1
EXHIBIT 10.31
STOCK PURCHASE AGREEMENT
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
HOLDEN CORPORATION
"COMPANY"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
MARCH 1, 1999
2
TABLE OF CONTENTS
1. Purchase of Membership Interests.............................................1
2. Option.......................................................................1
2.1. RIGHT TO PURCHASE..................................................1
2.2. EXERCISE PROCEDURE.................................................2
2.3. EXERCISE PRICE.....................................................2
2.4. MATERIAL INFORMATION...............................................2
2.5. NO INTERFERENCE WITH OPTION.........................................2
3. Representations and Warranties of the Company and the Members................2
3.1. ORGANIZATION AND GOOD STANDING.....................................3
3.2. OWNERSHIP OF MEMBERSHIP INTERESTS..................................3
3.3. AUTHORIZATION OF AGREEMENT.........................................4
3.4. TITLE TO ASSETS....................................................4
3.5. CERTAIN PROPERTY OF THE COMPANY....................................4
3.6. YEAR 2000 COMPLIANCE...............................................6
3.7. NO CONFLICT OR VIOLATION...........................................7
3.8. CONSENTS...........................................................7
3.9. LABOR AND EMPLOYMENT MATTERS.......................................7
3.10. EMPLOYEE PLANS....................................................8
3.11. LITIGATION........................................................8
3.12. CERTAIN AGREEMENTS................................................9
3.13. COMPLIANCE WITH APPLICABLE LAW....................................9
3.14. LICENSES.........................................................10
3.15. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.......10
i
3
3.16. LIABILITIES.......................................................11
3.17. TAXES.............................................................11
3.18. BROKERS...........................................................12
3.19. ACKNOWLEDGMENT RE DELOITTE & TOUCHE LLP...........................12
4. Representations and Warranties of Buyer.....................................12
4.1. ORGANIZATION AND CORPORATE AUTHORITY..............................12
4.2. NOTES.............................................................12
4.3. NO CONFLICT OR VIOLATION..........................................12
4.4. PURCHASE FOR INVESTMENT...........................................13
4.5. INVESTIGATION BY BUYER............................................13
5. Certain Understandings and Agreements of the Parties........................13
5.1. ACCESS............................................................13
5.2. CONFIDENTIALITY...................................................13
ii
4
5.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS...........................14
5.4. RESTRICTIVE COVENANTS.............................................16
5.5. MEMBER RESTRICTIONS...............................................19
5.6. NOTICE OF BREACH..................................................19
5.7. FINANCIALS........................................................19
5.8. CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS....................19
5.9. TAX MATTERS.......................................................20
5.10. TAKE-ALONG AND TAG-ALONG RIGHTS...................................22
5.11. BUSINESS PLAN.....................................................23
5.12. FINANCING OF THE COMPANY..........................................23
5.13. EMPLOYEES.........................................................24
5.14. USE OF SERVICES...................................................25
6. Survival; Indemnification...................................................25
6.1. SURVIVAL..........................................................25
6.2. INDEMNIFICATION BY THE MEMBERS....................................26
6.3. INDEMNIFICATION BY BUYER..........................................26
6.4. INDEMNIFICATION PROCEDURE.........................................26
6.5. PAYMENT...........................................................28
6.6. LIMITATIONS.......................................................29
iii
5
7. Miscellaneous...............................................................29
7.1. NOTICES...........................................................29
7.2. ASSIGNABILITY AND PARTIES IN INTEREST.............................30
7.3. GOVERNING LAW.....................................................30
7.4. COUNTERPARTS......................................................30
7.5. COMPLETE AGREEMENT................................................30
7.6. MODIFICATIONS, AMENDMENTS AND WAIVERS.............................30
7.7. HEADINGS; REFERENCES..............................................31
7.8. SEVERABILITY......................................................31
7.9. INVESTIGATION.....................................................31
7.10. EXPENSES OF TRANSACTIONS.........................................31
7.11. ARBITRATION......................................................31
7.12. SUBMISSION TO JURISDICTION.......................................33
7.13. ATTORNEYS' FEES..................................................33
7.14. ENFORCEMENT OF THE AGREEMENT.....................................34
iv
6
EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Considerations
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company and the Stockholders
G-1 Form of Employment Agreement for Key Employees
G-2 Form of Employment Letter for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Officer's Certificate
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.22 Indebtedness
2.26 Banks
2.29 Brokers
3.5 Buyer Litigation
3.6(a) EPSC Subsidiaries
3.6(b) Consolidated Indebtedness
3.6(c) Business Descriptions
3.7(a) Buyer Financial Statements
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
v
7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 1, 1999 by and among Holden Corporation, an Illinois
corporation (the "COMPANY"), the stockholders of the Company listed on the
signature page(s) hereof (each such individual a "STOCKHOLDER," and
collectively, the "STOCKHOLDERS"), James F. Holden, acting for and on behalf of
the Stockholders as their representative pursuant to Section 4.9 (the
"STOCKHOLDER REPRESENTATIVE"), and EPS Solutions Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in (1) the provision of sales training
seminars that teach salespeople, sales managers and sales support people the
process of selling in the areas of territory, account and relationship selling
as expressed in the Power Base(R) Selling, Territory Value Selling, Partnership
Selling and Relationship Management seminars currently offered by the Company;
(2) the provision of marketing workshops that teach sales and marketing
personnel to more effectively align their marketing efforts to the Power Base(R)
Selling methodology, as expressed in the Company's Power Base(R) Marketing
Alignment Workshops; (3) the development of diagnostics that relate to the
Company's sales training seminars and marketing workshops, as identified above,
including Architectural Assessments(R) 1.0 through 7.0 tool, Revenue Risk Report
and Valu-Driver(R) tool; (4) the development of software that relates to the
Power Base(R) Selling methodology, in terms of assisting in the implementation
of the methodology, including software designs for future possible software, as
expressed in the SmartSel(TM) software, IntelliCoach software design, and
VALUGUIDE(R) software offerings; and (5) the provision of consulting services
that relate to increasing sales force effectiveness in the areas of recruiting
and selection, compensation, performance management and competency assessment of
sales and sales management personnel as they relate to the Company's current
offerings, as identified above, and sales presentations at customer conferences
that are an introduction to the Company's approach to sales effectiveness (the
"BUSINESS").
B. The Stockholders own 1,000 shares of common stock of the
Company, constituting all of the issued and outstanding shares of capital stock
of the Company (the "SELLER SHARES").
C. The Stockholders desire to sell to Buyer, and Buyer desires to
purchase from the Stockholders, all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
8
1. SALE AND PURCHASE.
1.1. Agreements to Sell and Purchase. On the Closing Date (as hereinafter
defined) the Stockholders shall sell to Buyer, and Buyer shall purchase from the
Stockholders, all of the Seller Shares, for the purchase price described in
Section 1.3.
1.2. Closing. The closing of the sale and purchase of the Seller Shares (the
"CLOSING") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the
Stockholders informing the Company and the Stockholders of the anticipated
Closing Date. At the Closing, the Stockholders shall deliver to Buyer or its
designees stock certificates, duly endorsed in blank (or accompanied by duly
executed stock powers), representing the Seller Shares being sold by the
Stockholders and each other instrument of transfer Buyer may reasonably request
to vest effectively in Buyer good and valid title to the Seller Shares, free and
clear of any liens, pledges, options, security interest, trusts, encumbrances or
other rights or interests of any person or entity, together with any taxes,
direct or indirect, attributable to such transfer of the Seller Shares, and
Buyer shall thereupon pay to each Stockholder the Purchase Price for such
Stockholder's Seller Shares.
1.3. Purchase Price. The consideration to be paid by Buyer for the Seller Shares
(the "PURCHASE PRICE"), both in the aggregate and to each Stockholder for such
Stockholder's Seller Shares, is described in Schedule 1.3.
1.4. Certificates for Shares. In order to facilitate replacement of certificates
for the shares of Series A Common Stock of Buyer constituting part of the
Purchase Price (the "SHARES") upon an IPO (as defined herein) with the transfer
agent's form of certificate, and to facilitate enforcement of the Stockholder
Agreement (as defined herein), Buyer will keep custody of the certificates
representing the Shares until the IPO and until the Shares are no longer subject
to the Stockholder Agreement, and recipients of Shares will execute and deliver
blank stock powers as described in Section 6.2(d)(i). This custody arrangement
will not affect the rights as a stockholder of any permitted recipient of
Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Schedule 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Stockholders, jointly
and severally, represent and warrant to Buyer that:
2.1. Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois, with full corporate power and authority to carry on the Business as it
is now being conducted, and to own, lease or operate its assets and properties.
The Company is duly qualified to do business and is in good standing in every
jurisdiction in which the character of the properties owned
2
9
or leased by it or the nature of the business conducted by it makes such
qualification necessary, except where failure to be so qualified would not have
a Material Adverse Effect. Schedule 2.1 lists all of the jurisdictions in which
the Company is qualified to do business. "MATERIAL ADVERSE EFFECT" shall mean a
material adverse effect on or change in the Business or the financial condition
or results of operation of the Company, other than any such change or effect
attributable to or resulting from (i) changes in conditions (economic or
otherwise) generally applicable to the industries in which the Company operates
the Business, or general economic conditions globally, in the United States or
in the regions thereof in which the Company operates the Business, or (ii) any
change in laws, rules or regulations of general applicability relating to or
affecting the industries in which the Company operates the Business or
interpretations of such laws, rules or regulations by any Governmental Entity.
Complete and accurate copies of the charter documents of the Company, with all
amendments thereto to the date hereof, and the bylaws as presently in effect,
have been furnished to Buyer or its representatives.
2.2. Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 5,000 shares
of common stock of the Company, no par value, of which 1,000 shares are issued
and outstanding and held by the Stockholders as joint tenants. There is no other
issued and outstanding capital stock of the Company. Without limiting the
foregoing, any and all shares of capital stock of the Company issued to Arthur
Jacobs have been returned to the Company and canceled and Arthur Jacobs has no
equity or other interest in the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. Neither the Stockholders nor the Company has granted, issued or
agreed to grant or issue any other equity interests in the Company and there are
no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholders have good and valid title to, and sole record and
beneficial ownership of, the Seller Shares, free and clear of any claims, liens,
pledges, options, security interests, trusts encumbrances or other rights or
interests of any person or entity.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
3
10
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3. Authorization of Agreement. The Company and the Stockholders have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") and the Stockholders and no other proceedings on the part of the
Company or the Stockholders are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the other
Transaction Documents to be delivered by the Company or any Stockholder have
been (or upon execution will have been) duly executed and delivered by the
Company or such Stockholder and constitute (or upon execution will constitute)
legal, valid and binding obligations of the Company or such Stockholder, except
as such enforceability may be limited by general principles of equity and
bankruptcy, insolvency, reorganization and moratorium and other similar laws
relating to creditors' rights (the "ENFORCEABILITY EXCEPTIONS.")
