Exhibit 2.1
CONTRIBUTION AGREEMENT
by and among
E-SYNC NETWORKS, LLC
("JV"),
E-SYNC NETWORKS, INC.
("ESNI"),
and
CRC, INC.
("CRC")
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Dated August 6, 2001
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TABLE OF CONTENTS
ARTICLE I RULES OF CONSTRUCTION; DEFINITIONS...............................1
1.1 Definitions......................................................1
1.2 Interpretation...................................................7
ARTICLE II CONTRIBUTION OF ESNI'S ASSETS....................................7
2.1 Contribution of the ESNI Contributed Assets......................7
2.2 Excluded Assets..................................................8
2.3 Assumption of Liabilities........................................8
2.4 Apportionment with respect to Contracts..........................8
2.5 Bridge Loan......................................................9
ARTICLE III CONSIDERATION FOR CONTRIBUTION...................................9
3.1 Consideration....................................................9
3.2 Calculation of Recurring Revenues................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ESNI..........................10
4.1 Organization; Standing; Qualification...........................10
4.2 Authority Relative to this Agreement............................10
4.3 Consents and Approvals; No Violations...........................11
4.4 Ownership and Use of ESNI Contributed Assets....................11
4.5 Intellectual Property...........................................11
4.6 Contracts.......................................................13
4.7 Equipment.......................................................13
4.8 Real Property...................................................13
4.9 Subsidiaries....................................................14
4.10 Employees.......................................................14
4.11 Compliance with Laws............................................15
4.12 Environmental Protection........................................15
4.13 Permits.........................................................16
4.14 Compliance with Other Instruments...............................16
4.15 Insurance.......................................................16
4.16 Litigation......................................................16
4.17 Financial Statements............................................17
4.18 Events Subsequent to Latest Balance Sheet Date..................17
4.19 Bankruptcy......................................................17
4.20 Commission Filings..............................................17
4.21 No Undisclosed Liabilities......................................18
4.22 Proxy Statement.................................................18
4.23 Full Disclosure.................................................18
4.24 Schedules.......................................................18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CRC AND JV....................19
5.1 Organization; Standing; Qualification...........................19
5.2 Authority Relative to this Agreement............................19
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5.3 Consents and Approvals; No Violations...........................19
5.4 Formation of JV.................................................20
5.5 Investment Representations......................................20
ARTICLE VI COVENANTS; CONDITIONS TO CLOSING................................21
6.1 Covenants.......................................................21
6.2 Conditions Precedent to Obligations of the JV and CRC...........25
6.3 Conditions Precedent to Obligations of ESNI.....................27
ARTICLE VII CLOSING.........................................................28
7.1 Time and Place of Closing.......................................28
7.2 Deliverables....................................................28
ARTICLE VIII INDEMNIFICATION.................................................30
8.1 Survival........................................................30
8.2 Indemnification.................................................30
8.3 Indemnification; Notice and Settlements.........................31
ARTICLE IX EXCLUSIVE DEALING; TERMINATION..................................32
9.1 Exclusive Dealing...............................................32
9.2 Termination.....................................................32
9.3 Effects of Termination..........................................33
ARTICLE X MISCELLANEOUS...................................................33
10.1 Entire Agreement................................................33
10.2 Confidentiality.................................................33
10.3 Successors and Assigns..........................................34
10.4 Severability....................................................34
10.5 Amendments and Waivers..........................................34
10.6 Arbitration.....................................................34
10.7 Governing Law; Consent to Jurisdiction..........................34
10.8 Counterparts....................................................35
10.9 Interpretation..................................................35
10.10 Notices.........................................................35
10.11 Finders' Fees...................................................36
10.12 Expenses........................................................36
10.13 Further Assurances..............................................36
10.14 Publicity.......................................................36
10.15 Specific Performance............................................37
Exhibit A CRC Contribution Agreement
Exhibit B Management Services Agreement
Exhibit C Operating Agreement
Exhibit D Registration Rights Agreement
Exhibit E Security Agreement
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Exhibit F Voting Agreement
Exhibit G First Installment Note
Exhibit H Extended Installment Note
Exhibit I Warrant
Exhibit J Opinion of Counsel of ESNI
Exhibit K Opinion of Counsel of CRC
Exhibit L Amendment, Assignment and Consent to Assignment of Lease
Exhibit M Assignment of Intellectual Property Rights
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CONTRIBUTION AGREEMENT
This CONTRIBUTION Agreement (this "Agreement") is made on and as of August
6, 2001 (the "Effective Date"), by and among E-SYNC NETWORKS, LLC, a Delaware
limited liability company (the "JV"), E-SYNC NETWORKS, INC., a Delaware
corporation ("ESNI"), and CRC, INC., a New York corporation ("CRC"). Capitalized
terms used in this Agreement and not otherwise defined have the meanings given
to them in Section 1.1.
