Exhibit (d)(17)
STOCK PURCHASE AGREEMENT
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STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 27, 2000, by
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and among (A) Milestone Services, Inc. (the "Company"), a Texas corporation with
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a principal place of business at 0000 Xxxxxxxxxx Xxxxxx Xxxxx 000, Xxxxxx, Xxxxx
00000, (B) Xxxxx X. Xxxxxx, an individual residing at 0000 Xxxxxx, Xxxxxx,
Xxxxx, Xxxxx 00000, Xxxxxxxx X. Xxxxx, an individual residing at 0000 Xxxxxxxxx
Xxx, Xxxxxx, Xxxxx 00000, Xxxxxxx X. Xxxxxxx, an individual residing at 0000
Xxxxxxxxx, Xxxxxx, Xxxxx 00000, and Xxxxx X. Xxxxxxx, an individual residing at
0000 Xxxxx Xxxxxx, Xxxxxxxx, Xxxxx 00000 (each individual a "Shareholder" and
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such individuals together the "Shareholders"), (C) Interliant Texas, Inc. (the
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"Buyer"), a Delaware corporation having an office at Two Manhattanville Road,
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Purchase, New York 10577, and (D) Interliant, Inc., a Delaware corporation
having an xxxxxx xx Xxx Xxxxxxxxxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000 (the
"Parent").
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W I T N E S S E T H :
WHEREAS, the Company and Interactive Software, Inc. (the "Other Company")
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operate an enterprise resource planning solutions, software consulting and
related services business (the Company's business, the "Business", the Other
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Company's business, the "Other Business", and such businesses together, the
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"Combined Business");
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WHEREAS, the Shareholders are the holders of all of the outstanding shares
of the authorized capital stock of the Company;
WHEREAS, the Company owns all of the assets used in or useful to, the
Business;
WHEREAS, the Shareholders wish to sell to the Buyer and the Buyer wishes to
purchase from the Shareholders all of the outstanding shares of the Company and
all associated goodwill, all on the terms and subject to the conditions provided
herein;
WHEREAS, the parties hereto agree that this Agreement shall be conditional
on the merger (the "Merger") of the Other Company with and into the Buyer, a
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wholly-owned direct subsidiary of the Parent upon the terms and subject to the
conditions provided in the Agreement and Plan of Merger of even date herewith
among the Other Company, the Buyer, the Parent and the other parties thereto
(the "Merger Agreement");
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WHEREAS, the Buyer, the Company and the Shareholders desire that, at the
request of the Buyer, the Company and the Shareholders shall make a joint
election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any provisions of applicable state or local law that
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are analogous to Section 338(g) or (h)(10) of the Code, with respect to the
acquisition of the Company's stock by the Buyer contemplated herein;
WHEREAS, the Shareholders join in the execution of this Agreement as the
sole Shareholders of the Company and are familiar with the material aspects of
operation of the Business;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
SECTION 1
PURCHASE AND SALE OF STOCK
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1.01. Purchase and Sale. In reliance on the representations, warranties and
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covenants herein and subject to the terms and conditions of this Agreement, on
the Closing Date (as defined below) the Shareholders will sell, convey, transfer
and deliver to the Buyer, and the Buyer will purchase from the Shareholders,
23,810 shares of common stock, $0.01 par value, of the Company, representing all
of the issued and outstanding shares of common stock of the Company (the
"Company Common Stock"). Terms with initial letters capitalized used herein
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which are not otherwise defined herein shall have the respective meanings
therefor set forth on Schedule A.
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SECTION 2
PURCHASE PRICE
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2.01. Purchase Price. In consideration of the sale and transfer of the
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Company Common Stock by the Shareholders to the Buyer, subject to the terms and
conditions of this Agreement and on the basis of the representations and
warranties of the Shareholders contained herein, the Buyer shall pay the amounts
referred to in this Section 2.01 (the "Preliminary Purchase Price"), as the same
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may be adjusted pursuant to Section 2.02 hereof (as so adjusted, the "Basic
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Purchase Price"), plus the amount (payable in cash and/or stock, as the case may
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be, set forth in Section 2.03), if any, payable pursuant to Section 2.03 hereof
(such amount, together with the Basic Purchase Price, the "Purchase Price").
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(a) The Buyer shall pay to the Shareholders, in the respective percentages
set forth in Section 2.01(c) (each such percentage with respect to a particular
Shareholder, such Shareholder's "Applicable Percentage"), on the Closing Date,
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and subject to adjustment in accordance with Section 2.02, in cash $1,814,111.92
(One Million Eight Hundred Fourteen Thousand One Hundred and Eleven Dollars and
Ninety Two Cents) less the sum of $50,000 to be provisionally retained by the
Buyer as provided in Section 2.02(c) hereof), by certified or official bank
check payable to the order of the
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Shareholders, or by wire transfer of federal funds to the account of the
Shareholders, as the Shareholders shall direct in writing on or before the
Closing Date; and
(b) The Buyer shall deliver or cause to be delivered to the Shareholders,
in the respective percentages set forth in Section 2.01(c), as soon as
practicable after the Closing, 129,075.63 shares (the "Closing Shares") of the
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Parent's Common Stock, par value $.01 per share (the "Common Stock"), provided
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that a number of the Closing Shares otherwise deliverable to a Shareholder equal
in value to ten percent (10%) of the Shareholder's Applicable Percentage of the
Basic Purchase Price hereunder shall be deposited under, and be subject to the
terms of, the Escrow Agreement (as hereinafter defined). Where any such
respective percentage of each Shareholder's Applicable Percentage would result
in the issuance of a fraction of a share of the Parent's Common Stock, to a
Shareholder, in lieu of the issuance of such fractional share the Buyer shall
pay such Shareholder a cash amount equal to the fraction of such share of Parent
Common Stock otherwise issuable multiplied by the average closing trading price
of the Parent's Common Stock on the NASDAQ National market system during the ten
(10) business days immediately preceding the Closing Date. The Closing Shares
shall be evidenced by one or more certificates registered in the Shareholder's
names. Any such shares of Common Stock issued as part of the Basic Purchase
Price will be subject to the limitations and qualifications described in Section
4.01(n) below.
(c) The Basic Purchase Price shall be allocated among the Shareholders as
follows:
Parent Cash For Percentage (the
Name of Cash Common Fractional "Applicable
Shareholder Consideration Stock Shares Percentage")
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Xxxxx X. Xxxxxx $1,478,501.21 105,196 $39.86 81.50%
Xxxxxxxx X. Xxxxx $ 181,411.19 12,907 $ 4.89 10.00%
Xxxxxxx X. Xxxxxxx $ 108,846.72 7,744 $ 2.93 6.00%
Xxxxx X. Xxxxxxx $ 45,352.80 3,226 $ 1.22 2.50%
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$1,814,111.92 129,073 $48.90 100%
2.02. Adjustments to the Purchase Price.
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(a) The parties acknowledge that the Book Equity of the Company at the
Closing Date is estimated and assumed by the Shareholders to be $714,111.92, as
determined as set forth on Schedule B hereto and in accordance with GAAP.
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(b) As promptly as practicable after the Closing Date, the actual Book
Equity of the Company as of the Closing Date will be determined by the Buyer in
accordance with the provisions set forth on Schedule B and in accordance with
GAAP,
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accordance with the provisions set forth on Schedule B and in accordance with
GAAP, and shall be based on the Company's financial statements as of the Closing
Date, which shall have been prepared by the Buyer in accordance with GAAP
consistently applied and provided to each Shareholder within forty five (45)
days after the Closing Date. In the event that the Book Equity of the Company as
of the Closing Date is less or more than $714,111.92, the cash portion of the
Preliminary Purchase Price shall be adjusted for each dollar of such overage or
shortfall, as the case may be. Within thirty (30) days of receipt of notice of
the amount of such Book Equity of the Company as of the Closing Date, the
Shareholders' Representative shall provide to the Buyer any comments or notice
of disputes relating to such amount and the calculation thereof. If within
thirty (30) days, or such longer period agreed to in writing by the Buyer and
the Shareholders' Representative, after receipt of such comments or notices from
the Shareholders' Representative, the Shareholders' Representative and the Buyer
have not mutually agreed on the final actual Book Equity of the Company as of
the Closing Date, such amount shall be determined by KPMG (the "Accountant") and
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at the joint expense of all parties which determination shall be final and
binding. In any event, if the Book Equity of the Company is determined to be
less than $714,111.92, then the Shareholders shall pay to the Buyer in
accordance with the Applicable Percentages, within five (5) business days after
such determination, an amount in cash equal to the excess of $714,111.92 over
the amount of the Book Equity of the Company. Such amounts, if any, shall be
payable in cash received by the Shareholders as part of the Purchase Price. If
the Book Equity of the Company is determined to be more than $714,111.92, then
the Buyer shall pay to each Shareholder, within five (5) business days after
such determination, an amount in cash equal to such Shareholder's Applicable
Percentage of the excess of the Book Equity of the Company over $714,111.92. The
adjustment to the Preliminary Purchase Price provided for in this Section
2.02(b) shall not be subject to the provisions of Section 5.05 hereof.
(c) As partial security for the Shareholders' contingent obligation to pay
the Buyer the amount which would be required pursuant to Section 2.02(b) above
in the event the Book Equity of the Company is determined to be less than
$714,111.92 at the Closing Date, the Buyer shall provisionally retain $50,000 of
the $1,814,111.92 otherwise payable to the Shareholders pursuant to Section
2.01(a) hereof. With respect to any amount which may be owing by the
Shareholders to the Buyer pursuant to Section 2.01(b) hereof, each Shareholders
Applicable Percentage of such amount shall be permanently retained by the Buyer
and credited against such Shareholder's obligation to pay such amount. To the
extent no amount is owed by the Shareholders pursuant to Section 2.01(b) or if
each Shareholder's Applicable Percentage of such $50,000 shall be greater than
such Shareholders Applicable Percentage of any amount owed by the Shareholders
pursuant to Section 2.01(b), after giving effect to the aforesaid permanent
retention and crediting, then such Applicable Percentage of such amount (or of
the remaining portion, if any, of such amount after such crediting) shall be
paid by the Buyer to such Shareholder together with interest on such amount for
the period from the Closing Date to the date prior to payment at the prevailing
rates applicable to Interliant's Chase Vista Management Money Market Fund.
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2.03. Earnout Amount.
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(a) In addition to the Basic Purchase Price, the Buyer will pay to each
Shareholder each of the following amounts (collectively, the "Earnouts"):
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(i) First Milestone Earnout. Upon the completion of the First
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Milestone (as hereinafter defined) in the good faith reasonable opinion of the
Shareholder Representative and the Buyer, the Buyer shall pay to each
Shareholder such Shareholder's Applicable Percentage of forty percent (40%) of
Three Hundred Thousand Dollars ($300,000). For purposes of this Agreement, the
term "First Milestone" shall mean that (i), prior to the Second Milestone
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Completion Date (as hereinafter defined), the Company or the Other Company has
employed (by transfer or otherwise) the Required Individuals (as hereinafter
defined) as full-time employees of the Company or the Other Company, and (ii)
the Required Individuals are serving as full-time employees of the Company or
the Other Company for the purpose of developing and implementing Internet
enabled, hostable Oracle Products (as hereinafter defined) on the Second
Milestone Completion Date and neither the Shareholder Representative nor the
Buyer has a good faith reason to believe that such Required Individuals will not
continue to thereafter be employed by the Company. For purposes of this
Agreement, the term "Required Individuals" means (i) any individual (or his or
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her replacement) who, in the reasonable, good faith opinion of the Shareholder
Representative and the Buyer, has skills necessary to function as a database
engineer for software products produced by or at the direction of Oracle Corp.
(the "Oracle Products"), and (ii) any individual (or his or her replacement)
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who, in the reasonable, good faith opinion of the Shareholder Representative and
the Buyer has skills with a specific application of the Oracle Products for
which the Combined Business intends to provide a hosted solution necessary to
function as an engineer with respect thereto.
(ii) Second Milestone Earnout. Upon the completion of the Second
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Milestone (as hereinafter defined) in the good faith reasonable opinion of the
Shareholder Representative and the Buyer, the Buyer shall pay to each
Shareholder such Shareholder's Applicable Percentage of forty percent (40%) of
Five Hundred Thousand Dollars ($500,000); provided, however, that no amount
shall be owed with respect to the Second Milestone if the Second Milestone shall
not have been completed on or prior to the expiration of the period ending one
hundred and eighty (180) days after the Closing Date. For purposes of this
Agreement, the term "Second Milestone" shall mean the determination in good
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faith by the Shareholder Representative and the Buyer that the Company or the
Other Company has developed one public sector and one private sector Internet
enabled hostable application primarily utilizing Oracle Products that in the
reasonable, good faith opinion of the Shareholder Representative and the Buyer
is ready to be and may be sold to multiple customers within each of such sector.
For purposes of the Agreement, "Second Milestone Completion Date" shall mean the
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date on which the Second Milestone shall have been achieved; provided, however,
that such date shall in no event be later than 180 days after the Closing Date.
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(iii) Consolidated Net Revenues Earnout.
