1
EXHIBIT 2.1
EXECUTION COPY
SHARE PURCHASE AGREEMENT
dated as of March 19, 1998
by and among
CARNEGIE GROUP, INC.,
ADVANTAGE KBS, INC.,
DEJEAN MELANCON
AND
EILEEN WEINSTEIN
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TABLE OF CONTENTS
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ARTICLE I -- THE TRANSACTION...............................................- 1 -
1.1 The Purchase.............................................- 1 -
1.2 Closing..................................................- 1 -
1.3 Acquisition Consideration................................- 2 -
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS....................................- 4 -
2.1 Organization and Standing................................- 4 -
2.2 Capitalization...........................................- 4 -
2.3 Authorization............................................- 5 -
2.4 Validity of Contemplated Transactions....................- 5 -
2.5 Governmental Consent. etc................................- 6 -
2.6 Financial Statements.....................................- 6 -
2.7 Inventory................................................- 6 -
2.8 Accounts Receivable......................................- 6 -
2.9 No Undisclosed Liabilities...............................- 7 -
2.10 Tax and Other Returns and Reports........................- 7 -
2.11 No Material Adverse Change...............................- 8 -
2.12 Litigation...............................................- 9 -
2.13 Contracts and Commitments................................- 9 -
2.14 Leased Real Property....................................- 11 -
2.15 Title to and Condition of Certain Personal Property.....- 11 -
2.16 Intellectual Property Matters...........................- 12 -
2.17 Year 2000 Compliance....................................- 13 -
2.18 Employee Benefit Plans and Arrangements.................- 13 -
2.19 Employee Relations......................................- 16 -
2.20 Compliance with Law; Authorizations.....................- 17 -
2.21 Environmental and Health/Safety Matters.................- 17 -
2.22 Suppliers and Customers.................................- 18 -
2.23 Transactions With Affiliates............................- 19 -
2.24 Payments................................................- 19 -
2.25 Corporate Records.......................................- 19 -
2.26 Insurance...............................................- 19 -
2.27 Brokers; Payments.......................................- 19 -
2.28 Completeness of Disclosure..............................- 20 -
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PURCHASER................- 20 -
3.1 Organization and Standing...............................- 20 -
3.2 Authorization...........................................- 20 -
3.3 Compliance with Other Instruments.......................- 20 -
3.4 Governmental Consent. etc...............................- 21 -
3.5 Financial Capacity......................................- 21 -
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ARTICLE IV -- COVENANTS..................................................- 21 -
4.1 [INTENTIONALLY OMITTED].....................................- 21 -
4.2 [INTENTIONALLY OMITTED].....................................- 21 -
4.3 Public Announcements........................................- 21 -
4.4 Expenses....................................................- 21 -
4.5 Shareholder Releases........................................- 22 -
4.6 Restrictive Covenants.......................................- 22 -
4.7 Exclusive Dealing...........................................- 24 -
4.8 Further Assurances..........................................- 24 -
4.9 Organization of the Company Following Closing...............- 25 -
4.10 Conduct of the Business Following Closing...................- 25 -
ARTICLE V -- CONDITIONS...................................................- 25 -
5.1 Condition to Each Party's Obligations.......................- 25 -
5.2 Conditions to Obligations of Purchaser......................- 25 -
5.3 Conditions to Obligations of the Company and
the Principal Shareholders..................................- 28 -
ARTICLE VI -- TERMINATION, AMENDMENT AND WAIVER...........................- 28 -
6.1 Termination.................................................- 28 -
6.2 Effect of Termination.......................................- 29 -
6.3 Remedies....................................................- 29 -
6.4 Amendments and Waivers......................................- 29 -
ARTICLE VII -- INDEMNIFICATION............................................- 30 -
7.1 Survival....................................................- 30 -
7.2 Indemnification by the Principal Shareholders...............- 30 -
7.3 Limitations.................................................- 31 -
7.4 Indemnification by Purchaser................................- 32 -
7.5 Right of Setoff.............................................- 32 -
7.6 Third Party Claims..........................................- 32 -
7.7 Effect of Investigation.....................................- 33 -
ARTICLE VIII -- GENERAL PROVISIONS........................................- 33 -
8.1 Contents of Agreement; Parties in Interest; etc.............- 33 -
8.2 Assignment and Binding Effect...............................- 33 -
8.3 Notices.....................................................- 33 -
8.4 Delaware Law to Govern......................................- 35 -
8.5 No Benefit to Others........................................- 35 -
8.6 Headings, Gender and "Person."..............................- 35 -
8.7 Schedules and Exhibits......................................- 35 -
8.8 Severability................................................- 35 -
8.9 Counterparts................................................- 36 -
8.10 Specific Performance........................................- 36 -
ARTICLE IX -- DEFINITIONS.................................................- 36 -
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EXHIBIT A --- FORM OF LEGAL OPINION OF GREENBAUM, ROWE, SMITH,
RAVIN, DAVIS & HIMMEL LLP
EXHIBIT B --- FORM OF LETTER OF TRANSMITTAL
EXHIBIT C-1 --- FORM OF DEJEAN MELANCON EMPLOYMENT AGREEMENT
EXHIBIT C-2 --- FORM OF EILEEN WEINSTEIN EMPLOYMENT AGREEMENT
EXHIBIT C-3 --- FORM OF JANET SUYDAM EMPLOYMENT AGREEMENT
EXHIBIT C-4 --- FORM OF DAVID LEWEY EMPLOYMENT AGREEMENT
EXHIBIT C-5 --- FORM OF EUGENE PODGORBUNSKIKH EMPLOYMENT
AGREEMENT
EXHIBIT C-6 --- FORM OF NICOLAS STRAGUZZI EMPLOYMENT AGREEMENT
EXHIBIT D --- FORM OF LEGAL OPINION OF MORGAN, LEWIS & BOCKIUS LLP
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SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT ("Agreement"), dated as of March 19,
1998, is by and among Carnegie Group, Inc., a Delaware corporation (the
"Purchaser"),Advantage KBS, Inc., a New Jersey corporation (the "Company"), and
DeJean Melancon and Eileen Weinstein (the "Principal Shareholders"). All
capitalized terms used in this Agreement are defined in the Section of the
Agreement referenced in Article IX.
W I T N E S S E T H:
WHEREAS, the Board of Directors of Purchaser and the Board of Directors
of the Company, together with the Principal Shareholders, each have determined
that the acquisition of the Company by the Purchaser (the "Acquisition") is in
the best interests of their respective companies and the shareholders of the
Company (the "Shareholders") and, accordingly, have agreed that the Acquisition
should be effected through the purchase of all the issued and outstanding shares
of Common Stock of the Company (the "Shares") for cash, all on the terms and
subject to the conditions set forth herein;.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, Purchaser, the Company and the Principal
Shareholders agree as follows:
ARTICLE I -- THE TRANSACTION
1.1 The Purchase. Subject to the terms and conditions of this
Agreement, (a) at the Closing (as defined in Section 1.2), the Principal
Shareholders and the other Shareholders shall sell, assign, transfer and deliver
the Shares to Purchaser and (b) in payment for the Shares, Purchaser shall pay
to the Shareholders, in the proportion that the number of Shares owned by each
Shareholder bears to the total number of Shares outstanding as of the Closing
Date (as defined in Section 1.2), the Acquisition Consideration (as defined in
Section 1.3) in accordance with the procedures set forth in Section 1.3.
1.2 Closing. The closing of the Acquisition (the "Closing") shall take
place (i) at the offices of Morgan, Lewis & Bockius LLP, 32nd Floor, Oxford
Centre, Pittsburgh, Pennsylvania at 3:00 p.m., prevailing time, on March 19,
1998, or (ii) at such other place and time and/or on such other date as the
parties may agree. The date upon which the Closing occurs is herein referred to
as the "Closing Date."
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1.3 Acquisition Consideration.
(a) The Acquisition Consideration shall consist of (i) a
"Closing Payment" the amount of which shall be determined and paid in
accordance with subsection (b) below and (ii) an "Earn-Out Payment" the
amount of which, if any, shall be contingent upon Revenue and Pre-Tax
Operating Margin in accordance with the procedures set forth in
subsection (c) below.
(b) The Closing Payment shall be an amount equal to (i) FIVE
MILLION DOLLARS ($5,000,000) (the "Base Price"), less (ii) the
Acquisition Adjustments. The term "Acquisition Adjustments" means the
sum of (v) any amounts payable to participants in the Company Value
Participation Plan pursuant to the terms thereof upon consummation of
the Acquisition; (w) the amount of all indebtedness of the Company
outstanding as of the Closing Date to Banco Popular FSB, the Principal
Shareholders and Marlene Feldman and other third parties
("Indebtedness") other than Indebtedness which constitutes trade
payables, accrued expenses incurred in the ordinary course of business
and equipment lease obligations set forth in the Company Disclosure
Schedule; and (x) the amount of all attorney and other professional and
finder's fees (other than the professional fees set forth on the
Company Disclosure Schedule and which are not considered Acquisition
Adjustments) including, without limitation, (A) the fee of The Platinum
Group ("Platinum") based on the Closing Payment, and (B) the fees
incurred by the Company and the Principal Shareholders in connection
with the Acquisition up to and including the Closing Date. The Closing
Payment shall be paid to the Shareholders at Closing based upon each
Shareholder's Pro Rata Share thereof; provided, however, that from the
Closing Payment otherwise payable to each Shareholder who acquired
shares upon the exercise of options pursuant to the Company's 1996
Incentive and Non-Qualified Stock Option Plan ("Option Holder"), there
shall be withheld from the amount otherwise due to such Option Holder
(i) an amount (the "Aggregate Exercise Price") equal to the product of
(A) the number of shares acquired by such Option Holder upon exercise
of the options and (B) the exercise prices of such options, and (ii)
the amount of taxes, as determined by Purchaser in its discretion,
attributable to that amount which is considered compensation includable
in the Option Holder's gross income by reason of the exercise of such
options. The term "Pro Rata Share" shall be a fraction the numerator of
which is the number of Shares owned by such Shareholder as of the
Closing Date and the denominator of which is the number of Shares owned
by all Shareholders as of the Closing Date. At the Closing, Purchaser
shall cause to be paid in immediately available funds all Acquisition
Adjustments which have been deducted from the Base Price upon
presentation of invoices satisfactory to Purchaser and, with respect to
Indebtedness, evidence satisfactory to Purchaser that, upon payment of
such Indebtedness, the Company's and the Principal Shareholders'
obligations to such creditors shall be discharged in full without
penalty or further obligation.
(c) The Earn-Out Payment, if any, shall be equal to (i) the
amount of the Contingent Consideration set forth opposite the Revenue
and Pre-Tax Operating Margin
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achieved by the Company in the year ending December 31, 1998 as set
forth in the table below, less (ii) the Earn-Out Acquisition
Adjustments. The term "Earn-Out Acquisition Adjustments" means the sum
of (i) any fees due to Platinum and (ii) any amounts due to
participants in the Company Value Participation Plan, in each case
based on the Contingent Consideration set forth opposite the Revenue
and Pre-Tax Operating Margin achieved by the Company in the year ending
December 31, 1998 as set forth in the table below.
