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EXHIBIT 10.49
STOCK PURCHASE AGREEMENT
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
D.L.D. INSURANCE BROKERS, INC.
"COMPANY"
AND
DANA L. DOWERS CORPORATION
"STOCKHOLDER"
MARCH 1, 1999
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TABLE OF CONTENTS
1. Sale and Purchase..........................................................2
1.1. Agreements to Sell and Purchase....................................2
1.2. Closing............................................................2
1.3. Purchase Price.....................................................2
1.4. Certificates for Shares............................................2
2. Representations and Warranties of the Company and the Stockholder.........2
2.1. Organization and Good Standing.....................................3
2.2. Ownership of Capital Stock.........................................3
2.3. Authorization of Agreement.........................................5
2.4. Title to Assets....................................................5
2.5. Financial Condition and Accounting.................................5
2.6. Certain Property of the Company....................................6
2.7. Year 2000 Compliance...............................................9
2.8. No Conflict or Violation...........................................9
2.9. Consents..........................................................10
2.10. Labor and Employment Matters.....................................10
2.11. Employee Plans...................................................10
2.12. Litigation.......................................................14
2.13. Certain Agreements...............................................14
2.14. Compliance with Applicable Law...................................15
2.15. Licenses.........................................................15
2.16. Intercompany and Affiliate Transactions; Insider Interests.......16
2.17. Insurance........................................................16
2.18. Customers........................................................17
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2.19. No Undisclosed Liabilities.......................................17
2.20. Taxes............................................................17
2.21. Indebtedness.....................................................20
2.22. Environmental Matters............................................20
2.23. Securities Matters...............................................21
2.24. Buyer and the Consolidation Transactions.........................22
2.25. Banks............................................................23
2.26. Powers of Attorneys and Suretyships...............................23
2.27. Brokers...........................................................23
2.28. Summary of Certain Considerations.................................23
2.29. Acknowledgment re Deloitte & Touche LLP...........................23
2.30. Accuracy of Information...........................................24
3. Representations and Warranties of Buyer..................................24
3.1. Organization and Corporate Authority..............................24
3.2. No Conflict or Violation..........................................24
3.3. Capitalization....................................................24
3.4. Notes.............................................................25
3.5. Litigation........................................................25
3.6. Buyer's Operations and Financial Condition........................25
3.7. Accuracy of Information...........................................26
4. Certain Understandings and Agreements of the Parties.....................26
4.1. Access............................................................26
4.2. Confidentiality...................................................26
4.3. Certain Changes and Conduct of Business...........................27
4.4. Restrictive Covenants.............................................30
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4.5. Securities Restrictions...........................................33
4.6. Registration......................................................34
4.7. Cooperation in Litigation.........................................35
4.8. Tax Matters.......................................................35
4.9. Employee Plans....................................................39
4.10. Consolidation Transactions.......................................39
4.11. Supplemental Disclosure..........................................40
4.12. HSR..............................................................40
4.13. Competing Proposals..............................................40
4.14. Bonus Plan.......................................................41
4.15. Best Efforts.....................................................41
4.16. Further Assurances...............................................41
4.17. Notice of Breach.................................................41
5. Survival; Indemnification................................................41
5.1. Survival..........................................................41
5.2. Indemnification by the Stockholder and Dowers.....................42
5.3. Indemnification by Buyer..........................................42
5.4. Indemnification Procedure.........................................41
5.5. Payment...........................................................45
5.6. Limitations.......................................................45
6. Conditions to Closing....................................................45
6.1. Conditions to Obligations of Each Party...........................45
6.2. Conditions to Obligations of Buyer................................46
6.3. Conditions to Obligations of the Stockholder......................49
7. Miscellaneous............................................................50
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7.1. Termination.......................................................50
7.2. Notices...........................................................51
7.3. Assignability and Parties in Interest.............................53
7.4. Governing Law.....................................................53
7.5. Counterparts......................................................53
7.6. Publicity.........................................................53
7.7. Complete Agreement................................................53
7.8. Modifications, Amendments and Waivers.............................53
7.9. Headings; References..............................................54
7.10. Severability.....................................................54
7.11. Investigation....................................................54
7.12. Expenses of Transactions.........................................54
7.13. Arbitration......................................................54
7.14. Submission to Jurisdiction.......................................57
7.15. Attorneys' Fees..................................................57
7.16. Enforcement of the Agreement.....................................58
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EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Considerations
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company, the Stockholder and Dowers
G-1 Form of Employment Agreement for Key Employees
G-2 Form of Employment Agreement for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Note
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.7 Year 2000 Compliance
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.12 Litigation
2.13 Contracts
2.15 Licenses
2.17 Insurance
2.18 Customers
2.20(b) Tax Returns
2.20(j) 351 Information
2.21 Indebtedness
2.25 Banks
2.28 Brokers
3.5 Buyer Litigation
3.6(a) EPSC Subsidiaries
3.6(b) Consolidated Indebtedness
3.6(c) Business Descriptions
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(ix) Transfer of Assets
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 1, 1999 by and among D.L.D. Insurance Brokers, Inc., a
California corporation (the "COMPANY"), Dana L. Dowers Corporation, a California
corporation and the sole stockholder of the Company (the "STOCKHOLDER"), and EPS
Solutions Corporation, a Delaware corporation ("BUYER").
A. The Company is engaged in the business of insurance brokerage,
consulting and other insurance services (the "BUSINESS").
B. The Stockholder owns all of the issued and outstanding shares
of capital stock of the Company (the "SELLER SHARES").
C. The Stockholder desires to sell to Buyer, and Buyer desires to
purchase from the Stockholder, all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
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1. SALE AND PURCHASE.
1.1. Agreements to Sell and Purchase. On the Closing Date (as hereinafter
defined) the Stockholder shall sell to Buyer, and Buyer shall purchase from the
Stockholder, the number of Seller Shares set forth opposite the Stockholder's
name on Schedule 1.3, for the purchase price described in Section 1.3.
