_________________________________________
STOCK PURCHASE AGREEMENT
By and Among
NETWOLVES CORPORATION,
NETWOLVES ACQUISITIONS, INC.,
NORSTAN, INC.
and
NORSTAN NETWORK SERVICES, INC.
January 30, 2002
_______________________________________
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January 30,
2002, by and among NETWOLVES CORPORATION, a New York corporation ("NetWolves"),
NETWOLVES ACQUISITIONS, INC., a Delaware corporation and wholly owned subsidiary
of NetWolves, as buyer (the "Buyer"), NORSTAN NETWORK SERVICES, INC., a
Minnesota corporation (the "Company"), and NORSTAN, INC., a Minnesota
corporation (the "Seller").
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of the Company. The Company is in the business (the "Business") of
providing multiple source long-distance telephone services and related
consulting and professional services; and
WHEREAS, the Buyer desires to purchase from the Seller all of the issued
and outstanding capital stock of the Company, and the Seller desires to sell
such shares in exchange for cash and a promissory note as described herein. In
addition, and in consideration of, the payments made by the Buyer hereunder, the
Seller has agreed to assume and retain certain liabilities of the Company.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in Article VII hereof.
NOW, THEREFORE, in consideration of the premises, the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties hereto agree as follows:
Article I
PURCHASE AND SALE OF SHARES
1.1 Shares.
On and subject to the terms and conditions of this Agreement, at the
Closing, the Buyer shall purchase from the Seller, and the Seller shall sell,
transfer, assign, convey and deliver to the Buyer, all right, title and interest
in and to all of the Seller's shares (the "Shares") of the common stock, par
value $.01 per share, of the Company (the "Common Stock"), as more specifically
identified on Schedule 5.1(b) hereto.
1.2 Purchase Price.
(a) The consideration to be paid by the Buyer for the Shares; (the
"Consideration") shall consist of $7,500,000.00 to be paid as follows: (i)
$400,000.00 concurrently with the execution and delivery of this Agreement (the
"Purchase Deposit"); (ii) a cash payment of $3,350,000.00 at the Closing and
(iii) a non-negotiable promissory note dated the Closing Date in the principal
amount of $3,750,000.00 in the form of Exhibit A attached hereto (the "Note"). A
portion of the Consideration shall be allocated pursuant to Sections 1.2(b) and
2.5 hereof. The cash portion of the Consideration will be payable at the Closing
by wire transfer or otherwise in immediately available funds to an account
specified by the Seller. Prior to the Closing, the Seller shall provide all
necessary information as to the account to which such payment shall be made.
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(b) In accordance with the Section 338(h)(10) election, as provided in
Section 7.10(g) hereof, the Consideration shall be allocated among the assets of
the Company based upon the net tax value of the assets of the Company in
accordance with Section 1060 of the Code and the regulations thereunder.
(c) In the event that the Agreement is terminated pursuant to Section 2.3
because of Buyer not obtaining the necessary financing to close the transaction
contemplated by this Agreement, the Seller shall retain the Purchase Deposit
(and any interest and income pertaining thereto) as liquidated damages for all
obligations of the Buyer and NetWolves hereunder. If this Agreement is
terminated for a reason other than Buyer not obtaining the necessary financing
to satisfy its closing obligations, Seller shall promptly refund the Purchase
Deposit to Buyer. Article II
CLOSING; TERMINATION
2.1 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Blau, Kramer, Wactlar & Xxxxxxxxx,
P.C., 000 Xxxxxxx Xxxxxxxxxx, Xxxxxxx, XX 00000, or at such other place as the
parties may agree, at 11:00 a.m. on the fifth business day following the
satisfaction (or waiver) of the conditions to closing set forth in Sections 3.1
and 3.2 hereof or as otherwise upon designation by a party in accordance with
the provisions of Section 3.3 hereof or at such other time and date as the
parties may agree, but no later than the ninetieth (90th) day following the
execution and delivery of this Agreement. The date on which the Closing occurs
shall be referred to hereinafter as the "Closing Date".
2.2 Deliveries at the Closing.
(a) At the Closing, the Seller shall deliver to the Buyer:
(i) copies of all consents of third parties (excluding Governmental
Entities) that are (A) required for the purchase and sale hereunder or that
are required for the consummation of the transactions contemplated hereby
and for the Buyer's ownership of the Shares and the Company's continued
operation of the Business following the Closing and (B) that are required
in order to prevent a breach of or default under or a termination of any
agreement, contract, license, commitment or lease to which the Company or
the Seller is a party or to which the Shares or any of the assets of the
Company are subject;
(ii) an opinion, dated the Closing Date, of Xxxxxx Xxxxxxx Xxxxxx &
Brand, LLP, counsel to the Seller, in substantially the form of Exhibit B
attached hereto;
(iii) a written resignation, effective as of the Closing Date, of each
director of the Company;
(iv) a certificate as to the satisfaction of the conditions described
in Sections 3.1(a), 3.1(c), 3.1(d), 3.1(e), 3.1(f) and 3.1(j) hereof;
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(v) the Assignment and Assumption Agreement substantially in the form
attached hereto as Exhibit H;
(vi) certified copies of the Fundamental Documents, the authorizing
resolutions and incumbency certificates of the Company and the Seller for
the Documents; and
(vii) each other document required to be delivered to Buyer pursuant
to this Agreement.
(b) At the Closing, the Buyer shall deliver to the Seller:
(i) the cash portion of the Consideration in accordance with Section
1.2 hereof;
(ii) the Note;
(iii) a Security Agreement between the Company and the Seller in
substantially the form of Exhibit D-2 attached hereto;
(iv) a Pledge Agreement between the Buyer and Seller in substantially
the form of Exhibit D-1 hereto;
(v) an opinion, dated the Closing Date, of Blau, Kramer, Wactlar &
Xxxxxxxxx, P.C., counsel to the Buyer, in substantially the form of Exhibit
C attached hereto; and
(vi) certified copies of the Fundamental Documents of the Buyer, and
the authorizing resolutions and incumbency certificates of the Buyer for
the Documents.
2.3 Termination.
Anything contained in this Agreement, other than in this Section 2.3, to
the contrary notwithstanding, this Agreement may be terminated in writing at any
time on or before the Closing:
(a) without liability on the part of any party hereto by mutual written
consent of the Buyer and the Seller;
(b) by the Buyer, if the Seller shall breach any of its material
representations, warranties or obligations hereunder and such breach shall not
have been cured or waived and the Seller shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date;
(c) by the Buyer by written notice to the Seller given at any time prior to
the Closing Date stating that it has not obtained financing, sufficient in its
judgment, to permit it to close the transaction contemplated by this Agreement,
in which circumstance the Seller shall retain the Purchase Deposit as liquidated
damages for all obligations of Buyer and NetWolves arising under the Agreement;
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(d) by the Seller, if the Buyer shall breach any of its material
representations, warranties or obligations hereunder and such breach shall not
have been cured or waived and the Buyer shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date; or
(e) without liability on the part of any party hereto if the Closing shall
not have occurred on or before the ninetieth (90th) day following the execution
and delivery of this Agreement (the "Termination Date") (or such later date as
may be agreed upon in writing by the parties hereto). Notwithstanding any
provision to the contrary stated herein, if the Closing shall not have occurred
on or before the Termination Date because Buyer has not obtained sufficient
financing to close the transaction contemplated by this Agreement, Seller shall
retain the Purchase Deposit (and any interest and income pertaining thereto) as
liquidated damages (and not as a penalty) for Seller resulting from the failure
of Buyer and NetWolves to complete the Closing. In the case of any termination
pursuant to this Section 2.3(e), the parties hereto acknowledge that time is of
the essence.
2.4 Effect of Termination.
Except as provided in the next sentence of this paragraph, in the event of
the termination of this Agreement pursuant to any paragraph of Section 2.3
hereof, the obligations of the parties to consummate the transactions
contemplated hereby will expire, and none of the parties will have any further
obligations under this Agreement except pursuant to Sections 2.4, 7.4 and 7.6
hereof, which sections shall survive termination of this Agreement. In the event
of the termination of this Agreement pursuant to any paragraph of Section 2.3
hereof that is caused by a breach of a party, the party whose breach was the
basis for the termination will not be relieved from any liability for its breach
or its obligations pursuant to this Section 2.4 hereof, and the other party will
have no further obligations under this Agreement except as provided in Sections
7.4, 7.9 and Article IX hereof.
2.5 Allocation of Purchase Price.
For Federal income tax purposes only, the Buyer shall be deemed to have
delivered cash in an amount to be determined by the parties prior to closing for
the non-competition covenant of Seller contained in Section 7.8 hereof and the
balance for the Shares. None of the parties shall take any action inconsistent
with the allocation set forth in this Section 2.5.
Article III
CONDITIONS TO OBLIGATIONS OF PARTIES TO CLOSE
3.1 Conditions to Obligation of Buyer and NetWolves.
The obligation of the Buyer and NetWolves to consummate the transactions to
be performed by them in connection with the Closing is subject to the full
satisfaction and/or waiver of the following conditions as of the Closing:
(a) Representations and Warranties. The representations and warranties of
the Seller and the Company set forth in Article V hereof shall have been true
and correct in all material respects when made, and shall be true and correct in
all material respects as of the Closing Date.
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(b) Consents. All consents by third parties (excluding Governmental
Entities) shall have been obtained that are (a) required for the purchase and
sale hereunder and/or that are required for the consummation of the transactions
contemplated hereby, and (b) that are required in order to prevent a breach of
or a default under or a termination of any material agreement, contract,
document, license, lease or commitment to which the Company or the Seller is a
party or to which the Shares or any portion of the assets of the Company are
subject (collectively, the "Contracts"), including, without limitation, duly
executed consents in form and substance reasonably satisfactory to the Buyer and
its counsel, to the sale of the Shares to the Buyer or to the extent such
consents are required under applicable Law or the terms of said Contracts or
Intellectual Property.
(c) Absence of Material Adverse Change. Since October 31, 2001 there shall
have been no Material Adverse Change suffered by the Company or the Business.
(d) Absence of Litigation. As of the Closing, there shall not be (i) any
Order of any nature issued by a Governmental Entity with competent jurisdiction
directing that the transactions provided for herein or any material aspect of
them not be consummated as herein provided or (ii) any Proceeding before any
Governmental Entity pending or threatened wherein an unfavorable Order (A) would
prevent the performance of this Agreement or the other Documents or the
consummation of any material aspect of the transactions or events contemplated
hereby, (B) declare unlawful any material aspect of the transactions or events
contemplated by this Agreement or the other Documents, (C) cause any material
aspect of the transaction contemplated by this Agreement or the other Documents
to be rescinded or (D) materially affect the right of the Buyer to own, operate
or control the Shares or the right of the Company to operate the Business
following the Closing.
(e) Proceedings. All corporate and other proceedings taken or required to
be taken by the Company and the Seller in connection with the transactions
contemplated by this Agreement and the other Documents to be consummated at or
prior to the Closing shall have been taken and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Buyer and its
counsel.
(f) Governmental Filings. All filings or registrations with and all
consents or approvals of any Governmental Entities which are required for or in
connection with the execution and delivery by the Company and the Seller of the
Documents or the consummation of the transactions contemplated thereby shall
have been effected and obtained.
(g) Opinion of Counsel to Seller and the Company. The Buyer shall have
received an opinion, dated the Closing Date, of Xxxxxx Xxxxxxx Xxxxxx & Brand,
LLP, counsel to the Seller and the Company, in substantially the form of Exhibit
B attached hereto.
(h) Leases; Services Agreements; Co-Marketing Agreement. The following
agreements shall have been duly executed and delivered to the Buyer and shall be
in full force and effect: (i) the sublease agreement with respect to certain
premises at 0000 Xxxxx Xxx Xxxx, Xxxxxxxxxx, XX with the Seller in substantially
the form found in Exhibit E attached hereto (the "Subleases"); (ii) transition
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services agreement with the Seller and its Affiliates, as applicable, in
substantially the form of Exhibit F attached hereto (the "Transition Services
Agreement"); (iii) a marketing agreement with the Seller in substantially the
form of Exhibit G attached hereto (the "Marketing Agreement"); and (iv)
Assignment and Assumption Agreement in substantially the form of Exhibit H.
