,000 or outside the Ordinary Course of Business;
(III) Legacy has not accelerated, terminated,
modified, or canceled any contract, lease, sublease, license or
sublicense (or series of related contracts, leases, subleases,
licenses and sublicenses) involving more than $25,000 to which
Legacy is a party or by which it is bound;
(IV) no party has notified Legacy of any
acceleration, termination modification or cancellation of any
outstanding Material Customer Contract or any contract,
agreement, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses),
other than any employment or consulting agreements entered into
in the Ordinary Course of Business, involving more than $25,000
to which a Legacy is a party or by which it is bound;
(V) Legacy has not imposed any Security Interest
upon any of its Material assets, tangible or intangible;
(VI) Legacy has not made any capital expenditure (or
series of related capital expenditures) either involving more
than $25,000 individually or $35,000 in the aggregate, or outside
the Ordinary Course of Business;
(VII) Legacy has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of
any other person (or series of related capital investments,
loans, and acquisitions) involving more than $50,000 in the
aggregate;
(VIII) Legacy has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease
obligations) involving more than
-21-
$30,000 individually or in the aggregate or outside the Ordinary
Course of Business;
(IX) Legacy has not delayed or postponed (beyond its
normal practice) the payment of any accounts payable in excess of
$3,750, individually or in the aggregate, and other Liabilities;
(X) Legacy has not canceled, compromised, waived,
or released any right or claim (or series of related rights and
claims) either involving more than $25,000 or outside the
Ordinary Course of Business;
(XI) Legacy has not granted any license or
sublicense of any rights under or with respect to any
Intellectual Property;
(XII) there has been no change made or authorized in
the charter or bylaws of Legacy, other than in connection with
this Agreement and the transactions contemplated hereby;
(XIII) Legacy has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon
conversion or exercise) any of its capital stock;
(XIV) Legacy has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock nor
redeemed, purchased, or otherwise acquired any of its capital
stock;
(XV) Legacy has not made any consulting or other
payment to the Sellers;
(XVI) Legacy has not experienced any damage,
destruction or loss involving more than $35,000 (whether or not
covered by insurance) to its property;
(XVII) Legacy has not made any loan to, or entered
into any other transaction with, any of its officers, directors
or employees (who are not Sellers) outside the Ordinary Course of
Business giving rise to any claim or right on its part against
the person or on the part of the person against it;
(XVIII) Legacy has not made any loan to, or entered
into any other transaction with, any of the Sellers giving rise
to any claim or right on its part against the person or on the
part of such person against it;
(XIX) Legacy has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified in any Material respect the terms of any existing such
contract or agreement with any of its full-time staff employees;
-22-
(XX) Legacy has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of
its directors, officers, and employees (other than the Sellers);
(XXI) Legacy has not granted an increase in the base
compensation, nor has Legacy made any payments or promises or
commitments to pay to any of the Sellers to make any other
payments (other than salary and reimbursement of customary
expenses) to any of the Sellers, including without limitation
bonuses.
(XXII) Legacy has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other
insurance, (G) severance, or (H) other plan, contract or
commitment for any of its directors, officers, and employees, or
modified or terminated any existing such plan, contract or
commitment;
(XXIII) Legacy has not made any other change in
employment terms for any of its directors, officers, and full-
time staff employees;
(XXIV) Legacy has not made or pledged to make any
Material charitable or other capital contribution outside the
Ordinary Course of Business;
(XXV) there has not been any other occurrence, event,
incident, action, failure to provide required notice to any
insurance company or in connection with any other Material
contractual obligation (other than in connection with this
Agreement) or transaction over $5,000 outside the Ordinary Course
of Business involving Legacy; and
(XXVI) Legacy has not entered into any enforceable
agreement committing to any of the foregoing.
(G) UNDISCLOSED LIABILITIES. Except as set forth on SECTION
----------------------- -------
4(G) of the Disclosure Schedule hereto, Legacy does not have any Liability
----
(including, without limitation, Liability under the Fair Labor Standards Act of
1938, as amended and the rules and regulations promulgated thereunder) which is
individually in excess of $10,000, except for (i) Liabilities set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto), and
(ii) Liabilities which have arisen after the Most Recent Fiscal Year End in the
Ordinary Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose out of any
charge, complaint, action, suit, proceedings, hearing, investigation, claim, or
demand).
(H) TAX MATTERS. Except as set forth on EXHIBIT 4(H) of the
----------- ------------
Disclosure Schedule,
(I) Legacy has filed all Tax Returns that it was
required to file on or before the Closing Date. All such Tax
Returns were correct and complete
-23-
in all Material respects. All Taxes owed by Legacy (whether or
not shown on any Tax Return) for all periods ending on or before
the Closing Date have been paid or accrued on the Balance Sheet.
Legacy currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made
by any taxing authority in a jurisdiction where Legacy does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the
assets of Legacy that arose in connection with any failure (or
alleged failure) to pay any Tax, other than for Taxes that are
not yet due.
(II) Legacy has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other
third party and Legacy has properly reflected the status of all
employees and independent contractors in connection therewith as
required by applicable Tax law and the Fair Labor Standards Act
of 1938, as amended, and the rules and regulations promulgated
thereunder.
(III) Neither Sellers nor Legacy has received, nor does
any Seller have a reasonable Basis to expect to receive, any
notice that any taxing authority intends to assess any additional
Taxes for any period for which Tax Returns have been filed. There
is no dispute or claim concerning any Tax Liability of Legacy
either (A) claimed or raised by any authority in writing or (B)
as to which the Sellers have Knowledge based upon personal
contact with any agent of such authority. SECTION 4(H) of the
------------
Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to Legacy for taxable
periods ended on or after December 31, 1993, indicates those Tax
Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Sellers have
delivered to the Buyer correct and complete copies of all federal
income Tax Returns filed, examination reports received, and
statements of deficiencies assessed against or agreed to, by
Legacy since December 31, 1993.
(IV) Legacy has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(V) Legacy has not filed a consent under Code Sec.
341(f) concerning collapsible corporations. Legacy has not made
any payments, is not obligated to make any payments, nor is a
party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible to
Legacy under Code Sec. 280G. Legacy has not been a United States
real property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code Sec.
897(c)(1)(A)(ii). Legacy is not a party to any Tax allocation or
sharing agreement. Legacy has never been
-24-
(nor has any Liability for unpaid Taxes because it once was) a
member of an Affiliated Group filing a consolidated federal
income Tax Return and has never incurred any Liability for the
Taxes of any Person under Treas. Reg. ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise, during any part of any
consolidated return year within any part of which consolidated
return year also was a member of the Affiliated Group.
(VI) [RESERVED]
(VII) The unpaid Taxes of Legacy as of the date of the
Most Recent Balance Sheet do not exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and the unpaid Taxes as of the
Closing Date do not exceed the reserve for Tax Liability as of
the Closing Date.
(I) TANGIBLE ASSETS. Legacy owns or leases substantially
---------------
all tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. To the Knowledge of the
Sellers, each such tangible asset is free from Material defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(J) OWNED REAL PROPERTY. Legacy does not own nor does it
-------------------
have any interest in any real property or improvements thereon (other than the
leases disclosed in SECTION 4(J) of the Disclosure Schedule, and the leasehold
------------
improvements relating to the same) nor does Legacy have any options, agreements
or contracts under which it has the right or obligation to acquire any interest
in any real property or improvements (other than as disclosed in SECTION 4(J) of
------------
the Disclosure Schedule)
(K) INTELLECTUAL PROPERTY.
---------------------
(I) Attached hereto as SECTION 4(K) of the Disclosure
------------
Schedule is a list and brief description of all Intellectual
Property owned or licensed by Legacy. Legacy has furnished Buyer
with copies of all license agreements to which Legacy is a party,
either as licensor or licensee, with respect to any Intellectual
Property. Legacy has good title to or the right to use all the
Intellectual Property and all inventions, processes, designs,
formulae, trade secrets and know-how necessary for the conduct of
the Legacy's business, in its business as presently conducted
without the payment of any royalty or similar payment, and Legacy
is not infringing on any Intellectual Property right of others,
and neither Legacy nor Sellers are aware of any infringement by
others of any such rights owned by Legacy.
(II) All Material licenses set forth on SECTION 4(K) of
------------
the Disclosure Schedule are valid and binding obligations of
Legacy, and to the Knowledge of the Sellers, of the other parties
thereto, and enforceable against
-25-
Legacy, and to the Knowledge of the Sellers, the other parties
thereto in accordance with their respective terms, except for the
Equitable Exceptions. Legacy owns and possesses all right, title
and interest in and to, or has the right to use pursuant to a
valid license, all Intellectual Property necessary for the
operation of the business of Legacy as presently conducted.
