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EXHIBIT 10.41
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
NATIONAL RECOVERY SERVICES, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 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 Members............2
2.1. Organization and Good Standing......................................2
2.2. Ownership of Seller Interests.......................................2
2.3. Authorization of Agreement..........................................3
2.4. Title to Assets.....................................................3
2.5. Financial Condition.................................................4
2.6. Certain Property of the Company.....................................5
2.7. Year 2000 Compliance................................................7
2.8. No Conflict or Violation............................................8
2.9. [Reserved.].........................................................8
2.10.Labor and Employment Matters........................................8
2.11.Employee Plans......................................................8
2.12.Litigation.........................................................11
2.13.Certain Agreements.................................................11
2.14.Compliance with Applicable Law.....................................12
2.15.Licenses...........................................................12
2.16.Accounts Receivable................................................13
2.17.Intercompany and Affiliate Transactions; Insider Interests.........13
2.18.Insurance..........................................................14
2.19.[Reserved.]........................................................14
2.20.No Undisclosed Liabilities.........................................14
2.21.Taxes..............................................................14
2.22.Indebtedness.......................................................17
2.23.Environmental Matters..............................................17
2.24.Securities Matters.................................................18
2.25.Buyer and the Consolidation Transactions...........................19
2.26.Minute Books and Records...........................................20
2.27.[Reserved.]........................................................20
2.28.Powers of Attorneys and Suretyships................................20
2.29.Brokers............................................................20
2.30.Summary of Certain Considerations..................................20
2.31.Accuracy of Information............................................20
3. Representations and Warranties of Buyer.................................21
3.1. Organization and Corporate Authority...............................21
3.2. No Conflict or Violation...........................................21
3.3. Capitalization.....................................................21
3.4. Notes..............................................................21
3.5. Litigation.........................................................21
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3.6. No Undisclosed Debt................................................22
3.7. Accuracy of Information............................................22
4. Certain Understandings and Agreements of the Parties....................22
4.1. Access.............................................................22
4.2. Confidentiality....................................................22
4.3. Certain Changes and Conduct of Business............................23
4.4. Restrictive Covenants..............................................25
4.5. Securities Restrictions............................................28
4.6. Registration.......................................................29
4.7. Cooperation in Litigation..........................................30
4.8. Tax Matters........................................................31
4.9. Consolidation Transactions.........................................34
4.10.Supplemental Disclosure............................................34
4.11.HSR................................................................34
4.12.Competing Proposals................................................35
4.13.Bonus Plan.........................................................35
4.14.Best Efforts.......................................................35
4.15.Further Assurances.................................................35
4.16.Notice of Breach...................................................35
5. Survival; Indemnification...............................................36
5.1. Survival...........................................................36
5.2. Indemnification by the Members.....................................36
5.3. Indemnification by Buyer...........................................37
5.4. Indemnification Procedure..........................................37
5.5. Payment............................................................38
5.6. Limitations........................................................38
6. Conditions to Closing...................................................39
6.1. Conditions to Obligations of Each Party............................39
6.2. Conditions to Obligations of Buyer.................................40
6.3. Conditions to Obligations of the Members...........................42
7. Miscellaneous...........................................................44
7.1. Termination........................................................44
7.2. Notices............................................................44
7.3. Assignability and Parties in Interest..............................45
7.4. Governing Law......................................................45
7.5. Counterparts.......................................................45
7.6. Publicity..........................................................46
7.7. Complete Agreement.................................................46
7.8. Modifications, Amendments and Waivers..............................46
7.9. Headings; References...............................................46
7.10. Severability......................................................46
7.11. Investigation ....................................................46
7.12. Expenses of Transactions..........................................47
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7.13. Arbitration.......................................................47
7.14. Submission to Jurisdiction........................................49
7.15. Attorneys' Fees...................................................49
7.16. Enforcement of the Agreement .....................................50
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A. Form of Assignment and Assumption Agreement
B. Summary of Certain Considerations
C. Form of Accredited Investor Questionnaire
D. Form of Stockholder Agreement
D-l Form of Stock Power
F. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.4 Title to Assets
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.17 Intercompany and Affiliate Transactions; Insider Interests
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.2 1(1) 351 Information
2.22 Indebtedness
2.29 Brokers
3.5 Litigation
3.6 Liabilities
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
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THIS SECURITIES PURCHASE AGREEMENT (this AGREEMENT) is made and entered
into as of December 7, 1998 by and among National Recovery Services. L.L.C., a
Nevada limited liability company (the "COMPANY"), the members of the Company
listed on the signature page(s) hereof (each such individual a "MEMBER," and
collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("Buyer").