(i) Release of Liens. The Buyer shall have received duly executed releases
(including UCC-3 termination statements) of all Liens (other than Permitted
Liens) on the assets of the Company in form and substance reasonably
satisfactory to the Buyer and its counsel.
(j) Performance by the Seller and the Company. The Company and the Seller
shall have performed in all material respects their respective obligations under
this Agreement.
(k) Buyer shall have obtained sufficient financing to permit Buyer to close
the transaction contemplated by this Agreement.
3.2 Conditions to Obligation of Seller.
The obligations of the Seller to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions as of the Closing:
(a) Representations and Warranties. The representations and warranties of
the Buyer and NetWolves set forth in Article VI hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects as of the Closing Date.
(b) Absence of Litigation. As of the Closing, there shall not be (a) any
Order of any nature issued by a Governmental Entity with competent jurisdiction
directing that the transactions provided for herein or any material aspect of
them not be consummated as herein provided or (b) any Proceeding before any
Governmental Entity pending or threatened wherein an unfavorable Order would
prevent the performance of this Agreement or the other Documents or the
consummation in any material aspect of the transactions contemplated hereby,
declare unlawful any material aspect of the transactions or events contemplated
by this Agreement or the other Documents, or cause any material aspect of any
transaction contemplated by this Agreement or the other Documents to be
rescinded.
(c) Governmental Filings. All filings or registrations with and all
consents or approvals of any Governmental Entities which are required for or in
connection with the execution and delivery by the Buyer of the Documents or the
consummation of the transactions contemplated thereby shall have been effected
and obtained.
(d) Opinion of Counsel for Buyer and NetWolves. The Seller shall have
received an opinion, dated the Closing Date, of Blau, Kramer, Wactlar &
Xxxxxxxxx, P.C., counsel to the Buyer and NetWolves, in substantially the form
of Exhibit C attached hereto.
(e) Subleases, Services Agreement; Marketing Agreement. The following
agreements shall have been duly executed and delivered to the Seller and shall
be in full force and effect: (i) the Subleases; (ii) the Transition Services
Agreement; (iii) the Marketing Agreement; and (iv) the Assignment and Assumption
Agreement in substantially the form of Exhibit H.
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3.3 Minimum Closing Condition.
(a) Notwithstanding the conditions to the respective obligations of Buyer
and NetWolves, on the one hand, and the Seller, on the other, to close as set
forth in Section 3.1(f) and Section 3.2(c) hereof, if all other conditions to
closing have been satisfied or waived, the parties agree that the conditions set
forth in Section 3.1(f) and Section 3.2(c) hereof will be deemed satisfied upon
(i) completion of all filings and registrations with Governmental Entities in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) receipt of related
consents or approvals in the jurisdictions set forth on Schedule 3.3 hereto (the
"Minimum Closing Condition"). Following completion of such filings and
registrations and receipt of consents or approvals constituting the Minimum
Closing Condition, either party may by written notice given to the other parties
in accordance with Section 9.6 hereof, designate a Closing Date not sooner than
five (5) business days after the date of the notice.
(b) If a Closing Date is designated pursuant to Section 3.3(a) hereof, the
parties, in addition to effecting the other deliveries specified in Sections 2.3
and 2.4 hereof, shall deliver appropriate evidence of filings and notices with
all Governmental Entities in the jurisdictions not identified on Schedule 3.3 so
that the consummation of the transactions contemplated hereby will not violate
the Law in any such jurisdiction.
Article IV
CONDUCT OF BUSINESS PENDING THE CLOSING
The Seller and the Company covenant and agree that, on and after the date
hereof until the earlier to occur of the Closing or the termination of this
Agreement pursuant to Section 2.5 hereof, unless the Buyer shall otherwise agree
in writing:
4.1 Ordinary Course.
The Company shall, and shall cause its Subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations and shall use all reasonable
efforts to preserve intact their present business organizations, keep available
the services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
the Company and its Subsidiaries.
4.2 Dividends; Changes in Stock.
The Company shall not, and shall not permit any of its Subsidiaries to, (i)
declare or pay any dividends on or make other distributions in respect of any of
its capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities.
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4.3 Issuance of Securities.
The Company shall not, and shall not permit any of its Subsidiaries to,
issue, deliver, sell, pledge or encumber, or authorize the issuance, delivery,
sale, pledge or encumbrance of, any shares of its capital stock of any class or
any securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any other
ownership interest (including stock appreciation rights or phantom stock) in the
Company or any Subsidiary.
4.4 Governing Documents.
The Company shall not, and shall not permit any of its Subsidiaries to,
amend its articles of incorporation or by-laws (or similar organizational
documents).
4.5 No Acquisitions.
The Company shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business organization or division thereof or
(ii) any assets that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole, except purchases of inventory and
fixed assets in the ordinary course of business consistent with past practice.
4.6 No Dispositions.
Other than sales or licenses of its products in the ordinary course of
business consistent with past practice, the Company shall not, and shall not
permit any of its Subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets.
4.7 Indebtedness.
The Company shall not, and shall not permit any of its Subsidiaries to, (i)
incur or suffer to exist any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries, guarantee
any debt securities of others, enter into any agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for working capital
borrowings incurred in the ordinary course of business consistent with past
practice, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company.
4.8 Advice of Changes; Filings.
The Seller and the Company shall confer on a regular and frequent basis
with NetWolves, as reasonably requested by NetWolves, and shall report on
operational matters and promptly advise NetWolves orally and in writing of any
material adverse change with respect to the business, operations, financial
condition or prospects of the Company. The Seller and the Company shall promptly
provide to, or make available for review by, NetWolves (or its counsel) copies
of all filings made by the Seller or the Company with any Governmental Entity.
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The Buyer shall have the right, directly and through its agents and
representatives to contact customers, suppliers and employees of the Company
upon prior notice to the Company of such intended contact but the Company may
require that any representative present at any meeting between the Buyer and any
customer, supplier or employee.
4.9 Tax Matters.
Neither the Seller nor the Company shall make any tax election that would
have an adverse effect on the Tax Liability or tax attributes of the Company or
any of its Subsidiaries or settle or compromise any Tax Liability of the Company
or any of its Subsidiaries. The Seller and the Company shall, before filing or
causing to be filed any Tax Return of the Seller or the Company or any of its
Subsidiaries or settling any Tax Liability not described in the preceding
sentence, consult with NetWolves and its advisors as to the positions and
elections that may be taken or made with respect to such return, and shall take
such positions or make such elections as the Company and NetWolves shall jointly
agree.
4.10 Capital Expenditures.
Except as set forth on Schedule 5.6, neither the Company nor any of its
Subsidiaries shall make or agree to make any new capital expenditure or
expenditures which capital expenditures would exceed $50,000 in the aggregate.
4.11 Discharge of Liabilities.
The Company shall not, and shall not permit any of its Subsidiaries to,
pay, discharge, settle or satisfy any Liabilities, other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of Liabilities
recognized or disclosed in the Financial Statements (or the notes thereto) of
the Company or incurred since the date of such Financial Statements in the
ordinary course of business consistent with past practice.
4.12 Material Contracts.
Except in the ordinary course of business, neither the Company nor any of
its Subsidiaries shall (i) modify, amend or terminate any material contract to
which the Company or such Subsidiary is a party, (ii) waive, release or assign
any material rights or claims or (iii) waive the benefits of, or agree to modify
in any manner, any confidentiality, standstill or similar agreement to which the
Company or such Subsidiary is a party.
4.13 Benefits Changes.
The Company shall not, and shall not permit any of its Subsidiaries to, (i)
increase the compensation or benefits of any director, officer or employee,
except for increases in the ordinary course that are consistent with past
practice, (ii) adopt any amendment to a benefit plan that materially increases
the cost thereof, (iii) enter into any employment or consulting agreement with
any director, officer or employee or (iv) accelerate the payment of compensation
or benefits to any director, officer or employee.
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4.14 General.
Neither the Seller nor the Company shall authorize any of, or commit or
agree to take any of, the foregoing actions otherwise prohibited by this Article
IV.
Article V
REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to NetWolves and the Buyer to enter into and
perform its obligations under this Agreement, the Seller represents and warrants
to NetWolves and the Buyer as set forth below.
5.1 Organization and Capitalization of the Company.
(a) Each of the Seller and the Company is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota, and the
Company is qualified to do business in every jurisdiction in which the failure
to so qualify could have a Material Adverse Effect on the Company. Schedule
5.1(a) lists all of the jurisdictions in which the Company is qualified to do
business as a foreign corporation. Schedule 5.1(b) sets forth all names under
which the Company has conducted the Business. The Seller owns all of the issued
and outstanding capital stock of the Company and no other Person has any right
to, or interest in, the outstanding capital stock of the Company or has any
right, contingent or otherwise, to purchase, acquire or own, directly or
indirectly, any equity interest in the Company. Schedule 5.1(a) lists all the
directors and officers of the Company. The Seller has delivered to the Buyer
correct and complete copies of the articles of incorporation and by-laws or
other similar governing documents of the Company (as amended to date). The
minute books (containing the records of meetings of the shareholders, the board
of directors (or any similar person or body of persons), and any committees of
the board of directors (or any similar person or body of persons)), the stock
certificate books, and the stock record books of the Company, copies of which
have been provided to the Buyer, are correct and complete in all respects. The
Company is not in default under, or in violation of, any provision of its
articles of incorporation or by-laws or other similar governing documents of the
Company.
(b) The entire authorized capital stock of the Company consists of
1,000,000 shares of Common Stock, of which 1,000 shares are issued and
outstanding. All of the issued and outstanding shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are owned of record and
beneficially by the Seller in the amounts set forth on Schedule 5.1(b), free and
clear of any Lien. There are no outstanding or authorized options, warrants,
preemptive rights, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
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5.2 Authorization of Transaction.
The Company has all requisite corporate power and authority to own and
operate the Business and to carry on the Business as now conducted. Each of the
Company and the Seller has all requisite corporate power and authority to
execute and deliver each Document to which it is a party and any and all
instruments necessary or appropriate in order to effectuate fully the terms and
conditions of each such Document and all related transactions and to perform its
obligations under each such Document. Each Document to which the Company is a
party has been duly and validly authorized by all necessary action (corporate or
otherwise) on the part of the Company, and each Document to which the Company
and/or the Seller is a party has been duly executed and delivered by the Company
and/or the Seller, as the case may be, and constitutes the valid and legally
binding obligation of the Company and/or the Seller, as the case may be,
enforceable against such parties in accordance with its terms and conditions.
5.3 Non-contravention.
Except as set forth on Schedule 5.3, neither the execution, delivery and
performance of the Documents nor the consummation of the transactions
contemplated by the Documents by the Company and/or the Seller, shall (a)
violate any Law to which the Company, the Seller, the Business, the Shares or
the assets of the Company is subject, (b) violate any provision of the
Fundamental Documents of the Company, (c) 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 of the Company's Intellectual Property or any Contract to which the
Company and/or the Seller is a party or (d) result in the imposition of any Lien
upon the Shares or any of the assets of the Company. Except as set forth on
Schedule 5.3, neither the Company nor the Seller is required to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any Governmental Entity or any consent or approval of any other Person in order
for the parties to consummate the transactions contemplated by the Documents or
in order for the Buyer to own the Shares and the Company to conduct the Business
in the ordinary course following the Closing.
