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EXHIBIT 10.39
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
FFR HOLDING CO., INC.
"COMPANY"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
NOVEMBER 20, 1998
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TABLE OF CONTENTS
1. Sale and Purchase....................................................................... 1
1.1 Agreements to Sell and Purchase............................................. 1
1.2 Closing..................................................................... 1
1.3 Purchase Price.............................................................. 2
1.4 Certificates for Shares..................................................... 2
2. Representations and Warranties of the Company and the Stockholders...................... 2
2.1 Organization and Good Standing.............................................. 3
2.2 Ownership of Capital Stock.................................................. 3
2.3 Authorization of Agreement.................................................. 5
2.4 Title to Assets............................................................. 5
2.5 Financial Condition and Accounting.......................................... 6
2.6 Certain Property of the Company............................................. 7
2.7 Year 2000 Compliance........................................................ 9
2.8 No Conflict or Violation.................................................... 10
2.9 Consents.................................................................... 10
2.10 Labor and Employment Matters................................................ 11
2.11 Employee Plans.............................................................. 11
2.12 Litigation.................................................................. 14
2.13 Certain Agreements.......................................................... 14
2.14 Compliance with Applicable Law.............................................. 15
2.15 Licenses.................................................................... 16
2.16 Accounts Receivable......................................................... 17
2.17 Intercompany and Affiliate Transactions; Insider Interests.................. 17
2.18 Insurance................................................................... 18
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2.19 Customers................................................................... 18
2.20 No Undisclosed Liabilities.................................................. 18
2.21 Taxes....................................................................... 19
2.22 Indebtedness................................................................ 21
2.23 Environmental Matters....................................................... 21
2.24 Securities Matters.......................................................... 22
2.25 Buyer and the Consolidation Transactions.................................... 23
2.26 Minute Books and Stock Records.............................................. 24
2.27 Banks....................................................................... 24
2.28 Powers of Attorneys and Suretyships......................................... 24
2.29 Brokers..................................................................... 25
2.30 Summary of Certain Considerations........................................... 25
2.31 Accuracy of Information..................................................... 25
3. Representations and Warranties of Buyer.................................................. 25
3.1 Organization and Corporate Authority........................................ 25
3.2 No Conflict or Violation.................................................... 25
3.3 Capitalization.............................................................. 26
3.4 Litigation.................................................................. 26
3.5 Buyer's Operations and Financial Condition.................................. 26
3.6 Accuracy of Information..................................................... 26
4. Certain Understandings and Agreements of the Parties.................................... 27
4.1 Access...................................................................... 27
4.2 Confidentiality............................................................. 27
4.3 Certain Changes and Conduct of Business..................................... 28
4.4 Restrictive Covenants....................................................... 30
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4.5 Securities Restrictions..................................................... 33
4.6 Registration................................................................ 34
4.7 Cooperation in Litigation................................................... 36
4.8 Tax Matters................................................................. 36
4.9 Stockholder Representative.................................................. 39
4.10 Consolidation Transactions.................................................. 40
4.11 Supplemental Disclosure..................................................... 40
4.12 HSR......................................................................... 40
4.13 Competing Proposals......................................................... 41
4.14 Bonus Plan.................................................................. 41
4.15 Best Efforts................................................................ 41
4.16 Further Assurances.......................................................... 41
4.17 Notice of Breach............................................................ 42
4.18 Put Right................................................................... 42
5. Survival; Indemnification............................................................... 43
5.1 Survival.................................................................... 43
5.2 Indemnification by the Stockholders......................................... 43
5.3 Indemnification by Buyer.................................................... 44
5.4 Indemnification Procedure................................................... 45
5.5 Payment..................................................................... 46
5.6 Limitations................................................................. 46
6. Conditions to Closing................................................................... 47
6.1 Conditions to Obligations of Each Party..................................... 47
6.2 Conditions to Obligations of Buyer.......................................... 48
6.3 Conditions to Obligations of the Stockholders............................... 51
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7. Miscellaneous........................................................................... 52
7.1 Termination................................................................. 52
7.2 Notices..................................................................... 53
7.3 Assignability and Parties in Interest....................................... 54
7.4 Governing Law............................................................... 54
7.5 Counterparts................................................................ 54
7.6 Publicity................................................................... 54
7.7 Complete Agreement.......................................................... 54
7.8 Modifications, Amendments and Waivers....................................... 55
7.9 Headings; References........................................................ 55
7.10 Severability................................................................ 55
7.11 Investigation............................................................... 55
7.12 Expenses of Transactions.................................................... 55
7.13 Arbitration................................................................. 56
7.14 Submission to Jurisdiction.................................................. 58
7.15 Attorneys' Fees............................................................. 58
7.16 Enforcement of the Agreement................................................ 59
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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 Opinion of Counsel to the Company and the Stockholders
F. Form of Opinion of Counsel to the Buyer
G. Form of Officer's Certificate
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1(a) Qualifications to do Business
2.1(b)(i) Certificate of Incorporation
2.1(b)(ii) Form of Certificate of Amendment of the Certificate of Incorporation
2.2(e) Q and E Plan Shareholders
2.2(g) Subsidiaries
2.5(a) Financial Statements
2.5(b) Certain Changes
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10(a)(i) Employees
2.10(a)(ii) Employment Agreements
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
2.21(j) 351 Information
2.22 Indebtedness
2.27 Banks
2.29 Brokers
3.4 Buyer Litigation
3.5 Buyer Liabilities
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
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 20, 1998 by and among FFR Holding Co., Inc., a
Delaware corporation (the "Company"), the stockholders (and the beneficial
owners) of the Company listed on the signature pages hereof (each such
individual a "STOCKHOLDER," and collectively, the "STOCKHOLDERS"), George W.
Imhoff ("IMHOFF"), acting for and on behalf of the Stockholders as their
representative pursuant to Section 4.9 (the "STOCKHOLDER REPRESENTATIVE"), and
ProfitSource Corporation, a Delaware corporation ("BUYER").
A. The Company and its Subsidiaries (as hereinafter defined) are
engaged in the business of distributing products of various insurance carriers
and financial institutions through principals located throughout the United
States who contract to use the Company's products and services (the "BUSINESS").
B. Each Stockholder owns the number of the issued and outstanding
shares of common stock of the Company (collectively, the "SELLER SHARES") and
the Series A Preferred Stock (as hereinafter defined) set forth opposite such
Stockholder's name in part (b) of Schedule 1.3.
C. The Stockholders desire to sell to Buyer, and Buyer desires to
purchase from the Stockholders all their respective Seller Shares on the terms
and conditions set forth in this Agreement, while the outstanding Series A
Preferred Stock will be retained by the holders thereof.
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:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Stockholder shall sell
to Buyer, and Buyer shall purchase from each Stockholder, the number of Seller
Shares set forth opposite such Stockholder's name in part (b) of Schedule 1.3,
for the purchase price set forth in part (b) of 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
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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 Stockholder Representative informing
the Company and the Stockholders of the anticipated Closing Date. At the
Closing, the Stockholder Representative 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 interests, 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 described in
part (b) of Section 1.3 for such Stockholder's Seller Shares.
1.3 Purchase Price.
The consideration to be paid by Buyer for each Stockholder's respective
Seller Shares is described in part (b) of Schedule 1.3 (collectively, the
"PURCHASE PRICE").
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
Stockholders (i) Erik R. Watts ("WATTS"), (ii) Imhoff, (iii) Walter C. Duemer
and Joan Harriet Duemer, trustees under Trust Agreement dated January 10, 1994
(Walter C. Duemer and Joan Harriet Duemer, settlors), (iv) Joan Harriet Duemer,
trustee under the Trust Agreement dated January 10, 1994 (Walter C. Duemer,
settlor), and (v) Walter C. Duemer ("W. DUEMER") and Joan Harriet Duemer ("J.
DUEMER") (collectively the "DUEMERS") as beneficial owners of (x) both such
trusts, (y) the Walter C. Duemer Roth IRA (the "W. DUEMER IRA") (Community Trust
Company, successor in interest to Pennsylvania Fiduciary and Estate Services,
Inc. ("COMMUNITY
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TRUST"), Custodian) and (z) the Joan H. Duemer Spousal Roth IRA (the "J. DUEMER
IRA") (Community Trust, Custodian) (collectively, the "MAJORITY STOCKHOLDERS"),
jointly and severally, represent and warrant to Buyer as follows in this Article
2 and each of the Stockholders other than the Majority Stockholders and
Community Trust (collectively, the "MINORITY STOCKHOLDERS") severally represents
and warrants to Buyer with regard to themselves and their ownership of Seller
Shares as set forth in Sections 2.2(b) & (c), 2.3, 2.21(j), 2.24, 2.25, 2.29 and
2.30:
2.1 Organization and Good Standing.
(a) The Company 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 the Business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own, lease
or operate its assets and properties. The Company and its Subsidiaries are duly
qualified to do business and in good standing in every jurisdiction in which the
character of the properties owned or leased by them or the nature of the
business conducted by them makes such qualification necessary, except where
failure to be so qualified would not have a material adverse effect on the
Business or the Company's or any Subsidiary's assets or financial condition (a
"MATERIAL ADVERSE EFFECT"). Schedule 2.1(a) lists all of the jurisdictions in
which the Company and each Subsidiary is qualified to do business.