(III) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or
participated in the conception and development of any
Intellectual Property have executed the nondisclosure agreements
set forth in SECTION 4(K) of the Disclosure Schedule and either
------------
(1) have been party to a written agreement with Legacy that has
accorded Legacy full, effective, exclusive and original ownership
of all Material Intellectual Property, or (2) have executed
appropriate instruments of assignment in favor of Legacy as
assignee that have conveyed to Legacy full, effective, and
exclusive ownership of all Material Intellectual Property.
(IV) The Sellers have also delivered to the Buyer
correct and complete samples or copies of all trademarks, service
marks, trade names, copyrights, patents, registrations and, as
relate to the foregoing, applications, licenses, agreements, and
permissions (as amended to date) held by Legacy, and have made
available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if
applicable) of each such item. With respect to each item of
Intellectual Property necessary for the conduct of the business
of Legacy as heretofore conducted, each as listed on SECTION 4(K)
------------
of the Disclosure Schedule: (A) the identified owner possesses
all right, title, and interest in and to the item; (B) the item
is not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge; (C) no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or
demand is pending or, to the Knowledge of any of the Sellers, is
threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and (D) to the
Knowledge of any of the Sellers, Legacy has never agreed to
indemnify any person or entity for or against any interference,
infringement, misappropriation, or other conflict with respect to
the item.
(V) Except as set forth on SECTION 4(K) of the
------------
Disclosure Schedule, all of the Material computer software,
computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated,
computerized, and/or software system(s) that are used or relied
on by Legacy in the conduct of its business will not malfunction,
will not cease to function, will not generate incorrect data, and
will not produce incorrect results when processing, providing,
and/or receiving (i) date-related data into and between the
twentieth and twenty-first centuries and (ii) date-related data
in connection with any valid date in the twentieth and twenty-
first centuries.
(L) REAL PROPERTY LEASES. SECTION 4(L) of the Disclosure
-------------------- ------------
Schedule lists and describes briefly all real property leased or subleased to
Legacy. The Sellers have delivered to the Buyer correct and complete copies of
the leases and subleases listed in SECTION
-------
-26-
4(L) of the Disclosure Schedule (as amended to date). With respect to each lease
----
and sublease listed in SECTION 4(L) of the Disclosure Schedule:
------------
(I) the lease or sublease is legal, valid, binding,
enforceable against Legacy, and to the Knowledge of Sellers, both
enforceable against the other party and in full force and effect,
subject to the Equitable Exceptions;
(II) the lease or sublease will continue to be legal,
valid, binding, enforceable against Legacy, and, to the Knowledge
of Sellers, both enforceable against the other party and in full
force and effect on identical terms immediately following the
Closing;
(III) Legacy is not and, to the Knowledge of Sellers,
no other party to the lease or sublease is in Material breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a Material breach or default or permit
termination, modification, or acceleration thereunder;
(IV) Legacy has not, and to the Knowledge of the
Sellers, no other party to the lease or sublease has repudiated
any provision thereof;
(V) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(VI) Legacy has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold; and
(VII) to the Knowledge of Sellers, all facilities
leased or subleased thereunder have received all approvals of
governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws,
rules, and regulations.
(M) CONTRACTS. SECTION 4(M) of the Disclosure Schedule
--------- ------------
lists the following contracts, agreements, Customer Contracts or Agreements and
other written arrangements to which Legacy is a party:
(I) any written agreement (or group of related written
agreements) for the lease of personal property from or to third
parties providing for lease payments in excess of $35,000 per
annum;
(II) any written agreement (or group of related written
agreements) for the furnishing or receipt of services which
either calls for performance over a period of more than one year
or involves more than the sum of $75,000;
-27-
(III) any written agreement concerning a partnership
or joint venture;
(IV) any written agreement (or group of related
written agreement) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) involving
more than $35,000 or under which it has imposed (or may impose) a
Security Interest on any of its assets, tangible or intangible;
(V) any written arrangement requiring
confidentiality or noncompetition ;
(VI) any written arrangement with any of its
directors, officers, or employees, or any of its Affiliates;
(VII) any written arrangement under which the
consequences of a default or termination could have a Material
adverse effect on the assets, Liabilities, business, financial
condition, operations, results of operations, or future prospects
of Legacy;
(VIII) any written Customer Contract or Agreement; or
(IX) any other written arrangement (or group of
related written arrangements) either involving more than $50,000
per annum or not entered into in the Ordinary Course of Business.
The Sellers have delivered to the Buyer a correct and complete
copy of each written arrangement listed in SECTION 4(M) of the Disclosure
------------
Schedule (as amended to date). With respect to each written arrangement so
listed: (A) the written arrangement is legal, valid, binding, enforceable
against Legacy and to the Knowledge of Sellers, both enforceable against the
other party and in full force and effect , subject to the Equitable Exceptions;
(B) the written arrangement will continue to be legal, valid, binding,
enforceable against Legacy, and to the Knowledge of Sellers, both enforceable
against the other party and in full force and effect on identical terms
immediately following the Closing; (C) Legacy is not, nor to the Knowledge of
Sellers, is any other party in Material breach or default, and no event has
occurred which with notice or lapse of time would constitute a Material breach
or default or permit termination, modification, or acceleration, under the
written arrangement; and (D) Legacy is not, nor to the Knowledge of Sellers, has
any other party, repudiated any material provision of the written arrangement.
Legacy is not a party to any verbal contract, agreement, or other arrangement
which, if reduced to written form, would be required to be listed in SECTION
-------
4(M) of the Disclosure Schedule under the terms of this SECTION 4(M). To the
---- ------------
Knowledge of the Sellers, no unfilled Customer Contract or Agreement obligating
Legacy to perform services will result in a loss (i.e. Legacy will not be able
to cover its variable costs under such Material Customer Contract or Agreement)
to Legacy upon completion of performance. Legacy has not been
-28-
notified that any of its customers intends either to dispute charges under or to
terminate early a Material Customer Contract or Agreement.
(N) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
-----------------------------
receivable of Legacy are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Legacy.
(O) POWERS OF ATTORNEY. There are no outstanding powers of
------------------
attorney executed on behalf of Legacy.
(P) INSURANCE. SECTION 4(P) of the Disclosure Schedule sets
--------- ------------
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which Legacy has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past three (3) years:
(I) the name address and telephone number of the
agent;
(II) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(III) the policy number and the period of coverage;
(IV) the scope and amount (including a description of
how deductibles and ceilings are calculated and operate) of
coverage; and
(V) a description of any material retroactive premium
adjustments or other loss sharing arrangements.
With respect to each such insurance policy: (A) the policy is
legal, valid, binding, and enforceable against Legacy and to the Knowledge of
Sellers, in full force and effect; (B) the policy will continue to be legal,
valid, binding, and enforceable and in full force and effect on identical terms
immediately following the Closing Date; (C) Legacy is not in breach or default
(including with respect to the payment of premiums or the giving of notices),
and to the Knowledge of Sellers, no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (D) to the Knowledge of the
Sellers, no party to the policy has repudiated any provision thereof. Legacy has
been covered during the past three (3) years by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Legacy currently has no and has never had any self-
insurance arrangements.
-29-
(Q) LITIGATION. SECTION 4(Q) of the Disclosure Schedule
---------- ------------
sets forth each instance in which Legacy (i) is subject to any unsatisfied
judgment, order, decree, stipulation, injunction, or charge or (ii) is a party
or, to the Knowledge of the Sellers, is threatened to be made a party to any
charge, complaint, action, suit, proceeding, hearing, or investigation of or in
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator. Except as specifically
described on SECTION 4(Q) of the Disclosure Schedule, no matter listed thereon
------------
could reasonably be expected, individually, to result in a Material adverse
effect to Legacy. No Seller has any Knowledge that any such charge, complaint,
action, suit, proceeding, hearing, or investigation will be brought or
threatened against Legacy.
(R) EMPLOYEES. Except as set forth in SECTION 4(R) of the
--------- ------------
Disclosure Schedule, to the Knowledge of the Sellers, no key employee or full-
time group of employees has any plans to terminate employment with Legacy.
Legacy is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. Legacy has not committed any unfair labor
practice. No Seller has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of Legacy.