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(x) For each $1.00 in Consolidated Net Revenues of the Combined Business,
earned by the Combined Business during the period of twelve (12) calendar months
from the first month following the Closing Date (the "Earnout Period") in excess
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of $9,300,000.00 (Nine Million Three Hundred Thousand Dollars), the Buyer shall
pay to each Shareholder in lieu of the payments required by Section
2.03(a))(iii)(y) such Shareholder's Applicable Percentage of forty percent (40%)
of $1.00 (the "$1 Consolidated Net Earnout"); provided that (A) as a condition
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precedent to the payment of the $1 Consolidated Net Revenue Earnout, the
Combined Business shall have achieved an EBITDA Margin during the Earnout Period
of not less than 11%; and (B) for purposes of calculating EBITDA Margin, all
Excluded Expenses deducted from the Combined Business' gross revenues shall be
added back; or
(y) Where such Earnout, pursuant to Section 2.03(a)(iii)(x) above would be
due, but for the failure of the Combined Business to achieve an EBITDA Margin of
not less than 11% during the Earnout Period, then for each $1.00 in Consolidated
Net Revenue of the Combined Business during the Earnout Period in excess of
$9,300,000 (Nine Million Three Hundred Thousand Dollars), the Buyer shall pay to
each Shareholder, in lieu of the payments required by Section 2.03(a)(iii)(x)
above, such Shareholder's Applicable Percentage of forty percent (40%) of $.75
(Seventy-Five Cents) (the "$.75 Consolidated Net Revenue Earnout"); provided
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that (A) as a condition precedent to the payment of the $.75 Consolidated Net
Revenue Earnout, the Combined Business shall have achieved an EBITDA Margin
during the Earnout Period of not less than 10%; and (B) for purposes of
calculating EDITDA Margin, all Excluded Expenses deducted from the Combined
Business' gross revenues shall be added back.
Notwithstanding anything in this Section 2.03(a)(iii) to the contrary, (i)
in no event shall the $1 Consolidated Net Revenue Earnout and the $.75
Consolidated Net Revenue Earnout in the aggregate payable to all of the
Shareholders exceed $1,880,000 (One Million Eight Hundred and Eighty Thousand
Dollars) and (ii) in no event shall the sum of the amounts payable pursuant to
this Section 2.03(a)(iii) and the amounts payable pursuant to Section
4.02(a)(iii) of the Merger Agreement exceed Four Million Seven Hundred Thousand
Dollars ($4,700,000). Notwithstanding anything in this Section 2.03(a)(iii) to
the contrary, no Consolidated Net Revenues of the Combined Business credited to
the earnout provision of Section 2.03(a)(iv) shall be included in the
calculation of this Section 2.03(a)(iii).
As used in this Agreement, the term "Excluded Expenses" means, to the
extent that they do not exceed a maximum budget allowable for such purposes to
be mutually agreed between the parties within thirty (30) days after the Closing
Date, any and all direct and indirect commercially reasonable expenses and costs
associated with hiring, replacing or retaining consultants in connection with
the efforts to accomplish the First Milestone and/or the Second Milestone.
Notwithstanding any other provisions in this Agreement to the contrary, Excluded
Expenses shall cease to apply to any provisions of this Agreement upon the
earliest to occur of the following: (x) the date the Oracle
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Earnout is earned in full and (y) the expiration of the Oracle Earnout Period
(as hereinafter defined).
(iv) Oracle Earnout. For each $1.00 in Consolidated Net Revenues of the
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Combined Business earned or "deemed to be earned" (as defined below) by the
Combined Business during the eighteen (18) calendar months from August 1, 2000
(the "Oracle Earnout Period") that Buyer and the Shareholder Representative
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determine in good faith is directly attributable to the sale by the Company or
the Other Company of Oracle ASP Solutions (as hereinafter defined, and such
Consolidated Net Revenues, the "Oracle Consolidated Net Revenue"), the Buyer
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shall pay to each Shareholder such Shareholder's Applicable Percentage of forty
(40%) of $1.00; provided, however, that (x) the sum of all amounts payable or
paid pursuant to this Section 2.03(a)(iv) and Section 4.02(a)(iv) of the Merger
Agreement shall not exceed One Million Dollars ($1,000,000); and (y) for
purposes of determining the Oracle Consolidated Net Revenues in this Section
2.03(a)(iv), such amounts shall be determined in accordance with GAAP,
consistently applied; provided, however, that with respect to any commercially
reasonable Contracts entered into prior to the expiration of the Oracle Earnout
Period to the extent that the term of such Contract extends beyond the
expiration of the Oracle Earnout Period, the amount of the revenues derived from
recurring hosting activities payable to the Company or the Other Company under
such Contract during the time period between the date of the expiration of the
Oracle Earnout Period and the first anniversary of the date of the Contract
shall be "deemed to be earned" on the last day of the Oracle Earnout Period.
As used in this Agreement, (i) the term "Oracle ASP Solutions" means any
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products or services sold to customers by the Combined Business which are hosted
on equipment owned or leased by the Combined Business, the Parent or an
Affiliate of the Parent and primarily involving Oracle Products, and (ii) the
term "Contract" means any commercially reasonable contract to which the Combined
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Business is a party and pursuant to which the Combined Business shall earn
revenues that are attributable, in whole or in part, to Oracle ASP Solutions.
(b) All Earnout amounts payable hereunder shall be payable, if earned, (x)
within 45 days after (A) the completion of the First Milestone, in the case of
amounts payable pursuant to Section 2.03(a)(i), (B) the completion of the Second
Milestone, in the case of amounts payable pursuant to Section 2.03(a)(ii), and
(C) the expiration of the Earnout Period, in the case of amounts payable
pursuant to Section 2.03(a)(iii), and (y) in the case of amounts payable
pursuant to Section 2.03(a)(iv), on the earlier of (1) forty-five (45) days
after the end of the Oracle Earnout Period, or (2) the date that One Million
Dollars ($1,000,000) in Oracle Consolidated Net Revenues have accrued or been
deemed to accrue pursuant to Section 2.03(a)(iv) hereof and Section 4.02(a)(iv)
of the Merger Agreement. At the Buyer's option, the Earnout shall be paid in
cash or in Common Stock (the "Earnout Shares"), or any combination thereof,
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provided that any payment to the Shareholders pursuant to the Earnout shall be
made at least 40% in cash, and provided that 10% of such Earnout (consisting
solely of shares of Common Stock) shall be deposited under and subject to the
Escrow Agreement. The number of shares constituting the Earnout will be
determined based on the average closing trading price of Common
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Stock on the NASDAQ National Market for the 10 business days ending immediately
preceding the end of the Earnout Period. Any such shares of Common Stock issued
as part of the Earnout will be subject to the limitations and qualifications
described in Section 4.01(n) below.
(c) During the Earnout Period, the Buyer shall be permitted to sell,
transfer or assign the Business to any party provided that no such sale,
transfer or assignment shall in any way unreasonably impair the ability of the
parties to calculate the Earnout.
(d) Shareholder Acknowledgement. Each of the Shareholders hereby
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acknowledges that he or she (i) has read, understood and approved the provisions
of Section 2.03; (ii) acknowledges that the allocation of the Earnout amount
among the Shareholders and the shareholders of the Other Company was determined
by agreement of the parties hereto and by the parties to the Merger Agreement
and that such allocation is fair and reasonable; and (iii) acknowledges that he
or she has been advised to seek separate counsel in the execution of this
Agreement, both generally and particularly with regard to this Section 2.03.
SECTION 3
CLOSING
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3.01. The Closing Date. The purchase and sale provided for in this
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Agreement (the "Closing") shall take place on July 27, 2000 at the offices of
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Xxxxx Xxxxxxxxxx LLP, located at 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000
at 10:00 a.m. New York time, or as otherwise mutually agreed upon by the parties
(the "Closing Date").
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3.02. Further Assurances. The Shareholders agree that, at any time and
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from time to time after the Closing Date, they will, upon request, execute,
acknowledge and deliver, or cause to be executed, acknowledged or delivered, all
such further reasonable deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably required of them for the better
assigning, transferring, granting, conveying, assuring and confirming to the
Buyer the Company Common Stock and any assets, properties or rights associated
with the Business, or for defending or compromising any of the liabilities and
obligations of the Business.
SECTION 4
REPRESENTATIONS AND WARRANTIES
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4.01. Representations and Warranties of the Shareholders. Each
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Shareholder (jointly, except for Section 4.01(a)(ii), which shall be made
severally and not jointly) and the Company represents and warrants to the Buyer
and the Parent that the
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statements set forth in this Section 4.01 are true, correct and complete,
subject to the qualifications set forth in the Exhibits to this Section 4.01:
(a) Organization; Good Standing; Stock Ownership; Capitalization.
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(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, and has the corporate
power and authority to own or lease its properties and to conduct its business
as currently conducted, and, except as set forth in Exhibit 4.01(a)(i), the
Company is qualified and in good standing as a foreign corporation authorized to
do business in all jurisdictions where failure to qualify would have a material
adverse effect on the Company or the conduct of the Business by the Company
after the Closing Date. The Company maintains offices only at the site(s) listed
on Exhibit 4.01(a)(i) (the "Sites") and has no offices other than at the Sites.
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(ii) Each Shareholder is the sole beneficial and/or record owner of
the number of issued and outstanding shares of capital stock of the Company set
forth opposite his or her name on Exhibit 4.01(a)(ii) free and clear of any
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liens, encumbrances or restrictions on transfer of any nature whatsoever other
than the obligations of Shareholders arising under this Agreement. Each
Shareholder's residence addresses is as set forth in the first paragraph of this
Agreement. The Shareholders are the beneficial and/or record owners of all of
the Company's capital stock. Except for this Agreement and the Shareholders
Agreement among the Company and the Shareholders which shall be terminated prior
to Closing and the transactions contemplated hereby, each Shareholder represents
and warrants that he or she has no legal obligation, absolute or contingent, to
any person or firm to sell the Company's capital stock or to enter into any
agreement with respect thereto. Other than the Shareholders, no other person or
entity has ever been a shareholder of the Company. There are no other agreements
among the Shareholders regarding the Business of the Company other than the
Shareholders Agreement referred to above.
(iii) The Company's authorized capital consists exclusively of 100,000
shares of common stock, par value $.01 per share, 23,810 of which are issued and
outstanding. All of the outstanding shares of capital stock of the Company have
been duly authorized and are validly issued, fully paid and non-assessable and
have not been issued in violation of any preemptive rights, either contractual
or otherwise. Except as set forth in Exhibit 4.01(a)(iii), (x) there are no
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existing options, calls or commitments of any character whatsoever, or
agreements to grant the same, relating to the Company's capital stock and (y)
the Company has no outstanding securities convertible into or exchangeable or
exercisable for any shares of capital stock of the Company or any options, calls
or commitments of any character whatsoever with respect to the issuance of such
convertible securities. Except as set forth on Exhibit 4.01(a)(iii), the Company
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owns no equity interests, convertible securities, marketable securities, notes
or other obligations evidenced by written instruments of any other firm or
entity. The Company has no subsidiaries.
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(b) Corporate Authorization. The execution, delivery and performance
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by the Shareholders (in their capacity as shareholders of the Company) and the
Company of this Agreement and any other agreements contemplated herein to which
the Shareholders (in their capacity as shareholders of the Company) or the
Company are a party has been authorized and approved by all requisite corporate
and other action on the part of the Shareholders and the Company, and no other
corporate or other approval or authorization is required on the part of the
Shareholders, the Company, any trustee or any other person by law or otherwise
in order to make this Agreement the valid, binding and enforceable obligations
of the Shareholders and the Company, respectively. This Agreement and any other
agreements contemplated herein to which the Shareholders (in their capacity as
shareholders of the Company) or the Company are a party is the valid, binding
and enforceable obligation of the Shareholders, their respective spouses and the
Company, enforceable against the Shareholders, their respective spouses and the
Company in accordance with its respective terms, subject to applicable
bankruptcy, insolvency, moratorium and other similar laws affecting generally
the enforcement of creditors rights. The execution, delivery and performance of
this Agreement and any other agreements contemplated herein to which the
Shareholders (in their capacity as shareholders of the Company), their
respective spouses or the Company are a party and the transactions contemplated
hereby (and thereby) by the Company and the Shareholders will not (a) conflict
with or violate the provisions of any applicable law, rule or order or the
Company's Certificate of Incorporation or by-laws, (b) conflict with or
constitute a default under, or cause the Company to lose any right, franchise or
privilege pursuant to the terms of, any material agreement or material contract
to which the Company or any Shareholder is a party or by which the Company or
any Shareholder or its or their respective assets or properties are bound,(c)
violate any judgement, order, decree, rule, regulation, law or ordinance
applicable to the Company or to any Shareholder, or (d) require the consent or
approval of, or filing with, any governmental body or third party other than in
the case of clause (b), (c) and (d) those items set forth on Exhibit 4.01(b)(1).
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Set forth on Exhibit 4.01(b)(2) is a list of officers and directors of the
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Company, all trade names used by the Business and all jurisdictions in which the
Business is conducted.
(c) The Company's Assets.
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(i) All vendor, service provider and customer contracts,
distribution agreements, confidentiality agreements, purchase and sales orders,
powers of attorney, partnerships, reselling agreements, joint venture,
undertakings, strategic partnerships, commitments and other agreements to which
the Company is a party and which relate in any manner to the Business and/or the
relationship between the Company and the Customers (hereinafter defined) or its
vendors or alliance partners, whether written or oral, shall be referred to
herein collectively as the "Business Agreements"; provided, however, that the
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term Business Agreements shall not include any such agreements which do not
individually or in the aggregate commit the Company to an expenditure or
potential liability, or provide the Company with receipts in excess of $10,000,
except where such agreements have been entered into between the Company and its
Customers (the "Customer Agreements"). The Company has delivered to the Buyer or
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made available for review by the Buyer, on or before the Closing Date, true and
correct copies
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of all written Business Agreements and detailed summaries of all oral Business
Agreements other than Leases (as hereinafter defined). Attached hereto as
Exhibit 4.01(c)(i)(1) is a detailed schedule of all Business Agreements,
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including a description of the material terms of each oral Business Agreement.
Listed on Exhibit 4.01(c)(i)(2) is a schedule of each and every real estate
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lease, equipment and personal property lease (collectively, the "Leases") to
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which the Company is a party (whether as a principal or guarantor or otherwise).