(b) Complete and accurate copies of the charter documents and bylaws, if
applicable, and articles of organization and operating agreements, if
applicable, of the Company and each Subsidiary, with all amendments thereto to
the date hereof, have been furnished to Buyer or its representatives. Schedule
2.1(b)(i) sets forth the Certificate of Incorporation for the Company (the
"CERTIFICATE") as amended and in effect on the date hereof. Schedule 2.1(b)(ii)
sets forth the form of Certificate of Amendment of the Certificate of
Incorporation to be filed by the Company concurrently with the Closing
("CERTIFICATE OF AMENDMENT"). All amendments to the Certificate have been duly
adopted in accordance with the General Corporation Law of the State of Delaware.
The Company gave notice of the Amendments in accordance with the General
Corporation Law of the State of Delaware.
2.2 Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of common stock of the Company, $0.001 par value per share, and 2,000,000
shares of preferred stock, $0.001 par value per share, of which 1,500,000 shares
are designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK").
44,395,612 shares of common stock are issued and outstanding on the date hereof,
of which 37,626,042 are unvested shares issued pursuant to the Company's 1998
Qualified Stock Purchase Plan (the "Q PLAN") or issued
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pursuant to the Company's 1998 Equity Stock Purchase Plan (the "E PLAN").
1,470,895 shares of Series A Preferred Stock are issued and outstanding. There
is no other issued and outstanding capital stock of the Company.
(b) The Seller Shares and the Series A Preferred Stock are validly
issued and outstanding, fully paid and non-assessable. The Seller Shares and the
Series A Preferred Stock owned by each Stockholder and the Q Shares and E Shares
(as defined below) outstanding as of immediately after the Closing owned by each
holder thereof are set forth in part (b) of Schedule 1.3. Except as set forth in
Schedule 1.3 and Schedule 2.2(e), 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) (i) Each of the Stockholders, except W. Duemer and J. Duemer, has
good and valid title to, and sole record and beneficial ownership of, the Seller
Shares and the Series A Preferred Stock indicated in part (b) of Schedule 1.3 as
owned by such Stockholder, free and clear of any claims, liens, pledges,
options, security interests, trusts encumbrances or other rights or interests of
any person or entity and each Stockholder has the absolute and unrestricted
right, power and authority and capacity to enter into this Agreement.
(ii) W. Duemer and J. Duemer are the beneficial owners of the
Seller Shares indicated in part (b) of Schedule 1.3 owned by the W. Duemer IRA
and the J. Duemer IRA (individually the "IRA" and collectively the "IRAS") and,
as such, have the sole power to authorize and instruct Community Trust to sell
or otherwise transfer such Seller Shares pursuant to this Agreement and to
dispose of any other securities held in any IRA and to direct the exercise of or
obtain a proxy right to exercise any voting rights related to any securities
held in any IRA.
(d) All dividends, distributions and securities repurchases made or to
be made by the Company with respect to its equity interests have complied or
will as of the Closing comply with applicable law.
(e) Schedule 2.2(e) lists all purchasers of the Company's common stock
issued pursuant to the Q Plan (the "Q SHARES") or issued pursuant to the E Plan
(the "E SHARES") together with the number of Q Shares and E Shares owned by each
as of the date hereof, the number of Q Shares and E Shares being repurchased by
the Company immediately prior to the Closing and the number of Q Shares and E
Shares, if any, remaining held by each of the immediately after the Closing.
(f) 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, and all repurchases
by the Company of Q Shares and E Shares will comply with applicable law and
regulations.
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(g) Schedule 2.2(g) sets forth all equity interests in any entity the
Company owns, directly or indirectly, either of record or beneficially (each
such entity a "SUBSIDIARY" and collectively the "SUBSIDIARIES") and neither the
Company nor any Subsidiary has the right to acquire any equity interest in any
entity. Each Subsidiary is duly organized, validly existing, and in good
standing under the laws of the state in which it is incorporated or formed, with
full power and authority to carry on its business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own lease or
operate its assets or properties. All of the issued and outstanding shares of
capital stock or any membership interests of each Subsidiary are validly issued,
fully paid, and nonassessable, and are owned by the Company or a Subsidiary free
and clear of any claims, liens, pledges, options, security interests, trusts,
encumbrances or other rights or interests of any person or entity. Neither the
Company nor any Subsidiary has granted, issued or agreed to grant or issue any
other equity interests in any Subsidiary 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 any Subsidiary.
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 and no other
proceedings 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 and each
Stockholder or the Stockholder Representative, have been effectively authorized
by all necessary action, corporate or otherwise, and constitute (or upon
execution will constitute) legal, valid and binding obligations of the Company
and each 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 "BANKRUPTCY
EXCEPTION").
2.4 Title to Assets.
The Company and each Subsidiary are the lawful owners of each of their assets,
whether real, personal, mixed, tangible or intangible. All of the assets of the
Company and any Subsidiaries assets are sufficient and adequate to conduct the
Business as presently conducted; and are 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
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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) 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, any Subsidiary or any Stockholder to transfer any of the assets of the
Company or any Subsidiary or rights or interests therein to any party.
2.5 Financial Condition and Accounting.
(a) Financial Statements. Schedule 2.5(a) sets forth the consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1995,
December 31, 1996 and December 31, 1997 and the related consolidated statements
of income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the consolidated balance sheet, and the related consolidated
statements of income and cash flow of the Company and each Subsidiary for the
nine-month period ended September 30, 1998 or the most recent interim date
available (the "INTERIM FINANCIAL STATEMENTS," and with the Year-End Financial
Statements, the "FINANCIAL STATEMENTS"). The Financial Statements (i) were
prepared in accordance with the books and records of the Company and the
Subsidiaries; (ii) were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied; (iii) fairly present the
financial condition and the results of the operations of the Company and the
Subsidiaries as at the relevant dates thereof and for the periods covered
thereby; (iv) to the extent required by GAAP, contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of the operations of the Company and the Subsidiaries for the
periods covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, including without limitation, for all taxes, federal, state, local
or foreign, with respect to the period then ended and all prior periods; and
(vi) do not contain any items of a special or nonrecurring nature, except as
expressly stated therein. The Interim Financial Statements accurately reflect
all information normally reported to the independent public accountants of the
Company and the Subsidiaries for the preparation of their financial statements.
There have been no changes or modifications of revenue recognition, cost
allocation practices or 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. Other than as set forth in Schedule
2.5(b), since December 31, 1997 there has not been any Material Adverse Change,
or any event, action, or
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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. Neither the Company nor any Subsidiary has ever owned
nor currently owns any real property. Schedule 2.6(a) lists all real properties
leased by the Company and each Subsidiary, 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 or its Subsidiaries have 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 or any Majority
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
Bankruptcy Exception.
(ii) The Company or its Subsidiaries are not, and none of the
Company, any Subsidiary, nor any Majority 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
or any Subsidiary.
(iii) To the knowledge of the Company or any Majority Stockholder
all of the buildings, fixtures and other improvements to which the Real Property
Leases relate are in good operating condition and repair, and the operation
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 and the Subsidiaries (the "PERSONAL PROPERTY"). All items
of Personal Property are in good operating condition and repair sufficient to
enable the Company to operate the Business as presently conducted. The Company
and its Subsidiaries hold valid leases in all of the Personal Property leased by
them, 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
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the location of each item of Personal Property, accurately identifies such
Personal Property as owned or leased, and lists each Personal Property Lease.
Neither the Company nor its Subsidiaries are 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 Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company or any Subsidiary that are
material to the Business. For purposes of this Agreement "PROPRIETARY RIGHTS"
means trademarks and service marks (registered or unregistered), trade dress,
trade names including, without limitation, the names First Financial
Resources(R), Global Brain(R) and Megaflex(R) and other names and slogans
embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company or its Subsidiaries free and clear of any and
all liens, security interests, claims, charges and encumbrances or are used by
the Company or its Subsidiaries pursuant to a valid and enforceable license
granting rights sufficiently broad to permit the historical and anticipated 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.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company or any Subsidiary 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
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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 or any Subsidiary. There have not been any actions or other judicial or
adversary proceedings involving the Company or any Subsidiary concerning any of
the Proprietary Rights, nor to the knowledge of the Company or any Majority
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 Majority Stockholder,
there are no conflicts with or infringements of any of the Proprietary Rights by
any third party.