1.2. Closing. The closing of the sale and purchase of the Seller Shares (the
"Closing") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the Stockholder
informing the Company and the Stockholder of the anticipated Closing Date. At
the Closing, the Stockholder shall deliver to Buyer or its designees stock
certificates, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Seller Shares being sold by the Stockholder and each
other instrument of transfer Buyer may reasonably request to vest effectively in
Buyer good and valid title to the Seller Shares, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to such transfer of the Seller Shares, and Buyer shall thereupon
pay to the Stockholder the Purchase Price for the Stockholder's Seller Shares.
1.3. Purchase Price. The consideration to be paid by Buyer for the Seller Shares
(the "PURCHASE PRICE"), both in the aggregate and to the Stockholder for the
Stockholder's Seller Shares, is described in Schedule 1.3.
1.4. Certificates for Shares. In order to facilitate replacement of certificates
for the shares of Series A Common Stock of Buyer constituting part of the
Purchase Price (the "SHARES") upon an IPO (as defined herein) with the transfer
agent's form of certificate, and to facilitate enforcement of the Stockholder
Agreement (as defined herein), Buyer will keep custody of the certificates
representing the Shares until the IPO and until the Shares are no longer subject
to the Stockholder Agreement, and recipients of Shares will execute and deliver
blank stock powers as described in Section 6.2(d)(i). This custody arrangement
will not affect the rights as a stockholder of any permitted recipient of
Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Schedule 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Stockholder, jointly
and severally, represent and warrant to Buyer that:
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2.1. Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, 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 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 charter documents
and bylaws of the Company, with all amendments thereto to the date hereof, have
been furnished to Buyer or its representatives.
2.2. Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 100,000
shares of common stock of the Company, without par value, of which 5,000 shares
are issued and outstanding. There is no other issued and outstanding capital
stock of the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. The Seller Shares owned by the Stockholder are set forth in part
(b) of Schedule 1.3. Neither the Stockholder nor the Company has granted, issued
or agreed to grant or issue any other equity interests in the Company and there
are no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholder has good and valid title to, and sole record and
beneficial ownership of, the Seller Shares owned by such Stockholder, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and the
Stockholder has the absolute and unrestricted right, power and authority and
capacity to enter into this Agreement.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
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(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
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2.3. Authorization of Agreement. The Company and the Stockholder have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") and the Stockholder and no other proceedings on the part of the
Company or the Stockholder 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 and the Stockholder have
been (or upon execution will have been) duly executed and delivered by the
Company and the Stockholder, have been effectively authorized by all necessary
action, corporate or otherwise, and constitute (or upon execution will
constitute) legal, valid and binding obligations of the Company and the
Stockholder, except as such enforceability may be limited by general principles
of equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4. Title to Assets. The Company is the lawful owner of each of its assets,
whether real, personal, mixed, tangible or intangible. 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 $10,000; (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 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 the Stockholder
to transfer any of the assets of the Company or rights or interests therein to
any party.
2.5. Financial Condition and Accounting.
(a) Financial Statements. The Company has previously delivered to buyer
the balance sheets of the Company as of December 31, 1996, 1997 and 1998 and the
related statements of income and cash flow for the fiscal years then ended (the
"YEAR-END FINANCIAL STATEMENTS"), and the balance sheet, and the related
statements of income and cash flow of the Company for the two-month period ended
February 28, 1999, or the most
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recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with the
Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of the
Company; (ii) were prepared on a tax basis; (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) 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) contain and reflect adequate
provisions for all reasonably anticipated liabilities, including without
limitation, for all taxes, federal, state, local or foreign, with respect to the
period then ended and all prior periods; and (vi) do not contain any items of a
special or nonrecurring nature, except as expressly stated therein. The Interim
Financial Statements accurately reflect all information normally reported to the
independent public accountants of the Company for the preparation of its
financial statements. There have been no changes or modifications of revenue
recognition, cost allocation practices, method of accounting, or other financial
or operational practices or principles.
(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(a). For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6. Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or the Stockholder, each Real Property Lease
is a valid and binding obligation of each of the other parties thereto, except
as enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor the
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause
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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 the Stockholder, all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property, accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has occurred which, with due notice or lapse
of time or both, may constitute such a material breach or default, under any
Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names including, without
limitation, the name D.L.D. Insurance Brokers, Inc., and other names and slogans
embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof;
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(vi) customer lists; (vii) books and records describing or used in connection
with any of the foregoing; and (viii) claims or causes of action arising out of
or related to infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the 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 listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company. 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 the Stockholder, is any such
action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or the Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (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.
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(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. Except as set forth on Schedule 2.7, all date-related
output, calculations or results before, during or after the calendar year 2000
that are produced or used by any hardware, software (other than software that is
generally available upon payment of a "shrink-wrap" type license and that has
not been customized for use in connection with the Business), firmware or
facilities systems (the "COMPUTER SYSTEMS") owned or used by the Company and
material to the Business are Year 2000 Compliant. 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 Stockholder of this Agreement and the other Transaction
Documents to be delivered by the Company or the Stockholder and the consummation
of the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate in any material respect any provision or requirement of
any domestic or foreign, federal, state, or local law, statute,
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judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to the Company or the Business; (iii) except as
set forth in Schedule 2.9, 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) except as set forth in Schedule 2.9, result in the cancellation,
modification, revocation or suspension of any material license, permit,
certificate, franchise, authorization or approval issued or granted by any
Governmental Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9. Consents. Schedule 2.9 lists all consents and notices required to be
obtained or given by or on behalf of the Company or the Stockholder before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect, except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10. Labor and Employment Matters. Schedule 2.10 lists all employees of the
Company, including date of retention, current title and compensation. There is
no employment agreement, collective bargaining agreement or other labor
agreement to which the Company 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 appropriate Governmental Entities or is holding for payment not yet
due to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Company; material labor
grievance pending against the Company; pending representation question
respecting the employees of the Company; pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Company is a
party. For purposes of this Agreement, "EMPLOYEES" includes employees,
independent contractors and other persons filling similar functions.
2.11. Employee Plans.
(a) All 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
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employees through the date hereof have been paid or adequate accruals therefor
have been made in the Financial Statements, and payments or adequate accruals
for all such obligations will be made through the Closing Date. All reasonably
anticipated obligations of the Company with respect to employees, whether
arising by operation of law, by contract, by past custom, or otherwise, for
salaries, vacation and holiday pay, sick pay, bonuses and other forms of
compensation payable to employees in respect of the services rendered by any of
them prior to the date hereof have been or will be paid by the Company prior to
the Closing Date or adequate accruals therefor have been made in the Financial
Statements, and payments or adequate accruals for all such obligations will be
made through the Closing Date except that the Company has not accrued vacation
pay, holiday pay and sick pay (which in the aggregate total less than $10,000).