The Leases are also included within the definition of Business Agreements as
said term is used herein. The Company is not the owner or lessee of any motor
vehicles whether or not they are used in the Business. The Company does not own
any real property or lease any material equipment used in the Business, except
as expressly stated on Exhibit 4.01(c)(i)(2). The Company is not in default
---------------------
under any Business Agreement and, to the knowledge of the Company and the
Shareholders, no other party to any Business Agreements is in default under any
Business Agreement. To the knowledge of the Shareholders, except Xxxxxxx
Xxxxxxx, no other party to any Business Agreement has given the Company written
or oral notice of any dispute under any Business Agreement or has made any
written or oral claim, except as set forth on Exhibit 4.01(c)(i)(3). Each
---------------------
Business Agreement is in full force and effect as to the Company, and to the
knowledge of the Company and the Shareholders as to the other parties to such
Business Agreement.
(ii) All of the tangible assets of the Company used in the Business,
including, without limitation, all machinery, office and other equipment,
furniture, hardware, computers and related equipment, business machines and
telephones, telephone systems, parts and accessories presently utilized by the
Company in the Business, shall be referred to herein collectively as the
"Tangible Assets"; provided, however, that the term Tangible Assets shall not
---------------
include any of such assets having an individual book value of less than $500.
Attached hereto as Exhibit 4.01(c)(ii) is a true and correct list or description
-------------------
of the Tangible Assets, except for incidental Tangible Assets, having
collectively a replacement value not exceeding $4,000. As of the Closing Date,
each of the Tangible Assets is in good and operable condition, reasonable wear
and tear excepted.
(iii) All patents, trademarks, trade names, including those trade
names listed on Exhibit 4.01(b)(2), service marks, service names, logos,
------------------
designs, formulations, copyrights and other trade rights and all registrations
and applications therefor, all know-how, trade secrets, technology or processes,
research and development, all telephone numbers, facsimile numbers, e-mail
addresses and Internet domain addresses, all Web sites (including all
intellectual property rights therein) and all computer programs, control panels,
surcharge calculators, data bases and software documentation owned or used by
the Company, if any, other than off-the-shelf software licensed by the Company,
shall be referred to herein collectively as the "Intellectual Property". The
"Intellectual Property" comprises all intellectual property rights necessary or
---------------------
advisable for the conduct of the Business as currently conducted. Attached
hereto as Exhibit 4.01(c)(iii) is a true, complete and correct list of all of
--------------------
the Intellectual Property (and where practicable, a copy thereof) including,
without limitation, all proprietary software owned by the Company. Exhibit
-------
4.01(c)(iii) also indicates which of such items have been patented or registered
------------
or are in the process of application for same. The Company is the sole owner,
free of any
11
lien or encumbrance, of all the Intellectual Property listed in Exhibit
-------
4.01(c)(iii) and indicated thereon as being owned by the Company. The Company
------------
has taken, and will take, all reasonable actions to protect its rights in
Intellectual Property owned by it. The Company's rights in the Intellectual
Property are valid and enforceable. Except as disclosed on Exhibit 4.01(c)(iii),
--------------------
the Company has received no demand, claim, notice or inquiry from any
individual, organization or entity (collectively, "Person") in respect of the
------
Intellectual Property which challenges, threatens to challenge or inquires as to
whether there is any basis to challenge, the validity of, or the rights of the
Company in the Intellectual Property. The Company is not in violation or
infringement of, and has not violated or infringed, any rights in intellectual
property of any other Person. To the knowledge of the Company and the
Shareholders, no third party is infringing on the rights of the Company in and
to the Intellectual Property. Except on an arm's-length basis for value and
other commercially reasonable terms, the Company has not granted any license
with respect to the Intellectual Property to any Person. Also attached to
Exhibit 4.01(c)(iii) is a true and complete list of all software licensed or
--------------------
used by the Company in operating and maintaining the Business, including,
without limitation, all off-the-shelf or shrink-wrap licensed software
(collectively, the "Licensed Software"). At the Closing Date, except as
-----------------
disclosed on Exhibit 4.01(c)(iii), the Company either owns or has valid, royalty
--------------------
free and fully-paid licenses for all of the Licensed Software and has provided
the Buyer with copies of all such licenses. Exhibit 4.01(c)(iii) also indicates
--------------------
which Intellectual Property has been patented or registered or are in the
process of application for same. Included in the Intellectual Property, among
other things, are all trade names utilized by the Company in the Business,
including those trade names listed on Exhibit 4.01(b)(2).
------------------
(iv) Each consultant, manager and executive officer of the Company
has executed an employment agreement in the form attached hereto as Exhibit
-------
4.01(c)(iv) and all of such agreements are in full force and effect as of the
-----------
Closing Date.
(v) Set forth on Exhibit 4.01(c)(v) is a true and complete copy of
------------------
the Company's customer list as of the Closing Date relating to the Business
which includes, in the case of each customer, the name of the customer, its
billing and domain addresses, identity and contact information of one relevant
contact person (the "Customer List"). All customers of the Company relating to
-------------
the Business, including, without limitation, those customers included on the
Customer List, shall be referred to herein as the "Customers".
---------
(vi) As used herein, the term "the Company's Assets" shall be all
--------------------
assets of the Company, including, without limitation, all files of the Company
regarding Customer, all classes of assets of the Company as shown on the
Company's balance sheet as of July 24, 2000 (annexed as Exhibit 4.01(c)(vi)(1)),
-----------------------
the Business Agreements, the Tangible Assets, the Intellectual Property, the
Licensed Software, the Customer List, together with the goodwill and business
opportunities of the Company as it relates to the Business, and all other assets
of the Company whether or not used in connection with the operation of the
Business, wherever located, tangible or intangible, including, without
limitation, all rights the Company may have under any insurance policies, and
all books, records and files (whether in paper or electronic format). Except as
set forth on Exhibit
-------
12
4.01(c)(vi)(2), the Company's Assets (other than goodwill and business
--------------
opportunities of the Company as it relates to the Business) are not subject to
(1) any lien or encumbrance of any character whatsoever except for (a) liens for
current taxes and assessments that are not yet due and payable and (b)
mechanics, warehousemen, landlords, and other similar statutory liens securing
the payment of amounts that have not yet due and payable or (2) any adverse
claims by any third parties. The Company's Assets include all rights,
properties, interests and assets used by Company and/or necessary to permit the
Company to carry on the Business as conducted by the Company as of the date of
this Agreement.
(vii) Other than the transactions contemplated in this Agreement and
the Merger Agreement, the Shareholders do not know of any fact, except for
general economic conditions, which such Shareholders reasonably believe in good
faith would reasonably indicate, as of the Closing Date, that the economic
performance of the Business on an annual basis will not continue substantially
unchanged after the date hereof and the Closing Date, subject to normal customer
turnover.
(viii) The Shareholders, except for Xxxxxxx Xxxxxxx, have not received
any oral notice and the Shareholders and the Company have not received any
written notice informing the Company that any of its Customers, other than those
listed on Exhibit 4.01(c)(viii), intend to terminate their relationship with the
---------------------
Company or significantly reduce the amount of business they presently do with
the Company, or that there exists any material disagreement between the Company
and any Customer.
(d) Financial Statements. Annexed hereto as Exhibit 4.01(d)(1) are
-------------------- ------------------
copies of (i) the unaudited financial statements for the last three fiscal years
of the Company ended December 31, 1999, 1998 and 1997, respectively, (ii) the
unaudited monthly financial statements of the Company for the period from
January 1, 2000 through the last day of the calendar month ending immediately
prior to the Closing Date, (iii) the unaudited consolidated balance sheet of the
Company and the Other Company (the "Companies") as of June 30, 2000, (iv) the
---------
unaudited combined financial statements of the Companies for the years ended
December 31, 1998 and 1999 and January 31, 1999 and 2000, respectively, and (v)
the unaudited financial statements of the Company for the six months ended June
30, 2000 (such financial statements, together the "Financial Statements"). The
--------------------
unaudited Financial Statements provided for in Sections 4.01(d)(iii) and (v)
have been reviewed by the Company's independent accountants, whose comments
thereon are included therewith. The financial statements of the Companies for
the fiscal year ended December 31, 1999 and the six-month period ended June 30,
2000, reflect the assets, liabilities, net worth, profit and loss and, if
included therein, cash flow of the Company as at the respective dates of such
statements and for the respective periods then ended, are complete and correct
in all material respects, and present fairly the financial condition and results
of operations of the Company as at the dates of such statements, and, except
with respect to the failure to record depreciation and accumulated depreciation,
have been prepared in accordance with GAAP, applied on a consistent basis. The
books of account and records of the Company have been maintained in accordance
with good business practice and reflect fairly all properties, assets,
liabilities and transactions of the Company. The Company has no liabilities or
obligations of any
13
kind (whether known or unknown, accrued or unaccrued, absolute or contingent,
asserted or unasserted, direct or indirect, liquidated or unliquidated, due or
to become due, or otherwise) which are not fully accrued or reserved against in
the Company's Consolidated Financial Statements as at June 30, 2000 and for the
period ending June 30, 2000 (except changes in the ordinary course of business
since June 30, 2000 and liabilities and obligations that are not required to be
disclosed in accordance with GAAP and liabilities and obligations which are not,
individually or in the aggregate, material to the Company or the Business).
Except as set forth on Exhibit 4.01(d)(2), the Company has no accounts
------------------
receivable or other debts that the Company believes to be incapable of
collection on a basis consistent with past practice and experience as of the
Closing Date. Except as set forth on Exhibit 4.01(d)(2) and except in connection
------------------
with the leases with respect to automobiles ("Automobile Leases"), since June
-----------------
30, 2000, the Company has conducted the Business only in the ordinary and usual
course consistent with past practice and has not experienced any material
adverse change in the Business or the financial condition of the Company. Except
as set forth on Exhibit 4.01(d)(2), or in connection with the Automobile Leases
------------------
since December 31, 1999 the Company has had no declaration, setting aside, or
payment of any dividend or other distribution (whether in cash, securities,
property or otherwise) in respect of the Company's capital stock. Except as set
forth on Exhibit 4.01(d)(1), between December 31, 1999 and the Closing Date,
-----------------
neither the Company nor the Shareholders have withdrawn, expended or applied any
cash or other assets of the Company, except in the ordinary course of operations
of the Business in accordance with past practices of the Company, and except as
contemplated in Section 4.01(c)(v).
(e) Existing Employment Arrangements. Except as set forth on Exhibit
-------------------------------- -------
4.01(e) the Company has no employment agreements, labor or collective bargaining
-------
agreements and there are no employee benefit or compensation plans, agreements,
arrangements or commitments (including, but not limited to, "employee benefit
plans", as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), maintained by the Company for any employees
-----
of the Company or with respect to which the Company has any material liability,
or makes or has an obligation to make contributions ("Employee Plans").
--------------
Each Employee Plan that is an employee welfare benefit plan as defined
under Section 3(1) of ERISA is funded through an insurance company contract.
Each Employee Plan by its terms and operation is in material compliance with all
applicable laws and all required material filings with respect to Employee Plans
have been made. Neither the Company nor any entity that is or was at any time
treated as a single employer with the Company under Section 414(b), (c) (m) or
(o) of the Code has at any time maintained, contributed to or been required to
contribute to, or has any liability with respect to, any plan subject Title IV
of ERISA. The events contemplated by this Agreement (either alone or together
with any other event occurring prior to the Closing) will not (w) except as set
forth on Exhibit 4.01(e), entitle any employees to severance pay, unemployment
---------------
compensation, or other similar payments under any Employee Plan or law, (x)
except as set forth on Exhibit 4.01(e), accelerate the time of payment or
---------------
vesting or increase the amount of benefits due under any Employee Plan or
compensation to any
14
Company employees or (y) result in any payments (including parachute payments)
under any Employee Plan or law becoming due to any employee. After giving effect
to the termination of the profit sharing plan and 401k plan, as contemplated by
Section 6.01(b)(v), the Company, the Buyer, the Parent and their respective
officers, directors, shareholders, successors and assigns, shall have no
liability whatsoever with respect to or arising under or from such Employee
Plans (provided, however, that no representation is made hereby with respect to
actions taken after the Closing).
There are no pending or, to the knowledge of the Shareholders or the
Company, threatened strikes, job actions or other labor disputes affecting the
Company or its employees and there have been no such disputes for the past three
years. Also set forth on Exhibit 4.01(e) is a true and complete list of all
---------------
employees of the Company employed in connection with the Business, which list
provides, among other things, the name, social security number, residence
address, title and salary information concerning each employee, as well a true
and correct list of each employee who holds an H1B1 visa, if any.
The Company has not, and prior to the Closing Date will not have,
suffered a "plant closing" or "mass layoff" within the meaning of the Worker
Adjustment and Retraining Notification Act ("WARN") determined without regard to
----
any actions taken by the Buyer on or after the Closing Date. The Shareholders
and the Company will provide the Buyer, upon request, with such information as
may be necessary for the Buyer to determine its potential WARN liability.
The Company is in compliance in all material respects with all laws
and orders relating to the employment of labor and classification of persons as
employees, including, without limitation, all such laws and orders relating to
wages, hours, discrimination, civil rights, immigration, safety and the
collection and payment of withholding and/or Social Security taxes and similar
taxes and provision of employee benefits.
(f) Claims, Litigation, Disclosure. Except as set forth on Exhibit
------------------------------ -------
4.01(f) there is no claim, litigation, tax audit, proceeding or investigation
-------
pending or, to the Company's knowledge, threatened against the Company, the
Business or any of the assets of the Company (including, without limitation, any
claims of infringement or actions of opposition with respect to Intellectual
Property or Licensed Software).
