ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of theday of June, 1998, by and among
SERVINET CONSULTING GROUP, INC., a California corporation
("Seller"), Mahesh Khatwani, Gary Prioste, Gray Drohan and Keith
Matsunaga (collectively referred to herein as the "STOCKHOLDER")
and IT PARTNERS, INC. a Delaware corporation ("ITP" or
"Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged in the
business of selling and installing technology software
and providing related consulting services (the "Business");
and
WHEREAS, Seller desires to sell and Purchaser desires to
purchase certain assets of Seller, upon the terms and
subject to the conditions set forth herein;
WHEREAS, immediately following the Closing, the Purchaser
shall sell, assign, transfer, convey and deliver and ITP
No. 8, Inc., a Delaware corporation and wholly owned
subsidiary of Purchaser ("NEWCO"), shall purchase and
acquire all of Purchaser's right title and interest in
the Assets and Assumed Liabilities (as such terms are
defined herein) (the "Drop Down"); and
WHEREAS, the parties hereto desire to enter into certain
other covenants among themselves as an inducement to and
in connection with the execution, delivery and performance
of this Agreement;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached
hereto and not otherwise defined herein shall have the
following meanings for all purposes of this Agreement:
"Balance Sheet" means the Seller's audited February 28, 1998
Balance Sheet prepared in accordance with GAAP at Purchaser's
expense by Purchaser's independent accountants, Arthur Andersen,
L.L.P. and previously delivered to the Seller. Purchaser has
reviewed the Balance Sheet and, after such review, the Purchaser
and Seller have agreed upon the LTM EBITDA calculation as such
term is defined herein below and which calculation may be
adjusted in accordance with the preparation of the Final Closing
Balance Sheet as such term is defined herein below.
"Balance Sheet Date" means February 28, 1998.
"Benefit Plan" means any Plan existing at the Closing Date
or prior thereto, established or to which contributions have at
any time been made by the Seller, any ERISA Affiliate, or any
predecessor of any of the foregoing, under which any employee or
former employee of the Seller, or any beneficiary thereof, is
covered, is eligible for coverage or has benefit rights.
"Code" means the Internal Revenue Code of 1986, as amended.
"Debt" means all liabilities of the Seller as determined
under GAAP except ordinary course trade payables.
"EBITDA" means earnings before interest, taxes, depreciation
and amortization prepared in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles of the
United States applied in a manner consistent with the past
practices of the Seller.
"Governmental Authority" means any governmental, regulatory
or administrative body, agency, subdivision or authority, any
court or judicial authority, or any public, private or industry
regulatory authority, whether national, Federal, state, local or
otherwise.
"Intellectual Property" means trademarks, service marks,
trade dress, trade names, patents and copyrights and any
registration or application for any of the foregoing, and any
trade secret, invention, discovery, method of doing business,
process, know-how, including but not limited to, training
techniques, training materials, computer software (including
source and object code), databases, technology systems and
integration techniques, product design and product packaging.
"ITP Stock" means the common stock, par value $.01 per
share, of ITP.
"Knowledge," "best of knowledge," "aware" or similar
expressions mean the following with respect to (i) an individual
and (ii) a Person (other than an individual):
(i) an individual will be deemed to have
"knowledge" of a particular fact or other matter
if a prudent individual knew or should have known
if an inquiry were called for under the
circumstances.
(ii) a Person (other than an individual) will be
deemed to have "knowledge" of a particular fact or
other matter if any individual who is serving, or
who has at any time served, as a director,
officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any
time had, knowledge of such fact or other matter.
"Leases" means all real and personal property leased by
Seller and used, useful or held for use in connection with
Seller's business.
"LTM EBITDA" means EBITDA for the twelve month period
commencing on March 1, 1997 and ending on February 28, 1998.
Based on the Balance Sheet, the LTM EBITDA is $1,772,024.00.
"Material Contract" means any lease, instrument, agreement,
license or permit set forth on Schedule 3.28 of this Agreement or
any other material agreement to which the Seller is a party or by
which its properties are bound.
"NTM EBITDA" means EBITDA for the twelve month period
commencing on June 1, 1998 and ending on May 31, 1999.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union,
association or Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock
purchase, stock option, stock ownership, stock appreciation
rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice,
policy or arrangement of any kind, whether written or oral, or
whether for the benefit of a single individual or more than one
individual including, but not limited to, any "employee benefit
plan" within the meaning of Section 3(3) of ERISA..
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which
parties hereto disclose information as part of their respective
representations, warranties and covenants.
"Working Capital" means $1,200,000, which shall be the
minimum amount of cash on-hand as of the Closing Date for the
working capital cash requirements of NEWCO ("Working Capital").
At Closing, Purchaser shall deposit $1,200,000 of the Cash
Portion (as such term is defined in Section 2.1(i) herein below)
into a bank account established prior to the Closing Date (the
"Working Capital Account"). If Working Capital requirements
shall be in excess of $1,200,000 during the period between
Closing and one hundred twenty (120) days thereafter (the
"Working Capital Adjustment Period"), then STOCKHOLDER shall
contribute excess Working Capital requirements to the Working
Capital Account, or to Purchaser; provided, however, that to the
extent any additional Working Capital requirements are due to the
unavailability of a floating line of credit or alternative
financing to purchase products or services during the Working
Capital Adjustment Period, then Working Capital requirements
shall be funded by Purchaser.
During the Working Capital Adjustment Period, STOCKHOLDER
covenants and agrees to operate NEWCO's business in accordance
with Seller's past business practices. For purposes of this
Agreement, "past business practices" shall mean business
practices consistent with Seller's business practices during the
LTM period with respect, but not limited to, the payment of (i)
trade payables, (ii) payroll, (iii) Deuche Bank credit lines and
(iv) accrued expenses and (v) the billing and collection of
accounts receivable consistent with reasonable payment and
collection lag times ("Past Business Practices").
Within sixty (60) days after the conclusion of the Working
Capital Adjustment Period, Purchaser shall perform a limited
review (the "Working Capital Review") for the period ending on
the last day of the Working Capital Adjustment Period to verify
that NEWCO was operated in accordance with Seller's Past Business
Practices. If, in Purchaser's sole discretion, it determines
that NEWCO was not operated in accordance with Seller's Past
Business Practices, or if, for any other reason not specifically
excepted herein, Working Capital requirements are in excess of
$1,200,000, then STOCKHOLDER shall contribute such excess Working
Capital requirements, in Purchaser's sole discretion, to the
Working Capital Account or to Purchaser (the "Working Capital
Adjustment Shortfall"). The Working Capital Adjustment Shortfall
shall be paid by STOCKHOLDER, as determined by Purchaser, either
in cash, or by reduction of the Second Note or the Second
Convertible Note; provided, however, that if NEWCO has a business
opportunity requiring Working Capital in excess of $1,200,000,
and NEWCO receives prior written approval from Purchaser before
committing any Working Capital or entering into such business
opportunity, then such excess Working Capital requirements may be
provided by Purchaser.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, agreements, representations and warranties set
forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as
follows:
Section 1.
Sale and Purchase of the Assets
Section 1.1 Sale and Purchase. At the Closing (as defined
below), upon the terms and subject to the conditions set forth in
this Agreement, Seller shall sell, assign, transfer, convey and
deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of Seller's right, title and interest in and to all the
assets of Seller of every kind, character and description, whether
now owned or hereafter acquired by Seller prior to the Closing Date,
whether tangible or intangible, and whether real, personal or
mixed, and wherever located, which are owned, used or held for
use in connection with, generated by, derived from or
attributable to, or otherwise related to, the Business (excluding
the Excluded Assets (as defined in Section 1.2 hereof) (all of
which are collectively referred to herein as the "Assets"),
including, but not limited to, all of the following:
(a) all equipment, machinery, vehicles, office
furniture, fixtures, tools, dies, spare parts, appliances,
computer hardware, equipment and supplies, and other similar
tangible personal property, including, without limitation, the
personal property and equipment set forth on Schedule 1.1(a)
hereto;
(b) all inventories, including, without limitation,
raw materials, work in process, finished goods, inventories held
by customers on a consignment basis, stores, supplies, materials
and manufactured and purchased parts, but excluding all items of
inventory rejected by Purchaser because of Purchaser's
determination that they are either not related to the Business,
or are obsolete or inappropriately valued;
(c) all patents, trademarks, trade names, service
marks and copyrights, and all applications, registrations,
extensions, reissues and continuations thereof, all licenses and
sublicenses with respect thereto, all rights thereunder, and all
remedies against infringement thereof, including without
limitation those items set forth on Schedule 1.1(c) hereto;
(d) all technologies, materials, formulations, data
bases, trade secrets, secret processes, know how, inventions and
other intellectual property and intangible property of every kind
and nature;
(e) all computer software (including documentation and
related object and source codes);
(f) all rights and interests under orders, bids,
quotations and similar arrangements relating to the purchase or
sale of Seller's goods and services, to the extent not fulfilled
prior to the Closing Date;
(g) all rights and interests under licenses,
contracts, agreements, leases or commitments, including without
limitation, contracts providing for the lease of equipment,
machinery, office equipment, furniture and vehicles, sales
representative agreements, distributor agreements, consignment
agreements and other similar agreements, whether as principal or
agent or distribution, to the extent (i) transferable to
Purchaser and (ii) set forth on Schedule 1.1(g) hereof ("Assigned
Contracts");
(h) all franchises, approvals, permits, licenses,
qualifications, authorizations, orders, registrations,
certificates, variances, and similar rights obtained from or
issued by any Governmental Authority (as defined in Section 3.5
below), and all pending applications therefor;
(i) all rights and interests of Seller under all
warranties, guarantees and covenants not to compete for the
benefit of the Business or the Assets;
(j) all books, records, accounts, ledgers, files,
data, documents, forms, correspondence, lists, plats,
architectural plans, drawings, specifications, creative
materials, advertising and promotional literature and materials,
studies, reports, and other printed, written, machine readable,
electronic or computer-generated materials to the extent they
relate to the Assets or the Business;
(k) the name "Servinet Consulting Group, Inc." and all
variations and derivations thereof; and
(l) the Business as a going concern and all goodwill
associated therewith.
Section 1.2 Excluded Assets. Notwithstanding any provision
in Section 1.1 or elsewhere herein to the contrary, the Assets shall
not include any of the following:
(a) those Assets disposed of in the ordinary course of
business as permitted by this Agreement;
(b) all matters pertaining to Seller's corporate
existence including minute books, stock transfer books, tax
returns, and tax identifications, books of account and other
records pertaining to Seller's corporate organization; provided,
however, that Seller agrees that Purchaser, upon reasonable
notice, shall have a the right at all times to inspect all
matters pertaining to Seller's corporate existence;
(c) the consideration and all other rights accruing
to Seller under this Agreement;
(d) $1,200,000 in Working Capital;
(e) the Accounts Receivable of Seller;
(f) any Accounts Payable in excess of $500,000;
(g) the rights to all of Seller's claims for any
federal, state, local or foreign tax refunds or adjustments;
(h) any rights and interests of Seller under
contracts, agreements and commitments that are not set forth on
Schedule 1.1(g); and
(i) items of personal property, including furniture in
the office of Stockholder.
Section 1.3 Liabilities.
(a) Notwithstanding any other provision herein to the
contrary, Purchaser is not assuming and shall have no obligation
to pay, perform or discharge any liabilities, debts, accounts
payable or other obligations of Seller of any kind or nature
whatsoever, whether known or unknown, fixed or contingent,
whenever arising or accruing, other than the Assumed Liabilities
(as such term is defined in this Section 1.3).
(b) From and after the Closing Date, Purchaser shall
assume and perform the Assumed Liabilities and shall hold Seller
and Stockholder harmless therefrom. As used herein, the term
"Assumed Liabilities" means only the following:
(i) the Assigned Contracts set forth on Schedule
1.1(g) hereto; and
(ii) any trade or accounts payable in an amount
less than or equal to $500,000 of Seller
accrued prior to the Closing Date (Seller
shall provide Purchaser with a list of such
trade or accounts payable prior to the
Closing Date).
(c) Notwithstanding the foregoing, except for Assumed
Liabilities expressly and specifically set forth above, for
purposes of amplification and not of limitation Purchaser shall
not assume and shall have no obligation to pay or perform any of
the following debts, liabilities or obligations of Seller:
(i) any tax, fee or charge pertaining to the
Assets accruing on or prior to the Closing Date, including but
not limited to income, sales, use, transfer or other tax, whether
imposed on Seller or Purchaser, accruing due to the transactions
contemplated hereby;
(ii) any contract, agreement, lease or commitment
not specifically set forth on Schedule 1.1(g) hereto;
(iii)any environmental liability;
(iv) any debts, liabilities or obligations arising
under any guarantee, bond, debt, loan or credit agreement,
promissory note, mortgage, security agreement, pledge or other
similar agreement or instrument;
(v) any obligation or liability to indemnify any
person or entity (including but not limited to any officer,
director or stockholder) for any expense, loss, damage, judgment,
fine, cost, amount paid in settlement, legal fees or otherwise,
whether such indemnity is pursuant to any statute, charter
document, bylaws, agreement or otherwise;
(vi) any liability or obligation relating to any
financial indebtedness of Seller;
(vii) any debt, liability or obligation
incurred by Seller under this Agreement, or any cost or expense
incurred in connection herewith or the transactions contemplated
hereby, including, but not limited to attorney's fees and
broker's fees; or
(viii) any other debt, liability or obligation
of Seller or of the Business, fixed, contingent or otherwise,
whenever accrued, whether or not arising in the ordinary course
of business.
Section 2.
Purchase Price and Payment.
Section 2.1 Purchase Price. Purchaser has audited the
books and financial records of Seller through February 28, 1998,
and, based on such audit, Purchaser has determined the amount of
initial consideration to be paid to the Seller in payment and
consideration for the sale and transfer of the Assets by Seller to
Purchaser. Upon the terms and subject to the conditions set forth
herein, Purchaser shall assume and thereafter perform the Assumed
Liabilities of Seller set forth in Section 1.3(b) hereof and
Purchaser shall pay to Seller as consideration (the "Initial
Consideration") the amounts set forth below. The Initial
Consideration shall be paid as follows:
(i) On the Closing Date the Seller shall receive
$5,528,715.00 in cash, of which $1,200,000 shall be deposited
into the Working Capital Account (the "Cash Portion"), to be
paid by certified or bank cashier's check or by wire transfer of
immediately available funds to an account designated by Seller
and the Working Capital Account;
(ii) On the Closing Date, Purchaser shall issue
and deliver to Seller an unsecured, subordinated, convertible
promissory note in the amount of $1,488,500 (the "Convertible
Note"), substantially in the form attached hereto as Annex VI.
