Exhibit 2.1
CONTRIBUTION AND DISTRIBUTION AGREEMENT
between
BLUESTONE SOFTWARE, INC.
and
BLUESTONE CONSULTING, INC.
Dated April 17, 1997
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS.......................................................................................................2
1.1 Definitions.........................................................................................2
ARTICLE II
THE REORGANIZATION................................................................................................6
2.1 Transfer of Contributed Assets......................................................................6
2.2 Assumption of Liabilities...........................................................................6
2.3 Retained Liabilities................................................................................6
2.4 Dispute Resolution..................................................................................6
2.5 Issuance of Services Common Stock...................................................................7
2.6 Nonassignable Contracts.............................................................................7
2.7 Closing Balance Sheet; Opening Balance Sheet........................................................7
ARTICLE III
THE DISTRIBUTION..................................................................................................8
3.1 Distribution of Contribution Shares.................................................................8
ARTICLE IV
OTHER AGREEMENTS..................................................................................................8
4.1 ▇▇▇▇ ▇▇▇▇▇▇ Convertible Note........................................................................8
4.2 Replication of Stock Option Plan....................................................................8
4.3 Transfer of Employees...............................................................................9
4.4 Intercompany Services...............................................................................9
4.5 Intellectual Property...............................................................................9
4.6 Customer and Prospect Database......................................................................9
4.7 Shareholder Notes...................................................................................9
4.8 Intercompany Notes..................................................................................9
4.9 PNC Debt...........................................................................................10
ARTICLE V
CLOSING..........................................................................................................10
5.1 Closing............................................................................................10
5.2 Deliveries and Proceedings at Closing..............................................................10
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE SERVICES COMPANY...........................................................11
6.1 February Balance Sheet.............................................................................11
ARTICLE VII
INDEMNIFICATION..................................................................................................12
7.1 Indemnification....................................................................................12
7.2 Third Party Claim Indemnification Procedures.......................................................12
7.3 Remedies Cumulative................................................................................14
ARTICLE VIII
TAX AND EXPENSE MATTERS..........................................................................................14
8.1 Certain Taxes and Expenses.........................................................................14
8.2 Tax Returns and Other Filings......................................................................14
8.3 Tax Allocations....................................................................................14
8.4 Representations, Warranties and Covenants..........................................................14
8.5 Failure to Qualify.................................................................................15
ARTICLE IX
ADDITIONAL MATTERS...............................................................................................15
9.1 Access to Information..............................................................................15
ARTICLE X
MISCELLANEOUS....................................................................................................16
10.1 Construction......................................................................................16
10.2 Notices...........................................................................................16
10.3 Successors and Assigns............................................................................16
10.4 Governing Law; Jurisdiction.......................................................................17
10.5 Entire Agreement..................................................................................17
10.6 Further Assurances................................................................................17
10.7 Amendment and Waiver..............................................................................17
10.8 Counterparts......................................................................................17
10.9 Headings..........................................................................................17
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TABLE OF EXHIBITS AND SCHEDULES
Exhibit 4.4 - Intercompany Services Agreement
Exhibit 4.5(i) - Intellectual Property Assignment
Exhibit 4.5(ii) - Service ▇▇▇▇ Licence Agreement
Exhibit 5.2(a)(i) - ▇▇▇▇ of Sale
Exhibit 5.2(b)(iii) - Assumption Agreement
Exhibit 8.2 - Tax Allocation Agreement
Schedule 1.1(a) - Contributed Assets
Schedule 1.1(b) - Retained Assets
Schedule 2.1 - Permitted Encumbrances
Schedule 2.2 - Assumed Liabilities
Schedule 2.3 - Retained Liabilities
Schedule 2.6 - Nonassignable Contracts
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CONTRIBUTION AND DISTRIBUTION AGREEMENT
THIS CONTRIBUTION AND DISTRIBUTION AGREEMENT (this
"Agreement") dated April 17, 1997, is made by and between BLUESTONE SOFTWARE,
INC., a Delaware corporation (the "Products Company"), and BLUESTONE CONSULTING,
INC., a Delaware corporation (the "Services Company"). Capitalized terms shall
have the meanings set forth in Article I hereof unless otherwise defined in a
particular Section in which they are used.
BACKGROUND
A. The Prior Corporation was formed as a New Jersey
corporation, all of the issued and outstanding stock of which was owned by the
Shareholder. For the sole purpose of enabling the Prior Corporation to change
its state of incorporation, the Products Company was formed as a Delaware
corporation and, on March 25, 1997, the Prior Corporation merged with and into
the Products Company, with the Products Company as the surviving corporation.
All of the issued and outstanding common stock of the Products Company is owned
by the Shareholder.