(g) Taxes. The Company is, and has been since inception and at all
-----
times during its existence, a validly electing S Corporation within the meaning
of Sections 1361 and 1362 of the Code and under any corresponding provisions of
applicable law in jurisdictions where it files Tax Returns. The Company is not
liable for any Tax under Section 1374 of the Code (or any similar provision of
state or local law) and has not, in the past ten years, acquired assets from
another corporation in a transaction in which the Company's tax basis in the
acquired assets was determined, in whole or in part, by reference to the tax
basis of the acquired assets (or any other property) in the hands of the
transferor. Except as set forth on Exhibit 4.01(g), the
---------------
15
Company and its affiliates and any combined, unitary or similar group of which
the Company or any such affiliate is or was a member, as the case may be
(individually, an "Affiliate" of the Company and, collectively, the Company's
---------
"Affiliates"), have (i) correctly prepared and timely filed all tax returns,
----------
declarations, reports, estimates, information returns and statements in respect
of any Taxes (the "Tax Returns") required to be filed or sent by or with respect
-----------
to the Company or any Affiliate (copies of which have been provided to the
Buyer), (ii) timely paid all Taxes that are or were due and payable whether or
not shown (or required to be shown) on a Tax Return, (iii) no liability for
Taxes with respect to any taxable period, or portion thereof, ending on or
before the Closing Date, including, without limitation, year to date through the
Closing Date and (iv) complied in all material respects with all applicable
laws, rules and regulations relating to the withholding and payment of Taxes and
have timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under all applicable laws. There are no liens for Taxes upon the assets of the
Company or any of its Affiliates except liens for Taxes not yet due. Except as
set forth on Exhibit 4.01(g), no claim has ever been made in writing by any
---------------
taxing authority with respect to the Company or any of its Affiliates in a
jurisdiction where the Company and/or any of its Affiliates do not file Tax
Returns that the Company or any such Affiliate is or may be subject to taxation
by that jurisdiction. Except as set forth in Exhibit 4.01(g), neither the
Company nor any of its Affiliates has requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed. Except
as set forth in Exhibit 4.01(g), the statute of limitations for the assessment
---------------
of U.S. federal income taxes has expired for all U.S. federal income tax returns
and/or years of the Company and each of its Affiliates, or such tax returns have
been examined by the Internal Revenue Service ("IRS") for all periods through
---
December 31, 1999, and no deficiency for any Taxes has been proposed, asserted
or assessed against the Company or any of its Affiliates which has not been
resolved and paid in full. There are no outstanding waivers or consents given by
the Company or any of its Affiliates regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns. No federal, state, local
or foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns. Neither the Company
nor any of its Affiliates (i) is a party to any agreement providing for the
allocation, sharing or indemnification of Taxes; (ii) is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or an Affiliate,
nor does the Company or any Affiliate thereof have any knowledge that the IRS
has proposed any such adjustment or change in accounting method; or (iii) is or
has been a United States real property holding Company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code. Neither the Company nor any of its Affiliates has
filed a consent pursuant to Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company
or any of its Affiliates. No property of the Company or any of its Affiliates is
property that the Company, any of its Affiliates or any party to this
transaction is or will be required to treat as being owned by another person
pursuant to Section 168(f)(8) of the Code (prior to
16
its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. No indebtedness of the Company
or any of its Affiliates is "corporate acquisition indebtedness" within the
meaning of Section 279(b) of the Code. Except as set forth on Exhibit 4.01(g),
---------------
all transactions that could give rise to an understatement of U.S. federal
income tax within the meaning of Section 6662 of the Code have been adequately
disclosed in accordance with Section 6662 of the Code. None of the Company or
its Affiliates owns any interest in real property within the state of New York
that would be subject to Tax upon its transfer. There is no contract, agreement,
plan or arrangement covering any person that, individually or collectively,
could give rise to, nor will the consummation of the transactions contemplated
hereby obligate the Company or any of its Affiliates to make, the payment of any
amount that would not be deductible by the Company or any Affiliate thereof by
reason of Section 280G of the Code. Neither the Company nor any of its
Affiliates has distributed the stock of any corporation in a transaction
satisfying the requirements of Section 355 of the Code since April 16, 1997.
Except as set forth on Exhibit 4.01(g), the Company will have no liability for
---------------
any Taxes under Section 1374 of the Code (or any similar provision of State or
local law) in connection with the deemed sale of its assets caused by the
Section 338 Election (as hereinafter defined) or otherwise.
For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
-----
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, transaction, property or other taxes, customs,
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (including, without limitation, any state, local, federal
or other taxing authority, whether domestic or foreign). For purposes of this
Agreement, "Taxes" shall also include any obligations under any agreements or
-----
arrangements with any person with respect to the liability for, or sharing of,
Taxes (including pursuant to Treasury Regulation ss. 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including liability for Taxes
as a transferee or successor, by contract or otherwise.
(h) No Other Agreements to Sell Assets or the Business. Except as
--------------------------------------------------
set forth in Exhibit 4.01(h), neither the Shareholders nor the Company is a
---------------
party to any existing agreement which obligates the Company or any Shareholder
to sell to any other person or firm the Company's Assets (other than sales in
the ordinary course of business), to issue or sell any capital stock or any
security convertible into or exchangeable for capital stock of the Company or to
effect any merger, consolidation or other reorganization of the Company or to
enter into any agreement with respect thereto.
(i) No Brokers. The only broker, leasing agent, finder or similar
----------
person or entity with whom the Company or the Shareholders have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or the
Shareholders is responsible to pay a finder's fee, brokerage commission or
similar payment in connection
17
with the transactions contemplated by this Agreement is Geneva Corporate
Finance, Inc. and the Shareholders (and not the Company) shall be solely
responsible for the payment of any such fee, commission or payment; provided,
that if any of such costs are paid by the Company and included in the definition
of Book Equity pursuant to Section 2.02 hereof, the Shareholders shall be deemed
to have paid such costs and neither the Buyer or the Parent shall have any claim
under this Section 4.01(i).
(j) Environmental Compliance.
------------------------
(i) To the knowledge of the Company or its Shareholders,
neither the Company nor any operator of the Company's properties is in material
violation, or alleged to be in material violation, of any federal, state or
local judgment, decree, order, consent agreement, law (including common law),
license, rule or regulation pertaining to environmental health or safety
matters, including, without limitation, those arising under the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
------
Superfund Amendments and Reauthorization Act of 1986, as amended, the Federal
Water Pollution Control Act, as amended, the Federal Clean Air Act, as amended,
the Toxic Substances Control Act, or any state or local analogue (hereinafter
"Environmental Laws").
------------------
(ii) Neither the Company nor any Shareholder has received a
notice, complaint, order, directive, claim or citation from any third party,
including, without limitation, any federal, state or local governmental
authority, indicating or alleging that the Company or any predecessor may have
any material liability or material obligation under any Environmental Law.
(iii) (A) No portion of the property owned, operated or occupied
by the Company has been used by any person employed, instructed, paid or hired
by the Company for the generation, handling, processing, treatment, storage or
disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls are located on any property owned, operated or
occupied by the Company, each of which is listed as a Site on Exhibit
-------
4.01(a)(i); (C) in the course of any activities conducted by the Company or its
----------
invitees, agents, contractors, licensees or employees in connection with the
Business of the Company, no Hazardous Materials above a reportable quantity
(individually or in the aggregate) have been generated or are being used except
in accordance with applicable Environmental Laws; and (D) in the course of any
activities conducted by the Company or its invitees, agents, contractors,
licensees or employees in connection with the Business of the Company, there
have been no releases (i.e., any past or present releasing, spilling, leaking,
----
leaching, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous Materials
on, upon, into or from the property currently or formerly owned, operated or
leased by the Company, which releases would have a material adverse effect on
the value of any of the property or adjacent properties or the environment.
18
(iv) The execution, delivery and performance of this Agreement
is not subject to any Environmental Laws which condition, restrict or prohibit
the sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. The Company
and the Shareholders have not conducted nor have any knowledge of any
environmentally related audits, studies, reports, analyses (including soil and
groundwater analyses), or investigations of any kind performed with respect to
the currently or previously owned, leased, or operated properties of the
Company.
For purposes of this Section, "Hazardous Material" shall mean any
------------------
hazardous waste, as defined by 42 U.S.C. (S) 6903(5), any hazardous substances
or wastes as defined by 42 U.S.C. (S) 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. (S) 9601(33) or any toxic substances, or wastes, oil, or
hazardous materials or other chemicals or substances regulated as to
environmental impact by any public or governmental authority.
(k) Credit Card and Bank Accounts. Set forth on Exhibit 4.01(k)(1),
----------------------------- ------------------
is a true and complete list of the Company's employees who have been issued a
Company credit card, including the type of card and account number. Set forth on
Exhibit 4.01(k)(2), is a true and complete list of the Company's bank accounts
------------------
and the authorized signatories for said accounts.
(l) Licenses and Compliance with Laws. The Company holds no material
---------------------------------
governmental or regulatory licenses, permits, consents or approvals ("Permits")
-------
in connection with the Business, and the Company is in compliance with all
material laws and regulations applicable to the Business.
(m) True and Complete. No representation or warranty made by the
-----------------
Shareholders in this Agreement, nor any statement, certificate or Exhibit
furnished by or on behalf of the Company or the Shareholders pursuant to this
Agreement, nor any document or certificate delivered to the Buyer pursuant to
this Agreement, or in connection with the transactions contemplated hereby,
contains or shall contain any untrue statement of a material fact, or omits or
shall omit to state a material fact necessary to make the statements contained
therein not misleading.
(n) Common Stock and Securities Matters. The Shareholders
-----------------------------------
acknowledge and agree that (i) a reasonable time prior to the date hereof the
Shareholders received from the Buyer or the Parent (or had electronic access
to), and carefully reviewed a copy of the Disclosure Materials (as hereinafter
defined), (ii) the Shareholders had reasonable time and opportunity to ask
questions and receive answers concerning the terms and conditions of this
Agreement and the transactions contemplated hereby and to obtain any additional
information from the Buyer or the Parent that was necessary for the Shareholders
to verify the accuracy of the Disclosure Materials, (iii) the Shareholders will
acquire the Closing Shares and Earnout Shares (collectively, the "Consideration
-------------
Shares") for their own account without any view to the distribution thereof
------
except in accordance
19
with the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder ("Securities Act") and all applicable state securities or
--------------
"blue sky" laws, (iv) such Consideration Shares must be held indefinitely unless
subsequently registered under the Securities Act and all applicable state
securities and "blue sky" laws or unless an exemption from such registration is
available, (v) the Shareholders acknowledge that they have been informed that
the Consideration Shares will not be registered under the Securities Act on the
grounds that the offering and sale thereof contemplated by this Agreement will
be exempt from registration pursuant to Regulation D promulgated pursuant to the
Securities Act, and that the Buyer's and the Parent's reliance upon such
exemption is predicated upon the representations of the Shareholders set forth
herein, (vi) each Shareholder represents that he or she, either alone or with
the assistance of a purchase representative, has the requisite knowledge,
experience and sophistication in financial and business matters such that he or
she is capable of fully and completely evaluating the merits and risks inherent
in the transactions contemplated by this Agreement, (vii) with respect to Xxxxx
X. Xxxxxx such shareholder is an "accredited investor" as that term is defined
in Rule 501(c) of Regulation D under the Securities Act and, with respect to the
other Shareholders (x) each such Shareholder has received and reviewed the
Disclosure Materials (as defined below) and has appointed Xxxxx X. Xxxxxx as
such Shareholder's purchaser representative for purposes of said Regulation D
and (y) each such Shareholder individually or with such Shareholder's purchaser
representative has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the Parent
Common Stock and (viii) the Shareholders' primary residence is at the address
identified in the first paragraph of this Agreement. As used herein the term
"Disclosure Materials" means with respect to the Parent (i) the Annual Report on
--------------------
Form 10-K with respect to the fiscal year ended December 31, 1999 and filed with
the Securities and Exchange Commission (the "SEC") on Xxxxx 00, 0000, (xx) the
Quarterly Reports on Form 10-Q with respect to the fiscal quarters ended June
30, 1999, September 30, 1999 and March 31, 2000 and filed with the SEC on August
16, 1999, November 11, 1999 and May 15, 2000, respectively, (iii) the
registration statements on form S-1 (Reg. No. 333-37156 and Reg. No. 333-38228)
filed with the SEC on May 16, 2000 and May 31, 2000 (the "Registration
Statement"), respectively; on Forms S-8 filed with the SEC on June 29, 2000; and
on Forms S-1/A filed with the SEC on June 29, 2000, respectively, (iv) the
Definitive Revised Proxy Statement on Form 14A, filed with the SEC on May 5,
2000 and the Prospectuses, each dated July 7, 2000, respectively filed with the
SEC on such date pursuant to Rule 424(b)(3).
Each Shareholder further acknowledges and agrees that "stop transfer"
instructions shall be placed against the Consideration Shares on the transfer
books of the Parent's stock transfer agent until such time as such Consideration
Shares are available for resale in accordance with all applicable laws and that
the certificates evidencing the Consideration Shares shall bear the following
legend:
The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under any applicable state securities laws and neither the
Shares nor any interest therein may be sold, transferred,
pledged or otherwise disposed of in the absence of such
registration or an exemption from registration under such
Act and
20
the rules and regulations thereunder and in the absence of
registration or an exemption from registration under any applicable
state securities laws.
(o) Minority Status. Except as set forth in Exhibit 4.01(o), no
--------------- ---------------
contract, lease or other arrangement between the Company and any third party
(including any governmental entity) in effect as of the Closing Date, nor any
request for bids or similar arrangements in which the Company is participating
which are listed on Exhibit 4.01(o) would be adversely affected by the Company's
---------------
failure to maintain its status as a minority owned business or maintain any
similar status.
(p) HSR Act. On the Closing Date, neither the Company, the Other
-------
Company nor any subsidiary of either, individually or in the aggregate, will own
assets located in the United States (other than investment assets or voting or
non-voting securities of another person) having an aggregate book value of U.S.
$10,000,000 or more and will not control (as that term is defined under Section
801.1(b) of the United States Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act")) any U.S. issuer (as defined in the HSR Act)
-------
that has annual net sales of U.S. $25,000,000 or more.