The Convertible Note shall be interest free and shall be payable
in full on the Maturity Date if not converted. During the term
of the Convertible Note, the principal amount of the Convertible
Note shall be convertible, at Seller's option, into common stock,
par value $ .01 per share, of Purchaser (the "Common Stock"),
which shares shall be valued at the time of conversion, if any,
at the fair market value determined in accordance with
Purchaser's common practices, or, if Purchaser has consummated an
initial public offering ("IPO"), the price of Purchaser's Common
Stock shares as traded on the public markets (the "Fair Market
Value"). If Seller exercises its conversion rights hereunder,
then Seller shall, prior to the issuance by Purchaser of any
Common Stock pursuant to this subparagraph, return the
Convertible Note to Purchaser for cancellation and execute a
Joinder Agreement substantially in the form attached hereto as
Annex IV binding it and all its shares of Purchaser Stock to the
provisions of the Stockholders' Agreements of Purchaser dated May
29, 1997, as amended form time to time (the "Stockholders'
Agreement"). Upon conversion of the Convertible Note, Seller
shall have waived any preemptive rights accorded to Stockholders
(as such term is defined in the Stockholders' Agreement) under
the Stockholders' Agreement;
(iii) On the Closing Date, Purchaser shall issue
and deliver to Seller an unsecured, subordinated promissory note
in the aggregate principal amount of $1,488,500 (the "First
Note") substantially in the form attached hereto as Annex V.
(iv) On the Closing Date, Purchaser shall assume the
Assumed Liabilities as defined herein; and
Section 2.2 Post-Closing Adjustments to Consideration.
(a) As promptly as practicable, and in any event not
more than ninety (90) days following the Closing Date, Purchaser,
together with its accountants, shall prepare and deliver to
Seller's accountants a proposed final closing balance sheet (the
"Proposed Final Closing Balance Sheet") for the period ended on
the Closing Date, prepared on a basis consistent with the
Purchaser's balance sheet. The Seller and Seller's accountants
shall have the right to consult during reasonable business hours
with appropriate personnel of Purchaser and Purchaser's
accountants and have access to, and review and make copies of,
the work papers of Purchaser and Purchaser's accountants with
respect to the preparation of the Proposed Final Closing Balance
Sheet.
(b) (i) The Seller may dispute the Proposed Final
Closing Balance Sheet prepared by Purchaser and Purchaser's
accountants by notice to Purchaser setting forth in reasonable
detail the amounts in dispute and the basis for such dispute
within forty-five (45) days of its receipt of the Proposed Final
Closing Balance Sheet. If the Seller fails to deliver a notice
of objections within such 45-day period, the Seller shall be
deemed to have accepted the Proposed Final Closing Balance Sheet
which shall then constitute the final Closing Balance Sheet (the
"Final Closing Balance Sheet").
(ii) If the balance in the Working Capital on the
Proposed Final Closing Balance is in dispute, Purchaser's
accountants and the Seller's accountants shall attempt in good
faith to resolve such dispute, and any resolution as to any
disputed amounts shall be final, binding and conclusive. If
there is no resolution of any such dispute within fifteen (15)
days of the date of receipt by Purchaser of a written notice of
dispute, Purchaser and the Seller shall, within five (5)
additional days, retain Coopers & Lybrand, L.L.P., which firm
shall, within thirty (30) days of such submission, resolve such
remaining dispute, and provide written notice of such resolution
by facsimile, confirmed by mail, and such resolution shall be
binding and conclusive. The fees and disbursements of Coopers
& Lybrand, L.L.P. shall be borne by Purchaser in the proportion
that the aggregate amount of disputed items submitted to Coopers
& Lybrand, L.L.P. are in Seller's favor, and any of the remaining
amount shall be borne by Seller. After resolving the items in
dispute, Coopers & Lybrand, L.L.P. shall prepare and deliver a
Final Closing Balance Sheet and a certification of the
conclusions thereon.
(iii) If there is any Debt on the Final
Closing Balance Sheet, then Seller shall pay to Purchaser, in
cash, the Debt amount within seven (7) days after receiving a
copy of the Final Closing Balance Sheet.
Section 2.3 Additional Consideration Based on Performance.
STOCKHOLDERS Khatwani and Prioste will, pursuant to Section 5.9 of
this Agreement, be employed by Purchaser in the management of NEWCO.
Purchaser understands that STOCKHOLDERS Khatwani and Prioste will
utilize their best efforts in managing NEWCO. The best efforts
of STOCKHOLDERS Khatwani and Prioste notwithstanding, Purchaser
expressly agrees that neither Seller or STOCKHOLDER can guarantee
the future performance of NEWCO and that the Initial
Consideration paid to Seller pursuant to Section 2.1 of this
Agreement shall not be reduced, except as expressly provided for
in this Agreement, in any manner in relation to the future
performance of NEWCO. However, according to the following terms
and conditions, within ninety (90) days after May 31, 1999, upon
presentation of financial statements accompanied by a report of
Purchaser@s accountants demonstrating that NEWCO's NTM EBITDA
(the "NTM EBITDA Calculation") exceeds $2,126,429 (120% of LTM
EBITDA), the Seller shall receive additional consideration (the
"Additional Consideration"). In no event shall such Additional
Consideration exceed (20% of the total amount of Initial
Consideration or $2,126,429). Purchaser shall pay to Seller any
Additional Consideration as follows:
(i) The amount of the Additional Consideration
shall be determined as follows:
(a) If the NTM EBITDA does not exceed
$1,772,024.00 (LTM EBITDA), then Seller shall not receive any
Additional Consideration;
(b) If the NTM EBITDA is equal to or
greater than $2,126,429.00 (120% of LTM EBITDA), then Seller
shall receive, and Purchaser shall issue and deliver to Seller:
(1) An unsecured, subordinated,
convertible promissory note in the amount of $1,063,214.50 (the
"Second Convertible Note"). The Second Convertible Note shall be
interest free and shall be payable in full on the Maturity Date
if not converted. During the term of the Second Convertible Note,
the principal amount shall be convertible, at Seller's option,
into Common Stock of Purchaser, which shares shall be valued at
the time of conversion, if any, at the Fair Market Value. If
Seller exercises its conversion rights hereunder, then Seller
shall, prior to the issuance by Purchaser of any Common Stock
pursuant to this subparagraph, return the Second Convertible Note
to Purchaser for cancellation and execute a Joinder Agreement
substantially in the form attached hereto as Annex IV binding it
and all its shares of Purchaser Stock to the provisions of the
Stockholders' Agreements of ITP dated March 30, 1998, as amended
from time to time (the "Stockholders' Agreement"). Upon
conversion of the Convertible Note, Seller shall have waived any
preemptive rights accorded to Stockholders (as such term is
defined in the Stockholders' Agreement) under the Stockholders'
Agreement; and
(2) An unsecured, subordinated
promissory note in the principal amount of $1,063,214 (the
"Second Note").
(c) If the NTM EBITDA is between
$1,772,024.00 and $2,126,429.00, then the principal amount of
the Second Convertible Note and the principal amount of the
Second Note shall be calculated as follows:
(1) by subtracting the amount of NTM
EBITDA from the LTM EBITDA;
(2) by dividing the result of
subparagraph (1) above by $354,405.00 (the difference between
NTM EBITDA and 120% of NTM EBITDA);
(3) by multiplying the result of
subparagraph (2) above by the maximum amount of the Additional
Consideration (20% of the total amount of the Initial
Consideration or $2,126,429.00); and
(4) by taking the result in
subparagraph (3) above and allocating one-half of such amount to
the Second Convertible Note and one-half the amount to the Second
Note.
(ii) If Seller is eligible to receive Additional
Consideration pursuant to Section 2.1(i)(c), then, within ninety
(90) days after May 31, 1999, Seller shall receive:
(a) The Second Convertible Note in the principal
amount to be determined in accordance with the NTM EBITDA
Calculation in Section 2.1(i)(c) above;
(b) a Second Note in the principal amount to be
determined in accordance with the NTM EBITDA Calculation in
Section 2.1(i)(c) above.
Section 2.4 NTM EBITDA Calculation Determination. The
STOCKHOLDER may dispute the NTM EBITDA calculation set forth in the
financial statements prepared by Purchaser and Purchaser's
accountants
by notice to Purchaser setting forth in reasonable detail the
amounts in dispute and the basis for such dispute within forty-
five (45) days of its receipt of such financial statements. If
the STOCKHOLDER fails to deliver a notice of objections within
such respective 45-day period, the STOCKHOLDER shall be deemed to
have accepted the NTM EBITDA. If the NTM EBITDA amount is in
dispute, Purchaser's and STOCKHOLDER's accountants shall attempt
in good faith to resolve such dispute, and any resolution as to
any disputed amounts shall be final, binding and conclusive. If
there is no resolution of any such dispute within fifteen (15)
days of the date of receipt by Purchaser of a written notice of
dispute, Purchaser and the STOCKHOLDER shall, within five (5)
additional days, retain Coopers & Lybrand, L.L.P., which firm
shall, within thirty (30) days of such submission, resolve such
remaining dispute, and provide written notice of such resolution
by facsimile, confirmed by mail, and such resolution shall be
binding and conclusive. The fees and disbursements of Coopers &
Lybrand, L.L.P. shall be borne by Purchaser in the proportion
that the aggregate amount of disputed items submitted to Coopers
& Lybrand, L.L.P. are in STOCKHOLDER's favor, and any of the
remaining amount shall be borne by STOCKHOLDER. After resolving
the items in dispute, Coopers & Lybrand, L.L.P. shall prepare and
deliver financial statements for the period beginning June 1,
1998 and ending May 31, 1999, and a certification of the NTM
EBITDA set forth therein.
Section 2.5 Issued Shares. The Issued Shares shall be
issued by Purchaser in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws and shall
constitute "restricted securities" as such term is defined in
Section 144 promulgated under the Securities Act.
Section 2.6 Convertible Note and Second Convertible Note.
The Convertible Note and the Second Convertible Note, if any, shall
each be interest free. During the term of the Convertible Note or
the Second Convertible Note, unpaid principal, respectively, may be
converted into Common Stock shares of Purchaser at the Fair
Market Value of such shares at the time of conversion.
Section 2.7 First Note and Second Note. The First Note and
the Second Note, if any, shall bear interest, respectively, on the
unpaid principal balance at a fixed rate per annum equal to 8.0%
pursuant to the terms specified on Annex V attached hereto.
Section 2.8 Allocation of Purchase Price. The Consideration
set forth in Section 2.1, and any Additional Consideration paid in
accordance with Section 2.3 hereof shall be allocated among the
Assets
for all purposes (including financial reporting and tax purposes) as
set forth and contemplated herein. STOCKHOLDER and Purchaser each
hereby covenants and agrees that it will not take a position on any
income tax return, before any governmental agency charged with
the collection of any income tax, or in any judicial proceeding
that is in any way inconsistent with this Agreement.
Section 3.
Representations and Warranties of Seller and STOCKHOLDER.
Seller and STOCKHOLDER hereby jointly and severally
represents and warrants to and for the benefit of Purchaser as
follows:
Section 3.1 Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of
the
State of California. Seller is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each
state and other jurisdiction in which the ownership, lease or
operation of the assets and properties or the conduct of its
business
requires such qualification or licensing, as set forth on Schedule
3.l
hereto, except where the failure to be so qualified would not
have a material adverse effect upon the Seller or the Business.
Except for the jurisdictions in which Seller is incorporated or
is qualified or licensed as a foreign corporation, (i) no other
jurisdiction has claimed, orally or in writing, that Seller is
required to be licensed or qualified as a foreign corporation
therein, (ii) Seller has never filed any franchise, income or
other tax return in any other jurisdiction, based upon the
ownership, lease or operation of property or assets therein or
the derivation of income therefrom, and (iii) Seller does not
own, lease or operate any property in any other jurisdiction, and
the Assets are not located in any other jurisdiction.
Section 3.2 Subsidiaries. Seller has no direct or indirect
subsidiaries and does not own, hold or control, directly or
indirectly, any shares of capital stock or any equity, ownership,
management or voting interest in any corporation, general or limited
partnership, limited liability Seller, joint venture, business trust
or other business entity or association except as set forth on
Schedule 3.2.
Section 3.3 Power and Authority. Seller has all requisite
right, power and authority, corporate or otherwise, to conduct its
business and affairs (including the Business) as presently conducted
and as proposed to be conducted, to own, lease and operate its
assets
and properties (including the Assets), and to execute, deliver and
perform its obligations under, this Agreement and the other
agreements and instruments to be executed and delivered by Seller
hereunder (the "Related Seller Agreements"). The execution and
delivery by Seller of this Agreement and the Related Seller
Agreements and the performance by Seller of its obligations
hereunder and thereunder have been duly and validly authorized by
all requisite action, corporate or otherwise, of Seller.
Section 3.4 Enforceability. This Agreement and the Related
Seller Agreements have been, or at Closing will have been duly and
validly executed and delivered on behalf of Seller and constitute or
will constitute legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective
terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, receivership, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting
creditors' rights and remedies generally, and by general
principles of equity, whether applied by a court of law or in
equity.