RECITALS
WHEREAS, ESNI is a provider of e-business infrastructure products and
services;
WHEREAS, ESNI desires to contribute to the JV, and the JV desires to
receive from ESNI, the ESNI Contributed Assets, subject to and in accordance
with the terms and conditions set forth herein;
WHEREAS, in consideration for the Contribution by ESNI to the JV of the
ESNI Contributed Assets, CRC agrees, contemporaneously with or prior to, as the
case may be, the Contribution, to: (A) advance and loan to ESNI the Bridge Loan,
advance and loan to ESNI the First Installment Amount and commit to advance and
loan to ESNI the Extended Installment Amount, in each case pursuant to, and in
accordance with, the applicable Promissory Notes; and (B) contribute the CRC
Contributed Assets to the JV pursuant to, and in accordance with, the CRC
Contribution Agreement;
WHEREAS, following the contribution to the JV of the ESNI Contributed
Assets by ESNI and of the CRC Contributed Assets by CRC, ESNI will hold
fifty-one percent (51%) and CRC will hold forty-nine percent (49%) of the
outstanding membership interests of the JV;
WHEREAS, in connection with the transactions contemplated hereby, as of
this date, certain stockholders of ESNI are entering into the Voting Agreement;
and
WHEREAS, in connection with the transactions contemplated hereby, ESNI
agrees to issue to CRC a warrant (the "Warrant") to acquire shares of ESNI's
Common Stock equal to ten percent (10%) of the voting stock of ESNI (on a
fully-diluted as-if-converted basis) as of the Closing Date;
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants and agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
RULES OF CONSTRUCTION; DEFINITIONS
1.1 Definitions. Unless otherwise provided herein, the following terms
used in this Agreement shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any specified Person, a Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, and also
includes any stockholder, member, officer, director or manager of such specified
Person.
"Agreement" shall mean this Agreement, including the Schedules and
Exhibits hereto, as the same may be amended from time to time.
"Assumed Liabilities" shall have the meaning set forth in Section 2.3(a).
"Books and Records" shall have the meaning set forth in Section 2.1(f).
"Bridge Loan" shall have the meaning set forth in Section 2.5.
"Business Combination" shall have the meaning set forth in Section 9.1.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in the State of New York are authorized or required by
law, executive order or governmental decree to be closed.
"Closing" shall have the meaning set forth in Section 7.1.
"Closing Date" shall have the meaning set forth in Section 7.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean ESNI's common stock, par value $0.01 per share.
"Competing Business" shall have the meaning set forth in Section 6.1(h).
"Confidentiality Agreement" shall have the meaning set forth in Section
10.2.
"Consideration" shall have the meaning set forth in Section 3.1(a).
"Contracts" shall have the meaning set forth in Section 2.1(a).
"Contribution" shall have the meaning set forth in Section 2.1.
"CRC" shall mean CRC, Inc., a New York corporation.
"CRC Contributed Assets" shall have the meaning set forth in Section
3.1(b)(i).
"CRC Contribution Agreement" shall mean the Contribution Agreement by and
between the JV and CRC, in the form attached hereto as Exhibit A.
"CRC Indemnified Parties" shall have the meaning set forth in Section
8.2(a).
"Credit Facility" shall have the meaning set forth in Section 6.2(j).
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"Damages" shall have the meaning set forth in Section 8.2(a).
"Effective Date" shall have the meaning set forth in the preamble of this
Agreement.
"Encumbrances" shall mean, with respect to any property, any mortgage,
lien, pledge, assignment, charge, security interest, title retention agreement,
levy, execution, seizure, attachment, garnishment or other encumbrance of any
kind in respect of such property in favor of any Person, other than Permitted
Liens.