(vi) Either the Company or a Subsidiary 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 (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 its Subsidiaries 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 or a Subsidiary and not to be
divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company, any Subsidiary or the
Business.
(viii) The Company and its Subsidiaries have taken all
commercially reasonable precautions necessary to ensure that all Proprietary
Rights have been properly protected and have been kept secret.
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 or any Subsidiary and material to the Business are Year 2000
Compliant. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
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(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, 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 in any material respect any provision or requirement of any
domestic or foreign, federal, state, or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any Governmental Entity
or insurance or brokerage industry regulatory body or authority, including
without limitation the National Association of Securities Dealers, Inc. (the
"NASD") and the insurance commissions of the various states in which the Company
and the Subsidiaries do business (collectively the "INSURANCE AND BROKERAGE
REGULATORS") applicable to the Company and any Subsidiary or the Business; (iii)
violate in any material respect, result in a material breach of, constitute
(with due notice or lapse of time or both) a material default or cause any
material 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 material lien, charge or encumbrance of any kind whatsoever
upon any of the properties or assets of the Company or any Subsidiary; or (v)
result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9 Consents.
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Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of the Company, any Subsidiary or any Majority Stockholder
before consummation of the transactions contemplated by this Agreement in
compliance with all applicable laws, rules, regulations, or orders of any
Governmental Entity 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.
(a) Schedule 2.10(a)(i) lists all employees of the Company and each
Subsidiary, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company or any Subsidiary is a party or by which it is
bound other than as set forth on Schedule 2.10(a)(ii). The Company and each
Subsidiary have complied in all material respects 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 and
have withheld and paid to the appropriate Governmental Entities or are holding
for payment not yet due to such Governmental Entities, all amounts required to
be withheld from employees of the Company or any Subsidiary and are 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 or any Subsidiary pending before the National Labor Relations Board
or any state or local agency; pending labor strike or other material labor
trouble affecting the Company or any Subsidiary; material labor grievance
pending against the Company or any Subsidiary; pending representation question
respecting the employees of the Company or any Subsidiary; pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
the Company or any Subsidiary is a party. For purposes of this Agreement,
"EMPLOYEES" includes employees, independent contractors and other persons
filling similar functions.
(b) Any employees employed by the Company or any Subsidiary are either
at-will employees and their employment may be terminated by the Company or the
Subsidiary at any time for any reason or no reason without payment, penalty or
further obligation on the part of the Company or the Subsidiary or are employees
with employment agreements which will be terminated by mutual agreement of the
parties thereto concurrently with the Closing without payment, penalty or
further obligation on the part of the Company or the Subsidiary. Neither the
Company nor any Subsidiary has or will have any severance obligations for
termination of engagement of any employees of the Company or any Subsidiary.
2.11 Employee Plans.
(a) All accrued obligations of the Company or any Subsidiary, whether
arising by operation of law, by contract or past custom, or otherwise, for
payments by the Company or
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any Subsidiary 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 adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company or the Subsidiary 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 or any Subsidiary prior
to the Closing Date or adequate accruals therefor have been made in the
Financial Statements, and 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, members, officers or directors of the Company, any Subsidiary, and
any other entity ("ERISA AFFILIATE") related to the Company or any Subsidiary
under Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such 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, (ii) the most recent determination letter
received from the Internal 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. None of
the Company, any Subsidiary 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 or any Subsidiary's assets be subject to any lien, charge
or claim relating to the obligations of the Company or any Subsidiary 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
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code. The Company and its Subsidiaries and each of their 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 or 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.
(d) None of the Company, any Subsidiary nor any ERISA Affiliate sponsors
or has sponsored, maintained, contributed to, incurred an obligation to
contribute to or withdrawn from, any Multi-Employer Plan (as defined in Section
4000(a)(3) of ERISA) or any Multiple Employer Plan (as defined in ERISA Sections
4063 or 4064 or Code Section 413), whether or not terminated, for which any
withdrawal or partial withdrawal liability has been or could be incurred,
whether or not any such liability has been asserted by or on behalf of any such
plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company and each Subsidiary 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. Neither the Company
nor any Subsidiary has any affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's or any Subsidiary's employees with "change of control" or
similar provisions. There is no contract, agreement, plan or arrangement
covering the Company, any Subsidiary 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. None of the
Company, any Subsidiary, nor any of their 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
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which is not exempt under Section 4975 of the Code or Section 408 of ERISA) and
none of the Company, any Subsidiary, 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 Majority Stockholder, is there any basis for any such claim. No officer,
director or employee of the Company, and Subsidiary or any of their 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, any Subsidiary or any of
their ERISA Affiliates, each of the Company, the Subsidiaries and the ERISA
Affiliates have complied in all material respects to the provisions of Part 6 of
Title I of ERISA and Sections 4980B, 9801 and 9802 of the Code. Neither the
Company nor any Subsidiary is 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 any agreement or
understanding.
2.12 Litigation.
There are no claims, actions, suits or proceedings of any nature pending
or, to the knowledge of the Company or any Majority Stockholder, threatened by
or against the Stockholders, the Company, any Subsidiary or the officers,
directors, employees, agents of the Company or any Subsidiary, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or any Subsidiary or the
transactions contemplated by this Agreement. None of the Company, any Subsidiary
nor any of the Company's or any Subsidiary's assets is subject to any 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 or any
Subsidiary is a party or otherwise relating to or affecting 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,
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(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 or any Subsidiary, (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 Subsidiary
or any of their 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 any Subsidiary 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 Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company or its Subsidiaries have 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.
(c) To the knowledge of the Company or any Majority 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 or any Majority 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 its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company, any Subsidiary 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 or any Majority 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.
(a) The operations of the Company and each of its Subsidiaries are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations,
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orders and other requirements of all Governmental Entities having jurisdiction
over it and its assets, properties and 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. Neither the Company nor any Subsidiary has
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 or
any Insurance and Brokerage Regulator, applicable to the Company, any Subsidiary
or any of their assets, properties or operations. To the knowledge of the
Company or any Majority Stockholder, there are no proposed changes in any such
laws, rules or regulations (other than laws of general applicability) that would
adversely affect the transactions contemplated by this Agreement or reasonably
be expected to have a Material Adverse Effect.
(b) The Company and its Subsidiaries are, and have been, in compliance
with all laws, regulations, orders and requirements relating to the registration
and operation of Benefit Funding Services, LLC as a Broker-Dealer and the
related registration and activities of the Company's or its Subsidiaries'
employees, including but not limited to all rules, regulations, orders and
requirements of the NASD, the Securities Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder. The
Company and its Subsidiaries have not received any notice of any violation of
any such law, regulation, order or requirement nor would the transaction
contemplated by this Agreement constitute such a violation.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company or any Subsidiary 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 or any Subsidiary, 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
or any Subsidiaries' properties for its present uses and the execution, delivery
and performance of this Agreement. No jurisdiction in which the Company or any
Subsidiary 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
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 or its Subsidiaries and is valid, in full force and effect,
and not subject to any pending or known threatened administrative or judicial
proceeding to suspend, revoke,
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cancel or declare such License invalid in any respect. The Company and its
Subsidiaries are not in violation in any material respect of any of the
Licenses. The Licenses have never been suspended, revoked or otherwise
terminated, subject to any fine or penalty, or subject to judicial or
administrative review, for any reason other than the renewal or expiration
thereof, nor has any application of the Company or any Subsidiary for any
License ever been denied.
2.16 Accounts Receivable.
Schedule 2.16 lists all accounts receivable of the Company or any
Subsidiary (the "ACCOUNTS RECEIVABLE") as of the date set forth thereon,
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 set forth on Schedule 2.16 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 that are current and collectible in amounts not less than the
aggregate amount thereof (net of reserves established in accordance with GAAP
applied consistently with prior practice) carried (or to be carried) on the
books of the Company and reflected in the Financial Statements, and are not
subject to any valid counterclaims or set-offs, disputes or 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, any Subsidiary and any
director, officer, employee, stockholder, relative or Affiliate of the Company,
any Subsidiary, or the Stockholders, including, without limitation, loans,
guarantees or pledges to, by or for the Company or any Subsidiary 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, nor officer,
director, manager, stockholder or member of any Subsidiary, 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 any Subsidiary, or purchased, or during such period
purchased from the Company or any Subsidiary, any goods or services, or
otherwise does, or during such period did, business with the Company or any
Subsidiary;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company or any Subsidiary 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 or any Subsidiary
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and such persons in their capacities as employees, officers, directors or
managers of the Company or any Subsidiary; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company or any Subsidiary in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company or any Subsidiary at any time during the three (3)
years prior to the date of this Agreement and the annual or other premiums
payable from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity that require or recommend any changes in the conduct
of the Business, or any repairs or other work to be done on or with respect to
any of the properties or assets of the Company or any Subsidiary. Neither the
Company nor any Subsidiary has 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 Majority 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 and
its Subsidiaries, taken as a whole, together with revenues to the Company and
any Subsidiary from each such customer during the most recent complete fiscal
year and the current fiscal year to the date hereof, and the scheduled
termination dates of their current contracts with the Company or any Subsidiary.