B. In order to enable the Products Company to obtain venture
capital financing and as a condition thereof, the Board of Directors of the
Products Company has determined to transfer or cause to be transferred to the
Services Company substantially all of the assets of the Products Company used
primarily in or primarily related to, the Services Business, to cause the
assumption by the Services Company of the Assumed Liabilities and to cause the
issuance to the Products Company of all of the shares of Common Stock of the
Services Company (the "Contribution"), which Contribution in conjunction with
the Distribution defined below is intended to qualify for federal income tax
purposes as a reorganization pursuant to Section 368(a)(1)(D) of the Code.
C. Immediately after the Contribution and as part of the same
plan, the Products Company shall distribute or cause to be distributed to the
Shareholder all of the shares of Common Stock of the Services Company owned by
the Products Company (the "Distribution") in a distribution that is intended to
be tax-free to the Shareholder and the Products Company pursuant to Sections
355(a) and 361(c) of the Code, respectively.
D. The Products Company and the Services Company have
determined that it is desirable to set forth the principal corporate
transactions required to effect the Contribution and the Distribution and to set
forth other agreements that will govern certain other matters prior to or
following the Distribution.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings ascribed to them in this Section:
"Affiliate" means a person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, the person specified; provided that the Products Company and the
Services Company (after giving effect to the Reorganization) shall not be deemed
to be Affiliates of each other for purposes of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 2.2
hereof.
"Assumption Agreement" has the meaning set forth in Section
5.2(b)(iii) hereof.
"▇▇▇▇ of Sale" has the meaning set forth in Section 5.2(a)(i)
hereof.
"Business Day" means any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of Delaware are authorized or
obligated by law or executive order to close.
"Closing" means the consummation of the Reorganization.
"Closing Balance Sheet" has the meaning set forth in Section
2.7 hereof.
"Closing Date" has the meaning set forth in Section 5.1
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contributed Assets" means all right, title, and interest of
the Products Company on the date hereof in all assets, properties and rights
used primarily in or primarily related to the Services Business (other than the
Retained Assets), wherever such assets are located and whether real, personal or
mixed, tangible or intangible, and whether or not any of such assets have any
value for accounting purposes or are carried or reflected on or specifically
referred to in its books or financial statements, and set forth on SCHEDULE 1.1
hereto (except for consumable assets and other similar assets which are not
listed on such Schedule).
"Contribution" has the meaning set forth in the "Background"
section.
"Contribution Date" means the time immediately prior to the
Distribution Date.
"Contribution Shares" has the meaning set forth in Section 2.5
hereof.
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"Damages" means any and all losses, liabilities, damages
(including, without limitation, any governmental fines or penalties or punitive
damages and costs of investigation), settlement payments, deficiencies,
judgments, interest, costs and expenses (including, without limitation,
attorneys' fees and expenses) including without limitation any of the foregoing
relating to, resulting from or arising out of any commenced or threatened
action, suit, administrative proceeding, investigation, audit or other
proceeding by any person or entity and any settlement or compromise thereof.
"Distribution" has the meaning set forth in the "Background"
section.
"Distribution Date" means the date as of which the
Distribution shall be effected as determined by the Board of Directors of the
Products Company.
"February Balance Sheet" has the meaning set forth in Section
6.1 hereof.
"Former Convertible Note" means the $1 million convertible
promissory note issued by the Prior Corporation to ▇▇▇▇ ▇▇▇▇▇▇ and convertible
into 700,000 shares of common stock of the Prior Corporation.
"Former Options" has the meaning set forth in Section 4.2
hereof.
"Former Shareholder Note" has the meaning set forth in Section
4.7 hereof.
"GAAP" has the meaning set forth in Section 2.7 hereof.
"Indemnified Party" has the meaning set forth in Section
7.2(a) hereof.
"Indemnifying Party" has the meaning set forth in Section
7.2(a) hereof.
"Intellectual Property Assignment" has the meaning set forth
in Section 4.5 hereof.
"Intercompany Services Agreement" has the meaning set forth in
Section 4.4 hereof.
"ISOs" has the meaning set forth in Section 4.2 hereof.
"Lien" has the meaning set forth in Section 2.1 hereof.
"Litigation Conditions" has the meaning set forth in Section
7.2(b) hereof.
"Opening Balance Sheet" has the meaning set forth in Section
2.7 hereof.
"Permitted Encumbrances" has the meaning set forth in Section
2.1 hereof.
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"PNC Debt" means the indebtedness of the Products Company
under the $3 million line of credit, the $235,000 term note and the $300,000
Convertible Software Note, each as reflected on the February Balance Sheet.
"Prior Corporation" means Bluestone Consulting, Inc., a New
Jersey corporation, which merged with and into the Products Company on March 25,
1997.
"Products Business" means the business engaged in by the
Products Company prior to the Closing Date in connection with its software
products operations, and includes the products, training, marketing, consulting
and support groups.
"Products Company" means Bluestone Software, Inc., a Delaware
corporation, successor to the Prior Corporation.
"Products Common Stock" means common stock, par value $.001
per share, of the Products Company.