PRE-TAX
REVENUE ($ MILLION) OPERATING MARGIN (%) CONTINGENT CONSIDERATION ($ MILLION)
- ------------------- -------------------- ------------------------------------
More than 5.5 >= 9.0 0.500
More than 5.5 >= 10.5 0.750
More than 5.5 >= 12.0 1.000
More than 6.0 >= 8.0 0.750
More than 6.0 >= 10.0 1.125
More than 6.0 >= 12.0 1.500
More than 6.5 >= 7.5 1.000
More than 6.5 >= 10.0 1.500
More than 6.5 >= 12.0 2.000
More than 7.0 >= 7.0 1.250
More than 7.0 >= 10.0 1.875
More than 7.0 >= 12.0 2.500
As used in this Section 1.3, the term "Revenue" means the revenue of the Company
calculated in accordance with generally accepted accounting principles
consistently applied by Purchaser, and the term "Pre-Tax Operating Margin" means
income from operations of the Company before taxes, calculated in accordance
with generally accepted accounting principles consistently applied by Purchaser,
as a percentage of Revenue.
In the event that Revenue of the Company for the year ending December 31, 1998
does not exceed FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000), no
Earn-Out Payment shall be paid.
Subject to Section 7.5, the Earn-Out Payment, if any, shall be paid to the
Shareholders on March 31, 1999 based upon each Shareholder's Pro Rata Share
thereof.
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ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
Except as disclosed in a document attached to this Agreement referring
specifically to the representations and warranties in this Agreement which
reasonably identifies an exception to a representation and warranty in this
Agreement (the "Company Disclosure Schedule"), the Company and the Principal
Shareholders represent and warrant to Purchaser as set forth below. The terms
"knowledge" or similar terms when applied to the Company, mean the actual
knowledge of each officer or director of the Company and the knowledge that
could reasonably be expected to be obtained by each such person in the course of
conducting due investigation concerning the subject matter.
2.1 Organization and Standing. The Company is a corporation duly
organized and existing under, and by virtue of, the laws of the State of New
Jersey and is in good standing under such laws. The Company has the requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted. The Company
is duly qualified to do business and is in good standing in each jurisdiction in
which the character of the business conducted by it or the location of the
properties owned or leased by it make such qualification necessary, except for
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect on the Company. As used in this Agreement, the term "Material
Adverse Effect" shall mean any effect on, or change in, the business, financial
condition, results of operations, properties, assets or liabilities of the party
affected thereby that is, or that would reasonably be expected to be, materially
adverse. The Company's Certificate of Incorporation and Bylaws in the forms
attached to the Company Disclosure Schedule are the Certificate of Incorporation
and the Bylaws of the Company as in effect on the date of this Agreement. The
Company is not in violation of any term of its Certificate of Incorporation or
Bylaws. The Company does not own, directly or indirectly, any capital stock or
other ownership interest in any other corporation, partnership, joint venture or
other business association or entity.
2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
1,000,000 shares of Common Stock ("Common Stock"). As of March 19,
1998, 98,438 shares of Common Stock were outstanding, and 10,000 shares
were reserved for issuance under the Company Stock Option Plan,
inclusive of 8,438 shares acquired as of the date hereof by
participants in the Company Stock Option Plan. Of such shares reserved
for issuance under the Company Stock Option Plan, no shares are subject
to outstanding options ("Company Options"). As of March 19, 1998, the
Company held 48,175 shares of Common Stock in its treasury ("Treasury
Shares"). The issuance of all the outstanding shares of Common Stock
was duly authorized, and such shares were validly issued and are fully
paid and nonassessable. No shares of Common Stock have been issued in
violation of, or are subject to, any preemptive rights or subscription
agreements. The repurchase by the Company of shares of its Common
Stock, including, without limitation, the Treasury Shares, was duly
authorized by the
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Company and was in compliance with all applicable laws, including,
without limitation, federal and state securities laws.
(b) There are not any options, warrants, calls, conversion
rights, commitments or agreements of any character to which the Company
or any shareholder of the Company is a party or by which any of them
may be bound obligating the Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of the capital stock
of Company or any securities convertible into, or exchangeable or
exercisable for, any of its capital stock or obligating the Company to
grant, extend or enter into any such option, warrant, call, conversion
right, commitment or agreement. Except as listed on the Company
Disclosure Schedule, there are no stockholder agreements, voting
agreements, voting trusts or any such other similar arrangements which
have the effect of restricting or limiting the transfer, voting or
other rights associated with the capital stock of the Company. The
Company Disclosure Schedule contains a true and complete list of the
record holders of the Shares and sets forth the full name and number of
Shares owned by each.
(c) Each Principal Shareholder is, and will be at Closing, the
lawful owner, of record and beneficially, of the entire right, title
and interest in and to the number of Shares set forth in the Company
Disclosure Schedule free and clear of all liens, pledges, claims,
charges, encumbrances and security interests of any kind or nature
whatsoever, except such restrictions as may arise under applicable
federal and state securities laws and regulations.
2.3 Authorization. The Company has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
Each Principal Shareholder has the requisite power and capacity to enter into
this Agreement and to perform the Principal Shareholder's obligations hereunder,
and has taken all actions necessary to consummate the transactions contemplated
hereby and to perform such Principal Shareholder's obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
the Board of Directors and, to the extent necessary, by all of the Shareholders
of the Company and no other corporate proceedings on the part of the Company or
its Shareholders are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and each Principal Shareholder and constitutes a valid and binding
obligation of the Company and each Principal Shareholder, enforceable against
the Company and each Principal Shareholder in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally, and
that such enforceability is subject to general principles of equity.
2.4 Validity of Contemplated Transactions. The execution, delivery and
performance of this Agreement by the Company and each Principal Shareholder does
not and will not violate, conflict with or result in the breach of any term,
condition or provision of (a) any law, ordinance, or governmental rule or
regulation to which the Company or either Principal Shareholder is subject, (b)
any judgment, order, writ, injunction, decree or award of any Governmental
Entity which is
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applicable to any Company or either Principal Shareholder, (c) the charter
documents of the Company or any securities issued by the Company, or (d) any
material mortgage, indenture, agreement, contract, commitment, lease, plan, or
other instrument, document or understanding, oral or written, to which the
Company or either Principal Shareholder is a party, by which the Company or
either Principal Shareholder may have rights or by which any of the assets of
the Company or either Principal Shareholder may be bound or affected, or give
any party with rights thereunder the right to terminate, modify, accelerate or
otherwise materially change the existing rights or obligations of the Company
thereunder. Except as aforesaid, no authorization, approval or consent of, and
no registration or filing with, any Governmental Entity is required in
connection with the execution, delivery or performance of this Agreement by the
Company or either Principal Shareholder.
2.5 Governmental Consent. etc. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
by the Company of the transactions contemplated hereby.
2.6 Financial Statements. The Company has delivered to Purchaser true
and complete copies of the audited balance sheets of the Company at December 31,
1997, 1996 and December 31, 1995, and the related audited combined statements of
income, cash flow and changes in shareholders' equity for the years then ended,
certified by Wilkin & Guttenplan (the "Audited Financial Statements"), all of
which have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved. Such balance
sheets, including the related notes, fairly present the financial position,
assets and liabilities (whether accrued, absolute, contingent or otherwise) of
the Company at the dates indicated and such statements of income, cash flow and
changes in shareholders' equity fairly present the results of operations, cash
flow and changes in shareholders' equity of the Company for the periods
indicated. The balance sheet of the Company as of December 31, 1997 that is
included in the Audited Financial Statements is referred to herein as the
"Balance Sheet" and the date thereof is referred to as the "Balance Sheet Date."
All of the liabilities reflected on the Balance Sheet arose only out of or were
incurred in the ordinary course of business. All financial and managerial
accounting information supplied by the Company to Purchaser and its independent
accountants is true, accurate and complete, and reflects actual transactions,
operations and commitments.
2.7 Inventory. All inventory of the Company reflected on the Balance
Sheet or acquired since the date thereof was acquired and has been maintained in
the ordinary course of business; is of good and merchantable quality; consists
of a quality, quantity and condition usable, leasable or saleable in the
ordinary course of the business; and is not subject to any write-down or
write-off.
2.8 Accounts Receivable. The accounts receivable of the Company as set
forth on the Balance Sheet or arising since the date thereof have arisen solely
out of bona fide sales and deliveries of goods, performance of services and
other business transactions in the ordinary course of business
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consistent with past practice; are not subject to valid defenses, set-offs or
counterclaims; and are collectible within 90 days after billing at the full
recorded amount thereof less, in the case of accounts receivable appearing on
the Balance Sheet, the recorded allowance for collection losses on the Balance
Sheet. The allowance for collection losses on the Balance Sheet has been
determined in accordance with generally accepted accounting principles
consistent with past practice.
2.9 No Undisclosed Liabilities. The Company has no liabilities,
obligations or commitments of any nature (whether absolute, accrued, contingent
or otherwise), matured or unmatured (collectively, "Liabilities"), except (a)
Liabilities which are adequately reflected or reserved against in the Balance
Sheet, (b) Liabilities which have been disclosed in the Company Disclosure
Schedule, and (c) Liabilities which have been incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date which
are not, individually or in the aggregate, material in amount.
2.10 Tax and Other Returns and Reports. All federal, state, local and
foreign tax returns, reports, statements and other similar filings required to
be filed by the Company (the "Tax Returns") with respect to any federal, state,
local or foreign taxes, assessments, interest, penalties, deficiencies, fees and
other governmental charges or impositions (including without limitation all
income tax, unemployment compensation, social security, payroll, sales and use,
excise, privilege, property, ad valorem, franchise, license, school and any
other tax or similar governmental charge or imposition under laws of the United
States or any state or municipal or political subdivision thereof or any foreign
country or political subdivision thereof) (the "Taxes") have been timely filed
with the appropriate governmental agencies in all jurisdictions in which such
Tax Returns are required to be filed, and all such Tax Returns properly reflect
the liabilities of the Company for Taxes for the periods, property or events
covered thereby. All Taxes, including without limitation those which are called
for by the Tax Returns, required to be paid, withheld or accrued by the Company
and any deficiency assessments, penalties and interest have been timely paid,
withheld or accrued. The accruals for Taxes contained in the Balance Sheet are
adequate to cover the tax liabilities of the Company as of that date and include
adequate provision for all deferred taxes, and nothing has occurred subsequent
to that date to make any of such accruals inadequate. The Company has not
received any notice of assessment or proposed assessment in connection with any
Tax Returns and there are not pending tax examinations of or tax claims asserted
against the Company or any of its assets or properties. The Company has not
extended, or waived the application of, any statute of limitations of any
jurisdiction regarding the assessment or collection of any Taxes. There are no
tax liens (other than any lien for current taxes not yet due and payable) on any
of the assets or properties of the Company. The Company has no knowledge of any
basis for any additional assessment of any Taxes. All tax payments related to
employees, including income tax withholding, FICA, FUTA, unemployment and
worker's compensation, required to be made by the Company have been fully and
properly paid, withheld, accrued or recorded. The Company is not and has not
been a party to any tax allocation or sharing agreement and is not and has not
been a member of an affiliated group within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code").