None of such customers has given written notice to the Company or any Subsidiary
of an intention to terminate or materially impair its business relationship with
the Company or any Subsidiary and neither the Company nor any Majority
Stockholder has any knowledge of any event that would precipitate the
impairment, or termination of, or the failure to renew, or entitle any such
customer 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, neither the Company
nor any Subsidiary has 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) and no facts or circumstances exist which, with notice or the
passage of time or both, could
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reasonably be expected to result in any material claims against or obligations
or liabilities of the Company or any Subsidiary.
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
or any Subsidiary 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 or any Subsidiary that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company or any
Subsidiary 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.
(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 and its
Subsidiaries have (i) timely filed or caused to be timely filed all Tax Returns
of the Company and its Subsidiaries 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 or its Subsidiaries. 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 or any Subsidiary has
received a written and/or oral 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 or any Subsidiary has
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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 and its Subsidiaries have 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 or any
Subsidiary 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 or any Subsidiary.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company or
any Subsidiary (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) Tax Sharing Agreements. Neither the Company nor any Subsidiary is a
party to any tax-sharing or tax-indemnity agreement or has otherwise assumed by
contract or otherwise the Tax Liability of any other person.
(e) Section 481 Adjustments. Neither the Company nor any Subsidiary has
agreed, or is required to make, any adjustment under Code Section 481(a) by
reason of a change in accounting method or otherwise.
(f) Foreign Tax Matters. Neither the Company nor any Subsidiary is or
has ever been a United States real property holding corporation as defined in
Section 897(c)(2) of the Code.
(g) No Liens. None of the assets of the Company or any Subsidiary are
subject to any liens in respect of Taxes (other than for current Taxes not yet
due and payable).
(h) No Closing Agreements. Neither the Company nor any Subsidiary has
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.
(i) S Corporation Status. Neither the Company nor any Subsidiary has or
has ever had in effect for any taxable period an election under Code Section
1362(a), or any predecessor thereto, to be an S corporation or a comparable
election under state income tax laws.
(j) 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
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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. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's or any Subsidiary's business) in the Company or any
Subsidiary (including, without limitation, any indebtedness 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, its Subsidiaries and their 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 the
common law relating to toxic or hazardous substances, wastes, pollution or to
the protection of health, safety or the environment (collectively,
"ENVIRONMENTAL LAWS") and have obtained and maintained in effect all 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) Neither the Company nor its Subsidiaries has performed, failed to
perform or suffered any act which could reasonably be expected to give rise to,
or has otherwise incurred, material liability to any person (governmental or
not) under the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. ("CERCLA"), or any other Environmental Laws,
nor have they received notice of any such liability or any claim therefor.
(c) 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, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company or any Subsidiary at any time or any other property in material
violation of any Environmental Laws such that the Company could be subject to
material liability under any Environmental Laws.
(d) Neither the Company nor its Subsidiaries has exposed any employee or
third party to any Hazardous Materials or conditions that could subject it to
any material liability under any Environmental Laws.
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(e) Neither the Company nor its Subsidiaries now own or operate, and has
never owned or operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Majority Stockholder, with
respect to any or all of the real properties leased at any time by the Company
or any Subsidiary, there are no asbestos-containing materials, urea formaldehyde
insulation, polychlorinated biphenyls or lead-based paints present at any such
properties.
(g) There are no pending or, to the knowledge of the Company or any
Majority Stockholder, threatened administrative, judicial or regulatory
proceedings, or, to the knowledge of the Company or any Majority 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 or any Subsidiary, their operations or the real properties leased
or owned by the Company or any Subsidiary at any time.
(h) The Company has delivered to Buyer 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 any Subsidiary or their 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) Buyer has made available to the Stockholders or the Stockholders'
advisors the opportunity to obtain information to evaluate the merits and risks
of the investment in the Securities, and the Stockholders have received all
information requested from Buyer. The Stockholders have had an opportunity to
ask questions and receive answers from Buyer regarding the terms and conditions
of the offering of the Securities and the business, properties, plans,
prospects, and financial condition of Buyer and to obtain additional information
as the Stockholders have deemed appropriate for purposes of investing in the
Securities pursuant to this Agreement.
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(d) 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.
(e) 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.
(f) 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.
(g) 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").
(h) 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 no financial or
operating history.
(ii) There can be no assurance that any of the 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 what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the 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
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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 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 Minute Books and Stock Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company and its Subsidiaries, containing all
records required to be set forth of all proceedings, consents, actions, and
meetings of its stockholders or member and the Board of Directors or managing
members of the Company and any Subsidiary; and
(b) all record books of the Company and any Subsidiary setting forth all
transfers of capital stock or membership interests.
2.27 Banks.
Schedule 2.27 lists the account information at each bank or other
institution at which the Company or any Subsidiary 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.
2.28 Powers of Attorneys and Suretyships.
Neither the Company nor any Subsidiary has 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.
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2.29 Brokers.
Except as set forth on Schedule 2.29, 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, any Subsidiary or
any of the Stockholders.
2.30 Summary of Certain Considerations.
Each Stockholder acknowledges receipt and understanding of the Summary
of Certain Considerations attached hereto as Exhibit B.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or any Stockholder to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
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 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 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
Bankruptcy Exception.
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; or (ii) violate in any material respect any provision or requirement of
any domestic or foreign, national, state or
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local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to 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. 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 Litigation.
Except as set forth on Schedule 3.4, there are no 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 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 Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.5 Buyer's Operations and Financial Condition.
Since its date of incorporation Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its business after the Closing. Buyer has no material
tangible assets, and except as set forth on Schedule 3.5, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.6 Accuracy of Information.
None of the representations or warranties or information provided and to be
provided by Buyer to the Stockholders in this Agreement, the schedules or
exhibits hereto, or in any of the other Transaction Documents delivered by Buyer
contains or will contain any untrue
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statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer'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 all
of the properties, books, Contracts and records of the Company and the
Subsidiaries (including, without limitation, the Company's and the Subsidiaries'
accounting records, the workpapers of the Company's and the Subsidiaries'
independent accountants, and all environmental studies, reports and other
environmental records) and, during such period, shall furnish promptly to Buyer
all information concerning the Company, the Business, the Company's and each
Subsidiary's properties, liabilities and personnel as Buyer may reasonably
request.
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 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, managers, 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 its Subsidiaries and the Business to
other participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation 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 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
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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.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Majority
Stockholders shall cause the Company to, conduct the Company's and all
Subsidiaries' business solely 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, the Company shall not, and
the Majority Stockholders shall cause the Company or the Subsidiary 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; 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 and/or
any Subsidiary in excess of $20,000 in the aggregate 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, if
applicable, or to the articles of formation or operating agreement, if
applicable, of the Company or any Subsidiary, other than the changes to the
Company's Certificate of Incorporation set forth in Schedule 2.(b)(ii), 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
or the capital stock or membership interest of any Subsidiary, alter any term of
any of the outstanding securities of the Company or any Subsidiary, 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 any
Subsidiary, or (C) issue any options or other rights to
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acquire directly or indirectly any debt securities of the Company or any
Subsidiary 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 Subsidiary or any
part thereof, except transactions required pursuant to existing contracts of the
Company or any Subsidiary and dispositions of inventory or worn out or obsolete
equipment for fair or reasonable value in the ordinary course of business
consistent with past practices;
(v) subject any of the assets of the Company or any Subsidiary,
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, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(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 $25,000 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;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's and the Subsidiaries' 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;
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(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 hereof and until the Closing (or the earlier
termination of this Agreement), the Company and any Subsidiary shall, and the
Majority Stockholders shall cause them to:
(i) maintain, in all material respects, the assets and properties
of the Company and each Subsidiary 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
them, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company and each
Subsidiary in the ordinary course consistent with past practices;
(iv) 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) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company or and each
Subsidiary (or on behalf of them) on the date hereof.