5.4 Subsidiaries.
Schedule 5.4 attached hereto is a list of all Subsidiaries of the Company,
setting forth (i) the name and percentage ownership by the Company of each of
its Subsidiaries, (ii) the name and ownership interests of all other holders of
the capital stock, partnership interests or other equity interests thereof and
(iii) the names of the officers and directors, members, managers or partners, as
the case may be, of each such Subsidiary. The Company is, directly or
indirectly, the record and beneficial owner of the number of shares of capital
stock, partnership interests, limited liability company membership interests or
other equity interests of each of its Subsidiaries as indicated on Schedule 5.4,
there are no proxies with respect to such securities, and, except as set forth
on Schedule 5.4, no securities of any of its Subsidiaries are or may become
required to be issued, transferred or sold for any reason and all of the
outstanding securities of each such Subsidiary have been duly authorized and are
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validly issued, fully paid and nonassessable and were not issued in violation of
any preemptive rights and are owned free and clear of any Lien or agreement with
respect thereto (except as otherwise disclosed on Schedule 5.4). Except for its
Subsidiaries and except as otherwise set forth on Schedule 5.4, the Company does
not, directly or indirectly, have any ownership interest in any corporation,
partnership, joint venture, limited liability company or other entity. Except as
set forth in Schedule 5.4, there are no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements to which the Company or any of its Subsidiaries is a
party providing for the purchase, issuance or sale of any capital stock,
partnership interests, limited liability company membership interests or other
equity interests of any of the Company's Subsidiaries or any securities
convertible into, exchangeable into or exercisable for, shares of capital stock,
partnership interests or other equity interests of any of the Company's
Subsidiaries and there are no outstanding written agreements to which the
Company or any of its Subsidiaries is a party with respect to the issuance,
transfer or voting of the securities of any of the Company's Subsidiaries.
5.5 Financial Statements.
The following financial statements are referred to collectively herein as
the "Financial Statements":
(a) the unaudited balance sheets of the Company dated as of April 30, 2000
and 2001, respectively, and the related statements of operations, and
shareholders' equity for the respective fiscal years then ended April 30, 2000
and 2001; the balance sheet dated April 30, 2001 is hereinafter referred to as
the "Balance Sheet"; and
(b) the interim balance sheets of the Company dated as of December 31, 2001
(the "Latest Balance Sheet") and the interim balance sheet of the Company dated
as of October 31, 2001 and the related statements of operations, and
shareholders' equity, together with the accompanying supplementary information,
for the three-month period then ended. Schedule 5.5(a) contains the Financial
Statements described in (a) and (b) above. Except as specifically set forth on
Schedule 5.5(b), each of the Financial Statements (including the notes thereto)
(A) has been prepared in accordance with the books and records of the Company
(which are true and correct in all material respects), (B) is true, correct and
complete in all material respects, (C) fairly presents the financial condition,
results of operations and changes in shareholders' equity which it purports to
present as of the dates thereof and for the periods indicated thereon and (D)
has been prepared in accordance with GAAP consistently applied throughout the
periods covered thereby, subject, in the case of the Latest Balance Sheet, to
the lack of footnotes and other presentation items and normal annual accruals.
Since May 1, 1999, except as required by applicable Law or GAAP, there has been
no change in any accounting principle, procedure or practice followed by the
Company or in the method of applying any such principle, procedure or practice.
5.6 Events Subsequent to October 31, 2001.
Since October 31, 2001, the Company has operated the Business in the
ordinary course consistent with past practice and the Company has not suffered
any Material Adverse Change. Since that date, except as set forth on Schedule
5.6:
(a) no party (including the Company) has accelerated, terminated, modified
or canceled any agreement, contract, document, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $20,000
to which the Company is a party or by which the Company is bound or which is
otherwise material to the Company or the Business and, to the knowledge of
Seller, no party intends to take any such action;
12
(b) the Company has not made any redemptions of, or dividends or
distributions in respect of, the outstanding shares of its capital stock or
increased the compensation of any director, officer or employee thereof;
(c) exclusive of intracorporate cost sharing arrangements and transfers of
cash to Seller, the Company has not paid any fee, interest, royalty or any other
payment of any kind to the Seller or any Affiliate of the Company;
(d) the Company has not incurred any material debt, Lien upon any of its
respective assets or any increase in the amount payable by the Company under any
credit or loan agreement to which the Company is a party;
(e) there has not been any other material occurrence, event, incident,
action, failure to act or transaction outside the ordinary course of business
involving the Company;
(f) the Company has not sold, leased, transferred, or assigned any of its
material assets, tangible or intangible, other than for a fair consideration in
the ordinary course of business;
(g) the Company has not made any capital expenditure (or series of related
capital expenditures) either involving more than $50,000 or outside the ordinary
course of business;
(h) the Company has not made any 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) either involving more than
$20,000 or outside the ordinary course of business;
(i) the Company has not delayed or postponed the payment of material
accounts payable and other Liabilities outside the ordinary course of business,
exclusive of delayed payments to Sprint Corporation;
(j) the Company has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving more
than $20,000 or outside the ordinary course of business;
(k) the Company has not granted any license or sublicense of any rights
under, or with respect to, any Intellectual Property;
(l) the Company has not entered into any employment contract or collective
bargaining agreement, written or oral (other than ordinary course oral at-will
employment arrangements, the generic terms of which are described on an
aggregate basis (i.e., ranges of wages or salary, typical benefits, etc.) on
Schedule 5.6 hereto), or modified the terms of any existing such contract or
agreement;
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(m) the Company has not made or pledged to make any charitable or other
capital contribution outside the ordinary course of business;
(n) neither the Seller nor the Company has failed to maintain in force the
insurance policies referred to in Schedule 5.15 or insurance policies providing
the same or substantially similar coverage; and
(o) the Company has not committed to do any of the foregoing, whether
orally or in writing.
5.7 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.7, the Company has no Liabilities, except
for (a) Liabilities reflected on the face of the liabilities section of the
Latest Balance Sheet or the Balance Sheet, (b) Liabilities under any agreements,
contracts, commitments, licenses or leases which have arisen prior to the date
of the Latest Balance Sheet in the ordinary course of business (none of which
relates to a breach of contract, breach of warranty, tort, infringement,
violation of Law or Proceeding), and (c) Liabilities which have arisen since the
date of the Latest Balance Sheet in the ordinary course of business (none of
which relates to any breach of contract, breach of warranty, tort, infringement,
violation of Law or Proceeding).
5.8 Creditors; Bankruptcy, Etc.
Neither the Company nor the Seller is involved in any proceeding by or
against the Company as a debtor in any court under the United States Bankruptcy
Code or any other insolvency or debtors' relief act, whether state or Federal,
or for the appointment of a trustee, receiver, liquidator, assignee,
sequestrator or other similar official of the Company or for any part of the
Company's property.
5.9 Legal Compliance.
The Company has complied with all applicable Laws, Environmental and Safety
Requirements, Orders and Permits, and no Proceeding is pending or, to the
knowledge of Seller, threatened, alleging any failure to so comply. Schedule 5.9
sets forth a list of all Permits under which the Company is operating or bound.
Such Permits (a) constitute all Permits used or required in the conduct of the
Business as presently conducted, (b) are in full force and effect, (c) have not
been violated and (d) are not subject to any pending or, to the knowledge of
Seller, threatened Proceeding seeking their revocation or limitation.
5.10 Title to Properties.
(a) Except as set forth on Schedule 5.10(a), (A) the Company owns good and
marketable title, free and clear of all Liens (other than Permitted Liens), to
all of its respective assets, and (B) the assets of the Company include all
assets, properties and interests in properties presently used by, and necessary
for, the conduct of the Business by the Company in the ordinary course.
14
(b) The facilities, machinery, equipment and other tangible assets of the
Company are in good condition (ordinary wear and tear expected) and repair
(subject to routine maintenance and repair for similar assets of like age), fit
for their particular purpose, and are usable in the ordinary course of the
Business. The Company owns or leases under valid leases all machinery, equipment
and other tangible assets necessary for the conduct of the Business as conducted
as of the date hereof and as of the date of the Latest Balance Sheet.
(c) Attached as Schedule 5.10(c) is a true and complete listing of all of
the fixed assets of the Company. Schedule 5.10(c) specifies the locations of the
assets of the Company.
(d) The Company owns no real estate. Schedule 5.10(d) contains a list and
brief description of all real property leased by the Company (the "Real
Property"), as well as all buildings and other structures and material
improvements located on such Real Property, the name of the lessor and any
requirement of consent of the lessor to assignment, if any. The Real Property
constitutes all real properties used or occupied by the Company in connection
with the Business. With respect to the Real Property, the Company is the owner
and holder of all of the leasehold estates purported to be granted by such lease
and each lease is in full force and effect and constitutes a valid and binding
obligation of the Company. The Company has delivered to the Buyer true and
complete copies of all leases referred to in Schedule 5.10(d).
(e) With respect to the Real Property, except as set forth in Schedule
5.10(e):
(i) no portion thereof is subject to any pending condemnation
Proceeding by any public or quasi-public authority and, to the
knowledge of Seller, there is no threatened condemnation Proceeding
with respect thereto;
(ii) no notice of any increase in the assessed valuation of the
Real Property and no notice of any contemplated special assessment has
been received by the Company, and, to the knowledge of Seller, there
is no threatened increase in the assessed valuation or special
assessment pertaining to any of the Real Property;
(iii) there are no leases or other agreements, written or oral,
to which the Company is a party, granting to any party or parties
(other than the Company) the right of use or occupancy of any portion
of any parcel of Real Property;
(iv) there are no parties (other than the Company or its lessees
disclosed pursuant to paragraph (iii) above) in possession of any of
the Real Property;
(v) with respect to the Real Property, there have been no
discussions or correspondence with the landlord thereof concerning
renewal terms for those leases scheduled to expire within twelve (12)
months of the date of this Agreement; and
(vi) the physical condition of the Real Property is sufficient to
permit the continued conduct of the Business as presently conducted
subject to the provision of usual and customary maintenance and repair
performed in the ordinary course with respect to similar properties of
like age and construction.
15
5.11 Bank Accounts; Powers of Attorney.
Schedule 5.11 sets forth a true and complete list of (i) all bank accounts
and safe deposit boxes of the Company and all persons who are signatories
thereunder or who have access thereto and (ii) the names of all Persons holding
general or special powers of attorney from the Company and a summary of the
terms thereof.
5.12 Tax Matters.
Except as set forth on Schedule 5.12, the Company and each other
corporation included in any consolidated or combined tax return or part of an
affiliated group, within the meaning of Section 1504 of the Code, of which the
Company is or has been a member, (A) have timely paid all Taxes required to be
paid by them through the date hereof (including any Taxes shown due on any Tax
Return) and (B) have filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax Returns required to be filed by them with
the appropriate Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns are true and
complete. All Taxes shown to be due on each of the Tax Returns filed by the
Company have been timely paid in full. Except as set forth in Schedule 5.12: (i)
no Liens have been filed and the Company has not been notified by the Internal
Revenue Service or any other taxing authority that any issues have been raised
(and are currently pending) by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of the Company (or the failure to
file a Tax Return), and no waivers of statutes of limitations have been given or
requested with respect to the Company; (ii) there are no pending Tax audits of
any Tax Returns of the Company; (iii) no unresolved deficiencies or additions to
Taxes have been proposed, asserted or assessed against the Company or any member
of any affiliated or combined group of which the Company was or is a member;
(iv) the Company has made full and adequate provision (x) on the Latest Balance
Sheet for all Taxes payable by it for all periods prior to the date of the
Latest Balance Sheet and (y) on its books for all Taxes payable by it for all
periods beginning on or after the date of the Latest Balance Sheet; (v) the
Company has not nor will it incur any Liability with respect to any Taxes (a
"Tax Liability") from and after the date of the Latest Balance Sheet other than
Taxes incurred in the ordinary course of business and consistent with previous
years; (vi) the Company has not been nor is now a "personal holding company"
within the meaning of Section 542 of the Code or a United States real property
holding corporation within the meaning of Section 897 of the Code; (vii) the
Company and its predecessors have complied in all respects with all applicable
Laws relating to the collection or withholding of Taxes (such as sales Taxes or
withholding of Taxes from the wages of employees) and the Company is not liable
for any Taxes for failure to comply with such Laws; and (viii) the Company is
not now nor has the Company been a party to any Tax sharing agreement. The
Company has not agreed to and the Company is not required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not proposed any such adjustments or changes in the accounting
methods of the Company.