"Products Intercompany Note" has the meaning set forth in
Section 4.8 hereof.
"Products Options" has the meaning set forth in Section 4.2
hereof.
"Products Shareholder Note" has the meaning set forth in
Section 4.7 hereof.
"Products Stock Option Plan" has the meaning set forth in
Section 4.2 hereof.
"Products Company Tax Liabilities" means the liabilities of
the Products Company set forth in the Tax Allocation Agreement.
"Products Transaction Documents" means this Agreement, the
▇▇▇▇ of Sale, the Intellectual Property Assignment, the Service ▇▇▇▇ Licence
Agreement, the Intercompany Services Agreement and the Tax Allocation Agreement.
"Reorganization" means collectively, the transactions
contemplated pursuant to the provisions of Article II and Article III hereof.
"Retained Assets" means those assets, properties and rights of
the Products Company that are used in, to be used in, useful to or related to
the Services Business which are not intended to be contributed to the Services
Company as set forth on SCHEDULE 1.1(B) hereto.
"Retained Liabilities" shall have the meaning set forth in
Section 2.3 hereof.
"Service ▇▇▇▇ Licence Agreement" has the meaning set forth in
Section 4.5 hereof.
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"Services Business" means the business engaged in by the Prior
Corporation prior to the Closing Date in connection with its professional
consulting services group and which also includes the central group (accounting,
finance, information systems and human resources).
"Services Common Stock" means common stock, par value $.001
per share, of the Services Company.
"Services Company" means Bluestone Software, Inc., a Delaware
corporation.
"Services Options" has the meaning set forth in Section 4.2
hereof.
"Services Intercompany Note" has the meaning set forth in
Section 4.8 hereof.
"Services Records" has the meaning set forth in Section 9.1
hereof.
"Services Shareholder Note" has the meaning set forth in
Section 4.7 hereof.
"Services Stock Option Plan" has the meaning set forth in
Section 4.2 hereof.
"Services Company Tax Liabilities" means the liabilities of
the Services Company set forth in the Tax Allocation Agreement.
"Services Transaction Documents" means this Agreement, the
Service ▇▇▇▇ Licence Agreement, the Intercompany Services Agreement and the
Assumption Agreement.
"Shareholder" means ▇▇. ▇▇▇ ▇▇▇▇▇▇.
"Stock Purchase Agreement" means the Series A Preferred Stock
Purchase Agreement among the Products Company and the investors listed therein.
"Tax Allocation Agreement" has the meaning set forth in
Section 8.2 hereof.
"Taxes" means any federal, state, local and foreign income,
payroll, withholding, excise, sales, use, personal property, use and occupancy,
business and occupation, mercantile, real estate, gross receipts, license,
employment, excise, severance, stamp, premium, windfall profits, social
security, unemployment, disability, transfer, registration, value added,
alternative, or add-on minimum, estimated, or capital stock and franchise and
other tax or governmental charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Returns" means returns, reports, or information returns
or statements relating to Taxes (including amendments thereto) required to be
filed with the appropriate United States, state, local or foreign tax authority
or agency thereof.
"Third Party Claim" has the meaning set forth in Section
7.2(a) hereof.
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ARTICLE II
THE REORGANIZATION
2.1 TRANSFER OF CONTRIBUTED ASSETS. Subject to the terms and conditions
of this Agreement and effective as of the Contribution Date, the Products
Company hereby assigns, transfers, delivers and conveys to the Services Company,
as a capital contribution, all of its right, title and interest in and to the
Contributed Assets, free and clear of all mortgages, pledges, liens,
restrictions, encumbrances, tenancies, licenses, encroachments, covenants,
rights of way, easements, claims, security interests, charges or any other
matter affecting title (collectively "Liens"), except (a) minor imperfections of
title, none of which, individually or in the aggregate, materially detracts from
the value of or impairs the use of the affected properties or impairs the
operations of the Products Company, (b) liens for current taxes not yet due and
payable, or (c) as disclosed on SCHEDULE 2.1 hereto (collectively, "Permitted
Encumbrances").
2.2 ASSUMPTION OF LIABILITIES. Except for the Retained Liabilities
referred to in Section 2.3 hereof, the Services Company hereby assumes and
agrees to pay, fully satisfy when due and fully perform when required, all of
the Assumed Liabilities. For purposes of this Agreement, "Assumed Liabilities"
shall mean all of the liabilities and obligations, whether primary or secondary,
direct or indirect, absolute or contingent, arising out of or relating to the
Contributed Assets or the Services Business, whether now existing or hereafter
arising and whether arising out of occurrences, events or incidents occurring
prior to the Closing Date or thereafter, including any liabilities set forth on
SCHEDULE 2.2 hereto.