Section 3.5 No Conflicts. The execution and delivery by
Seller of this Agreement and the Related Seller Agreements and the
performance by Seller of the transactions and obligations
contemplated
hereby and thereby do not and will not, directly or indirectly, (a)
violate, conflict with, or constitute a breach of or a default (or
an
event that, after the giving of notice or the lapse or time or
both, would constitute a default) under, any provision of (i) its
articles of incorporation, bylaws or other charter or
organizational documents, (ii) any agreement among its
shareholders or between Seller and its shareholders, (iii) any
contract, obligation, note, security agreement, mortgage, bond,
indenture, lease, loan agreement, debt instrument or other
instrument, commitment or agreement to which Seller is a party or
by which Seller or any of its assets (including the Assets) is or
may be bound, or (iv) any license, franchise, approval,
certificate, permit or authorization held by Seller or applicable
to its assets (including the Assets), which violation, conflict,
breach or default would have a material adverse effect upon the
Seller or the Business; (b) violate any applicable federal,
state, local or foreign law, statute, rule, regulation or
ordinance, or any order, injunction, writ, judgment, decree or
ruling of any court, arbitrator or governmental, quasi-
governmental, administrative or regulatory body, agency or
authority ("Governmental Authority"), which violation would have
a material adverse effect upon the Seller or the Business; (c)
result in the creation or imposition of any mortgage, lien,
pledge, security interest, conditional sales rights under any
applicable bulk sales or bulk transfer law or other title
retention agreement, or any other restriction, encumbrance or
claim of any kind or description on or against any of Sellers'
assets (including the Assets); or (d) constitute an event which
would permit any individual, Entity or Governmental Authority
(collectively, "Person") to terminate or modify any agreement,
instrument or commitment or to accelerate the maturity of any
debt, liability or obligation of Seller.
Section 3.6 Defaults. It is not presently in material
breach or violation of or material default under or conflict with
any item set forth in Section 3.5(a) or (b); and no event or
condition has occurred which, after the giving of notice or the
lapse of time or both, could be reasonably expected to result in any
such material breach, violation, default or conflict.
Section 3.7 Consents. Except as set forth on Schedule 3.7,
no consent, authorization, permit or approval of, notice or report
to,
or filing or registration with, or waiver (collectively, "Consents")
by, any Person is necessary for Seller to execute and deliver this
Agreement and the Related Seller Agreements and to perform its
obligations hereunder and thereunder. Prior to the Closing Date,
Seller shall obtain all Consents listed on Schedule 3.7 unless
failure to obtain such would not have a material adverse effect
on the Seller or the Business.
Section 3.8 Litigation. There are no actions, suits,
claims, investigations, arbitrations, hearings or other proceedings
(whether civil, criminal, administrative, investigative or informal)
(collectively, "Proceedings") pending or, to Seller's best
knowledge,
threatened by, before or involving any court, arbitrator or
governmental Authority (i) against or affecting Seller, the Business
or the Assets, (ii) in which any Person has sought or is reasonably
likely to seek to restrain or prohibit, or to obtain damages or
other relief in connection with, this Agreement or the Related
Seller Agreements or the transactions contemplated hereby or
thereby, (iii) which, if determined adversely to Seller, would be
reasonably likely to have a material adverse effect on Seller,
the Business or the Assets or Seller's ability to perform its
obligations hereunder or to consummate the transactions
contemplated hereby, or (iv) involving in whole or in part the
issue of criminal liability by Seller or any of its officers,
directors, employees or agents, or pertaining to the Assets or
the Business. Neither Seller nor any of the Assets are subject
to any outstanding judgment, order, writ, injunction or
governmental or regulatory order or authority. Seller is not
presently engaged in any legal action to recover moneys due from
damages caused by or to enforce its rights against any third
party.
Section 3.9 Ability to Dispose of the Assets. Seller is
the sole legal owner of the Assets and has the sole dispositive
power with respect to the Assets.
Section 3.10 Brokers' Fees. Except as set forth on
Schedule 3.10, no broker, finder, investment broker or similar agent
is or shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions
contemplated by this Agreement based on any action taken by or on
behalf of Seller.
Section 3.11 Capitalization. The authorized capital stock
of Seller consists of ------ shares of common stock, par value
$----- per share, of which ----- shares are issued and
outstanding all of which are owned beneficially and of record by
STOCKHOLDER.
Section 3.12 Dividends. Seller has no liability or
indebtedness for dividends or other distributions declared or
accumulated but unpaid with respect to any of its outstanding
capital stock. Since February 28, 1998, Seller has not declared or
paid any dividends or other distributions to its shareholders.
Section 3.13 Corporate Documents. Seller has furnished to
Purchaser true and complete copies or originals, as the case may be,
of the following documents: (i) the articles of incorporation and
bylaws of Seller; (ii) the minute books of Seller containing all
records required to be set forth of all proceedings, consents,
actions
and meetings of the shareholders and board of directors (and all
committees thereof) of Seller; and (iii) the stock transfer books
of Seller setting forth all issuances and transfers of capital
stock of Seller.
Section 3.14 Financial Statements. Seller has furnished
(or, with respect to the 1997 financial statement prior to the
Closing
will forward,) to Purchaser true and complete copies of Seller's
audited balance sheets as of December 31, 1996 and 1997, and the
related statements of operations and cash flows for the fiscal years
then ended (together with the report thereon of an independent
certified public accountants, as to the 1997 financial statements
and to the 1996 financial statements, and in each case together
with the notes thereto). All such Financial Statements (together
with all related schedules and notes) (i) present fairly the
financial condition, results of operations and cash flows of
Seller as of the respective dates thereof and for the respective
periods covered thereby; (ii) have been prepared in accordance
with generally accepted accounting principles consistently
applied throughout the periods indicated and with prior periods
(except for changes specifically noted therein); (iii) have been
prepared in accordance and consistent with the books and records
of Seller which have been maintained in accordance with sound
business practices, including the maintenance of an adequate
system of internal controls; and (iv) reflect reserves which are
reasonably adequate for all known or reasonably contemplated
liabilities or obligations of any nature, whether accrued,
absolute, fixed, contingent or otherwise and whether due or to
become due, and all reasonably anticipated losses.
Section 3.15 Absence of Undisclosed Liabilities. As of the
date hereof, except as set forth in the balance sheet of Seller as
of
February 28, 1998 and the related notes thereto ("1998 Balance
Sheet"), Seller does not have any debt, liability, guarantee, demand
or obligation of any kind or nature whatsoever, whether known or
unknown, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, except for those that (i) are not
required by generally accepted accounting principles to be included
in the 1997 Balance Sheet, and (ii) have been incurred after the
date of
the 1997 Balance Sheet in the ordinary course of business and are
usual and normal in amount, both individually and in the
aggregate. To the best of Seller's knowledge, there has been no
circumstance, condition, event or arrangement that could be
reasonably expected to give rise to any additional debts,
liabilities or obligations of Seller.
Section 3.16 No Material Adverse Change.
(a) Since February 28, 1998, (i) the business of
Seller has been conducted only in its historic, ordinary course,
(ii) there has been no material adverse change in the Assets,
liabilities, Business, operations, affairs, condition (financial
or otherwise) or prospects of Seller; and (iii) there has been no
damage, destruction, loss, occurrence or event (whether or not
insured against) which, either singly or in the aggregate, has
had, or might reasonably be expected to have, a material adverse
effect on the Assets, liabilities, Business, operations, affairs,
condition or prospects (financial or otherwise) of Seller.
(b) Without limiting the generality of the foregoing,
since February 28, 1998, there has not been any:
(i) Sale, assignment, transfer, lease or other
disposition of any Assets, except of inventory and equipment to
customers in the ordinary course of business for fair
consideration;
(ii) Mortgage, pledge, lien, claim or other
encumbrance, created or imposed on or against any Asset;
(iii) Capital expenditure (or series of
related capital expenditures) by Seller exceeding $25,000;
(iv) Material destruction, damage to or loss
(whether or not insured against) of any Assets;
(v) Labor trouble, dispute, strike, work
stoppage, or other event or condition of any character, actual or
threatened;
(vi) Declaration, setting aside, or payment of any
dividend or other distribution in respect of the capital stock of
Seller, or any direct or indirect redemption, purchase, or other
acquisition by Seller of any of its shares of capital stock;
(vii) Entering into any agreement, contract,
lease or license (or series of related instruments), either
involving more than $25,000, or outside the ordinary course of
business;
(viii) Modification, amendment, cancellation or
termination of any contract, agreement, lease or license to which
Seller is a party, except in the ordinary course of business;
(ix) Commencement or notice or threat of
commencement of any Proceeding against or affecting Seller, the
Business or the Assets;
(x) Incurrence of indebtedness for borrowed money
or increase in the long-term indebtedness of Seller;
(xi) Amendment to Seller's articles of
incorporation or bylaws;
(xii) Capital investment in, loan to or
acquisition of the securities or assets, or any other Person
(other than in the ordinary course of business);
(xiii) Grant of any license or sublicense of
any Assets or any rights under or with respect to any
Intellectual Property;
(xiv) Any transaction between Seller and any
of its officers, directors or employees, or involving any of the
Assets and involving any officers, directors or employees of
Seller;
(xv) Waiver, cancellation, compromise or release
of any material right or claim of Seller, or forgiveness or
cancellation of any material debt or claim;
(xvi) Loan by Seller to any Person, or
guaranty by Seller of any loan, debt or other obligation of any
other Person;
(xvii) Increase in the salary, benefits or
other compensation payable or to become payable by Seller to any
of its officers, directors, employees or consultants other than
normal merit increases, or the declaration, payment, or
commitment or obligation of any kind for the payment by Seller of
a bonus or other additional salary or compensation to any such
person;
(xviii) Agreement, contract, plan, policy or
arrangement binding upon Seller either created or modified as to
severance or termination benefits of any employee, officer,
director or agent;
(xix) Failure to maintain levels of inventory
proportionate to Seller's existing business, or alteration of the
inventory practices maintained by Seller during the previous
twelve months;
(xx) Other events or conditions of any
character that, individually or in the aggregate, (A) have or
might reasonably have a material adverse effect on the Assets,
Business, operations, financial condition, liabilities or
prospects of Seller, or (B) cause or might reasonably be expected
to cause Seller to be in breach of any of its representations,
warranties or covenants hereunder; or
(xxi) Any agreement, commitment, arrangement
or understanding by Seller to do any of the actions described in
the preceding clauses (i) through (xvi).
Section 3.17 Taxes.
(a) Within the times (or if later all penalties and
interest related thereto having been paid in full) and in the
manner prescribed, Seller has accurately prepared in good faith
and properly filed all federal, state, local and foreign tax
returns, reports and forms required by law, rule, regulation or
otherwise to be filed and has paid all taxes, assessments and
penalties due and payable, and Seller has furnished to Purchaser
true and complete copies of all such tax returns, reports and
forms so filed since December 31, 1994. All tax returns, reports
and forms filed by Seller accurately set forth all items (to the
extent required to be included or reflected in such returns)
relevant to its future tax liabilities, including the tax bases
of the Assets. Seller has fully paid or has made adequate
provision in the 1997 Balance Sheet for all federal, state, local
and foreign taxes for the period ending on the date of the 1997
Balance Sheet. Seller has timely collected, withheld and paid
over all taxes required to be withheld by any federal, state,
local or foreign taxing authority and complied with all
information reporting requirements related thereto.
(b) There are no disputes pending or overtly
threatened by any taxing authority as to taxes of any nature
payable by Seller. No examinations or audits of the federal,
state, local or foreign tax returns of Seller are currently in
progress or, to the best knowledge of Seller, threatened or
proposed. No deficiency or adjustment for any tax has been
claimed, proposed or assessed against Seller by any taxing
authority. Seller has not waived or extended any applicable
statute of limitations relating to the assessment of federal,
state, local or foreign taxes. Seller is not a party to any tax
indemnity, tax sharing, or tax allocation agreement. There are
no tax liens upon any property or assets of Seller except for
taxes not yet due and payable.
(c) Seller has not filed and will not file any consent
agreement under Section 341(f) of the Code or agreed to have
Section 341(f) of the Code apply to any disposition of subsection
(f) assets (as such term is defined in Section 341(f)(4) of the
Code) owned by Seller. The acquisition of the Assets by
Purchaser will not result in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code, and
Seller is not a party to any agreement, plan or arrangement that
could give rise to any payment that would not be deductible
pursuant to Section 280G or Section 162 of the Code. No
outstanding debt obligations of Seller are "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
Seller is not a "United States real property holding company" as
defined in Section 897(c)(2) of the Code. Seller has not filed
an election under Section 338(g) or Section 338(h)(10) of the
Code or caused or been the subject of a deemed election under
Section 338(e) of the Code. Seller has not made any payments,
and is not obligated to make any payment, and is not a party to
any agreement, plan or arrangement that under any circumstances
could obligate it to make any payments that will not be
deductible under Section 162(m) of the Code.
(d) As used in this Section 3.16, the term "tax"
includes all federal, state, local or foreign income, franchise,
profits, gross receipts, value added, net worth, real property,
personal property, sales, transfer, use, service, ad valorem,
stamp, environmental, windfall profits, employment, social
security, Medicare, disability, workers' compensation,
unemployment compensation, occupation severance, purchaser
premiums, excise, withholding, payroll and other taxes, charges,
fees, levies, tariffs, duties and other assessments of any kind
or nature, imposed by the laws and regulations of any
governmental jurisdiction (federal, state, local or foreign) or
by any taxing authority (federal, state, local or foreign) and
all interest, fines and penalties related thereto.
Section 3.18 Title to and Condition of Assets. The Assets
constitute all of the assets, rights and interests of every kind and
description that are used by Seller in the Business or necessary for
the Business and will permit Purchaser to operate the Business in
compliance with all legal requirements substantially as conducted by
Seller. All tangible Assets are physically located at 393 East
Grand Avenue, South San Francisco, California, 345 Spear Street, San
Francisco, California, 276 Main Street, San Francisco, California
or 5320 Pacific Concourse Drive, Los Angeles, California. Seller
has and will transfer to Purchaser at Closing good, valid,
marketable and exclusive title to and rightful and peaceful
possession of all of the Assets, free and clear of any and all
mortgages, liens, security interests, pledges, charges,
encumbrances, equities, rights of first refusal, options to
purchase, equitable interest, deeds of trust, claims, easements,
rights-of-way, covenants, conditions or restrictions of any kind
or nature whatsoever ("Liens"), except for (i) those disclosed in
the 1997 Balance Sheet; (ii) liens for current taxes not yet due
and payable; and (iii) liens disclosed on Schedule 3.18 hereto
which will be removed and released at or prior to the Closing.
Seller is in rightful possession of all premises and personal
property leased to it from others. All tangible personal
property of Seller is generally in good operating condition and
repair (ordinary wear and tear excepted), has been utilized or
serviced only in a manner that would not void or limit the
coverage of any warranty thereon, has been properly maintained
and are adequate and suitable for its intended purposes.