A. The Company is engaged in the business of health care cost recovery
(the "Business").
B. The Members own 7000 of the ownership interests in the Company (the
"SELLER INTERESTS").
C. The Members desire to sell to Buyer. and Buyer desires to purchase
from the Members all of the Seller Interests on the terms and conditions set
forth in this Agreement.
Now, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1. AGREEMENTS TO SELL AND PURCHASE. On the Closing Date (as
hereinafter defined) each Member shall sell to Buyer, and Buyer shall purchase
from each Member, the number of Seller Interests set forth opposite such
Member's name on Schedule 1 .3. for the purchase price set forth in Section 1.3.
1.2. CLOSING. The closing of the sale and purchase of the Seller
Interests (the "CLOSING") will take place at the offices of Gibson. Dunn &
Crutcher LLP, 4 Park Plaza, Irvine, California, on a date to be selected by
Buyer after all the conditions set forth in Article 6 have either been satisfied
or, in the case of conditions not satisfied, waived in writing by the party
entitled to the benefit of such conditions (the "CLOSING DATE"). Prior to the
Closing Date. Buyer shall provide written notice (the "Closing Notice") to the
Company and the Members informing the Company and the Members of the date
selected as the Closing Date. At the Closing, the Members shall deliver to Buyer
or its designees an Assignment and Assumption Agreement in the form of Exhibit
A. transferring the Seller Interests being sold by the Members and each other
instrument of transfer Buyer may reasonably request to vest effectively in Buyer
good and valid title to the Seller Interests, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to
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attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3. PURCHASE PRICE. The consideration to be paid by Buyer for the
Seller Interests (the "PURCHASE PRICE"), both in the aggregate and to each
Member for such Member's Seller Interests, is described in Schedule 1.3.
1.4. CERTIFICATES FOR SHARES. In order to facilitate replacement of
certificates for the shares of Series A Common Stock of Buyer constituting part
of the Purchase Price (the "SHARES") upon an IPO (as defined herein) with the
transfer agent's form of certificate, and to facilitate enforcement of the
Stockholder Agreement (as defined herein), Buyer will keep custody of the
certificates representing the Shares until the IPO and until the Shares are no
longer subject to the Stockholder Agreement, and recipients of Shares will
execute and deliver blank stock powers as described in Section 6.2(d)(i). This
custody arrangement will not affect the rights as a stockholder of any permitted
recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS. Each
representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Article 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Members, jointly and
severally, represent and warrant to Buyer that:
2.1. ORGANIZATION AND GOOD STANDING. The Company is a limited liability
company 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 is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or its prospects or the Company's assets or
financial condition (a "MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of the
jurisdictions in which the Company is qualified to do business. Complete and
accurate copies of the articles of organization and operating agreement of the
Company, with all amendments thereto to the date hereof, have been furnished to
Buyer or its representatives.
2.2. OWNERSHIP OF SELLER INTERESTS.
(a) The Seller Interests constitute 70% of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests owned by each Member are set forth in part (b) of Schedule 1.3.
Neither the Members 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, rights to acquire ownership interests in the Company,
securities that are convertible into or exchangeable for, or any other
commitments of any character relating to, any equity interests of the Company.