(S) EMPLOYEE BENEFITS. SECTION 4(S) of the Disclosure
----------------- ------------
Schedule lists all Employee Benefit Plans that Legacy maintains or to which
Legacy contributes for the benefit of any current or former employee of Legacy.
(I) Each Employee Benefit Plan (and each related
trust or insurance contract) complies in form and in operation in
all respects with the applicable requirements of ERISA and the
Code.
(II) All required reports and descriptions, if any,
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Sec. 4980B have been met with respect to each
Employee Welfare Benefit Plan.
(III) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each Employee
Pension Benefit Plan or accrued in accordance with the past
custom and practice of Legacy. All premiums or other payments
which are due for all periods ending on or before the Closing
Date have been paid with respect to each Employee Welfare Benefit
Plan.
(IV) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a)
-30-
and has received a currently valid and favorable determination
letter from the Internal Revenue Service, and that nothing has
occurred since the receipt of such letter that would materially
affect the tax qualified status of each such Employee Pension
Benefit Plan.
(V) The market value of assets under each Employee
Pension Benefit Plan (other than any Multiemployer Plan) equals
or exceeds the present value of Liabilities thereunder
(determined on an accumulated benefit obligation basis) as of the
last day of the most recent plan year. No Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be
filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been instituted or, to the Knowledge of the Sellers,
threatened.
(VI) There have been no Prohibited Transactions with
respect to any Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment
of the assets of any Employee Benefit Plans. No charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, or demand with respect to the administration or the
investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of
the Sellers, threatened. No Seller has any Knowledge of any Basis
for any such charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand.
(VII) The Sellers have delivered to the Buyer correct
and complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received
from the Internal Revenue Service, (C) the most recent Form 5500
Annual Report, and (D) all related trust agreements, insurance
contracts, and other funding agreements which implement each
Employee Benefit Plan.
Legacy does not contribute to, has never contributed to, nor ever
has been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan. Legacy has not
incurred, and neither the Sellers nor any of the directors or the officers (or
employees with responsibility for litigation matters) of Legacy has any reason
to expect that Legacy will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any Employee Pension Benefit Plan
that Legacy and the Controlled Group of Corporations which includes Legacy
maintains or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute. Legacy does not maintain,
nor has it ever maintained or contributed to, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing health, accident, or
life insurance
-31-
benefits to former employees, their spouses, or their dependents (other than in
accordance with Code Sec. 162(k)).
(T) GUARANTIES. Legacy is not a guarantor nor is it otherwise
----------
liable for any Liability or obligation (including indebtedness) of any other
person.
(U) ENVIRONMENT, HEALTH, AND SAFETY.
-------------------------------
(I) To the Knowledge of Sellers, Legacy and its respective
predecessors and Affiliates have complied in all material respects
with all laws (including rules and regulations thereunder) of federal,
state, local, and foreign governments (and all agencies thereof)
concerning the environment, public health and safety, and employee
health and safety, and no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or
commenced against any of them alleging any material failure to comply
with any such law or regulation.
(II) To the Knowledge of Sellers, Legacy has no Liability
(and there is no Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand
against Legacy giving rise to any Liability) under the Occupational
Safety and Health Act, as amended, or any other law (or rule or
regulation thereunder) of any federal, state, local, or foreign
government (or agency thereof) concerning employee health and safety.
(III) To the Knowledge of Sellers, Legacy does not have any
Material Liability (and Legacy has not exposed any employee to any
substance or condition that could form the Basis for any present or
future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
statute) against Legacy giving rise to any Liability) for any illness
of or personal injury to any employee.
(IV) To the Knowledge of Sellers, Legacy has obtained and
been in compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which
are required under, and has complied in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all federal, state, local, and foreign laws (including
rules, regulations, codes, plans, judgments, orders, decrees,
stipulations, injunctions, and charges thereunder) relating to public
health and safety, worker health and safety, and pollution or
protection of the environment, including laws relating to emissions,
discharge, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling
-32-
of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
(V) LEGAL COMPLIANCE. Except as it would not, individually or
----------------
in the aggregate, have a Material adverse effect on Legacy:
(I) Legacy has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign
governments (and all agencies thereof). No charge, complaint, action,
suit, proceeding, hearing, investigation, claim, demand, or notice has
been filed or commenced against Legacy which is currently pending and
alleges any failure to comply with any such law or regulation.
(II) Legacy has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor (including but not limited to the engagement of
independent contractors under the Fair Labor Standards Act of 1938, as
amended, and the rules and regulations promulgated thereunder),
employee civil rights, hiring of engaging non-United States citizens,
and equal employment opportunities.
(III) Legacy has not violated in any respect or received a
notice or charge asserting any violation of the Xxxxxxx Act, the
Xxxxxxx Act, the Xxxxxxxx-Xxxxxx Act, or the Federal Trade Act, each
as amended.
(IV) Legacy has not:
(A) made or agreed to make any contribution, payment,
or gift of funds or property to any governmental official,
employee, or agent where either the contribution, payment, or
gift or the purpose thereof was illegal under the laws of any
federal, state, local, or foreign jurisdiction;
(B) established or maintained any unrecorded fund or
asset for any purpose, or made any false entries on any books or
records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other
person, to any candidate for federal, state, local, or foreign
public office in excess of $500.
(V) Legacy has filed with all applicable governmental
authorities in a timely manner all reports, documents, and other
materials it was required to file (and the information contained
therein was correct and complete in all respects) under all applicable
laws (including rules and regulations thereunder).
-33-
(VI) Legacy has possession of all records and documents it
was required to retain under all applicable laws (including rules and
regulations thereunder).
(W) CERTAIN BUSINESS RELATIONSHIPS WITH LEGACY. Except as set
------------------------------------------
forth in Section 4(w) of the Disclosure Schedule, neither the Sellers nor its
------------
Affiliates has been involved in any business arrangement or relationship with
Legacy within the past twelve (12) months other than customary employment
relationships, and neither the Sellers nor its Affiliates owns any Material
property or right, tangible or intangible, which is used in the business of
Legacy.
(X) BROKERS' FEES. Legacy does not have any Liability or
-------------
obligation to pay any fees or commissions to any broker, finder, or similar
representative with respect to the transactions contemplated by this Agreement.
(Y) DISCLOSURE. The representations and warranties contained in
----------
this Section 4 as amended, modified and/or supplemented by the Disclosure
---------
Schedules do not contain any untrue statement of a fact or omit to state any
Material fact necessary in order to make the statements and information
contained in this Section 4 not misleading.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect
---------------------
to the period between the execution of this Agreement and the Closing or the
earlier termination of this Agreement.
(A) GENERAL. Each of the Parties will use its reasonable
-------
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 7 below).
---------
(B) NOTICES AND CONSENTS. The Sellers will cause Legacy to
--------------------
give any notices to third parties required in connection with this Agreement and
the transactions contemplated hereby, and will cause Legacy to obtain third
party consents required in connection with this Agreement and the transactions
contemplated hereby and with matters pertaining to Legacy disclosed or required
to be disclosed in the Disclosure Schedule. Each of the Parties will take any
additional action (and the Sellers will cause Legacy to take any additional
action) that may be necessary, proper, or advisable in connection with any other
notices to, filings with, and authorizations, consents, and approvals of
governments, governmental agencies, and third parties that he, she or it may be
required to give, make, or obtain.
(C) OPERATION OF BUSINESS. Except as contemplated hereby, or
---------------------
as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set forth herein or in the Disclosure Schedule, the
Sellers will not cause or permit Legacy to engage in any practice, take any
action, embark on any course of inaction, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Sellers will not cause or permit Legacy to engage in any
practice, take any action,
-34-
embark on any course of inaction, or enter into any transaction of the sort
described in Section 4(F) above.
-----------
(D) PRESERVATION OF BUSINESS. Except as contemplated hereby,
or as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set forth herein or in the Disclosure Schedule, the
Sellers will cause Legacy to use reasonable commercial efforts to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
(E) ACCESS. Only in the event that neither Buyer or Sellers
exercised its right to terminate this Agreement as provided in Section 9 herein,
---------
the Sellers will permit, and the Sellers will cause Legacy to permit,
representatives of the Buyer to have access at reasonable times, and in a manner
so as not to interfere with the normal business operations of Legacy, to the
headquarters of Legacy and to all books, records, contracts, Tax records, and
documents of or pertaining to Legacy; provided, however, that Buyer shall direct
all requests for information and material only through Xxxx Xxxxxxxxxxx, unless
otherwise agreed to by Buyer and Sellers in writing.