(q) Accounts Receivable. Except as set forth in Exhibit 4.01(q), all
------------------- ---------------
of the accounts, notes and other receivables of the Company (i) reflected on the
financial statements of the Company provided pursuant to Section 4.01(d) for the
period ended June 30, 2000 or (ii) which arose between July 1, 2000 and the date
hereof, represent sales actually made in the ordinary course of business
consistent with past practice for goods or services delivered or rendered in
bona fide arm's-length transactions, constitute only valid, undisputed claims,
have not been extended or rolled over in order to make them current and are
collectible at their recorded amount net of reserves for non-collectibility
reflected on such financial statements in accordance with GAAP together with any
additional reserve that would be accrued as of the Closing Date in accordance
with GAAP.
4.02. Representations of the Buyer. The Buyer represents and warrants
----------------------------
to the Shareholders as follows:
(a) Corporate Matters; No Conflict. The Buyer is duly incorporated,
------------------------------
validly existing and in good standing under the laws of the State of Delaware
and is a wholly-owned subsidiary of the Parent formed for the purpose of this
transaction and the Merger and has not engaged in any business activities of any
type or kind whatsoever. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby (and thereby) by the Buyer
will not (a) conflict with or violate the provisions of any applicable law,
rule, order, writ, judgment, injunction, decree, governmental permit,
determination or award having applicability to the Buyer or the Buyer's
Certificate of Incorporation or by-laws, or (b) require the consent or approval
of, or filing with, any governmental body or third party. The execution,
delivery and performance by the Buyer of this Agreement and any other agreements
contemplated herein has been authorized and approved by all requisite corporate
action on the part of
21
the Buyer and no other corporate or other approval or authorization is required
on the part of the Buyer or its shareholders or any other person by law or
otherwise in order to make this Agreement the valid, binding and enforceable
obligations of the Buyer. This Agreement and any other agreements contemplated
herein to which the Buyer is a party is the valid, binding and enforceable
obligation of the Buyer, enforceable against the Buyer in accordance with its
respective terms, subject to applicable bankruptcy, insolvency, moratorium and
other similar laws affecting generally the enforcement of creditors rights. The
Buyer has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement and under all other agreements and
instruments executed and delivered by the Buyer pursuant to or in connection
with this Agreement.
(b) No Brokers. The only broker, leasing agent, finder or similar
----------
person or entity with whom the Buyer has made contact or had any dealings with
or entered into any agreement, arrangement or understanding with concerning this
Agreement and to whom the Buyer is responsible to pay a finder's fee, brokerage
commission or similar payment to is Am Tech Associates and the Buyer shall be
solely responsible for the payment of any such fee, commission or payment.
4.03. Representations of the Parent. The Parent represents and
-----------------------------
warrants to the Shareholders that the statements set forth in this Section 4.03
are true, correct and complete, subject to the qualifications set forth in the
Exhibits to this Section 4.03:
(a) Corporate Matters; No Conflict. The Parent is duly incorporated,
------------------------------
validly existing and in good standing under the laws of the State of Delaware.
The Parent is in good standing in each other jurisdiction in which it is doing
business, except where failure to be in good standing would not have a material
adverse effect on the business of the Parent, and has the corporate power to
enter into this Agreement, to perform its obligations hereunder and to conduct
its business as currently conducted. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby (and thereby) by and the
Parent will not (a) conflict with or violate the provision of any applicable
law, rule, order, write, judgment, injunction, decree, governmental permit,
determination or award having applicability to the Buyer or any of their
respective properties or assets, or the Parent's Certificate of Incorporation or
by-laws, (b) conflict with or constitute a default under any agreement or
contract by which the Parent is bound, or (c) require the consent or approval
of, or filing with, any governmental body or third party except for any filings
required by Regulation D or state securities laws. The execution, delivery and
performance by the Parent of this Agreement and any other agreement contemplated
herein, has been authorized and approved by all requisite corporate action on
the part of the Parent and no other corporate or other approval or authorization
is required on the part of the Parent or its shareholders or any other person by
law or otherwise in order to make this Agreement the valid, binding and
enforceable obligation of the Parent. This Agreement and any other agreements
contemplated herein to which the Parent is a party is the valid, binding and
enforceable obligation of the Parent, enforceable against the Parent in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, moratorium and other similar laws affecting generally
22
the enforcement of creditors rights. The Parent has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and under all other agreements and instruments executed and delivered
by the Buyer pursuant to or in connection with this Agreement.
(b) Authorization and Validity; Issuance of Shares. The
----------------------------------------------
Consideration Shares have been duly authorized, and, when delivered, will be
validly issued, fully paid and non-assessable, free and clear of all liens,
encumbrances and rights of first refusal, other than liens and encumbrances
created by the Shareholders and will not be subject to any preemptive or similar
rights. Assuming the accuracy of each Shareholder's representation in Section
4.01(o), the issuance by the Parent of the Consideration Shares is exempt from
registration under the Securities Act.
(c) Investment Company. The Parent is not, and is not controlled by
------------------
or under common control with an affiliate of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(d) SEC Filings; Capitalization. The Parent has filed and made
---------------------------
available to the Company and the Shareholders all forms, reports and documents
required to be filed by the Parent with the SEC under the Securities Exchange
Act of 1934, as amended and the rules and regulations promulgated thereunder,
(the "Exchange Act") and the Securities Act during the one year period ending on
------------
the date hereof (collectively the "Parent SEC Reports") the Parent SEC Reports
------------------
did not at the time they were filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in such Parent SEC Reports or necessary in order to make
the statements in such Parent SEC Reports, in the light of the circumstances
under which they were made, not misleading. As of their respective dates, the
financial statements of the Parent included in the Parent SEC Reports (the
"Parent Financial Statements") have been prepared in accordance with GAAP
---------------------------
applied on a consistent basis and as of its respective date and for the period
then ended, are complete and accurate in all material respects and fairly
present the consolidated financial position and results of operations of the
Parent and its consolidated subsidiaries (except, with respect to interim
statements, for the omission of notes and for normal year end adjustments). As
of the date of this Agreement, the authorized capital stock of the Parent has
not changed since the Registration Statement reflecting capitalization. The
Parent is not aware of any event which has occurred since July 10, 2000 which
should have been or currently should be properly reported on Form 8K.
(e) Broker's Fee. No fees or commissions or similar payments with
------------
respect to the transactions contemplated by this Agreement have been paid or
will be payable by the Parent to any broker, financial advisor, finder,
investment banker or bank.
(f) Nasdaq. The Consideration Shares will be available for trading
------
on the Nasdaq National Markets ("Nasdaq") upon issuance to the Shareholders by
------
the Parent,
23
under the terms of this Agreement, and without the need for any further action
by the Parent or the Shareholders, subject to Section 4.01(n) above.
SECTION 5
CERTAIN COVENANTS
-----------------
5.01. Non-competition; non-solicitation.
-----------------------------------
(a) For the periods set forth in Section 5.01(d), each Shareholder
agrees not to engage in any capacity (other than solely as a voting shareholder
of less than three (3) percent of the issued and outstanding stock of a
publicly-held company whose gross assets exceed $20 million) in any business
which is in competition with the Business and/or the business of the Parent as
described in the Registration Statement, in each case, as conducted immediately
after giving effect to the Closing, and which is located or does business in any
state in the United States or throughout the World.
(b) The Company and each Shareholder acknowledges that pursuant to
this Agreement he may have received confidential and proprietary information of
the Buyer and the Parent and their respective affiliates. No Shareholder, who
received or learned of such confidential and proprietary information shall at
any time, within five (5) years after the Closing Date, disclose to any third
party any such confidential or proprietary information of the Buyer or the
Parent, or make use of any of such information except in evaluating whether to
enter into this Agreement or any agreements related hereto or contemplated
hereby. In connection with such evaluation, the Shareholders may disclose such
proprietary information to their legal and financial consultants on a need to
know basis on the condition that those consultants are similarly prohibited from
further disclosing such information as provided herein and the Shareholders
shall be liable for any breach by any of their third party advisors of the
provision of this Section 5.01(b).
(c) For the period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, no Shareholder, unless acting with the
express written consent of the Buyer or the Parent, will directly or indirectly:
(i) interfere with, hire, solicit or endeavor to entice away any
person who was an employee, subcontractor or consultant of the Company, the
Buyer, the Parent or any of their affiliates during the twelve months
immediately preceding the date of such solicitation, interference or endeavor,
(ii) interfere with, hire, solicit or endeavor to entice away with
respect to any business similar to or in competition with any business in which
the Company, the Buyer, the Parent, or any of their affiliates is or has been
engaged after the date of this Agreement, any person or entity who was a
customer or client of the Company or of the Buyer or the Parent, or any person
or entity who, during the twelve months immediately
24
preceding the date of such solicitation, requested or received a proposal from
the Buyer, the Parent or the Company.
(d) The prohibitions set forth in Sections 5.01(a) above shall apply
(i) to Xxxxx X. Xxxxxx for a two year commencing on the Closing Date, (i) to
Xxxxxxx X. Xxxxxxx for a 180 day period commencing on the Closing Date, and (ii)
each other Shareholder, if such Shareholder is employed by the Company as of the
Closing Date and is terminated by the Company for Cause or by reason of the
voluntary termination by such Shareholder without Good Reason, for a period of
one year following the Closing Date. As used in this Agreement, the term "Good
Reason" shall mean (i) without the Shareholder's written consent, the assignment
to the Shareholder of duties which are materially inconsistent with the
Shareholder's position, responsibilities or duties as of the Closing Date (it
being understood hereby that a change in the Shareholder's title shall not
constitute such event), (ii) the Company breaches any employment agreement with
the Shareholder in any material respect and fails to cure such breach within ten
(10) days after Shareholder delivers written notice and a written description of
such breach to the Company or its successor, or (iii) the relocation of the
Shareholder or a substantial portion of the business of the Company in excess of
60 miles from the Company's headquarters as of the Closing Date; provided,
however, that an event shall only constitute "Good Reason" hereunder if the
Shareholder shall have given the Company written notice of the reasons that he
believes that he is entitled to terminate this Agreement for "Good Reason" and
the Company shall not have remedied such event by the 30th day after receipt of
such notice. Termination for "Cause" shall mean termination due to the
occurrence of any of the following events (and the "Company" shall mean any
Affiliate thereof or successor thereto):
(a) if the employee is convicted of any crime (whether or not
involving the Company) which constitutes a felony or involves
moral turpitude, fraud or misrepresentation;
(b) if the employee exhibits dishonest conduct in connection
with employee's employment, including, without limitation,
fraud, theft or misappropriation or embezzlement of Company's,
Buyer's or Parent's funds;
(c) if the employee shall have breached any of employee's
material obligations under the terms of his employment or this
Agreement; or
(d) if the employee has habitually failed to follow the
reasonable directives of the Company or Buyer for the
performance of employee's duties or responsibilities with
respect to the terms of his employment.
Each Shareholder expressly acknowledges, understands and agrees (i) that
remedies at law for any breach of this Section 5.01 will be inadequate, (ii)
that the damages resulting
25
from such breach are not readily susceptible to measurement in monetary terms
and (iii) that the Buyer and/or the Parent shall be entitled to immediate
injunctive relief and may obtain temporary and permanent orders restraining any
threatened or further breach of this Section 5.01 by the Shareholders. Each
Shareholder have been advised by their respective counsel with respect to the
meaning and effect of this Section 5.01.
5.02. Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the parties herein contained shall survive the Closing,
notwithstanding any investigation at any time made by or on behalf of the other
party, provided that any claims for indemnification in accordance with this
Section 5 with respect to any representation or warranty must be made (and will
be null and void unless made) on or before April 30, 2002 (except in the case of
representations contained in Section 4.01(a)(ii) and (iii), (c)(vi), (e), (f),
(g), (j) and (p) which must be made prior to the expiration of the applicable
statute of limitations).
5.03. Indemnification.
---------------
(a) Indemnification by the Shareholders.
-----------------------------------
(i) General. Each Shareholder hereby agrees to indemnify and hold
-------
the Parent and the Buyer, and after the Closing Date, the Company, and each of
their respective successors, assigns, officers, directors, stockholders,
affiliates, employees, representatives and other agents harmless from and
against any and all claims, liabilities, taxes, losses, damages or injuries,
together with costs and expenses, including reasonable legal fees ("Damages"),
-------
arising out of or resulting from (1) any breach by a Shareholder of any of the
representations and warranties made by the Shareholders (except in the case of
Section 4.01(a)(ii), with respect to which such indemnification shall be several
and not joint) in this Agreement or in any Exhibit hereto except the Employment
Agreements (hereinafter defined) or other documents delivered in connection
herewith, (2) any breach in any respect by any Shareholder, unless waived in
writing by the Buyer, of any covenant or agreement contained in or arising out
of this Agreement, or any other agreement delivered in connection herewith on
the Closing Date, except the Employment Agreements, (3) any and all unpaid Taxes
of or attributable to the Company resulting from the failure of the Section 338
Election provided such failure is not caused by the Parent, Buyer or by the
Company after the Closing Date (including, without limitation, any and all
unpaid Taxes imposed under Section 1374 of the Code (or any similar provisions
of state or local law)), (4) any and all sales, use, value added, stamp,
transfer or other similar taxes arising from the transactions contemplated
herein, (5) any and all liabilities arising out of or relating to any Employee
Plans as a result of, arising out of or actions or omissions by the Company or
the Shareholders, (6) all and any Taxes or environmental liabilities of the
Company, its subsidiaries or their shareholders, and (7) any and all legal fees,
broker's commissions, finder's fees and other costs of this transaction incurred
by the Company or Shareholders except to the extent, if any, included in the
Purchase Price adjustment provisions set forth in Section 2.02 of this
Agreement. Notwithstanding the provisions of this Section 5.03(a)(i) to the
contrary, Xxxxx X. Xxxxxx shall be jointly liable with each Shareholder in
respect of such
26
Shareholder's obligation to indemnify the Parent and the Buyer for a breach of
the representations and warranties contained in Section 4.01(a)(ii).
(b) Indemnification by the Buyer.