2.4. Title to Assets. The Company owns, or has valid leasehold interests in, all
material assets used to conduct the Business, whether real, personal, mixed,
tangible or intangible, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind except any of the following: (i) purchase money security interests in
specific items of equipment each having a value not in excess of $5,000; (ii)
Personal Property leased pursuant to Personal Property Leases; (iii) liens for
taxes not yet payable; (iv) additional security interests and liens consented to
in writing by Buyer; (v) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vi) such imperfections of title
and encumbrances, if any, as would not have a Material Adverse Effect; (vii)
liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. There are
no outstanding agreements, options or commitments of any nature obligating the
Company or any Stockholder to transfer any of the assets of the Company or
rights or interests therein to any party other than sales of inventory in the
ordinary course of business.
2.5. Financial Condition and Accounting.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of December 31, 1995, 1996 and 1997 and the related statements of
income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of the Company for the
4
11
nine-month period ended September 30, 1998 (the "INTERIM FINANCIAL STATEMENTS,"
and with the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The
Financial Statements (i) were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied except as disclosed in the
footnotes thereto (except that the Interim Financial Statements are subject to
year-end adjustments, the net effect of which will not represent a Material
Adverse Change); and (ii) fairly present, in all material respects, the
financial condition and the results of the operations of the Company as at the
relevant dates thereof and for the periods covered thereby. There have been no
material changes or modifications of revenue recognition, cost allocation
practices, method of accounting, or other financial or operational practices or
principles except for any such change required by reason of a concurrent change
in GAAP during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 the Company has
not experienced any Material Adverse Change, or experienced any event, action,
or circumstance of the kind described in Section 4.3(a). For purposes of this
Agreement, a "MATERIAL ADVERSE CHANGE" means any event, circumstance, condition,
development or occurrence causing, resulting in, having, or that could
reasonably be expected to have, a Material Adverse Effect.
2.6. Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company and each Stockholder, each Real Property
Lease is a valid and binding obligation of each of the other parties thereto,
except as enforceability may be limited by the Enforceability Exceptions.
(ii) The Company is not, and neither the Company nor any
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a 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 of the Company.
(iii) To the knowledge of the Company and each Stockholder all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, except for ordinary wear and
tear, and the operation
5
12
thereof as presently conducted is not in violation of any applicable building
code, zoning ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
that are material to the Business are in good operating condition and repair,
except for ordinary wear and tear, and are sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property, accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has occurred which, with due notice or lapse
of time or both, may constitute such a material breach or default, under any
Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all material Proprietary Rights owned
by, registered in the name of, licensed to, or otherwise used by the Company
that are material to the Business. For purposes of this Agreement "PROPRIETARY
RIGHTS" means trademarks and service marks that are registered with the United
States Patent and Trademark Office, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated therewith;
patents, patent applications and disclosures for patent applications; computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data); copyrights that are registered with the United States Copyright Office;
licenses, including, without limitation, software licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; Internet Web
sites, domain names and registrations or applications for registration thereof;
books and records describing or used in connection with any of the foregoing;
and claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing. All trademarks and service marks that
are material to the conduct of the Business as of the date hereof and as of the
Closing Date are registered with the United States Patent and Trademark Office,
and all copyrights that are material to the conduct of the Business as of the
date hereof and as of the Closing Date are registered with the United States
Copyright Office.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the uses of the Proprietary Rights in connection with the conduct of the
Business in the manner presently conducted and to convey such right and
authority to Buyer.
6
13
(iii) Schedule 2.6(c) lists any material licenses, sublicenses or
other agreements pursuant to which the Company grants a license to any person to
use the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company except as would not have a Material Adverse
Effect. There have not been any actions or other judicial or adversary
proceedings involving the Company concerning any of the Proprietary Rights, nor
to the knowledge of the Company or any Stockholder, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business that are material to the operation of the Business
(the "TRADE SECRETS"), free and clear of any liens, encumbrances, restrictions,
or legal or equitable claims of others, and has taken all reasonable security
measures to protect the secrecy, confidentiality, and value of the Trade
Secrets. Any of the employees of the Company and any other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed the Trade Secrets, or who have knowledge of or access to
information relating to them, have been put on notice and have entered into
agreements that the Trade Secrets are proprietary to the Company and not to be
divulged or misused.
(vii) The representations and warranties of the Company set forth
in that certain Licensing Agreement between the Company and FoxPaw, Inc. and
that certain Licensing Agreement between the Company and eFox, LLC, each dated
July 5, 1998, are true and correct.
2.7. Year 2000 Compliance. All date-related output, calculations or results
before, during or after the calendar year 2000 that are produced or used by any
hardware, software (other than software that is generally available upon payment
of a "shrink-wrap" type license and that has not been customized for use in
connection with the Business), firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and material to the Business are Year
2000 Compliant except as the failure to be compliant would not have a Material
Adverse Effect. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits,
7
14
and (ii) have date elements in interfaces and data storage that will permit
specifying the century to eliminate date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8. No Conflict or Violation. The execution, delivery and performance by the
Company and the Stockholders of this Agreement and the other Transaction
Documents to be delivered by the Company or any Stockholder and the consummation
of the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate any provision or requirement of any domestic or foreign,
federal or state, law, statute, judgment, order, writ, injunction, decree,
award, rule, or regulation of any Governmental Entity applicable to the Company
or the Business; (iii) violate, result in a breach of, constitute (with due
notice or lapse of time or both) a default or cause any obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any lien,
charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any license, permit, certificate, franchise,
authorization or approval issued or granted by any Governmental Entity (each a
"LICENSE," and collectively, the "LICENSES"), except where any occurrence or
result referred to in (ii), (iii), (iv) or (v) above would not result in a
Material Adverse Effect.
2.9. Consents. Schedule 2.9 lists all material consents and notices required to
be obtained or given by or on behalf of the Company or any Stockholder before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect, except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10. Labor and Employment Matters. Schedule 2.10 lists all employees of the
Company, including date of retention, current title and compensation. There is
no employment agreement, collective bargaining agreement or other labor
agreement to which the Company
8
15
is a party or by which it is bound. The Company has complied with all applicable
laws, rules and regulations relating to the employment of labor, including those
related to wages, hours, collective bargaining and the payment and withholding
of taxes and other sums as required by appropriate Governmental Entities, except
where the failure to comply would not result in a Material Adverse Effect, and
has withheld and paid to the appropriate Governmental Entities or is holding for
payment not yet due to such Governmental Entities, all amounts required to be
withheld from employees of the Company and is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. There is no unfair labor practice complaint against the Company
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other material labor trouble affecting the Company;
material labor grievance pending against the Company; pending representation
question respecting the employees of the Company; pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
the Company is a party. For purposes of this Agreement, "EMPLOYEES" includes
employees, independent contractors and other persons filling similar functions.
2.11. Employee Plans.
(a) All deferred compensation obligations of the Company to LaVon
Koerner have been paid, and all accrued obligations of the Company, whether
arising by operation of law, by contract or past custom, or otherwise, for
payments by the Company to trusts or other funds or to any Governmental Entity,
with respect to unemployment compensation benefits, social security benefits or
any other benefits or obligations, with respect to employment of employees
through the date hereof have been paid or adequate accruals therefor have been
made in the Financial Statements, and all required payments and accruals for all
such obligations will be made through the Closing Date. All reasonably
anticipated obligations of the Company with respect to employees, whether
arising by operation of law, by contract, by past custom, or otherwise, for
salaries, vacation and holiday pay, sick pay, bonuses and other forms of
compensation payable to employees in respect of the services rendered by any of
them prior to the date hereof have been or will be paid by the Company prior to
the Closing Date or adequate accruals therefor have been made in the Financial
Statements, and payments or adequate accruals for all such obligations will be
made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS").
With respect to each Employee Plan, the Company has made available to Buyer, to
the extent applicable, true and complete copies of (i) all plan documents,
including in the case of any Employee Plan not set forth in writing, a written
description thereof, (ii) the most recent determination letter received from the
Internal
9
16
Revenue Service (the "IRS"), (iii) the most recent application for determination
filed with the IRS, (iv) the latest actuarial valuations, (v) the latest
financial statements, (vi) the three (3) most recent Form 5500 Annual Reports,
including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof,
is and has been in material compliance with the requirements provided by any and
all applicable statutes, orders or governmental rules or regulations currently
in effect, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code, and, with respect to
each Employee Plan, there is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination of
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status. Subject to applicable
law, each Employee Plan can be amended or terminated at any time, without
consent from any other party and without liability other than for benefits
accrued as of the date of such amendment or termination. The assets of any
401(k) plan sponsored by the Company do not include any life insurance policies.
(d) Neither the Company nor any ERISA Affiliate sponsors or has ever
sponsored, maintained, contributed to or incurred an obligation to contribute to
any Employee Plan subject to the provisions of Title IV of ERISA.
10
17
(e) Buyer has been provided copies of all material manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. Neither the Company nor any of its ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to the
terms of any Employee Plan or pursuant to any agreement or understanding, other
than as required by applicable law.
(i) Other than routine claims for benefits, there is no claim pending or
to the knowledge of the Company or any Stockholder, threatened, involving any
Employee Plan by any person against such Employee Plan, the Company or any of
its ERISA Affiliates. There is no pending or, to the knowledge of the Company or
any Stockholder, threatened, proceeding involving any Employee Plan before the
IRS, the United States Department of Labor or any other governmental authority.
(j) There is no Employee Plan maintained for any Company employees who
work outside of the United States.
11
18
2.12. Litigation. There are no claims, actions, suits or proceedings of any
nature pending or, to the knowledge of the Company or any Stockholder,
threatened by or against the Stockholders, the Company, the officers, directors,
employees, agents of the Company, or any of their respective Affiliates
involving, affecting or relating to the Business or any assets, properties or
operations of the Company or the transactions contemplated by this Agreement,
except for claims, actions, suits or proceedings that would not result in a
Material Adverse Effect. Neither the Company nor any of the Company's assets is
subject to any material order, writ, judgment, award, injunction or decree of
any Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have
the meaning ascribed to such term in Rule 405 under the Securities Act.
2.13. Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to, or affecting in any material respect, any of its assets,
properties or operations, including, without limitation, all material written,
or oral, (i) contracts, agreements and commitments not made in the ordinary
course of business, (ii) agency and brokerage agreements, (iii) service and
other customer contracts, (iv) contracts, loan agreements, letters of credit,
repurchase agreements, mortgages, security agreements, guarantees, pledge
agreements, trust indentures, promissory notes and other documents or
arrangements relating to the borrowing of money or for lines of credit, (v) tax
sharing agreements, real property leases or any subleases relating thereto,
personal property leases, any material agreement relating to Proprietary Rights
(including service agreements relating thereto) and insurance contracts, (vi)
agreements and other arrangements for the sale of any assets, property or rights
other than in the ordinary course of business or for the grant of any options or
preferential rights to purchase any assets, property or rights, (vii) documents
granting any power of attorney with respect to the affairs of the Company,
(viii) suretyship contracts, performance bonds, working capital maintenance or
other forms of guaranty agreements, (ix) contracts or commitments limiting or
restraining the Company or any of its employees or Affiliates from engaging or
competing in any lines of business or with any person or entity, (x) partnership
or joint venture agreements, (xi) stockholder agreements or agreements relating
to the issuance of any securities of the Company or the granting of any
registration rights with respect thereto, and (xii) all amendments,
modifications, extensions or renewals of any of the foregoing (each a
"CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Enforceability Exceptions, and is in full force and effect on the
date hereof other than those Contracts not requiring the payment of money to the
Company, the failure of which to be enforceable or in full force and effect
would not have a Material Adverse Effect. The Company has performed all material
obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach by the
Company.