5.13 Intellectual Property.
(a) Schedule 5.13(a) identifies (i) all Intellectual Property consisting of
patents, patent applications, trademarks and service marks, logos, trade names,
corporate names, copyrights, computer programs and software, domain names, and
16
url's used in connection with the Business, (ii) each license, agreement or
other permission which the Company has granted to any third party with respect
to any Intellectual Property used in connection with the Business, and (iii)
excluding readily available "off the shelf," "shrink wrapped" software, each
item of Intellectual Property that any third party owns and that the Company
uses in connection with the Business pursuant to license, sublicense, agreement
or permission (clauses (ii) and (iii) are collectively referred to as "Licensed
Intellectual Property").
(b) Except as set forth on Schedule 5.13(b),
(i) the Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property rights of third parties or committed any acts of unfair
competition, and the Company has not received any charge, complaint, claim,
demand or notice alleging any such interference, infringement,
misappropriation, conflict or act of unfair competition;
(ii) the Company owns, has the right to use, sell, license and dispose
of, and has the right to bring actions for the infringement of, and, where
necessary, has made timely and proper application for, all Intellectual
Property (other than the Licensed Intellectual Property) necessary or
required for the conduct of the Business as currently conducted and as
proposed to be conducted and such rights to use, sell, license, dispose of
and bring actions are exclusive with respect to such Intellectual Property;
(iii) there are no royalties, honoraria, fees or other payments
payable by the Company to any Person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property;
(iv) no activity, service or procedure currently conducted or proposed
to be conducted by the Company violates or will violate any agreement
governing the use of Licensed Intellectual Property;
(v) the Company has taken reasonable and practicable steps (including,
without limitation, entering into confidentiality and nondisclosure
agreements with all officers, directors and employees of, and consultants
to, the Company with access to or knowledge of the Intellectual Property)
designed to safeguard and maintain the secrecy and confidentiality of, and
their proprietary rights in, all Intellectual Property;
(vi) no patent, formulation, invention, device, application or
principle nor any Law exists or, to the knowledge of Seller, is pending or
proposed that would have or could reasonably be expected to have a Material
Adverse Effect on the Business as presently conducted or as contemplated to
be conducted;
(vii) the Company has not sent to any third party in the past five (5)
years or otherwise communicated to another Person any charge, complaint,
claim, demand or notice asserting infringement or misappropriation of, or
other conflict with, any Intellectual Property right of the Company by such
other Person or any acts of unfair competition by such other Person, nor,
to the knowledge of Seller, is any such infringement, misappropriation,
conflict or act of unfair competition occurring or threatened; and
17
(viii) the consummation of the transactions contemplated by the
Documents will not result in a reduction, waiver or other diminishment of
any material legal right represented by the Company's Intellectual Property
utilized in the Business.
5.14 Contracts and Commitments.
Except as set forth on Schedule 5.14 or as contemplated by this Agreement,
the Company is not a party to any written or oral:
(a) contract, agreement or arrangement for the employment of, or benefits
to, any officer, individual employee, or other Person on a full-time, part-time,
consulting or other basis;
(b) instrument, agreement or indenture relating to Funded Indebtedness or
to the mortgaging, pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company;
(c) factoring arrangement or other agreement involving the sale of the
Company's accounts receivable to a third party at a discount;
(d) guarantee of any obligation for borrowed money or otherwise;
(e) agreement with respect to the lending or investing of funds;
(f) lease or agreement under which the Company is the lessee of or the
holder or operator of any real or personal property owned by any other party;
(g) lease or agreement under which the Company is the lessor of or permits
any third party to hold or operate any real or personal property owned or
controlled by the Company;
(h) assignment, license, indemnification or agreement with respect to any
form of intangible property, including, without limitation, any Intellectual
Property or confidential information;
(i) contract or group of related contracts with the same party (excluding
purchase orders entered into in the ordinary course of business) for the
purchase or sale of products or services under which the undelivered balance of
such products and services has a selling price in excess of $20,000;
(j) contract which prohibits the Company from freely engaging in business
anywhere in the world;
(k) contract relating to the purchase, distribution, marketing or sales of
the Company or any other Person's products (other than purchase and sales orders
entered into in the ordinary course of business consistent with past practices
and the performance of which by the parties thereto is reasonably expected to be
substantially completed within sixty (60) days of the execution thereof);
(l) contract with any Affiliate; or
18
(m) other agreement or instrument material to the Business.
Each agreement, lease, license, contract or commitment disclosed on
Schedule 5.14 is valid and enforceable against the Company and the other parties
thereto. Except as specifically disclosed in Schedule 5.14, the Company has
performed in all material respects all obligations required to be performed by
it and is not in default under or in breach of nor in receipt of any claim of
default or breach under any such agreement, lease, license, contract or
commitment to which it is a party; and no event has occurred which with the
passage of time or the giving of notice or both would result in a default or
breach under any such document. To the knowledge of Seller, no other party to
any agreement, lease, license, contract, or commitment to which the Company is a
party is in default under or in breach of such document and no event has
occurred which with the passage of time or giving of notice or both would result
in a default or breach under any such document. The Company has supplied the
Buyer with (i) a true, correct and complete copy of each of the documents listed
on Schedule 5.14, together with all amendments, waivers or other changes
thereto, and (ii) a complete description of all oral agreements to which the
Company is a party.
5.15 Insurance.
Schedule 5.15 lists and briefly describes each insurance policy and self
insurance arrangement maintained by or for the benefit of the Company with
respect to its properties, assets and business, and all currently pending claims
thereunder. All of such insurance policies are in full force and effect. Neither
the Seller nor the Company is in default with respect to their obligations under
any of such insurance policies and neither the Seller nor the Company has
received any notification of cancellation or modification of any of such
insurance policies or has any claim outstanding which could be expected to cause
a material increase in rates applicable for the Company's insurance. There are
no facts or circumstances which exist that might relieve any insurer under such
insurance policies of its obligations to satisfy in full claims thereunder. The
Company and/or the Seller, on behalf of the Company, maintains insurance
coverage of a type and amount customary for entities of similar size engaged in
similar lines of business as the Company. Schedule 5.15 lists each claim (and
the disposition thereof) submitted since May 1, 1999 under any insurance policy
and self insurance arrangement maintained by or for the benefit of the Company
with respect to its properties, assets and business during such period.
5.16 Litigation.
Except as set forth on Schedule 5.16, there are no Proceedings pending or,
to the knowledge of Seller, threatened against the Company and there is no Basis
for any of the foregoing. Schedule 5.16 also sets forth all Proceedings
involving the Company during the last five (5) years which (i) alleged criminal
conduct by the Company, (ii) resulted in the Company paying or receiving an
amount in excess of $20,000 in connection with the adjudication or compromise of
such matter or (iii) had a Material Adverse Effect on the Company. All materials
provided to the Buyer relating to the matters described in Schedule 5.16 are
true, correct and complete.
19
5.17 Employees.
(a) Schedule 5.17(a) lists all current employees of the Company as of the
Closing Date, their permanent classifications (if applicable), their current
hourly rates of compensation or base salaries (as applicable) and the
commencement date of their employment. In addition, to the extent any current
employees are on leaves of absence, Schedule 5.17(a) indicates the nature of
such leave of absence and each such employee's anticipated date of return to
active employment. Schedule 5.17(a) also sets forth all former employees of the
Company who left the employ of the Company within the past twelve (12) months,
including their name and position. No executive, key employee or group of
employees of the Company listed on Schedule 5.17(a) has indicated any plans to
(i) terminate employment with the Company or (ii) not continue employment with
the Company immediately after the Closing. The Company has complied in all
material respects with all Laws relating to the hiring of employees and the
employment of labor, including provisions thereof relating to immigration and
citizenship (including proper completion and processing of Forms I-9 for all
employees), wages, hours, equal opportunity, collective bargaining and the
payment of social security and other Taxes.
(b) Except as set forth on Schedule 5.17(b), (i) the Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to date or amounts required to be reimbursed to such employees and upon
termination of the employment of any such employees, neither the Buyer nor the
Company will by reason of anything done prior to the Closing be liable to any of
such employees for severance pay or any other payments, (ii) there is no unfair
labor practice charge or complaint against the Company pending before the
National Labor Relations Board or any other Governmental Entity and none is or
has been threatened, (iii) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending or threatened against or
involving the Company, (iv) no labor union currently represents the employees of
the Company, (v) to the knowledge of Seller, no labor union has taken any action
with respect to organizing the employees of the Company, and (vi) neither any
material grievance nor any arbitration proceeding arising out of employment by
the Company is pending and no claim thereto has been asserted against the
Company. Except as set forth in Schedule 5.17(b), the Company is not a party to,
or bound by, any collective bargaining agreement, union contract or singular
agreement.
(c) Except as set forth on Schedule 5.17(c): (i) the Company is, and has at
all times been, in compliance in all material respects with all applicable laws
respecting employment and employment practices, including without limitation,
terms and conditions of employment, wages, hours of work, employment
discrimination and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation; (ii) to the knowledge of Seller, no
charges with respect to or relating to the Company are pending before the Equal
Employment Opportunity Commission or any other agency responsible for the
prevention of unlawful employment practices; (iii) the Company has provided or
will timely provide prior to the Closing Date all notices required by law to be
given prior to the Closing Date by the Company of the transactions contemplated
by this Agreement to all local, state or federal labor, wage-payment, equal
employment opportunity, unemployment-insurance and related agencies; (iv) the
transactions contemplated by this Agreement will not create any liability under
any local, state or federal law respecting reductions in workforce or the impact
on employees of plant closings or sales of businesses; and (v) the Company and
each member of its respective business enterprise has complied with, in all
material respects, the Worker Adjustment and Retraining Notification Act.
20
(d) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated (either alone or in conjunction
with any other event) hereby will: (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of the Company from the
Company under any Plan (defined in Section 5.18 below) or otherwise; (ii)
increase any benefits otherwise payable under any Plan or otherwise; or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
(e) The Company has no knowledge of any valid claim that may be asserted by
any third party against the Company or any of the Designated Persons (as
hereinafter defined) with respect to (i) the employment by, or association with
the Company of any of the present officers or employees of or consultants to the
Company (said officers, employees and/or consultants being hereinafter,
collectively referred to as the "Designated Persons") or (ii) the use, in
connection with the Business, by any of the Designated Persons of any
information which the Company or any of the Designated Persons is prohibited
from using, in each case under any prior agreements, arrangements or other
preexisting set of facts, including, without limitation, any such agreement or
arrangement between any of the Designated Persons, or any legal or equitable
considerations applicable to, among other things, unfair competition, trade
secrets or proprietary information.
5.18 Employee Benefits.
(a) Employee Benefit Plans. Schedule 5.18(a) sets forth a true and complete
list of all Employee Benefit Plans (as used in this Section 5.18, the "Plans")
(i) that cover any present or former employees or directors of the Company (A)
that are maintained, sponsored or contributed to by or on behalf of the Company
or (B) with respect to which the Company is obligated to contribute or has any
Liability or potential Liability, whether direct or indirect or (ii) with
respect to which the Company has any Liability or potential Liability on account
of the maintenance or sponsorship thereof or contribution thereto by any present
or former ERISA Affiliate of the Company.