2.3 RETAINED LIABILITIES. Except for the Assumed Liabilities referred
to in Section 2.2 hereof, the Products Company hereby retains and agrees to pay,
fully satisfy when due and fully perform when required, all of the Retained
Liabilities. For purposes of this Agreement, "Retained Liabilities" shall mean
all of the liabilities and obligations, whether primary or secondary, direct or
indirect, absolute or contingent, arising out of or relating to the Products
Business, whether now existing or hereafter arising and whether arising out of
occurrences, events or incidents occurring prior to the Closing Date or
thereafter, including any liabilities set forth on SCHEDULE 2.3 hereto.
2.4 DISPUTE RESOLUTION. In the event that (i) the parties are unable to
agree on whether an asset is a Contributed Asset or (ii) the parties are unable
to agree on whether a liability is, in whole or part, an Assumed Liability or a
Retained Liability, then (x) the Boards of Directors of the Services Company and
the Products Company shall meet and attempt in good faith to resolve the
differences between the parties, and if no resolution is reached after fifteen
(15) days, (y) the parties shall settle the matter by arbitration before a
single arbitrator in the County of Philadelphia (or such other place agreed to
by the parties) in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. All costs
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associated with such arbitration shall be borne equally by the parties to the
dispute, except that each party shall bear the costs of its own attorneys and
experts.
2.5 ISSUANCE OF SERVICES COMMON STOCK. Contemporaneously with the
transfer of the Contributed Assets and the assumption of the Assumed Liabilities
contemplated herein, the Services Company shall issue, transfer and deliver to
the Products Company, as its initial issuance, nine million (9,000,000) shares
of Services Common Stock free and clear of all Liens, such transfer to be
accomplished by a certificate or certificates registered in the Products
Company's name, which will, immediately after such issuance, constitute all of
the Services Company's issued and outstanding common stock (the "Contribution
Shares").
2.6 NONASSIGNABLE CONTRACTS. Nothing in this Agreement shall be
construed as an attempt to assign any contract, agreement, permit, franchise or
claim included in the Contributed Assets which is by its terms or by law
nonassignable and are set forth on SCHEDULE 2.6 hereto, without the consent of
the other party or parties thereto, unless such consent shall have been given,
or as to which all the remedies for the enforcement thereof enjoyed by the
Products Company would, as a matter of law, pass to the Services Company as an
incident of the assignments provided for by this Agreement. In order, however,
to provide the Services Company the full realization and value of every
contract, agreement, permit, franchise and claim of the character described in
the immediately preceding sentence, the Products Company agrees that on and
after the Closing, it will, at the request and under the direction of the
Services Company, in the name of the Products Company or otherwise as the
Services Company shall specify, take all reasonable actions and do or cause to
be done all such things as shall in the reasonable opinion of the Services
Company or its counsel be necessary or proper (a) to assure that the rights of
the Products Company under such contracts, agreements, permits, franchises and
claims shall be preserved for the benefit of the Services Company and (b) to
facilitate receipt of the consideration to be received by the Products Company
in and under every such contract, agreement, permit, franchise or claim, which
consideration shall be held for the benefit of, and shall be delivered to, the
Services Company.
2.7 CLOSING BALANCE SHEET; OPENING BALANCE SHEET.
(a) Within sixty (60) days after the Closing, the parties
hereto will use their best efforts to have prepared and delivered to the
Products Company an audited balance sheet (the "Closing Balance Sheet") of the
Products Company as of the close of business on the Closing Date, which balance
sheet shall be prepared in accordance with generally accepted accounting
principles applied in the United States of America ("GAAP"). The Closing Balance
Sheet shall be accompanied by an opinion from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP that the
Closing Balance Sheet fairly presents in all material respects the assets and
liabilities of the Products Company as of the close of business on the Closing
Date in accordance with GAAP.
(b) Within sixty (60) days after the Closing, the parties
hereto will use their best efforts to have prepared and delivered to the
Services Company an audited balance sheet (the "Opening Balance Sheet") of the
Services Company as of the close of business on the Closing Date, which balance
sheet shall be prepared in accordance with GAAP. The Opening
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Balance Sheet shall be accompanied by an opinion from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP that
the Opening Balance Sheet fairly presents in all material respects the assets
and liabilities of the Services Company as of the close of business on the
Closing Date in accordance with GAAP.
ARTICLE III
THE DISTRIBUTION
3.1 DISTRIBUTION OF CONTRIBUTION SHARES. On the Distribution Date, the
Products Company shall distribute to Shareholder, a duly executed certificate or
certificates representing the Contribution Shares, so that immediately following
the distribution, the Shareholder shall be the sole shareholder of the Services
Company.
ARTICLE IV
OTHER AGREEMENTS
4.1 ▇▇▇▇ ▇▇▇▇▇▇ CONVERTIBLE NOTE. The Services Company has agreed that
one-half of the principal amount of the Former Convertible Note shall be an
Assumed Liability under Section 2.2 hereof. Accordingly, at Closing (i) the
Former Convertible Note shall be amended and restated to reflect that the
principal amount due thereunder shall be in the amount of $500,000 as evidenced
by an amended and restated convertible and subordinated note issued by the
Products Company, such note to be convertible into 700,000 shares of Products
Common Stock; and (ii) the Services Company shall issue a convertible and
subordinated note in the principal amount of $500,000, which note shall be
convertible into 700,000 shares of Services Common Stock.