(F) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
----------------------
written notice to the Buyer of any material development affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
or future prospects of Legacy. Each Party will give prompt written notice to the
others of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. Except for the right
of the Sellers to update any Disclosure Schedule as provided in SECTION 4
hereof, no disclosure by any Party pursuant to this SECTION 5(F) however, shall
be deemed to amend or supplement ANNEX III or the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, and/or breach of
covenant.
(G) EXCLUSIVITY. The Sellers will not (and the Sellers will
-----------
not cause or permit Legacy to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C)
acquisition or purchase of securities or assets, or (D) similar transaction or
business combination involving Legacy or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Sellers will notify the Buyer
immediately if any person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
(H) CANCELLATION OF OPTIONS, BONUS PROGRAMS AND PHANTOM STOCK
---------------------------------------------------------
PLANS. Legacy shall use its best efforts to provide for the cancellation, at or
-----
prior to the Closing, of any stock options, deferred bonus programs, and phantom
equity plans outstanding with respect to Legacy, which cancellation Legacy and
Sellers agree shall be at no cost to the Buyer and/or Legacy. The payments made
by Sellers and due pursuant to the cancellation of such
-35-
programs will vest and be payable to the recipients on terms and conditions
mutually agreed upon by the Sellers and Buyer.
(I) SCHEDULES, EXHIBIT B AND KEY EMPLOYEES' EMPLOYMENT
--------------------------------------------------
AGREEMENTS. The Parties agree and understand that neither the Disclosure
----------
Schedule nor Exhibit B has been provided on the date of execution of this
---------
Agreement. The Sellers shall deliver the Disclosure Schedules and Exhibit B
---------
within one (1) business day of the date of execution of this Agreement. Upon
receipt thereof, Buyer shall have seven (7) business days in which to accept or
reject such Disclosure Schedule and Exhibit B at Buyer's sole discretion. In the
---------
event that Buyer rejects such Disclosure Schedule or Exhibit B, Buyer shall be
---------
entitled to terminate this Agreement (without any liability whatsoever to Legacy
or Sellers) by written notice delivered to Legacy within seven (7) business days
following receipt of such Disclosure Schedule and Exhibit B. Within ten (10)
---------
days after the execution of this Agreement, Sellers shall procure the Employment
Agreements with the Key Employees listed on Annex V in substantially the form of
-------
Exhibit E-1 (or Exhibit E-2 for the non-Seller Key Employees, if applicable),
----------- -----------
provided, such Employment Agreements shall be null and void in the event the
transactions contemplated by this Agreement are not consummated and provided,
further, such Employment Agreements shall not to be effective until the Closing
Date.
6. ADDITIONAL COVENANTS. The Parties further covenant and agree as
--------------------
follows:
(A) GENERAL. In case at any time after the Closing any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
SECTION 8 below). The Sellers acknowledge and agree that from and after the
Closing the Buyer will be entitled to possession of all documents, books,
records, agreements, and financial data of any sort relating to Legacy; provided
that Sellers may retain any copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
(B) LITIGATION SUPPORT. In the event and for so long as any
------------------
Party actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Legacy, each of the other Parties will cooperate
with him or it and his, her or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
---------
(C) TRANSITION. The Sellers will not take any action that
----------
primarily is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier,
-36-
or other business associate of Legacy from maintaining the same business
relationships with Legacy after the Closing for a period of twenty-four (24)
months thereafter as it maintained with Legacy prior to the Closing. The Sellers
will refer all customer inquiries relating to Legacy's Business to the Buyer
and/or Legacy from and after the Closing for a period of twenty-four (24) months
thereafter.
(D) CONFIDENTIALITY. The Sellers will treat and hold as such all
---------------
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement for a period of three (3)
years from the Closing, and except as otherwise permitted hereunder or as may be
required by law, deliver promptly to the Buyer or destroy, at the reasonable
request and option of the Buyer, all tangible embodiments (and all copies) of
the Confidential Information which are in its possession. In the event that the
Sellers are requested or required (by request for information or documents in
any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar legal process) to disclose any Confidential Information, the Sellers
will notify the Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the provisions
of this Section 6(d). If, in the absence of a protective order or the receipt of
------------
a waiver hereunder, the Sellers are compelled to disclose any Confidential
Information or else stand liable for contempt, that Sellers may disclose the
Confidential Information; provided, however, that the Sellers shall use their
reasonable efforts to obtain, at the reasonable request and expense of the
Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as the
Buyer shall reasonably designate. The foregoing provisions shall not apply to
any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(E) TERMINATION OF BANK FACILITIES; RELEASE OF GUARANTIES. Buyer
-----------------------------------------------------
and Sellers shall take all reasonable best efforts necessary to (i) retire all
of Legacy's outstanding bank indebtedness and (ii) fully, completely and
unconditionally release and/or substitute Buyer or Legacy at or prior to Closing
as guarantor for the Sellers on all banking facilities of Legacy or other
guarantees.
(F) MONITORING INFORMATION. Prior to the Closing, Sellers shall
----------------------
cause Legacy to deliver such information as may reasonably be requested by
Buyer.
(G) LANDLORDS' CONSENTS. Sellers shall cause Legacy on or before
-------------------
the Closing Date to obtain from its landlords (to the extent required under the
pertinent premises lease) written consent to the assignment of all leases being
assumed by Buyer, which assignments are deemed to have resulted from the
transactions contemplated by this Agreement.
(H) ADDITIONAL TAX MATTERS.
----------------------
(I) The Sellers shall prepare (at Sellers' sole cost and
expense) and provide to Buyer for filing, and the Buyer shall cause
Legacy to file with the appropriate governmental authorities all Tax
Returns required to be filed by Legacy for any taxable period ending
on or prior to the Closing Date and Sellers
-37-
shall remit any Taxes due (net of any paid estimated taxes, credits or
prepaid taxes in respect of such Taxes) in respect of such Tax Returns
(but only to the extent such Taxes are in excess of the reserve, if
any, for such Tax liability used to determine the Net Working Capital
of Legacy).
(II) Buyer and Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Buyer, Newco
and/or Legacy to the extent such records and information pertain to
events occurring on or prior to the Closing Date; therefore, Buyer
agrees to cause Newco and Legacy to (A) use its best efforts to
properly retain and maintain such records for a period of six (6)
years from the date the Tax Returns for the year in which the Closing
occurs are filed or until the expiration of the statute of limitations
as may be extended by law from time to time that applies to the Tax
Return in question (i.e., including Tax Returns for years preceding
the year in which the Closing occurs), whichever is later, and (B)
allow the Sellers and their agents and representatives at times and
dates mutually acceptable to the Parties, to inspect, review and make
copies of such records as such other party may deem necessary or
appropriate from time to time, such activities to be conducted during
normal business hours and at the other Party's expense.
(I) COVENANT NOT TO COMPETE. For a period of two (2) years from
-----------------------
and after the Closing Date, none of the Sellers will, directly or indirectly, as
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, (i) own, manage, control, participate in,
consult with, render services for, or in any manner engage in any activity or
business competing with the businesses of the Buyer, Legacy or their Affiliates,
or any business in which Buyer, Legacy or their Affiliates has commenced
negotiations or has requested and received information relating to the
acquisition of such business within one (1) year prior to the Closing Date in
any country where the Buyer, Legacy, such Affiliates or other aforementioned
business conducts business; provided, however, for the purposes of this
Subsection 6(i)(i) only and for purposes of the period after beginning on the
------------------
first anniversary of the Closing Date and ending on the second anniversary of
the Closing Date, the businesses of the Buyer, Legacy or their Affiliates shall
exclude the following: (A) the development, marketing, general management of DSS
or information technology products but in no event to exclude the provision of
services (whether direct or indirect) with respect to such businesses, (B)
providing services as a general industry analyst or venture capitalist not in
competition with such businesses, (C) general managing consulting in industries
not competitive with the Buyer's, Legacy's or their Affiliates' businesses, (D)
information or content delivery segment of the information technology business
(e.g. economic or marketing data suppliers or companies primarily engaged in
information (e.g. news, statistics, etc.) via the worldwide web), and (E)
providing information technology services to small companies under $500,000,000
in gross revenues which are not currently in the business of Legacy, (ii)
request, advise, induce or attempt to induce any customer, supplier, licensee or
other business relation of the Buyer, Legacy or any Affiliate (each, a
"CUSTOMER") to withdraw, curtail, cancel or otherwise cease such Customer's
business with the Buyer, Legacy and/or such Affiliate or in any way interfere
with the
-38-
relationship between any such Customer and the Buyer, Legacy and/or any
Affiliate, (iii) service, canvass, solicit or accept any business from any
Customer for the purpose of competing with the Buyer, Legacy or the Affiliates,
(iv) disclose to any other person, firm, corporation or other entity, the name
or address of any Customer for the purpose of competing with the Buyer, Legacy
or any Affiliate, (v) solicit for employment or employ any person who is or was
employed by Legacy, the Buyer or any Affiliate at any time within the one (1)
year period immediately preceding such solicitation of employment to leave the
employ of the Buyer, Legacy or such Affiliate and/or accept employment with any
Seller or with such Person, firm, association, corporation or other entity, or
in any way willfully interfere with the relationship between the Buyer, Legacy
or any Affiliate and any such person, or (vi) initiate or engage in any
discussions regarding an acquisition of, or Seller's employment (whether as an
employee, an independent contractor or otherwise) by, any businesses with which
the Buyer, Legacy or any Affiliate has entertained discussions or has requested
and received information relating to the acquisition of such business by the
Buyer, Legacy or such Affiliate upon or within the one (1) year period prior to
the date hereof; provided, however, that no owner of less than five percent (5%)
of the outstanding stock of any publicly traded corporation shall be deemed to
engage solely by reason thereof in any of its businesses. For purposes of this
Agreement, the Parties have agreed to allocate $50,000 of the Purchase Price to
the covenant not to compete contained in this Section 6(i). In addition, for
------------
purposes of this Section 6(i), "Affiliate" with respect to the Buyer means any
------------
corporation or business entity that either controls or is controlled by the
Buyer, The Xxxxxxx Group, Inc., Delphi Partners, Inc. or is controlled by the
shareholders that control the Buyer (and for this definition, "control" means
the ownership, either directly or through an unbroken chain of control, of more
than fifty percent (50%) of the equity interests or combined voting or
management rights in an entity).