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2.11 No Material Adverse Change. Except as set forth on the Company
Disclosure Schedule, since the Balance Sheet Date the Company has conducted its
business in the ordinary course and there has not occurred:
(a) any event, act, occurrence or omission to act or occur
which has had a Material Adverse Effect on the Company or any event,
fact or condition of which the Company or the Principal Shareholders
are aware that would reasonably be expected to have a Material Adverse
Effect on the Company and that has not been disclosed in the Company
Disclosure Schedule;
(b) any damage, destruction or loss (whether or not covered by
insurance), which reasonably may be expected to materially and
adversely affect the financial condition or results of operations of
the Company;
(c) except for the sale of products in the ordinary course of
business, any sale, lease, mortgage, pledge or encumbrance of any
properties or assets of the Company having a value, individually or in
the aggregate, in excess of $15,000;
(d) any loss of any supplier, distributor or customer which
has had, or could reasonably be expected to have, a Material Adverse
Effect on the Company;
(e) (i) any increase in or modification of the compensation or
benefits payable or to become payable by the Company to any of its
directors or employees; (ii) any grant by the Company to any employee
of any increase in severance or termination pay, (iii) any entry by the
Company into any employment, severance or termination agreement with
any employee, or (iv) any grant, whether or not to an employee of the
Company, of any option, warrant or right to purchase or otherwise
acquire any shares of capital stock of the Company not reflected in the
list described in Section 2.2 hereof;
(f) the payment of any bonus or other compensation in excess
of regular salary to any employee who, as of the date hereof, receives
from the Company, annual compensation in excess of $50,000;
(g) any (i) incurrence, assumption or guarantee by the Company
of any debt for borrowed money; (ii) issuance or sale of any securities
convertible into or exchangeable for debt securities of the Company; or
(iii) issuance or sale of options or other rights to acquire from the
Company, directly or indirectly, debt securities of the Company or any
securities convertible into or exchangeable for any such debt
securities;
(h) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset
(other than liens arising under existing lease financing arrangements,
liens arising in the ordinary course of the Company's business which
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in the aggregate are not material and liens for taxes not yet due and
payable); any cancellation, release or waiver of debts owed to the
Company outside the ordinary course of business;
(i) any issuance or sale of any of its capital stock, or grant
of any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital
stock;
(j) any declaration, setting aside or payment of any dividend
or distribution to the Shareholders or redemption, purchase or other
acquisition of any capital stock of the Shareholders;
(k) any increase in indebtedness for borrowed money, except
current borrowings from banks in the ordinary course of business;
(l) any change in any method of accounting or accounting
practice;
(m) any transfer, grant or loss by the Company (or, to the
Company's knowledge, diminishment in material value by any means) of a
right under the Company Intellectual Property (as defined in Section
2.16 hereof) other than those transferred or granted in the ordinary
course of business consistent with past practice under existing
agreements;
(n) any entry into, amendment of, relinquishment, termination
or nonrenewal by the Company of any contract, lease transaction,
commitment or other right or obligation other than in the ordinary
course of business consistent with past practice;
(o) any making of any loan, advance or capital contribution
to, or investment in, any person other than travel loans or advances in
the ordinary course of business consistent with past practice; or
(p) any agreement, whether or not in writing, to do any of
the foregoing.
2.12 Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body or authority is pending or, to the
knowledge of the Company and the Principal Shareholders, threatened against the
Company or which relates to the transactions contemplated by this Agreement. The
Company is not a party to or subject to the provisions of any judgment, order,
writ, injunction, decree or award of any court, arbitrator or governmental or
regulatory official, body or authority.
2.13 Contracts and Commitments. The Company Disclosure Schedule sets
forth an accurate, correct and complete list of all agreements, contracts,
commitments, arrangements and understandings (collectively, "Contracts"),
written or oral, including all amendments and supplements thereto, to which the
Company is a party or is bound, or by which any of the Company's assets are
bound, and which involve any:
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(a) agreement, contract, commitment, arrangement or
understanding with any present or former employee or consultant or for
the employment of any person which is not terminable at will by the
Company without payment or other penalty;
(b) agreement, contract, commitment, arrangement or
understanding for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party which
supplies, products or services to the Company involving in any one case
$15,000 or more;
(c) agreement, contract, commitment, arrangement or
understanding to sell or supply products or to perform services
involving in any one case $25,000 or more;
(d) agreement, contract, commitment, arrangement or
understanding containing requirements or "take or pay" provisions;
(e) agreement, contract, commitment, arrangement or
understanding not otherwise listed on the Company Disclosure Schedule
and continuing over a period of more than six months from the date
hereof or exceeding $15,000 in value;
(f) distribution, dealer, representative or sales agency
agreement, contract, commitment, arrangement or understanding;
(g) lease under which the Company is either lessor or lessee;
(h) agreement, contract, commitment, arrangement or
understanding containing a provision to indemnify any Person or assume
any tax, environmental or other liability;
(i) agreement, contract, commitment, arrangement or
understanding with federal, state, local, regulatory or other
governmental entities;
(j) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the indebtedness
of any other person;
(k) agreement, contract, commitment, arrangement or
understanding for any capital expenditure or leasehold improvement in
excess of $15,000;
(l) agreement, contract, commitment, arrangement or
understanding limiting or restraining Company or, to the knowledge of
the Company, any employee of the Company from engaging or competing in
any manner or in any business;
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15
(m) license, franchise, distributorship or other agreement
which relates in whole or in part to any Company Intellectual Property
(as defined in Section 2.16); or
(n) agreement, contract, commitment, arrangement or
understanding not made in the ordinary course of business.
Each of the Contracts listed in the Company Disclosure Schedule in response to
this Section, or not required to be listed therein because of the amount
thereof, is valid and enforceable in accordance with its terms; the Company is,
and to the Company's knowledge, all other parties thereto are, in compliance
with the provisions thereof. The Company is not, and, to the Company's
knowledge, no other party thereto is, in default in the performance, observance
or fulfillment of any material obligation, covenant or condition contained
therein; and no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default thereunder. None of the
rights of the Company under any Contract will be impaired by the consummation of
the transactions contemplated hereby. The Company has delivered accurate and
complete copies of each Contract to Purchaser. No Contract requires the consent
of any party in connection with the transactions contemplated hereby.
2.14 Leased Real Property. The Company owns no real property. The
Company has delivered to Purchaser a true and complete copy of every lease and
sublease pursuant to which the Company is a tenant or subtenant (the "Leases").
Each Lease is, and at Closing shall be, in full force and effect and has not
been assigned, modified, supplemented or amended except as listed on the Company
Disclosure Schedule, and the Company nor landlord or sublandlord under any Lease
is in default under any of the Leases, and no circumstances or state of facts
presently exists which, with the giving of notice or passage of time, or both,
would permit the landlord or sublandlord under any Lease to terminate any Lease.
2.15 Title to and Condition of Certain Personal Property.
(a) The Company has good, valid and marketable title to all of
its properties and assets, real, personal and mixed, which it purports
to own, including, without limitation, all properties and assets
reflected in the Balance Sheet (except for inventory sold since the
date thereof in the ordinary course of business consistent with past
practice) free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and other encumbrances and
defects of title of any nature whatsoever, except for (i) liens for
current personal property taxes not yet due and payable, (ii) worker's,
carrier's and materialman's liens, which, in the aggregate are not
material in amount, and (iii) liens that are immaterial in character,
amount, and extent and which do not detract from the value or interfere
with the present or proposed use of the properties they affect
("Permitted Liens").
(b) Set forth in the Company Disclosure Schedule is a list of
all equipment and fixtures subject to any lease or rental agreement to
which the Company is a party. The Company Disclosure Schedule sets
forth with respect to such equipment and fixtures the
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16
amount outstanding under the lease or rental agreement and the terms of
payment with respect thereto. The Company has complied in all material
respects with the terms of all such leases and all such leases are in
full force and effect and, to the knowledge of the Company, the parties
thereto other than the Company have complied, and are complying, with
all of their material obligations and are not in material default under
(nor does there exist any condition which, upon the passage of time or
the giving of notice, would cause such a material violation of or
default under) any of such leases.
(c) Except as set forth on the Company Disclosure Schedule,
the equipment and other personal property currently being used in the
Company's operations, are (i) in good operating condition, usable in
the ordinary course of the Company's business, (ii) in a state of
normal maintenance and repair, (iii) sufficient and adequate to carry
on the Company's operations as now conducted, and (iv) to the Company's
knowledge, comply in all material respects with applicable laws.
2.16 Intellectual Property Matters.
(a) The Company owns or has the right to use, free and clear
of all Liens, charges, claims and restrictions, all patents,
trademarks, trade names, service marks, copyrights, software, trade
secrets, know-how, licenses and other proprietary rights which are used
or held for use in the Company's business as now conducted or currently
proposed to be conducted (the "Company Intellectual Property"). The
Company Disclosure Schedule lists any and all products licensed by the
Company to third parties and any and all patents, trademarks, service
marks and copyrights used or held for use in the Company's business.
Except as set forth in the Company Disclosure Schedule, the Company has
never applied for, received or owned any rights under any patents.
(b) The Company Disclosure Schedule lists all the royalty,
commission or similar arrangements, and licenses, sublicenses or
agreements, pertaining to any of the Company Intellectual Property. The
Company Disclosure Schedule lists all outstanding options, licenses or
agreements of any kind relating to any Company Intellectual Property in
favor of any third party. Except as set forth in the Company Disclosure
Schedule, the Company is not bound by or a party to any options,
licenses or agreements of any kind with respect to the patents,
trademarks, trade names, service marks, copyrights, software, trade
secrets or know-how, licenses, information, proprietary rights and
other rights of any other person or entity.
(c) The Company does not infringe upon or unlawfully or
wrongfully use any patent, trademark, trade name, service mark,
copyright or trade secret owned or claimed by another. No action, suit,
proceeding or investigation has been instituted, or, to the Company's
knowledge, threatened, relating to any, patent, trademark, trade name,
service mark, copyright or trade secret formerly or currently used by
the Company in its business. None of the Company Intellectual Property
is subject to any outstanding order, decree or judgment.
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17
(d) Except as set forth on the Company Disclosure Schedule, no
present or former employee of the Company and no other Person owns or
has any proprietary, financial or other interest, direct or indirect,
in whole or in part, in any patent, trademark, trade name, service mark
or copyright, or in any application therefor, or in any trade secret,
which the Company owns, possesses or uses in its operations as now or
heretofore conducted. To the Company's knowledge, no employee of the
Company is obligated under any fiduciary duty or any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that
would conflict with the Company's business as now conducted or
currently proposed to be conducted by the Company. Each present and
former employee or consultant of the Company, and each Person to whom
the Company has disclosed confidential or proprietary information, has
executed a confidentiality agreement agreeing not to disclose the
Company's confidential or proprietary information. Each present and
former employee or consultant of the Company has executed an assignment
of inventions agreements assigning such employee's or consultant's
rights in such intellectual property to the Company and agreeing to
assist the Company in the prosecution of any and all patents therefor.