4.2 REPLICATION OF STOCK OPTION PLAN. Prior to the Closing Date, the
1996 Incentive and Non-Qualified Stock Option Plan of the Prior Corporation (the
"1996 Plan") will be assumed by the Products Company (the "Products Stock Option
Plan"). On or prior to the Closing Date, the Services Company will adopt a stock
option plan (the "Services Stock Option Plan") substantially similar to the
Products Stock Option Plan. In exchange for agreeing to the cancellation of
outstanding options granted by the Prior Corporation pursuant to the terms of
the 1996 Plan (the "Former Options") and agreeing to execute new confidentiality
agreements, holders of Former Options shall be granted (i) options to purchase
the same number of shares of Products Common Stock as under the Former Options
("Products Options") and (ii) options to purchase the same number of shares of
Services Common Stock as under the Former Options (the "Services Options").
Option holders who are employed by the Products Company after the Closing Date
shall receive Products Options that are intended to be incentive stock options
within the meaning of Section 422 of the Code ("ISOs") and Services Options that
are non-qualified stock options. Option holders who are employed by the Services
Company after the Closing Date shall receive Services Options that are intended
to be ISOs and Products Options that are non-qualified stock options.
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4.3 TRANSFER OF EMPLOYEES. Effective as of the Closing Date, each
employee of the Services Business shall cease to be an employee of the Products
Company, and shall become an employee of the Services Company unless he or she
choose not to accept such employment in which case his or her employment shall
terminate altogether. The Services Company shall establish and maintain such
compensation and benefit arrangements as it may determine from time to time. The
Services Company and Products Company shall cooperate in the transfer of
employee records, coordination of compensation systems, and continuity of
benefit arrangements, including vacation, 401(k) and profit sharing, sick pay
and disability, health plans, and all other material benefit arrangements.
4.4 INTERCOMPANY SERVICES. As a condition to the execution of this
Agreement and simultaneous herewith, the Products Company and the Services
Company shall enter into and execute an Intercompany Services Agreement,
substantially in the form of EXHIBIT 4.4 hereto (the "Intercompany Services
Agreement").
4.5 INTELLECTUAL PROPERTY. As condition to the execution of this
Agreement and simultaneous herewith, the Products Company and the Services
Company shall enter into and execute an Intellectual Property Assignment,
substantially in the form of EXHIBIT 4.5(I) hereto (the "Assignment"), and an
Service ▇▇▇▇ Licence Agreement, substantially in the form of EXHIBIT 4.5(II)
hereto (the "License Agreement").
4.6 CUSTOMER AND PROSPECT DATABASE. During the one (1) year period
following the Closing, each of the Products Company and the Services Company
shall use its best efforts to equitably separate and divide ownership of the
customer and prospect database (known internally as "BEDROCK") jointly owned by
the parties hereto. After such division, each company shall have sole right,
title and interest to its database.
4.7 SHAREHOLDER NOTES. On the Closing Date, the $403,066.37 Promissory
Note, dated as of December 31, 1994, issued by the Prior Corporation to the
Shareholder (the "Former Shareholder Note") will be canceled, and in
consideration therefore (a) the Services Company will issue to the Shareholder a
$107,495 promissory note (the "Services Shareholder Note"), and (b) the Products
Company will issue to the Shareholder a $250,000 promissory note (the "Products
Shareholder Note"). The Products Shareholder Note will subsequently be
contributed to capital of the Products Company in exchange for the issuance of
263,158 shares Series A Preferred Stock in accordance with the Stock Purchase
Agreement.
4.8 INTERCOMPANY NOTES. On the Closing Date, the Products Company will
issue to the Services Company a $500,000 promissory note (the "Products
Intercompany Note") in connection with the allocation of indebtedness for
borrowed money between the companies. On the closing of the Stock Purchase
Agreement, the Services Company will issue to the Products Company a promissory
note in the amount of the fees and expenses incurred and payable by the Services
Company in accordance with Section 8.1 hereof (the "Services Intercompany
Note"), which fees and expenses will be paid by the Products Company on the
Services Company's behalf.
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4.9 PNC DEBT. On the Closing Date, the Services Company and the
Products Company shall enter into an assignment and assumption agreement
assigning to the Services Company its allocable portion of the PNC Debt, in the
amounts set forth on SCHEDULE 2.2 hereto. The Products Company shall retain the
PNC Debt in the amounts set forth on SCHEDULE 2.3 hereto. Subsequent to the
assignment and assumption of the PNC Debt, each of the parties will enter into
amended and restated financing documents with PNC reflecting the allocation of
the PNC Debt.