4.4 Restrictive Covenants.
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(a) Non-Competition. Watts, Imhoff and W. Duemer recognize that the
covenants of Watts, Imhoff and W. Duemer 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 Watts, Imhoff and
W. Duemer to comply with such covenants Buyer would not enter into this
Agreement or the other Transaction Documents. Watts, Imhoff and W. Duemer
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 either Watts, Imhoff or W. Duemer competes with Buyer in any way prohibited
by the Covenant Not to Compete. In addition, Watts, Imhoff and W. Duemer
acknowledge that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and Watts,
Imhoff and W. Duemer and the Covenant Not to Compete is necessary for Buyer to
receive the full benefit of this Agreement. After the Closing, each of Watts,
Imhoff or W. Duemer shall not individually, or in concert, directly or
indirectly:
(i) either on his own account or for any other person or entity,
solicit, induce, attempt to induce, interfere with, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition, prospects or operation of the Business, the assets of the
Company or any Subsidiary or Buyer or any of its Affiliates) any customer, which
has utilized the services of the Company or any Subsidiary at any time during
the two (2) year period preceding the Closing Date or with whom the Company or
any Subsidiary 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 1% 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 or any Subsidiary at any time during the two (2) year period preceding
the Closing Date or under development by the Company or any Subsidiary on the
Closing Date),
(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
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world, where the Company or any Subsidiary 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 of Watts, Imhoff and W. Duemer
until December 31, 2002, provided however, that 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 Nasdaq Stock Market by May 15, 2000; and (iii)
in the case of Watts or Imhoff, his employment is terminated by Buyer without
Cause or by him for Good Reason (each as defined in his Employment Agreement
delivered pursuant to Section 6.3(c)(iv)), then after termination of such
Majority Stockholder's employment with the Company or any of its Affiliates such
Majority 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 Majority
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 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 period during which the Covenant Not to
Compete binds Watts, Imhoff and W. Duemer 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 period during which the Covenant Not to
Compete binds Watts, Imhoff and W. Duemer 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 or any Subsidiary 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.
(e) Remedies. The covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS") impose a reasonable restraint on the Stockholders
in light of the activities and business of the Company and its Subsidiaries and
future plans of Buyer. The Majority Stockholders acknowledge that if they
violate any of the Restrictive Covenants and the Minority Stockholders
acknowledge that if they violate any of the covenants contains in Sections
4.4(b), it will be difficult to determine the resulting damages to Buyer and, in
addition
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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 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.
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. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(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.
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"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 PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein, including W. Duemer
and J. Duemer as beneficial owners of shares held by the IRAs, 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 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.
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 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
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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 who acquired Common Stock in the 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, in the aggregate, more than the number of Shares 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).
(b) 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.
(c) 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.
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(d) 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.
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, its Subsidiaries 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 and its Subsidiaries' income, gains and other Tax items attributable
to the Closing Date shall be included and reported by the Company and its
Subsidiaries in Tax Returns of the Company and its Subsidiaries for such
Pre-Acquisition Taxable Periods to be filed following the Closing and that all
Taxes attributable to the Company's or its Subsidiaries 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 and its Subsidiaries 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-
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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 or its Subsidiaries 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 and its Subsidiaries (i) shall prepare and file, or
cause to be prepared and filed, all Tax Returns of the Company and its
Subsidiaries 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 and its
Subsidiaries on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company and its Subsidiaries for Pre-Acquisition
Taxable Periods which are not required to be filed on or prior to the Closing
Date (after giving effect to any valid extensions).
(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 and its Subsidiaries' Tax Returns for Pre-Acquisition Taxable Periods
described in Section 4.8(c)(i), and (B) all Taxes shown or reported to be due
and payable on such Tax 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
costs, expenses and Tax liabilities 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
periods covered by such Tax returns, whether pursuant to an amended return or
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 and its
Subsidiaries may be required, with respect to certain Taxes for Straddle
Periods, to file a full year return (herein a "STRADDLE PERIOD RETURN")
reporting and accounting for such Taxes on an aggregate basis covering both the
Pre-Closing Period and the Post-Closing Period. The
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Buyer, at its expense, shall cause the Company and its Subsidiaries 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, whether pursuant to an amended
return or any Tax Proceeding, shall be paid by Stockholders promptly upon demand
therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company and its
Subsidiaries, 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 or its Subsidiaries.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company and its Subsidiaries 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 Stockholder
Representative shall be permitted to participate in any such Tax Proceedings and
all hearings related thereto at the expense of the Stockholders; and provided
further, that, without the prior written consent of the Stockholder
Representative, which shall not be unreasonably withheld, the Buyer shall not
agree to settle or compromise any such Tax Proceeding and/or any Pre-Acquisition
Tax Liability issue arising therein if such settlement can reasonably be
expected to result in a material increase in the Pre-Acquisition Tax Liabilities
for which the Stockholders are responsible hereunder, provided, however, the
consent of the Stockholder Representative to such settlement or compromise shall
not be required hereunder if the failure to settle or compromise the Tax
Proceeding or an issue arising therein can reasonably be expected to result in
an adverse effect on the Company or any Subsidiary following the Closing. The
Stockholders, promptly upon demand from the Buyer, shall pay the reasonable
costs and expenses, including attorney fees, incurred by Buyer in connection
with any such Tax Proceedings, provided, however, in any Tax Proceeding related
to a Straddle Period which involves Tax Liabilities for which
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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.
(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 Majority
Stockholders shall be jointly and severally liable for all such Tax Liabilities,
costs and expenses.
(iv) The Stockholder and the Stockholder Representative shall furnish to
Buyer such information and documents as may be reasonably requested by Buyer,
and shall otherwise reasonably cooperate with Buyer, in connection with Buyer's
conduct of any Tax Proceedings described herein.
(f) Books and Records. Prior to the Closing Date the Company and each
Subsidiary 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 and each Subsidiary's
Tax Returns and Tax matters to be delivered to the Buyer. Buyer shall cause the
Company and each Subsidiary to retain all such books and records delivered to
Buyer as provided hereunder until the expiration of the statute of limitations
(including any waivers or extensions thereof) with respect to the taxable
periods to which the Tax Returns relate.
(g) Section 351. 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.
(h) 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 Imhoff unless and until the Stockholders,
each having voting power in proportion to such
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Stockholder's ownership of voting securities of the Company, elect his
replacement by majority vote of such shares and notify Buyer thereof. Actions
taken, consents given and representations made by the Stockholder Representative
on behalf of the Stockholders pursuant hereto shall be binding upon the
Stockholders. 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, 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.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such companies (collectively, the
"CONSOLIDATION TRANSACTIONS"). The Company and the Stockholders acknowledge that
as a result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time 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 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
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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.
(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 Subsidiary 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, the Company, or its Subsidiaries or any
of their 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 Subsidiary 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.
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.
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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 Put Right.
In the event the Company fails to redeem the Series A Preferred Stock in
accordance with the Company's Certificate of Incorporation, as amended by the
Certificate of Amendment to be filed by the Company concurrently with the
Closing, a copy of which is attached as Schedule 2.1(b)(ii), each holder of
Series A Preferred Stock ("PREFERRED STOCKHOLDER") shall have the right to sell
to Buyer (the "PUT RIGHT") and Buyer shall be obligated to purchase from such
Preferred Stockholder all of the outstanding shares of the Series A Preferred
Stock owned by such Preferred Stockholder as listed in part (b) of Schedule 1.3.
The Purchase Price of the Series A Preferred Stock shall be the Redemption Price
as defined in the Certificate of Amendment. For purposes of this Agreement, the
date fixed for redemption shall be the date of purchase. The Put Right shall be
exercisable at any time after the Company or its assignee or
successor-in-interest has failed to redeem all of the Series A Preferred Stock
as required by the Certificate of Amendment. The Put Right may be exercised by
the Stockholder Representative or by a Preferred Stockholder by giving written
notice of exercise of the Put Right (the "NOTICE") to the Buyer in the manner
set forth in Section 7.2 below. Buyer shall purchase the outstanding Series A
Preferred Stock from the Preferred Stockholder exercising the Put Right and pay
the entire purchase price thereof in immediately available funds no later than
10 business days after receiving the Notice. Payment shall be made to each
Preferred Stockholder at the address of such Preferred Stockholder appearing on
the books of the Company or given by the Preferred Stockholder to the Company or
Buyer for the purpose of Notice, or if no such address appears or is given, at
the place where the principal executive office of Buyer is located. The Buyer's
obligation to purchase the Series A Preferred Stock under this Section 4.18
shall be absolute and unconditional, and Buyer waives any right to require or
compel any Preferred Stockholder to proceed against the Company and any right of
offset, or to pursue any other remedy legal or equitable. A Preferred
Stockholder may bring and prosecute a separate action against Buyer to enforce
the Preferred Stockholder's rights hereunder, whether or not any action is
brought against the Company or any other person or whether or not the Company or
any other person is joined in any such action. Buyer shall be liable for all
attorneys' fees and costs, whether or not legal action shall be instituted,
incurred or paid by any Preferred Stockholder in
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enforcing Buyer's obligations hereunder. The benefit of this Section 4.18 shall
automatically pass with a transfer or assignment of the shares of Series A
Preferred Stock to any subsequent owner or holder thereof. All references in
this Section 4.18 to the Preferred Stockholder shall be deemed to include any
successors or assignees or any subsequent owners or holders of the Series A
Preferred Stock (or any portion thereof), or any of them. All of the provisions
of this Section 4.18 shall be binding upon the successors and assigns of the
Buyer.