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, the Company has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, including in the
case of any Employee Plan not set forth in writing, a written description
thereof, (ii) the most recent determination letter received from the Internal
Revenue Service (the "IRS"), (iii) the most recent application for determination
filed with the IRS, (iv) the latest actuarial valuations, (v) the latest
financial statements, (vi) the three (3) most recent Form 5500 Annual Reports,
including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Except as set forth on Schedule 2.11 each of the Employee Plans, and
the administration thereof, is and has been in material compliance with the
requirements
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provided by any and all applicable statutes, orders or governmental rules or
regulations currently in effect, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and,
with respect to each Employee Plan, there is no violation of any reporting or
disclosure requirement imposed by ERISA or the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination 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. In accordance with
applicable law, each Employee Plan can be amended or terminated at any time,
without consent from any other party and without liability other than for
benefits accrued as of the date of such amendment or termination.
(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. Neither the
Company nor any ERISA Affiliate sponsors or has ever sponsored, maintained,
contributed to or incurred an obligation to contribute to any Employee Plan
subject to the provisions of Title IV of ERISA.
(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.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible
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pursuant to the terms of Section 280G of the Code. Neither the Company nor any
of its ERISA Affiliates has incurred any liability under the Worker Adjustment
Retraining and Notification Act or any similar state law relating to employment
termination in connection with a mass layoff, plant closing or similar event,
and the transactions contemplated by this Agreement will not give rise to any
such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
the Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to the
terms of any Employee Plan or pursuant to any agreement or understanding, other
than as required by applicable law.
(i) Other than routine claims for benefits, there is no claim pending or
to the knowledge of the Company or the Stockholder, threatened, involving any
Employee Plan by any person against such Employee Plan, the Company or any of
its ERISA Affiliates. There is no pending or, to the knowledge of the Company or
the Stockholder, threatened, proceeding involving any Employee Plan before the
IRS, the United States Department of Labor or any other governmental authority.
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2.12. Litigation. Except as set forth on Schedule 2.12, there are no claims,
actions, suits or proceedings of any nature pending or, to the knowledge of the
Company or the Stockholder, threatened by or against the Stockholder, the
Company, Dowers, 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 material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of the Company, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
stockholder agreements or agreements relating to the issuance of any securities
of the Company or the granting of any registration rights with respect thereto,
and (xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the 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.
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(c) To the knowledge of the Company or the Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or the Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or Buyer's representatives or
given Buyer an opportunity to review true and complete originals or copies of
all the Contracts and a copy of every Material Notice received by the Company or
the Stockholder since January 1, 1996, with respect to any of the Contracts. For
purposes hereof, "MATERIAL NOTICE" means those notices alleging a material
breach of a Contract or intention to terminate or materially modify a Contract,
but does not include routine correspondence.
(f) To the knowledge of the Company or the Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. Compliance with Applicable Law. The operations of the Company are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations, orders and other requirements of all Governmental Entities
having jurisdiction over the Company or its assets, properties or operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations.
2.15. Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of the Business in the manner now conducted and the ownership,
occupancy and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested in writing that it qualify or become licensed
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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. Intercompany and Affiliate Transactions; Insider Interests.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between the Company and any director, officer,
employee, stockholder, relative or Affiliate of the Company or the Stockholder,
including, without limitation, loans, guarantees or pledges to, by or for the
Company or from, to, by or for any of such persons, that are either (i)
currently in effect, or (ii) reflected in the Company's financial results.
(b) No officer, director or stockholder of the Company, or any Affiliate
of any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.17. Insurance. Schedule 2.17 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
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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 the
Stockholder, no such cancellation, amendment or increase of premiums is
threatened.
2.18. Customers. Schedule 2.18 lists the ten (10) largest customers of the
Company in terms of revenues of the Company attributable to such customers,
together with revenues to the Company from each such customer during the most
recent complete fiscal year and the current fiscal year to the date hereof, and
the scheduled termination dates of their current contracts with the Company.
None of such customers has given written notice to the Company of an intention
to terminate or materially impair its business relationship with the Company and
neither the Company nor the Stockholder has any knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
2.19. 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.
2.20. Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
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(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company 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 due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.20(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written 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. The
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
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(d) 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.
(e) 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.
(f) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(g) 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).
(h) 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.
(i) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 and 1362 at all times during its existence, and the Company will
be an S corporation up to and including the day before the Closing Date. The
Company will similarly qualify as an S corporation for state or local income tax
purposes.
(j) Section 351. It is acknowledged that Buyer, the Company and the
Stockholder intend that the transfer of the Seller Shares by the Stockholder to
Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholder 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 2.20(j) is accurate and may be used by Buyer
for tax filing purposes.
(k) Treatment As Sale of Assets. The Stockholder and Buyer acknowledge
that the sale of the Seller Shares will be treated as a sale of assets for
federal and California income tax purposes, and agree to allocate the Purchase
Price among the acquired assets for income tax purposes in accordance with
Section 1060 of the Code and Treasury Regulations thereunder.
(l) Section 280G. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
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2.21. Indebtedness. Schedule 2.21 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.
2.22. Environmental Matters. Notwithstanding anything to the contrary contained
in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in material violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) 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 the Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing
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materials, urea formaldehyde insulation, polychlorinated biphenyls or lead-based
paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or the
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or the Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(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.
2.23. Securities Matters.
(a) The Stockholder understands that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholder's representations set forth herein.
(b) The Stockholder acknowledges that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholder may lose its entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Stockholder or its advisors, the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Stockholder has received all information
requested from Buyer. The Stockholder has 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
Stockholder has deemed appropriate for purposes of investing in the Securities
pursuant to this Agreement.
(d) The Stockholder, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and has 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 Stockholder has relied solely upon independent
investigations made by the Stockholder has consulted its own investment
advisors, counsel and accountants. The Stockholder has adequate means of
providing for
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current needs and personal contingencies, and has 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 Stockholder's own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
(f) The Stockholder understands 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) The Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented its accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit A hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor the Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or the Stockholder aware of any such solicitation or advertising.