12
19
(c) To the knowledge of the Company and each Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company and each Stockholder, no party to any Contract
has credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or Buyer's representatives true
and complete originals or copies of all the Contracts and a copy of every
Material Notice received by the Company or any Stockholder since January 1,
1996, with respect to any of the Contracts. For purposes hereof, "MATERIAL
NOTICE" means those notices alleging a material breach of a Contract or
intention to terminate or materially modify a Contract, but does not include
routine correspondence.
(f) To the knowledge of the Company and each Stockholder, no party to
any Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. Compliance with Applicable Law. The operations of the Company are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations, orders and other requirements of all Governmental Entities
having jurisdiction over the Company or its assets, properties or operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations.
2.15. Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholders of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of the Business in the manner now conducted and the ownership,
occupancy and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested in writing that it qualify or become licensed as a foreign
corporation. The Company has delivered to Buyer or its representatives true and
13
20
complete copies of all the material Licenses together with all amendments and
modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any material respect.
The Company is not in violation in any material respect of any of the Licenses.
2.16. Accounts Receivable. Schedule 2.16 lists all accounts receivable of the
Company (the "ACCOUNTS RECEIVABLE") as of the date hereof, including their
aging. Schedule 2.16 will be updated at the Closing Date to reflect all Accounts
Receivable as of the Closing Date, including their aging. All Accounts
Receivable as of the date hereof represent, and all Accounts Receivable as of
the Closing Date will represent, valid obligations arising from sales actually
made or services actually performed in the ordinary course of business, and are
not subject to any valid counterclaims or set-offs, disputes or known
contingencies.
2.17. Intercompany and Affiliate Transactions; Insider Interests.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between the Company and any director, officer,
employee, stockholder, relative or Affiliate of the Company or any of the
Stockholders, including, without limitation, loans, guarantees or pledges to, by
or for the Company or from, to, by or for any of such persons, that are either
(i) currently in effect, or (ii) reflected in the Company's financial results.
(b) No officer, director or stockholder of the Company, or any Affiliate
of any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18. Insurance. Schedule 2.18 lists all insurance policies of any nature
whatsoever maintained by the Company at any time during the three (3) years
prior to the date of this
14
21
Agreement and the annual or other premiums payable thereunder. The Company has
not received any notice or other communication from any such insurance company
within the three (3) years preceding the date hereof canceling or materially
amending or materially increasing the annual or other premiums payable under any
of such insurance policies, and to the knowledge of the Company or any
Stockholder, no such cancellation, amendment or increase of premiums is
threatened.
2.19. Customers. Schedule 2.19 lists the ten (10) largest customers of the
Company in terms of revenues of the Company attributable to such customers,
together with revenues to the Company from each such customer during the most
recent complete fiscal year, and the scheduled termination dates of their
current contracts with the Company. None of such customers has given written
notice to the Company of an intention to terminate or materially impair its
business relationship with the Company and neither the Company nor any
Stockholder has any knowledge that any such customer intends to terminate such
business relationship.
2.20. No Undisclosed Liabilities. Except as and to the extent specifically
reflected or reserved against in the Interim Financial Statements and except as
incurred in the ordinary course of business since the date of the Interim
Financial Statements, the Company has no material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise, and whether due
or to become due (including, without limitation, any liability for taxes and
interest, penalties and other charges payable with respect to any such liability
or obligation) that are required to be reflected on a balance sheet of the
Company prepared in accordance with GAAP (including appropriate footnote
disclosure), and no facts or circumstances exist which, with notice or the
passage of time or both, could reasonably be expected to result in any material
claims against or obligations or liabilities of the Company, except for such
liabilities or obligations which will not result in a Material Adverse Effect.
2.21. Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
15
22
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all income and other material Tax Returns of
the Company required to be filed as of the date hereof (after giving effect to
any extension of time to file such Tax Returns) and (ii) paid, when due, all
Taxes due and payable for the tax periods relating to such Tax Returns (whether
or not shown on such Tax Returns). All such previously-filed Tax Returns were
complete and accurate in all material respects when filed, and as of the date
hereof no additional Tax Liabilities for periods covered by such
previously-filed Tax Returns have been assessed on or proposed to the Company.
With respect to each such Tax Return, Schedule 2.21(b) specifies (A) each such
Tax Return that (1) is currently being audited by a Tax authority, or (2) as to
which the Company has received a written notice from a Tax authority that such
Tax authority intends to commence an audit or examination of such Tax Return,
and (B) each such Tax Return as to which the Company has given its consent to
waive or extend the applicable statute of limitations for such Tax Return or the
assessment of Taxes required to be reported thereon. The Company has either
delivered to Buyer or made available for inspection by Buyer or its
representatives or agents complete and correct copies of all Tax audit reports
and statements of Tax deficiencies with respect to any delinquent Tax assessed
against or agreed to by the Company for all taxable periods commencing on or
after January 1, 1993, for which audit reports or statements of deficiencies
have been received by the Company.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(d) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(e) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(f) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
16
23
(g) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(h) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 at all times since March 6, 1986, and the Company will be an S
corporation up to and including the day before the Closing Date. The Company
will similarly qualify as an S corporation for state or local income tax
purposes.
2.22. Indebtedness. Schedule 2.22 lists each creditor (other than a creditor
that owns trade debt incurred in the ordinary course of the Company's business)
of the Company (including, without limitation, any creditor that directly or
indirectly owns indebtedness in the Company for borrowed money, whether or not
evidenced by a note or other written instrument) and a description of each such
debt interest.
2.23. Environmental Matters. Notwithstanding anything to the contrary contained
in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") except where the
failure to be in compliance would not result in a Material Adverse Effect, and
have obtained and maintained in effect all material licenses, permits and other
authorizations or registrations (collectively "ENVIRONMENTAL PERMITS") required
under all Environmental Laws and are in material compliance with all such
Environmental Permits.
(b) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed or disposed of by the Company on any of
the properties owned or leased by the Company at any time such that the Company
could be subject to material liability under any Environmental Laws.
(c) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(d) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(e) To the knowledge of the Company or any Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing
17
24
materials, urea formaldehyde insulation, polychlorinated biphenyls or lead-based
paints present at any such properties.
(f) There are no pending or, to the knowledge of the Company or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or any Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(g) The Company has delivered to Buyer or its representatives copies of
all written environmental assessments, audits, studies and other environmental
reports in its possession or reasonably available to it relating to any of the
current or former businesses of the Company or its operations.
2.24. Securities Matters.
(a) The Stockholders understand that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholders' representations set forth herein.
(b) The Stockholders acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholders may lose their entire investment in
the Shares and any notes issued by Buyer (the "SECURITIES").
(c) The Stockholders, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholders have relied solely upon independent
investigations made by the Stockholders, and have consulted their own investment
advisors, counsel and accountants. The Stockholders have adequate means of
providing for current needs and personal contingencies, and have no need for
liquidity and can sustain a complete loss of the investment in the Securities.
(d) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholders' own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
18
25
(e) The Stockholders understand that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(f) Each Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and have each documented his or her accredited
status by delivery to Buyer of a completed questionnaire in the form of Exhibit
A hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(g) Neither the Company nor any Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or any Stockholder aware of any such solicitation or advertising.
2.25. Buyer and the Consolidation Transactions.
(a) The Stockholders are aware that:
(i) Buyer has recently been organized and has limited financial
and operating history.
(ii) There can be no assurance that any of the Additional
Consolidation Transactions or Further Consolidation Transactions (as defined in
Section 4.10) will occur, that Buyer will be successful in accomplishing the
purpose for which it was formed or that it will ever be profitable. No assurance
can be given regarding (A) whether the companies acquired by Buyer in the
Initial Consolidation Transactions can be successfully integrated and operated,
or (B) what companies, if any, will ultimately be acquired by Buyer. No company
is obligated to participate in the Additional Consolidation Transactions or
Further Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholders acknowledge that no assurances have been made to
any Stockholder with respect to any of the foregoing and no representations,
oral or written, have
19
26
been made to any Stockholder by Buyer or any of its employees, representatives
or agents concerning the potential value of the Shares issued as part of the
Purchase Price or the prospects of Buyer, except as set forth herein.
2.26. Banks. Schedule 2.26 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.27. Powers of Attorneys and Suretyships. The Company does not have any general
or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.28. Brokers. Except as set forth on Schedule 2.28, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or any of
the Stockholders.
2.29. Summary of Certain Considerations. Each Stockholder acknowledges receipt
and understanding of the Summary of Certain Considerations attached hereto as
Exhibit B.
2.30. Acknowledgment re Deloitte & Touche LLP. As part of the Initial
Consolidation Transactions, Buyer purchased the Integrated Cost Reduction
Strategies ("ICRS") business unit of Deloitte & Touche LLP ("DELOITTE"). The
Company and the Stockholders acknowledge, for the benefit of Deloitte and its
Affiliates, that Deloitte is not related to Buyer, that Buyer and the
individuals related to Buyer with whom the Company and the Stockholders have
dealt in connection with the transactions contemplated by the various agreements
of the Company and the Stockholders with Buyer have acted and will act on behalf
of Buyer and not Deloitte or any of Deloitte's Affiliates (as partners,
principals, employees, agents, associates or otherwise). For these purposes,
"Affiliates" of Deloitte include persons controlling, controlled by, or under
common control with Deloitte, including without limitation partners of Deloitte.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Stockholders that:
3.1. Organization and Corporate Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to carry on its business as it
is now conducted and to own, lease or operate its assets and properties and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the other
Transaction Documents to be executed and delivered by Buyer have been (or upon
execution by Buyer will have been) duly executed and delivered by
20
27
Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Enforceability Exceptions.
3.2. No Conflict or Violation. The execution, delivery and performance by Buyer
of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the consummation of the transactions contemplated hereby
and thereby do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Buyer; (ii) violate any provision or
requirement of any domestic or foreign, federal or state, law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer; (iii) violate, result in a breach of,
constitute (with due notice or lapse of time or both) a default or cause any
obligation, penalty, premium or right of termination to arise or accrue under
any material contract, agreement, instrument, license, commitment or other
arrangement to which Buyer is a party or otherwise relating to, or affecting in
any material respect, any of its assets, properties or operations; (iv) result
in the creation or imposition of any lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of Buyer; or (v) result in the
cancellation, modification, revocation or suspension of any license, permit,
certificate, franchise, authorization or approval issued or granted by any
Governmental Entity, except where any occurrence or result referred to in (ii),
(iii), (iv) or (v) above would not result in a material adverse effect on or
change in the financial condition or results of operation of Buyer.