"Environmental Laws" shall mean the Resource Conservation Recovery Act,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act, the Toxic
Substances Control Act, the Hazardous Material Transportation Act, the Clean Air
Act, the Clean Water Act, and any other similar federal and state laws, as
amended and currently in effect, together with all regulations issued or
promulgated thereunder, and all other Laws relating to pollution, Hazardous
Substances, the protection of the environment or the health and safety of
workers or the general public as currently in effect.
"Equipment" shall have the meaning set forth in Section 2.1(c).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations issued or promulgated thereunder.
"ESNI" shall mean E-Sync Networks, Inc., a Delaware corporation.
"ESNI Contributed Assets" shall have the meaning set forth in Section 2.1.
"ESNI Disclosure Schedule" shall have the meaning set forth in Section
4.1.
"ESNI Indemnified Parties" shall have the meaning set forth in Section
8.2(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Excluded Liabilities" shall have the meaning set forth in Section 2.3(b).
"Extended Installment Amount" shall mean an advance and loan which CRC
may, after the Closing Date, make to ESNI in the principal amount equal to
$1,500,000 less the outstanding amount of the Good Faith Loan and, if made, the
outstanding amount of the Bridge Loan, subject to the reductions and adjustments
as provided in the Extended Installment Note.
"Extended Installment Note" shall have the meaning set forth in Section
3.1(b)(iii).
"First Installment Amount" shall mean an advance and loan provided by CRC
on the Closing Date to ESNI in the principal amount of $500,000, as evidenced by
the First Installment Note.
"First Installment Note" shall have the meaning set forth in Section
3.1(b)(ii).
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"GAAP" shall mean U.S. generally accepted accounting principles,
consistently applied.
"Good Faith Loan" shall mean the advance and loan provided by CRC on June
14, 2001 to ESNI in the principal amount of $250,000, as evidenced by that
certain Secured Promissory Note dated June 14, 2001 issued by ESNI to CRC.
"Governmental Authority" shall mean any public body, governmental,
administrative or regulatory authority, agency, instrumentality or commission,
including courts of competent jurisdiction and arbitral tribunals, whether
federal, state, local or foreign.
"Hazardous Substance" shall mean any hazardous substance, hazardous or
toxic waste, hazardous material, pollutant or contaminant, as those or similar
terms are used in the Environmental Laws, and includes friable asbestos,
asbestos-related products, chlorofluorocarbons, oils, petroleum-derived
compounds, polychlorinated biphenyls, pesticides, and radon.
"Indemnified Party" shall have the meaning set forth in Section 8.3.
"Indemnifying Party" shall have the meaning set forth in Section 8.3.
"Insurance Policies" shall have the meaning set forth in Section 4.15.
"Intellectual Property" shall have the meaning set forth in Section
2.1(d).
"JV" shall mean E-Sync Networks, LLC, a Delaware limited liability
company.
"Key Employees" shall mean those key personnel of ESNI whose activities
are primarily related to the ESNI Contributed Assets as set forth in Schedule
1.1.
"Laws" shall mean any statutes, ordinances, rules, regulations, orders or
other laws of any Governmental Authority.
"Leased Real Property" shall have the meaning set forth in Section 2.1(b).
"Management Services Agreement" shall mean the Management Services
Agreement by and between the JV and CRC Management Services, Inc., a New York
corporation and an Affiliate of CRC, substantially in the form attached hereto
as Exhibit B, as the same may be amended from time to time.
"Material Adverse Effect" shall mean, with respect to any party hereto,
any action, event or occurrence which has or could have a material adverse
effect on the business, assets, operations, prospects, financial condition or
results of operations of such party or its respective subsidiaries taken as a
whole; provided, however, that none of the following shall be deemed, either
alone or in combination, to constitute, and none of the following shall be taken
into account in determining whether there has been or will be, a Material
Adverse Effect with respect to ESNI: (i) any change in the market price or
trading volume of ESNI's common stock; (ii) any adverse change, event or effect
attributable or relating to the payment of (1) out-of-pocket fees and expenses
(including legal, accounting and investment banking fees and expenses) incurred
in
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connection with the transaction contemplated by this Agreement or (2) any
amounts due to, or the provision of any other benefits to, any officers or
employees pursuant to employment contracts, non-competition agreements, employee
benefit plans, severance arrangements or other arrangements in existence as of
the date hereof and set forth in the ESNI Disclosure Schedule; (iii) any adverse
change, event or effect directly attributable to ESNI's compliance with the
terms of, or the taking by ESNI of any action required by, this Agreement or the
taking of any action consented to by CRC where the possibility of a resulting
Material Adverse Effect was disclosed to CRC by ESNI in writing prior to receipt
of such consent; (iv) any adverse change, event or effect attributable or
relating to any change in GAAP or any change in applicable laws, rules or
regulations or the interpretations thereof; or (v) the ESNI common stock being
delisted from trading on The Nasdaq SmallCap Market.