----------------------------
(i) General. The Buyer hereby agrees to indemnify and hold the
-------
Shareholders harmless from and against any and all claims, liabilities, losses,
damages or injuries, together with costs and expenses, including reasonable
legal fees ("Damages"), arising out of or resulting from (i) any breach by the
-------
Buyer of any of the representations and warranties made by the Buyer in this
Agreement, and (ii) any breach in any respect by the Buyer, unless waived in
writing by the Shareholders, of any covenant or agreement of the Buyer contained
in or arising out of this Agreement.
(c) Indemnification by the Parent.
-----------------------------
(i) General. The Parent hereby agrees to indemnify and hold the
-------
Shareholders harmless from and against any and all Damages arising out of or
resulting from any breach by the Parent or the Buyer or any of the
representations and warranties made by the Parent in Section 4.03 or the Buyer
in this Agreement.
5.04. Procedure of Indemnification.
----------------------------
(a) Claim Notice. Any party claiming a right to indemnification
------------
hereunder (the "Indemnified Party") shall give the other party from whom
-----------------
indemnification is sought (the "Indemnifying Party") prompt written notice (a
------------------
"Claim Notice") of any claim, demand, action, suit, proceeding or discovery of
------------
fact upon which the Indemnified Party intends to base a claim for
indemnification under this Section 5, which shall contain (x) a description and
the amount (the "Claimed Amount") of any Damages incurred or reasonably expected
--------------
to be incurred by the Indemnified Party, (y) a statement that the Indemnified
Party is entitled to indemnification under this Section 5 for such Claimed
Amount, and (z) a demand for payment; provided, however, that no failure to give
such Claim Notice shall excuse any Indemnifying Party from any obligation
hereunder except to the extent the Indemnifying Party is materially prejudiced
by such failure.
(b) Assistance. The Indemnified Party shall make available to the
----------
Indemnifying Party and its counsel and accountants, all books and records of the
Indemnified Party relating to such action, suit or proceeding and the parties
agree to render to each other such assistance as may reasonably be requested in
order to insure the proper and adequate defense of any such action, suit or
proceeding.
(c) Assumption of Defense. The Indemnified Party shall have full
---------------------
responsibility and authority with respect to the disposition of any action, suit
or proceeding brought against it; provided, however, that it will not settle any
such action, suit or proceeding without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld or delayed. In the
event any action, suit or proceeding is
27
brought against the Indemnified Party with respect to which the Indemnifying
Party may have liability under the indemnity agreements contained in Section 5,
however, the Indemnifying Party shall have the right, without prejudice to the
Indemnified Party's rights under this Agreement, at the Indemnifying Party's
sole expense, to be represented by counsel of its own choosing and with whom
counsel for the Indemnified Party shall confer in connection with the defense of
any such action, suit, or proceeding.
(d) Indemnity Response. Within 20 days after delivery of a Claim
------------------
Notice, the Indemnifying Party shall deliver to the Indemnified Party a written
response (the "Response") in which the Indemnifying Party shall: (x) agree that
--------
the Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall beaccompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer), (y)
agree that the Indemnified Party is entitled to receive part, but not all, of
the Claimed Amount (the "Agreed Amount") (in which case the Response shall be
-------------
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Agreed Amount, by check or by wire transfer, together with a statement as to
the disputed or unpaid part or (z) dispute that the Indemnified Party is
entitled to receive any of the Claimed Amount.
(e) The Buyer and/or the Parent shall have the right to offset against
any payment of the Earnout Amount not yet then paid to Shareholders, the amount
of any claim for indemnification against the Shareholders under this Section
5.04.
5.05. Limitations; Indemnification Obligations and Limitations. (a)
--------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, no claim under
Section 5.03(a) may be made until the aggregate of all Damages for which claims
for indemnification under such Section 5.03(a) are made exceeds $35,000 (the
"Deductible"), and no Damages below the Deductible amount may be collected by
the Buyer or the Parent hereunder. Such Deductible shall not be applicable to
(i) any costs and expenses incurred in connection with this transaction borne by
the Company, (ii) costs, fees or expenses incurred by the Company pursuant to
Section 5.07 hereof, (iii) any and all Damages arising out of or relating to any
Employee Plans and (iv) any and all Damages arising out of or relating to Taxes.
The aggregate liability under the indemnification provisions hereof of the
Parent and the Buyer to any Shareholder shall not exceed such Shareholder's
Applicable Percentage of the Purchase Price actually received hereunder;
provided however, that, notwithstanding the foregoing, the aggregate liability
-------- -------
of the Parent and the Buyer to Xxxxx X. Xxxxxx under the indemnification
provisions hereof and under the indemnification provisions under the Merger
Agreement shall not exceed the aggregate of Xxxxx X. Xxxxxx'x Applicable
Percentage of the Purchase Price actually received hereunder plus her
"Applicable Percentage" of the "Merger Consideration" (in each case as defined
in the Merger Agreement) actually received under the Merger Agreement. The
liability of any Shareholder (other than Xxxxx X. Xxxxxx) to the Parent and the
Buyer collectively under the indemnification provisions hereof shall not exceed
such Shareholder's Applicable Percentage of the Purchase Price actually received
hereunder; provided, that for the purpose of determining the amount of such
--------
liability, all shares of Parent Common Stock received by such Shareholders
(other than Xxxxx X.
28
Xxxxxx) as part of the Purchase Price hereunder shall be valued at the time of
such determination at the lesser of (a) $18.5938 per share (the "Closing Date
Price Per Share", which amount shall be appropriately adjusted for stock splits,
combinations, exchanges or similar events), and (b) the closing market price of
a share of Parent Common Stock on the last business day preceding the date all
or any Claimed Amount is actually due and payable (the "Actual Closing Price").
The liability of Xxxxx X. Xxxxxx to the Parent and the Buyer collectively under
the indemnification provisions hereof and under the indemnification provisions
of the Merger Agreement shall not exceed a dollar amount equal to the aggregate
of (i) Xxxxx X. Xxxxxx'x Applicable Percentage of the Purchase Price actually
received hereunder, plus (ii) Xxxxx X. Xxxxxx'x "Applicable Percentage" of the
"Merger Consideration"(in each case as defined in the Merger Agreement) actually
received under the Merger Agreement, plus (iii) in the event that the Actual
Closing Price is less than the Closing Date Price Per Share on the last business
day preceding the date all or any Claimed Amount is actually due and payable by
the Shareholders to the Parent and/or the Buyer pursuant to the terms of Section
5.03 hereof, an amount equal to the difference between the Actual Closing Price
and the Closing Date Price Per Share (the "Delta") multiplied by the number of
shares of Parent Common Stock actually received by the Shareholders (other than
Xxxxx X. Xxxxxx) hereunder, provided however, that the provisions of this clause
-------- -------
(iii) shall not be included in such calculation if the Claimed Amount is
actually paid by any combination of the Shareholders without giving effect to
clause (iii) above. In addition, and notwithstanding anything in this Agreement
to the contrary, the liability of Xxxxx X. Xxxxxx to the Parent and the Buyer
under her indemnification obligation pursuant to the last sentence of Section
5.03(a)(i) shall be (i) zero in the event the Delta is a positive number, and
(ii) in the event the Delta is a negative number, equal to the Delta multiplied
by the number of shares of Parent Common Stock held by each Stockholder whose
breach resulted in Xxxxx X. Xxxxxx incurring liability under such sentence.
Notwithstanding the foregoing, Xxxxx X. Xxxxxx shall have no liability for any
indemnification obligations hereunder with respect to any Damages in excess of
those amount set forth in the foregoing subsections (i) and (iii) unless and
until Parent and the Buyer have made commercially reasonable efforts to enforce
their right to indemnification hereunder with respect to such Damages against
the other Shareholders. As used in the preceding sentence "commercially
reasonable efforts" shall include a Claim Notice delivered to such other
Shareholder(s) which does not result in Buyer or Parent's receipt of the Claimed
Amount set forth in such notice within thirty (30) days from delivery of such
notice to the Shareholders. If indemnification is sought under this Agreement
against Xxxxx X. Xxxxxx for Damages in excess of the Purchase Price received by
Xxxxx X. Xxxxxx pursuant to this Agreement, then with respect to such claim she
shall have the benefit of the deductible contained in Section 6.05 of the Merger
Agreement to the extent such deductible has not been previously used under the
terms of the Merger Agreement. Except with respect to conduct constituting
actual fraud and notwithstanding any provision of this Agreement to the
contrary, the respective indemnification and rights to recover provided in
Article 5, subject to the limitations set forth herein and except for an action
seeking injunctive relief to enforce the provisions of Article 5 hereof, shall
be the exclusive remedy for any and all Damages (including, without limitation,
adverse effects on cash flow or earnings), arising from, out of or in
29
any manner connected with or based on this Agreement or the transactions
contemplated hereby.
5.06. Insurance Matters. Notwithstanding anything set forth herein,
-----------------
Damages shall be net of any insurance proceeds actually received by the
indemnified party that arise in whole or in part from the same event or
circumstance giving rise to such Damages.
5.07. Software. Within sixty (60) days after Closing, the Shareholders
--------
shall use their best efforts to deliver to Parent a true and complete list
(which list shall supplement Exhibit 4.01(c)(iii)) of all Software together with
-------------------
all licenses with respect to such Software (the "Software List and Licenses").
--------------------------
If and to the extent the Parent and the Buyer suffer damages, incur any fees,
costs or expenses, including, without limitation, legal or accounting fees, or
are the subject of any type of claim or liability against them relating to such
licenses or the lack thereof, in any of these cases due to the failure of any of
the Licenses to be valid or fully paid-up as of the Closing Date, it is
understood and agreed by the Shareholders that the Shareholders shall indemnify
the Surviving Corporation for such amounts, irrespective of the Deductible
described in Section 5.05(a). Notwithstanding anything in this agreement to the
contrary, the Shareholders' liability under this Section 5.07 shall remain until
the expiration of the applicable statute of limitations under the applicable New
York law.
5.08. Escrow.
------
(a) As soon as practicable after the Closing Date, 22,662 shares of
Common Stock from the Closing Shares (the "Escrowed Property"), together with
-----------------
stock powers executed in blank, shall be delivered to the escrow agent listed on
Exhibit A (the "Escrow Agent") to be held in escrow in accordance with the terms
---------
of an escrow agreement to be entered into between the parties (the "Escrow
------
Agreement") on or prior to the Closing Date. The Escrowed Property shall
---------
initially consist of the following numbers of shares (subject to adjustment as
set forth in Section 5.07(b)) from the following Shareholders and shall be
allocable to such Shareholders in the percentages indicated below:
Name of Shareholder Parent Stock Escrowed Percentage
------------------- --------------------- ----------
Xxxxx X. Xxxxxx 18,471 81.50%
Xxxxxxxx X. Xxxxx 2,266 10.00%
Xxxxxxx X. Xxxxxxx 1,359 6.00%
Xxxxx X. Xxxxxxx 566 2.50%
---------------------
22,662
30
(b) The Escrowed Property will be held in escrow by the Escrow Agent
pursuant to the terms and conditions of the Escrow Agreement as security for any
indemnification obligation of the Shareholders to the Buyer and the Parent and,
after the Closing, the Company, pursuant to the terms of Section 5.03. Indemnity
claims by the Buyer, the Company or the Parent pursuant to Section 5.03 shall be
satisfied first by the reduction of the Escrowed Property at its then current
market value as set forth in the Escrow Agreement until the termination of the
Escrow Agreement and thereafter by the Shareholders to the extent provided in
Section 5.03. The market value of the Escrowed Property shall not constitute a
limit on the liability of the Shareholders to the Buyer, the Company and the
Parent hereunder, it being understood and agreed that the Shareholders shall
remain liable to satisfy the amount of such claims, if any, owed by them and
which exceed the then market value of the Escrowed Property to the extent
provided in Section 5.03. The Escrowed Property shall be held by the Escrow
Agent pursuant to the terms of the Escrow Agreement which shall be agreed upon
and entered into by the Escrow Agent, the Shareholders and the Buyer on or
before the Closing Date. Among other things, the Escrow Agreement will provide
that eighteen (18) months from the date hereof, the Escrow Agent shall deliver
to the Shareholders or their designees such amount of the Escrowed Property then
remaining, if any, as has not previously been applied pursuant to the terms of
said Escrow Agreement, unless, and to the extent, an indemnification claim by
the Buyer, the Company or the Parent against the Shareholders is then pending.
5.09. Tax Matters -- Preparation and Filing of Tax Returns
----------------------------------------------------
(a) The Shareholders shall cause to be prepared and timely filed all
Tax Returns of the Company required to be filed or covering periods ending
(taking into account extensions) on or prior to the Closing Date, including,
without limitation, a "short period" return for the taxable period ending on the
Closing Date, after review and approval by the Buyer of all such Tax Returns.
The Shareholders shall be responsible for any amounts due as a result of their
compliance with this Section 5.09(a)
(b) The Company shall be responsible for the filing of all other Tax
Returns with respect to the Company and any of its subsidiaries or in respect of
their businesses, assets or operations.
(c) Allocation of Certain Taxes. Without limiting the Shareholders'
---------------------------
indemnity obligations under Section 5.03 hereof, the Company and the
Shareholders agree that if the Company is permitted but not required under
applicable foreign, state or local Tax laws to treat the Closing Date as the
last day of a taxable period, the Company and the Shareholders shall treat such
day as the last day of a taxable period.
(d) Cooperation on Tax Matters.
--------------------------
(i) The Company and the Shareholders shall cooperate in the
preparation of all Tax Returns for any Tax periods for which one party could
reasonably require the assistance of the other party in obtaining any necessary
information. Such cooperation shall include, but not be limited to, furnishing
prior years' Tax Returns
31
illustrating previous reporting practices or containing historical
information relevant to the preparation of such Tax Returns, and furnishing such
other information within such party's possession requested by the party filing
such Tax Returns as is relevant to their preparation. Such cooperation and
information also shall include without limitation promptly forwarding copies of
appropriate notices and forms or other communications received from or sent to
any taxing authority which relate to the Company, and providing copies of all
relevant Tax Returns, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by any taxing
authority and records concerning the ownership and tax basis of property, which
the requested party may possess. The Company and the Shareholders shall make
their respective employees and facilities available on a mutually convenient
basis to provide explanation of any documents or information provided hereunder.