(b) Administration and Compliance of the Plans. Except as set forth on
Schedule 5.18(b), with respect to each Plan:
(i) there have been no violations of ERISA or other applicable Laws
with respect thereto (including, without limitation, any nonexempt
Prohibited Transactions); no fiduciary (as defined in Section 3(21) of
ERISA) 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 thereof; no action, suit, proceeding, hearing or investigation with
respect to the administration or the investment of the assets thereof
(other than routine claims for benefits) is pending or threatened; and the
Company has no knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation and each Plan has been administered
in all material respects in accordance with its terms;
21
(ii) such Plan, if intended to be "qualified", within the meaning of
Section 401(a) of the Code, has been determined by the Internal Revenue
Service to be so qualified and the related trusts are exempt from Tax under
Section 501(a) of the Code, and nothing has occurred that has or could
adversely affect such qualification or exemption;
(iii) the Company has timely deposited all amounts withheld from
employees for pension, welfare or other benefits into the appropriate
trusts or accounts;
(iv) the Company has no liability for any post-employment or
post-retirement health or life insurance, accident or other "welfare-type"
benefits to former beneficiaries or dependents thereof, except for health
continuation coverage as required by Section 4980B of the Code or Part 6,
Title I of ERISA; there has been no communication to employees by the
Company which could reasonably be interpreted to promise or guarantee such
employees retiree health or life insurance or other such "welfare-type"
benefits;
(v) the Company has provided the Buyer with true and complete copies,
to the extent applicable, of all documents pursuant to which such Plan is
maintained and administered, the current summary plan description and any
material modifications thereto, the two most recent annual reports (Form
5500 and attachments) and financial statements therefor, all governmental
rulings, determinations, and opinions (and pending requests therefor), and
if such Plan provides post-retirement or post-employment health and life
insurance, accident, or other "welfare-type" benefits, the most recent
valuation of the present and future obligations under such Plan; the
foregoing documents accurately reflect all material terms of such Plan; and
(vi) no benefit or amount payable or which may become payable by the
Company pursuant to any Plan, agreement or contract with any employee shall
constitute an "excess parachute payment" within the meaning of Section 280G
of the Code (or any corresponding provision of state, local or foreign Tax
law), which is or may be subject to the imposition of an excise tax under
Section 4999 of the Code or which would not be deductible by reason of
Section 280G of the Code.
(c) Multi-Employer Plans, Controlled Group Liability, Etc.
The Company and each of its ERISA Affiliates are not and have not ever
maintained or been obligated to contribute to a Multiple Employer Plan, a
Multi-Employer Plan, a Defined Benefit Pension Plan or a "multiple employer
welfare arrangement" as that term is defined in Section 3(40) of ERISA. There
does not now exist, nor do any circumstances exist that could result in any
liability of the Company following the Closing (i) under Title IV of ERISA, (ii)
under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv)
as a result of a failure to comply with the continuation coverage requirements
of Section 601 et seq. of ERISA and Section 4980B of the Code, and (v) under
corresponding or similar provisions of foreign laws or regulations. Without
limiting the foregoing, neither the Company nor any ERISA Affiliate of the
Company has engaged in any transaction described in Sections 4069, 4212 or 4204
of ERISA.
5.19 Environment and Safety.
(a) Except as set forth in Schedule 5.19, the Company has materially
complied and is in material compliance with all Environmental and Safety
22
Requirements (including, without limitation, all permits, licenses and other
authorizations that may be required thereunder) for the occupation of the Real
Property and the operation of the Business or otherwise related to the Real
Property or the Business. Schedule 5.19 contains a list of all permits, licenses
and authorizations required under all Environmental and Safety Requirements. The
Company has accurately prepared and timely filed with the appropriate
Governmental Entities all reports, notifications, and filings required pursuant
to Environmental and Safety Requirements affecting the Real Property or the
Business. The Company has not received notice of any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice against the
Company alleging any violation of, any liability (contingent or otherwise) or
any corrective or remedial obligation under any Environmental and Safety
Requirements or involving any of its current or past operations or any Real
Property currently or formerly used by the Company. The Company has not
expressly or by operation of law assumed, undertaken or become subject to any
Liability of any other Person under any Environmental and Safety Requirements.
Schedule 5.10(d) sets forth a complete and accurate list of all real property
owned, leased or operated by the Company in connection with the Business. None
of the following exists nor, to the knowledge of Seller, has ever existed, at
any of the Real Property or any other real property previously owned or operated
by the Company: (i) underground storage tanks; (ii) asbestos- containing
material in any form or condition; (iii) materials or equipment containing
polychlorinated biphenyls; and (iv) landfills, surface impoundments or disposal
areas. No Environmental Lien has attached to any property owned, leased or
operated by the Company. The Company has not been notified that it is
potentially responsible or liable under or received any requests for information
or other correspondence concerning any site or facility under CERCLA or any
similar law. The Company has not entered into or received any consent, decree,
compliance order, or administrative order pursuant to Environmental and Safety
Requirements and under which there are continuing obligations.
(b) The Company has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled or released any substance,
including, without limitation, any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to Liabilities
pursuant to CERCLA, SWDA or any other Environmental and Safety Requirement,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damage or attorney fees, or any
investigative, corrective or remedial obligations. The transactions contemplated
by this Agreement do not impose any obligations under any Environmental and
Safety Requirements for site investigation or cleanup, or notification to any
Governmental Entities or third parties. To the knowledge of Seller, no facts,
events or conditions relating to the past or present properties, operations or
facilities of the Company would prevent compliance by the Company or the Buyer
with, or give rise to any Liability or investigatory, corrective or remedial
obligation of the Buyer with respect to, Environmental and Safety Requirements,
including, without limitation, any Liability related to environmental
contamination or violations of health and safety requirements.
(c) The Company has provided the Buyer with true, correct, and complete
copies of all environmental reports and studies in the possession, custody or
control of the Company with respect to the Business or any of the Real Property
or real property owned or leased by the Company and, to the knowledge of Seller,
there are no other environmental reports or studies with respect thereto.
23
5.20 Customers and Suppliers.
Schedule 5.20 lists all material customers and all material suppliers of
the Company during (i) the fiscal year ended 2000, (ii) the fiscal year ended
2001 and (iii) the fiscal year ending 2002 through September 30, 2001. Except as
set forth on Schedule 5.20, no such customer, supplier or subcontractor has
terminated or materially reduced its business with the Company since September
30, 2001. No changes have occurred to the customer base other than in the
ordinary course of business. The Company has not received any notice or
otherwise has any reason to believe that any of the customers, suppliers or
subcontractors listed in Schedule 5.20 intends to terminate or materially reduce
its business with the Company.
5.21 Accounts Receivable.
The notes and accounts receivable reflected on the Latest Balance Sheet
(net of allowances for doubtful accounts as reflected thereon) are valid
receivables and, except as set forth on Schedule 5.21, have been collected or
are current and collectible within ninety (90) days after the due date related
to such receivables, subject to no valid counterclaims or set-offs, at the
aggregate recorded amount thereof as shown on the Latest Balance Sheet. The
notes and accounts receivable reflected on the books and records of the Company
as of the Closing Date are valid receivables and, except as set forth on
Schedule 5.21, are current and collectible within ninety (90) days after the due
date or the execution date related to such receivables, subject to no valid
counterclaims or set-offs, at the aggregate recorded amount thereof recorded on
each books and records, net of the recorded amount of allowances for doubtful
accounts computed in a manner consistent with the accounting practices used in
the preparation of the Latest Balance Sheet.
5.22 Accounts and Notes Payable.
Except as set forth on Schedule 5.22, all accounts payable and notes
payable by the Company to third parties as of the date hereof arose in the
ordinary course of business. Schedule 5.22 sets forth the payee, the due date
and the amount of all accounts and notes payable of the Company as of December
31, 2001.
5.23 Warranties of Products and Services; Product Liability; Regulatory
Compliance.
(a) Except as set forth on Schedule 5.23, all products manufactured, sold,
distributed, leased, installed, used, delivered or held in inventory by the
Company (including, without limitation, all documentation furnished in
connection therewith) are free from any material defects and conform in all
material respects with all customary and reasonable standards for products of
such type, with all applicable contractual commitments and with all express and
implied warranties, and the Company has no Liability (and, to the knowledge of
Seller, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving
rise to any Liability) for replacement or repair in connection with its Business
or other damages, subject only to the reserve for warranty claims set forth on
the face of the Latest Balance Sheet (rather than in any notes thereto). No
product manufactured, sold, distributed, leased, installed, used or delivered
24
by, or service provided by, the Company is subject to any guaranty, warranty or
other indemnity beyond the applicable standard terms and conditions of sale,
lease or provision of services. Copies of the standard terms and conditions of
sale, lease or provision of services for the Company (containing applicable
guaranty, warranty and indemnity provisions) are set forth on Schedule 5.23.
(b) Except as set forth on Schedule 5.23, since May 1, 1999, no
Governmental Entity regulating the Business has commenced, or threatened to
commence, any investigation or proceeding relating to the Business, and the
Company has not been responsible for, subject to, become aware or otherwise been
notified of, and does not now have any Liability (and, to the knowledge of
Seller, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving
rise to any Liability), arising out of any injury to individuals or property as
a result of or in connection with any of the services performed by the Company
or any product manufactured, sold, distributed, leased, installed, used or
delivered by, or service provided by, the Company.
5.24 Insider Interests.
Except as set forth on Schedule 5.24, and except for compensation to
regular employees of the Company and with respect to intracorporate cost sharing
arrangements, no current or former Affiliate of the Company or any Associate
thereof, is now, or has been during the last five fiscal years, (i) a party to
any transaction or contract with the Company, (ii) indebted to the Company, or
(iii) to the knowledge of Seller the direct or indirect owner of an interest in
any Person which is a present or potential competitor, supplier, lessor,
subcontractor, or customer of the Company (other than non-affiliated holdings in
publicly held companies), nor does any such Person receive income from any
source other than the Company which should properly accrue to the Company.
Except as set forth on Schedule 5.24, the Company and its Affiliates are not the
guarantors or otherwise liable for any Liability (including indebtedness) of the
Seller.
5.25 Conflicts of Interests.
None of the Company or, to the knowledge of Seller, any officer, director,
employee, agent or any other Person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any Governmental Entity or other Person who
was, is, or may be in a position to help or hinder the business of the Company
(or assist in connection with any actual or proposed transaction) that (i) might
subject the Company to any damage or penalty in any Proceeding, (ii) if not
given in the past, might have had a Material Adverse Effect on the Company, or
(iii) if not continued in the future, might have a Material Adverse Effect on
the Company.
5.26 Brokers.
Schedule 5.26 sets forth a true and complete list of, and copies of all
agreements with (or descriptions of all oral arrangements with), each agent,
broker, investment banker, Person or firm who or which has acted on behalf, or
under the authority, of the Company or the Seller or will be entitled to any fee
or commission directly or indirectly from the Buyer or the Company in connection
with any of the transactions contemplated hereby.
25
5.27 Certain Practices.
None of the Company, nor, to the knowledge of Seller, any officer,
director, employee, consultant or agent thereof acting on its behalf has made,
directly or indirectly, any payment or promise to pay, or gift or promise to
give or authorized such a promise or gift, of any money or anything of value,
directly or indirectly, to (a) any foreign, federal, state or local governmental
official for the purpose of influencing any official act or decision of such
official or inducing him or her to use his or her influence to affect any act or
decision of a foreign, federal, state or local governmental agency or
subdivision thereof or (b) any political party or official thereof or candidate
for political office for the purpose of influencing any official act or decision
of such party, official or candidate or inducing such party, official or
candidate to use his, her or its influence to affect any act or decision of a
foreign government or agency or subdivision thereof, in the case of both (a) and
(b) above in order to assist the Company to obtain or retain business for or
direct business to the Company under circumstances which would subject the
Company to Liability.
Article VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND NETWOLVES
As a material inducement to the Seller to enter into and perform its
obligations under this Agreement, the Buyer and NetWolves represent and warrant
to the Seller as follows:
6.1 Organization.
The Buyer and NetWolves are corporations duly organized, validly existing
and in good standing under the laws of the State of New York.