3.3. Capitalization. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. As of
February 28, 1999, 22,051,468 shares of Series A Common Stock, 21,231,191 shares
of Series B Common Stock, no options to purchase shares of Series A Common Stock
or Series B Common Stock were issued and outstanding, and no shares of preferred
stock were issued and outstanding. Approximately 1,500,000 of the issued and
outstanding shares of Series B Common Stock are restricted and will be forfeited
if the transactions contemplated hereby and certain additional acquisitions
expected to be completed substantially concurrently with the transactions
contemplated hereby are not completed, and approximately 12,600,000 of the
issued and outstanding shares of Series B Common Stock are restricted and will
be forfeited if certain future acquisitions are not completed. Additional shares
will be issued in connection with future acquisitions, as well as under
compensatory employment arrangements. The Shares, when issued, sold, and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4. Notes. Any note to be delivered by Buyer as part of the Purchase Price,
when delivered in accordance with the terms of this Agreement, will be duly
executed, and will constitute a
21
28
legal, valid and binding obligation of Buyer, except as such enforceability may
be limited by the Enforceability Exceptions.
3.5. Litigation. Except as set forth on Schedule 3.5, there are no material
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or any of
its Affiliates or the transactions contemplated by this Agreement. Buyer is not
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. From and after the Closing, Buyer or its Affiliates may be
subject to claims, actions, suits, or proceedings including as a result of
acquisitions by Buyer in the Additional Consolidation Transactions or Further
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof.
3.6. Buyer's Operations and Financial Condition.
(a) Buyer has one subsidiary, Enterprise Profit Solutions Corporation, a
Delaware corporation ("EPSC"). Buyer owns all of the issued and outstanding
capital stock of EPSC, and there are no outstanding rights of any party to
acquire any interest in EPSC other than a pledge of the capital stock of EPSC to
lenders of senior indebtedness of EPSC (the "SENIOR LENDERS"). Buyer is a
holding company, and substantially all of Buyer's consolidated assets and
operations are held and conducted by EPSC and EPSC's subsidiaries. Set forth on
Schedule 3.6(a) is complete and accurate list of all subsidiaries of EPSC.
Except as specified on Schedule 3.6(a), EPSC owns all of the issued and
outstanding capital stock of each of its subsidiaries, and there are no
outstanding rights of any party to acquire any interest in any of such
subsidiaries other than a pledge of the issued and outstanding capital stock of
each such subsidiary to the Senior Lenders.
(b) Set forth on Schedule 3.6(b) is a complete and accurate summary of
the indebtedness of Buyer, EPSC, and EPSC's subsidiaries for borrowed money
(excluding trade debt).
(c) Set forth on Schedule 3.6(c) is a description of the businesses
acquired in the Initial Consolidation Transactions and currently conducted by
EPSC through its various divisions and subsidiaries, together with 1998 revenues
and pre-tax income for each of such businesses and subsidiaries. Such business
description, revenue and income information was provided by the companies
acquired or their stockholders, reflects the operations of each such division
and subsidiary as an independent company before its acquisition by Buyer in the
Initial Consolidation Transactions, and is made available by Buyer solely for
informational purposes without representation or ratification of any kind. No
representations are made regarding future performance.
3.7. Financial Statements; Liabilities. Schedule 3.7(a) sets forth the pro forma
unaudited balance sheet of Buyer as of September 30, 1998 and the related
statements of income and cash flow for the period then ended (the "BUYER
FINANCIAL STATEMENTS"). To Buyer's knowledge based upon representations made by
the companies acquired in the Initial
22
29
Consolidation Transactions or their Stockholders, (a) the Buyer Financial
Statements (i) were prepared in accordance with GAAP consistently applied,
except as disclosed in the footnotes thereto, and (ii) fairly present, in all
material respects, the financial condition an the results of operations of Buyer
as at the date thereof and for the period covered thereby; and (b) except as and
to the extent specifically reflected or reserved against in the Buyer Financial
Statements and except as incurred in the ordinary course of business since the
date of the Buyer Financial Statements, neither Buyer nor its subsidiaries has
any material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become due (including,
without limitation, any liability for taxes and interest, penalties and other
charges payable with respect to any such liability or obligation) that are
required to be reflected on a balance sheet of Buyer prepared in accordance with
GAAP (including appropriate footnote disclosure), except for such liabilities or
obligations that would not result in a material adverse effect on the financial
condition or results of operation of Buyer together with its subsidiaries.
However, Buyer has not independently verified all facts and circumstances
represented by companies acquired in the Initial Consolidation Transactions or
the stockholders of such companies, which representations form the basis for
Buyer's representation in this Section 3.7, and Buyer undertakes and will have
no liability as a result of any inaccuracy of the representations set forth in
(a) and (b) above attributable to inaccurate or incomplete information provided
to Buyer by companies acquired in the Initial Consolidation Transactions or any
Additional Consolidation Transactions completed before the Closing or the
stockholders of such companies unless Buyer had actual knowledge of such
inaccuracy as of the date of this Agreement.
3.8. Purchase for Investment. Buyer acknowledges that neither the offer nor the
sale of the Seller Shares has been registered under the Securities Act. Buyer is
acquiring the Seller Shares solely for its own account and not with a view to
any distribution or other disposition of such Seller Shares, and the Seller
Shares will not be transferred except in a transaction registered or exempt from
registration under the Securities Act.
3.9. Investigation by Buyer. In entering into this Agreement, Buyer acknowledges
that, except for the specific representations and warranties of the Company and
the Stockholders contained in Article 2, none of the Company, the Stockholders,
or any of their respective directors, officers, employees, Affiliates,
controlling persons, agents, advisors or representatives, makes or shall be
deemed to have made any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information (including, without
limitation, any reserve estimates, projections, forecasts or other
forward-looking information) provided or otherwise made available to Buyer or
any of its directors, officers, employees, Affiliates, controlling persons,
agents, advisors or representatives.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1. Access. Each party shall afford, to any other party and such other party's
accountants, counsel and representatives, full access during normal business
hours throughout the period prior to the Closing Date (or the earlier
termination of this Agreement) to its records (including, without limitation,
its accounting records, the workpapers of its independent accountants, and all
environmental studies, reports and other environmental records), and to
23
30
the properties, books, material contracts, agreements, instruments, licenses,
commitments and other arrangements that it is a party to or that otherwise
relate to, or affect, its assets, properties or operations and, during such
period, shall furnish promptly to the other party all information concerning it
or its properties, liabilities and personnel as the other party may reasonably
request, provided however, that neither the Company nor the Stockholders shall
have the right to access records relating to terms of any specific Initial,
Additional or Further Consolidation Transaction, information concerning the
holders of any class of stock of Buyer or its Affiliates, other than the names
of such stockholders, employment-related information or other documentation to
which stockholders would not have the right of access.
4.2. Confidentiality. For purposes hereof, the Company and the Stockholders will
keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Initial, Additional, and Further Consolidation
Transactions and potential participants therein, including without limitation
Deloitte & Touche LLP, confidential, and will not provide information about such
matters to any party or use such information except to the extent necessary to
effect the transactions contemplated hereby. Buyer will keep the matters
contemplated herein and all information provided by the Company and the
Stockholders related to the Company and the Business confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. The Company
and the Stockholders acknowledge that Buyer may provide information about the
Company and the Business to other participants in the Additional or Further
Consolidation Transactions to the extent necessary to facilitate those
transactions. If this Agreement terminates without consummation of the Closing,
the Company, the Stockholders and Buyer shall, and shall cause their Affiliates
to, each maintain the confidentiality of any information obtained from the other
in connection with the transactions contemplated hereby, the Additional or
Further Consolidation Transactions, and Buyer's business plans (the
"INFORMATION"), other than Information that (i) was in the public domain before
the date of this Agreement or subsequently came into the public domain other
than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Stockholders and
the Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
24
31
4.3. Certain Changes and Conduct of Business. (a) From and after the date of
execution and delivery of this Agreement and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholders shall
cause the Company to, conduct the Company's business in the ordinary course
consistent with past practices. Without limiting the generality of the preceding
sentence, except as required or permitted pursuant to the terms hereof or as
consented to in writing by Buyer, the Company shall not, and the Stockholders
shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract
other than in the ordinary course of business; or enter into any new contract
other than contracts of the type described in Schedule 4.3(a)(i), in any case
calling for payments to or by the Company in excess of $100,000 over the life of
the contract or series of related contracts, without the prior written consent
of Buyer, which may not be unreasonably withheld;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions in the ordinary course of business consistent with past practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, other than in the ordinary
course of business consistent with past practices;
25
32
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $100,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Stockholder or any Affiliate of the Company
or any Stockholder;
(x) guarantee any indebtedness for borrowed money or any other
obligation in excess of $20,000;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date of execution and delivery hereof and until
the Closing (or the earlier termination of this Agreement), the Company shall,
and the Stockholders shall cause it to:
26
33
(i) use commercially reasonable efforts to maintain, in all
material respects, the assets and properties of the Company in accordance with
present practices and in a condition suitable for their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) use commercially reasonable efforts to continue to conduct
the business of the Company in the ordinary course consistent with past
practices;
(iv) use commercially reasonable efforts to continue to maintain
existing business relationships with suppliers and customers except to the
extent that such relationships are, at the same time, judged in good faith to be
non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) use commercially reasonable efforts to keep in full force
and effect any insurance policies comparable in amount and scope to coverage
maintained by the Company (or on behalf of it) on the date hereof.
4.4. Restrictive Covenants.
(a) Non-Competition. The Stockholders recognize that the covenants of
each Stockholder contained in this Section 4.4(a) (the "COVENANT NOT TO
COMPETE") are an essential part of this Agreement and the other Transaction
Documents and that but for the agreement of each Stockholder to comply with such
covenants Buyer would not enter into this Agreement or the other Transaction
Documents. The Stockholders acknowledge and agree that the Covenant Not to
Compete is necessary to protect the Business acquired by Buyer, including
without limitation, goodwill and the Proprietary Rights, and that irreparable
harm and damage will be done to Buyer if any Stockholder competes with Buyer in
any way prohibited by the Covenant Not to Compete. In addition, the Stockholders
acknowledge that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and the
Stockholders and the Covenant Not to Compete is necessary for Buyer to receive
the full benefit of this Agreement. After the Closing, each Stockholder shall
not individually, or in concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition or operation of the Business or the assets of the Company or
Buyer or any of its Affiliates) any customer, which
27
34
has utilized the services of the Company at any time during the two (2) year
period preceding the Closing Date or with whom the Company was engaged in
meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to modify,
amend, terminate or otherwise alter the terms upon which it acquires services
from Buyer or Buyer's Affiliates, or to acquire from any party other than Buyer
or its Affiliates any services of the kind available from Buyer or its
Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 5% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date), provided that the
restrictions in this paragraph (ii) will not prohibit James Holden from any
activities that are specifically permitted under his Employment Agreement with
the Company entered into at the Closing.