(J) CONDUCT DURING EARNED PAYOUT PERIOD. Sellers acknowledge and
-----------------------------------
agree that, during the Earned Payout Period, Buyer shall be entitled to oversee
the operation and management of Legacy's Business and, together with
Puzzanghera, set mutually acceptable goals and budgets of Legacy, all of which
shall be reasonably and legally designed and intended to maximize the
productivity, efficiency, profitability and Adjusted EBITA of Legacy. The
Sellers further agree, during the Earned Payout Period, not and not to allow
Legacy to cut staff, capital expenditures and general and administrative
expenses or take other actions that are not consistent with Legacy's prior
practices and/or prudent business practices, and Sellers agree not and not to
allow Legacy to engage in any activity inconsistent with Legacy's past practices
in order to increase current year profits of the business of Legacy at the
expense of the longer term growth of the business of Legacy. During the Earned
Payout Period, the Buyer agrees to (i) maintain separate books and records for
Legacy; (ii) maintain Legacy as a separate entity and not to sell or otherwise
dispose of any of its assets except in the Ordinary Course of Business or sell
or otherwise dispose of any of its stock without the prior written consent of
Puzzanghera; (iii) cause Legacy to be operated essentially as it was prior to
the sale of the Legacy Shares except in so far as the prior practices of Legacy
were imprudent or unreasonable; (iv) not materially change, except with the
consent of Puzzanghera, and except in the Ordinary Course of Business, (A) the
prices charged for Legacy's services, (B) the level of compensation of Legacy's
consultants and full-time corporate employees or (C) the level Legacy's general
and
-39-
administrative expenses, unless the prior business practices were unreasonable
or imprudent and/or unless the changes are reasonably necessary to support the
growth of Legacy's business and (v) cause Legacy to be responsible for Buyer's
OLAP and DSS business and the data warehousing components of such business;
provided, however, that any employee who was employed by Buyer or a Buyer
Affiliate (other than Legacy or Newco) at any time prior to Closing shall
continue to provide their services as currently conducted, whether or not such
services are related to the Buyer's OLAP and DSS business and the data
warehousing components of such business, and such employees will not attribute
any of their revenues to, or otherwise report to, Legacy, except as otherwise
agreed in writing by Buyer. Buyer agrees that Puzzanghera shall not be
terminated without Cause (as defined in his Employment Agreement) during the
Earned Payout Period. Buyer further agrees that, subject to the terms of his
employment agreement, Puzzanghera shall have complete and final (subject to the
limitations set forth herein and in his employment agreement) authority and
responsibility for the management and operation of Legacy's business during the
Earned Payout Period. Buyer shall use Legacy's current name as its trade name in
Massachusetts during the Earned Payout Period, and shall not change such name in
Massachusetts without the prior written consent of Puzzanghera; provided,
however, Buyer shall be entitled to operate the business of Legacy under the
name "Legacy Technology, Inc., a subsidiary of AnswerThink Consulting Group,
Inc." or a mutually agreed upon combination of any of the above. Buyer, Legacy
and the Sellers recognize and acknowledge that the relationship that will exist
between Buyer, Legacy and the Sellers upon the consummation of the transactions
contemplated herein will be based on a high degree of mutual trust and
confidence among the parties, and each of Buyer and the Sellers agree that at
all times following the Closing that each will act with respect to its dealings
with Legacy and its operations in such a way as to promote, to the extent
reasonably possible, the successful operation and growth of Legacy. In addition,
during the Earned Payout Period, the Buyer agrees to provide funds, at Buyer's
sole discretion and at commercially reasonably interest rates, to help Legacy
meet its working capital requirements.
(K) REORGANIZATION INTENT. The Parties agree that the Merger is
---------------------
intended to be a tax-free reorganization under Section 368 of the Code, and this
-----------
Agreement is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under such section of the Code. None of the Parties has
taken, shall take or fail to take any action that would jeopardize the
qualification of the Merger as such a tax-free reorganization (other than
actions contemplated by this Agreement or as may be otherwise legally required).
(L) OPTIONS. If the Initial Public Offering is completed, the
-------
Buyer agrees that any options granted by Buyer to former employees of Legacy in
connection herewith shall be deemed to be granted under the 1998 Stock Option
and Incentive Plan of the successor of the Buyer, a copy of which is available
upon request, and that the shares underlying such options shall be registered
under Form S-8 as soon as practicable.