(ii) The party requesting the cooperation pursuant to this clause
shall reimburse the party providing the cooperation for all of such party's out
of pocket costs and expenses incurred in connection with the provision of such
cooperation.
(e) Section 338 Election.
--------------------
(i) At the request of the Buyer, the Shareholders will join with the
Buyer and/or the Company in making an election under Section 338(h)(10) of the
Code and Treasury Regulation ss. 1.338(h)(10)-1(d) (the "Section 338
-----------
Regulations") (and, to the extent requested by the Buyer, any election
-----------
comparable to Section 338 (h)(10) of the Code under state, local or foreign tax
law, or if such election is unavailable, any election comparable to Section
338(g) of the Code under state, local or foreign tax law) (collectively, the
"Section 338 Election") with respect to the Transaction. The Shareholders and
--------------------
the Company will cooperate with regard to the timely preparation and filing of a
Section 338 Election and any and all forms with respect thereto under the laws
of each appropriate jurisdiction for which such election is made. In particular,
and without limiting the generality of the foregoing and subject to Section
5.09(e)(ii), the Shareholders shall deliver to the Buyer a duly executed and
completed Internal Revenue Service Form 8023 (or any successor form) and any
similar state or local form to be filed, as well as any required attachments
(collectively, the "Section 338 Forms") no later than ninety (90) calendar days
-----------------
after the Closing Date. In the event of any dispute with regard to the content
of any Section 338 Form (including, without limitation, any "Section 338
-----------
Determination" as defined in Section 5.09(e)(ii)), the parties shall diligently
-------------
attempt to resolve such dispute; but if the parties have been unable to resolve
such dispute by the sixtieth day prior to the date any such form is to be filed,
such dispute shall be resolved by the Accountant and the joint expense of all
parties which determination shall be final and binding. Each party shall
promptly cause such Section 338 Forms to be executed by an authorized person,
and (subject to the receipt of the other party's signature) the party
responsible for filing such forms with its Tax Returns will duly and timely do
so, providing written evidence to the other Party that it has done so. The
Shareholders (i) shall pay any Taxes attributable to the transaction
contemplated by this Agreement and the making of any Section 338 Election,
including, without limitation, any Tax imposed upon the Company and any Tax
attributable to any Section 338 Election in which the
32
Shareholders are not required to join and (ii) will indemnify the Buyer in
accordance with Section 5.03 against any adverse consequences arising out of any
failure to pay such Taxes.
(ii) The Shareholders and the Buyer and/or the Company shall determine
the liabilities of the Company and the "modified aggregate deemed sale price"
(or the "aggregate deemed sale price", if applicable, or any deemed sale price
comparable to the "modified aggregate deemed sale price" or the "aggregate
deemed sale price" required to be allocated under state, local or foreign Tax
law) and other relevant items shall be allocated among the Company's assets in
accordance with Section 338 of the Code, the Treasury Regulations promulgated
thereunder and analogous provisions of state, local and foreign Tax law (such
determination and allocation, the "Section 338 Determinations"). The Section 338
Determinations shall be set forth in writing and agreed to by the Shareholders
and the Buyer and/or the Company prior to the Closing. Shareholders and the
Buyer (and/or the Company) agree to act in accordance with the Section 338
-----------
Determinations, as finally determined pursuant to this Section 5.07(e), in the
--------------
preparation and filing of all Tax Returns (including, without limitation, any
amended Tax Returns and claims for refund) and in the course of any tax audit,
appeal or litigation relating thereto, unless advised by counsel that it may not
take such position without violating applicable law and without incurring
penalties and except as may be required by a final determination (of a relevant
taxing authority) with respect to any such issue. Upon payment of any
indemnification obligations hereunder resulting in an adjustment of the
"modified aggregate deemed sale price" (or the "aggregate deemed sale price," if
applicable, or any deemed sale price comparable to the "modified aggregate
deemed sale price" or the " aggregate deemed sale price" under state, local or
foreign tax law), the Section 338 Determinations shall be appropriately adjusted
in accordance with the procedures described in this Section 5.07(e). For the
purposes of this Section 5.07(e) the parties hereto have agreed that book value
shall be the fair market value of the assets.
SECTION 6
DELIVERIES AT CLOSING
---------------------
6.01. Deliveries by the Company and the Shareholders. On the Closing
----------------------------------------------
Date, the Company and the Shareholders will deliver, or cause to be delivered,
to the Buyer the following:
(a) The Shareholders shall have delivered to the Buyer certificates
evidencing the Company Common Stock, free and clear of all liens and
encumbrances of any nature whatsoever, duly endorsed in blank for transfer or
accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed.
(b) The following corporate documentation:
33
(i) The Company's Articles or Certificate of Incorporation certified
as of a date within seven (7) days prior to the Closing Date by the Secretary of
State of the state of the Company's organization;
(ii) Good Standing Certificates with respect to the Company as of a
date within seven (7) days prior to the Closing Date from the Secretary of State
of the state of the Company's organization and each other state in which the
Company is qualified to do business;
(iii) The Company's By-Laws certified as of the Closing Date by the
President or Secretary of the Company as being in full force and effect and
unmodified;
(iv) The Company's Minute and Stock Book certified as of the Closing
Date by the President or Secretary of the Company as being current, complete,
accurate and unmodified; and
(v) Corporate Resolutions of the Company's Board of Directors and the
Shareholders, approving this Agreement and all the transactions contemplated
hereby on behalf of the Company, certified by the President or Secretary of the
Company as being in full force and effect and unmodified (which director
resolutions shall include the approval of the termination of the Company's
profit sharing plan and 401(k) plan prior to the Closing Date).
(c) The legal opinion of counsel to the Company and the Shareholders,
in a form acceptable to the Buyer.
(d) The Employment Agreement between Buyer and Xxxxx X. Xxxxxx,
executed by Xxxxx X. Xxxxxx and the Employment Agreement between Buyer and
Xxxxxx X. Xxxx executed by Xxxxxx X. Xxxx (the "Employment Agreements"), in a
---------------------
form acceptable to the Buyer.
(e) Resignations, in writing, of all the directors and officers of the
Company.
(f) Consents or acknowledgments to the assignment (i.e., as a result
of change of control provisions) of all Business Agreements where required under
the terms of such Business Agreements, except where listed on Exhibit
-------
4.01(c)(i)(5), or where reasonably requested by the Buyer, including, without
------------
limitation, (i) if needed, a consent and estoppel certificate with respect to
each of the Leases, and (ii) if needed, the consent of Oracle Corporation to the
assignment of any contracts between Oracle Corporation and the Companies.
(g) Consent to a press release in form satisfactory to the Company and
the Buyer relating to this Agreement and the transactions contemplated hereby.
(h) A certificate of Book Equity signed by an authorized officer of
the Company and the Shareholders (the "Certificate of Book Equity ") with
--------------------------
evidence
34
satisfactory to the Buyer that the Book Equity of the Company is as set forth in
Section 2.02(a) hereof on the Closing Date.
(i) The Escrow Agreement duly executed by the Shareholders and the
Escrow Agent.
(j) The Other Company and its shareholders have concurrent with this
Closing entered into the Merger Agreement with the Buyer.
(k) Evidence satisfactory to the Buyer that each agreement among the
Shareholders has been cancelled, if any.
(l) Evidence satisfactory to the Buyer that the Other Company has
completed the Merger with the Buyer and all other transactions contemplated
thereby.
6.02. Deliveries by the Buyer. On the Closing Date, the Buyer will
-----------------------
deliver, or cause to be delivered, to the Shareholders the following:
(a) Corporate Resolutions of the Buyer's Board of Directors, approving
this Agreement and all the transactions contemplated hereby on behalf of the
Buyer, certified by the President or Secretary of the Buyer as being in full
force and effect and unmodified.
(b) A written undertaking by the Buyer and the Parent to deliver stock
certificates of the Parent issued to the Shareholders for the Closing Shares as
soon as reasonably practicable, but not more than thirty (30) days after the
Closing Date and the issuance of the certificates thereafter by the Parent's
transfer agent, which certificates shall be properly legended as provided in
Section 4.01(n). Certificates for the Escrowed Amount will be delivered to the
Escrow Agent and certificates for the balance of the Closing Shares will be
delivered to the Shareholders.
(c) Consent to a press release in form satisfactory to the
Shareholders and the Buyer relating to this Agreement and the transactions
contemplated hereby.
(d) Delivery of the Cash Consideration.
(e) The Escrow Agreement duly executed by the Buyer and the Escrow
Agent.
6.03. Deliveries by the Parent. On the Closing Date, the Parent will
------------------------
deliver, or cause to be delivered, to the Shareholders the following:
(a) Corporate Resolutions of the Parent's Board of Directors,
approving this Agreement and all the transactions contemplated hereby on behalf
of the Parent, certified by the President or Secretary of the Parent as being in
full force and effect and unmodified.
35
(b) Consent to a press release in form satisfactory to the
Shareholders and the Buyer relating to the Agreement and the transactions
contemplated hereby.
(c) The undertaking referred to in Section 6.02(b) hereof.
SECTION 7
OBLIGATIONS FOLLOWING CLOSING
-----------------------------
7.01. Further Cooperation. Whether in their capacity as shareholder,
-------------------
an officer or a director of the Company prior to the Closing Date, the
Shareholders will, at any time and from time to time after the Closing Date,
execute and deliver such further instruments of conveyance, transfer and
license, and take such additional actions, as the Buyer, the Company or their
successor and/or assigns, may reasonably request, to effect, consummate, confirm
or evidence the transactions contemplated by this Agreement. After the Closing
Date, the Shareholders shall also use their best efforts to assist the Company
in obtaining from each employee of the Company designated by the Buyer a
Non-Disclosure and Intellectual Property Agreement in a form to be provided by
the Parent after the Closing.
7.02. Transition Assistance and Adjustments. The Shareholders shall
-------------------------------------
cooperate and provide assistance to the Buyer, the Company and the Parent as
shall be reasonably necessary during the transition of the Business as
--------
contemplated in this Agreement, after the Closing Date.
7.03. Company Audit. In the event the Buyer after the Closing Date
-------------
desires to have prepared at its sole cost and expense, audited financial
statements of the Company and the Buyer for any periods which include periods
ending prior to the Closing Date, then the Shareholders shall cooperate and
provide assistance in connection with the preparation of such audited financial
statements, including, without limitation, making themselves and, by good faith
effort, the Company's internal accounting and auditing personnel (to the extent
that such personnel are not` employed by the Buyer at the time in question), as
well as its external accounting personnel and all relevant books and records of
the Company, available to the Buyer, its affiliates and/or its auditors upon
request.
SECTION 8
MISCELLANEOUS
-------------
8.01. Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
the laws of the State of New York. In connection with any action relating to
this Agreement or any other agreements delivered in connection herewith, the
parties hereto submit and consent to the exclusive jurisdiction of the state
courts of (i) the State of New York in the County of Westchester and the Federal
Courts located therein, where such
36
action is brought by, or on behalf of, the Shareholders and (ii) the State of
Texas in Dallas county and the Federal courts located therein where such action
is brought by, or on behalf of, the Buyer or the Parent.
8.02. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
8.03. Amendments. This Agreement supersedes any prior contracts
----------
relating to the subject matter hereof among the Company, the Shareholders, the
Buyer and the Parent, including, without limitation, that certain Letter of
Intent Agreement dated June 9, 2000 by and among the Company, the Other Company,
the Parent and certain of the Shareholders. This Agreement cannot be changed,
modified or amended and no provision or requirement hereof may be waived without
the consent in writing of the parties hereto.
8.04. Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
8.05. Benefit; Assignment. This Agreement is binding upon and inures
-------------------
to the benefit of the parties hereto, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that the Buyer may assign its rights, duties and obligations hereunder to
the Parent or a wholly-owned affiliate of the Buyer or the Parent without the
Company's or the Shareholder's consent; provided, however, that if the assignee
is not the Parent, the Buyer shall remain secondarily liable with respect to
such assignee's performance of the terms of this Agreement.
8.06. Construction. All schedules and exhibits annexed hereto are
------------
hereby incorporated herein by reference and made a part of this Agreement.
Whenever used in this Agreement and the context so requires, the singular shall
include the plural and the plural shall include the singular.
8.07. Imputed Knowledge. References in this Agreement to the
-----------------
"knowledge of" the Company, or words of similar import, shall include the
knowledge of the Shareholders which knowledge shall be imputed to be the
knowledge of the Company.
8.08. Notices. All notices and other communications hereunder shall be
-------
in writing and deemed to have been duly given when delivered by hand, when
received by registered or certified mail, postage prepaid, return receipt
requested, when delivered by prepaid courier delivery services such as Federal
Express, DHL or other similar services
37
on the day received, or when given by facsimile transmission upon receipt by
sender of a confirmed receipt of transmission, as follows:
(a) if to the Buyer or the Parent, at
Interliant, Inc. Xxx Xxxxxxxxxxxxxx Xxxx Xxxxxxxx XX 00000
Attn: Xxxxx X. Xxxxx, General Counsel Telecopier No.: (914)
694-1346
with a copy to:
Xxxxx Xxxxxxxxxx LLP 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX
00000 Attn: E. Xxx Xxxx, Esq. Telecopier No.: (000) 000-0000
(b) if to the Shareholders, to Xxxxx X. Xxxxxx (as the
Shareholder Representative) at the address set forth in the
first paragraph of this Agreement;
with a copy to counsel to the Company prior to the Closing as
follows:
Bracewell & Xxxxxxxxx, L.L.P. 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000 Attn: Xx. Xxxxxxxx X. Xxxx Telecopier
No.: 000-000-0000
or other such address or telecopier number as shall be furnished in writing by a
party to the other parties.