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where the Company generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind each Stockholder until December 31,
2002, provided however, that if the employment of any Stockholder is terminated
by Buyer without Cause or by such Stockholder for Good Reason (each as defined
in such Stockholder's Employment Agreement delivered pursuant to Section
6.3(c)(iv)), and if either (i) a registration statement for an underwritten IPO
of Buyer's equity securities has not been filed by December 31, 1999, or (ii)
Buyer fails to consummate a public offering that results in a public trading
market of equity securities of Buyer on a national securities exchange or the
Nasdaq Stock Market by May 15, 2000, then after termination of such
Stockholder's employment with the Company or any of its Affiliates, such
Stockholder will no longer be subject to the covenants contained in Sections
4.4(a)(ii) and (iii), and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties hereto
agree that the duration and area for which the Covenant Not to Compete set forth
in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Stockholder shall at all times keep
confidential and
28
35
shall not disclose to others any Proprietary Rights and shall not use or permit
to be used any Proprietary Rights for any purpose other than performance of
obligations to Buyer.
(c) Non-Diversion. For the maximum period during which the Covenant Not
to Compete could apply pursuant to Section 4.4(a) each of the Stockholders shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the
Stockholders become aware as the result of their affiliation with the Business
or their relationship with Buyer or its Affiliates and which relate specifically
to the Business, or any part thereof. This Section 4.4(c) is in addition to and
not by way of limitation of any other duties the Stockholders may have to Buyer
or its Affiliates.
(d) Non-Recruitment. For the maximum period during which the Covenant
Not to Compete could apply pursuant to Section 4.4(a) each of the Stockholders
shall not, and shall cause their Affiliates not to, hire away, or cause any
other person to hire away, any employee of or consultant to Buyer or its
Affiliates (including without limitation persons employed or engaged by the
Company before the Closing Date), or directly or indirectly entice or solicit or
seek to induce or influence any of such employees or consultants to leave their
employment or engagement with Buyer or its Affiliates, provided however, that
such restrictions shall not apply to persons responding to a public
advertisement by the Stockholders directed to potential employees generally.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholders in light of the activities and business
of the Company and future plans of Buyer. The Stockholders acknowledge that if
they violate any of the covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving actual
damages. Each Stockholder shall be severally liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by such
Stockholder, whether or not litigation is actually commenced and including
litigation of any appeal defended by Buyer, where such party succeeds in
enforcing any of the Restrictive Covenants. Buyer may elect to seek one or more
remedies at its discretion on a case by case basis. Failure to seek any or all
remedies in one case shall not restrict Buyer from seeking any remedies in
another situation. Such action by Buyer shall not constitute a waiver of any of
its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and
29
36
enforceable under the prevailing circumstances. The Covenant Not to Compete
shall be deemed to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and each and
every political subdivision of each and every country outside the United States
of America where the Covenant Not to Compete is intended to be effective.
(g) Allocation. The parties agree to allocate $100,000 of the Cash
Payment, and no other portion of the Purchase Price, to the Covenant Not to
Compete.
4.5. Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS EPS SOLUTIONS CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO EPS SOLUTIONS CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholders will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing
30
37
underwriter not to exceed twenty (20) days prior to, and one hundred and eighty
(180) days after, the effective date of the registration statement for such
offering, provided however, that (i) such lock up provision may not be invoked
more than once in any 365 day period, (ii) such lock up provision will be
contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) no Stockholder will be required to comply
with this lock up provision if any other stockholder owning more shares of
Common Stock than such Stockholder and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
(e) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that it is not a party to any
stock purchase agreement, asset purchase agreement, or similar agreement which
contains provisions governing securities restrictions that are different in any
material respect from the terms contained in this Section 4.5.
4.6. Registration.
(a) No Stockholder will have any rights to demand registration of any of
the Shares, or to participate in any registration undertaken by Buyer except as
set forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission (the "SEC") for an underwritten IPO of its
equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then each Stockholder, shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders acquiring Common Stock in the
Initial, Additional, and Further Consolidation Transactions and stockholders who
acquired Common Stock in connection with the formation, or work on behalf of,
Buyer) will have rights to include shares of Common Stock in such offering, and
if the aggregate amount of shares that all stockholders with such rights
(collectively, the "SELLING STOCKHOLDERS") desire to include exceeds the number
of shares of Common Stock that can be sold by all Selling Stockholders, then all
Selling Stockholders desiring to sell in any such offering will participate
pro-rata on the basis of the relative numbers of shares of Common Stock eligible
for inclusion that they originally sought to include. However, notwithstanding
the foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering or (ii) more than, in the aggregate for all such registrations and
offerings, half of the shares of Common Stock held by such Selling Stockholder
as of the date hereof. Furthermore, in no case will the Stockholders hereunder
be permitted to include in the IPO registration and offering more than the
number of Shares acquired by the Stockholders pursuant to this Agreement listed
on Schedule 4.6 under the item "Maximum IPO Shares" (such Shares will be
allocated among Stockholders hereunder desiring to participate in any such
registration and offering ratably on the basis of their relative ownership of
Shares and other Common Stock). The Shares listed on Schedule
31
38
4.6 under the item "Maximum IPO Shares" will not limit the number of shares
permitted to be included by the stockholders in the IPO pursuant to any other
agreement.
(b) If at any time before the fourth anniversary of the IPO Buyer files
a shelf registration statement with the SEC covering an offering of the common
stock of Buyer by selling stockholders, other than a registration statement of
the type described in Section 4.6(a), the Stockholders shall have the right to
include in such registration statement that percentage of the total number of
shares of common stock of Buyer registered pursuant to that registration
statement for sale by selling stockholders as is equal to the quotient,
expressed as a percentage, obtained by dividing the total number of shares of
common stock eligible for inclusion owned by the Stockholders by the total
number of shares of common stock eligible for inclusion owned by all selling
stockholders participating in such registration. If the Stockholders participate
in any such registration, they must do so on the same terms as the other
stockholders participating therein. As long as such registration statement
remains effective and sales of common stock by the Stockholders would not
violate applicable laws or regulations, Buyer shall furnish to the Stockholders
such number of copies of the final prospectus included in any such registration
statement and any amendment or supplement thereto as the Stockholders may
reasonably request in order to effect the sale of the shares of common stock
included by the Stockholders in such registration statement.
(c) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by such Stockholder expressly for use
therein, for which the Stockholder will be responsible.
(d) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone, and the Buyer shall be
responsible for all other expenses of the offering.
32
39
(e) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
(f) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that it is not a party to any
stock purchase agreement, asset purchase agreement, or similar agreement which
contains provisions governing registration rights that are different in any
material respect from the terms contained in this Section 4.6. Upon the request
of Stockholders and without further action on the part of Buyer, this Section
4.6 shall automatically be amended to incorporate any provision governing
registration rights contained in any stock purchase agreement, asset purchase
agreement or other similar agreement to which Buyer is a party as of the Closing
Date, or in any modification or amendment to such agreement, that is more
beneficial in any material respect to the party thereto having registration
rights than the provisions of this Agreement are to the Stockholders party
hereto. Buyer hereby consents to be bound by any such amendments to this Section
4.6. If the Stockholders have any reasonable basis to believe that the Buyer is
party to any such agreement that has a provision governing registration rights
that is more beneficial in any material respect to the party thereto having
registration rights than the provisions of this Agreement are to the
Stockholders, Buyer shall provide copies of the relevant provisions of such
agreement to the Stockholders upon the Stockholders' request.
4.7. Cooperation in Litigation. Each party will fully cooperate with the others
in the defense or prosecution of any litigation or proceeding already instituted
or which may be instituted hereafter against or by such party relating to or
arising out of the conduct of the Business prior to or after the Closing Date
(other than litigation between Buyer and/or its Affiliates or assignees, on the
one hand, and the Company or any Stockholder and/or their Affiliates or
assignees, on the other, arising out of the transactions contemplated by this
Agreement). Subject to the provisions hereof regarding payments by each party of
its costs and payments or attorneys' fees and costs, the party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8. Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in
33
40
Tax Returns of the Company for such Pre-Acquisition Taxable Periods to be filed
following the Closing and that all Taxes attributable to the Company's income,
gains or other taxable items for the Closing Date shall be reported on such Tax
Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) The Stockholders shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods.
(ii) Stockholders shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes with respect to Pre-Acquisition Taxable Periods to
the extent not specifically reserved (excluding reserves for deferred taxes)
against in the Interim Financial Statements. Each Stockholder shall pay his or
her proportionate share of such costs, expenses and Tax liabilities promptly
following receipt by such Stockholder (either directly or through the
Stockholder Representative) of a notice of such Stockholder's payment obligation
hereunder together with copies of the relevant Tax Returns and other information
supporting the calculation. Any additional Taxes attributable to the periods
covered by such Tax returns, pursuant to any Tax Proceeding, shall be paid by
Stockholders promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE
34
41
PERIOD RETURN") reporting and accounting for such Taxes on an aggregate basis
covering both the Pre-Closing Period and the Post-Closing Period. The Buyer, at
its expense, shall cause the Company to prepare and file such Straddle Period
Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholders shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. Each Stockholder shall pay his or her
proportionate share of such Pre-Closing Taxes promptly following receipt by such
Stockholder (either directly or through the Stockholder Representative) of a
notice from Buyer of Buyer's calculation of such Stockholder's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Stockholder disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such
Stockholder shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
Pre-Closing Periods covered by such Tax Returns, pursuant any Tax Proceeding,
shall be paid by Stockholders promptly upon demand therefor by Buyer.
(e) Cooperation. Buyer and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to Sections 4.8(c) and (d), and in preparing
and filing the information statements required by Treas. Reg. 1.351-3. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to the filing
of such Tax Returns.
(f) Closing Date. Without limiting the generality of Sections
4.8(a),(b),(c),or (d), Buyer shall be liable for, and shall indemnify and hold
the Stockholders harmless against, all Taxes of the Company attributable to
operations, acts or omissions of Buyer with respect to the Company on the
Closing Date that are not in the ordinary course of business.
(g) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Stockholder Representative of any written communication from a Tax authority
with respect to any pending Tax Proceeding involving a Pre-Acquisition Tax
Liability. Buyer shall include with such notification a copy of the written
communication so received by Company.