2.24. Buyer and the Consolidation Transactions.
(a) The Stockholder is aware that:
(i) Buyer has recently been organized and has limited financial
and operating history.
(ii) There can be no assurance that any of the Additional
Consolidation Transactions or Further Consolidation Transactions (as defined in
Section 4.10) will occur, that Buyer will be successful in accomplishing the
purpose for which it was formed or that it will ever be profitable. No assurance
can be given regarding (A) whether the companies acquired by Buyer in the
Initial Consolidation Transactions can be successfully integrated and operated,
or (B) what companies, if any, will ultimately be acquired by Buyer. No company
is obligated to participate in the Additional Consolidation Transactions or
Further Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether the Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
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(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 Stockholder acknowledges that no assurances have been made to
the Stockholder with respect to any of the foregoing and no representations,
oral or written, have been made to the Stockholder by Buyer or any of its
employees, representatives or agents concerning the potential value of the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.25. Banks. Schedule 2.25 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.26. Powers of Attorneys and Suretyships. The Company does not have any general
or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.27. Brokers. Except as set forth on Schedule 2.27, 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 the
Stockholder.
2.28. Summary of Certain Considerations. The Stockholder acknowledges receipt
and understanding of the Summary of Certain Considerations attached hereto as
Exhibit B.
2.29. Acknowledgment re Deloitte & Touche LLP. As part of the Initial
Consolidation Transactions, Buyer purchased the Integrated Cost Reduction
Strategies ("ICRS") business unit of Deloitte & Touche LLP ("DELOITTE"). The
Company and the Stockholder acknowledge, for the benefit of Deloitte and its
Affiliates, that Deloitte is not related to Buyer, that Buyer and the
individuals related to Buyer with whom the Company and the Stockholder have
dealt in connection with the transactions contemplated by the various agreements
of the Company and the Stockholder with Buyer have acted and will act on behalf
of Buyer and not Deloitte or any of Deloitte's Affiliates (as partners,
principals, employees, agents, associates or otherwise). For these purposes,
"Affiliates" of Deloitte
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include persons controlling, controlled by, or under common control with
Deloitte, including without limitation partners of Deloitte.
2.30. Accuracy of Information. None of the representations or warranties or
information provided and to be provided by the Company or the Stockholder to
Buyer in this Agreement, the Disclosure Schedule, schedules or exhibits hereto,
or in any Accredited Investor Questionnaire, or any of the other Transaction
Documents delivered by the Company or the Stockholder, 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 Stockholder 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 $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. The
Shares, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Buyer's three (3) classes of
directors, with the
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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. Notes. Any note to be delivered by Buyer as part of the Purchase Price,
when delivered in accordance with the terms of this Agreement, will be duly
executed, and will constitute a legal, valid and binding obligation of Buyer,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5. Litigation. Except as set forth on Schedule 3.5, there are no material
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or any of
its Affiliates or the transactions contemplated by this Agreement. Buyer is not
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. From and after the Closing, Buyer or its Affiliates may be
subject to claims, actions, suits, or proceedings including as a result of
acquisitions by Buyer in the Additional Consolidation Transactions or Further
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof.
3.6. Buyer's Operations and Financial Condition.
(a) Buyer has one subsidiary, Enterprise Profit Solutions Corporation, a
Delaware corporation ("EPSC"). Buyer owns all of the issued and outstanding
capital stock of EPSC, and there are no outstanding rights of any party to
acquire any interest in EPSC other than a pledge of the capital stock of EPSC to
lenders of senior indebtedness of EPSC (the "SENIOR LENDERS"). Buyer is a
holding company, and substantially all of Buyer's consolidated assets and
operations are held and conducted by EPSC and EPSC's subsidiaries. Set forth on
Schedule 3.6(a) is complete and accurate list of all subsidiaries of EPSC.
Except as specified on Schedule 3.6(a), EPSC owns all of the issued and
outstanding capital stock of each of its subsidiaries, and there are no
outstanding rights of any party to acquire any interest in any of such
subsidiaries other than a pledge of the issued and outstanding capital stock of
each such subsidiary to the Senior Lenders.
(b) Set forth on Schedule 3.6(b) is a complete and accurate summary of
the indebtedness of Buyer, EPSC, and EPSC's subsidiaries for borrowed money
(excluding trade debt).
(c) Set forth on Schedule 3.6(c) is a description of the businesses
conducted by EPSC through its various divisions and subsidiaries, together with
1998 revenues and pre-tax net income for each of such businesses and
subsidiaries. Such business description, revenue and income information was
provided by the companies acquired or their stockholders, reflects the
operations of each such division and subsidiary as an independent company before
its acquisition by Buyer in the Initial Consolidation Transactions, and is made
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available by Buyer solely for informational purposes without representation or
ratification of any kind. No representations are made regarding future
performance.
3.7. Accuracy of Information. None of the representations or warranties or
information provided and to be provided by Buyer to the Stockholder 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, the Stockholder and Dana
L. Dowers, an individual ("DOWERS"), will keep the matters contemplated herein
and all information provided by Buyer related to Buyer and the Initial,
Additional, and Further Consolidation Transactions and potential participants
therein, including without limitation Deloitte & Touche LLP, confidential, and
will not provide information about such matters to any party or use such
information except to the extent necessary to effect the transactions
contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company, the Stockholder and Dowers 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, the Stockholder and Dowers
acknowledge that Buyer may provide information about the Company and the
Business to other participants in the Additional or Further Consolidation
Transactions to the extent necessary to facilitate those transactions. If this
Agreement terminates without consummation of the Closing, the Company, the
Stockholder, Dowers and Buyer shall, and shall cause their Affiliates to, each
maintain the confidentiality of any information obtained from the other in
connection with the transactions contemplated hereby, the Additional or Further
Consolidation Transactions, and Buyer's business plans (the "INFORMATION"),
other than Information that (i) was in the public domain before the date of this
Agreement or subsequently came into the public domain other than as a result of
disclosure by the party to
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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 Stockholder, Dowers and the Company, on the other, shall return to
the other all material containing or reflecting the Information provided by the
other, shall not retain any copies, extracts, or other reproductions thereof or
derived therefrom, and Buyer shall ensure the return of all such material from
all other parties with whom it has been shared, and shall thereafter refrain
from using the Information and shall maintain its confidentiality pursuant to
this Agreement.