2.17 Year 2000 Compliance. All software products used in the Company's
business or sold or licensed for use by the Company to customers record, store,
process and display calendar dates falling on or after January 1, 2000, in the
same manner, and with the same functionality as such software products record,
store, process and display calendar dates falling on or before December 31,
1999.
2.18 Employee Benefit Plans and Arrangements. The Company Disclosure
Schedule sets forth a complete and accurate list of each Benefit Plan covering
any present or former officers, employees or directors of the Business. "Benefit
Plan" means each "employee pension benefit plan" (as defined in Section 3(3) of
ERISA, hereinafter a "Pension Plan"), "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA, hereinafter a "Welfare Plan") and each other
plan or arrangement (written or oral) relating to deferred compensation, bonus,
performance compensation, stock purchase, stock option, stock appreciation,
severance, vacation, sick leave, holiday pay, fringe benefits, personnel policy,
reimbursement program, incentive, insurance, welfare or similar plan, program,
policy or arrangement, in each case maintained or contributed to, or required to
be maintained or contributed to, by the Company for the benefit of any present
or former officer, employee or director employed in the United States. The
Company will not create any additional Benefit Plan or amend any Benefit Plan so
as to increase benefits thereunder except in the ordinary course of business
consistent with past practice. A current, accurate and complete copy of each
Benefit Plan has been made available to Purchaser. Except as disclosed on the
Company Disclosure Schedule:
(a) each Benefit Plan is in substantial compliance with all
reporting, disclosure and other requirements of ERISA and the Code
applicable to such Benefit Plan, including the filing of all Forms 5500
with respect to each Benefit Plan;
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18
(b) each Pension Plan which is intended to be qualified under
Section 401(a) of the Code, has been determined by the Internal Revenue
Service to be so qualified and no condition exists that would adversely
affect any such determination;
(c) neither any Benefit Plan nor the Company, nor any trustee
or agent has been or is presently engaged in any prohibited
transactions as defined by Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not applicable which could subject the
Company to the tax or penalty imposed by Section 4975 of the Code or
Section 502 of ERISA;
(d) there is no event or condition existing which could be
deemed a "reportable event" (within the meaning of Section 4043 of
ERISA) with respect to which the thirty-day notice requirement has not
been waived; to the Company's knowledge, no condition exists which
could subject the Company to a penalty under Section 4071 of ERISA;
(e) the Company is not, nor has it been, party to any
"multi-employer plan," as that term is defined in Section 3(37) of
ERISA;
(f) true and correct copies of the most recent annual report
on Form 5500 and any attached schedules for each Benefit Plan (if any
such report was required by applicable law) and a true and correct copy
of the most recent determination letter issued by the Internal Revenue
Service for each Pension Plan have been made available to Purchaser;
(g) with respect to each Benefit Plan, there are no actions,
suits or claims (other than routine claims for benefits in the ordinary
course) pending or, to the Company's knowledge, threatened against any
Benefit Plan, the Company or any trustee or agent of any Benefit Plan;
and
(h) with respect to each Benefit Plan to which the Company is
a party which constitutes a group health plan subject to Section 4980B
of the Code, each such Benefit Plan substantially complies, and in each
case has substantially complied, with all applicable requirements of
Section 4980B of the Code.
(i) Except as set forth in the Company Disclosure Schedule:
(i) there is no outstanding liability (except for premiums
due) under Title IV of ERISA with respect to any Pension Plan;
(ii) neither the Pension Benefit Guaranty Corporation nor
the Company has instituted proceedings to terminate any
Pension Plan and the Pension Benefit Guaranty Corporation has
not informed the Company of its intent to institute
proceedings to terminate any Pension Plan;
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19
(iii) full payment has been made of all amounts which
the Company was required to have paid as a contribution to the
Pension Plans as of the last day of the most recent fiscal
year of each of the Pension Plans ended prior to the date of
this Agreement, and none of the Pension Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as
of the last day of the most recent fiscal year of each such
Pension Plan ended prior to the date of this Agreement;
(iv) each of the Benefit Plans is, and its
administration is and has been during the six-year period
preceding the date of this Agreement, in substantial
compliance with, and the Company has not received any claim or
notice that any such Benefit Plan is not in compliance with,
all applicable laws and orders and prohibited transaction
exemptions, including without limitation, to the extent
applicable, the requirements of ERISA;
(v) the Company is not in default in performing any
of its contractual obligations under any of the Benefit Plans
or any related trust agreement or insurance contract;
(vi) there are no material outstanding liabilities of
any Benefit Plan other than liabilities for benefits to be
paid to participants in any such Benefit Plan and their
beneficiaries in accordance with the terms of such Benefit
Plan;
(vii) each Benefit Plan may be amended or modified by
the Company at any time without liability except under any
defined pension benefit plan;
(viii) Except as required under Section 4980B of the
Code, no Benefit Plan other than a Pension Plan, retiree
medical plan or severance plan provides benefits to any
individual after termination of employment;
(ix) the consummation of the transactions
contemplated by this Agreement will not (in and of itself) (i)
entitle any employee of the Company to severance pay,
unemployment compensation or any other payment; (ii)
accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee; (iii) result
in any liability under Title IV of ERISA; (iv) result in any
prohibited transaction described in Section 406 of ERISA or
Section 4975 of the Code for which an exemption is not
available or (v) result (either alone or in conjunction with
any other event) in the payment or series of payments by the
Company or any of its affiliates to any person of an "excess
parachute payment" within the meaning of Section 280G of the
Code;
(x) with respect to each Benefit Plan that is funded
wholly or partially through an insurance policy, all premiums
required to have been paid to date under
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20
the insurance policy have been paid, all premiums required to
be paid under the insurance policy through the Closing will
have been paid on or before the Closing and, as of the
Closing, there will be no liability of the Company under any
insurance policy or ancillary agreement with respect to such
insurance policy in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events
occurring prior to the Closing; and
(xi) (A) each Benefit Plan that constitutes a
"welfare benefit plan," within the meaning of Section 3(1) of
ERISA, and for which contributions are claimed by the Company
as deductions under any provision of the Code, is in material
compliance with all applicable requirements pertaining to such
deduction, (B) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a
welfare benefit plan, there is no disqualified benefit (within
the meaning of Section 4976(b) of the Code) that would result
in the imposition of a tax under Section 4976(a) of the Code,
and (C) all welfare benefit funds intended to be exempt from
tax under Section 501(a) of the Code have been determined by
the Internal Revenue Service to be so exempt and no event or
condition exists which would adversely affect any such
determination.
2.19 Employee Relations.
(a) The Company is not (i) a party to or otherwise bound by
any collective bargaining or other type of union agreement, (ii) a
party to, involved in or, to the knowledge of the Company, threatened
by, any labor dispute or unfair labor practice charge, or (iii)
currently negotiating any collective bargaining agreement, and the
Company has not experienced any work stoppage during the last three
years. The Company Disclosure Schedule sets forth the names and current
annual salary rates or current hourly wages of all present employees of
the Company.
(b) The Company is in compliance in all material respects with
all applicable laws, ordinances, or governmental or regulatory rules or
regulations, whether federal, state, local or foreign, to which the
Company is subject ("Regulations") respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
is not engaged in any unfair labor practice. There are no outstanding
claims against the Company (whether under any Regulation, Contract,
policy or otherwise) asserted by or on behalf of any present or former
employee or job applicant of the Company on account of or for (i)
overtime pay, other than overtime pay for work done in the current
payroll period, (ii) wages or salary for any period other than the
current payroll period, (iii) any amount of vacation pay or pay in lieu
of vacation time off, other than vacation time off or pay in lieu
thereof earned in or in respect of the current fiscal year, (iv) any
amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any
violation of any statute, ordinance, order, rule or regulation relating
to plant closings, employment terminations or layoffs, including but
not limited to the Worker Adjustment and
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21
Retraining Notification Act, (viii) any violation of any statute,
ordinance, order, rule or other Regulation relating to employee
"whistle blower" or "right-to-know" rights and protection, (ix) any
violation of any statute, ordinance, order, rule or other Regulation
relating to the employment obligations of federal contractors or
subcontractors or (x) any violation of any Regulation relating to
minimum wages or maximum hours of work, and the Company is not aware of
any such claims which have not been asserted. No Person (including any
governmental body) has asserted or threatened any claims against the
Company arising under or arising out of any Regulation relating to
discrimination or occupational safety in employment or employment
practices. Each employee of the Company is and, upon consummation of
the Acquisition, will be legally able to work in the United States.
2.20 Compliance with Law; Authorizations. The Company has materially
complied with each, and is not in material violation of any Regulations to which
it is subject. The Company owns, holds, possesses or lawfully uses all
franchises, licenses, permits, easements, rights, applications, filings,
registrations and other authorizations ("Authorizations") which are materially
necessary for it to conduct its business as now or previously conducted or for
the ownership and use of the assets owned or used by the Company in the conduct
of the business free and clear of all Liens other than Permitted Liens and in
material compliance with all Regulations. The Company is not in default, nor has
the Company received any notice of any claim of default, with respect to any
such Authorization. All such Authorizations are renewable by their terms or in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
None of such Authorizations will be adversely affected by consummation of the
Acquisition. No shareholder, director, officer, employee or former employee of
the Company, or any other person, firm or corporation owns or has any
proprietary, financial or other interest (direct or indirect) in any
Authorization which the Company owns, possesses or uses in the operation of the
business as now or previously conducted.
2.21 Environmental and Health/Safety Matters.
(a) The Company is and has at all times operated its business
in compliance with all applicable Environmental Laws.
(b) The Company has obtained, maintained and complied with all
environmental permits required for the operation of the business and
such permits will continue to remain in effect without any change to
their respective terms and conditions after the Acquisition.
(c) No Hazardous Substances have been generated, transported,
stored, treated, recycled or otherwise handled in any way in the
operation of the business.
(d) No Hazardous Substances are located on, contained in or
otherwise form a part of the assets of the Company or properties
currently owned or operated by the Company.
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22
(e) There is no information indicating that any Person may
have impaired health as the result of the operation of the business or
the ownership or use of any assets or properties of the Company or as
the result of the release of Hazardous Substances from such assets or
properties.
(f) The Company has not received any notice from any
Governmental Body or other Person advising that it is potentially
responsible for response costs with respect to a release or threatened
release of Hazardous Substances.
(g) To the actual knowledge of the Company and the Principal
Shareholders, no underground storage tanks are or ever were located on
property currently or formerly owned or operated by the Company.
(h) No Order, litigation, settlement or citation with respect
to Hazardous Substances exists with respect to the Company or in
connection with the operation of business.