Section 3.19 Real Property. Seller does not, directly or
indirectly, own any real property. Schedule 3.19 hereto contains a
true and complete list of all leases and subleases pursuant to which
Seller is the lessee or lessor of any real property, complete and
accurate copies of which leases have been previously furnished to
Purchaser. Seller has a valid leasehold in and enjoys peaceful
and quiet possession of all property leased under such leases.
Section 3.20 Personal Property Leases. Schedule 3.20
hereto sets forth each lease of personal property under which Seller
is either a lessee or lessor of certain of the Assets. Each such
lease is in full force and effect and is a valid and binding
obligation of Seller and of each of the parties thereto. Seller is
not, and Seller does not have any knowledge that any other party is,
in default with respect to any material term or condition of any
such lease, and no event has occurred which through the passage of
time or
the giving of notice, or both, would constitute a material default
thereunder or would cause the acceleration of any obligation of
any party thereto or the creation of a lien or encumbrance upon
any Asset.
Section 3.21 Inventory. All of Seller's inventory of raw
materials, work in process and finished goods, parts and supplies
(including inventory on consignment) consists of items of a quantity
and quality usable and saleable in the ordinary course of business
by
Seller (net of any reserve reflected in the 1997 Balance Sheet),
except for obsolete, defective, damaged and slow-moving items and
items below standard quality, all of which have been written down on
the books of Seller to net realizable market value or have been
provided for by adequate reserves in the 1997 Balance Sheet. All
inventories of finished goods consist of items that have been
manufactured in accordance with, and which meet, applicable
industry standards. All inventories are correctly marked. The
inventories shown on the 1997 Balance Sheet are based on
quantities determined by physical count or measurement and are
valued at the lesser of cost (determined on a first-in, first-out
basis) or market value and on a basis consistent with that of
prior years and are adjusted for excess and obsolescence in
compliance with Seller's accounting policies which have been
delivered in writing to Purchaser.
Section 3.22 Intellectual Property.
(a) Schedule 3.22 sets forth a complete and accurate
list and brief description of all patents, trademarks, logos,
service marks, trade names, corporate names, fictitious names and
copyrights, and each application therefor, which are either owned
by Seller or which are used by Seller in the Business and, in
each case where Seller is not the owner thereof, the name of the
owner thereof. Except as set forth in Section 3.21, Seller is
the exclusive owner of or possesses adequate and valid licenses
and other rights to use all of the items set forth in Schedule
3.21 hereto and all trade secrets, licenses, inventions,
processes, discoveries, developments, designs, formulas, know-
how, drawings, customer and supplier lists, software,
confidential information and other proprietary information and
all other proprietary rights, intangible assets and intellectual
property, and all copies and tangible embodiments thereof in
whatever form or medium (collectively, "Intellectual Property")
necessary for the operation of the Business as presently
conducted and as proposed to be conducted.
(b) All rights of Seller in and to its Intellectual
Property will be transferred to Purchaser at the Closing.
(c) Seller has taken all necessary and desirable
action to maintain and protect each item of Intellectual Property
that it owns or uses. To Seller's best knowledge, Seller has not
interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of any
third parties, and Seller has never received any charge,
complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or conflict
(including any claim that Seller must license or refrain from
using any Intellectual Property rights of any third party). To
Seller's best knowledge, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of Seller. No claim,
demand, assertion, action, suit, arbitration, hearing,
investigation or proceeding is pending or, to the best knowledge
of Seller, threatened, which pertains to or challenges the
validity, ownership or enforceability of any right of Seller in
respect to of Intellectual Property. To Seller's best knowledge,
the continued operation of the Business as currently conducted
will not interfere with, infringe upon, misappropriate or
otherwise come into conflict with any Intellectual Property
rights of any third parties.
(d) Seller is not a party to any agreement, document,
arrangement or understanding pursuant to which Seller has
licensed or granted any right or interest in, to or under any of
its Intellectual Property. Seller is not obligated or under any
liability whatsoever to make any payment, by way of fees,
royalties or otherwise, to any owner or licensor of, or other
claimant to, any of the Intellectual Property. Seller has not
disclosed any of its trade secrets or other proprietary or
confidential information to any Person, except pursuant to a loan
or other agreement obligating the recipient to maintain the
confidentiality thereof. To the best of Seller's knowledge, no
employee of Seller is subject to any agreement, arrangement or
commitment with any former employer or other person, or is
subject to any judgments, order, decree or ruling of any court,
arbitrator or Governmental Authority regarding confidential
information, or rights or restrictions on competition, that would
otherwise affect such employee's ability to perform his duties to
Seller. Seller has never agreed to indemnify any person for or
against any interference, infringement, misappropriation or other
conflict with respect to any item of its Intellectual Property.
Section 3.23 Name. Seller has the exclusive right in
perpetuity to use the name "Servinet Consulting Group, Inc." in the
State of California and any derivations and variations thereof, for
and in connection with the Business, and has not granted and will
not
grant to any other Entity the right to use, and will not after the
Closing use, such names as either corporate names, trade names or
fictitious names.
Section 3.24 Relationships with Suppliers and Customers.
Schedule 3.24 contains a complete and accurate list of (i) the
names,
addresses and dollar amounts of business of each of the 20 largest
customers of the Seller, in terms of sales during 1997, and (ii) the
name, address and dollar amounts of business of each of the Seller's
10 largest suppliers during the 1997 fiscal year. Since December
31,
1997, no supplier or customer of Seller has canceled any contract or
order or has indicated any intention to terminate or materially
alter its existing business relationship with Seller, whether as
a result of the transactions contemplated hereby or otherwise
which cancellation or termination would have a material advance
effect on the business of Seller. Seller is not involved, and
Seller has no knowledge of any facts or circumstances which is
reasonably expected could result, in any material claim, dispute
or controversy, with any of its material suppliers or customers.
Section 3.25 Labor and Employment Matters.
(a) Schedule 3.25(a) contains a true list of all
persons employed full time by Seller as of May 31, 1998 or as of
the Closing Date, whichever date is later.
(b) Seller is not a party to any contract, collective
bargaining agreement or other agreement with any labor union
including any collective bargaining agreement. There has never
been an actual or threatened labor dispute, strike, picket, work
slowdown, work stoppage or any other job action at any business
location of Seller. There is no unfair labor practice complaint
against Seller pending before the National Labor Relations Board
or any state or local agency, no pending or threatened labor
strike or other material labor trouble affecting Seller, no
material labor grievance pending or threatened against Seller, no
pending representation question respecting the employees of
Seller, no pending or threatened arbitration proceedings arising
out of or under any collective bargaining agreement to which
Seller is a party, and no basis for which a claim may be made
under any collective bargaining agreement to which Seller is a
party or under which Seller is alleged to be obligated. No union
organizing attempts have been made or threatened. Seller has not
received a demand for recognition from any labor union with
respect to, and, to Seller's knowledge, no attempt has been made
or is being made to organize, any of the persons employed by
Seller.
(c) Seller is in compliance in all material respects
with all applicable laws, rules and regulations respecting the
employment of, including but not limited to, fair employment
practices, terms and conditions of employment, and wages and
hours. Seller has not engaged in any unfair or illegal labor
practice, and there are no charges or claims of employment
discrimination or unfair labor practices pending, or, to the best
knowledge of Seller after due inquiry, threatened against,
Seller.
(d) No proceedings or claims are pending or, to the
best knowledge of Seller, threatened against Seller with respect
to any violation or alleged violation of any applicable federal,
state or local laws, rules and regulations relating to the
employment of labor, including, without limitation, those related
to wages and hours, collective bargaining, discrimination on any
basis, including without limitation, on the basis of race, color,
religion, sex, national origin or age, and Seller has complied in
all material respects with all applicable laws and regulations
relating to employment of labor.
(e) Seller has made, or will have made, payment in
full to all of its employees through the end of the payment
period ending immediately prior to the Closing Date of all wages,
salaries, commissions, bonuses, benefits and other compensation
due to such employees or otherwise arising under any policy,
practice, agreements, plan, program, statute or law.
(f) Seller, STOCKHOLDER and their affiliates are in
compliance with their obligations, if any, pursuant to the
Workers Adjustment and Retraining Notification Act of 1988, as
amended ("WARN"), and all other notification obligations arising
under any federal, state or local, or foreign statute, rule or
regulation.
Section 3.26 Employee Benefit Plans.
(a) List of Plans. Except for the plans set forth on
Schedule 3.26 hereto, Seller does not now nor has it ever
established, maintained, sponsored or contributed to any "employee
benefit plan. as such term is defined in Section 3(3) of the
Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any other welfare,
bonus, deferred compensation, retirement, incentive, pension,
profit sharing, stock purchase, stock option, stock appreciation
right, severance, or other similar employee benefit plan,
program, policy, arrangement or practice, whether formal or
informal, written or oral (collectively, "Employee Plans"),
covering any current or former employee, officer or director of
Seller.
(b) Claims. No Proceeding with respect to any
Employee Plan (other than routine claims for benefits) is pending
or,
to the best knowledge of Seller, threatened, and the Seller (and
employees with responsibility for employee benefits matters) has no
knowledge of any facts that it is reasonably expected could form the
basis for any such action, suit, proceeding, hearing or
investigation.
(c) ERISA Liabilities. To the best of Seller's
knowledge, neither Seller, nor any of the Employee Plans, nor any
trust created thereunder, nor, to the knowledge of Seller, any
fiduciary (as defined in Section 3(21) of ERISA) thereof, is or has
been in violation of, or has incurred any liability, directly or
indirectly, under any provision of ERISA or the Code or to its
Pension
Benefit Guaranty Corporation ("PBCC"), other than liability for
premiums due to the PBCC which, to the extent they are due and
payable, have been paid.
(d) Severance Obligations. Seller has not entered
into any severance or similar arrangement in respect to any present
or
former employee that would result in the obligation, absolute or
contingent, of the Purchaser to make any payment to any present or
former employee following termination of employment.
(e) Liabilities Due to Agreement. The consummation of
the transactions contemplated hereby will not (i) modify or
accelerate any benefits or the vesting of benefits under any
Employee Plan or constitute an event entitling any Person to any
additional or other benefits, or (ii) result in any liability to
Purchaser for taxes, penalties, interests or other claims resulting
from any Employee Plan.
Section 3.27 Insurance. Schedule 3.27 hereto sets forth a
complete and accurate list of all of the insurance policies (showing
the insurer, types of coverage, policy expiration dates, policy
numbers, deductibles and policy limits as to each such policy)
currently in force under which the Assets are insured or which
provide for bonding and surety arrangements in connection with the
Business. All such policies are in full force and effect and have
been issued
under valid policies for the benefit of Seller by properly
licensed insurance companies. The premiums on such policies have
been paid as they became due and payable, and Seller is not in
default with respect to payment of premiums on any such policy.
All of the Assets of a type customarily insured are covered by
effective insurance in amounts at least equal to their fair
market value, and such insurance provides protection against
losses and risks that are customarily insured against by
comparable businesses.
Section 3.28 Contracts.
(a) Except as set forth on Schedule 3.28, each lease,
contract, agreement, license, understanding, indenture, mortgage,
deed of trust, sales order, obligation and commitment
("Contract") to which Seller is a party, or by which it or any of
the Assets are bound, (i) is in full force and effect and is a
valid and binding obligation of Seller and of the other parties
thereto, enforceable by Seller in accordance with its terms, and
(ii) if an Assigned Contract, may be transferred by Seller to
Purchaser without penalty and will be enforceable by Purchaser.
Neither Seller nor, to the best knowledge of Seller, any other
party to such Contract is in any material respect in breach of or
in default under any Contract, nor has any event or circumstance
occurred which, with notice or lapse of time or both, would
constitute a material breach or default of the Contract. Seller
has not received notice and has no reason to believe that any
party to any Contract intends to cancel or terminate any Assigned
Contract or to exercise or not exercise any option thereunder.
(b) Schedule 3.28 hereto sets forth a complete and
accurate list of each of the following Contracts to which Seller
is a party or by which the Assets are bound: (i) any
distributor's or manufacturer's representative or agency
agreement; (ii) any output or requirements agreements; (iii) any
agreement not entered into in the ordinary course of business;
(iv) any indenture, mortgage, deed of trust, lease or any
agreement that is unusual in nature, duration, or amount
(including, without limitation, any agreement requiring the
performance by the Seller of any obligation for a period of time
extending beyond one year from the Closing Date involving total
consideration of more than $10,000); (v) any contract with any
Government Authority, (vi) any Contract that is materially
adverse to the business, properties, assets, liabilities,
financial condition or results of operations of Seller; (vii) any
Contract for the lease of personal property to or from any
Person; (viii) any Contract for the purchase or sale of raw
materials, commodities, supplies, products or other personal
property, or for the furnishing or receipt of services, the
performance of which would extend over a period of more than one
(1) year or that involves consideration in excess of $10,000;
(ix) any Contract concerning a partnership or joint venture; (x)
any Contract under which it has created, incurred, assumed,
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has imposed a
lien on any of the assets; (xi) any Contract concerning
confidentiality or non-competition; (xii) any Contract involving
any director, officer, stockholder or other affiliate of Seller;
(xiii) any Contract for the employment of any individual on a
full-time, part-time, consulting, independent contractor or other
basis or providing severance benefits; (xiv) any profit sharing,
deferred compensation, severance, termination or other plan or
arrangement for the benefit of current or former directors,
officers, or employees; (xv) any Contract under which it has
advanced or loaned any amount to any of its directors, officers
or employees; or (xvi) any Contract material to the Assets or the
Business.
Section 3.29 Licenses. All licenses, rights, privileges,
franchises, permits, approvals, consents and other authorizations
related to the Assets reasonably necessary for the lawful conduct of
the Business as it is presently conducted and reasonably necessary
to own, operate, maintain and use the Assets in the manner in which
they are now being operated, maintained and used, including all
applicable zoning, environmental, health, safety and other permits,
have been timely obtained and are currently in effect, and Seller
has not violated, and is not in violation of, any such licenses,
rights, privileges, permits, franchises, consents or other
authorizations.