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(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, 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
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests 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.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3. AUTHORIZATION OF AGREEMENT. The Company and the Members have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the ("TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Members of the Company and no other proceedings on
the part of the Company or the Members 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 Member have
been (or upon execution will have been) duly executed and delivered by the
Company and each Member, have been effectively authorized by all necessary
action, and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Company and each Member, 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 is the lawful owner of each of its
assets, whether real, personal, mixed, tangible or intangible. Except as set
forth on Schedule 2.4, all of the Company's 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 $1,000; (ii) Personal Property leased pursuant to Personal Property
Leases; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Buyer, (v) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
(vi) 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
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amount of the indebtedness being extended, renewed or refinanced does not
increase. There are no outstanding agreements, options or commitments of any
nature obligating the Company or any Member to transfer any of the assets of the
Company or rights or interests therein to any party.
2.5. FINANCIAL CONDITION.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the fiscal years then ended (the "FINANCIAL STATEMENTS"). The
Financial Statements (i) were prepared in accordance with the books and records
of the Company; (ii) were prepared in accordance with generally accepted
accounting principles applicable to partnerships ("GAAP") and were consistently
applied; (iii) fairly present the financial condition and the results of the
operations of the Company 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 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, contingent or otherwise, 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. 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. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. 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.
(a) Real Property. The Company has never and does not currently own any
real property. Schedule 2.6(a) lists all real properties leased by the Company,
including a brief description of the operating facilities located thereon, the
annual rent payable thereon, the length of the term, any option to renew with
respect thereto and the notice and other provisions with respect to termination
of rights to the use thereof
(i) The Company has a valid leasehold in the real properties shown in
Schedule 2.6(a) under written leases (each lease being referred to herein as a
"REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of the Company or any Member 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 is not, and neither the Company nor any Member 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
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or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto or the creation of
a lien or encumbrance upon any asset of the Company.
(iii) To the knowledge of the Company or any Member 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 (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business. The Company holds valid leases in all of the Personal
Property leased by it, and none of such Personal Property is subject to any
sublease, license or other agreement granting to any person any right to use
such property (each such lease, sublease, license or other agreement, a
"PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY LEASES").
Schedule 2.6(b) provides a description and the location of each item of Personal
Property of the Company, accurately identifies such Personal Property as owned
or leased, and lists each Personal Property Lease. The Company is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company. For (purposes of this Agreement
"PROPRIETARY RIGHTS" means trademarks and service marks (registered or
unregistered), trade dress, trade names, 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 are owned by the Company free
and clear of any and all liens, security interests, claims, charges and
encumbrances or are used by the
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Company 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 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 have not lapsed, expired or been abandoned
and no application or registration thereof is the subject of any proceeding
before any court, arbitrator, state, local or foreign government agency,
regulatory body, or other governmental authority or any department, agency,
board, commission, bureau or instrumentality of any of the foregoing (each a
"Governmental Entity," and collectively "Governmental Entities"). There have not
been any actions or other judicial or adversary proceedings involving the
Company concerning any of the Proprietary Rights, nor to the knowledge of the
Company or any Member, 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 Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) 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 or the Business.
(viii) The Company has 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, firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and
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material to the Business are Year 2000 Compliant. For purposes of this Section,
"YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, 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 Members of this Agreement and the other Transaction
Documents to be delivered by the Company or any Member 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, national, state, or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any Governmental
Entity applicable to the Company 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 (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. [RESERVED.]
2.10. LABOR AND EMPLOYMENT MATTERS. Schedule 2.10 lists all employees of
the Company, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has 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 has withheld and
paid to the
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appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party; or any basis
for which a claim may be made under any collective bargaining agreement to which
the Company is a party. For purposes of this Agreement, "employees" includes
employees, independent contractors and other persons filling similar functions.