(i) There has been no environmental investigation conducted by
any Governmental Body with respect to the Company or in connection with
the operation of the business nor is any such investigation pending.
(j) To the actual knowledge of the Company and the Principal
Shareholders, there are no PCBs which are located on, contained in or
otherwise form a part of any of the assets or properties of the
Company.
(k) The Company has provided to Purchaser true and complete
copies of, or access to, all written environmental assessment materials
and reports in their possession that have been prepared by or on behalf
of the Company during the past five years.
2.22 Suppliers and Customers. Except as set forth on the Company
Disclosure Schedule, there are no material agreements which commit the Company
to carry on business at fixed prices or prices determined by an established
formula. No supplier or customer who accounted for more than five percent of the
Company's total sales or purchases in either of the past two fiscal years and no
other supplier or customer material to the business of the Company has
terminated its relationship with the Company, has during the past fiscal year
decreased or delayed materially, or, to the Company's knowledge, threatened to
decrease or delay materially its services or supplies to the Company or decrease
its usage of the Company's products or services. To the Company's actual
knowledge, no customer or supplier material to the business of the Company will
terminate or significantly change its relationship in a manner materially
adverse to the Company as a result of the consummation of the Acquisition. The
Company has delivered to Purchaser a complete and accurate list of: (a) each
supplier from whom purchases exceeded $25,000 for the last fiscal year; (b) each
customer to whom sales exceeded $50,000 for the last fiscal year and the
aggregate sales with respect
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23
to each such customer; and (c) each supplier who constitutes a single source of
supply to the Company and from whom purchases exceeded $25,000 for the last
fiscal year.
2.23 Transactions With Affiliates. There is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding, or other
arrangement of any kind entered into by the Company with any officer, director
or Shareholder, or any affiliate of any of them, except in each case, for (a)
employment agreements, fringe benefits and other compensation paid to directors
and officers consistent with previously established policies (including normal
merit increases in such compensation in the ordinary course of business) and
copies of which have been provided to Purchaser; and (b) reimbursements of
ordinary and necessary expenses incurred in connection with their employment,
and amounts paid pursuant to employee benefit plans of which copies have been
provided to Purchaser.
2.24 Payments. The Company has not paid or delivered any fee,
commission or other sum of money or item or property to any finder, agent,
government official or other party, in the United States or any other country,
which is related to the business or operations of the Company, which the Company
knows or has reason to believe to have been illegal under any federal, state or
local laws of the United States or any other country having jurisdiction; and
the Company has not participated in any illegal boycotts or other similar
practices affecting any of its actual or potential customers. The Company is in
compliance with the Foreign Corrupt Practices Act.
2.25 Corporate Records. The stock certificates, transfer books and
minute books of the Company have been made available to Purchaser and are true
and complete and constitute all of the stock certificates, transfer books and
minute books thereof. All copies of agreements, written contracts and documents
delivered and to be delivered hereunder by the Company are and will be true and
complete copies of such agreements, contracts and documents.
2.26 Insurance. As of the date hereof, the Company is covered under
insurance policies and programs which provide coverage to the Company by
insurers of recognized financial responsibility and solvency against such losses
and risks and in such amounts as are customary in the type and size of business
in which it is engaged; true, complete and correct copies of all such policies
and programs have heretofore been furnished to Purchaser. All material policies
of insurance and fidelity or surety bonds insuring the Company or its business,
assets, employees, officers and directors are in full force and effect and do
not provide for any retrospective premium based adjustment or other
experience-based liability on the part of the Company. As of the date hereof,
there are no material claims by the Company under any such policy or instrument
as to which any insurance company is denying liability or defending under a
reservation of rights clause. All necessary notifications of claims have been
made to insurance carriers. The Company Disclosure Schedule describes any
self-insurance arrangements maintained by the Company, including the basis used
to establish the reserves thereunder.
2.27 Brokers; Payments. Other than the fee of $195,000 payable to
Platinum (which shall be deducted from the Base Price under Section 1.3), no
broker, investment banker, financial advisor
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24
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company.
No valid claim exists against the Company or, based on any action by the
Company, against Purchaser for payment of any "topping," "break-up" or "bust-up"
fee or any similar compensation or payment arrangement as a result of the
transactions contemplated hereby.
2.28 Completeness of Disclosure. No representation or warranty by the
Company or either Principal Shareholder in this Agreement or any certificate,
schedule, statement, document or instrument furnished or to be furnished to
Purchaser pursuant hereto, or in connection with the negotiation, execution or
performance of this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as disclosed in a document attached to this Agreement referring
specifically to the representations and warranties in this Agreement which
reasonably identifies an exception to a representation and warranty in this
Agreement (the "Purchaser Disclosure Schedule"), Purchaser represents and
warrants to the Company and the Principal Shareholders as set forth below.
3.1 Organization and Standing. Purchaser is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws.
3.2 Authorization. Purchaser has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by Purchaser and the consummation
by Purchaser of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Purchaser and no other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except that such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and that such
enforceability is subject to general principles of equity.
3.3 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement by Purchaser does not and will not violate,
conflict with or result in the breach of any term, condition or provision of (a)
any law, ordinance, or governmental rule or regulation to which Purchaser is
subject, (b) any judgment, order, writ, injunction, decree or award of any
Governmental Entity which is applicable to Purchaser, (c) the charter documents
of Purchaser or any securities issued by Purchaser, or (d) any material
mortgage, indenture, agreement, contract, commitment, lease, plan, or other
instrument, document or understanding, oral or written, to which Purchaser is
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25
a party, by which Purchaser may have rights or by which any of the assets of
Purchaser may be bound or affected, or give any party with rights thereunder the
right to terminate, modify, accelerate or otherwise materially change the
existing rights or obligations of Purchaser thereunder. Except as aforesaid, no
authorization, approval or consent of, and no registration or filing with, any
Governmental Entity is required in connection with the execution, delivery or
performance of this Agreement by Purchaser.
3.4 Governmental Consent. etc. No consent, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity, is required by or with respect to Purchaser in connection with the
execution and delivery of this Agreement or the consummation by Purchaser of the
Acquisition.
3.5 Financial Capacity. Purchaser has the requisite financial capacity
to make the Closing Payment and otherwise consummate the transactions
contemplated by this Agreement.
ARTICLE IV -- COVENANTS
4.1 [INTENTIONALLY OMITTED].
4.2 [INTENTIONALLY OMITTED].
4.3 Public Announcements. Neither Purchaser nor the Company or any
Principal Shareholder shall make any press release or other written public
statement or announcement concerning the transactions contemplated by this
Agreement without the approval of the other parties hereto; provided, however,
that Purchaser may, without such approval, make such press releases or other
written public statements or announcements as it believes are required by
applicable Regulations or the rules of The Nasdaq Stock Market.
4.4 Expenses. Purchaser, the Company and the Principal Shareholders
shall each bear their own costs and expenses in connection with the Letter of
Intent, dated February 9, 1998 (the "Letter of Intent"), this Agreement and the
transactions contemplated thereby and hereby; provided, however, in the event
the Acquisition is consummated, the amount of all attorney, accountant,
professional and finder's or similar fees, including, without limitation, the
fee of Platinum, incurred by the Company or the Principal Shareholders up to and
including the Closing Date in connection with the Letter of Intent, this
Agreement and the Acquisition shall be deemed "Acquisition Adjustments," shall
be deducted from the Base Price under Section 1.3 and paid by Purchaser upon
presentation of invoices satisfactory to Purchaser. In the event that the
Acquisition is not consummated, Purchaser shall pay, upon presentation of
satisfactory invoices therefor, the lesser of (i) the accounting and legal fees
actually incurred by the Company and the Principal Shareholders in connection
with the negotiation of this Agreement or (ii) $25,000.
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4.5 Shareholder Releases. Each Principal Shareholder hereby releases
and discharges the Company and its successors and assigns (collectively, the
"Releasees") of and from any and all claims, demands, debts, accounts,
covenants, agreements, obligations, costs, expenses, actions or causes of action
of every nature, character or description, now accrued or which may hereafter
accrue, in law, equity or otherwise, based in whole or in part on any facts,
conduct, activities, transactions, events or occurrences known or unknown, which
have or allegedly have existed, occurred, happened, arisen or transpired prior
to the consummation of the Acquisition (the "Released Claims"); provided,
however, the Released Claims shall not be deemed to include (a) the Company's
obligation to repay the loans from the Principal Shareholders set forth in
Schedule 1.2 in the aggregate amount of $200,000, or (b) any obligation of the
Company to indemnify the Principal Shareholders if the Company fails to perform
those obligations guaranteed by the Principal Shareholders under the equipment
leases set forth on the Company Disclosure Schedule. Each Principal Shareholder
represents and warrants that he or she has the sole authority to release the
Released Claims. Each Principal Shareholder agrees that such holder shall
forever refrain and forbear from commencing, instituting or prosecuting any
lawsuit, action or proceeding, judicial, administrative, or otherwise, or
otherwise attempting to collect or enforce any Released Claims which are
released and discharged herein.
4.6 Restrictive Covenants.
(a) Each Principal Shareholder covenants that for the period
commencing on the Closing Date and ending on the third anniversary
thereof (the "Noncompetition Period"), such Principal Shareholder shall
not engage in, directly or indirectly, whether as a principal, partner,
director, officer, agent, employee, consultant or in any other
capacity, or have any direct or indirect ownership interest in, or
permit such Principal Shareholder's name to be used in connection with,
any business, including, without limitation, any in-house information
technology or services group or other department of a client or
prospective client of the Company or its Affiliates providing similar
services within an organization, anywhere in the United States, which
is engaged, either directly or indirectly, in competition with the
Company or its Affiliates, during such period in (i) providing problem
resolution software and implementation (knowledge engineering and/or
document engineering) services for any such problem resolution
software, or (ii) providing any other product and/or technology for
license or sale as part of a packaged solution under development by the
Company during the period of such Principal Shareholder's employment by
the Company (the "Restricted Business"). It is recognized by each
Principal Shareholder that the Restricted Business is expected to be
conducted throughout the United States and that more narrow
geographical limitations of any nature on this non-competition covenant
(and the non-solicitation covenant set forth in Section 4.6(b)) are
therefore not appropriate. The foregoing restriction shall not be
construed to prohibit the ownership by a Principal Shareholder as a
passive investment of not more than two percent (2%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended. As used herein,
the term "Affiliate" shall mean
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any individual, corporation, partnership or other entity which directly
or indirectly controls, is controlled by or is under common control
with, the Company.
(b) Each Principal Shareholder covenants that during the
Noncompetition Period, such Principal Shareholder will not, either
directly or indirectly, (i) call on or solicit any client or
prospective client of the Company or Purchaser for the purpose of
providing services and products in the Restricted Business, or (ii)
solicit the employment of any person who is employed by the Company or
Purchaser during such period on a full- or part-time basis. As used
herein, the term "client" means any corporation or other Person, or
division or department thereof, for whom the Company or Purchaser has
performed billable or reimbursable services during the one year period
immediately preceding the Closing Date or for whom the Company or
Purchaser actually performs billable or reimbursable services during
the Noncompetition Period. As used herein, the term "prospective
client" means any corporation or other Person, or division or
department thereof, to whom the Company or Purchaser has submitted a
written proposal or otherwise made direct contact regarding a specific
project opportunity during the six month period immediately preceding
the termination of such Principal Shareholder's employment with the
Company.