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 the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (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 Majority
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:
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(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements or a trade payable 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;
(c) the breach of any covenant, agreement or obligation of the
Company or the Stockholders contained in this Agreement or any other Transaction
Document;
(d) any claim by a Minority Stockholder that he or she was not
fully informed regarding the transactions contemplated hereby; or did not
consent to, or is entitled to challenge, any action by the Stockholder
Representative on his or her behalf; or was not treated fairly by the Majority
Stockholders; and
(e) any claim under the Q Plan or the E Plan of the Company or
any assertion of rights by any person as holder of Q Shares or E Shares, and any
cost to the Company of repurchasing the Q Shares and E Shares outstanding
immediately after the Closing in excess of the Purchase Price allocated to the
holders thereof in part (b) of Schedule 1.3.
In addition, the Minority Stockholders and their successors and
assigns shall severally indemnify, defend, reimburse and hold harmless the Buyer
Indemnitees from and against all Losses reasonably incurred by any such Buyer
Indemnitee, arising out of or in connection with any untruth or inaccuracy of
any representation or warranty, or the breach of any covenant, agreement or
obligation made by such Minority Stockholder 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
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 and its
Subsidiaries after the Closing (except that Buyer, to the extent permitted by
applicable law, 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
in such Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
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(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 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.
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(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 after giving
reasonable notice to 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.
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 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 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 Fifty
Thousand Dollars ($50,000) (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
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Article 5 for Losses directly or indirectly caused by a breach by 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 Majority Stockholders, on the
one hand, to Buyer, and Buyer, on the other hand to the Majority Stockholders,
for all claims arising under this Agreement and the other Transaction Documents
shall equal the aggregate Purchase Price. W. Duemer and J. Duemer shall be
liable to this same extent as if they owned the Seller Shares directly rather
than being the beneficial owners of the Seller Shares held by the IRAs. The
maximum liability of each Minority Stockholder on the one hand, to Buyer, and
Buyer on the other hand to each Minority Stockholder, for all claims under this
Agreement and the other Transaction Documents shall equal the purchase price
paid to such Minority Stockholder. For purposes of this Section 5.6(b), the
value of Shares received shall be (i) prior to the IPO, the per share Agreed
Price (as defined in the Stockholder Agreement) then prevailing; and (ii) 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, and provided further that the Stockholders will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Stockholders from and against, any obligations
that the Stockholders would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(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, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of the Company and its Subsidiaries, 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
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contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(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.
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 authorizing the
execution, delivery and performance of this Agreement and the other Transaction
Documents to be delivered by the Company and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
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(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);
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares; and
(iv) 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, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
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 or any
event or circumstance that would reasonably be expected to result in a 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.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth, exclusive of assets attributable to revenues assigned to Benefit
Funding Services, LLC by Randall C. Long and John Campbell, calculated according
to GAAP of at least Three Million Five Hundred and Thirty-Three Thousand, Six
Hundred Dollars ($3,533,600.00), and (ii) sufficient working capital to operate
the Company and the Subsidiaries; 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.
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(i) Stockholder Consent. Stockholders representing at least 90% of the
outstanding shares of common stock of the Company have executed this Agreement
and all applicable Transaction Documents referenced in this Agreement.
(j) Financing. Buyer 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 Consolidation Transactions.
(k) No Default. The Company shall not be in default of any material
obligation.
(l) 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 form of Exhibit E and addressing such additional matters as
may be reasonably requested by Buyer in light of the facts and circumstances
related to the Company as of the Closing Date. 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.
(m) 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.
(n) Stock Books. The Company shall have delivered the stock books, stock
ledgers, membership interest ledgers, minute books and corporate seals of the
Company and each Subsidiary.
(o) Employee Matters. Buyer shall be reasonably assured that employees
of the Company and each Subsidiary 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 Employment Agreements mutually agreed upon by the parties thereto, duly
executed and delivered by the persons named on Schedule 6.2.
(p) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(q) Q Shares and E Shares. Buyer shall be satisfied in its discretion
that the Q Shares and E Shares remaining outstanding immediately after the
Closing can be acquired by the Company at an expense not in excess of the
portion of the Purchase Price allocable to the holders thereof as listed in part
(b) of Schedule 1.3.
(r) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and
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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.
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;
(ii) A photocopy of the certificates representing the Shares
issued in the name of each Stockholder as set forth in Schedule 1.3; and
(iii) Employment Agreements mutually agreed upon by the parties
thereto, with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholders shall have received the Cash
Payment (as described in Schedule 1.3).
(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
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Buyer, and such counsel may assume that this Agreement has been duly authorized,
executed and delivered by the Company and the Stockholders.
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million
and at the Closing Buyer shall have delivered to the Stockholders a certificate
to such effect in substantially the form of Exhibit H, dated the Closing Date,
signed by the President or any Vice President and the Secretary or any Assistant
Secretary of Buyer. For these purposes, "PRE-TAX INCOME" of any particular
company means that company's projected 1998 pre-tax income, as adjusted pursuant
to agreement between Buyer and that company to reflect certain cost reductions
and modified business practices and accounting methods expected to take effect
after the closing of the Consolidation Transactions.
(g) 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.
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 November
30, 1998, 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 Consolidation Transactions, it may extend
such date by thirty-five (35) 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
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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 2.29 (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: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Stockholder: George W. Imhoff
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 4295-559
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With a copy to: Caldwell Campbell, Esq.
3070 Bristol, Suite 450
Costa Mesa, California 92626
Telephone No.: (714) 429-2900
Facsimile No.: (714) 429-2901
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, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. 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 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.
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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 of 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.
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
55
62
contemplated by this Agreement shall be borne by the Majority Stockholders
jointly and severally and by the Minority Stockholders severally.
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.
(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 conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION Threshold"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator 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, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. 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
56
63
copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Arbitration Threshold, the Notice of Counterclaim shall so
state. If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed,
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 twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
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 Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems 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 Arbitrator.
(e) The parties must file briefs with the Arbitrator 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 Arbitrator 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
57
64
proceeding, the Arbitrator selected in the first-filed of such proceedings shall
determine whether, in the interests of justice and efficiency, the proceedings
should be consolidated before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
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
Arbitrator 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,
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
58
65
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 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.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
FFR HOLDING CO., INC.
"COMPANY"
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
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66
____________________________________________
GEORGE W. IMHOFF,
executing and delivering this Stock Purchase Agreement (i ) in his capacity as
Stockholder Representative, (ii) in his individual capacity as a Stockholder,
and (iii) as attorney in fact for the Stockholders whose signatures lines are
marked with an asterisk below
____________________________________________
ERIK R. WATTS
____________________________________________
WALTER C. DUEMER
____________________________________________
JOAN HARRIET. DUEMER
WALTER C. DUEMER AND JOAN HARRIET DUEMER,
TRUSTEES UNDER TRUST AGREEMENT DATED JANUARY 10,1994
(WALTER C. DUEMER AND JOAN HARRIET DUEMER SETTLORS)
____________________________________________
BY:_________________________________________
ITS:________________________________________
JOAN HARRIET DUEMER, TRUSTEE
UNDER THE TRUST AGREEMENT DATED JANUARY 10, 1994
(WALTER C. DUEMER SETTLOR)
____________________________________________
BY:_________________________________________
ITS:________________________________________
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67
COMMUNITY TRUST COMPANY, SUCCESSOR IN INTEREST TO
PENNSYLVANIA FIDUCIARY AND ESTATE SERVICES, INC.,
CUSTODIAN FOR JOAN H. DUEMER SPOUSAL ROTH IRA
____________________________________________
BY:_________________________________________
ITS:________________________________________
COMMUNITY TRUST COMPANY, SUCCESSOR IN INTEREST TO
PENNSYLVANIA FIDUCIARY AND ESTATE SERVICES, INC.,
CUSTODIAN FOR WALTER C. DUEMER ROTH IRA
____________________________________________
BY:_________________________________________
ITS:________________________________________
____________________________________________
DAVID P. AKERS
____________________________________________
HARVEY ALTHOLTZ
FFR FINANCIAL & INSURANCE SERVICES, L.L.C.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
LEMUEL M. BARGERON
____________________________________________
DANA E. BERNARD
____________________________________________
RICHARD S. BERNSTEIN
____________________________________________
NORMAN BEVAN
____________________________________________
61
68
____________________________________________
DAVID M. BREEDLOVE, SR.