6.2 Authorization of Transaction.
Each of the Buyer and NetWolves have full corporate power and authority to
execute and deliver each Document to which it is a party and any and all
instruments necessary or appropriate in order to effectuate fully the terms and
conditions of the Documents and all related transactions and to perform its
obligations under the Documents. Each Document to which the Buyer or NetWolves
is a party has been duly authorized by all necessary corporate action on the
part of the Buyer or NetWolves, as the case may be, and has been duly executed
and delivered by such entity and constitutes the valid and legally binding
obligation of such entity, enforceable against such entity in accordance with
its terms and conditions.
6.3 No Restrictions Against Purchase of Shares.
Neither the execution, delivery and performance of the Documents nor the
consummation of the transactions contemplated thereby, nor compliance by the
Buyer or NetWolves, as the case may be, with any of the provisions thereof, will
(i) violate, conflict with, or result in a material breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under any of the terms, conditions or
provisions of the Fundamental Documents of the Buyer or NetWolves, as the case
26
may be, or under any note, bond, mortgage, indenture, deed of trust, or other
agreement to which the Buyer or NetWolves is bound, or by which the Buyer or
NetWolves or any of their respective properties or assets may be bound or
affected, which in either case would prevent the Buyer's consummation of the
transactions contemplated hereby, or (ii) violate any Law applicable to the
Buyer or NetWolves or any of their respective properties or assets which would
prevent the consummation of the transactions contemplated hereby. To the
knowledge of Buyer and NetWolves, except as set forth on Schedule 6.3 no consent
or approval by, notice to, or registration with, any Governmental Entity is
required on the part of the Buyer or NetWolves in connection with the execution
and delivery of this Agreement or the consummation by the Buyer or NetWolves of
the transactions contemplated hereby which would prevent the consummation of the
transactions contemplated hereby.
Article VII
INDEMNIFICATION AND ADDITIONAL AGREEMENTS
7.1 Survival.
The representations, warranties, covenants and other agreements set forth
in this Agreement or in any certificate or other writing delivered in connection
with this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby; provided, however, that any claim for Damages
arising out of, or with respect to, the inaccuracy of any such representation or
the breach of any such warranty must be asserted in writing by notice given to
the other party on or before the earlier of (i) sixty (60) days following
receipt by the parties hereto of an audit report prepared in the ordinary course
by an independent accounting firm with respect to the financial statements of
the Company for the first full fiscal year of the Company following the Closing
Date and (ii) the date that is two (2) years following the Closing Date, failing
which any such claim shall be waived and extinguished; provided, however, claims
for Damages with respect to the inaccuracy of representations and breach of
warranties contained in Sections 5.1, 5.2, 5.3, 5.10(a), 5.12, 5.18, 5.19, 5.26,
6.1, 6.2 and 6.3 hereof may be asserted until the expiration of the applicable
statute of limitations (giving effect to any waivers or extensions thereof) for
which any third party claims may be asserted. No right of a party seeking
indemnification hereunder shall be affected by any examination made for or on
behalf of such party, or the acceptance by such party of any certificate or
opinion; provided further, however, to the extent a party has expressly waived
compliance with a condition precedent to Closing, such waiver shall also
constitute a waiver of any claim for indemnification as to such matter.
7.2 Indemnification.
(a) The Seller shall indemnify, defend and hold harmless the Buyer,
NetWolves, their Affiliates and their respective successors, assigns, officers,
directors, stockholders, and employees (collectively, the "Buyer Group") against
any Damages that any member of the Buyer Group may suffer, sustain or become
subject to as the result of, or arising from the breach by the Seller of any
representation, warranty, covenant or agreement contained in this Agreement, any
other Document or in any exhibit, schedule or attachment hereto or thereto or in
any certificate delivered by the Seller in connection herewith or therewith.
27
(b) The Buyer and NetWolves shall indemnify and hold harmless the Seller
and its officers, directors and employees, and successors and assigns
(collectively, the "Seller Group") against any Damages which they may suffer,
sustain or become subject to as the result of or arising from a breach of any
representation, warranty, covenant or agreement by the Buyer contained in this
Agreement, any other Document or in any exhibit, schedule or attachment hereto
or thereto or in any certificate delivered by the Buyer in connection herewith
or therewith.
(c) Anything in Section 7.2(a) or (b) hereof to the contrary
notwithstanding, a party shall not have the right to be indemnified for breaches
of representations and warranties under this Agreement unless and until such
party shall have incurred on a cumulative basis Damages in an amount exceeding
$75,000 (the "Deductible Amount") and in such event the party may recover
Damages in excess of the Deductible Amount; provided, however, that in no event
shall the limitations set forth in this Section 7.2(c) hereof apply with respect
to the representations and warranties set forth in Sections 5.1, 5.2, 5.3, 5.4,
5.10(a) or 5.26 hereof, any liability or obligation assumed by Seller pursuant
to the Assignment and Assumption Agreement, or willful breaches.
(d) Except as provided in Section 7.2(c) hereof, the Buyer Group shall
first set off and apply against any amounts due and payable to the Seller
pursuant to the Note an amount equal to the amount of any Damages in excess of
the Deductible Amount suffered, sustained, incurred or required to be paid by
the Buyer Group (or their assigns) pursuant to Section 7.2(a) hereof.
Notwithstanding the foregoing, (i) the Buyer Group shall be obligated to set off
only one-half (1/2) of any Damages in excess of the Deductible Amount, if any,
resulting or arising from a breach of the representations and warranties
contained in Section 5.5 hereof, with the remainder to be paid by Seller in cash
and (ii) the Buyer Group shall not be obligated to set off any Damages incurred
in the defense of any third party claim or arising from any liability or
obligation assumed by Seller pursuant to the Assignment and Assumption Agreement
which Damages shall be paid by the Seller in full in cash.
(e) No items as to which any indemnification claim or other remedy is
obtained by or on behalf of a party hereto can serve as the basis of an
additional claim for indemnification or other remedy hereunder. No party shall
be indemnified for Damages resulting from its own negligence.
7.3 Indemnification Procedures.
(a) If any third party shall notify any party to this Agreement (the
"Indemnified Party") with respect to any matter which may give rise to a claim
for indemnification against any other party to this Agreement (the "Indemnifying
Party") under Section 7.2 hereof (a "Third Party Claim"), then the Indemnified
Party shall notify each Indemnifying Party thereof promptly; 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 is
thereby prejudiced by the delay. Any Indemnifying Party will have the right to
28
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen (15)
days after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Damages the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim
(subject to the limitations set forth in Sections 7.2(c) and 7.2(d)), (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith and reasonable judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently. The
Indemnified Party may participate in the defense of such claim with co-counsel
of its choice to the extent that the Indemnified Party believes in its sole
discretion that such matter shall affect its ongoing business; provided,
however, that the reasonable fees and expenses of the Indemnified Party's
counsel shall be at the expense of the Indemnified Party unless (A) the
Indemnifying Party has agreed in writing to pay such fees and expenses, (B) the
Indemnifying Party has failed to assume the defense and employ counsel as
provided herein or (C) a claim shall have been brought or asserted against the
Indemnifying Party as well as the Indemnified Party, and such Indemnified Party
shall have been advised in writing by counsel that there may be one or more
factual or legal defenses available to it that are in conflict with those
available to the Indemnifying Party, in which case such co- counsel shall be at
the expense of the Indemnifying Party; provided, however, that the Indemnifying
Party will not be required to pay the fees and expenses of more than one
separate principal counsel (and any appropriate local counsel) for all
Indemnified Parties. If, within such 15-day period, the Indemnifying Party does
not assume the defense of such matter or fails to defend the matter in the
manner set forth above, the Indemnified Party may defend against the matter in
any manner that it reasonably may deem appropriate and may consent to the entry
of any judgment with respect to the matter or enter into any settlement with
respect to such matter without the consent of the Indemnifying Party and,
subject to the limitations set forth in Sections 7.2(c) and 7.2(d), the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against such claim (including reasonable
attorneys' fees and expenses) and, subject to the limitations set forth in
Sections 7.2(c) and 7.2(d), the Indemnifying Party will remain responsible for
any Damages the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the claim to the fullest extent
provided herein.
(b) With respect to any claim for indemnification hereunder which does not
involve a Third Party Claim, the Indemnified Party will give the Indemnifying
Party written notice of such claim. The Indemnifying Party may acknowledge and
agree in writing to satisfy such claim within twenty (20) days of receipt of
notice of such claim from the Indemnified Party (a "Validated Claim"). In the
event that the Indemnifying Party shall dispute such a claim, the Indemnifying
Party shall provide written notice of such dispute to the Indemnified Party
within twenty (20) days of receipt of notice of such claim, setting forth the
basis of such dispute. Upon resolution of such dispute in favor of
indemnification pursuant to the arbitration provisions set forth in Section
7.3(d) hereof, such claim shall then be a Validated Claim. With respect to any
Validated Claim, the Indemnifying Party shall be responsible for the payment of
such claim (subject to the limits set forth in Sections 7.2(c) and 7.2(d));
provided, however, that if the Seller is the Indemnifying Party, such claim
shall first be deducted from the total principal of the Note.
29
(c) Limitation on Remedies. The parties shall use reasonable efforts to
collect the proceeds of any insurance which would have the effect of reducing
Damages (in which case such proceeds shall reduce such Damages) and, if
indemnification payments shall have been received prior to the collection of
such proceeds, shall remit the amount of such proceeds (net of the cost of
collection thereof) to the extent of indemnification payments received in
respect of such Damages. To the extent that any Damages are reduced by receipt
of payment under insurance policies, such payments (net of the expenses of the
recovery thereof and any increase in premiums resulting therefrom) shall be
credited against such Damages.
(d) Arbitration of Indemnification Disputes. Any disputes relating to or
arising under Sections 7.1 through 7.3 of this Agreement shall be resolved by
mutually binding arbitration pursuant to the procedures set forth in this
Section 7.3(d). Any party to this Agreement seeking resolution of any such
dispute hereunder shall submit written notice of such dispute to the other
parties hereto. Such notice shall be deemed to be a demand for arbitration. Such
dispute shall then be submitted to an arbitrator mutually agreeable to the
Seller and the Buyer. In the event the Seller and the Buyer are unable to
mutually agree upon an arbitrator, the Seller and the Buyer shall each choose
one arbitrator, and the two arbitrators chosen by the Seller and the Buyer will
together choose a third arbitrator. The final determination of the arbitrator
shall be binding upon the parties hereto, and the party who is liable to pay
such claim shall pay all of the costs and expenses of such arbitration. Such
arbitration shall be conducted in Minneapolis, Minnesota in accordance with the
then applicable rules of the American Arbitration Association. The judgment of
the arbitrator may be enforced in accordance with the laws in any Federal or
state court in Minnesota having jurisdiction over such controversy or claim.
7.4 Transaction Expenses.
(a) The Buyer shall pay all of its expenses incurred in connection with the
transactions contemplated hereby and the costs, including attorney's fees,
attendant to the process of notifying, registering and obtaining approvals and
consents from any Governmental Entities with jurisdiction in respect of the
execution and delivery of the Agreement and the consummation of the transactions
contemplated hereby. The Seller shall pay all of its expenses and the expenses
of the Company incurred in connection with the transactions contemplated hereby,
including all of the Liabilities of the Company for expenses or fees incident to
or arising out of the negotiation, preparation, approval or authorization of
this Agreement, the other Documents or the consummation (or preparation for the
consummation) of the transactions contemplated hereby or thereby (including all
attorneys' and accountants' fees, and brokerage fees incurred by or imposed upon
the Company).
(b) In no event shall the Buyer or the Company be liable for any income,
capital gain, franchise or other similar Tax arising or imposed on the Seller or
the Company as a result of the transactions contemplated herein, and the Seller
shall pay all transfer, stamp (including documentary stamp taxes, if any) and
other similar Taxes or governmental charges with respect to the transactions
herein contemplated. Any Taxes imposed on the sale of the Shares at the Closing
shall be borne by the Seller.