ARTICLE V
CLOSING
5.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing under this Agreement (the "Closing") will take place concurrently with
the execution and delivery of this Agreement, at 10:00 a.m. on the date of this
Agreement, at the offices of Pepper, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other time, date or location
as shall be agreed upon by the parties hereto. The date at which the Closing
occurs is sometimes referred to herein as the "Closing Date".
5.2 DELIVERIES AND PROCEEDINGS AT CLOSING.
(a) DELIVERIES TO THE SERVICES COMPANY. The Products Company
hereby delivers to the Services Company the following:
(i) a ▇▇▇▇ of Sale and instrument of Assignment with
respect to the Contributed Assets, duly executed by the Products Company,
substantially in the form of EXHIBIT 5.2(A)(I) hereto (the "▇▇▇▇ of Sale");
(ii) the Intercompany Services Agreement, duly
executed by the Products Company;
(iii) the Assignment, duly executed by the Products
Company;
(iv) the License Agreement, duly executed by the
Products Company; (v) the Tax Allocation Agreement, duly executed by the
Products Company; and
(vi) all such other instruments of conveyance as
shall, in the reasonable opinion of the Services Company and its counsel, be
necessary to vest in the Services Company good, valid and, marketable title to
the Contributed Assets in accordance with Section 2.1 hereof.
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(b) DELIVERIES BY THE SERVICES COMPANY TO THE PRODUCTS
COMPANY. The Services Company hereby delivers to the Products Company the
following:
(i) a stock certificate or certificates representing
the Services Common Stock, free and clear of all Liens, registered in the name
of the Products Company and appropriately legended;
(ii) the Intercompany Services Agreement, duly
executed by the Services Company;
(iii) an assumption agreement, duly executed by the
Services Company, substantially in the form of EXHIBIT 5.2(B)(III) hereto (the
"Assumption Agreement");
(iv) the License Agreement, duly executed by the
Services Company; and
(v) the Tax Allocation Agreement, duly executed by
the Services Company.
(c) DELIVERIES BY THE PRODUCTS COMPANY TO THE SHAREHOLDER. The
Products Company shall deliver to the Shareholder a duly executed certificate or
certificates representing the Contribution Shares, duly registered in the
Shareholder's name and appropriately legended.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE SERVICES COMPANY
The Services Company hereby represents and warrants to the Products
Company as follows:
6.1 FEBRUARY BALANCE SHEET. The unaudited balance sheet of the Prior
Corporation as of February 28, 1997 (the "February Balance Sheet") fairly
presents the financial condition of the Prior Corporation as of such date,
subject to normal year-end adjustments. The February Balance Sheet has been
prepared in accordance with GAAP applied on a consistent basis, except that the
February Balance Sheet may not contain all footnotes required by GAAP. Since the
date of the February Balance Sheet, the Products Company has not incurred any
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business consistent with past practices
(other than extensions of trade payables), (ii) liabilities incurred under the
PNC financing documents, or (iii) as disclosed in the Disclosure Letter to the
Series A Preferred Stock Purchase Agreement among the Products Company and the
investors listed therein.
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ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE PRODUCTS COMPANY. The Products
Company shall indemnify the Services Company and its directors, officers and
other Affiliates and hold the Services Company and its directors, officers and
other Affiliates harmless from and against any and all Damages relating to,
arising out of or resulting from:
(i) any material misrepresentation or any material
breach of any representation or warranty made by the Products Company in this
Agreement or any material failure to comply with any covenant made by the
Products Company in this Agreement;
(ii) any Retained Liabilities; or
(iii) any Products Company Tax Liabilities.
(b) INDEMNIFICATION BY THE SERVICES COMPANY. The Services
Company shall indemnify the Products Company and its directors, officers and
other Affiliates, and hold the Products Company and its directors, officers and
other Affiliates harmless from and against any and all Damages relating to,
arising out of or resulting from:
(i) any material breach of any representation or
warranty made by the Services Company in this Agreement or any material failure
to comply with any covenant made by the Services Company in this Agreement;
(ii) any Assumed Liabilities; or
(iii) any Services Company Tax Liabilities.
(c) LIMITATION OF INDEMNIFICATION. Notwithstanding anything to
the contrary contained herein, no claim for indemnification under this Article
VII may be brought after the second anniversary of the Closing Date.
7.2 THIRD PARTY CLAIM INDEMNIFICATION PROCEDURES.
(a) A party seeking indemnification pursuant to this Article
VII (an "Indemnified Party") shall give prompt notice to the party from whom
such indemnification is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any action, suit or proceeding by a third
party in respect of which indemnity may be sought hereunder (a "Third Party
Claim"), and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but failure to give
such notice shall not
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relieve the Indemnifying Party of any liability hereunder except to the extent
that the Indemnifying Party is actually prejudiced thereby.