WESTPORT MANAGEMENT SERVICES, INC.
____________________________________________
BY:_________________________________________
ITS:________________________________________
THE LEE M. BOWER REVOCABLE TRUST DTD 9/24/93,
LEE M. BROWER, TRUSTEE
____________________________________________
BY:_________________________________________
ITS:________________________________________
____________________________________________
THOMAS J. BROWN
____________________________________________
STEVEN J. BURMEISTER
____________________________________________
WILLIAM J. CHRISTIE
____________________________________________
ALAN D. COHEN
____________________________________________
RICHARD L. COLE
____________________________________________
MICHAEL P. CORADO
____________________________________________
WILLIAM P. CORRY
____________________________________________
J. DAVID CRAIG
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69
____________________________________________
DENNIS C. CRAWFORD
____________________________________________
MICHAEL A. DICKTER
____________________________________________
GAIL DICKTER
____________________________________________
GERALD L. DILORENZO
____________________________________________
WILLIAM J. DUNGAN, JR.
____________________________________________
JAMES DYER
____________________________________________
GERALD F. EASTMAN
EISENBERG FINANCIAL GROUP, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
GLENN M. EISENBERG
____________________________________________
ROGER N. ENNIS
____________________________________________
JEFFREY W. EVANS
____________________________________________
SAUL F. FEINGOLD
____________________________________________
CHARLES J. FELDMAN
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70
FREMAR CORPORATION
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
WILLIAM FERGUSSON
____________________________________________
TIMOTHY FOSTER
____________________________________________
ROBERT A. FRISCH
____________________________________________
RAO K. GARUDA
____________________________________________
TODD GIVENS
____________________________________________
SCOTT GIVENS
____________________________________________
MARK S. GOODMAN
____________________________________________
JOHN GOOTT
THE CAPITAL CREATION COMPANY
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
RANDI K. GOTTLIEB
____________________________________________
L. CLARK GOULD
____________________________________________
MICHAEL P. HANLEY
64
71
MICHAEL P. HANLEY, TRUSTEE UNDER THE MICHAEL P.
HANLEY REVOCABLE TRUST
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
SANFORD H. HARMELIN
____________________________________________
DANIEL J. HECHT
A/T OF INGRAM & ASSOC. PROFIT SHARING PLAN
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
PHILLIP C. INGRAM
____________________________________________
DAVID M. ISAACSON
FFR ADVISORY, LLC
____________________________________________
BY:_________________________________________
ITS:_______________________________________
JANE KLUCZKOWSKI FAMILY INVESTMENT CO. LTD.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MAL S. KLUGMAN
65
72
____________________________________________
JEFF KNOX
THE LIVING TRUST OF DAVID A. KOSSAK
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JOHN LANDER
WESTSIDE PARTNERS
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
WILLIAM F. LEISMAN, III
____________________________________________
RICHARD H. LINSDAY
ROBERT R. LOFTUS, TRUSTEE OF THE LOFTUS FAMILY
TRUST DTD 10/13/78
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
ROBERT LOFTUS
____________________________________________
RANDALL C. LONG
66
73
____________________________________________
WILLIAM J. MANBY
____________________________________________
DOUGLAS W. MCCALLUM
WESTFIELD-FFR PARTNERSHIP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
DONALD H. MEHLIG, TRUSTEE OF THE MEHLIG FAMILY
TRUST DATED MAY 9, 1973
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JAMES P. MENIGHAN
____________________________________________
DAVID F.MICKELSON
____________________________________________
LON MORTON
____________________________________________
BURT MOSS
____________________________________________
RON OWNBEY
67
74
PLANNING CONCEPTS INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
ALLAN S. OXMAN
____________________________________________
NORMAN PAPPAS
NORMAN A. PAPPAS, TRUSTEE, NORMAN A. PAPPAS
TRUST AGREEMENT DATED 9/4/74, AS AMENDED
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
A. T. PRICE
____________________________________________
LARRY J. PRIES
RENNER AND FLAUT, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
RANDALL E. RIGGINS
68
75
ROBERTS FAMILY REVOCABLE TRUST DATED
OCTOBER 15, 1996
____________________________________________
BY:_________________________________________
ITS:_______________________________________
TRUSTEE FOR THE J. MICHAEL RONEY TRUST DTD
3-16-89
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MICHAEL J. RONEY
____________________________________________
JOHN C. ROSANIA
____________________________________________
MARVIN ROTH
ROTHSTEIN FAMILY TRUST,
DATED 2-03-89
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
EMANUEL L. SARRIS, SR.
____________________________________________
KAREN L. SCHMIDT
____________________________________________
HILARY J. SCHNEIDER
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76
____________________________________________
ROBERT C. SCHWARTZ
____________________________________________
KENNETH N. SCOPP
____________________________________________
JOHN SCOTT
____________________________________________
WILLIAM A. SENNO
SENNO FINANCIAL GROUP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
ROBERT C. SHADUR, TRUSTEE SHADUR FAMILY TRUST
7/30/75 AMENDED
____________________________________________
BY:_________________________________________
ITS:_______________________________________
ROBERT C. SHADUR, TRUSTEE OF THE ROBERT SHADUR
LIVING TRUST 7/1/97
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
DONALD W. SIGMUND
____________________________________________
E. BRIAN SINGER
____________________________________________
SIMON SINGER
____________________________________________
GREGORY K. SMITH
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77
____________________________________________
ROBERT E. SOWERWINE
____________________________________________
MANUEL N. STAMATAKIS
____________________________________________
MARVIN TARNOL
MARVIN TARNOL AND LAURIE TARNOL INTER VIVOS
TRUSTEE DATED 8/29/95
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
STEPHEN M. THALER
____________________________________________
MICHAEL D. THAXTON
____________________________________________
GARY L. THORNHILL
TOW FINESTONE AND ASSOCIATES LLC
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
STEPHAN TOW
____________________________________________
BRUCE S. UDELL
____________________________________________
WILLIAM H. VAN PELT, IV
71
78
Comet Capital Corp., NV
____________________________________________
BY:_________________________________________
ITS:_______________________________________
1758 PRIMARY PROPERTIES LIMITED PARTNERSHIP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MICHAEL C. WEDGE
BERNARD WEINBERG & JANICE WEINBERG, TRUSTEES OF
THE J&B WILSHIRE TRUST #2, DATED OCTOBER 24,
1995
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JAY M. WEINSTEIN
THE WHITELAW GROUP, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
L. BLAIR WHITING
____________________________________________
RICHARD J. WILCOX
72
79
WILLCOX, GOOTT & PARTNERS
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
HOWARD WINITSKY
____________________________________________
MICHAEL WINSTON
73
80
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of One Hundred and Twenty Two Thousand Thirty
Five Dollars and 99/100 Cents ($122,035.99) (the "CASH PAYMENT").
(ii) An aggregate of 279,696 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.
(b) Consideration per Stockholder.
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
David P. Akers 10 1,000 0 0 14.64 0
Harvey Altholtz 32 3,181 0 0 11.85 1
FFR Financial 27 2,697 0 0 4.53 1
& Insurance
Services,
L.L.C
Lemuel M. 1 61 0 0 1.47 0
Bargeron
Dana E. Bernard 53 5,283 0 0 7.60 2
Richard S. 21 2,068 0 0 30.74 0
Bernstein
Norman Bevan 939 93,887 0 0 44.76 38
David M. 31 3,018 0 0 10.39 1
Breedlove
Westport 10 1,000 0 0 14.64 0
Management
Services, Inc.
Leslie M. 0 1,000 0 0 0 0
Brower
Lee M. Brower 0 295 0 0 0 0
81
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
The Lee M. 26 1,215 0 0 38.06 0
Bower
revocable
trust dtd.
9/24/93, Lee
M. Brower,
trustee
Thomas J. Brown 278 27,784 0 0 22.02 11
Stephen J. 33 3,287 0 0 13.31 1
Burmeister
William J. 10 1,000 0 0 14.64 0
Christie
Alan D. Cohen 10 1,000 0 0 14.64 0
Richard L. Cole 11 1,018 0 0 16.10 0
Michael P. 11 1,079 0 0 16.10 0
Corado
William P. 8 723 0 0 11.71 0
Corry
J. David Craig 144 14,363 0 0 35.82 5
Dennis C. 2 181 0 0 2.93 0
Crawford
Michael A. 107 10,649 0 0 16.66 4
Dickter & Gail
Dickter
Gerald L. 14 1,400 0 0 20.50 0
DiLorenzo
Walter C. 2,263 226,204 0 0 58.20 93
Duemer and
Joan Harriet
Duemer,
trustees under
Trust
Agreement dtd
1/10/94
(Walter C.