30
7.5 Efforts to Consummate; Further Assurances; Transition Assistance.
Subject to the terms and conditions herein provided, the parties hereto
shall do or cause to be done all such acts and things as may be necessary,
proper or advisable (including, without limitation, the completion and
effectuation of all filings and registrations with, and the obtaining of all
consents and approvals from, all applicable Governmental Entities), consistent
with all applicable Laws, to consummate and make effective the transactions
contemplated hereby as soon as reasonably practicable. Each of the parties
hereto agrees that it will from time to time on or after the Closing promptly
do, execute, acknowledge and deliver and will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, certificates, bills of
sale, assignments, transfers, conveyances, powers of attorney, assurances and
other documents as may be reasonably requested by any of the other parties
hereto for better assigning, transferring, granting, conveying, assuring and
conferring right, title and interest to the Buyer of the Shares. Without
limiting the generality of the foregoing, the parties hereto agree to cooperate
with each other and to provide each other with all information and documentation
reasonably necessary to (i) permit the preparation and filing of all federal,
state, local, and other Tax returns and Tax elections with respect to the
Business and (ii) effectuate all operational matters concerning operating the
Business by the Buyer after the Closing in an efficient manner and consistent
with the operation of the Business by the Company before the Closing.
7.6 Confidentiality.
(a) The Company and the Seller on the one hand and the Buyer on the other
hand (for a period of two (2) years after the date hereof, if the Closing does
not occur) shall keep confidential all information and materials regarding the
other reasonably designated by such party or parties as confidential at the time
of disclosure thereof; provided, that, the Buyer may disclose such information
and materials of the Company and/or the Seller to its officers, directors,
financing sources, Affiliates, representatives, accountants and counsel who need
to have such information or materials to consummate the transactions
contemplated by the Documents; provided, further, that the provisions of this
Section 7.6 shall not bind the Company or the Buyer from using any of the
information contained in their respective businesses. For purposes of this
Agreement, confidential business information that does not constitute a trade
secret under applicable law will not be treated as confidential information
under this Section 7.6 after the second anniversary of the Closing, but will
remain subject to any other limitation on use or disclosure under any other
agreement, applicable law, or otherwise. Notwithstanding anything to the
contrary contained herein, no party hereto shall be required to maintain as
confidential any information or material which:
(i) is now, or hereafter becomes, through no act or failure to act on
the part of such party which would constitute a breach of this Section 7.6,
generally known or available to the public;
(ii) is known to such party at the time of the disclosure of such
information;
(iii) is hereafter furnished to such party by a third party, who, to
the best knowledge of such party, is not under obligations of
confidentiality to any other party, without restriction on disclosure;
31
(iv) is disclosed with the written approval of the party to which such
information or material pertains;
(v) is required to be disclosed by law, court order, or similar
compulsion (including the obligations of the Seller under the rules and
regulations of The Nasdaq Stock Market); provided, however, that, such
disclosure shall be limited to the extent so required or compelled; and
provided, further, however, that the party required to disclose such
confidential information and material shall give the other party notice of
such disclosure and cooperate with such other party in seeking suitable
protection; or
(vi) is pursuant to or in connection with any legal proceeding
involving the parties hereto.
(b) The Seller acknowledges that the Buyer and NetWolves would be
irreparably damaged if the confidential knowledge and information possessed or
hereafter acquired by the Seller relating to the Company, the Business and/or
the Buyer (including, without limitation, the terms of any of the Documents and
all other information regarding the financial condition, results of operations
and prospects, and customer and supplier lists, pricing and terms relating to
the Business) were disclosed to or utilized on behalf of others. Accordingly,
the Seller shall not, and the Seller shall cause its Affiliates not to:
(i) disclose to any person, firm, corporation or other business entity
any non- public information concerning the Business or any of the terms of
any of the Documents, for any purpose other than to satisfy the Seller's
disclosure obligations under the Securities Exchange Act of 1934, as
amended, and the rules and regulations of The Nasdaq Stock Market;
(ii) make use of any such non-public information for such Seller's own
purpose or for the benefit of any Person (other than the Buyer or the
Company after the Closing); or
(iii) make any statements, observations or opinions or communicate any
information (whether oral or written) that disparages or is likely in any
way to harm the reputation of the Business, the Buyer, the Company or their
respective Affiliates or that is inconsistent with the purpose and intent
of the Documents.
7.7 Broker's Fees.
Each of the Seller and the Buyer shall be responsible for, and shall hold
each of the other parties harmless against, any fees or commissions for which
such party is liable to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
7.8 Non-Compete; Non-Solicitation.
The Seller hereby agrees, in consideration of a payment to be agreed upon
prior to closing and other good and valuable consideration:
(a) During the Non-Compete Period, the Seller shall not (except on behalf
of the Buyer and the Company) engage in the Business directly or through any
Subsidiary or Affiliate, or permit any Subsidiary or Affiliate to engage in the
32
Business, within the Restricted Territory (as defined below). As used in this
Agreement, the term "Restricted Territory" means North America. The parties
acknowledge that the territory consisting of the United States is the territory
within which the Company currently has offices, conducts the Business, or
solicits substantially all of its business. The parties further acknowledge that
the Restricted Territory is the territory into which the parties reasonably
anticipate that the Business will expand, and that Buyer's agreement to pay the
Seller the Consideration is specifically based and conditioned in part on the
potential of the Company to so expand. Nothing herein shall prohibit the Seller
from being a passive owner of not more than one percent (1%) of the outstanding
stock of any class of a corporation which is publicly traded, so long as the
Seller has no active participation in the business of such corporation.
(b) During the Non-Compete Period, the Seller shall not directly or
indirectly through another Person (i) induce or attempt to induce any employee
of the Company or of the Buyer to leave the employ of the Company, or the Buyer,
as the case may be, or in any way interfere with the relationship between the
Company or the Buyer, on the one hand, and any employee thereof, on the other
hand, (ii) hire any person who is or was an employee of the Company or the Buyer
until six (6) months after such individual's employment relationship with the
Buyer or the Company has been terminated or (iii) induce or attempt to induce
any customer, supplier, subcontractor, licensee or other business relation of
the Company or the Buyer to cease doing business with the Company or the Buyer,
or in any way interfere with the relationship between any such customer,
supplier, subcontractor, licensee or business relation, on the one hand, and the
Company or the Buyer, on the other hand.
(c) During the Non-Compete Period, the Seller shall not, except on behalf
of the Buyer, the Company or an Affiliate of the Buyer or the Company, directly
or indirectly, whether alone or with any other Person as a partner, officer,
director, employee, agent, shareholder, consultant, sales representative or
otherwise, solicit, or assist in the solicitation of, any Person who is, or was
during the period of the Seller's ownership of the Company, a customer of the
Company, for the purpose of selling such Person services which are of the type
provided by the Company as part of the Business; provided, however, that this
clause (c) will apply only with respect to any Person with whom the Seller, or
any other employee of the Company directly or indirectly under the Seller's
supervision, has had contact on behalf of the Company at any time prior to the
date hereof or at any time during the Non-Compete Period or about whom the
Seller has received confidential information at any time prior to the date
hereof or at any time during such period; and provided, further, that Seller
shall not be restricted from marketing to customers of the Business products or
services that do not in any way relate to the Business as of the date of this
Agreement or as contemplated in the future.
(d) If, at the time of enforcement of this Section 7.8, a court holds that
the restrictions stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area. The parties hereto acknowledge that money
damages would be an inadequate remedy for any breach of this Section 7.8.
Therefore, in the event of a breach or threatened breach of this Section 7.8,
the Company or the Buyer and/or their respective successors or assigns will be
33
entitled to injunctive relief, in addition to other rights and remedies existing
in their favor, in order to enforce, or prevent any violations of, the
provisions of this Section 7.8 (without posting a bond or other security).
The Seller's performance under the Co-Marketing Agreement shall not be
construed as a breach of any provisions of this Section 7.8.
7.9 Public Announcements.
Except as required by law (including the rules and regulations of The
Nasdaq Stock Market), any public announcements regarding the transactions
contemplated hereby shall be made only with the mutual consent of Buyer and
Seller. The Buyer and Seller shall cooperate fully with each other in
effectuating the immediately preceding sentence.
7.10 Tax Matters.
The following provisions shall govern the allocation of responsibility as
between Buyer and Seller for certain tax matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date, other than any Tax Return for the Company under which
the Company is a member of the Seller Group, in which case the Seller shall
prepare or cause to be prepared and file or cause to be filed such Tax Return.
Buyer shall permit Seller to review and comment on each Tax Return it prepares
and files described in the preceding sentence prior to filing and shall make
such revisions to such Tax Returns as are reasonably requested by Seller. Seller
shall reimburse Buyer for Taxes of the Company with respect to such periods
within fifteen (15) days after payment by Buyer or the Company of such Taxes to
the extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Final Closing Balance
Sheet. In the event that the amount of Tax owed is different from that initially
indicated by the Company, appropriate adjustments shall be made to compensate
for such discrepancy.
(b) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Seller shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Final Closing Balance Sheet. For purposes of this Section 7.10,
in the case of any Taxes that are imposed on a periodic basis and are payable
for a Taxable period that includes (but does not end on) the Closing Date, the
34
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator of which is
the number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Refunds and Tax Benefits. Any Tax refunds that are received by Buyer or
the Company, and any amounts credited against Tax to which Buyer or the Company
become entitled, that relate to Tax periods or portions thereof ending on or
before the Closing Date shall be for the account of Sellers, and Buyer shall pay
over to Seller any such refund or the amount of any such credit within fifteen
(15) days after receipt or entitlement thereto. In addition, to the extent that
a claim for refund or a proceeding results in a payment or credit against Tax by
a taxing authority to the Buyer or the Company of any amount accrued on the
Final Closing Balance Sheet, the Buyer shall pay such amount to Seller within
fifteen (15) days after receipt or entitlement thereto.
(d) Cooperation on Tax Matters.
(i) Buyer, the Company and Seller shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section 7.10 and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Company and Seller
agree (A) to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Buyer or Seller, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, the Company
or Seller, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any Governmental
Entity or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) Buyer and Seller further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
35
(e) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Seller
when due, and Seller will, at its own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
(g) 338(h)(10) Election. The Buyer, NetWolves and Company and Seller hereby
affirmatively elect to have the transaction contemplated hereby taxed under the
provisions of Section 338(h)(10) of the Code with respect to the Company, and
the Seller will execute and deliver to the Buyer promptly upon the Buyer's
request all consents, elections and other documentation or filings which the
Buyer reasonably believes to be required or advisable in connection with the
making of said election, including Treasury Form 8594, together with a limited
power of attorney irrevocably authorizing the Buyer to file the same with the
Internal Revenue Service.
Article VIII
DEFINITIONS
In addition to the words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context clearly requires otherwise:
"Affiliate" means, with respect to any Person, any of (a) a director,
officer or stockholder of such Person, (b) a spouse, parent, sibling or
descendant of such Person (or a spouse, parent, sibling or descendant of any
director or officer of such Person) and (c) any other Person that, directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another Person. The term "control" includes,
without limitation, the possession, directly or indirectly, of the power to
direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" has the meaning assigned to such term in the preamble of this
Agreement.
"Assignment and Assumption Agreement" has the meaning assigned to such term
in Section 2.4.
"Balance Sheet" has the meaning assigned to such term in Section 5.5.
"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 or could form the basis for any
specified consequence.
36
"Business" has the meaning assigned to such term in the preamble of this
Agreement.
"Buyer" has the meaning assigned to such term in the preamble of this
Agreement.
"Buyer Group" has the meaning assigned to such term in Section 7.2(a).
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, and the rules and regulations promulgated thereunder.
"Closing" has the meaning assigned to such term in Section 2.2.
"Closing Date" has the meaning assigned to such term in Section 2.2.
"COBRA" has the meaning assigned to such term in Section 5.18(b).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated thereunder.