(b) The Indemnifying Party shall have the right, exercisable
by written notice to the Indemnified Party within thirty (30) days of receipt of
notice from the Indemnified Party of the commencement of or assertion of any
Third Party Claim in respect of which indemnity may be sought hereunder, to
assume and conduct the defense of such Third Party Claim with counsel selected
by the Indemnifying Party and reasonably acceptable to the Indemnified Party;
provided that: (i) such Third Party Claim involves (and continues to involve)
solely monetary damages; (ii) the defense of such Third Party Claim by the
Indemnifying Party will not, in the reasonable judgment of the Indemnified
Party, have a material adverse effect on the Indemnified Party; (iii) the
Indemnifying Party makes adequate provision to satisfy reasonably the
Indemnified Party of the Indemnifying Party's ability to satisfy the amount of
any adverse monetary judgment that is reasonably likely to result, (the
conditions set forth in clauses (i), (ii) and (iii) are collectively referred to
as the "Litigation Conditions"); and (iv) the Indemnifying Party expressly
agrees in writing that as between the Indemnifying Party and the Indemnified
Party, the Indemnifying Party shall be solely obligated to satisfy and discharge
the Third Party Claim. If the Indemnifying Party does not assume the defense of
such Third Party Claim in accordance with this Section, then the Indemnified
Party may continue to defend the Third Party Claim. If the Indemnifying Party
has assumed the defense of a Third Party Claim as provided in this Section
7.2(b), then the Indemnifying Party will not be liable for any legal expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof; provided however that if (A) the Litigation Conditions cease to be met,
or (B) the Indemnifying Party fails to take reasonable steps necessary to defend
diligently such Third Party Claim within ten (10) calendar days (or such shorter
period as may be required to defend diligently such Third Party Claim) after
receiving written notice from the Indemnified Party that the Indemnified Party
believes the Indemnifying Party has failed to take such steps, then the
Indemnified Party may assume its own defense, and the Indemnifying Party will be
liable for all reasonable costs or expenses paid or incurred in connection
therewith.
(c) The Indemnifying Party or the Indemnified Party, as the
case may be, shall have the right to participate in (but not control), at its
own expense, the defense of any Third Party Claim which the other is defending
as provided in this Agreement.
(d) The Indemnifying Party, if it shall have assumed the
defense of any Third Party Claim as provided in this Agreement, shall not,
without the prior written consent of the Indemnified Party, consent to a
settlement of, or the entry of any judgment arising from, any such Third Party
Claim which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a complete release from all
liability in respect of such Third Party Claim, or which grants any injunctive
or equitable relief. The Indemnified Party shall have the right to settle any
Third Party Claim, the defense of which has not been assumed by the Indemnifying
Party, with the written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
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(e) Whether or not the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.3 REMEDIES CUMULATIVE. Except as herein expressly provided, the
remedies provided herein shall be cumulative and are not exclusive and shall not
preclude assertion by any party hereto of any other rights or the seeking of any
other remedies against any other party hereto.
ARTICLE VIII
TAX AND EXPENSE MATTERS
8.1 CERTAIN TAXES AND EXPENSES. The Services Company shall pay all
sales, use, transfer, real property transfer, documentary stamp, recording and
other similar taxes with respect to transfer of the Contributed Assets. The
Products Company shall pay the audit fees of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP in connection
with the audit of the financial statements for the fiscal years ended December
31, 1995 and 1996. The Products Company shall pay the fees and expenses of Ernst
& Young LLP and Blank Rome ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ for the applicable accounting and
legal services rendered in connection with the transactions contemplated by this
Agreement and the Stock Purchase Agreement. The Services Company shall pay the
fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (other than the audit fees) and the
fees and expenses of Pepper, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP for the applicable
accounting and legal services rendered in connection with the transactions
contemplated by this Agreement and the Stock Purchase Agreement. At the Closing
the Products Company shall pay all transaction fees incurred by each of the
Products Company and the Services Company and referred to in this Section 8.1.
The Services Company shall concurrently therewith issue to the Products Company
the Services Intercompany Note.
8.2 TAX RETURNS AND OTHER FILINGS. Each of the Services Company and the
Products Company shall agree: (i) to report the Contribution and Distribution as
a transaction described in Section 368(a)(1)(D) of the Code and the Distribution
as a transaction described in Section 355 of the Code on all Tax Returns and
other filings, (ii) to take no position inconsistent therewith or with the
consummation of such transactions, and (iii) to file or cause to be filed all
Tax Returns for which it is responsible hereunder on a timely basis (including
any extensions thereof).
8.3 TAX ALLOCATIONS. As a condition of the execution of this Agreement,
the Parties shall execute a tax allocation agreement, substantially in the same
form of EXHIBIT 8.2 hereto (the "Tax Allocation Agreement"), which agreement
shall set forth the manner in which taxes shall be allocated between the
parties.