2.11. EMPLOYEE PLANS.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, 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, members, officers or directors of the Company, and
any other entity ("ERISA AFFILIATE") related to the Company under Section 4
14(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as amended (the
"CODE") (the "EMPLOYEE PLANS"). With respect to each Employee Plan, the Company
has made available to Buyer, to the extent applicable, true and complete copies
of (i) all plan documents, (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 S500 Annual
Reports, including Schedule A and Schedule B thereto, (vii) all related trust
agreements, insurance contracts or other funding arrangements which implement
any of such Employee Plans, (viii) all Summary Plan Descriptions and summaries
of material modifications and all modifications thereto communicated to
employees, and (ix) in the case of stock options or stock appreciation rights
issued under any Employee Plan, a list of holders, dates of grant, number of
shares, exercise price per share and dates exercisable. Neither the Company nor
any ERISA Affiliate of the Company has any liability or contingent liability
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with respect to the Employee Plans, nor will any of the Company's assets be
subject to any lien, charge or claim relating to the obligations of the Company
with respect to employees or Employee Plans. No party to any Employee Plan is in
default with respect to any material term or condition thereof, nor has any
event occurred which through the passage of time or the giving of notice, Or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 40 1(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 SO 1(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) Neither the Company 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 regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
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(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, is there any basis for any such
claim. No officer, director or employee of the Company or any of its ERISA
Affiliates has committed a material breach of any responsibilities or
obligations imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12. LITIGATION. There are no claims, actions, suits, proceedings,
labor disputes or investigations of any nature pending or, to the knowledge of
the Company or any Member, threatened by or against the Members, the Company,
the officers, directors, employees, agents of the Company, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or the transactions contemplated
by this Agreement. Neither the Company nor any of the Company'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 is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale of
any assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the
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Company or the granting of any registration rights with respect thereto, and
(xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, 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 Member, 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 or any Member 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 Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. COMPLIANCE WITH APPLICABLE LAW. The operations of the Company are,
and have been, conducted in all material respects in accordance with all
applicable laws, regulations, orders and other requirements of all Governmental
Entities having jurisdiction over 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. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations. To the knowledge of the Company or any Member, 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.
2.15. LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and
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consents, approvals, authorizations and other requirements prescribed, by any
law, rule or regulation which must be obtained or satisfied by the Company, in
connection with the Business or that are necessary for the execution, delivery
and performance by the Company and the Members of this Agreement and the other
Transaction Documents. The Licenses are sufficient and adequate in all material
respects to permit the continued lawful conduct of the Business in the manner
now conducted and the ownership, occupancy and operation of the Company's
properties for its present uses and the execution, delivery and performance of
this Agreement. No jurisdiction in which the Company is not qualified or
licensed as a foreign corporation has demanded or requested 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 and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is 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 for any License ever been denied.
2.16. ACCOUNTS RECEIVABLE. All accounts receivable of the Company (the
"ACCOUNTS RECEIVABLE") as of the date hereof are accurately reflected on
Schedule 2.5. All Accounts Receivable as of the date hereof represent, and all
Accounts Receivable as of the Closing Date will represent, valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business 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 and
will not be subject to any valid counterclaims or set-offs, disputes or
contingencies.
2.17. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period
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purchased from the Company, any goods or services, or otherwise does, or during
such period did, business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18. INSURANCE. Schedule 2.18 lists all insurance policies of any
nature whatsoever maintained by the Company at any time during the three (3)
years prior to the date of this 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. The Company has not received any
notice or other communication from any such insurance company within the three
(3) years preceding the date hereof canceling or materially amending or
materially increasing the annual or other premiums payable under any of such
insurance policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19. [RESERVED.]
2.20. NO UNDISCLOSED LIABILITIES. Except as and to the extent
specifically reflected or reserved against in the Interim Financial Statements
and except as incurred in the ordinary course of business since the date of the
Interim Financial Statements, the Company has no material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation) and no facts or circumstances exist which, with
notice or the passage of time or both, could reasonably be expected to result in
any material claims against or obligations or liabilities of the Company.