(c) Each Principal Shareholder recognizes and acknowledges
that by reason of such Principal Shareholder's ownership of and/or
employment by the Company such Principal Shareholder has had access to
Confidential Information relating to the Restricted Business. Each
Principal Shareholder acknowledges that such Confidential Information
is a valuable and unique asset and covenants that such Principal
Shareholder will not disclose any such Confidential Information after
the Closing Date to any person for any reason whatsoever, unless such
Principal Shareholder can show that such information (a) is in the
public domain through no wrongful act of such Principal Shareholder,
(b) has been rightfully received from a third party without restriction
and without breach of this Agreement or (c) is required by law so to be
disclosed (provided that such Principal Shareholder shall have given
Purchaser notice of such requirement and full opportunity to contest
such disclosure).
(d) Each Principal Shareholder acknowledges that the
restrictions contained in this Section 4.6 are reasonable and necessary
to protect the legitimate interests of Purchaser and constitute a
material inducement to Purchaser to enter into this Agreement and
consummate the Acquisition. Each Principal Shareholder acknowledges
that any violation of this Section 4.6 will result in irreparable
injury to Purchaser and agrees that Purchaser shall be entitled to
preliminary and permanent injunctive relief, without the necessity of
proving actual damages, as well as an equitable accounting of all
earnings, profits and other benefits arising from any violation of this
Section 4.6, which rights shall be cumulative and in addition to any
other rights or remedies to which Purchaser may be entitled.
(e) In the event that any covenant contained in this Section
4.6 should ever be adjudicated to exceed the time, geographic, product
or service, or other limitations permitted by applicable law in any
jurisdiction, then any court is expressly empowered to reform such
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covenant, and such covenant shall be deemed reformed, in such
jurisdiction to the maximum time, geographic, product or service, or
other limitations permitted by applicable law. The covenants contained
in this Section 4.6 and each provision thereof are severable and
distinct covenants and provisions. The invalidity or unenforceability
of any such covenant or provision as written shall not invalidate or
render unenforceable the remaining covenants or provisions hereof, and
any such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such covenant or provision in any
other jurisdiction.
(g) The covenants set forth in this Section 4.6 shall be in
addition to and not in limitation of any similar covenants set forth in
any employment agreement between the Company or Purchaser or any of
their Affiliates and any Principal Shareholder
4.7 Exclusive Dealing. From the date hereof until termination of this
Agreement pursuant to Section 6.1, the Company and the Principal Shareholders
agree that neither they nor any of their Affiliates shall, and they shall cause
their employees, agents and representatives (including, without limitation, any
investment banking, legal or accounting firm retained by it and any individual
member or employee of the foregoing) (each, an "Agent") not to (a) initiate,
solicit or seek, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders or any of them) with respect to a merger,
acquisition, consolidation, recapitalization, liquidation, dissolution or
similar transaction involving, or any purchase of all or any substantial portion
of the assets or any equity securities of, the Company (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"), or (b) engage
in any negotiations concerning, or provide any confidential information or data
to, or have any substantive discussions with, any person relating to an
Acquisition Proposal, or (c) otherwise cooperate in any effort or attempt to
make, implement or accept an Acquisition Proposal. The Company and the Principal
Shareholders and its and their respective Affiliates and Agents shall
immediately cease and cause to be terminated any existing activities, including
discussions or negotiations with any parties, conducted heretofore with respect
to any Acquisition Proposal and shall take the necessary steps to inform the
individuals and entities referred to in the first sentence hereof of the
obligations undertaken in this Section 4.7. The Company shall notify Purchaser
immediately if any inquiries, proposals or offers related to an Acquisition
Proposal are received by, any confidential information or data is requested
from, or any negotiations or discussions related to an Acquisition Proposal are
sought to be initiated or continued with, it or any individual or entity
referred to in the first sentence of this Section 4.7.
4.8 Further Assurances. Each party hereto shall use its best efforts to
ensure that on the Closing Date its representations and warranties contained in
this Agreement shall be true, as though such representations and warranties were
made on and as of such date. Each party hereto shall use its reasonable best
efforts to cause all of the conditions to its obligations under this Agreement
to be satisfied on or prior to the Closing Date. Each of the parties hereto
shall execute such documents and other instruments and take such further actions
as may be reasonably required or desirable to carry out the provisions hereof
and consummate the transactions contemplated hereby. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its respective
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reasonable best efforts to (i) take or cause to be taken all actions and to do
or cause to be done all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and (ii) obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings.
4.9 Organization of the Company Following Closing. Purchaser shall
maintain the Company as a wholly owned subsidiary of Purchaser for the period
commencing on the Closing Date and ending on December 31, 1998, and shall
finance a mutually agreed upon 1998 operating plan on an ongoing basis through
intercompany loans or credits. It is the present intent of Purchaser to preserve
the Company's existing management team for such period reporting to the senior
management of Purchaser.
4.10 Conduct of the Business Following Closing. Purchaser covenants
that, for the period commencing on the Closing Date and ending on December 31,
1998, Purchaser shall not (i) sell, transfer, or assign to any third party a
material portion of its rights to the products consituting the IQ Support
Solution Suite of products except for the license, sale, marketing and
distribution of such products to third parties in the ordinary course of
business or (ii) sell all the stock of the Company to any third party (together,
"Prohibited Transfer") other than in connection with a merger of the Company to
reincorporate the Company in a different jurisdiction. In the event that
Purchaser engages in a Prohibited Transfer prior to December 31, 1998, Purchaser
shall pay to each Shareholder such Shareholder's Pro Rata Share of $2.5 million
less the Earn-Out Acquisition Adjustments and Purchaser shall have no further
liability to pay any additional Earn-Out Payment to the Shareholders.
ARTICLE V -- CONDITIONS
5.1 Condition to Each Party's Obligations. The respective obligations
of Purchaser, the Company and the Principal Shareholders to consummate the
Acquisition are subject to the fulfillment of each of the following condition,
unless waived in writing by all of such parties:
(a) Governmental and Regulatory Consents. No Governmental
Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, temporary restraining order, preliminary or permanent
injunction or other legal restraint or prohibition which is in effect
on the Closing Date and prohibits the consummation of the Closing.
5.2 Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the Acquisition are also subject to the fulfillment
prior to the Closing of the following conditions unless waived in writing by
Purchaser:
(a) Representations and Warranties of the Company and the
Principal Shareholders. The representations and warranties of the
Company and the Principal Shareholders set forth in this Agreement
shall be true and correct as of the date of this
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Agreement and as of the Closing Date as though made on and as of the
Closing Date, and Purchaser shall have received a certificate signed on
behalf of the Company by the President of the Company and by each
Principal Shareholder to such effect.
(b) Performance of Obligations of the Company and the
Principal Shareholders. The Company and the Principal Shareholders
shall have performed all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, and Purchaser
shall have received a certificate signed on behalf of the Company by
the President of the Company and by each Principal Shareholder to such
effect.
(c) No Material Adverse Change. There shall have been no
material adverse change in the business, financial condition, results
of operations or assets of the Company from the date hereof through the
Closing Date, and Purchaser shall have received a certificate signed on
behalf of the Company by the President of the Company and by each
Principal Shareholder to such effect on the Closing Date.
(d) No Injunction; No Litigation. No provision of any
applicable law or regulation and no judgment, injunction, order or
decree shall restrain, prohibit or otherwise interfere with the
effective operation or enjoyment by Purchaser of the Company or any
material asset thereof. There shall not be pending or threatened by any
Governmental Entity or other Person any suit, action or proceeding, (i)
challenging or seeking to restrain or prohibit the purchase and sale of
any of the Shares or any of the other transactions contemplated by this
Agreement or seeking to obtain from Purchaser in connection with the
purchase and sale of the Shares any damages, (ii) seeking to prohibit
or limit the ownership by Purchaser of the Shares or operation of the
Company, or to compel Purchaser to dispose of or hold separate any
material portion of the assets of the Company or any of the Shares or
(iii) seeking to prohibit Purchaser from effectively controlling in any
material respect any portion of the Shares or the Company.
(e) Legal Opinion. Purchaser shall have received an opinion of
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP, counsel to the
Company, dated the Closing Date, in the form attached hereto as Exhibit
A.
(f) Exchange; Cancellation of Options. Each of the
Shareholders shall have surrendered for exchange to Purchaser all of
the Shares owned by such Shareholder and shall have delivered to
Purchaser a duly executed transmittal letter in the form attached
hereto as Exhibit B. All options and other rights to acquire shares of
the Company's capital stock shall have been exercised or canceled
without liability to the Company or Purchaser.
(g) Resignation of Directors and Officers. The directors and
officers of the Company in office immediately prior to the Closing
shall have resigned as directors and officers of the Company effective
as of the Closing.
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(h) Employment Agreements. Each of the Principal Shareholders,
Janet Suydam, David Lewy, Eugene Podgorbunskikh and Nicolas Straguzzi
shall have executed and delivered Employment Agreements in the forms
attached hereto as Exhibits C-1, C-2, C-3, C-4, C-5 and C-6,
respectively.
(i) Consents. The Principal Shareholders and the Company shall
have obtained all consents required to consummate the Acquisition and
all other consents in connection with the transactions contemplated
hereby.
(j) Termination of Shareholders Agreement. The Shareholders
Agreement dated December 16, 1997 between the Company and the Principal
Shareholders shall have been terminated and the Principal Shareholders
shall have presented evidence of such termination satisfactory to
Purchaser.
(k) Customers. The Company and Purchaser shall have advised U
S WEST, Aspect, CellularOne Boston, Bell Atlantic Mobile, Phillips and
AT&T Intellectual Property Group of the Acquisition and the other
transactions contemplated by this Agreement and neither the Company nor
Purchaser shall have received any indication from any such customer or
potential customer, that such customer will terminate or alter its
relationship with the Company in a manner adverse to the Company as a
result of the consummation of the Acquisition.
(l) Lease. One Ethel Road Associates, L.P. (the "Lessor")
shall have waived any and all rights to terminate the lease dated June
18, 1993 as amended on July 8, 1997 between Lessor and the Company (the
"Lease") based on any breach or default of the Company under the Lease
on or prior to the Closing Date and the Company shall have presented
evidence of such waiver satisfactory to Purchaser.
(m) Lucent Technologies. Lucent Technologies ("Lucent") shall
have waived any and all rights to terminate the Software Development
and Licensing Agreement between Lucent (formerly AT&T Corp.) and the
Company effective January 2, 1992 relating to Help Desk Software, as
modified by letter dated January 10, 1997 (the "Lucent Agreement")
based on any breach or default of the Company under the Lucent
Agreement on or prior to the Closing Date and the Company shall have
presented evidence of such waiver satisfactory to Purchaser.