-40-
7. CONDITIONS TO OBLIGATIONS TO CLOSE.
----------------------------------
(A) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
-------------------------------------
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(I) the representations and warranties set forth in Section
-------
3(a) and Section 4 above shall be true and correct in all material respects
---- ---------
at and as of the Closing Date;
(II) the Sellers shall have performed and complied with all of
their covenants hereunder in all Material respects through the Closing;
(III) Legacy will have procured all third party consents and
given all notices required in connection with this Agreement and the
transactions contemplated hereby, including without limitation all action
necessary in connection with and/or the receipt of any notices to, filings
with, and authorizations, consents and approvals of governments,
governmental agencies, and third parties as set forth herein or in the
Disclosure Schedule;
(IV) no action, suit, or proceeding shall be pending or, to the
Knowledge of Sellers, threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or
(C) affect adversely the right of the Buyer to own, operate, or control
Legacy Shares or Legacy (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(V) the Sellers shall have delivered to the Buyer a
certificate (without qualification as to knowledge or Materiality or
otherwise) to the effect that each of the conditions specified above in
Section 7(a)(i)-(iv) is satisfied in all respects;
--------------------
(VI) the acquisition by the Buyer of Legacy Shares shall
represent one hundred percent (100%) of the issued and outstanding capital
stock of Legacy and all of such Legacy Shares shall be free and clear of
any Security Interests or other liens, claims or encumbrances of any nature
whatsoever;
(VII) [RESERVED];
(VIII) the Buyer and Legacy shall have received from each of the
persons listed on Annex V (the "Key Employees") an executed employment
-------
agreement in the form and substance attached hereto as Exhibit E-1 and
-----------
pursuant
-41-
to the terms described in Annex V with respect to salary and bonus for each
-------
such Key Employee;
(IX) the Buyer and Legacy shall have received from at least
80% of the persons listed on Annex VI an executed compliance agreement in
--------
the form and substance attached hereto as Exhibit E-2;
-----------
(X) the Buyer shall have received from Puzzanghera an
executed joinder or other documentation required by the Registration
Agreement to become a party thereto;
(XI) the Buyer and Newco shall have received from the Sellers
an opinion of counsel in the form agreeable to counsel to each Party,
addressed to the Buyer and Newco and dated as of the Closing Date;
(XII) the Buyer shall have received the resignations, effective
as of the Closing, of each director of Legacy prior to the Closing;
(XIII) the Buyer shall be satisfied that the Net Working Capital
of Legacy on the Closing Date (plus the aggregate severance amounts
----
specifically set forth on Section 4(f) of the Disclosure Schedule up to a
-----------
maximum of $100,000) equaled or exceeded $100,000 or an appropriate
adjustment shall have been made to the Purchase Price as provided in
Section 2(h);
-----------
(XIV) the Buyer shall be satisfied in its sole discretion with
the results of its continuing legal due diligence investigations of Legacy,
all of which shall be final and completed to Buyer's satisfaction prior to
Closing;
(XV) no material adverse change shall have occurred in
Legacy's Business or its future prospects;
(XVI) Sellers shall have caused Legacy to cancel each
outstanding phantom stock, deferred bonus, or option plan, if any, and all
outstanding Legacy Options shall have been canceled pursuant to an option
cancellation agreement reasonably acceptable to Buyer; provided that such
cancellation is all at no cost to the Buyer or Legacy;
(XVII) Each Seller shall have executed the Purchase Price
Adjustment Agreement in the form of Exhibit C attached hereto and each
---------
Seller shall have executed a Stock Pledge Agreement in the form of Exhibit
-------
D attached hereto;
-
(XVIII) Sellers shall have caused each person listed on Annex VII
---------
to execute a Stock Option Agreement in the form of Exhibit F attached
---------
hereto for the issuance of options to purchase Buyer's Shares in the
aggregate amount set
-42-
forth on Annex VII to those persons on Annex VII, subject to reallocation
--------- ---------
by Legacy;
(XIX) all liens and Security Interests securing debts of Legacy
which have been paid in full prior to or at the Closing shall have been
fully released of record to the reasonable satisfaction of the Buyer and
all Uniform Commercial Code financing statements covering such debts shall
have been terminated;
(XX) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against Legacy, or against or in any way
affecting any Legacy Share;
(XXI) the Sellers shall and Legacy shall have caused all of
Legacy's officers, directors and/or Key Employees of Legacy to, have repaid
in full all debts and other obligations, if any, owed to Legacy;
(XXII) the Buyer shall have received from Legacy the Financial
Statements;
(XXIII) all appropriate corporate and shareholder authorizations
of Legacy shall have been obtained;
(XXIV) since the Most Recent Balance Sheet, Legacy shall have
made no dividend, consulting or other payment to the Sellers, except for
employment salaries (not to exceed current compensation) as set forth on
Section 4(m) of the Disclosure Schedule and bonuses as set forth on Section
----------- -------
4(m) of the Disclosure Schedule;
---
(XXV) except as set forth on the Disclosure Schedule, since
Most Recent Balance Sheet, Legacy shall not have transferred, conveyed,
disposed of and/or sold any of Material assets, except in the Ordinary
Course of Business; and
(XXVI) all Intellectual Property created or developed by any
Seller and any other current employee of Legacy that has been used
historically by Legacy or is being used currently by Legacy shall be one
hundred percent (100%) owned by Legacy as of the Closing Date.
(XXVII) all of the Sellers of Legacy shall have agreed to
participate in the Merger without any dissenter's rights exercised.
The Buyer may waive any condition specified in this Section 7(a) at or
-----------
prior to the Closing.
-43-
(B) CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
----------------------------------------
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(I) the representations and warranties set forth in Section
-------
3(b) above shall be true and correct in all Material respects at and as of
---
the Closing Date;
(II) the Buyer shall have performed and complied with all of its
covenants hereunder in all Material respects through the Closing;
(III) Buyer will have procured all third party consents
(including the BankBoston, N.A. consent, if required) and given all notices
required by Buyer or Newco in connection with this Agreement and the
transactions contemplated hereby, including without limitation all action
necessary in connection with and/or the receipt of any notices to, filings
with, and authorizations, consents and approvals of governments,
governmental agencies, and third parties as set forth herein;
(IV) no action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(V) the Buyer shall have delivered to the Sellers a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in Section 7(b)(i)-(iv)
-------------------
is satisfied in all respects;
(VI) the Buyer shall have executed the Stock Option Agreements in
the form of Exhibit F attached hereto for the issuance of options to
---------
purchase Buyer's Shares in the aggregate amount set forth on Annex VII to
---------
those persons on Annex VII, subject to reallocation by Legacy;
---------
(VII) [RESERVED];
(VIII) each of the persons and entities listed on Annex V and
-------
Annex VI shall have received from the Buyer an executed employment or
--------
compliance agreement, as applicable, in the form and substance attached
hereto as Exhibits E-1 and E-2, respectively; provided, the executed
------------ ---
Employment Agreements will include the salary and bonus terms described on
Annex V with respect to the Key Employees;
-------
-44-
(IX) Puzzanghera shall have received from the Buyer an executed
joinder or other documentation required by the Registration Agreement to
become a party thereto;
(X) Legacy shall have received from the Buyer the Buyer's
Financial Statements and all appropriate corporate and shareholder
authorizations of the Buyer shall have been obtained;
(XI) Legacy shall have received from the Buyer an opinion of
counsel in the form agreeable to counsel to each Party, addressed to Legacy
and dated as of the Closing Date ;
(XII) the Buyer shall have executed the Purchase Price
Adjustment Agreement in the form of Exhibit C attached hereto and the Buyer
---------
shall have executed the Stock Pledge Agreement in the form of Exhibit D
---------
attached hereto; and
(XIII) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.
The Sellers may waive any condition specified in this Section 7(b) at or
-----------
prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(A) SURVIVAL. All of the representations and warranties of the
--------
Sellers contained in Section 4 above (other than the representations and
---------------
warranties of the Sellers contained in Section 4(h) above) shall survive the
-----------
Closing hereunder and continue in full force and effect for a period of two (2)
years thereafter. Subject to the foregoing, the other representations,
warranties, and covenants of the Parties contained in this Agreement (including
the representations and warranties of the Sellers contained in Section 4(h)
-----------
above) shall survive the Closing (even if the damaged Party knew or had reason
to know of any misrepresentation or breach of warranty or covenant at the time
of the Closing) and continue in full force and effect for the applicable statute
of limitations, except as otherwise provided elsewhere in this Agreement.
(B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
---------------------------------------------------
(I) In the event the Sellers breach any of their
representations, warranties, agreements, and covenants contained herein,
and provided that the particular representation, warranty, agreement, or
covenant survives the Closing and that the Buyer makes a written claim for
indemnification against the Sellers pursuant to Section 10(h) below within
the applicable survival period, then the Sellers agree to jointly and
severally indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the
-45-
date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of the
applicable survival period resulting from, arising out of,
relating to, in the nature of, or caused by the breach);
provided, however, that the Sellers shall not have any
obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach of any representation
or warranty of the Sellers contained in SECTION 4 above (i)
---------
until and only to the extent that the Buyer has suffered
aggregate losses by reason of all such breaches in excess of a
$50,000 threshold or (ii) in excess of the Purchase Price
(after which point Sellers shall have no obligation to
indemnify Buyer from and against further such Adverse
Consequences); provided, further, however, that the
limitations set forth in (i) and (ii) above specifically shall
not apply to the liability of Sellers with respect to Adverse
Consequences resulting from or attributable to intentional
fraud or any willful misconduct by the Sellers or to any
breaches of the representations and warranties contained in
SECTION 4(G) and SECTION 4(H) hereof.
------------ ------------
(II) In the event any Seller breaches any of
its several representations, warranties, and covenants
contained in SECTION 3 herein, and provided that the
---------
particular representation, warranty, or covenant survives the
Closing and that the Buyer makes a written claim for
indemnification against such Sellers pursuant to SECTION 10(H)
-------------
below within the applicable survival period, then each of the
Sellers agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after
the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by
the breach.
(III) The Sellers agree to indemnify the
Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out
of, relating to, in the nature of, or caused by any Liability
of Legacy arising under Reg. (S).1.1502-6 (because Legacy once
was a member of an Affiliated Group during any part of any
consolidated return year within any part of which consolidated
return year any corporation other than Legacy also was a
member of the Affiliated Group).