2.21. TAXES.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of
the Company for or with respect to (A) any Pre-Acquisition Taxable Period, or
(B) any Straddle Period to the extent allocable to the period ending on the
Closing Date:
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
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(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(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 including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes associated with the
tax periods covered by such Tax Returns (whether or not reflected on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (I) is currently being
audited by a Tax authority, or (2) as to which the Company 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 has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves 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.
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(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(1) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to 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 Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
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 business) in the Company (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:
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(a) The Company and its operations comply and have at all times complied
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 compliance with all such Environmental Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could give rise to, or has otherwise incurred, 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 has it received notice of any such liability
or any claim therefor.
(c) 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 at any time or any other property in violation of any
Environmental Laws or that could subject it to liability under any Environmental
Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no ongoing investigations or negotiations, pending or
threatened administrative, judicial or regulatory proceedings, any threatened
actions or claims, or consent decrees or other agreements in effect that relate
to environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(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 its operations.
2.24. SECURITIES MATTERS.
(a) The Members 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
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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 Members'
representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members 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 Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, 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 Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members 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 Members' own account, for investment purposes, not as a nominee or agent,
and not with a review to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members 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 Member 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 C
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25. BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) The Members are aware that:
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(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 4.9 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 of the IPO, whether any Member 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 Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26. MINUTE BOOKS AND RECORDS. The Company has made available to Buyer
true, complete and correct copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27. [RESERVED.]
2.28. POWERS OF ATTORNEYS AND SURETYSHIPS. The Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
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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 or any of
the Members.
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 Member to Buyer
in this Agreement, the Disclosure Schedule, schedules or exhibits hereto, or in
any of the other Transaction Documents 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
Members 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 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 $0.00 1 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
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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. [RESERVED.]
3.5. LITIGATION. Except as set forth on Schedule 3.5, 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
3.6. NO UNDISCLOSED DEBT. 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 3.6,
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.
3.7. ACCURACY OF INFORMATION. NONE OF the representations or warranties
or information provided and to be provided by Buyer to the Members 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 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
(including, without limitation, the Company's accounting records, the workpapers
of the Company's 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
properties, liabilities and personnel as Buyer may reasonably request.
4.2. CONFIDENTIALITY. For purposes hereof, the Company and the Members
will keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Consolidation Transactions 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
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contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company and the Members related to the Company and
the Business confidential, and will not provide information about such matters
to any party or use such information except to the extent necessary to effect
the transactions contemplated hereby. Buyer and the Company shall each cause
their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. The Company and the Members acknowledge that
Buyer may provide information about the Company and the Business to other
participants in the Consolidation Transactions. If this Agreement terminates
without consummation of the Closing, the Company, the Members 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 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 Members 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 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 Members
shall cause the Company to, conduct the Company's 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 Members shall cause the Company not to:
(i) make any material change in the conduct of its business
and operations or enter into any transaction other than in the ordinary course
of business consistent with past practices; or terminate or amend any Contract;
or enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests;
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(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing Contracts set forth in Schedule 2.13
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 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 Member or any Affiliate of the Company or any
Member, obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii)
(xiii) except as necessary to comply with Section 4.3(b)(iv),
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 Member 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 shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and
properties of the Company in accordance with present practices and in a
condition suitable for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company 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 Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4. RESTRICTIVE COVENANTS.
(a) Non-Competition. The Members recognize that the covenants of each
Member 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 Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
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
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if any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, hers or their 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 Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or was being pursued as a
prospect by the Company 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, 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.
"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 shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Member 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.