4.3. Certain Changes and Conduct of Business. (a) From and after the date of
this Agreement and until the Closing (or the earlier termination of this
Agreement), the Company shall, and the Stockholder 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 Stockholder 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 of the type 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 charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or
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indirectly any debt securities of the Company or any security convertible into
or exchangeable for such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions 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 moneys 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, the Stockholder or any Affiliate of the Company
or the Stockholder, except for the retention of certain excluded assets by
Stockholder as described in Schedule 4.3(a)(ix);
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except for the retention of the excluded assets by
Stockholder as described in Schedule 4.3(a)(ix) and as set forth on Schedule
4.3(a)(xii);
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(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice, or write down the value of any assets or write-off as
uncollectible any Accounts Receivable except in the ordinary course of business
consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or the Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholder 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 except for the retention of the excluded assets by
Stockholder as described in Schedule 4.3(a)(ix);
(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 material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
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(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.
4.4. Restrictive Covenants.
(a) Non-Competition. The Stockholder and Dowers recognize that the
covenants of the Stockholder and Dowers 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 the Stockholder and
Dowers to comply with such covenants Buyer would not enter into this Agreement
or the other Transaction Documents. The Stockholder and Dowers acknowledge and
agree that the Covenant Not to Compete is necessary to protect the Business
acquired by Buyer, including without limitation, goodwill and the Proprietary
Rights, and that irreparable harm and damage will be done to Buyer if the
Stockholder or Dowers competes with Buyer in any way prohibited by the Covenant
Not to Compete. In addition, the Stockholder and Dowers acknowledge that the
Purchase Price is consideration for professional relationships and market place
reputation developed by the Company and the Stockholder and the Covenant Not to
Compete is necessary for Buyer to receive the full benefit of this Agreement.
After the Closing, neither the Stockholder nor Dowers shall individually, or in
concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, 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 with whom the Company was
engaged in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"),
to modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
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(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where the Company generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind the Stockholder and Dowers until
December 31, 2002, provided however, that if the employment of Dowers is
terminated by Buyer without Cause or by Dowers for Good Reason (each as defined
in Dowers' Employment Agreement delivered pursuant to Section 6.3(c)(iv)), and
if either (i) a registration statement for an underwritten IPO of Buyer's equity
securities has not been filed by December 31, 1999, or (ii) Buyer fails to
consummate a public offering that results in a public trading market of equity
securities of Buyer on a national securities exchange or the Nasdaq Stock Market
by May 15, 2000, then after termination of Dowers' employment with the Company
or any of its Affiliates, Dowers will no longer be subject to the covenants
contained in Sections 4.4(a)(ii) and (iii), and the covenants in Section
4.4(a)(iv) will not be breached by any general marketing efforts with which
Dowers may be involved that are not targeted specifically at any Customer. The
parties hereto agree that the duration and area for which the Covenant Not to
Compete set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) the Stockholder and Dowers shall at all
times keep confidential and shall not disclose to others any Proprietary Rights
and shall not use or permit to be used any Proprietary Rights for any purpose
other than performance of obligations to Buyer.
(c) Non-Diversion. For the maximum period during which the Covenant Not
to Compete could apply pursuant to Section 4.4(a) each of the Stockholder and
Dowers shall not, and shall cause their Affiliates not to, divert or attempt to
divert or take advantage of or attempt to take advantage of any actual or
potential business or opportunities of Buyer or its Affiliates of which either
of the Stockholder and Dowers become aware as the result of their affiliation
with the Business or their relationship with Buyer or its Affiliates and which
relate specifically to the Business, or any part thereof, provided however, that
if the employment of Dowers is terminated by Buyer without Cause or by Dowers
for Good Reason (each as defined in Dowers' Employment Agreement delivered
pursuant to Section 6.3(c)(iv)), and if either (i) a registration statement for
an underwritten IPO of Buyer's equity securities has not been filed by December
31, 1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
Dowers' employment with the Company or any of its Affiliates, this Section
4.4(c) will not be breached by accepting business from any Customer or
prospective customer that responds to general marketing
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efforts with which Dowers may be involved that are not targeted specifically at
any Customer. This Section 4.4(c) is in addition to and not by way of limitation
of any other duties the Stockholder and Dowers may have to Buyer or its
Affiliates.
(d) Non-Recruitment. For the maximum period during which the Covenant
Not to Compete could apply pursuant to Section 4.4(a) each of the Stockholder
and Dowers shall not, and shall cause their Affiliates not to, hire away, or
cause any other person to hire away, any employee of or consultant to Buyer or
its Affiliates (including without limitation persons employed or engaged by the
Company before the Closing Date), or directly or indirectly entice or solicit or
seek to induce or influence any of such employees or consultants to leave their
employment or engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholder and Dowers in light of the activities
and business of the Company and future plans of Buyer. The Stockholder and
Dowers acknowledge that if they violate any of the covenants contained in this
Section 4.4 (collectively, the "RESTRICTIVE COVENANTS"), it will be difficult to
determine the resulting damages to Buyer and, in addition to any other remedies
Buyer may have, Buyer shall be entitled to temporary injunctive relief without
being required to post a bond and permanent injunctive relief without the
necessity of proving actual damages. The Stockholder and Dowers shall be
severally liable to pay all costs, including reasonable attorneys' fees and
expenses, that Buyer may incur in enforcing or defending, to any extent, any of
the Restrictive Covenants breached by the Stockholder or Dowers, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
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4.5. Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS EPS SOLUTIONS CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO EPS SOLUTIONS CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholder will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period,
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(ii) such lock up provision will be contingent upon the officers and directors
of the registrant entering into similar lock up agreements, and (iii) no
Stockholder will be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than such Stockholder and who is
subject to a contractual lock up provision similar to this one has been released
from such lock up obligation.