Section 3.30 Product Liability Claims. No Proceeding is
pending or, to the best knowledge of Seller, threatened against or
affecting Seller, arising out of any injury to individuals or to
property as a result of the ownership, possession or use of any
product manufactured, sold, leased or delivered by Seller, and
Seller knows of no facts, circumstances, actions or omission that
could reasonably create the basis for any such Proceeding.
Section 3.31 Product Warranties. Schedule 3.31 sets forth
a complete and accurate description of all warranties and pending
warranty and service obligations of Seller to its customers with
respect to the products manufactured or sold by Seller within the
two year period prior to the date of this Agreement, including the
beginning and ending dates of such warranty obligations, and a
summary of the warranty charges incurred by Seller during 1996,
1997 and to date in 1998. Schedule 3.31 also contains a copy of
all such written warranties, and a list and amount of all
products manufactured or sold by Seller. Each product
manufactured, sold, leased or delivered by Seller to any of its
customers has been in conformity with all applicable contractual
commitments and all express and implied warranties. Seller has
no current liability, and knows of no reasonable basis for any
present or future Proceeding against it giving rise to any
liability, for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product
warranty claims set forth on the 1997 Balance Sheet. There is no
pending or, to the best knowledge of Seller, threatened
Proceeding under such warranties.
Section 3.32 Compliance with Laws. Seller, the Business
and the Assets are and have been in material compliance with all
applicable federal, state, local and foreign laws, statutes,
ordinances, rules, regulations, codes, licenses, permits, orders,
judgments, decrees and other legal requirements (including, without
limitation, those applicable to building, health, employment, labor,
product liability, zoning, occupational safety, conservation, unfair
competition, labor practices or corrupt practices) which affect
or are applicable to the Assets and the Business.
Section 3.33 Environmental Laws.
(a) Seller is, and at all times has been, in
compliance in all material respects with all federal, state,
local and foreign laws (whether common or statutory), statutes,
codes, rules, regulations, orders, injunctions, decrees,
judgments, compacts, treaties, conventions, legal doctrines,
plans, demand letters, agreements with any governmental or
regulatory authorities and all other requirements relating to
pollution or the protection of health, safety or the environment
("Environmental Laws"), including without limitation the release,
discharge or emission of any Hazardous Substances (as defined
below) into the environment (including, without limitation
ambient air, surface water, ground water, land surface, or
subsurface strata) and the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, resulting from the operation of
the Business or the ownership, lease or use of the Assets, or
relating to any real estate currently or previously owned but
leased by Seller.
(b) Seller has not received any notices, demand
letters, citations, summons, complaints or requests for
information from, and no action, suit, hearing, investigation,
order or other proceeding is pending or, to the best knowledge of
Seller, threatened by or before any court, Governmental Authority
or other Person regarding any actual or threatened violation of
or liability under any Environmental Law.
(c) Seller is not subject to any judicial, executive,
legislative, regulatory or administrative ruling, order or decree
arising under or relating to any Environmental Law.
(d) Seller has timely obtained, currently holds and is
in compliance in all material respects with the provisions of all
permits, licenses, certificates, consents and other
authorizations and approvals required in connection with the
operation of its business and the ownership, leasing or use of
its assets and properties under all Environmental Laws.
(e) Seller is not aware of any event, condition,
circumstance, activity, practice, action or plan which is
reasonably likely to (i) prevent continued compliance with the
foregoing, (ii) give rise to any liability under any
Environmental Law, including but not limited to liability based
on or resulting from Seller's manufacturing, processing,
distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the
environment of any Hazardous Substance, (iii) give rise to any
liability for remedial actions (including removal, clean-up,
response and monitoring), or (iv) otherwise have a material
adverse effect on Seller or cause Seller to incur substantial
costs. No Hazardous Substance has been used, stored, placed,
treated, transported, manufactured, generated, processed,
deposited, distributed, handled, released, deposited, spilled,
discharged or disposed of on or under any property currently or
previously owned or leased by Seller except for common household
and office products in de-minimis quantities.
(f) There is no above-ground or underground storage
tank located on or under, or to Seller's best knowledge any
asbestos located on, any real property or structure owned or
leased by Seller.
(g) As used herein, the term "Hazardous Substance"
means (i) any substance or material heretofore or hereafter
designated as "hazardous" or "toxic" under the Resource
Conservation and Recovery Act, 42 U.S.C. sec 9601 et seq., the
Federal Water Pollution Control
Act, 33 U.S.C. sec 1251 et seq., the Clean Air Act, 42 U.S.C. sec
7401 et seq., the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42
U.S.C. sec9601 et seq., or
the Hazardous Materials Transportation Act, 49 U.S.C. sec 1801 et
seq., all as amended and in the
regulations promulgated thereunder pursuant thereto; (ii) any
"solid waste," "hazardous waste," "contaminant," "pollutant" or
"infectious waste," as such terms are defined in any other
Environmental Law at any time; (iii) asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), methylene chloride,
trichlorethylene, 1,2-transdichloreoethyline, dioxins,
dibenzofurans, nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum
products and byproducts, and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances
listed or identified in, or regulated by, any Environmental Law;
(iv) any substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.17d.101 and amendments
thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 C.F.R. Part 302 and
amendments thereto); and (v) any additional substances, materials
and wastes which at any time become classified or considered to
be hazardous or toxic under any Environmental Law.
Section 3.34 No Loss of Rights or Legal Obstacles. The
execution and delivery of this Agreement and the Related Seller
Agreements by Seller and its
performance of the transactions and its obligations contemplated
hereby and thereby do not and will not: (a) result in any loss of
any material legal right of Seller being transferred to
Purchaser; (b) result in any termination, modification or
cancellation of any Assigned Contract; (c) result in the
termination, modification, or cancellation of, give rise to any
right of termination, modification, or cancellation with respect
to, give rise to the acceleration of any performance required
under, result in any increase in any payment due or other
liability under, change the performance required under, or
otherwise adversely affect any material contract, or modify any
material contract, or result in, or require, the creation or
imposition of any material lien, charge, or encumbrance upon the
Assets, or result in the termination or impairment of any
material permit, license, franchise, or authorization pertaining
to the Assets; or (d) to the best of Seller's knowledge,
adversely affect the Assets or the Business in any material
respect.
Section 3.35 Bank Debt. Schedule 3.35 hereto sets forth a
complete and accurate list of all loans and credit agreements, line
of credit, promissory
notes, loan agreements and other arrangements between Seller and
any bank, financial institution, lender or creditor of any sort.
Section 3.36 Transactions with Shareholders and Employees.
Seller has no outstanding loans or other advances to, and is not a
party to any
lease, license or other agreement, understanding or arrangement
with, any shareholder, officer, director or employee of Seller,
other than out-of-pocket expenses incurred in the ordinary course
of business. No shareholder, officer, director or employee of
Seller owns or has any interest in any of the Assets.
Section 3.37 Absence of Certain Commercial Practices. To
the best of Seller's knowledge, neither Seller nor any officer,
director, employee or
agent of Seller (or any Person acting on behalf of any of the
foregoing), has directly or indirectly (i) given or agreed to
give any gift or similar benefit of more than nominal value on
behalf of Seller to any customer, supplier, employee or official
of any Governmental Authority (domestic or foreign), to induce
the recipient or his employer to do business, grant favorable
treatment or compromise or forego any claim, (ii) made any
significant payment which might be improper under prevailing law
(regardless of the jurisdiction in which such payment was made)
to promote or retain sales or to help, procure or maintain good
relations with suppliers, (iii) engaged in any activity which
constitutes a violation of the Foreign Corrupt Practices Act of
1977, as amended, and the rules and regulations promulgated
thereunder, (iv) engaged in any practice violating any law
prohibiting compliance with an unsanctioned foreign boycott, (v)
established or maintained any unrecorded or illegal corporate
fund or account or assets, (vi) made false or fictitious entries
on the books or records of Seller, or (vii) failed to perform its
obligations in any material respect under any Contract with, or
violated in any material respect any federal law known to Seller
in its dealings with, the Federal government or any agency or
department thereof, including, but not limited to, any law with
respect to conspiracy to defraud, false claims, conspiracy to
defraud the United States, embezzlement or theft of public money,
fraud and false statements, false demands against the United
States, mail fraud, wire fraud, RICO, and truth in negotiations.
To the best of Seller's knowledge, no such gift or benefit is
required in connection with the operations of Seller or its
business to avoid any fine, penalty, cost, expense or adverse
change in the assets, properties, liabilities, financial
condition, results of operations or business of Seller.
Section 3.38 Non-Foreign Status. Seller is not a "non-
resident alien", "foreign corporation", "foreign partnership",
"foreign trust" or "foreign estate" within the meaning of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
Section 3.39 Full Disclosure. No representation, warranty
or other statement by Seller in this Agreement, or in any schedule,
exhibit, certificate, financial statement or other instrument or
document furnished or to be furnished to Purchaser, contains
or will contain any untrue statement of a material fact or omits
or will omit any material fact necessary in order to make any
of the statements contained herein or therein, when taken as
a whole, not false or misleading in any material respect in
light of the circumstances in which
they were made. There is no fact or circumstance known to Seller
that materially adversely affects, or in the future may be
reasonably expected to (insofar as Seller can now reasonably
foresee) materially adversely affect, the Assets or the
properties, liabilities, business, affairs, operations, condition
(financial or otherwise) or prospects of Seller that has not been
set forth herein or otherwise described to Purchaser.
Section 4.
Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to and for the
benefit of Seller and STOCKHOLDER as follows:
Section 4.1 Organization. Purchaser is a corporation duly
organized, validly existing
and in good standing under the laws of the State of Delaware.
Purchaser is duly qualified or licensed to do business and is in
good standing as a foreign corporation in each state and other
jurisdiction in which the ownership, lease or operation of the
assets and properties or the conduct of its business requires
such qualification or licensing, as set forth on Schedule 4. l
hereto. Except for the jurisdictions in which Purchaser is
incorporated or is qualified or licensed as a foreign
corporation, (i) no other jurisdiction has claimed, orally or in
writing, that Purchaser is required to be licensed or qualified
as a foreign corporation therein, (ii) Purchaser has never filed
any franchise, income or other tax return in any other
jurisdiction, based upon the ownership, lease or operation of
property or assets therein or the derivation of income therefrom,
and (iii) Purchaser does not own, lease or operate any property
in any other jurisdiction, and the Assets are not located in any
other jurisdiction.
Section 4.2 Power and Authority Purchaser has, or will as
of the Closing Date have all
requisite right, power and authority, corporate or otherwise, to
conduct its business and affairs as presently conducted and as
proposed to be conducted, to own, to lease and operate its assets
and properties, and to execute all requisite right, power and
authority, corporate or otherwise, to execute, deliver and
perform its obligations under this Agreement and the other
agreements and instruments to be executed and delivered by
Purchaser hereunder (the "Related Purchaser Agreements"). The
execution and delivery by Purchaser of this Agreement and the
Related Purchaser Agreements and performance of Purchaser's
obligations hereunder and thereunder has been, or as of the
Closing Date will have been duly and validly authorized by all
requisite action, corporate or otherwise, of Purchaser.
Section 4.3 Enforceability. This Agreement and the Related
Purchaser Agreements
have been, or as of Closing will have been duly and validly
executed and delivered on behalf of Purchaser and constitute, or
will constitute as of the Closing Date the legal, valid and
binding obligations of Purchaser, enforceable against Purchaser
in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, receivership,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights and remedies generally,
and by general principles of equity.
Section 4.4 No Conflicts. The execution and delivery by
Purchaser of this Agreement
and the Related Purchaser Agreements and the performance by
Purchaser of the transactions and obligations contemplated hereby
and thereby do not and will not (a) violate, conflict with,
contravene or constitute a breach or a default (or an event that,
after the giving of notice or the lapse or time or both, would
constitute a default) under any provision of (i) its certificate
of incorporation, bylaws or other charter or organizational
documents; (ii) any agreement among its shareholders or between
Purchaser and its shareholders; (iii) any contract, agreement,
obligation, understanding, commitment, note, security agreement,
lease, loan agreement, debt instrument or other instrument or
agreement to which Purchaser is a party or by which Purchaser or
any of its assets is or may become bound; (iii) any license,
approval, certificate, permit or authorization held by Purchaser;
or (b) violate any applicable federal, state or local law,
statute, rule, regulation or ordinance, or any order, injunction,
writ, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority.
Section 4.5 Consents. No Consent by any Person is
necessary for Purchaser to execute and deliver this Agreement and
the Related Purchaser Agreements,
and to perform its obligations hereunder and thereunder.
Section 4.6 Litigation. There are no Proceedings pending
or, to the best of its
knowledge, threatened by or before any court, arbitrator or
Governmental Authority against Purchaser (i) in which any Person
is seeking or is reasonably likely to seek to restrain or
prohibit, or to obtain damages or other relief in connection
with, this Agreement or the Related Purchaser Agreements or the
transactions contemplated hereby or thereby, (ii) which if
determined adversely to Purchaser would be reasonably likely to
have a material adverse effect on Purchaser's ability to perform
its obligations hereunder or to consummate the transactions
contemplated hereby, (iii) which, if determined adversely to it,
would be reasonably likely to have a material adverse effect on
the assets, business, affairs, financial condition or operations
of Purchaser or (iv) involving in whole or in part the issue of
criminal liability by Purchaser or any of its officers,
directors, employees or agents, or pertaining to its assets or
business. Neither Purchaser nor any of its assets are subject to
any outstanding judgment, order, writ, injunction or governmental
or regulatory order or authority which would have a material
adverse effect on this Agreement or any of the Related Purchaser
Agreements. Purchaser is not presently engaged in any legal
action to recover moneys due from damages caused by or to enforce
its rights against any third party which would have a material
adverse effect on this Agreement or any of the Related Purchaser
Agreements.
Section 4.7 Shares. The Shares have been validly
authorized and, when issued as
contemplated by this Agreement, will be validly issued, fully
paid and non-assessable.
Section 4.8 Capitalization of Purchaser. As of the date
hereof, the authorized capital
stock of Purchaser consists of 20,000,000 shares of Common Stock,
par value $.01 per share, of which
shares are issued and outstanding, and 6,000,000 of Preferred
Stock, par value $.01 per share, of which
shares are issued and outstanding.