(ii) The Stockholder Representative shall have responsibility and
authority to represent the interests of the Company in any Tax Proceeding
relating to Pre-Acquisition Taxable Periods and Straddle Periods and to employ
counsel of its choice in connection therewith; provided however, that Buyer
shall be permitted to participate in any such Tax Proceedings relating to
Straddle Periods and all hearings related thereto at the expense of Buyer; and
provided further, that, without the prior written consent of Buyer, which shall
not
35
42
be unreasonably withheld, the Stockholder Representative shall not agree to
settle or compromise any Tax Proceeding relating to Pre-Acquisition Taxable
Periods or Straddle Periods and/or any Pre-Acquisition Tax Liability issue
arising therein if such settlement or compromise can reasonably be expected to
materially impact the Tax position of Buyer, its Affiliates or the Company in a
negative way following the Closing. Without the prior written consent of the
Stockholder Representative, which shall not be unreasonably withheld, Buyer
shall not agree to settle or compromise any such Tax Proceeding relating to
Post-Closing Periods or Tax Liabilities arising therein if such settlement or
compromise can reasonably be expected to materially impact in a negative way the
Tax position of the Stockholders or the Company with respect to any Pre-Closing
Period. In any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Stockholders are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Stockholders are not
responsible, the Buyer, on the one hand, and the Stockholders, on the other
hand, shall jointly bear the costs and expenses thereof as allocated between
them on an equitable basis. The Stockholder Representative shall also have the
right, but not the obligation (at the expense of the Stockholders) to initiate
any claim for refund or contest to the extent such claim or contest affects the
amount of Taxes for which the Stockholders are or may be liable under this
Agreement.
(iii) All notices to Stockholders provided for hereunder shall be deemed
delivered to each Stockholder upon receipt thereof either directly by the
Stockholder or by the Stockholder Representative. The Stockholders shall
proportionately pay all Tax Liabilities and costs and expenses for which the
Stockholders are responsible hereunder; provided however, the Stockholders shall
be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
(iv) Each of Buyer, the Stockholders, the Company, and the Stockholder
Representative shall furnish to the other relevant party or parties such
information and documents as may be reasonably requested by such other party or
parties, and shall otherwise reasonably cooperate with such other party or
parties, in connection with the preparation of any Tax Return and the conduct of
any Tax Proceedings.
(h) Amended Returns. The Company shall not amend, and Buyer shall not
permit the Company to amend, any Tax Return that may affect the Taxes for which
Stockholders are or may be liable under this Agreement without written consent
from the Stockholder Representative, which shall not be unreasonably withheld.
(i) Refunds or Credits. Except as otherwise set forth in this Agreement,
any refunds or credits of Taxes, to the extent that such refunds or credits are
attributable to Pre-Acquisition Taxable Periods, shall be for the account of
Stockholders, and, to the extent that such refunds or credits are attributable
to taxable periods beginning after the Closing Date, such refunds or credits
shall be attributable to the account of Buyer. To the extent that such refunds
or credits are attributable to Taxes for the Straddle Periods, such refunds and
credits shall be for the account of the party who bears the responsibility for
such Taxes pursuant to Section 4.8(a)(ii). Buyer shall, or shall cause the
Company to, promptly forward to Stockholders or reimburse Stockholders for any
such refunds or credits due to Stockholders
36
43
under this Section 4.8(i) after receipt thereof by Buyer or the Company, and
Stockholders shall promptly forward to Buyer or reimburse Buyer for any refunds
or credits due to the Buyer under this Section 4.8(i) after receipt thereof by
Stockholders.
(j) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Stockholders shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until 90 days after the expiration of
the applicable statute of limitations (including any waivers or extensions
thereof) with respect to the taxable periods to which the Tax Returns relate.
Prior to disposing of any such books and records, Buyer or the Company, as the
case may be, shall offer such books and records to the Stockholder
Representative (at the sole expense of the Stockholders).
(k) Section 351. It is acknowledged that Buyer, the Company and
Stockholders intend that the transfer of the Seller Shares by the Stockholders
to Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholders and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. For all
federal and state income tax purposes the Stockholders and Buyer shall (i) treat
and report the transfer of the Seller Shares in a manner consistent with its
qualification as a transfer of property to a controlled corporation pursuant to
the provisions of Code Section 351 and comparable provisions of state income tax
law, and (ii) file such Tax returns and Tax information reports related to the
transfer as may be required or otherwise appropriate under the Tax laws and
regulations applicable to transfers of property pursuant to Code Section 351.
None of the Stockholders, the Company or Buyer shall take any action
inconsistent with the treatment of the Seller Shares as a transfer of property
pursuant to Code Section 351.
(l) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(m) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9. Stockholder Representative. The Stockholders shall at all times maintain a
representative (the "STOCKHOLDER REPRESENTATIVE") for purposes of taking certain
actions and giving certain consents on behalf of the Stockholders as specified
herein. The Stockholder Representative will be James F. Holden unless and until
the Stockholders, mutually agree upon a replacement and notify Buyer thereof.
Each Stockholder hereby grants to the
37
44
Stockholder Representative the right to vote such Stockholder's shares in the
Company as the proxy of such Stockholder consistent with this Section 4.9, and
actions taken, consents given and representations made by the Stockholder
Representative on behalf of the Stockholders pursuant hereto shall be binding
upon the Stockholders. The proxy granted by each Stockholder hereby is coupled
with an interest and is irrevocable. Before the Closing, the Stockholder
Representative is authorized by the Stockholders to take any action on behalf of
the Stockholders to facilitate the transactions contemplated hereby which such
Stockholder Representative is directed to take by the Company acting through a
majority of the members of the Board of Directors in office prior to the
Closing, including, without limitation, amending this Agreement, and executing
documents or instruments. After the Closing for a period of 18 months, the
Stockholder Representative is authorized by the Stockholders to take any action
on behalf of the Stockholders to facilitate or administer the transactions
contemplated hereby as the Stockholder Representative deems appropriate.
4.10. Consolidation Transactions. Effective as of December 14, 1998, the Buyer
acquired approximately 38 companies engaged in the business of cost reduction,
cost recovery and profit enhancement services by means of acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
Contemporaneously with the transaction contemplated hereby, Buyer is attempting
to acquire various other companies (with the transaction contemplated hereby,
the "ADDITIONAL CONSOLIDATION TRANSACTIONS"), and following closing or
abandonment of the Additional Consolidation Transactions, Buyer intends to
pursue still more acquisitions (the "FURTHER CONSOLIDATION TRANSACTIONS"). The
Company and the Stockholders acknowledge that as a result of the complexity of
the transactions contemplated hereby and the other Additional Consolidation
Transactions, and for valuation and other reasons, the Closing contemplated
hereby and the closing of the other Additional Consolidation Transactions may
need to be concurrent or sequenced as designated by Buyer. Accordingly, the
Company and the Stockholders shall at any time upon or after execution of this
Agreement, but prior to the Closing Date (i) provide any outstanding
documentation required to effect the Closing pursuant to this Agreement in
escrow pending release upon authorization of the Stockholder Representative at
the Closing, (ii) complete performance of their respective obligations hereunder
and under the other Transaction Documents to be performed by the Closing, and
(iii) update the schedules hereto and any other documentation or information
provided to Buyer during the course of this transaction such that all such
disclosures shall be accurate and current as of the Closing Date.
4.11. Supplemental Disclosure. At or prior to the Closing, the Company and the
Stockholders shall supplement or amend each of the schedules hereto with respect
to any matter hereafter arising which, if existing or occurring at or prior to
the date hereof, would have been required to be set forth or listed in the
schedules or which is necessary to complete or correct any information in the
schedules.
4.12. HSR. Buyer and the Company shall cooperate in preparing and delivering to
the Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust
38
45
Improvements Act of 1976 (the "HSR ACT"), if applicable. Buyer and the Company
shall each pay half of all filing fees payable under the HSR Act in connection
with the transactions contemplated hereby, and each of Buyer and the Company
shall pay its own costs incurred in preparation of all reports and notifications
required under the HSR Act.
4.13. Competing Proposals.
Prior to the Closing Date or termination of this Agreement:
(a) Neither the Company nor any Stockholder shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any assets thereof or interests therein, or any other
transaction or arrangement that would interfere with the transactions
contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Stockholders shall promptly communicate to Buyer
the existence or occurrence and terms of any Competing Proposal or contact
related thereto which the Stockholders or the Company or any of its employees,
directors, or agents may receive in respect of any such proposed transaction and
the identity of the person, entity or group from whom such proposal or contact
was received.
(c) The Company and the Stockholders shall not transfer or hypothecate
the Business or any assets thereof or interests therein except to Buyer, or
enter into any agreement with any person other than Buyer in connection with any
of the foregoing.
39
46
4.14. Bonus Plan. If Buyer does not close the IPO of its equity securities by
June 30, 1999, Buyer will implement a cash bonus plan designed to reward
employees on the basis of the performance of the divisions or subsidiaries of
Buyer in which they work. Amounts payable under, and other terms of, any such
plan will be subject to restrictions imposed by Buyer's lenders, Buyer's capital
investment requirements, and preservation of adequate working capital.
4.15. Best Efforts. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.16. Further Assurances. Upon the reasonable request of a party or parties
hereto at any time after the Closing Date, the other party or parties shall
forthwith execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or parties or its or their counsel may reasonably request in
order to effectuate the purposes of this Agreement.
4.17. Notice of Breach. At all times before the Closing, and thereafter until
the second anniversary of the Closing Date, each of the parties hereto shall
promptly give written notice with particularity of any breach or inaccuracy of
any representation, warranty, agreement or covenant of such party contained
herein or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
4.18. Employee Matters. From and after the Closing Date, Buyer shall honor
written employment contracts to which the Company is a party on the Closing Date
and copies of which have been provided to Buyer, except those entered into that
are inconsistent with the covenants and representations of the Company
hereunder.
4.19. Continuance of Existing Indemnification Rights. From and after the Closing
Date and for a period of six years thereafter and for so long as any claims that
have been asserted prior to the end of such six-year period remain outstanding,
Buyer shall cause the Company to continue, or if the Company is merged into
Buyer or any Affiliate of Buyer or liquidated, Buyer will provide for, the
performance of the Company's indemnification obligations to present and former
directors and officers of the Company provided for in the Certificate of
Incorporation and Bylaws of the Company as in effect on the date of this
Agreement, and with respect to indemnification for acts or omissions occurring
prior to the Closing Date, provided however, that such obligations shall not
apply to any claim or cost (i) in respect of which such former director or
officer would not be entitled to indemnity under applicable law, or (ii) arising
in connection with facts or circumstances involving any inaccuracy of any
representation or breach of any covenant of the Company or Stockholders in this
Agreement or in any other Transaction Document.
4.20. Stockholder, Voting and Subordination Agreements, Subordinated Promissory
Note.