Deumer and
Joan Harriet
Duemer,
settlors)
Pennsylvania 666,666 0 666,666 0 11,834.66 27,549
Fiduciary and
Estate
Services, Inc.
Custodian for
Joan H.
Duemer,
spousal Roth
IRA
Joan Harriet 928,716 0 928,716 0 16,480.76 38,378
Duemer,
trustee under
Trust
Agreement
dated January
10, 1994
(Walter C.
Duemer,
settlor)
Pennsylvania 666,666 0 666,666 0 11,834.66 27,549
Fiduciary and
Estate
Services, Inc.
Custodian for
Walter C.
Duemer Roth IRA
William J. 6 531 0 0 8.79 0
Dungan, Jr.*
2
82
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
James Dyer 10 1,000 0 0 14.64 0
Gerald F. 25 2,453 0 0 1.60 1
Eastman
Eisenberg 20 2,000 0 0 29.28 0
Financial
Group, Inc.
Glenn M. 97 9,666 0 0 2.02 4
Eisenberg
Roger N. Ennis 115 11,426 0 0 28.37 4
Jeffrey W. 52 5,103 0 0 6.13 2
Evans
Saul F. 25 2,437 0 0 1.60 1
Feingold
Charles J. 12 1,101 0 0 17.57 0
Feldman*
Fremar 11 1,091 0 0 16.10 0
Corporation
William 2 200 0 0 2.93 0
Fergusson
Timothy Foster 16 1,570 0 0 23.42 0
Robert A. 90 9,008 0 0 26.77 3
Frisch
Rao K. Garuda 95 9,441 0 0 34.08 3
Scott and Todd 4 367 0 0 5.86 0
Givens
Warren 4 361 0 0 5.86 0
Financial Group
Mark S. Goodman 20 1,903 0 0 29.28 0
John Goott 21 2,089 0 0 30.74 0
The Capital 147 14,667 0 0 5.22 6
Creation
Company
Randi K. 72 7,104 0 0 35.42 2
Gottlieb
L. Clark Gould 42 4,151 0 0 26.49 1
Michael P. 57 5,679 0 0 7.73 3
Hanley
3
83
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
Michael P. 20 2,000 0 0 0 0
Hanley, an
Unmarried Man
Michael P. 100 9,968 0 0 6.40 4
Hanley,
trustee Under
The Michael P.
Hanley
Revocable
Trust dtd.
9/19/91
Sanford H 77 7,678 0 0 7.73 3
Harmelin
Daniel J. Hecht 61 6,073 0 0 19.31 2
George W 2,233,105 223,087 2230,874 0 39,600.33 92,281
Imhoff, III
A/T of Ingram 14 1,400 0 0 17.71 0
& Assoc.
Profit Sharing
Plan
Phillip C. 36 3,600 0 0 20.50 1
Ingram
David M. 11 1,016 0 0 16.10 0
Isaacson
FFR Advisory, 112 10,965 0 0 93.98 2
LLC
Jane 13 1,282 0 0 19.03 0
Kluczkowski
Family
Investment Co.
Ltd.
Mal S. 31 3,018 0 0 10.39 1
Klugman, a
single man
Jeff Knox* 1 18 0 0 1.47 0
The Living 17 1,661 0 0 24.89 0
Trust of David
A. Kossak
John S. Lander* 155 15,485 0 0 16.93 6
Westside 10 1,000 0 0 14.64 0
Partners*
William Leisman 25 2,426 0 0 1.60 1
Richard H. 31 3,049 0 0 10.39 1
Linsday
Robert R. 20 2,000 0 0 29.28 0
Loftus,
trustee of the
Loftus family
trust dated
10/13/78
Robert Loftus 5 467 0 0 7.32 0
Randall C. Long 44 4,334 0 0 29.42 1
4
84
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
William J. 82 8,186 0 0 15.05 3
Manby
Regina 0 800 0 0 0 0
Marks-Lee
Douglas W. 28 2,757 0 0 6.00 1
McCallum
Westfield-FFR 11 1,082 0 0 16.10 0
Partnership
Donald H. 8 758 0 0 11.71 0
Mehlig,
Trustee of the
Mehlig Family
Trust dated
May 9, 1973
James P. 117 11,605 0 0 31.29 4
Menighan
David F. 26 2,555 0 0 3.07 1
Mickelson
Lon Morton 172 17,128 0 0 6.82 7
Burt Moss 5 430 0 0 7.32 0
Ron Ownbey 4 344 0 0 5.86 0
Planning 22 2,128 0 0 32.21 0
Concepts Inc.
Allan S. Oxman 169 16,844 0 0 37.43 6
Norman A. 45 6,946 0 0 30.89 1
Pappas,
Trustee,
Norman A.
Pappas Trust
Agreement dtd
9/4/74, as
amended
Norman Pappas 25 0 0 0 1.60 1
A. T. Price* 18 1,710 0 0 26.35 0
Larry J. Pries 10 925 0 0 14.64 0
Renner and 6 512 0 0 8.79 0
Flaut, Inc.
Randal E. 124 12,319 0 0 6.55 5
Riggins
Roberts Family 311 31,064 0 0 35.32 12
Revocable
Trust, dated
October 15,
1996
J. Michael 55 5,499 0 0 10.52 2
Roney
5
85
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
Trustee for 85 8,456 0 0 19.45 3
the J. Michael
Roney Trust
dtd 3/16/89
John C. Rosania 12 1,155 0 0 17.57 0
Marvin Roth 111 11,038 0 0 22.51 4
Rothstein 61 6,086 0 0 19.31 2
Family Trust,
dtd 2/03/89
Emanuel L. 182 18,183 0 0 21.47 7
Sarris, Sr
Karen L. 15 1,472 0 0 21.97 0
Schmidt
Hilary J. 31 3,002 0 0 10.39 1
Schneider
Robert C. 67 6,633 0 0 28.10 2
Schwartz
Kenneth N. 24 2,320 0 0 35.14 0
Scopp
John Scott 3 279 0 0 4.39 0
William A. 101 10,003 0 0 7.87 4
Senno
Senno 114 11,370 0 0 26.90 4
Financial Group
Robert C. 125 12,446 0 0 8.01 5
Shadur,
Trustee Shadur
Family Trust
7/30/75 amended
Robert C. 86 8,513 0 0 20.91 3
Shadur,
Trustee of the
Robert Shadur
Living Trust
7/1/97
S. James 180 17,987 0 0 18.53 7
Showalter III
Donald W. 12 1,167 0 0 17.57 0
Sigmund
E. Brian 0 697 0 0 0 0
Singer
Simon Singer 71 7,022 0 0 33.95 2
Gregory K. 33 3,292 0 0 13.31 1
Smith
Robert E. 16 1,575 0 0 23.42 0
Sowerwine*
6
86
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
Manuel N. 975 97,451 0 0 27.47 40
Stamatakis*
Marvin Tarnol 16 1,575 0 0 23.42 0
Marvin Tarnol 4 316 0 0 5.86 0
& Laurie
Tarnol Inter
Vivos trustee
dtd 8/29/95
Stephen M. 32 3,147 0 0 11.85 1
Thaler*
Michael D. 9 868 0 0 13.18 0
Thaxton
Gary L. 49 4,808 0 0 1.74 2
Thornhill
Tow Finestone 4 339 0 0 5.86 0
and Associates
LLC
Stephan Tow 112 11,164 0 0 23.98 4
Bruce S. Udell 69 6,822 0 0 31.02 2
William H. Van 19 1,815 0 0 27.82 0
Pelt, IV
Erik R. Watts 2,263,857 180,824 2262,048 0 40,138.60 93,552
Comet Capital 423 42,263 0 0 24.31 17
Corp., NV
1758 Primary 32 3,117 0 0 11.85 1
Properties
Limited
Partnership
Michael C. 73 7,220 0 0 1.87 3
Wedge
Bernard 150 14,959 0 0 9.61 6
Weinberg &
Janice
Weinberg,
Trustees of
the J&B
Wilshire Trust
#2, dated
October 24,
1995
Jay M. 27 2,619 0 0 4.53 1
Weinstein
The Whitelaw 39 3,815 0 0 22.10 1
Group, Inc.*
L. Blair 183 18,230 0 0 22.92 7
Whiting
Richard J. 77 7,699 0 0 7.73 3
Wilcox
Willcox, Goott 10 1,000 0 0 14.64 0
& Partners
7
87
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
Howard 0 2,000 0 0 0 0
Winitsky and
Associates,
Inc.
Howard Winitsky 79 5,160 0 0 45.66 2
Michael 2 127 0 0 2.93 0
WINSTON*
* Did not sell their common stock to ProfitSource Corporation.
8