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(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
Members 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 36S 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 Member will be required to comply with this lock up
provision if any other stockholder owning more shares of Common Stock than such
Member 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 Member 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 Member, shall have the right,
subject to the limitations set forth in this Section 4.6(a), to include in such
registration statement or statements and offering or offerings Shares and other
Common Stock owned by such Stockholder. Other stockholders (including but not
limited to stockholders 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 all such registrations and
offerings, 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 Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims,
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costs and liabilities incurred by such Member 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 Member
expressly for use therein, for which the Member 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.
(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 or any Member 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.
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(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
that, in the case of PreAcquisition Taxable Periods ending on the Closing Date,
all of the Company's income, gains and other Tax items attributable to the
Closing Date shall be included and reported by the Company in Tax Returns
(including federal Form 1065 and any similar state return) of the Company for
such Pre-Acquisition Taxable Periods to be filed following the Closing and that
all Taxes attributable to the Company's income, gains or other taxable items for
the Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company 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) Members shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns. Each Member shall pay his or her proportionate share of such costs,
expenses and Tax Liabilities of the Company promptly following receipt by such
Member of a notice from Buyer of Buyers calculation of such Member's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Member disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such Member
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 Members promptly upon demand therefor by Buyer.
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(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that
are attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns. Each Member shall pay his
or her proportionate share of PreClosing Taxes promptly following receipt by
such Member of a notice from Buyer of Buyer's calculation of such Member's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If a Member disputes all
or any portion of the payment obligation hereunder as calculated by Buyer, such
Member 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 Members promptly upon demand
therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Members of any written communication from a 'I ax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) The Buyer shall have responsibility and authority to
represent the interests of the Company in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and Straddle Periods and to employ counsel of
its choice in connection therewith; provided, however, that Members shall be
permitted to participate in any such Tax Proceedings and all hearings related
thereto at the expense of the Members; and provided further, that, without the
prior written consent of the Members, which shall not be unreasonably withheld,
the Buyer shall not agree to settle or compromise any such Tax Proceeding and/or
any PreAcquisition 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 Members are responsible hereunder, provided,
however, the consent of the Members 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 following the Closing. The Members, 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 Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the
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one hand, and the Members, on the other hand, shall jointly bear the costs and
expenses thereof as allocated between them on an equitable basis.
(iii) All notices to Members provided for hereunder shall be
deemed delivered to each Member upon receipt thereof either directly by the
Member. The Members shall proportionately pay all Tax Liabilities and costs and
expenses for which the Members are responsible hereunder, provided, however, the
Members shall be jointly and severally liable for all such Tax Liabilities,
costs and expenses.
(iv) The Member 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 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 Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until 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
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests 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. 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 Members 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 Members shall upon receipt of the Closing Notice 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
Members 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
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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.
4.10. SUPPLEMENTAL DISCLOSURE. At the Closing, the Company and the
Members 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.
4.11. HSR. Buyer and the Company shall cooperate m 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 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.
4.12. COMPETING PROPOSALS.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13. BONUS PLAN. If Buyer does not close the IP0 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.
4.14. BEST EFFORTS. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts 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.
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4.15. FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
reasonably request in order to effectuate the purposes of this Agreement.
4.16. 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.
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 Seller Interests), 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 MEMBERS. Subject to the limits set forth in
this Article 5, the Members and, if the transactions contemplated hereby are not
consummated, the Company, and their successors and assigns shall jointly and
severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("Losses") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements;
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(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3. INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall indemnify, defend,
reimburse and hold harmless the Members and their successors and assigns from
and against any and all Losses reasonably incurred by any such Members arising
out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of
Buyer contained in this Agreement or any other Transaction Document.
5.4. INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position,
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claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section S.4(b), or 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 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
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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,
including any amounts which constituted the Threshold. No person shall be
entitled to indemnification under this 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 Members to Buyer for all
claims arising under this Agreement and the other Transaction Documents shall
equal the aggregate Purchase Price, except claims arising from any breach of the
representations and warranties contained in Sections 2.2 (Ownership of Seller
Interests), 2.4 (Title to Assets), 2.11 (Employee Plans), 2.21 (Taxes), 2.22
(Indebtedness) and 2.23 (Environmental Matters) shall not be subject to the
limits set forth in this Section 5.6(b). 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 Members of such sale. The maximum aggregate
liability of Buyer to the Members for all claims arising under this Agreement
and the other Transaction Documents shall equal the portions, if any, of the
aggregate Purchase Price not paid or delivered.