Section 4.9 Capitalization of NEWCO. As of the date
hereof, the authorized capital
stock of NEWCO consists of 1,000 shares of Common Stock, par
value $.01 per share, of which 100 shares are issued and
outstanding.
Section 4.10 Financial Statements. In all material
respects, the February 28, 1998
financial statements of Purchaser (including any notes thereto)
were prepared in accordance with generally accepted accounting
principles applied on a consistent basis through the periods
covered thereby (except as disclosed in such financial
statements), and fairly present in all material respects the
consolidated financial condition of Purchaser as of the dates
thereof and the consolidated results of Purchaser's operations
and consolidated cash flow for the periods then ended, subject,
in the case of any unaudited interim financial statements, to the
omission of certain notes not ordinarily accompanying such
unaudited financial statements, and to normal year-end
adjustments.
Section 4.11 Absence of Adverse Change. Since February 28,
1998, there has not been
any material adverse change in the assets, business, affairs,
operations, financial condition or operations of Purchaser.
Section 4.12 No Brokers. No broker, finder, investment
broker or similar agent is or
shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions
contemplated by this Agreement based on any action taken by or on
behalf of Purchaser.
Section 4.13 Corporate Documents. Purchaser has furnished,
or will furnish to Seller
true and complete copies or originals, as the case may be, of the
following documents: (i) the articles of incorporation and bylaws
of Purchaser; and (ii), if requested, the minute books of
Purchaser containing all records required to be set forth of all
proceedings, consents, actions and meetings of the shareholders
and board of directors (and all committees thereof) of Purchaser.
Section 4.14 Compliance with Laws. To Purchaser's
knowledge and belief it is and
has been in material compliance with all applicable federal,
state, local and foreign laws, statutes, ordinances, rules,
regulations, codes, licenses, permits, orders, judgments, decrees
and other legal requirements (including, without limitation,
those applicable to building, health, employment, labor, product
liability, zoning, occupational safety, conservation, unfair
competition, labor practices or corrupt practices) which affect
or are applicable to its assets and business.
Section 4.15 Full Disclosure. No representation, warranty
or other statement by
Purchaser in this Agreement, or in any schedule, exhibit,
certificate, financial statement or other instrument or document
furnished or to be furnished to Seller, contains or will contain
any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make any of the statements
contained herein or therein, when taken as a whole, not false or
misleading in any material respect in light of the circumstances
in which they were made. There is no fact or circumstance known
to Purchaser that materially adversely affects, or in the future
may be reasonably expected to (insofar as Purchaser can now
reasonably foresee) materially adversely affect, the assets or
the properties, liabilities, business, affairs, operations,
condition (financial or otherwise) or prospects of Purchaser that
has not been set forth herein or otherwise described to Seller.
Section 5. Pre-Closing Covenants.
Section 5.1 Conduct of Business of Seller.
(a) From the date of this Agreement until the Closing,
Seller shall conduct its business only in the ordinary course
consistent with past practices, including but not limited to (i)
using its best efforts to (i) preserve intact its business
organization and its good will, including its relationships with
its suppliers, customers, lenders and others having business
relationships with it, (ii) perform all its obligations in
accordance with their terms, (iii) maintain the Assets in good
operating condition, (iv) keep available the services of its
present lessors, lessees, licensors, licensees, suppliers,
customers, employees and agents, and (v) comply with all
applicable laws, rules, regulations and orders.
(b) Without limiting the generality of the foregoing,
from the date of this Agreement until the Closing, Seller shall
not, without the prior written consent of Purchaser:
(i) Take any action referred to in Section
3.15(b) hereof;
(ii) Take any action or omit to take any action
which would breach any covenant or agreement of Seller herein; or
(iii) Take any action which would cause any
representation or warranty of Seller herein to be inaccurate in
any material respect.
Section 5.2 Access.
(a) From the date of this Agreement through the
Closing Date, Seller shall provide Purchaser and its officers,
directors, employees and agents and representatives full access
during normal business hours to the Assets and to the employees,
agents, properties, books, contracts, accounts, commitments,
records, tax returns and documents of Seller and shall furnish to
Purchaser and its agents and representatives books, records,
contracts, data and information concerning the Assets and the
business and affairs of Seller as Purchaser and its agents and
representatives may reasonably request. In the event that the
transactions contemplated by this Agreement fail to be
consummated, then Purchaser shall promptly return to Seller all
data and information furnished to it and shall keep all such data
and information confidential. No investigation pursuant to this
Section 5.2(a) shall affect any representation or warranty of
Seller or any condition to the closing obligations of Purchaser.
(b) From the date of this Agreement through the
Closing Date, Purchaser shall provide Seller and its officers,
directors, employees and agents and representatives full access
during normal business hours to the assets and to the employees,
agents, properties, books, contracts, accounts, commitments,
records, tax returns and documents of Purchaser and shall furnish
to Seller and its agents and representatives data and information
concerning the assets and the business and affairs of Purchaser
as Seller and its agents and representatives may reasonably
request. In the event that the transactions contemplated by this
Agreement fail to be consummated, then Seller shall promptly
return to Purchaser all data and information furnished to Seller
and shall keep all such data and information confidential. No
investigation pursuant to this Section 5.2(b) shall affect any
representation or warranty of Purchaser or any condition to the
closing obligations of Seller.
Section 5.3 Risk of Loss. Until the Closing, Seller
assumes all risk of loss, whether by
reason of theft, fire, act of God, or other casualty, and
Purchaser shall not be obligated to consummate the transactions
contemplated hereby if there is any material loss of the Assets
caused by any casualty, whether through the fault or negligence
of Seller or otherwise.
Section 5.4 Consummation of Transactions. Upon the terms
and subject to the
conditions of this Agreement, each of the parties hereto shall
use its reasonable best efforts, and will cooperate with each
other, to take, or cause to be taken, as promptly as practicable,
all such actions and to do, or cause to be done, all other things
necessary to carry out its obligations under this Agreement and
under all other agreements contemplated by this Agreement and to
consummate and make effective the transactions contemplated
hereby and thereby, including obtaining all Consents which are
necessary in connection with the transactions contemplated hereby
and thereby, provided that Purchaser shall not be obligated to
assume any additional liability of Seller or pertaining to the
Assets other than the Assumed Liabilities.
Section 5.5 Public Announcements. Until the Closing Date
or the earlier termination
of this Agreement for any reason, Purchaser and Seller shall
consult with each other before issuing any press releases or
otherwise making any public statements or disclosures with
respect to this Agreement or the transactions contemplated hereby
(directly or through affiliates) and shall not issue any such
press release or make any such public statement without the prior
consent of the other party, which consent shall not be
unreasonably withheld, except that a party hereto may make a
public statement without such consent to the extent the same
shall be required by applicable law, in which case such party
should use its reasonable best efforts to advise the other party
of such statement in a timely manner.
Section 5.6 Notification of Certain Matters. From the date
of this Agreement to the
Closing Date, Purchaser and Seller each shall give prompt notice
to the other of (a) the occurrence, or failure to occur, of any
event, fact or circumstance the occurrence or failure of which
would be reasonable likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate
in any material respect, or that breaches or is reasonably likely
to breach any covenant or agreement set forth in this Agreement,
and (b) any material failure on its part to comply with or
satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder.
Section 5.7 Taxes.
(a) Pre-Closing. Seller shall be responsible for the
timely preparation of, all
federal, state, local or foreign income, excise, withholding,
property, sales, use, franchise and other tax returns, reports
and forms of Seller pertaining to the Assets for all taxable
periods ending on or before the Closing Date, and the payment of
all amounts due thereunder.
(b) Due to Transactions. Seller shall pay all
federal, state and local sales, use,
income, franchise, worker's compensation, unemployment
documentary and other transfer taxes and fees arising out of the
transfer of the Assets in accordance herewith, whether imposed by
law on Seller or Purchaser, and shall pay its portion, prorated
as of the Closing Date, of all federal, state, local and foreign
personal property taxes relating to the Assets. Purchaser shall
not be responsible for any business, occupation, withholding, or
similar tax, or any taxes of any kind related to the Assets or
the business being purchased for any period before the Closing
Date. Seller shall indemnify, reimburse and hold Purchaser
harmless in respect of any liability for payment of or failure to
pay any such taxes or any filing of or failure to file any
reports required in connection therewith.
Section 5.8 No Shopping. From the date of this Agreement
to the Closing Date, neither Seller, STOCKHOLDER nor any affiliates
thereof shall, directly or indirectly, through any officer, director
employee, agent or otherwise, solicit, initiate, or encourage the
initiation or submission of inquiries, proposals or offers from,
provide any information to, enter into any agreement with, or
participate in any discussions or negotiations concerning any direct
or indirect acquisition of any interest in Seller or any of the
Assets (other than the sale of inventory and equipment in the
ordinary course
of business) by, any Person other than Purchaser. Seller shall
immediately notify Purchaser of, and communicate to Purchaser the
terms of any such inquiry, proposal or offer that Seller may
receive.
Section 5.9 Employee Matters.
(a) Seller will pay, and remain responsible after the
Closing, to all its employees for all compensation and benefits,
including wages, salaries, commissions, bonuses, deferred
compensation, severance, termination, insurance, pensions,
profit-sharing, vacation, sick pay and other compensation or
benefits ("Seller Employees Compensation") to which they are
entitled for periods prior to the Closing Date. Until the Closing
Date, Seller will not, without the prior written consent of
Purchaser, change the compensation or benefits of any of its
employees.
(b) Purchaser is not assuming and shall have no
obligation to pay any Seller Employees Compensation, whether
accruing before, as a result of, or after the Closing. Seller
shall perform, and Purchaser is not assuming and shall have no
obligation to perform, any severance or termination obligations,
liabilities and commitments accruing or arising by agreement,
plan or policy of Seller as a result of the transactions
contemplated hereby.
(c) At Closing, the Purchaser shall enter into
employment agreements with Mahesh Khatwani and Gary Prioste. The
Purchaser shall have no obligation to, offer employment to any
other current employees of Seller. Any employee of Seller
considered for employment by Purchaser, other than Mahesh
Khatwani or Gary Prioste, shall be subject to Purchaser's normal
application and screening procedure and, if hired, shall be
eligible for Purchaser's compensation and benefits policies. No
provisions of this Agreement, express or implied, shall confer on
any employee or former employee of Seller, other than Mahesh
Khatwani or Gary Prioste, any right to employment or any
continued right to employment for any extended period.
(d) All claims and obligations under, pursuant to or
in connection with any Employee Plans of Seller or arising under
any legal requirement affecting employees of Seller incurred on
or before the Closing Date resulting in or arising from events or
occurrences occurring or commencing on or prior to the Closing
Date shall remain the responsibility of Seller, whether or not
such employees are hired by Purchaser after the Closing.
Purchaser will have and assume no obligation or liability under
or in connection with any such plan and will assume no obligation
with respect to any pre-existing condition of any employee of
Seller who is hired as an employee of Purchaser, except as
required by applicable law.
(f) Subject to the terms of the Amended and Restated
Stockholder's Agreement, Purchaser covenants and agrees that it
will reserve shares of Purchaser's Common Stock valued at up to
five percent (5%) of the total amount of Initial Consideration
for issuance upon exercise of options (the "ITP Options") granted
from time to time to employees of NEWCO on and after the Closing
Date as deemed appropriate by the management of NEWCO. The
parties hereto agree that all of the ITP Options issued to
employees of NEWCO within thirty (30) days of the Closing Date
will have an exercise price equal to $5.90 per share and that any
ITP Options issued after that date will have an exercise price
equal to the Fair Market Value at the time of exercise.
Section 5.10 Assumed Warranty Obligations. A complete and
accurate list of certain warranty obligations of Seller for all
equipment and products sold by Seller within two years prior to the
Closing Date with respect to the Business (by customer, amount, sale
and type of equipment or services) is set forth on Schedule 5.10
hereto.
Section 5.11 Release of Liens. Contemporaneously with or
prior to the Closing, Seller shall take all action necessary to
cause any Liens on or against the Assets to be released and
terminated as of the Closing date.
Section 6.
Conditions Precedent to Purchaser's Closing Obligations.
The obligations of Purchaser to purchase the Assets and
to assume the Assumed Liabilities and to take the other actions
contemplated hereby to be taken by Purchaser at or prior to the
Closing are subject to the satisfaction (unless waived in writing
by Purchaser), at or prior to the Closing, of each of the
following conditions.
Section 6.1 Business Conduct. Except as set forth on
Schedule 6.1, since February 28, 1998, there has not been a Material
adverse change in the Seller's operations, condition (financial or
otherwise), operating results, assets, liabilities, employee,
customer or supplier relations or business prospects.
Section 6.2 Accuracy of Representations and Warranties.
Each and every representation and warranty made by Seller in this
Agreement shall be true and correct as of the date of this Agreement
and as of the Closing Date with the same effect as if made or given
on the Closing Date.
Section 6.3 Performance of Covenants. Seller shall have
performed, satisfied and complied with all covenants, agreements,
obligations and conditions under this Agreement which are to be
performed, satisfied or complied with by Seller at or prior to the
Closing.
Section 6.4 No Litigation. No Proceeding shall be pending
or overtly threatened by or before any court, arbitrator or
Governmental Authority (a) which seeks the restraint, prohibition or
the obtaining of damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated
hereby, (b) which questions the legitimacy, validity or
enforceability of this
Agreement or the transactions contemplated hereby or (c) which,
if successful, would have a Material Adverse Effect on the Assets
or the Business or would materially and adversely affect the
ability of Purchaser to consummate the transactions contemplated
hereby or to operate the Business substantially as currently
operated.
Section 6.5 Deliveries at Closing. Seller shall have
delivered to Purchaser at the Closing the Assets and each of the
certificates, instruments, documents and agreements required to be
delivered to Purchaser hereunder or reasonably necessary to
consummate the transactions contemplated hereby.
Section 6.6 Consents. All Consents of any Person necessary
to permit the consummation of the transactions hereby shall have
been duly obtained, made or taken prior to the Closing.
Section 6.7 Condition of Assets. No event or change in
circumstances, including but not limited to fire, accident, storm,
or
other casualty or labor or civil disputes or act of God or public
enemy, shall have occurred (whether or not insured against) that in
the reasonable judgment of Purchaser has or is reasonably likely to
have a material adverse effect on the Assets or the value thereof or
on the Business.