(IV) The Sellers shall indemnify the Buyer
from and against the entirety of any Taxes which may become
due and owing by reason of or as a result of the failure of
this transaction to qualify as a tax-free reorganization under
SECTION 368 of the Code which amount shall be reduced by an
-----------
amount equal to the present value (discounted at 6.0%) of any
federal, state and local income or franchise tax savings to
which the Buyer, the Company or any of their Affiliates may be
entitled as a result of such failure based on the highest
marginal federal, state and local income and franchise tax
rates; provided, however; Sellers shall not be subject to this
indemnification obligation if the failure of this transaction
to so qualify results (a) solely from Buyer's breach of the
covenant set forth in SECTION
-------
-46-
6(K) hereof or (b) from a Final Determination that the fair
----
market value per share of the Buyer's Shares was less than
$6.00 as of the Closing Date (but only if the Buyer has not
completed the Initial Public Offering on or before December
31, 1998). "FINAL DETERMINATION" shall mean a determination by
the Internal Revenue Service which is no longer subject to
appeal. This subsection (iv) of SECTION 8(B) shall be the sole
------------
basis for indemnification for the Taxes which are incurred
based on a failure of this transaction to qualify as a
tax-free reorganization under SECTION 368 of the Code.
-----------
(V) The Sellers agree to indemnify the Buyer
from and against the entirety of any sales, use, recording or
other transfer Taxes which may become due and owing by reason
of the transactions contemplated by this Agreement.
(VI) The Sellers agree to indemnify the
Buyer from and against the entirety of any brokerage fees or
investment banking commissions due by Sellers or Legacy by
reason of the transactions contemplated by this Agreement.
(VII) The Sellers shall be liable for, and
hereby indemnify, the Buyer for all Taxes imposed on Legacy
with respect to any taxable year ended on or before the
Closing Date or with respect to any period beginning before
and ending after the Closing Date, for the portions of such
taxable year or period ending prior to the Closing Date,
including without limitation any Taxes incurred in connection
with any audit by any governmental authority for any such
period ending on or prior to the Closing Date; provided,
however, that such indemnity shall be made only to the extent
such Taxes are in excess of the reserve, if any, for such Tax
Liability used to determine the Net Working Capital of Legacy.
The Parties hereto shall, to the extent permitted or not
prohibited by applicable law, elect with the relevant taxing
authority, if required or necessary, to terminate the taxable
year of Legacy as of the Closing Date. In any case where
applicable law does not permit Legacy to treat such date as
the end of a taxable year or period, then whenever it is
necessary to determine the liability for income Taxes of
Legacy, for a portion of a taxable year or period, such
determination shall (unless otherwise agree to in writing by
the Buyer and the Sellers) be determined by a closing of
Legacy's books as of the Closing Date, except that exemptions,
allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be
apportioned based upon the number of days during such taxable
year or period the Sellers and Buyer owned the stock in
Legacy.
(VIII) The Sellers shall indemnify the Buyer
from and against the entirety of all Tax Liability created
from and the conversion by Legacy to the accrual basis of tax
accounting from the cash basis of tax accounting to the extent
such Taxes are in excess of the reserve, if any, for such Tax
Liability used to determine the Net Working Capital of Legacy.
-47-
(IX) The Sellers shall indemnify the Buyer
from and against the entirety of all Adverse Consequences as a
result of any noncompliance by Legacy prior to the Closing
with any wage or employment laws.
(X) The Parties shall make appropriate
adjustments for tax benefits in determining the liability of
the Sellers under this SECTION 8.
---------
(C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF
-----------------------------------------
THE SELLERS. In the event the Buyer breaches any of its representations,
-----------
warranties, and covenants contained herein, and provided that the particular
representation, warranty, or covenant survives the Closing and that the Sellers
make a written claim for indemnification against the Buyer pursuant to SECTION
10(H) below within the applicable survival period, then the Buyer agrees to
indemnify the Sellers from and against the entirety of any Adverse Consequences
the Sellers may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Sellers may suffer after
the end of the applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach; provided, however, that
the Buyer shall not have any obligation to indemnify the Sellers from and
against any Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach of any representation or warranty of the
Buyer contained in SECTION 3(B) above (i) until and only to the extent that the
------------
Sellers in the aggregate have suffered aggregate losses by reason of all such
breaches in excess of a $50,000 threshold or (ii) in excess of the Purchase
Price (after which point Buyer shall have no obligation to indemnify any Seller
from and against further such Adverse Consequences); provided, further, however,
that the limitations set forth in (i) and (ii) above specifically shall not
apply to the liability of Buyer with respect to Adverse Consequences resulting
from or attributable to intentional fraud or any willful misconduct by the
Buyer.
(D) MATTERS INVOLVING THIRD PARTIES. If any
-------------------------------
third party shall notify any Party (the "INDEMNIFIED PARTY") with respect to any
matter which may give rise to a claim for indemnification against any other
Party (the "INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified
---------
Party shall notify in writing each Indemnifying Party thereof promptly, which
notice shall describe the matter in reasonable detail, including relevant
evidence and estimated loss; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is damaged and materially
prejudiced from adequately defending such claim. In the event any Indemnifying
Party notifies the Indemnified Party within thirty (30) days after the
Indemnified Party has given notice of the matter that the Indemnifying party is
assuming the defense thereof, (A) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (B) the Indemnified Party may retain
separate co-counsel at its sole cost and expense (except that the Indemnifying
Party will be responsible for the fees and expenses of the separate co-counsel
to the extent the counsel the Indemnifying Party has selected has a conflict of
interest), (C) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement or compromise with respect to the matter
without the written consent of the Indemnifying Party (not to be withheld
unreasonably), and (D) the Indemnifying Party will not consent to the entry of
any judgment with
-48-
respect to the matter, or enter into any settlement or compromise which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
no Indemnifying Party notifies in writing the Indemnified Party within twenty
(20) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, however, the Indemnified
Party may defend against, or enter into any settlement with respect to, the
matter in any manner it reasonably may deem appropriate. At any time after
commencement of any such action, any Indemnifying Party may request an
Indemnified Party to accept a bona fide offer from the other Party(ies) to the
action for a monetary settlement payable solely by such Indemnifying Party
(which does not burden or restrict the Indemnified Party nor otherwise prejudice
him or her) whereupon such action shall be taken unless the Indemnified Party
determines that the dispute should be continued, the Indemnifying Party shall be
liable for indemnity hereunder only to the extent of the lesser of (i) the
amount of the settlement offer or (ii) the amount for which the Indemnified
Party may be liable with respect to such action. In addition, the Party
controlling the defense of any third party claim shall deliver, or cause to be
delivered, to the other Party copies of all correspondence, pleadings, motions,
briefs, appeals or other written statements relating to or submitted in
connection with the defense of the third party claim, and timely notices of, and
the right to participate in (as an observer) any hearing or other court
proceeding relating to the third party claim.
(E) EXCLUSIVE REMEDY. The Parties acknowledge
----------------
and agree that the foregoing indemnification provisions in this SECTION 8 shall
---------
be the exclusive remedy of the Parties for any breach of the representations and
warranties of the Parties contained in SECTION 3 or SECTION 4 of this Agreement.
--------- ---------
(F) PAYMENT; GENERAL RIGHT OF OFFSET. The
--------------------------------
Indemnifying Parties shall promptly pay to the Indemnified Party as may be
entitled to indemnity hereunder in cash the amount of any Adverse Consequences
to which such Indemnified Party may become entitled to by reason of the
provisions of SECTION 2 or SECTION 8 of this Agreement. Notwithstanding the
--------- ---------
foregoing, in connection with the indemnification of Buyer pursuant to SECTION
-------
8(B)(I) above, Buyer shall have the option to first seek indemnification
-------
payments through offset against any promissory note or Earned Payout Amount
payable to Sellers after an indemnification claim has been made therefor, for
the amount of any Adverse Consequences or any other payments to which Buyer may
become entitled to by reason of the provisions of this Agreement (i.e. payments
under SECTION 2 or SECTION 6 or other costs in connection therewith). In no
--------- ---------
event shall either party receive indemnification for an indemnification claim
under this ARTICLE VIII which has been fully satisfied through insurance, an
------------
adjustment to Purchase Price or cash payment.
(G) OTHER INDEMNIFICATION PROVISIONS. Except as
--------------------------------
provided in Section 8(f) above, the foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory or common law remedy any
Party may have for breach of representation, warranty, or covenant.
-49-
(H) ARBITRATION WITH RESPECT TO CERTAIN
-----------------------------------
INDEMNIFICATION MATTERS. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN
-----------------------
ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING FROM
OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED
INDEMNIFICATION CLAIM MADE PURSUANT TO THIS SECTION 8. THE PARTIES FURTHER AGREE
THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE MEANS FOR
RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO
ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION
PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY
MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION
CONTAINING A STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN
HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL
ARBITRATOR. AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL
PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE
HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT
AGREE UPON A NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE
FOR ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST
ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE
FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR
FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE
PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN THE BOSTON, MASSACHUSETTS
METROPOLITAN AREA, AT A PLACE DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES
HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS
INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO
INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY
PREVAILS. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION AWARDED
SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE ISSUES
IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE REASONS
FOR THE AWARD.