4.6. Registration.
(a) The Stockholder will not 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 the Stockholder shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders acquiring Common Stock in the
Initial, Additional, and Further Consolidation Transactions and stockholders who
acquired Common Stock in connection with the formation, or work on behalf of,
Buyer) will have rights to include shares of Common Stock in such offering, and
if the aggregate amount of shares that all stockholders with such rights
(collectively, the "SELLING STOCKHOLDER") 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 Stockholder hereunder be
permitted to include in the IPO registration and offering, in the aggregate,
more than the number of Shares listed on Schedule 4.6 under the item "Maximum
IPO Shares".
(b) If the Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are
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caused by any untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing to
Buyer by such Stockholder expressly for use therein, for which the Stockholder
will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(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 the Stockholder and/or their Affiliates or
assignees, on the other, arising out of the transactions contemplated by this
Agreement). Subject to the provisions hereof regarding payments by each party of
its costs and payments or attorneys' fees and costs, the party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8. Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and, in
the case of Pre-Acquisition
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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 of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and that all Taxes
attributable to the Company's income, gains or other taxable items for the
Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) 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) The Stockholder 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 to the extent not specifically reserved (excluding reserves for deferred
taxes) against in the Interim Financial Statements. The Stockholder shall pay
such costs, expenses and Tax liabilities promptly following receipt by the
Stockholder of a notice from Buyer of Buyer's calculation of the Stockholder's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If the Stockholder
disputes all or any portion of the payment obligation hereunder as calculated by
Buyer, the Stockholder shall nevertheless promptly pay
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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
Stockholder promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE 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
Stockholder shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. The Stockholder shall pay such Pre-Closing Taxes
promptly following receipt by the Stockholder of a notice from Buyer of Buyer's
calculation of the Stockholder's payment obligation hereunder together with
copies of the relevant Tax Returns and other information supporting Buyer's
calculation. If the Stockholder disputes all or any portion of the payment
obligation hereunder as calculated by Buyer, the Stockholder shall nevertheless
promptly pay to Buyer the amount specified in the notice and any dispute related
thereto shall be resolved pursuant to the arbitration provisions of Section
7.13. Any additional Taxes attributable to the Pre-Closing Periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Stockholder promptly upon demand therefor by Buyer.
(e) Buyer and the Stockholder shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to Sections 4.8(c) and (d). Such cooperation shall include
the retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to the filing of such Tax Returns.
(f) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Stockholder of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) The Buyer shall have responsibility and authority to
represent the interests of the Company in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and
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Straddle Periods and to employ counsel of its choice in connection therewith;
provided, however, that the Stockholder shall be permitted to participate in any
such Tax Proceedings and all hearings related thereto at their expense; and
provided further, that, without the prior written consent of the Stockholder,
which shall not be unreasonably withheld, the Buyer shall not agree to settle or
compromise any such Tax Proceeding and/or any Pre-Acquisition Tax Liability
issue arising therein if such settlement can reasonably be expected to result in
a material increase in the Pre-Acquisition Tax Liabilities for which the
Stockholder is responsible hereunder, provided, however, the consent of the
Stockholder 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 Stockholder, 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 the Stockholder is responsible hereunder and Tax Liabilities attributable
to the Post-Closing Period for which the Stockholder is not responsible, the
Buyer, on the one hand, and the Stockholder, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Stockholder provided for hereunder shall be
deemed delivered to the Stockholder upon receipt thereof by Stockholder. The
Stockholder shall pay all Tax Liabilities and costs and expenses for which the
Stockholder is responsible hereunder.
(iv) The Stockholder 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.
(g) 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 Stockholder 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.
(h) Section 351. For all federal and state income tax purposes the
Stockholder and Buyer shall (i) treat and report the transfer of the Seller
Shares in a manner consistent with its qualification as a transfer of property
to a controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
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(i) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(j) Treatment As Sale of Assets. The Stockholder and Buyer acknowledge
that the sale of the Seller Shares will be treated as a sale of assets for
federal and California income tax purposes, and agree to allocate the Purchase
Price among the acquired assets for income tax purposes in accordance with
Section 1060 of the Code and Treasury Regulations thereunder.
(k) Excluded Assets. The Stockholder shall be responsible for any taxes
relating to the the retention of certain excluded assets by Stockholder as
described in Schedule 4.3(a)(ix).
(l) 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. Employee Plans. On or before Closing, the Company shall (i) contribute and
cause to be allocated to the accounts of all employees who are participants in
the D.L.D. Insurance Brokers, Inc. 401(k) Plan (the "401(k) PLAN") as of the
date of its termination all employer contributions that otherwise would have
been made to the 401(k) Plan for the current plan year with respect to the time
period prior to Closing, but for the consummation of the transaction
contemplated by this Agreement, (ii) adopt any amendments to the 401(k) Plan
which are necessary to authorize such contributions and allocations, and furnish
an executed copy of such amendments to Buyer, (iii) cause the 401(k) Plan to be
terminated, with such effective date of termination to be on or before the
Closing and with no further liability or obligation with respect thereto on the
part of the Company or Buyer, (iv) cause the account of each participant in the
401(k) Plan as of the date of the termination to become one hundred percent
(100%) vested and nonforfeitable, and (v) on or before Closing, deliver to Buyer
a certification of the occurrence of the foregoing transactions (which shall be
referred to collectively as the "EMPLOYEE PLANS TRANSACTIONS"). All of the costs
and expenses of the Employee Plans Transactions, including without limitation
the cost of making application to the IRS for termination, are to be borne by
either the Company or the Stockholder, or to the extent permitted by applicable
law, the 401(k) Plan.
4.10. Consolidation Transactions. Effective as of December 14, 1998, the Buyer
acquired approximately 38 companies engaged in the business of cost reduction,
cost recovery and profit enhancement services by means of acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
Contemporaneously with the transaction contemplated hereby, Buyer is attempting
to acquire various other companies (with the transaction
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contemplated hereby, the "ADDITIONAL CONSOLIDATION TRANSACTIONS"), and following
closing or abandonment of the Additional Consolidation Transactions, Buyer
intends to pursue still more acquisitions (the "FURTHER CONSOLIDATION
TRANSACTIONS"). The Company and the Stockholder acknowledge that as a result of
the complexity of the transactions contemplated hereby and the other Additional
Consolidation Transactions, and for valuation and other reasons, the Closing
contemplated hereby and the closing of the other Additional Consolidation
Transactions may need to be concurrent or sequenced as designated by Buyer.