(n) Schedule of Indebtedness. The Company shall have presented
a schedule of all Indebtedness of the Company outstanding as of the
Closing Date certified by the President and each Principal Shareholder.
(o) American Management Systems, Incorporated. American
Management Systems, Incorporated shall have waived any and all rights
(i) to be issued additional securities of the Company in connection
with the issuance of any shares of Common Stock
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to participants in the Company's Stock Option Plan and (ii) to require
that the Company offer to sell to it any such additional securities to
be offered to such participants under the Company's Stock Option Plan
or any units in the Company's 1994 Value Participation Plan.
(p) Release of Liens. The Company and the Principal
Shareholders shall have provided Purchaser with evidence satisfactory
to Purchaser that, upon payment of $530,269.68 (at March 19, 1998, per
diem $153.84) to Banco Popular FSB, any and all Indebtedness to Banco
Popular FSB shall be discharged in full without penalty or further
obligation and any all Liens in favor of Banco Popular FSB granted by
the Company and the Principal Shareholders shall be released.
5.3 Conditions to Obligations of the Company and the Principal
Shareholders. The obligations of the Company and the Principal Shareholders to
consummate the Acquisition are also subject to the fulfillment prior to the
Closing of each of the following conditions unless waived in writing by the
Company or the Principal Shareholders:
(a) Representations and Warranties of Purchaser. The
representations and warranties of Purchaser set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, and the
Company shall have received a certificate signed on behalf of Purchaser
by the President or Executive Vice President of Purchaser to such
effect.
(b) Performance of Obligations of Purchaser. Purchaser shall
have performed all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Purchaser by the
President or Executive Vice President of Purchaser to such effect.
(c) Legal Opinion. The Company shall have received an opinion
of Morgan, Lewis & Bockius LLP, counsel to Purchaser, dated the Closing
Date, in the form attached hereto as Exhibit D.
(d) Employment Agreements. The Company and Purchaser shall
each have executed and delivered the Employment Agreements in the forms
attached hereto as Exhibits C-1, C-2, C-3, C-4, C-5 and C-6.
ARTICLE VI -- TERMINATION, AMENDMENT AND WAIVER
6.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of the Company and Purchaser;
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(b) by the Company or the Principal Shareholders, (i) at any
time if the representations and warranties of Purchaser contained in
Article 3 hereof were incorrect in any material respect when made or at
any time thereafter, or (ii) upon written notice to Purchaser given at
any time after March 31, 1998 (or such later date as shall have been
specified in a writing authorized on behalf of the Company, the
Principal Shareholders and Purchaser) if all of the conditions
precedent set forth in Sections 5.1 and 5.3 hereof have not been met;
or
(c) by Purchaser, (i) at any time if the representations and
warranties of the Company and the Principal Shareholders contained in
Article 2 hereof were incorrect in any material respect when made or at
any time thereafter, or (ii) upon written notice to the Company and the
Principal Shareholders given at any time after March 31, 1998 (or such
later date as shall have been specified in a writing authorized on
behalf of the Company, the Principal Shareholders and Purchaser) if all
of the conditions precedent set forth in Sections 5.1 and 5.2 hereof
have not been met; provided, however, in the event that the Acquisition
is not consummated, Purchaser shall pay, upon presentation of
satisfactory invoices therefor, the lesser of (i) the accounting and
legal fees actually incurred by the Company and the Principal
Shareholders in connection with the negotiation of this Agreement or
(ii) $25,000.
6.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 6.1, this Agreement shall forthwith become void
and of no effect, and there shall be no liability on the part of Purchaser, the
Principal Shareholders or the Company, except as set forth in Section 6.3 and
further except that Section 6.2 and Article 8 hereof shall survive any such
termination.
6.3 Remedies. Any party terminating this Agreement pursuant to Section
6.1(b) or (c) shall have the right to recover damages sustained by such party if
the basis for termination is a result of the other party's fraud or willful and
intentional breach of its obligations hereunder, provided that the party seeking
relief is not in breach of its obligations hereunder.
6.4 Amendments and Waivers. This Agreement may not be amended except by
an instrument in writing signed by or on behalf of the Company, the Principal
Shareholders and Purchaser. Purchaser may waive compliance by the Company or any
Principal Shareholder, and the Company and the Principal Shareholders may waive
compliance by Purchaser, by an instrument in writing signed by or on behalf of
the party waiving compliance, with any term or provision of this Agreement that
the other party was or is obligated to comply with or perform.
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ARTICLE VII -- INDEMNIFICATION
7.1 Survival. The representations, warranties, covenants and
agreements of the Company, the Principal Shareholders and Purchaser contained in
this Agreement shall survive the Closing for a period of eighteen (18) months
following the Closing Date, except that (a) the representations, warranties and
covenants of the Company and the Principal Shareholders set forth in Sections
2.10, 2.18, 7.2(a)(iii) and 7.2(a)(iv) shall survive the Closing for a period
ending upon the expiration of the applicable statutes of limitations. In the
event notice of any claim for indemnification shall have been given within the
applicable survival period, the representations and warranties that are the
subject of such indemnification claim shall survive until such claim is finally
resolved.
7.2 Indemnification by the Principal Shareholders.
(a) Subject to Section 7.3, each Principal Shareholder (the
"Seller Indemnifying Parties") shall, jointly and severally, indemnify
and, subject to Section 7.6, defend Purchaser and its Affiliates,
officers, directors and employees, (the "Purchaser Indemnified
Parties") against, and shall hold them harmless from, any loss,
liability, claim, charge, action, suit, proceeding, assessed interest,
penalty, damage, Tax or expense (including legal fees and expenses)
(collectively, "Losses") resulting from, arising out of, or incurred by
any Purchaser Indemnified Party in connection with, or otherwise with
respect to (i) any breach or failure of a representation or warranty by
the Company or any Principal Shareholder contained in this Agreement,
(ii) any breach of any covenant of the Company or any Principal
Shareholder contained in this Agreement or in any other agreements,
instruments or certificates to be executed and delivered pursuant
hereto, (iii) any failure by the Company timely to file any Form 5500
in proper form with respect to any Benefit Plan and without regard to
whether any such failure has been disclosed in the Company Disclosure
Schedule, and (iv) the matter disclosed in Section 2.12 of the Company
Disclosure Schedule.
(b) The Seller Indemnifying Parties shall not, in the defense
of any claim or other matter pursuant to Section 7.2(a), consent to
entry of any judgment (other than a judgment of dismissal on the merits
without costs) or enter into any settlement, except with the written
consent of the Purchaser Indemnified Parties, which does not include as
an unconditional term thereof the giving by the claimant or the
plaintiff to the Purchaser Indemnified Party of a release from all
liability in respect of such claim or matter or which imposes any form
of relief other than monetary damages.
(c) If the Seller Indemnifying Parties do not assume the
defense of any such claim by a third party, or litigation resulting
therefrom, after receipt of written notice from the Purchaser
Indemnified Parties, the Purchaser Indemnified Parties may defend
against such claim or litigation in such manner they deem appropriate
at the expense of the Seller Indemnifying Parties and the costs of such
defense shall be deemed "Losses" for which Purchaser Indemnified
Parties are entitled to indemnification for all purposes hereunder.
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35
7.3 Limitations.
(a) Except as provided in Section 7.3(b) and (c), the Seller
Indemnifying Parties shall not be liable to the Purchaser Indemnified
Parties for (i) any Losses until the aggregate amount of all Losses as
to which claims have been asserted exceeds $50,000 (the "Seller
Indemnification Floor"), or (ii) any Loss reimbursed within 60 days of
the incurrence of such Loss by insurance carriers; provided, however,
in the event that any Losses incurred by Purchaser are reimbursed by
insurance carriers following such 60-day period and Purchaser has been
indemnified by the Seller Indemnifying Parties for the amount of such
Losses, the amount so reimbursed by insurance carriers will be paid to
the Seller Indemnifying Parties. The Seller Indemnifying Parties agree
that the Company and Purchaser shall have no obligation to maintain
insurance other than against such losses and risks and in such amounts
as are customary in the type and size of business in which the Company
is engaged and shall be obligated only to pursue claims in the ordinary
course but in no event shall the Company or Purchaser be obligated to
have resort to litigation against insurance carriers in order to pursue
claims. For purposes of determining the amount of any Loss reimbursed
by any insurance carrier, the amount reimbursed shall be decreased by
any expenses incurred by the Company or Purchaser in submitting any
claim for coverage, including, without limitation, the amount of any
increase in insurance premiums, any retrospective premium adjustments
and experience-based premium adjustments. Once the Indemnification
Floor has been reached, the Seller Indemnifying Parties shall be liable
for all Losses in excess of the Seller Indemnification Floor up to an
aggregate maximum liability of $1,000,000 (the "Indemnification Cap").
(b) Any and all Losses arising from, in connection with, or
otherwise with respect to any matters set forth in Section 7.2(a)(iii)
and 7.2(a)(iv) shall be indemnified from the first dollar without
regard to the Seller Indemnification Floor and the Indemnification Cap
and any and all Losses arising from, in connection with, or otherwise
with respect to any matters set forth in Sections 2.10 or 2.18 shall be
indemnified without regard to the Indemnification Cap.
(c) Nothing contained in this Section 7.3 shall be deemed to
limit or restrict in any manner any rights or remedies which Purchaser
has, or might have, at law, in equity or otherwise, based on fraud or a
willful misrepresentation or willful breach of warranty hereunder.
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7.4 Indemnification by Purchaser.
(a) Purchaser (the "Purchaser Indemnifying Party") shall
indemnify and defend each Principal Shareholder (the "Seller
Indemnified Parties") against, and shall hold them harmless from, any
Losses resulting from, arising out of, or incurred by any Seller
Indemnified Party in connection with, or otherwise with respect to (i)
any breach or failure of a representation or warranty by Purchaser
contained in this Agreement, and (ii) any breach of any covenant of
Purchaser contained in this Agreement or in any other agreements,
instruments or certificates to be executed and delivered pursuant
hereto.
(b) Subject to a maximum of the personally guaranteed amount
set forth in the guarantees attached to the applicable lease schedules,
Purchaser shall indemnify the Principal Shareholders against any Losses
incurred by such Principal Shareholders as a result of the Company's
failure to satisfy the Company's obligations under the applicable
equipment lease schedules set forth on Schedule 7.4(b).