40
47
(a) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that each of Buyer's
stockholders is, and as long as the Stockholders are bound by the same each will
be, a party to a stockholder agreement and voting agreement that are not
different in any material respect from the Voting Agreement and Stockholder
Agreement described in Section 6.2(d)(i) and Section 6.2(d)(iii), except that
certain stockholders owning shares of stock that, in the aggregate, do not
represent material voting power may not be subject to a voting agreement. Upon
the request of Stockholders and without further action on the part of Buyer, the
Stockholder Agreement and Voting Agreement to which the Stockholders will be a
party shall automatically be amended to incorporate any provisions contained in
any other similar stockholder agreement or voting agreement to which Buyer is
now or hereafter becomes a party, or in any modification or amendment to any
such agreement, that is more beneficial in any material respect to the
stockholder party to such agreement than the provisions of the Stockholder
Agreement and Voting Agreement to be signed by the Stockholders are to the
Stockholders. Buyer hereby consents to be bound by any such amendments to the
Voting Agreement and Stockholder Agreement. In the event that the Stockholders
have any reasonable basis to believe that the Buyer is party to any such similar
stockholder agreement or voting agreement that has provisions that are more
beneficial in any material respect to another stockholder party thereto than the
provisions of the Stockholder Agreement and Voting Agreement to be signed by the
Stockholders are to the Stockholders, Buyer shall provide copies of the relevant
provisions of such agreements to the Stockholders upon the Stockholders'
request.
(b) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that the form of the
subordinated promissory note issued by Buyer to, and the form of subordination
agreement entered into by, each holder (other than a person or entity receiving
cash and/or notes but no equity in consideration of sale of their business to
Buyer or its affiliates) of a subordinated promissory note issued by Buyer in
connection with any Initial Consolidation Transaction or Additional
Consolidation Transaction, are and will be no more beneficial in any material
respect to such holder than the Note and Subordination Agreement to be executed
by the Stockholders, described in Schedule 1.3 and Section 6.2(d)(iv)
respectively, are to the Stockholders, except as to changes to any subordinated
promissory note or subordination agreement required to be made by any lender
providing financing for Buyer's business operations or any Initial, Additional
or Further Consolidation Transaction. Upon the request of Stockholders and with
the approval of all lenders providing financing for Buyer's business operations
or any Initial, Additional or Further Consolidation Transaction, without further
action on the part of Buyer, the Note that the Stockholders will hold and the
Subordination Agreement to which the Stockholders will be a party shall
automatically be amended to incorporate any provisions contained in any other
subordinated promissory notes issued by Buyer or subordination agreements
related thereto, respectively, that any holder of a subordinated promissory note
issued in connection with the Initial Consolidation Transactions or Additional
Consolidation Transactions (other than a person or entity receiving cash and/or
notes but no equity in consideration of sale of their business to Buyer or its
affiliates) has already or hereafter will become a party, or in any modification
or amendment to any such subordinated promissory note or subordination
agreement, that is more beneficial in any material respect to the
41
48
subordinated promissory note holder than the provisions of the Note issued to
and Subordination Agreement signed by the Stockholders are to the Stockholders.
Buyer hereby consents to be bound by any such amendments to the Note and the
Subordination Agreement. In the event that the Stockholders have any reasonable
basis to believe that the Buyer is party to any such subordinated promissory
note or subordination agreement that has provisions that are more beneficial in
any material respect to another subordinated note holder than the provisions of
the Note issued to and the Subordination Agreement signed by the Stockholders,
Buyer shall provide copies of the relevant provisions of such note or agreement
to the Stockholders upon the Stockholders' request. The Company will exercise
its power to prepay subordinated promissory notes issued in the Initial
Consolidation Transactions and the Additional Consolidation Transactions, if at
all, only by action of its Board of Directors or Chief Executive Officer, in
good faith, for legitimate business purposes, and without discrimination among
similarly situated holders of such notes unless such discrimination is in the
best interests of the Company.
42
49
5. SURVIVAL; INDEMNIFICATION.
5.1. Survival. The representations and warranties made in this Agreement or in
any exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until March 31, 2000, except those
representations and warranties contained in (i) Sections 2.21 (Taxes) and 2.28
(Brokers), which will survive until the expiration (including extensions) of the
applicable statute of limitations; and (ii) Sections 2.2 (Ownership of Capital
Stock); 2.4 (Title to Assets) and 2.22 (Indebtedness), which will survive
indefinitely. As to any matter or claim which is based upon fraud by the
indemnifying party, the representations and warranties set forth in this
Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2. Indemnification by the Stockholders. Subject to the limits set forth in
this Article 5, the Stockholders and, if the transactions contemplated hereby
are not consummated, the Company, and their successors and assigns shall jointly
and severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation or liability reflected as
a liability or reserve of the Company in the Interim Financial Statements or an
obligation or liability incurred in the ordinary course of business since the
date of the Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company or the Stockholders in this Agreement or any
other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Stockholders contained in this Agreement or any other Transaction
Document.
5.3. Indemnification by Buyer. Subject to the limits set forth in this Article
5, Buyer and its successors and assigns shall indemnify, defend, reimburse and
hold harmless the
43
50
Stockholders and their successors and assigns from and against any and all
Losses reasonably incurred by any such Stockholders arising out of or in
connection with any of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
any Stockholder in respect of any Losses arising as a result of acts or
omissions of that Stockholder, including without limitation in such
Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4. Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's
44
51
position, claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim with the
consent of the Indemnitor. If the Indemnitee defends the subject of a Claim in
accordance with this Section, the Indemnitor shall cooperate with the Indemnitee
and its counsel, at the Indemnitor's sole cost, risk and expense, in all
reasonable respects, and shall deliver to the Indemnitee or its counsel copies
of all pleadings and other information within the Indemnitor's knowledge or
possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
(e) At the request of the Indemnitor, the Indemnitee shall seek recovery
from its insurance provider(s) with respect to any Loss for which the Indemnitor
is or may be required to make an indemnification payment pursuant to this
Section 5.4.
(f) The amount which the Indemnitor is required to pay to, for or on
behalf of the Indemnitee pursuant to this Section 5.4 shall be adjusted
(including, without limitation, retroactively) (i) by any insurance proceeds
actually recovered by or on behalf of such Indemnitee in reduction of the
related indemnifiable Loss and (ii) to take account of the cash value to Buyer
of any Tax benefit realized as a result of the indemnifiable Loss. If the
Indemnitee has received or has had paid on its behalf an indemnification payment
for an indemnifiable Loss and subsequently receives insurance proceeds for such
Loss, or realizes any cash value as a result of any Tax benefit as a result of
such Loss, then the Indemnitee shall (i) promptly notify the Indemnitor of the
amount and nature of such proceeds and benefits and (ii) pay to the Indemnitor
the amount of such insurance proceeds or cash Tax benefit or, if lesser, the
amount of the indemnification payment.
45
52
(g) The Indemnitee shall be obligated to use all reasonable efforts to
mitigate to the fullest extent practicable the amount of any Loss arising from
any claim by a third party for which it is entitled to seek indemnification
hereunder, and the Indemnitor shall not be required to make any payment to the
Indemnitee in respect of such Loss to the extent the Indemnitee fails to comply
with the foregoing obligations.
(h) The Indemnitor shall be subrogated to all rights of the Indemnitee
against any third party in respect of any matter giving rise to a claim for
indemnification hereunder.
(i) Notwithstanding any other provision of this Agreement, this Section
5.4 shall not apply to any claims under Section 4.8, which shall be governed
solely and exclusively by the provisions thereof.
(j) The indemnification provisions in this Article 5 encompass Claims
solely between the parties hereto, not involving any third party, as well as
Claims involving third parties.
(k) Following the Closing, the indemnities provided for in this Article
5 shall be the sole and exclusive remedies of the parties and their successors
and assigns with respect to any disputes relating to this Agreement, the events
giving rise to this Agreement and the transactions provided for herein or
contemplated hereby, it being agreed and understood that the parties expressly
waive any and all other remedies, including any and all such remedies as may be
provided by statute, rule or regulation (other than intentional fraud).
5.5. Payment. All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including reasonable attorneys'
fees) incurred by the Indemnitee shall be paid by the Indemnitor in advance of
the final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay promptly any such advances in the
event that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
5.6. Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of One
Hundred Fifty Thousand Dollars ($150,000) (the "THRESHOLD"), except claims
arising from any breach of the representations and warranties contained in
Section 2.21 (Taxes) shall not be subject to the Threshold. Once the aggregate
amount of Losses exceeds the Threshold, persons entitled to recovery shall be
entitled to recover the full amount of all Losses in excess of the Threshold. No
person shall be entitled to indemnification under this Article 5 for Losses
directly or indirectly caused by a breach by
46
53
such person of any representation, warranty, covenant or other agreement set
forth in this Agreement or any duty to the potential Indemnitor.
(b) The maximum aggregate liability of the Stockholders on the one hand,
to Buyer, and Buyer, on the other hand to the Stockholders, for all claims
arising under or otherwise related to this Agreement and the other Transaction
Documents shall equal the aggregate Purchase Price, provided that the maximum
aggregate liability of the Stockholders, on the one hand, to Buyer, and the
Buyer, on the other hand to the Stockholders, in respect of such claims that are
first brought or noticed in writing by the claimant after March 31, 2000 will
not exceed $10,000,000. For purposes of this Section 5.6(b), the value of Shares
received shall be (A) prior to the IPO, the per share Agreed Price (as defined
in the Stockholder Agreement) then prevailing; and (B) after the IPO, the per
share closing price on the primary exchange or market on which the Common Stock
is traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Stockholders of such sale.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Obligations of Each Party. The obligations of the
Stockholders, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are subject to the fulfillment, at or before
the Closing Date, of the conditions set forth in this Section 6.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition; provided however, that such waiver will not diminish such
party's right to indemnification pursuant to Article 5, unless so stated.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby is in effect; and no action
or proceeding has been instituted or threatened by any Governmental Entity,
other person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could have a Material
Adverse Effect.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
47
54
6.2. Conditions to Obligations of Buyer. The obligations of Buyer to consummate
the transactions contemplated hereby are subject to the fulfillment, at or
before the Closing Date, of the conditions set forth in this Section 6.2, any
one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholders contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder Representative shall each have delivered to Buyer a
certificate dated the Closing Date to such effect signed by the President or any
Vice President and the Secretary or any Assistant Secretary of the Company and
by the Stockholder Representative.
(b) Performance of the Company and the Stockholders. The Company and the
Stockholders shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing the Company and the Stockholders, as the case
may be, shall each have delivered to Buyer a certificate to such effect dated
the Closing Date and signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company or the Stockholders, as
applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholders
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by the Company and the Stockholders
and the consummation of the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Stockholder. Buyer has
received, or is receiving at the Closing, all of the following, each duly
executed by each Stockholder and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Stockholder and the spouse of
each Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24(g);
48
55
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, the absence of which
could result in material liability to Buyer or have a Material Adverse Effect,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company, provided, however, that Buyer may not
refuse to consummate the transactions contemplated hereby on the basis of
non-satisfaction with its due diligence review after the tenth day after the
date of this Agreement or, if later, after the tenth day following the delivery
to Buyer of all documents and information requested by Buyer for due diligence
purposes in connection with the transactions contemplated hereby
(h) Closing Date Net Worth. At the Closing the Company will have current
assets, net of total liabilities, calculated according to GAAP of at least One
Million Two Hundred Thousand Dollars ($1,200,000.00); and at the Closing the
Company shall have delivered to Buyer a certificate dated the Closing Date to
such effect with supporting financial information, signed by the President or
any Vice President and the Secretary or any Assistant Secretary of the Company.