8.4 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the Services
Company and the Products Company represents, warrants and covenants to the other
that it has no present plan or
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intention to take any action (including without limitation, in the case of the
Services Company, the cessation of the Services Business or the sale or
disposition of the Contributed Assets other than in the ordinary course of
business, and in the case of the Products Company, the cessation of the Products
Business or the sale or disposition of the Retained Assets or the assets of the
Products Company other than in the ordinary course of business) or cause any
condition to exist, that would disqualify (i) the Contribution and Distribution
as a transaction described in Section 368(a)(1)(D) of the Code; or (ii) the
Distribution as a tax-free distribution under Section 355 of the Code.
8.5 FAILURE TO QUALIFY. If any of the transactions fails to qualify as
tax-free under the applicable Code Section as a result of a breach or violation
of a representation, warranty or covenant set forth in this Agreement by a party
hereto, then the party breaching or violating the representation, warranty or
covenant shall be solely responsible for any taxes resulting from such breach or
violation.
ARTICLE IX
ADDITIONAL MATTERS
9.1 ACCESS TO INFORMATION.
(a) On the Closing Date, or as soon thereafter as practicable,
the Products Company will deliver to the Services Company all original
agreements, documents, books, records and files relating solely to the Services
Business (collectively, "Services Records") in its possession, except that the
Products Company may retain any federal Tax Returns. After the Closing, the
Services Company will retain all Services Records required to be retained
pursuant to obligations imposed by any applicable law. On the Closing Date, or
as soon thereafter as practicable, the Products Company will deliver to the
Services Company copies of all agreements, documents, books, records and files
relating that are common to both the Services Business and the Products
Business.
(b) After the Closing, upon reasonable notice, each party
hereto will give, or cause to be given, to the representatives, employees,
counsel and accountants of the other parties hereto access, during normal
business hours, to Services Records, relating to periods prior to or including
the Closing, and will permit such persons to examine and copy such Services
Records, in each case only to the extent reasonably requested by such other
parties in connection with Tax and financial reporting matters (including
without limitation any Tax Return relating to state or local real property
transfer or gains taxes), legal proceedings or governmental investigations;
provided, however, that nothing herein will obligate any party to take actions
that would unreasonably disrupt the normal course of its business, violate the
terms of any contract to which it is a party or to which it or any of its assets
is subject or grant access to any of its proprietary, confidential or classified
information. The parties hereto will cooperate with each other in the conduct of
any tax audit, claim for refund of income taxes, or similar proceedings
involving or otherwise relating to any of the Contributed Assets (or the income
therefrom or
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assets thereof) with respect to any Tax and each will execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section 9.1.
ARTICLE X
MISCELLANEOUS
10.1 CONSTRUCTION. The parties hereto have jointly participated in the
negotiation and drafting of this Agreement and the instruments of transfer
contemplated hereby. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the instruments of transfer
contemplated hereby shall be construed as if drafted jointly by and between the
Services Company and the Products Company and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Schedules hereto shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the exception is described on the
Schedule with reasonable particularity.
10.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered by facsimile transmission (with confirmation postmarked on
the same day), by overnight courier service or, if mailed, when mailed by United
States first-class, certified or registered mail, postage prepaid, to the other
party at the following addresses (or at such other address as shall be given in
writing by any party to the other):
If to the Products Company:
Bluestone Software, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇
If to the Services Company, to:
Bluestone Consulting, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Operating Officer
10.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party may assign, delegate or
otherwise transfer any of its rights or
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obligations under this Agreement without the consent of the other party hereto,
except that either party may assign its rights hereunder.
10.4 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. In
connection with any dispute arising between the parties under this Agreement,
and without limiting Section 2.4 hereof, each party hereto consents to the
exclusive jurisdiction and venue of any federal or state court located in the
State of New Jersey, and each party hereby waives any claim it may have at any
time to FORUM NON CONVENIENS with respect to such venue.
10.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, constitutes the entire understanding of the parties with
respect to the subject matter hereof, supersedes any prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof, and is not intended to confer upon any person other than the
parties hereto any benefit, right or remedy.
10.6 FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by any other party hereto in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby. To the extent payments are received by any party hereto
that properly belong to any other party hereto on or after the date hereof, the
parties hereto agree to promptly remit such amounts to the appropriate party.
10.7 AMENDMENT AND WAIVER. The parties may, by mutual agreement, amend
this Agreement in any respect, and any party, as to such party, may extend the
time for the performance of any of the obligations of the other party; waive any
inaccuracies in representations and warranties by the other party; waive
compliance by the other party with any of the agreements contained herein and
performance of any obligations by the other party; and waive the fulfillment of
any condition that is precedent to the performance by such party of any of its
obligations under this Agreement. To be effective, any such amendment or waiver
must be in writing and be signed by the party against whom enforcement of the
same is sought.
10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
10.9 HEADINGS. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first written above.
BLUESTONE CONSULTING, INC.
By /s/ ▇▇▇ ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President
BLUESTONE SOFTWARE, INC.
By /s/ ▇▇▇ ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President
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