7.5 Right of Setoff. In addition to any other remedies Purchaser may
have for Losses described in Section 7.2 hereof, Purchaser may setoff the amount
of such Losses against any Earn-Out Payment due to the Principal Shareholders
under Section 1.3(c). The parties agree and acknowledge that Purchaser's
recourse to any Earn-Out Payment due to the Principal Shareholders shall be
without prejudice to any and all other remedies Purchaser may have pursuant to
this Article 7 or otherwise. Purchaser's remedies for Losses shall not be
limited to its right of setoff against any Earn-Out Payment due to the Principal
Shareholders. In the event that any claim or claims for indemnification are
pending against the Principal Shareholders on March 31, 1999, the Principal
Shareholders acknowledge that Purchaser may withhold from the amount of any
Earn-Out Payment otherwise due to the Principal Shareholders the amount of such
pending claim or claims (the "Withheld Amount"). Purchaser agrees that it shall
deposit the Withheld Amount into escrow with Mellon Bank, N.A. as escrow agent
pursuant to an escrow agreement reasonably satisfactory to Purchaser and the
Principal Shareholders.
7.6 Third Party Claims. If the facts giving rise to any indemnification
provided for in this Agreement involve any actual or threatened claim or demand
by any third party ("Third Party Claim") against any party entitled to
indemnification under this Article 7 (the "Indemnitee"), the Indemnitee shall
give prompt written notice of such Third Party Claim to the party obligated to
provide such indemnification (the "Indemnitor"). Failure or delay in notifying
the Indemnitor will not relieve the Indemnitor of any liability it may have to
the Indemnitee, except to the extent that such failure or delay causes actual
harm to the Indemnitor with respect to such claim. The Indemnitor will be
entitled, upon its election, by written notice given to the Indemnitee within
thirty (30) days after the date on which the Indemnitee has given notice of such
Third Party Claim to the Indemnitor (without prejudice to the right of such
Indemnitee to participate at its expense through counsel of its own choosing),
to assume the defense or prosecution of such claim and any litigation resulting
therefrom (a "Third Party Defense") at its expense and through counsel of its
own choosing reasonably
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acceptable to the Indemnitee; provided, however, that the Indemnitor shall not
have the right to assume the Third Party Defense (i) if any such claim seeks, in
addition to or in lieu of monetary damages, any injunctive or other equitable
relief, or (ii) if, in the reasonable opinion of the Indemnitee and its counsel,
there is or could reasonably be expected to be a conflict of interest between
the position of the Indemnitor and the Indemnitee, or (iii) if the amount at
issue in any actual or threatened claim against the Purchaser Indemnified
Parties, together with any other pending claims or demands, exceeds or could
reasonably be expected to exceed the Indemnification Cap, and provided further,
that if, by reason of the claim of such third party a lien, attachment,
garnishment or execution is placed upon any of the property or assets of such
Indemnitee, the Indemnitor, if it desires to exercise its right to assume such
Third Party Defense, must furnish a satisfactory indemnity bond to obtain the
prompt release of such lien, attachment, garnishment or execution. If the
Indemnitor assumes a Third Party Defense, it will take all steps necessary in
the defense, prosecution, or settlement of such claim or litigation and will
hold all Indemnitees harmless from and against all Losses caused by or arising
out of any settlement thereof (other than such Indemnitee's expenses of
participation in such defense, prosecution or settlement). No Indemnitor will,
in a Third Party Defense, except with the written consent of the Indemnitee to
which such Indemnitor is obligated to furnish indemnification pursuant to this
Agreement, consent to the entry of any judgment or enter into any settlement
which (i) does not include as an unconditional term thereof the giving to the
Indemnitee by the third party of a release from all liability in respect of such
suit, claim, action, or proceeding or (ii) imposes any form of relief other than
monetary damages.
7.7 Effect of Investigation. Any party's right to indemnification or
other remedies based upon the representations and warranties, covenants,
agreements and undertakings of the other party will not be affected by any
investigation, knowledge or waiver of any condition of such party. Any
investigation by such party shall be for its own protection only and shall not
affect or impair any right or remedy hereunder.
ARTICLE VIII -- GENERAL PROVISIONS
8.1 Contents of Agreement; Parties in Interest; etc. This Agreement
sets forth the entire understanding of the parties hereto with respect to the
Acquisition. Any and all previous agreements and understandings between or among
the parties regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement.
8.2 Assignment and Binding Effect. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other parties. Subject to the foregoing, all of the terms and provisions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective executors, heirs, personal representatives,
successors and assigns.
8.3 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given
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on the day established by the sender as having been delivered personally; on the
day delivered by a private courier as established by the sender by evidence
obtained from the courier; or on the third (3rd) day after the date mailed, by
certified or registered mail, return receipt requested, postage prepaid. Such
communications, to be valid, must be addressed as follows:
If to Purchaser, to:
Carnegie Group, Inc.
5 PPG Place
Pittsburgh, PA 15222
Attention: John W. Manzetti, Executive Vice President
With a required copy to:
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15232
Attention: Marlee S. Myers, Esq.
If to the Company to:
Advantage KBS, Inc.
1 Ethel Road
Suite 106B
Edison, NJ 08817
Attention: President
With a required copy (prior to Closing) to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP
Metro Corporate Campus One
P.O. Box 5600
Woodbridge, NJ 07095-0988
Attention: Joseph M. Oriolo, Esq.
If to the Principal Shareholders to:
DeJean Melancon
675 Beach Avenue
Atlantic Beach, FL 32233
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Eileen Weinstein
1701 Forge Pond Road
Brick, NJ 08724
With a required copy to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP
Metro Corporate Campus One
P.O. Box 5600
Woodbridge, NJ 07095-0988
Attention: Joseph M. Oriolo, Esq.
or to such other address or to the attention of person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
8.4 Delaware Law to Govern. This Agreement shall be governed by
and interpreted and enforced in accordance with the laws of the State of
Delaware, excluding any laws that would cause the laws of another jurisdiction
to apply.
8.5 No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and, in the case of Article 7 hereof, the other Indemnified
Parties, and their heirs, executors, administrators, legal representatives,
successors and assigns, and they shall not be construed as conferring any rights
on any other persons.
8.6 Headings, Gender and "Person." All section headings contained
in this Agreement are for convenience of reference only, do not form a part of
this Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine, or neuter, as the
context requires. Any reference to a "person" herein shall include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity.
8.7 Schedules and Exhibits. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
8.8 Severability. Any provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or
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unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
8.10 Specific Performance. The Company and the Principal Shareholders
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed by them in accordance with the
terms hereof and that Purchaser shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
ARTICLE IX -- DEFINITIONS
9.1 Definitions. The following terms are defined in the Section of the
Agreement set forth opposite such term below:
"Acquisition" is defined in the Preamble.
"Acquisition Adjustments" is defined in Section 1.3.
"Acquisition Proposal" is defined in Section 4.7.
"Agent" is defined in Section 4.7.
"Audited Financial Statements" is defined in Section 2.6.
"Authorizations" is defined in Section 2.20.
"Balance Sheet" is defined in Section 2.6.
"Balance Sheet Date" is defined in Section 2.6.
"Base Price" is defined in Section 1.3.
"Benefit Plan" is defined in Section 2.18.
"Closing" is defined in Section 1.2.
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"Closing Date" is defined in Section 1.2.
"Closing Payment" is defined in Section 1.3.
"Code" is defined in Section 2.10.
"Common Stock" is defined in Section 2.2.
"Company" is defined in the Preamble.
"Company Disclosure Schedule" is defined in the preamble to Article 2.
"Company Intellectual Property" is defined in Section 2.16.
"Company Options" is defined in Section 2.2.
"Contracts" is defined in Section 2.13.
"Earn-Out Payment" is defined in Section 1.3.
"Environmental Laws" means any and all applicable treaties, laws,
regulations, ordinances, enforceable requirements, binding determinations,
orders, decrees, judgments, injunctions, permits, approvals, authorizations,
licenses or binding agreements issued, promulgated or entered into by any
Governmental Entity, relating to the environment, preservation or reclamation of
natural resources, or to the management, Release or threatened Release of or
exposure to Hazardous Substances, including the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
("CERCLA"), the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et
seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., the Occupational Safety and Health
Act, 29 U.S.C. Section 651 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et. seq., the Safe Drinking
Water Act, 42 U.S.C. Section 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., and any similar or
implementing state or local law, and any non-U.S. laws and regulations of
similar import, and all amendments or regulations promulgated thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Governmental Entity" is defined in Section 2.5.
"Hazardous Substances" means all explosive or regulated radioactive
materials or substances, hazardous or toxic materials, wastes or chemicals,
petroleum and petroleum products (including crude oil or any fraction thereof),
asbestos or asbestos containing materials, and all other materials or chemicals
regulated pursuant to any Environmental Law, including materials listed in 49
C.F.R.
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Section 172.101 and materials defined as hazardous pursuant to Section 101(14)
of CERCLA (as defined above in the definition of "Environmental Laws").
"Indebtedness" is defined in Section 1.3(b).
"Indemnification Cap" is defined in Section 7.3.
"Indemnitee" is defined in Section 7.6.
"Indemnitor" is defined in Section 7.6.
"Lease" is defined in Section 2.14.
"Letter of Intent" is defined in Section 4.4.
"Liabilities" is defined in Section 2.9.
"Lien" shall mean any lien, mortgage, claim, charge, security interest,
easement, right-of-way, pledge or other encumbrance.
"Losses" is defined in Section 7.2.
"Material Adverse Effect" is defined in Section 2.1.
"Order" is defined in Section 5.1.
"Pension Plan" is defined in Section 2.18.
"Permitted Liens" is defined in Section 2.15.
"Person" shall mean any individual, corporation, partnership, joint
venture, trust, business association, organization, Governmental Entity or other
entity.
"Principal Shareholders" is defined in the introduction.
"Pro Rata Share" is defined in Section 1.3.
"Purchaser" is defined in the Preamble.
"Purchaser Disclosure Schedule" is defined in the Preamble to
Article III.
"Purchaser Indemnified Parties" is defined in Section 7.2.
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"Purchaser Indemnifying Party" is defined in Section 7.4.
"Released Claims" is defined in Section 4.5.
"Releases" is defined in Section 4.5.
"Regulations" is defined in Section 2.19.
"Restricted Business" is defined in Section 4.6.
"Seller Indemnification Floor" is defined in Section 7.3.
"Seller Indemnified Parties" is defined in Section 7.4.
"Seller Indemnifying Parties" is defined in Section 7.2.
"Shareholders" is defined in the Preamble.
"Shares" is defined in the Preamble.
"Taxes" is defined in Section 2.10.
"Tax Returns" is defined in Section 2.10.
"Third-Party Claim" is defined in Section 7.6.
"Third-Party Defense" is defined in Section 7.6.
"Treasury Shares" is defined in Section 2.2.
"Welfare Plan" is defined in Section 2.18.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Purchaser, the Company and the Principal
Shareholders have caused this Agreement to be executed as of the date first set
forth above.
CARNEGIE GROUP, INC.
By: /s/ JOHN W. MANZETTI
--------------------
John W. Manzetti
Executive Vice President
ADVANTAGE KBS, INC.
By: /s/ DEJEAN MELANCON
-------------------
DeJean Melancon
President
PRINCIPAL SHAREHOLDERS
/S/ DEJEAN MELANCON
---------------------------
DeJean Melancon
/s/ EILEEN WEINSTEIN
---------------------------
Eileen Weinstein
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