Section 6.8 Employment Agreements. Purchaser shall have
entered into a Senior Executive Employment Agreement with Mahesh
Khatwani and Gary Prioste pursuant to the terms and conditions of
such agreement attached hereto as Annex III.
Section 7.
Conditions Precedent to Seller's Closing Obligations.
The obligations of Seller to sell and deliver the Assets to
Purchaser and to perform its other obligations contemplated
hereby to be taken at or prior to the Closing are subject to the
satisfaction (unless waived in writing by Seller), at or prior to
the Closing, of each of the following conditions:
Section 7.1 Business Conduct. Except as set forth on
Schedule 7.1, since February 28, 1998, there has not been a Material
adverse change in the Purchaser's operations, condition (financial or
otherwise),operating results, assets, liabilities, employee, customer
or supplier relations or business prospects.
Section 7.2 Accuracy of Representations and Warranties.
Each of the representations and warranties made by Purchaser in this
Agreement shall be true and correct as of the date of this Agreement
and as of the Closing Date with the same effect as if made or given
on the Closing Date.
Section 7.3 Performance of Covenants. Purchaser shall have
performed, satisfied and complied with all of the covenants,
agreements, obligations and conditions under this Agreement which
are to be performed, satisfied or complied with by Purchaser at or
prior to the Closing.
Section 7.4 No Litigation. No proceeding shall be pending
or overtly threatened before any court, arbitrator or Governmental
Authority which seeks the restraint, prohibition or the obtaining of
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, which
questions
the legitimacy, validity or enforceability of this Agreement or the
transactions contemplated hereby or which, if successful, would
have a material adverse effect on the Purchaser's assets or
business or would materially and adversely affect the ability of
Purchaser to consummate the transactions contemplated hereby or
for Purchaser to operate its business substantially as currently
operated.
Section 7.5 Deliveries at Closing. Purchaser shall have
delivered to Seller at the Closing the Consideration pursuant to
Section 2.1 herein and each of the other certificates, instruments,
documents and agreement required to be delivered to Seller
hereunder.
Section 7.6 Employment Agreements. Purchaser shall have
entered into a Senior Executive Employment Agreements with Mahesh
Khatwani and Gary Prioste pursuant to the terms and conditions of
such agreement attached hereto as Annex III.
Section 8. The Closing.
Section 8.1 Date and Place. The consummation of the sale
and purchase of the Assets contemplated hereby (the "Closing") shall
take place at the offices of Swidler & Berlin, Chartered at 3000 K
Street, N.W., Washington, D.C. at ten a.m. local time, on June 12,
1998, or at such other time, date or place as the parties shall
mutually agree (the "Closing Date"). For accounting purposes, this
Agreement shall be treated as if it closed on June 1, 1998.
Section 8.2 Deliveries by Seller. At the Closing, Seller
and STOCKHOLDER shall deliver or cause to be delivered to Purchaser,
in form reasonably acceptable to Purchaser's counsel:
(a) Full, actual and unimpeded possession and
enjoyment of the Assets;
(b) Assignments and assumptions of all Assigned
Contracts being assumed by and assigned to Purchaser, duly
executed by Seller, along with all consents required to permit
such assignment and assumption;
(c) One or more duly executed bills of sale warranting
good and marketable title in and to the Assets, and such other
instruments of sale, conveyance, assignment and transfer as may
be reasonably requested by Purchaser, in order to vest in
Purchaser all of Seller's right, title and interest in and to all
of the other Assets, free and clear of all Liens, Consents,
restrictions or obligations to any third party, of any kind
whatsoever;
(d) All assignments required to transfer any
Intellectual Property to Purchaser;
(e) All Consents necessary to permit the consummation
of the transactions contemplated by this Agreement;
(f) All releases of all Liens encumbering any of the
Assets;
(g) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Seller as
having been duly adopted by the Board of Directors and, if
necessary, shareholders of Seller authorizing Seller's and
STOCKHOLDER'S execution and delivery of this Agreement and the
Related Seller Agreements and their consummation of the
transactions contemplated hereby and thereby;
(h) Certificates duly executed by the President or
Chief Executive Officer of Seller and by STOCKHOLDER, dated as of
the Closing Date, certifying that, to the best of their knowledge
and belief after due inquiry, (i) each of Seller and STOCKHOLDER,
respectively, has fully performed, satisfied and complied with
all agreements, obligations, covenants and conditions required by
this Agreement to be performed, satisfied or complied with at or
prior to the Closing, and (ii) all of the representations and
warranties of Seller and STOCKHOLDER, respectively, set forth in
Section 3 of this Agreement are true and correct as of the
Closing Date;
(i) An opinion of counsel for Seller and STOCKHOLDER,
dated as of the Closing Date, substantially in the form attached
hereto as Annex I;
(j) Senior Executive Employment Agreements, duly
executed by the respective STOCKHOLDER;
(k) STOCKHOLDER shall have delivered to Purchaser an
instrument dated the Closing Date releasing Purchaser and NEWCO
from any and all obligations to the STOCKHOLDER, except for (x)
continuing obligations to the STOCKHOLDER relating to his
employment by NEWCO and (y) obligations arising under this
Agreement or the transactions contemplated hereby;
(l) Seller shall have executed a Subordination
Agreement substantially in the form attached hereto as Annex VII
and Annex VIII relating to the First Note, and the Convertible
Note, respectively, and will execute a Subordination Agreement
for the Second Note and the Second Convertible Note, if any; and
(m) All other items required to be delivered by Seller
or STOCKHOLDER pursuant to any provision of this Agreement.
Section 8.3 Deliveries by Purchaser. At the Closing,
Purchaser shall deliver to Seller, in form reasonably acceptable to
Seller's counsel:
(a) The Cash Portion of the Purchase Price as set
forth in Section 2.1(a)(i) hereof, by cashier's or certified bank
check or wire transfer of immediately available funds to an
account designated by Seller;
(b) The Convertible Note, duly executed by Purchaser;
(c) The First Note, duly executed by Purchaser;
(d) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Purchaser as
having been duly adopted by the Board of Directors of Purchaser,
respectively, authorizing Purchaser's execution and delivery of
this Agreement and the Related Purchaser Agreements and their
consummation of the transactions contemplated hereby and thereby;
(e) Certificates duly executed by the Chairman of the
Board, President or Chief Executive Officer of Purchaser, dated
as of the Closing Date, certifying that, to the best of their
knowledge and belief after due inquiry, (i) Purchaser has fully
performed, satisfied and complied with all agreements,
obligations, covenants and conditions required by this Agreement
to be performed, satisfied or complied with by Purchaser at or
prior to the Closing, and (ii) all of the representations and
warranties of Purchaser set forth in Section 4 of this Agreement
are true and correct as of the Closing Date;
(f) An opinion of counsel for the Purchaser, dated as
of the Closing Date, substantially in the form attached hereto as
Annex II; and
(g) All other items required to be delivered by
Purchaser pursuant to any provision of this Agreement.
Section 8.4 Effectiveness of Closing. No action to be
taken or delivery to be made at the Closing shall be effective until
all of the actions to be
taken and deliveries to be made at the Closing are complete.
Section 9.
Survival and Indemnification.
Section 9.1 Survival. The indemnification obligations and
the representations, warranties, covenants and agreements set forth
in
this Agreement shall survive the Closing and shall continue in full
force and effect until they expire on the second anniversary of the
Closing Date (or such later date as expressly provided herein),
regardless of any investigation made by any party hereto, except
as to any Claims relating to fraud, environmental, intellectual
or tax matters, which claims shall expire only upon expiration of
the applicable statute of limitations. No Claim pursuant to this
Section 9 shall be asserted by any party hereto after the
expiration of the applicable survival period or statute of
limitations, as the case may be, except for Claims made in
writing prior to such expiration or actions (whether instituted
before or after such expiration) based on any Claim made in
writing prior to such expiration.
Section 9.2 Indemnification by the Seller and STOCKHOLDER.
Seller and STOCKHOLDER shall jointly and severally indemnify,
defend
And hold harmless Purchaser, NEWCO, their affiliates, successors and
assigns, and the officers, directors, shareholders, partners,
employees, agents and representatives of any of them, harmless
from and against, any and all claims, actions, suits, proceedings
demands, losses, expenses, obligations, taxes, liabilities,
damages, recoveries and deficiencies (including, without
limitation, interest, fines, penalties, costs of investigation,
reasonable attorneys', accountants' and other professionals' fees
and expenses and amounts paid in settlement) (collectively,
"Damages") arising out of, based upon or resulting from (i) any
breach or violation of, inaccuracy or misrepresentation in, or
failure by the Seller or STOCKHOLDER to perform, any
representations, warranties, covenants, agreements or other
obligations of Seller or STOCKHOLDER made in this Agreement or in
any schedule, certificate, exhibit, annex or other document or
instrument furnished or to be furnished by Seller or STOCKHOLDER
to Purchaser pursuant to this Agreement, (ii) any debt, liability
or obligation of Seller or STOCKHOLDER not included in the
Assumed Liabilities, (iii) any failure by Seller or STOCKHOLDER
to completely and timely comply with all applicable provisions of
(A) any WARN or similar state or local laws or (B) the
fraudulent transfer or fraudulent conveyance laws of any
jurisdiction, (iv) any statute or common law doctrine of de facto
merger or successor liability or (v) any product liability claims
relating to products made or sold or services performed by Seller
or STOCKHOLDER prior to the Closing Date. In the event of a
Claim for Damages pursuant to this Section 9.2, STOCKHOLDER and
Seller's liability for such Claim for Damages shall be limited to
an amount not to exceed the maximum amount of the Initial
Consideration received by the STOCKHOLDER or Seller as of the
date such Claim for Damages is made. Notwithstanding the
foregoing, any adjustment to the Working Capital balance as of
the Closing Date pursuant to Section 2.2 above shall not
constitute a basis for a further Claim for Damages hereunder.
Section 9.3 Indemnification by Purchaser. Purchaser shall
indemnify, defend and hold harmless Seller and STOCKHOLDER, their
affiliates, successors and assigns, and the officers, directors,
shareholders, partners, employees, agents and representatives of
any of them, from and against, any and all Damages arising out
of, based upon or resulting from any breach or violation of,
inaccuracy or misrepresentation in, or failure by Purchaser to
perform, any of the representations, warranties, covenants,
agreements or other obligations of Purchaser made in this
Agreement or in any schedule, certificate, exhibit, Annex or
other document or instrument furnished or to be furnished by
Purchaser to Seller or STOCKHOLDER pursuant to this Agreement.
Section 9.4 Claims for Indemnification.
(a) Whenever any party hereunder believes it has
suffered or incurred or is likely to suffer or incur any Damages,
or any action or proceeding is commenced or threatened or claim
is made that could result in Damages, which is reasonably likely
to give rise to a claim ("Claim") for indemnification under this
Agreement, the party seeking indemnification ("Indemnified
Party") shall, upon obtaining knowledge thereof, promptly notify
in writing the party against whom indemnification is sought
("Indemnifying Party") of the Claim and, when known, the facts
constituting the basis for such Claim and the amount and nature
of the Damages or an estimate thereof. The Indemnified Party's
failure to timely notify Indemnifying Party of any Claim or
potential Claim shall not relieve the Indemnifying Party of any
liability hereunder unless and only to the extent that such
failure causes Indemnifying Party to lose the right to assert any
substantive rights or defenses or to the extent that the
Indemnifying Party is actually prejudiced in its rights or
obligations.
(b) The Indemnified Party shall give the Indemnifying
Party a reasonable opportunity to participate in and to assume
the defense of any such Claim at the Indemnifying Party's own
expense and with counsel of the Indemnifying Party's own
selection reasonably satisfactory to the Indemnified Party
provided, however, that Indemnified Party shall at all times also
have the right but not the obligation, to fully participate in
the defense of the Claim and to employ its own counsel at its own
expense. Notwithstanding the foregoing, if the Indemnified Party
reasonably determines that: (i) legal defenses may be available
to the Indemnified Party that are different from or in addition
to those available to the Indemnifying Party, (ii) a conflict or
potential conflict of interest exists between the Indemnified
Party and the Indemnifying Party (in which case the Indemnifying
Party shall not have the right to direct the defense of such
Claim on behalf of the Indemnified Party), or (iii) the
Indemnifying Party has not in fact employed legal counsel to
assume the defense of such Claim within a reasonable time after
receiving notice of the Claim, then the reasonable fees,
disbursements and other charges of counsel from one separate firm
selected by the Indemnified Party (and reasonably acceptable to
the Indemnifying Party) shall be reimbursed by the Indemnifying
Party promptly as they are incurred.
(c) No party hereto shall compromise, settle or
consent to the entry of any judgment with respect to any Claim
without the prior written consent of the other interested party
or parties (which consent shall not be unreasonably withheld or
delayed) unless such compromise, settlement or consent includes
an unconditional release of all other interested parties hereto
from any and all liabilities on any Claims that are the subject
matter thereof.
(d) Each party hereto shall cooperate in every
reasonable way with the party assuming responsibility for the
defense and disposition of any such Claim, including making
available to the defending party all books, records, and other
material reasonably required by the defending party for its use
in defending the Claim.
Section 9.5 Limitation on Liability.
(a) Notwithstanding the foregoing, the Indemnifying
Party shall not be required to indemnify the Indemnified Party
hereunder unless and until the aggregate amount of all Damages
exceeds $75,000.00.
(b) Neither party shall seek or be entitled to
consequential damages or damages for lost profits in any Claim
for indemnification under this Section 9 nor shall it accept
payment of any award or judgment against the other party to the
extent that such award or judgment includes consequential damages
or damages for lost profits.
Section 9.6 Non-Exclusive Indemnification. The foregoing
indemnification provisions are in addition to, and not in derogation
of, or statutory, equitable or common law remedies any party hereto
may have for any breach of representation, warranty, covenant or
agreement.
Section 9.7 Effect of Knowledge. No disclosure to and no
investigation by or on behalf of any party hereto, other than
disclosures made in the Schedules hereto, shall be deemed to affect
its reliance on the representations, warranties, covenants and
agreements contained herein or to waive its rights to
indemnification
as provided herein for the breach or violation of or inaccuracy or
failure to perform or comply with any representation, warranty,
covenant or agreement of any other party hereto.