Accordingly, the Company and the Stockholder shall at any time upon or after
execution of this Agreement, but prior to the Closing Date (i) provide any
outstanding documentation required to effect the Closing pursuant to this
Agreement in escrow pending release upon authorization of the Stockholder at the
Closing, (ii) complete performance of their respective obligations hereunder and
under the other Transaction Documents to be performed by the Closing, and (iii)
update the schedules hereto and any other documentation or information provided
to Buyer during the course of this transaction such that all such disclosures
shall be accurate and current as of the Closing Date.
4.11. Supplemental Disclosure. At the Closing, the Company and the Stockholder
shall supplement or amend each of the schedules hereto with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
hereof, would have been required to be set forth or listed in the schedules or
which is necessary to complete or correct any information in the schedules.
4.12. HSR. Buyer and the Company shall cooperate in preparing and delivering to
the Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.13. Competing Proposals.
(a) None of the Company, the Stockholder or Dowers 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, the Stockholder and Dowers shall promptly communicate
to Buyer the existence or occurrence and terms of any Competing Proposal or
contact related thereto which the Stockholder, Dowers or the Company or any of
its employees, directors, or
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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, the Stockholder and Dowers 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.
4.14. Bonus Plan. If Buyer does not close the IPO of its equity securities by
June 30, 1999, Buyer will implement a cash bonus plan designed to reward
employees on the basis of the performance of the divisions or subsidiaries of
Buyer in which they work. Amounts payable under, and other terms of, any such
plan will be subject to restrictions imposed by Buyer's lenders, Buyer's capital
investment requirements, and preservation of adequate working capital.
4.15. Best Efforts. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.16. Further Assurances. Upon the reasonable request of a party or parties
hereto at any time after the Closing Date, the other party or parties shall
forthwith execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or parties or its or their counsel may reasonably request in
order to effectuate the purposes of this Agreement.
4.17. Notice of Breach. At all times before the Closing, and thereafter until
the second anniversary of the Closing Date, each of the parties hereto shall
promptly give written notice with particularity of any breach or inaccuracy of
any representation, warranty, agreement or covenant of such party contained
herein or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
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 date 18 months after of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.28 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Capital Stock); 2.4 (Title to Assets) and 2.22 (Indebtedness),
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall
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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 Stockholder and Dowers. Subject to the limits set
forth in this Article 5, the Stockholder and Dowers 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 or a trade payable incurred in the ordinary course of business since
the date of the Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company, the Stockholder or Dowers in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company, the Stockholder or Dowers 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 Stockholder, Dowers and their successors and assigns from and
against any and all Losses reasonably incurred by the Stockholder or Dowers
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
the Stockholder or Dowers in respect of
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any Losses arising as a result of willful or grossly negligent acts or omissions
of the Stockholder or Dowers, including without limitation in Dowers' capacity
as an employee of or consultant to Buyer or its Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(d) any adverse tax consequences to the Stockholder or Dowers
arising from the structure of the sale of the Seller Shares as a sale of stock
which the parties will elect to be treated as a sale of assets over and above
the amount of taxes they would have had to pay had the sale of the Seller Shares
been structured as a sale of the Seller Shares by The Dowers Family Trust
directly to Buyer, including, without limitation, any costs or expenses incurred
in connection with an audit, any adjustments to taxes paid and all related
costs, fees and expenses of any attorneys or accountants representing the
Stockholder or Dowers.
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
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Indemnitor shall cooperate with the Indemnitee, and the Indemnitor shall deliver
to the Indemnitee or its counsel copies of all pleadings and other information
within the Indemnitor's knowledge or possession reasonably requested by the
Indemnitee or its counsel that is relevant to the defense of such Claim and that
will not prejudice the Indemnitor's position, claims or defenses. The Indemnitee
and its counsel shall maintain confidentiality with respect to all such
information consistent with the conduct of a defense hereunder. The Indemnitor
shall have the right to elect to settle any claim for monetary damages only
without the Indemnitee's consent, if the settlement includes a complete release
of the Indemnitee. If the settlement does not include such a release, it will be
subject to the consent of the Indemnitee, which will not be unreasonably
withheld. The Indemnitor may not admit any liability of the Indemnitee or waive
any of the Indemnitee's rights without the Indemnitee's prior written consent,
which will not be unreasonably withheld. If the subject of any Claim results in
a judgment or settlement, the Indemnitor shall promptly pay such judgment or
settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
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5.5. Payment. All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6. Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this 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 Stockholder and Dowers on the
one hand, to Buyer, and Buyer, on the other hand to the Stockholder and Dowers,
for all claims arising under this Agreement and the other Transaction Documents
shall equal the aggregate Purchase Price. All claims of Buyer against the
Stockholder and Dowers arising under this Agreement and the other Transaction
Documents shall be settled first by offset against the Note. The amount of any
such claim over and above the amount available by offset against the Note shall
be paid either in cash or in Shares, at the option of the Stockholder and
Dowers. 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 Stockholder of such sale.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Obligations of Each Party. The obligations of the
Stockholder, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are
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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 Stockholder 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 Stockholder from and against, any
obligations that the Stockholder would incur as a result of consummating the
transactions contemplated hereby notwithstanding the fact that the conditions in
this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of the Company, 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 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 Stockholder contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Stockholder.
(b) Performance of the Company and the Stockholder. The Company and the
Stockholder shall have performed in all material respects all obligations
required to be
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performed by each of them under this Agreement on or before the Closing Date,
and at the Closing the Company and the Stockholder, 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 Stockholder, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholder
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by the Company and the Stockholder
and the consummation of the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of the Stockholder. Buyer has received,
or is receiving at the Closing, all of the following, each duly executed by the
Stockholder and, in the case of Section 6.2(d)(v), and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by the Stockholder and the spouse of
the Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24(g);
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. Except as set forth on Schedule 2.9, 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
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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 generally accepted accounting principles of at
least Fifty Thousand Dollars ($50,000), 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 received the consent of its senior
lenders to the transactions contemplated hereby, and shall have available, on
commercially reasonable terms reasonably satisfactory to Buyer, debt financing
sufficient to finance the cash portion of the Purchase Price and the cash
portion of the purchase price being paid by Buyer pursuant to each of the
Consolidation Transactions, and to provide Buyer with adequate working capital
following the transactions contemplated hereby and the 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, the Stockholder and
Dowers in substantially the form of Exhibit F. In giving such opinion, such
counsel may rely upon certificates of public officials, upon opinions of local
counsel and, as to matters of fact, upon a certificate of the Company, or its
officers, and such counsel may assume that this Agreement has been duly
authorized, executed and delivered by Buyer.