8.09. Shareholder Representative.
--------------------------
(a) In order to administer the transactions contemplated by this
Agreement and the Escrow Agreement, including, without limitation, the
indemnification obligations of the Shareholders under Section 5.03, the
Shareholders hereby designate and appoint Xxxxx X. Xxxxxx as their
representative for this Agreement and the Escrow Agreement and as
attorney-in-fact and agent for and on behalf of each Shareholder (in such
capacity, the "Shareholder Representative"). Said power of attorney granted
--------------------------
herein is deemed to be coupled with an interest in the Company Common Stock,
shall be irrevocable and shall survive the death, disability or bankruptcy of
any Shareholder or any such Shareholder's spouse, if any.
38
(b) Each Shareholder hereby authorizes the Shareholder Representative
to represent each Shareholder, and theirs successors, with respect to all
matters arising under this Agreement and the Escrow Agreement, including,
without limitation, (i) to take all action necessary in connection with the
indemnification obligations of the Shareholders under Section 5.03 hereof,
including, the defense or settlement of any claims and the making of payments
with respect thereto, (ii) to give and receive all notices required to be given
under this Agreement or the Escrow Agreement and (iii) to take any and all
additional action as is contemplated to be taken by or on behalf of the
Shareholders by the Shareholder Representative pursuant to this Agreement and
the Escrow Agreement.
(c) In the event that Xxxxx X. Xxxxxx or any substitute Shareholder
Representative dies, becomes unable to perform his or her responsibilities as
Shareholder Representative or resigns from such position, the Shareholders
having an aggregate of 50% ownership interest in the Company immediately prior
to the Closing shall select another representative to fill such vacancy and such
substituted Shareholder Representative shall be deemed to be the Shareholder
Representative for all purposes of this Agreement and the Escrow Agreement. Upon
the occurrence of such event, the Shareholders shall provide written notice to
the Parent and the Escrow Agent and shall indicate the identity of the
substitute Shareholder Representative, who shall have agreed to the terms of
this Section as if he or she were a party hereto.
(d) All decisions and actions by the Shareholder Representative,
including, without limitation, any agreement between the Shareholder
Representative and the Buyer, the Parent or Escrow Agent relating to the
indemnification obligations of the Shareholders under Section 5.03, including,
the defense or settlement of any claims and the making of payments with respect
hereto, shall be binding upon all the Shareholders as if they had taken such
action themselves, and no Shareholder shall have the right to object, dissent,
protest or otherwise contest the same. The Shareholder Representative shall
incur no liability to the Shareholders with respect to any action taken or
suffered by the Shareholder Representative in reliance upon any notice,
direction, instruction, consent, statement or other documents believed by him or
her to be genuinely and duly authorized, nor for any other action or inaction
with respect to the indemnification obligations of the Shareholders under
Section 5.03, including the defense or settlement of any claims and the making
of payments with respect thereto, except to the extent resulting from the
Shareholder Representative's own willful misconduct or negligence. The
Shareholder Representative may, in all questions arising under this Agreement or
the Escrow Agreement rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Shareholder Representative shall not be
liable to the Shareholders.
(e) The Buyer, the Company, the Parent and the Escrow Agent are hereby
authorized to rely conclusively on the actions, instructions and decisions of
the Shareholder Representative with respect to this Agreement and the Escrow
Agreement, including, without limitation, the indemnification obligations of the
Shareholders under Section 5.03, including the defense or settlement of any
claims or the making of payments
39
by the Shareholder Representative hereunder, and no party hereunder shall have
any cause of action against the Buyer, the Company, the Parent or the Escrow
Agent to the extent such parties have relied upon the actions, instructions or
decisions of the Shareholder Representative. If the Shareholder Representative
undertakes any action hereunder in his capacity as a Shareholder Representative,
the Shareholder Representative shall be deemed to make a representation to each
of the Buyer, the Company, the Parent and the Escrow Agent that the Shareholder
Representative is authorized hereunder to undertake such action. The Shareholder
Representative, in her individual capacity and not as attorney-in-fact and agent
for and on behalf of each Shareholder, agrees to indemnify and hold harmless
each of the Buyer, the Company, the Parent and the Escrow Agreement for any
Damages suffered by such party as a result of the reliance by such party on the
actions of the Shareholder Representative hereunder (the "Shareholder
-----------
Representative Indemnity"). Such indemnification shall be subject to the
------------------------
procedure set forth in Section 5.04 of this Agreement. For the avoidance of
doubt, it is hereby acknowledged that the indemnity obligation under this
Section is not subject to the limitations set forth in Section 5.03. The
Shareholders hereby confirm that the Escrow Agent is an intended third party
beneficiary of the terms of this Section and may enforce such Section in its own
right and name.
(f) The Shareholders acknowledge and agree that the Shareholder
Representative may incur costs and expenses on behalf of the Shareholders in his
capacity as Shareholder Representative. Each of the Shareholders agrees to pay
the Shareholder Representative, promptly upon demand by the Shareholder
Representative therefor, a percentage of any expenses equal to such
Shareholder's ownership interest in the Company immediately prior to the
Closing.
(g) Each Shareholder hereby agrees to indemnify the Shareholder
Representative and hold her harmless from and against any and all Damages
arising out of or resulting from (i) the Shareholder Representative Indemnity or
(ii) any and all of her actions taken and omissions made in her capacity as
Shareholder Representative; provided, however, that the amount payable by a
Shareholder to the Shareholder Representative pursuant to this Section 8.09(g)
at any time shall not exceed the maximum amounts payable by such Shareholder at
such time pursuant to Section 5.03. The foregoing indemnity and hold harmless
obligation (i) is given to the Shareholder Representative in her capacity as
attorney-in-fact and agent for and on behalf of the Shareholders, and not in her
individual capacity as a Shareholder, and (ii) shall be the Shareholder
Representative's exclusive remedy against such Shareholder with respect to any
facts or circumstances giving rise to an indemnification right hereunder.
8.10. Expenses. Each party to this Agreement shall bear its own
--------
expenses, and pay all costs incurred on its behalf, with respect to this
Agreement and the transactions contemplated hereby.
8.11. Spousal Consent. Each of Xxx Xxxxxx and Xxxxxxx Xxxxx,
---------------
individually and not jointly, being the lawful spouse of a Shareholder party
hereto, hereby certifies and agrees the following: (i) I have read, understood,
and approve the
40
Agreement and the attached exhibits; (ii) I agree on behalf of myself and all my
successors in interest that the Agreement binds my community property interest,
if any, in any stock of the Company registered in the name of my spouse on the
books of the Company; (iii) I consent to the execution, delivery and performance
of the Agreement and all other documents by my spouse relating to the Company,
including without limitation the sale of my spouse's interest in the stock of
the Company as provided herein, without the necessity of obtaining my signature
or further consent; (iv) I grant a power of attorney to my spouse for the sole
and exclusive purpose of dealing with my interest, if any, in the stock of the
Company; and (v) I acknowledge that I have been advised to seek separate counsel
in the execution of this Agreement. Said power of attorney granted herein is
deemed to be coupled with an interest in the Company Common Stock, shall be
irrevocable and shall survive the death, disability or bankruptcy of any such
person.
41
IN WITNESS WHEREOF, the parties to this Agreement have
executed and delivered this Agreement as of the date first above written.
MILESTONE SERVICES, INC.
By:/s/ Xxxxx X. Xxxxxx
--------------------------------------------
Xxxxx X. Xxxxxx
President
INTERLIANT TEXAS, INC.
By:/s/ Xxxxx X. Xxxxx
--------------------------------------------
Xxxxx X. Xxxxx
Vice President
INTERLIANT, INC.
By:/s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxxx X. Xxxxxx
Senior Vice President
1
SHAREHOLDERS:
By: /s/ Xxxxx X. Xxxxxx
---------------------------------------
Xxxxx X. Xxxxxx
By: /s/ Xxxxxxxx X. Xxxxx
---------------------------------------
Xxxxxxxx X. Xxxxx
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxx
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx
IN WITNESS WHEREOF, the individuals set forth below have executed and
delivered this Agreement solely for the purposes of agreeing to be bound by the
terms and provisions of Section 8.12 as of the date first above written.
SHAREHOLDERS SPOUSES
By: /s/ Xxx Xxxxxx
--------------------------------------
Xxx Xxxxxx
By: /s/ Xxxxxxx Xxxxx
--------------------------------------
Xxxxxxx Xxxxx
2
LIST OF SCHEDULES*
------------------
Schedule A: - Financial Terms.
Schedule B: - Combined Book Equity
* All schedules other than Schedule A have been omitted. The Company hereby
agrees to furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3
SCHEDULE A
----------
DEFINITIONS AND ACCOUNTING TERMS:
As used in this Agreement the following terms with initial letters
capitalized shall have the following meanings (terms defined in the singular to
have a correlative meaning when used in the plural and vice versa). All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
"Amortization" Means the method by which the recorded costs of intangible
assets are systematically charged to income over the
periods estimated to be benefited, as determined on a
consolidated basis in accordance with GAAP.
"Book Equity" Means the total assets of the Company as shown on the
Company's balance sheet less total liabilities of the
----
Company as shown on such Balance Sheet, including, but
not limited to, trade accounts payable, accrued expenses,
deferred revenue, Debt, accrued vendor rebates and
deferred rent, each as incurred in the ordinary course of
business and as determined in accordance with GAAP as set
forth in Schedule B.
----------
"Consolidated Net Means for the period the consolidated net
Revenues of the revenues of the Combined Business determined in accordance
Combined Business" with GAAP.
"Debt" Means: (1) indebtedness or liability for borrowed money,
(2) obligations as lessee under and capital leases; (3)
all guarantees and endorsements related to third party
debt to the extent of the underlying indebtedness as of
the Closing Date; and (4) all obligations secured by a
lien related to third party debt to the extent of the
underlying indebtedness as of the Closing Date.
"Depreciation" Means the method of allocating the cost of a tangible
capital asset, less salvage (if any), over the estimated
useful life of the asset in a systematic and rational
manner as determined on a consolidated basis in accordance
with GAAP.
4
"EBITDA" Or "Earnings Before Interest, Taxes,
Depreciation and Amortization", means for
any period Net Income minus Extraordinary
Non-Cash Income, plus Interest Expense plus
Taxes plus Depreciation and Amortization
plus Extraordinary Non-Cash Charges and
Expenses plus any corporate overhead
allocation from the Parent or any direct or
indirect affiliate of the Parent all for
such period, with respect to the Combined
Business determined on a consolidated basis
in accordance with GAAP.
"EBITDA Margin" Means, for any period, EBITDA expressed as a
percentage of the Consolidated Net Revenues
of the Combined Business.
"Extraordinary Non-Cash Charges Means, for any period, extraordinary
and Expenses" non-cash charges and expenses which are
included in the net income of the Combined
Business during such period, all as
determined on a consolidated basis in
accordance with GAAP.
"Extraordinary Non-Cash Income" Means, for any period, extraordinary
non-cash items which are included in the
income of the Combined Business during such
period, all as determined on a consolidated
basis in accordance with GAAP.
"GAAP" Means generally accepted accounting
principles in the United States of America
as in effect on the date hereof.
"Interest Expense" Means, for any period, all interest paid or
required to be paid by the Combined Business
on all of its Debt.
"Net Income" Means, for any period, the net income for
the Combined Business, during such period,
all as determined on a consolidated basis in
accordance with GAAP.
"Taxes" as defined in Section 4.01(g).
5
LIST OF EXHIBITS*
-----------------
Exhibit A - Escrow Agent
---------
Exhibit B - Form of Stock Option Termination Agreement
---------
Exhibit 4.01(a)(i) - Sites
Exhibit 4.01(a)(ii) - Names and Addresses of Stockholders
-------------------
Exhibit 4.01(a)(iii) - Outstanding Options
Exhibit 4.01(b)(1) - Consents and Defaults
------------------
Exhibit 4.01(b)(2) - Officers; Directors; Trade Names; Jurisdictions
------------------
Exhibit 4.01(c)(i)(1) - Forms of Business Agreements with Customers with
--------------------- Schedule
Exhibit 4.01(c)(i)(2) - Summary of Oral Business Agreements and Vendor/
--------------------- Service Provider and Other Agreements
Exhibit 4.01(c)(i)(3) - Leases
---------------------
Exhibit 4.01(c)(i)(4) - Claims or Disputes Under Business Agreements
--------------------- --------
Exhibit 4.01(c)(i)(5) - Consents to Transfer or Assign Not Obtained
---------------------
Exhibit 4.01(c)(ii) - Tangible Assets
-------------------
Exhibit 4.01(c)(iii) - Intellectual Property
Exhibit 4.01(c)(iv) - Customer List and Related Information
-------------------
Exhibit 4.01(c)(v)(1) - Company's Assets as shown on Financial Statements
---------------------
Exhibit 4.01(c)(v)(2) - Liens; Encumbrances
Exhibit 4.01(c)(vi) - Customer Terminations
Exhibit 4.01(d)(1) - Financial Statements
------------------
Exhibit 4.01(d)(2) - Bad Debts
------------------
Exhibit 4.01(e) - Existing Employment Agreements, Labor or
--------------- Collective Bargaining Agreements, Employee
Benefit or Welfare Plans, Description of Employees
Exhibit 4.01(f) - Claims, Litigation, Etc.
---------------
Exhibit 4.01(g) - Bad Debts and Tax Liabilities of the Company
---------------
Exhibit 4.01(h) - Agreements to Sell Company Assets
---------------
Exhibit 4.01(k)(1) - Company's Credit Cards
------------------
Exhibit 4.01(k)(2) - Company's Bank Accounts and Authorized Signatories
------------------
Exhibit 4.01(o) - Subsidies
Exhibit 4.01(q) - Accounts Receivable
6
Exhibit 5.03(a)(i) - Certain Assumed Liabilities
------------------
* All exhibits have been omitted. The Company hereby agrees to furnish
supplementally a copy of any omitted exhibit to the Commission upon request.
7