"Co-Marketing Agreement" has the meaning assigned to such term in Section
3.1.
"Common Stock" has the meaning assigned to such term in Section 1.1.
"Company" has the meaning assigned to such term in the preamble of this
Agreement.
"Consideration" has the meaning assigned to such term in Section 1.2.
"Contracts" has the meaning assigned to such term in Section 3.1(b).
"Damages" means all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,
Liabilities, obligations, Taxes, liens, losses, lost profits, diminution in
value, expenses, and fees, including court costs and reasonable attorneys' fees
and expenses (whether such attorneys' fees and expenses arise out of a dispute
or claim between the parties or out of a dispute involving third parties), net
of any related income tax benefit and insurance recoveries.
"Defined Benefit Pension Plan" shall have the meaning set forth in Section
3(35) of ERISA.
"Deductible Amount" has the meaning assigned to such term in Section
7.2(c).
"Designated Persons" has the meaning assigned to such term in Section
5.17(e).
"Documents" means this Agreement, the Note, the Assignment and Assumption
Agreement, the Co-Marketing Agreement, the Leases, the Transition Service
Agreement, and any other agreements contemplated hereby and thereby.
"Employee Benefit Plan" means any (a) qualified or non-qualified Employee
Pension Benefit Plan whether or not subject to ERISA (including any Multiple
37
Employer Plans or Multi- Employer Plans), (b) Employee Welfare Benefit Plan or
(c) employee benefit, fringe benefit, bonus, incentive, deferred compensation,
vacation, employment, change in control, stock option or other equity-based,
severance plan or other plan, program, policy, practice or arrangement, whether
or not subject to ERISA, whether or not written and whether or not funded.
"Employee Pension Benefit Plan" shall have the meaning set forth in Section
3(2) of ERISA.
"Employee Welfare Benefit Plan" shall have the meaning set forth in Section
3(1) of ERISA.
"Environmental and Safety Requirements" means all Laws, Orders, contractual
obligations and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including,
without limitation, all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, including, but not limited to, the Solid Waste
Disposal Act, as amended, 42 U.S.C. 6901, et seq., the Clean Air Act, as
amended, 42 U.S.C. 7401 et seq., the Federal Water Pollution Control Act, as
amended, 33 U.S.C. 1251 et seq., the Emergency Planning and Community
Right-to-Know Act, as amended, 42 U.S.C. 11001 et seq., the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
9601 et seq., the Hazardous Materials Transportation Uniform Safety Act, as
amended, 49 U.S.C. 1804 et seq., the Occupational Safety and Health Act of 1970,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any other Person that
is a member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Sections 414(b), 414(c), or 414(m) or 414(o) of the Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Financial Statements" has the meaning assigned to such term in Section
5.5.
"Fundamental Documents" means the documents by which any Person (other than
an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would include
its charter and by-laws and of a partnership would include its certificate of
partnership and partnership agreement.
"GAAP" means United States generally accepted accounting principles,
applied on a consistent basis.
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
Federal, state, county or local.
38
"NetWolves" has the meaning assigned to such term in the preamble of this
Agreement.
"Indemnified Party" has the meaning assigned to such term in Section
7.3(a).
"Indemnifying Party" has the meaning assigned to such term in Section
7.3(a).
"Intellectual Property" means (a) all inventions, all improvements thereto
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all registered and unregistered trademarks, service
marks, trade dress, logos, trade names, and corporate names including all
goodwill associated therewith, and all applications, registrations, and renewals
in connection therewith, (c) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith, (d) all trade
secrets, customer lists, supplier lists, pricing and cost information, business
and marketing plans and other confidential business information, (e) all
computer programs and related software, (f) all other proprietary rights, (g)
all domain names, url's, and registrations in respect thereof and (h) all copies
and tangible embodiments thereof.
"Latest Balance Sheet" has the meaning assigned to such term in Section
5.5.
"Law" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.
"Leases" has the meaning assigned to such term in Section 3.1.
"Liability" means any liability or obligation, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated and whether due or to become due, regardless of when asserted.
"Licensed Intellectual Property" has the meaning assigned to such term in
Section 5.13(a).
"Lien" means any security interest, pledge, bailment (in the nature of a
pledge or for purposes of security), mortgage, deed of trust, the grant of a
power to confess judgment, conditional sales and title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easements,
reservations, restrictions, clouds, rights of first refusal or first offer,
options, or other similar arrangement or interest in real or personal property.
"Material Adverse Change" means, with respect to any Person, any material
adverse change in the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise), operating
results, liabilities, customer, supplier or employee relations or business
prospects of such Person or any material casualty loss or damage to the assets
of such Person, whether or not covered by insurance.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise), operating
results, liabilities, customer, supplier or employee relations or business
prospects of such Person.
39
"Minimum Closing Condition" has the meaning assigned to such term in
Section 3.3.
"Multi-Employer Plan" shall have the meaning set forth in Section 3(37) of
ERISA.
"Multiple Employer Plan" shall have the meaning set forth in Section 413 of
the Code.
"Non-Compete Period" means the period ending on the third anniversary of
the Closing Date.
"Note" has the meaning assigned to such term in Section 2.1.
"Orders" means judgments, writs, decrees, compliance agreements,
injunctions or orders of and Governmental Entity or arbitrator.
"Permits" means all permits, licenses, authorizations, registrations,
franchises, approvals, certificates, variances and similar rights obtained, or
required to be obtained, from Governmental Entities.
"Permitted Liens" means (i) Liens for Taxes not yet due and payable or
being contested in good faith by appropriate proceedings and for which there are
adequate reserves on the books, (ii) workers or unemployment compensation Liens
arising in the ordinary course of business; (iii) mechanic's, materialman's,
supplier's, vendor's or similar Liens arising in the ordinary course of business
securing amounts that are not delinquent and (iv) zoning ordinances, easements
and other restrictions of legal record affecting real property which would be
revealed by a survey and would not, individually or in the aggregate, materially
interfere with the usefulness of such real property to the Business.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity (or any department, agency, or political subdivision
thereof).
"Plans" has the meaning assigned to such term in Section 5.18(a).
"Proceeding" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or
arbitrator.
"Prohibited Transaction" has the meaning set forth in Section 406 of ERISA
and Section 4975 of the Code.
"Purchase Price" means the Consideration.
"Real Property" has the meaning assigned to such term in Section 5.10(d).
"Restricted Territory" has the meaning assigned to such term in Section
7.8(a).
"Seller" has the meaning assigned to such term in the preamble of this
Agreement.
"Seller Group" has the meaning assigned to such term in Section 7.2(b).
40
"Shares" has the meaning assigned to such term in Section 1.1.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Tax" as used in this Agreement, means any of the Taxes, and "Taxes" means,
with respect to any Person, (a) all income taxes (including any tax on or based
upon net income, gross income, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties and other taxes,
fees, assessments or charges of any kind whatsoever, together with all interest
and penalties, additions to tax and other additional amounts imposed by any
taxing authority (domestic or foreign) on such Person (if any) and (b) any
liability for the payment of any amount of the type described in the immediately
preceding clause (a) as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable Law) of another entity or a
member of an affiliated or combined group.
"Tax Liability" has the meaning assigned to such term in Section 5.12.
"Tax Return" means any 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.
"Third Party Claim" has the meaning assigned to such term in Section
7.3(a).
"Transition Services Agreement" has the meaning assigned to such term in
Section 3.1.
"Validated Claim" has the meaning assigned to such term in Section 7.3(b).
Article IX
MISCELLANEOUS
9.1 No Third Party Beneficiaries.
Except as expressly set forth in Section 7.2 hereof, this Agreement shall
not confer any rights or remedies upon any Person other than the parties hereto
and their respective successors and permitted assigns, personal representatives,
heirs and estates, as the case may be.
9.2 Entire Agreement.
This Agreement and the other Documents referred to herein constitute the
entire agreement among the parties hereto 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 of any Document
including, without limitation, the Letter of Intent dated August 24, 2001, as
heretofore amended, among The Hawkeye Group, Inc., the Company and the Seller.
41
9.3 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. No party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other parties hereto;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates, (ii) designate one or more
of its Affiliates to perform its obligations hereunder (in any or all of which
cases the Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder), (iii) collaterally assign any or all of its
rights and interests hereunder to one or more lenders of the Buyer and/or the
Company, (iv) assign its rights hereunder in connection with the sale of all or
substantially all of its business or assets (whether by merger, sale of stock or
assets, recapitalization or otherwise) and (v) merge the Company with or into
the Buyer or one of their respective Subsidiaries.
9.4 Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
9.5 Headings.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.6 Notices.
All notices, requests, demands, claims, and other communications hereunder
shall be in writing. Any notice, request, demand, claim or other communication
hereunder shall be deemed duly given when delivered personally to the recipient,
telecopied to the intended recipient at the telecopy number set forth therefor
below (with hard copy to follow), or sent to the recipient by reputable express
courier service (charges prepaid) and addressed to the intended recipient as set
forth below:
If to NetWolves or the Buyer:
Xxxxxx Xxxxxxx
The Hawkeye Group, Inc.
000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with copies to:
Xxxx Xxxx, Esq. Xxxxx X. Xxxxxxxxx
Xxxxx, Xxxx & Xxxxx LLP Blau, Kramer, Wactlar & Xxxxxxxxx, P.C.
Xxx Xxxx Xxxxxx Xxxxxx 000 Xxxxxxx Xxxxxxxxxx
Xxxxxx, XX 00000 Xxxxxxx, XX 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
42
If to the Company or Seller:
Xxxxx X. Xxxxxxxxx
Norstan, Inc.
0000 Xxxxx Xxx Xxxx
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with copies to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx Xxxxxxx Xxxxxx & Brand, LLP
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Xxxxx X. Xxxxxxx, Esq.
Norstan, Inc.
0000 Xxxxx Xxx Xxxx
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Any party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth above
using any other means, 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 intended recipient. Any party may change the address
to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other party notice in the manner herein set
forth.
9.7 Governing Law.
This Agreement will be governed by and construed and enforced in accordance
with the substantive laws of Minnesota without regard to its principles of
conflicts of laws.
9.8 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by all of the parties hereto. 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.
43
9.9 Incorporation of Exhibits and Schedules.
The Exhibits, Schedules and other attachments identified in this Agreement
are part of this Agreement as if set forth in full herein.
9.10 Construction.
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall a rise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The word
"including" shall mean including without limitation. Nothing in the Schedules
hereto shall be deemed to adequately disclose an exception to a representation
or warranty made herein unless the applicable Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed to
adequately disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). 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 contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
9.11 Independence of Covenants and Representations and Warranties.
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
9.12 Remedies.
The parties hereto shall each have and retain all other rights and remedies
existing in their favor at Law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief to
enforce or prevent any violations of the provisions of this Agreement.
44
9.13 Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
9.14 Waiver of Jury Trial.
The Buyer and the Seller agree that neither of them nor any assignee or
successor shall (a) seek a jury trial in any lawsuit, proceeding, counterclaim
or any other action based upon or arising out of, this Agreement, the Documents,
any related instruments, or the dealings or the relationship between or among
any of them, or (b) seek to consolidate any such action with any other action in
which a jury trial cannot be or has been waived. The provisions of this
paragraph have been fully discussed by the Seller with its counsel, and these
provisions shall be subject to no exceptions. The Seller has not agreed with or
represented to any other party that the provisions of this paragraph will not be
fully enforced in all instances.
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IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as an instrument under seal as of the date first above written.
NETWOLVES CORPORATION
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: CFO
NETWOLVES ACQUISITIONS, INC.
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: VP
NORSTAN, INC.
By: /s/ Xxxxx Xxxxxxxxx
Name: Xxxxx Xxxxxxxxx
Xxxxx: EVP/CFO
NORSTAN NETWORK SERVICES, INC.
By: /s/ Xxxxx Xxxxxxxxx
Name: Xxxxx Xxxxxxxxx
Xxxxx: EVP/CFO