(l) Certificates. The Stockholder shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
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(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 an Employment
Agreement substantially in the form attached hereto as Exhibit G-1 for each key
employee designated by Buyer or Exhibit G-2 for other employees (each with
conforming changes as appropriate for the 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 Stockholder 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 Stockholder. The obligations of the
Stockholder 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 Stockholder in
writing in their discretion; provided however, such waiver will not waive or
diminish the right of the Stockholder to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
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(ii) The Note;
(iii) A photocopy of the certificate representing the Shares
issued in the name of the Stockholder as set forth in Schedule 1.3; and
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G-1 for each key employee designated by Buyer or Exhibit G-2
for other employees (each with conforming changes as appropriate for the
employee), with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholder shall have received the Cash
Payment (as described in Schedule 1.3).
(e) Opinion of Counsel. The Stockholder shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholder.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Stockholder.
7. MISCELLANEOUS.
7.1. Termination. This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholder 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
Stockholder is breached or is inaccurate in any material way; (b) by the Company
or the Stockholder if (i) Buyer fails to comply in any material respect with any
of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to March 15, 1999,
provided however, that if the board of directors of Buyer should, in good faith,
determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Additional Consolidation Transactions, it may
extend such date by thirty (30) days. Notwithstanding the foregoing, a party may
not terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of
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the covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.28 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2. Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery or three
(3) days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, or one (1) business day after being sent via a
nationally recognized overnight courier service if overnight courier service is
requested from such service or upon receipt of electronic or other confirmation
of transmission if sent via facsimile, to the parties, their successors in
interest or their assignees at the following addresses and telephone numbers, or
at such other addresses or telephone numbers as the parties may designate by
written notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
Attn: Ronit E. Attlesey, Esq.
If to the Company,
the Stockholder or
Dowers: Dana L. Dowers
President
Dana L. Dowers Corporation
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2560 Riviera Drive
Laguna Beach, CA 92651
Telephone No.: (949) 261-0242
Facsimile No.: (949) 464-1225
With a copy to: Higham, McConnell & Dunning LLP
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677-1250
Telephone No.: (949) 365-5515
Facsimile No.: (949) 365-5522
Attn: Steven J. Dunning, Esq.
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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 after the closing 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 the Stockholder and its 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 or agreements contained in this Agreement.
No waiver of any of the provisions of
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this Agreement will be considered, or will constitute, a waiver of any of the
rights or remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
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
Stockholder only and no other person.
7.12. Expenses of Transactions. All fees, costs and expenses incurred by Buyer,
in connection with the transactions contemplated by this Agreement shall be
borne by Buyer, and all fees, costs and expenses incurred by the Company or the
Stockholder in connection with the transactions contemplated by this Agreement
shall be borne by the Stockholder, except that fees, costs and expenses incurred
by the Company and the Stockholder in connection with the formation of the
Stockholder, the annual franchise tax payable to the California Franchise Tax
Board by the Stockholder, the cost of preparation and filing of state and
federal income tax returns by the Stockholder and the negotiation and
preparation of the documents in connection with the transfer of the Seller
Shares from The Dowers Family Trust to the Stockholder and in connection with
the sale of the Seller Shares to Buyer by Stockholder (as opposed to The Dowers
Family Trust) shall be borne by Buyer and shall be paid to the Stockholder
promptly upon demand.
7.13. Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in
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courts of appropriate jurisdiction, and such request shall not be deemed a
waiver of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of Dowers by Buyer or any Affiliate of Buyer, the provisions of this
Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between Dowers and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A 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.
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(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one 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.
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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 the Stockholder or Dowers, or if the Company or any of
its Affiliates, successors or assigns or the Stockholder or Dowers brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against Buyer or any of its Affiliates, successors or assigns,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "ACTION"), in addition to any damages and costs
which the prevailing party otherwise would be entitled, the non-prevailing party
shall pay to the prevailing party a reasonable sum for attorneys' fees and costs
(at the prevailing party's attorneys' then-prevailing rates) incurred in
bringing and prosecuting such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained
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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 Stockholder, Dowers and
Buyer acknowledge that irreparable damage would occur if any of the obligations
of the Company, the Stockholder and Dowers 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, the Stockholder or Dowers 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.
EPS SOLUTIONS CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
-------------------------------------
Name: Mark C. Coleman
-------------------------------------
Title: SVP
-------------------------------------
D.L.D. INSURANCE BROKERS, INC.
"COMPANY"
By: /s/ DANA L. DOWERS
-------------------------------------
Name: Dana L. Dowers
Title: President
DANA L. DOWERS CORPORATION
"STOCKHOLDER"
/s/ DANA L. DOWERS
- -------------------------------------------
Dana L. Dowers
DANA L. DOWERS
SOLELY WITH RESPECT TO SECTIONS 4.2, 4.4,
4.13, 5.1 THROUGH 5.6, AND 7.13 THROUGH
7.16 OF THIS AGREEMENT
/S/ DANA L. DOWERS
- -------------------------------------------
Dana L. Dowers
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SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Four Million Eight Hundred Thousand Dollars
($4,800,000) (the "CASH PAYMENT").
(ii) A Promissory Note of Buyer, dated as of the Closing Date
substantially in the form of Exhibit I for an aggregate principal amount
of Seven Million Two Hundred Thousand Dollars ($7,200,000) (the "NOTE")
(iii) An aggregate of 238,148 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 to Stockholder.
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Seller Shares
Name of Owned and to Cash Note Common Stock
Stockholder be sold to Buyer Consideration Consideration Consideration
- -------------------------------------------------------------------------------------------------------
DANA L. DOWERS CORPORATION 5,000 $4,800,000 $7,200,000 238,148
SHARES SHARES
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