9. TERMINATION.
-----------
(A) TERMINATION OF AGREEMENT. The Parties may
------------------------
terminate this Agreement as provided below:
(I) the Buyer and the Sellers may
terminate this Agreement by mutual written consent at any time
prior to the Closing;
(II) the Buyer may terminate this
Agreement by giving written notice to the Sellers at any time
prior to the Closing in the event the Sellers are in breach of
any Material representation, warranty, or covenant contained
in this Agreement in any Material respect and such breach has
not been cured within ten (10) days of written notice thereof,
and the Sellers may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing in the
event the Buyer is in breach of any Material representation,
warranty, or covenant
-50-
contained in this Agreement in any Material respect and such
breach has not been cured within ten (10) days of written
notice thereof;
(III) the Buyer may terminate this Agreement
by giving written notice to the Sellers at any time prior to
the Closing if the Closing shall not have occurred on or
before May 15, 1998 by reason of the failure of any condition
precedent under SECTION 7(A) hereof (unless the failure
------------
results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this
Agreement); or
(IV) the Sellers may terminate this
Agreement by giving written notice to the Buyer at any time
prior to the Closing if the Closing shall not have occurred on
or before May 15, 1998 by reason of the failure of any
condition precedent under SECTION 7(B) hereof (unless the
------------
failure results primarily from any Seller himself breaching
any representation, warranty, or covenant contained in this
Agreement)
(V) the Sellers may terminate this Agreement
by giving written notice to the Buyer at any time prior to the
Closing if the Initial Public Offering has been abandoned.
Nothing contained in this SECTION 9(A) shall alter, affect,
------------
modify or restrict either Parties' rights to rely on and/or seek indemnification
for a breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(B) EFFECT OF TERMINATION. If either Buyer or Sellers
---------------------
terminate this Agreement pursuant to SECTION 9(A) above, all obligations of the
------------
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
10. MISCELLANEOUS.
--------------
(A) [RESERVED]
(B) PRESS RELEASES AND ANNOUNCEMENTS. Except as
--------------------------------
may be required by applicable securities laws or stock exchange requirements, no
Party shall issue any press release or public announcement relating to the
subject matter of this Agreement prior to, at or about the Closing without the
prior written approval of the Buyer and the Sellers, which written approval will
not be unreasonably withheld; provided, however, that any Party may make any
public disclosure it believes in good faith is required by law or regulation (in
which case the disclosing Party will advise the other Parties prior to making
the disclosure).
(C) NO THIRD-PARTY BENEFICIARIES. This
----------------------------
Agreement shall not confer any rights or remedies upon any person other than the
Parties and their respective successors and permitted assigns.
-51-
(D) ENTIRE AGREEMENT. This Agreement (including
----------------
the documents referred to herein or signed by the Parties and delivered
herewith) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof;
provided, however, that unless and until the consummation of the purchase and
sale transaction contemplated hereunder occurs, the Confidentiality Agreement
attached hereto as EXHIBIT G shall remain in full force and effect.
(E) SUCCESSION AND ASSIGNMENT. This Agreement
-------------------------
shall be binding upon and inure to the benefit of the Parties named herein and
their respective successors and permitted assigns. No Party may assign either
this Agreement or any of his, her or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Sellers;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder to a wholly-owned Subsidiary (in any or all of which cases
the Buyer and Newco nonetheless shall remain liable and responsible for the
performance of all of its respective obligations hereunder).
(F) FACSIMILE/COUNTERPARTS. This Agreement may
----------------------
be executed in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
A facsimile, telecopy or other reproduction of this Agreement may be executed by
one or more parties hereto, and an executed copy of this Agreement may be
delivered by one or more parties hereto by facsimile or similar instantaneous
electronic transmission device pursuant to which the signature of or on behalf
of such party can be seen, and such execution and delivery shall be considered
valid, binding and effective for all purposes. At the request of any Party
hereto, all parties hereto agree to execute an original of this Agreement as
well as any facsimile, telecopy or other reproduction hereof.
(G) DESCRIPTIVE HEADINGS. The descriptive
--------------------
section headings contained in this Agreement are inserted for convenience or
reference only and shall not control or affect in any way the meaning,
interpretation, or construction of any of the provisions of this Agreement.
(H) NOTICES. All notices, requests, demands,
-------
claims, and other communications hereunder will be in writing. Any notice,
request, demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to Legacy or the Sellers:
Xx. Xxxx X. Xxxxxxxxxxx
c/o Legacy Technology, Inc.
Xxx Xxx xx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
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with a copy to:
Xxxxxx Xxxxxx Flattau & Kimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Buyer:
AnswerThink Consulting Group, Inc.
0000 Xxxxxxxx Xxx Xxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxx X. Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx, LLP
000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxxxxxx X. Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
(I) GOVERNING LAW. ALL QUESTIONS CONCERNING THE
-------------
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT HERETO WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISION OR RULE (WHETHER OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS.
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(J) AMENDMENTS AND WAIVERS. No amendment of any
----------------------
provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(K) SEVERABILITY. Any term or provision of this
------------
Agreement that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
(L) EXPENSES. Each of the Parties and Legacy
--------
will bear his, her or its own costs and expenses (including legal fees and
expenses and investment banking fees) incurred in connection with this Agreement
and the transactions contemplated hereby. The Sellers acknowledge and agree that
Legacy has not borne or will bear any of the Sellers' costs and expenses
(including any of its legal fees and expenses and investment banking fees) in
connection with this Agreement or any of the transactions contemplated hereby.
(M) CONSTRUCTION. The language used in this
------------
Agreement will be deemed to be the language chosen by the Parties to express
their mutual intent, and no rule of strict construction shall be applied against
any Party. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant relating to the same subject matter as any other representation,
warranty or covenant (regardless of the relative levels of specificity) which
the Party has not breached, it shall not detract from or mitigate the fact that
the Party is in breach of the first representation, warranty, or covenant.
(N) INCORPORATION OF EXHIBITS, ANNEXES, AND
---------------------------------------
SCHEDULES. The Exhibits, Annexes, and Schedules identified in
---------
this Agreement are incorporated herein by reference and made a
part hereof.
(O) SPECIFIC PERFORMANCE. Each of the Parties
--------------------
acknowledges and agrees that the other Parties would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are
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breached. Accordingly, each of the Parties agrees that the other Parties shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter,
in addition to any other remedy to which they may be entitled, at law or in
equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
NEWCO: BUYER:
ANSWERTHINK ACQUISITION ANSWERTHINK CONSULTING GROUP, INC.
SUB NO. 1, INC.
By: /s/ XXX X. XXXXXXXXX By: /s/ XXX X. XXXXXXXXX
-------------------------- ---------------------------------------
Xxx X. Xxxxxxxxx Xxx X. Xxxxxxxxx
President President and Chief Executive Officer
LEGACY:
LEGACY TECHNOLOGY, INC.
By: /s/XXXX X. XXXXXXXXXXX
--------------------------------------
Xxxx X. Xxxxxxxxxxx
President and Chief Executive Officer
SELLERS:
/s/XXXX X. XXXXXXXXXXX
-------------------------------------------
Xxxx X. Xxxxxxxxxxx
/s/XXXXXXX XXXXXXXX
-------------------------------------------
Xxxxxxx XxXxxxxx
/s/XX XXXXX
-------------------------------------------
Xx Xxxxx
[ADDITIONAL SIGNATURES ON NEXT PAGE]
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ATTESTATIONS:
NEWCO: BUYER:
ANSWERTHINK ACQUISITION ANSWERTHINK CONSULTING GROUP, INC.
SUB NO. 1, INC.
By: /s/XXXX SAN XXXXXX By: /s/XXXX SAN XXXXXX
----------------------------- ----------------------------------
Xxxx San Xxxxxx Xxxx San Xxxxxx
Vice President and Treasurer Executive Vice President and
Chief Financial Officer
LEGACY:
LEGACY TECHNOLOGY, INC.
By: /s/XX XXXXX
-----------------------------------
Xx Xxxxx
Treasurer
The Exhibits, Annexes, Tables and Schedules to this Agreement have not been
included with this Registration Statement on Form S-1. AnswerThink will provide
these exhibits, annexes, tables and schedules upon the request of the Securities
and Exchange Commission.
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