(i) Financing. Buyer shall have received the consent of its senior
lenders to the transactions contemplated hereby, and shall have available, on
commercially reasonable terms reasonably satisfactory to Buyer, debt financing
sufficient to finance the cash portion of the Purchase Price and the cash
portion of the purchase price being paid by Buyer pursuant to each of the
Consolidation Transactions, and to provide Buyer with adequate working capital
following the transactions contemplated hereby and the Additional Consolidation
Transactions.
(j) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Stockholders
in substantially the
49
56
form of Exhibit F. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of the Company, or its officers, and such
counsel may assume that this Agreement has been duly authorized, executed and
delivered by Buyer.
(k) Certificates. The Stockholders shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(l) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(m) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received an Employment
Agreement, substantially in the form attached hereto as Exhibit G-1 for each key
employee designated by Buyer and named on Schedule 6.2(a), and an Employment
Letter substantially in the form attached hereto as Exhibit G-2 for other
employees named on Schedule 6.2(b) (each with conforming changes as appropriate
for the employee), duly executed and delivered by each person named on Schedule
6.2(a) or (b).
(n) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(o) Intellectual Property Licenses. The Licensing Agreement between the
Company and FoxPaw, Inc. and the Licensing Agreement between the Company and
eFox, LLC, each dated July 5, 1998, shall be amended, effective as of the
Closing, in a manner satisfactory to Buyer, provided that the amendments to such
license agreements will not (i) impair the rights of FoxPaw, Inc. to the Holden
Intellectual Property (as defined therein) required so that the publication,
marketing and sale of books owned by FoxPaw, Inc. as of the Closing Date do not
infringe the Holden Intellectual Property, (ii) impair the rights of eFox, LLC
to use for its business purposes consistent with the option agreement described
in Section 6.1(c) (but not transfer) the Holden Intellectual Property during the
term of the option described in Section 6.1(c), or (iii) cause FoxPaw, Inc., the
Company, or James Holden to violate that certain agreement among John Wiley &
Sons, Inc., James Holden and the Company dated December 16, 1988, relating to
Power Base Selling, or cause FoxPaw, Inc. or James Holden to violate that
certain agreement among John Wiley & Sons, Inc., James Holden and FoxPaw, Inc.
dated May 28, 1998, relating to World Class Selling.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Stockholders or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
50
57
6.3. Conditions to Obligations of the Stockholders. The obligations of the
Stockholders to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.3, any one or more of which may be waived by the Stockholders in
writing in their discretion; provided however, such waiver will not waive or
diminish the right of the Stockholders to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby and
thereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares
issued in the name of each Stockholder as set forth in Schedule 1.3;
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G-1 with James F. Holden, and an employment letter in the form
of Exhibit G-2 with each of the persons named in part (b) of Schedule 6.2 (each
with conforming changes as appropriate for the employee);
(v) A Stockholder Agreement substantially in the form of Exhibit
C; and
(vi) Other documents as the Stockholders may reasonably request.
(d) The Cash Payment. The Stockholders shall have received the Cash
Payment (as described in Schedule 1.3).
51
58
(e) Opinion of Counsel. The Stockholders shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholders.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Stockholders; the Stockholders
shall have received at the Closing a copy of such opinion in substantially the
form presented to them for review at least ten business days before the Closing;
and, if the Closing has not occurred within 45 days of the date of this
Agreement, there have not occurred any material events or changes in
circumstances that cause the Stockholders reasonably to believe, based upon the
written advice of nationally recognized counsel, that the purchase and sale of
the Seller Shares contemplated hereby should not qualify for treatment under
Section 351 of the Code.
(g) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, the absence of which
could result in a material liability to the Company or the Stockholders, or have
a Material Adverse Effect, shall have been duly obtained in form reasonably
satisfactory to the Stockholders and shall be in full force and effect on the
Closing Date.
(h) No Adverse Changes to Buyer. Between the date of this Agreement and
the Closing Date, Buyer shall not have suffered any material adverse effect on
or change in the financial conditions or results of operations of Buyer and its
subsidiaries.
7. MISCELLANEOUS.
7.1. Termination. This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholders fail to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Stockholders is breached or is inaccurate in any material way;
(b) by the Company or the Stockholders if (i) Buyer fails to comply in any
material respect with any of its covenants or agreements contained herein, or
(ii) any of the representations and warranties of Buyer is breached or is
inaccurate in any material way; or (c) by the Company or Buyer if (i) a
Governmental Entity has issued a non-appealable order, decree or ruling or taken
any other action (which order, decree or ruling the parties hereto have used
their best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or (ii) a condition
to its performance hereunder has not been satisfied or waived prior to March 15,
1999, provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Additional
52
59
Consolidation Transactions, it may extend such date by thirty (30) days.
Notwithstanding the foregoing, a party may not terminate this Agreement if the
event giving rise to the termination right results from the willful failure of
such party to perform or observe any of the covenants or agreements set forth
herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.28 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2. Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery or three
(3) days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, or one (1) business day after being sent via a
nationally recognized overnight courier service if overnight courier service is
requested from such service or upon receipt of electronic or other confirmation
of transmission if sent via facsimile, to the parties, their successors in
interest or their assignees at the following addresses and telephone numbers, or
at such other addresses or telephone numbers as the parties may designate by
written notice in accordance with this Section 7.2:
If to Buyer: EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
Attn: General Counsel
53
60
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
Attn.: Thomas D. Magill, Esq.
If to the Company
or any Stockholder: James F. Holden
211 Otis Road
Barrington Hills, Illinois 60010
Telephone No.: (847) 382-1782
Facsimile No.: (847) 382-1783
With a copy to: Skadden, Arps, Slate, Meagher & Flom
(Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Facsimile No.: (312) 407-0411
Attn.: Peter C. Krupp, Esq.
7.3. Assignability and Parties in Interest. This Agreement and the rights,
interests or obligations hereunder may not be assigned by any of the parties
hereto without the prior written consent of the other parties hereto. This
Agreement shall inure to the benefit of and be binding upon Buyer and the
Company and their respective permitted successors and assigns and upon each
Stockholder and his or her executors, administrators, heirs, legal
representatives and permitted successors and assigns. Nothing in this Agreement
will confer upon any person or entity not a party to this Agreement, or the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
7.4. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, without regard
to its conflicts-of-law principles.
7.5. Counterparts. Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6. Publicity. Prior to the Closing Date, no party may, or may it permit its
Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to
54
61
other participants in, or as necessary to effect, the Consolidation
Transactions. Notwithstanding the foregoing, in the event any such press release
or announcement is required by law to be made by the party proposing to issue
the same, such party shall consult in good faith with the other party as far in
advance as practicable to the issuance of any such press release or
announcement.
7.7. Complete Agreement. This Agreement, the exhibits and schedules hereto, and
the other Transaction Documents contain or will contain the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and therein and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, and understandings.
7.8. Modifications, Amendments and Waivers. At any time prior to the Closing
Date or termination of this Agreement, any party may, (a) waive any inaccuracies
in the representations and warranties of any other party contained in this
Agreement or in any other Transaction Document; and (b) waive compliance by any
other party with any of the covenants or agreements contained in this Agreement.
No waiver of any of the provisions of this Agreement will be considered, or will
constitute, a waiver of any of the rights or remedies, at law or equity, of the
party entitled to the benefit of such provisions unless made in writing and
executed by the party entitled to the benefit of such provision. This Agreement
may be amended, supplemented or modified only by a written instrument duly
executed by each party hereto.
7.9. Headings; References. The headings contained in this Agreement and the
other Transaction Documents are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References herein to
Articles, Sections, Schedules and Exhibits refer to the referenced Articles,
Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10. Severability. Any provision of this Agreement which is invalid, illegal,
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11. Investigation. All representations and warranties contained herein which
are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the
Stockholders only and no other person.
7.12. Expenses of Transactions. All fees, costs and expenses incurred by Buyer,
in connection with the transactions contemplated by this Agreement shall be
borne by Buyer, and all fees, costs and expenses incurred by the Company or the
Stockholders in connection with the transactions contemplated by this Agreement
shall be borne by the Stockholders jointly and severally.
55
62
7.13. Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder, provided however, that the parties
shall seek any permanent injunctive relief, and any such proceeding shall be
resolved, pursuant to this section.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrators are hereinafter referred to as
the "ARBITRATORS"). The judgment of the award rendered by the Arbitrators may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the Arbitration Notice, which, in addition to
the items required by the Rules, shall include a statement of the nature, with
reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. Within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third Arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third Arbitrator
within such time, the third Arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least fifteen (15) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
56
63
(c) Once the Arbitrators are assigned to hear the matter, the
Arbitrators shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrators shall have the
discretion to order, to the extent the Arbitrators deem relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrators.
(e) The parties must file briefs with the Arbitrators at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrators of the arrangement in advance of
the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrators selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before those
Arbitrators.
(g) The Arbitrators' award shall be in writing, signed by the
Arbitrators and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrators shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14. Submission to Jurisdiction. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any,
57
64
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15. Attorneys' Fees. If Buyer or any of its Affiliates, successors or assigns
brings any action, suit, counterclaim, cross-claim, appeal, arbitration, or
mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Stockholder, or if the Company or any of its
Affiliates, successors or assigns or any Stockholder brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against Buyer or any of its Affiliates, successors or assigns, declaratory or
otherwise, to enforce the terms hereof or to declare rights hereunder
(collectively, an "ACTION"), in addition to any damages and costs which the
prevailing party otherwise would be entitled, the non-prevailing party shall pay
to the prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16. Enforcement of the Agreement. The Company, the Stockholders and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company
58
65
and the Stockholders under this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Buyer will be entitled to an
injunction or injunctions to prevent breaches of this Agreement by the Company
or the Stockholders and to enforce specifically the terms and provisions hereto,
this being in addition to any other remedy to which Buyer is entitled at law or
in equity.
59
66
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
-----------------------------------
Name: Mark C. Coleman
-----------------------------------
Title: SVP
-----------------------------------
HOLDEN CORPORATION
"COMPANY"
By: /s/ JAMES F. HOLDEN
-----------------------------------
Name: James F. Holden
-----------------------------------
Title: President
-----------------------------------
STOCKHOLDERS
/s/ JAMES F. HOLDEN
- --------------------------------------------
James F. Holden
/s/ CHRISTINE E. HOLDEN
- --------------------------------------------
Christine E. Holden
STOCKHOLDER REPRESENTATIVE
/s/ JAMES F. HOLDEN
- --------------------------------------------
James F. Holden
60
67
SCHEDULE 1.3
PURCHASE PRICE
(i) An aggregate of Four Million Dollars ($4,000,000) by wire
transfer of immediately available funds to an account or accounts
specified by the Stockholders (the "CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount
of Four Million Dollars ($4,000,000) (the "NOTES")
(iii) An aggregate of 1,320,114 shares of Series A Common Stock
of Buyer (the "SHARES"), certificates for which will be retained by
Buyer pending release pursuant to Section 1.4.