6. CONDITIONS TO CLOSING.
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the
Members, 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 Members 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 Members from and against, any obligations that the Members 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, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could 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
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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 Members 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 Members 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 Members.
(b) Performance of the Company and the Members. The Company and the
Members 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 Members, 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 Members, 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 Members authorizing the
execution, delivery and performance of this Agreement and the other Transaction
Documents to be delivered by the Company and the Members and the consummation of
the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of
Exhibit D, executed and delivered by each recipient of Shares, together with a
stock power in the form of Exhibit D- 1 executed by each Member and the spouse
of each Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
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(iv) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3) and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, 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 calculated according to GAAP of at Two Hundred Eighteen Thousand Two
Hundred Thirty Dollars ($218,230), and (ii) sufficient working capital to
operate the Company; and at the Closing the Company shall have delivered to
Buyer a certificate dated the Closing Date to such effect with supporting
financial information, signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company.
(i) Financing. Buyer shall have 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.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. 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.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
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(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members 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 MEMBERS. The obligations of the
Members 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 Members in writing in
their discretion; provided however, such waiver will not waive or diminish the
right of the Members 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 Members 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) [Reserved.]
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(iii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3 and
(iv) Employment Agreements substantially in the form of Exhibit
H (with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
(t) 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.
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 Member.
7. MISCELLANEOUS.
7.1. TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated (a) by Buyer, if (i) the Company or the Members 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 Members is breached or is inaccurate in any material way; (b) by
the Company or the Members 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. 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
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herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 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) 429-5S59
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 Member: Erik R. Watts
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
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With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 429-2919
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
Member 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. 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
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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 Members
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 Buyer, and all fees, costs and expenses incurred by the Company or the
Members in connection with the transactions contemplated by this Agreement shall
be borne by the Members jointly and severally.
7.13. ARBITRATION.
(a) 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. 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 attorney's 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.
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(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 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
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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 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 Member, or if the Company or any of its Affiliates,
successors and assigns or any Member brings any action, suit, counterclaim,
cross-claim, appeal. arbitration, or mediation for any relief against Buyer or
any of its Affiliates, successors or assigns, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (collectively, an
"ACTION"), in addition to any damages and costs which the prevailing party
otherwise would be entitled, the non-prevailing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific
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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 Members and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company and the Members 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 Members 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.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
---------------------------------
Name: Mark C. Coleman
----------------------------
Title: SVP
---------------------------
NATIONAL RECOVERY SERVICES, L.L.C.
By: /s/ ERIK R. WATTS
---------------------------------
Name: Erik R. Watts
----------------------------
Title:
---------------------------
IM COMET LLC
BY: COMET CAPITAL CORP. NV
ITS: MANAGER
BY: /s/ ERIK R. WATTS
-------------------
Name: Erik R. Watts
Title: Manager
---------------
/s/ MOSES CHEUNG
- ----------------------------------
MOSES CHEUNG
/s/ GREGORY P. LINDSTROM
- ----------------------------------
GREGORY P. LINDSTROM
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SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Two Hundred Thousand Dollars ($200,000) (the
"CASH PAYMENT").
(ii) An aggregate of 262,452 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 Member.
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Seller Interests
Name of Owned and to be sold Cash Common Stock
Member to Buyer Consideration Consideration
- -----------------------------------------------------------------------------------------
IM Comet LLC 30% $60,000 112,480
Moses Cheung 30% $60,000 112,480
Gregory P. Lindstrom 10% $20,000 37,492
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