Section 9.8 Contribution. If the indemnification provided
for in this Section 9 is for any reason unavailable or insufficient
to
indemnify the Indemnified Party in respect of any Damages, then the
Indemnifying Party shall in lieu of indemnifying the Indemnified
Party contribute to the total damages to which the Indemnified
Party may be subject in such proportion that shall be appropriate
to reflect the relative fault of the Indemnifying Party, on the
one hand, and the Indemnified Party, on the other hand, in
connection with any actions or omissions which resulted in such
Damages as well as any other relevant equitable considerations;
provided, however, that the amount of any such contribution
obligation shall not exceed what would otherwise be the amount of
the Indemnifying Party's indemnification obligation hereunder.
Section 10.
Post-Closing and Other Covenants.
Section 10.1 Further Assurances. At the Closing,
Seller, through its officers directors, employees and agents, shall
put Purchaser into full, actual and unimpaired ownership,
possession,
enjoyment and control of the Assets. At any time and from time to
time after the Closing, Seller shall, at the sole expense of
purchaser, execute, acknowledge and deliver any further deeds,
assignments, conveyances, consents, permits and other assurances,
documents and instruments of transfer reasonably requested by
Purchaser, and take any and all further actions consistent with the
terms of this Agreement, that may be reasonably requested by
Purchaser
for the purpose of more effectively and fully assigning,
transferring, granting and conveying to and vesting in Purchaser
all of Seller's right, title and interest in and to, or reducing
to possession, any or all of the Assets. If requested by
Purchaser, Seller shall, solely at Purchaser's expense (unless
required due to a breach of any representation, warranty, or
covenant hereof by Seller), prosecute or otherwise enforce in its
own name for the benefit of Purchaser any claims, rights or
benefits that are transferred to Purchaser by this Agreement and
require prosecution and enforcement in Seller's name.
Section 10.2 Preservation of Files and Records.
(a) By Purchaser. For a period of 3 years after the
Closing Date, Purchaser shall preserve all files and records
relating
to the Business and the Assets that are in existence as of the
Closing
Date and that are less than 5 years old as of the Closing Date, and
shall allow Seller access to such files and records and the right to
make copies and extracts therefrom at any time during normal
business hours, and shall not dispose of any thereof, provided
that at any time after the Closing, Purchaser may give Seller
written notice of its intention to dispose of any part thereof,
specifying the items to be disposed of in reasonable detail.
Seller may, within a period of sixty (60) days after receipt of
any such notice, notify Purchaser of Seller's desire to retain
one or more of such items to be disposed of. Purchaser shall,
upon receipt of such notice from Seller, deliver to Seller at
Seller's expense, the items specified in Purchaser's notice to
Seller which Seller has elected to retain.
(b) By Seller. For a period of three (3) years after
the Closing Date, Seller shall preserve all files and records
relating
to the Business and the Assets that are in existence as of the
Closing
Date not otherwise delivered to Purchaser and that are less than
five
(5) years old as of the Closing Date, and shall allow Purchaser
access to such files and records and the right to make copies and
extracts therefrom at any time during normal business hours, and
shall not dispose of any thereof, provided that at any time after
the Closing, Purchaser may give Seller written notice of its
intention to dispose of any part thereof, specifying the items to
be disposed of in reasonable detail. Purchaser may, within a
period of sixty (60) days after receipt of any such notice,
notify Seller of Purchaser's desire to retain one or more of such
items to be disposed of. Purchaser shall, upon receipt of such
notice from Seller, deliver to Purchaser at Purchaser's expense,
the items specified in Purchaser's notice to Seller which
Purchaser has elected to retain.
Section 10.3 Mutual Cooperation.
(a) Preparation of Reports, Etc. Each of Purchaser
and Seller shall cooperate and cause its respective employees and
agents to cooperate with each other in the preparation of financial
and other reports and statements relating to the Business and the
Assets for periods ending on or prior to the Closing.
(b) Taxes and Other Matters. In connection with the
preparation of any tax returns, any audit or other examination by
any
taxing or other Governmental Authority, or any Proceeding or other
matters including but not limited to, environmental and other
matters
relating to the transactions contemplated by this Agreement, each
party will provide the other with the opportunity to make copies
of any records or information which may be relevant to such
return, audit or examination, Proceeding or determination. Each
party shall make its employees available on a mutually convenient
and reasonable basis to provide additional information and
explanation of any material provided hereunder.
(c) Cooperation in Litigation. In the event that,
after the Closing Date, Seller or Purchaser shall reasonably require
the participation of officers and employees by each other to aid in
the defense or prosecution of litigation or claims, and so long as
there exists no unwaived conflict of interest between the parties,
each of Seller and Purchaser shall make such officers and employees
reasonably available to participate in such defense or
prosecution provided that, except as required pursuant to the
provisions herein, the party requiring the participation of such
officers and employees shall pay all reasonable out-of-pocket
costs, charges and expenses arising from such participation.
Section 10.4 Solicitation and Hiring.
(a) STOCKHOLDER's Covenant. For a period of two (2)
years after the Closing Date, STOCKHOLDER, shall not, directly or
indirectly, as a stockholder, investor, partner, director, officer,
employee or otherwise (i) solicit or attempt to induce any employee
to
terminate his or her employment with NEWCO or Purchaser, or (ii)
hire or attempt to hire any employee of Purchaser.
Section 11.
Termination and Confidentiality.
Section 11.1 Events of Termination. This Agreement may be
terminated at any time prior to the Closing as follows:
(a) By mutual written agreement of Seller and
Purchaser;
(b) By Seller or Purchaser if (i) the non-terminating
party shall have failed to perform, satisfy or comply with any of
its, obligations, agreements, or covenants to be performed,
satisfied, or complied with hereunder prior to the Closing, or
(ii) the non-terminating party materially breaches any of its
representations, warranties or covenants hereunder;
(c) By any party hereto by giving written notice to
the other parties hereto if the Closing Date has not occurred on
or before July 15, 1998, unless such party's intentional failure
to fulfill any obligation hereunder has been the cause of, or has
resulted in, the failure of the Closing to occur on or before
such date; or
(d) By Purchaser or Seller if any court or
Governmental Authority of competent jurisdiction shall have
issued an order, judgment, decree, ruling or taken other action
restraining, enjoining or otherwise prohibiting the transaction
contemplated hereby.
Section 11.2 Effect of Termination. If any party
terminates this Agreement in accordance with Section 11.1, then all
rights and obligations of the parties shall cease, except for the
obligations set forth in Sections 11.3 and 12.2 which shall survive
such termination; provided, however, that any termination of this
Agreement shall not affect the rights or either Seller or Purchaser
against the other for breach of any representation, warranty,
covenant
or agreement set forth in this Agreement.
Section 11.3 Confidentiality. Notwithstanding the provisions
of this Section 11, if for any reason the transactions contemplated
by
this Agreement are not consummated, each of the parties hereto shall
keep confidential any information obtained from any other party to
this Agreement (except information publicly available or in such
party's domain prior to the date hereof, and except as required
by court order) and shall not use any such information to the
detriment of the other party and shall promptly return to the
other party all schedules, documents, instruments, work papers or
other written information, without retaining copies thereof,
previously furnished by it as a result of this Agreement or in
connection herewith.
Section 12.
General Provisions.
Section 12.1 Governing Law. This Agreement shall in all
respects be governed by and
-----------
construed and enforced in accordance with the internal
substantive laws of the State of Maryland, without giving effect
to any principle or rule of conflict or choice of laws. Any
action suit, or other proceeding seeking to enforce any right,
remedy, obligation, duty, covenant or provision of, or arising
out of, this Agreement shall be brought and entered against any
party hereto exclusively in any federal or state court of the
State of California or of the United States located in the State
of California. Each party hereto irrevocably submits to the
personal jurisdiction of any such court and irrevocably waives,
to the fullest extent of the law, any objection that it may now
or hereafter have to the laying of venue in any such court and
any claim that such action, suit or proceeding has been brought
in an inconvenient form.
Section 12.2 Expenses. Except as expressly provided
herein, each of the parties to this Agreement agrees to pay its own
costs and expenses incurred in connection with this Agreement and
the
transactions contemplated hereby, including the fees and expenses of
its counsel, accounting and other advisers and agents.
Section 12.3 Assignment. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned or transferred
by
any party hereto without either party giving at least ninety (90)
days
prior written notice to all other parties hereto, provided, however,
that Purchaser may, without providing notice to Seller, sell,
assign, transfer or delegate its rights or obligation, under this
Agreement to NEWCO or any of its affiliates, in which case such
assignee or transferee shall be substituted for Purchaser
hereunder as though it was the original party to this Agreement,
and Purchaser shall be released from all its obligations under
this Agreement.
Section 12.4 Amendments. This Agreement may not be
supplemented, amended or modified in any manner in whole or in part
except by a writing signed by all parties to this Agreement that
specifically states that it amends this Agreement.
Section 12.5 Notices. Any and all notices, requests,
demands and other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly
given hereunder if delivered personally, or if sent by facsimile
transmission (upon receipt of confirmation of delivery), on the next
business day if sent by overnight courier service, or three business
days after being sent by first class (registered/certified) mail,
postage prepaid, return receipt requested, to the parties at the
following addresses:
If to Purchaser: 9881 Broken Land Parkway
Suite 102
Columbia, Maryland 21046
Attn: Daniel J. Klein
Telephone: (410) 309-9800
Facsimile: (410) 309-9801
With a copy to:Swidler & Berlin, Chartered
3000 K Street, N.W.
Suite 300
Washington, D.C. 20007
Attn: Andrew M. Ray
Douglas C. Boggs
Telephone: (202) 424-7782
Facsimile: (202) 424-7645
If to STOCKHOLDER: Mahesh Khatwani
393 Grand Avenue
South San Francisco, California 94080
With a copy to: Orton E. Snyder, Esquire
19925 Stevens Creek Blvd.
Cupertino, California 95014
Telephone: (408) 725-7542
Facsimile: (408) 244-8017
Any party may change its designated address by giving
written notice thereof to all other parties hereto in the manner
provided in this Section 12.5. Any party hereto may send any
notice, request, demand, or other communication to the intended
recipient at the address above by using any other means (such as
telecopy, telex, expedited courier, messenger, ordinary mail or
electronic mail), but no such notice, demand, request or other
communication shall be deemed to have been given until it is
actually received by the recipient.
Section 12.6 Waiver. The obligations of any party hereto
may be waived only with the written consent of the party giving the
waiver. Any waiver by any party of a breach of any provision of
this
Agreement shall not operate or be construed to be a waiver of any
other breach of that provision or of any breach of any other
provision
of this Agreement. The failure of a party to insist upon strict
adherence to any provision of this Agreement on one or more
occasions shall not be considered a continuing waiver or deprive
that party of the right thereafter to insist upon strict
adherence to that provision or any other provision of this
Agreement.
Section 12.7 Severability. If any provision of this
Agreement is invalid, illegal or unenforceable in any situation, the
balance of this Agreement shall remain in effect, and such
illegality,
invalidity or unenforceability shall not affect the legality,
validity
or enforceability of that provision in any other situation or
legality, validity or enforceability of any other provision of
this Agreement.
Section 12.8 Headings. The headings used in this Agreement
are solely for convenience of reference and shall be given no effect
in the construction or interpretation of this Agreement.
Section 12.9 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
-----------------
their respective successors and permitted assigns.
Section 12.10 Pronouns, etc. The number and gender of each
pronoun used in this Agreement and the term "person" or "persons" or
the like shall be construed to mean both the number and gender of
the
individual, corporation, limited liability company, partnership,
firm,
trust, agency and other entity as the context, circumstance or its
antecedent may require. The terms "herein," "hereof," "hereby,"
"hereto" and the like refer to this Agreement as a whole.
Section 12.11 No Third Party Beneficiaries. Except as
expressly provided in this Agreement, this Agreement does not confer
or create, is not intended by the parties hereto to confer or
create,
and shall not be construed as conferring or creating, upon any
person
or entity other than the parties hereto and their successors and
permitted assigns any rights, remedies or causes of action under or
by
reason of this Agreement.
Section 12.12 Schedules, Exhibits and Annexes. The schedules,
exhibits and annexes attached to this Agreement are incorporated
into
and made a part of this Agreement as if they were fully set forth
herein.
Section 12.13 Specific Performance; Cumulative Remedies.
The parties hereto acknowledge and agree that the transactions
contemplated by this Agreement are unique in that remedies at law
for
any breach or threatened breach of this Agreement would be an
inadequate remedy for any loss, and that any defense in any action
for
specific performance that a remedy at law would be adequate is
hereby
specifically waived. Accordingly, in the event of any actual or
threatened breach to any of the terms of this Agreement, the non-
breaching party shall have the right of specific performance and
injunctive relief giving effect to its rights under this
Agreement, in addition to any and all other rights and remedies,
at law or in equity, and all such rights and remedies are
cumulative.
Section 12.14 Counterparts. This Agreement may be executed
in one or more counterparts, including counterparts executed by less
than all parties hereto, by facsimile or otherwise, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 12.15 Entire Agreement. This Agreement constitutes
the entire agreement and understanding between the parties hereto
with
respect to the subject matter hereof and supersedes all prior and
contemporaneous arrangements, agreements and understandings,
whether oral or written, among the parties hereto in connection
with the subject matter of this Agreement.
(Next page is the Signature Page).
IN WITNESS WHEREOF, the parties hereto have caused this
Asset Purchase Agreement to be executed and delivered by their
duly authorized officers as of the date first above written.
PURCHASER:
IT PARTNERS, INC.
By:/s/ Daniel J. Klein
----------------------------
Daniel J. Klein
SELLER:
SERVINET CONSULTING GROUP, INC.
By: /s/Mahesh Katwani
-----------------------------
Title: President
STOCKHOLDER:
By: /s/Mahesh Katwani
-----------------------------
Mahesh Khatwani
By:/s/ Gray Drohan
-----------------------------
Gary Prioste
By:/s/ Gray Drohan
------------------------------
Gray Drohan
By:/s/ Keith Matsunaga
-----------------------------
Keith Matsunaga