"Material Permits" shall have the meaning set forth in Section 4.13.
"Operating Agreement" shall mean the Operating Agreement of the JV,
substantially in the form attached hereto as Exhibit C, as the same may be
amended from time to time.
"Orders" shall mean any orders, writs, injunctions, judgments, decrees or
awards of any Governmental Authority.
"Permits" shall have the meaning set forth in Section 4.12.
"Permitted Liens" shall mean (i) any security interest or other liens in
favor of CRC, (ii) purchase money security interests and/or capital leases that
have been entered into by ESNI prior to the date hereof and that are listed on
Section 4.4 of the ESNI Disclosure Schedule, (iii) purchase money security
interests and/or capital leases that are entered into by ESNI after the date
hereof and that do not, at any time, secure obligations in an aggregate amount
of in excess of twenty-five thousand dollars ($25,000), (iv) liens imposed for
taxes not yet due and payable, (v) carriers', warehousemen's, mechanics',
materialmen's, repairmen's and similar liens imposed by law and arising in the
ordinary course of ESNI's business, (vi) pledges and deposits made by ESNI in
the ordinary course of its business in compliance with worker's compensation,
unemployment insurance and social security laws or regulations or similar laws
or regulations, (vii) deposits to secure performance of bids, trade and other
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of similar nature, and to secure letters of credit
in respect of any of the foregoing, in each instance made by ESNI in the
ordinary course of its business, (viii) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property that have been imposed
by law or have arisen in the ordinary course of ESNI's business, that do not
secure any monetary obligations and that do not materially detract from the
value of the affected property or interfere with its use or the conduct of
ESNI's business, (ix) licenses and sublicenses granted by ESNI in the ordinary
course of its business and (x) precautionary filings by the holder of operating
leases entered into by ESNI in the ordinary course of its business.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or governmental body.
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"Plan" shall have the meaning set forth in Section 4.10(c).
"Promissory Notes" shall have the meaning set forth in Section
3.1(b)(iii).
"Property Lease" shall have the meaning set forth in Section 4.8(a).
"Proxy Statement" means that certain proxy statement with respect to the
transactions contemplated hereby and other matters prepared by ESNI, filed with
the SEC and mailed to the stockholders of ESNI in compliance with Section 14(a)
of the Exchange Act and Rule 14a-3 promulgated thereunder.
"Recurring Revenues" shall mean revenues which are reasonably and in good
faith anticipated to be generated without material reduction during the next
three (3) years, excluding revenues from the sale or resale of packaged software
or hardware products.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement by and between ESNI and CRC, substantially in the form attached hereto
as Exhibit D, as the same may be amended from time to time.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 4.20.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreement" shall mean the Amended and Restated Pledge and
Security Agreement by ESNI in favor of CRC, dated the date hereof, attached
hereto as Exhibit E, as the same may be amended from time to time.
"Survival Period" shall mean the fifteen month period commencing as of the
Closing Date.
"Transaction Documents" shall mean, collectively, the following agreements
and the agreements and documents executed and delivered pursuant thereto:
(a) this Agreement;
(b) Operating Agreement;
(c) Management Services Agreement;
(d) First Installment Note;
(e) Extended Installment Note, if applicable;
(f) Security Agreement;
(g) Warrant;
(h) Registration Rights Agreement; and
(i) CRC Contribution Agreement.
"Voting Agreement" shall mean the Voting Agreement by and among CRC and
the stockholders of ESNI party thereto, substantially in the form attached
hereto as Exhibit F, as the same may be amended from time to time.
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"Warrant" shall have the meaning set forth in the Recitals.
"Warranties" shall have the meaning set forth in Section 2.1(e).
"2001 Balance Sheet" shall have the meaning set forth in Section 4.21.
1.2 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to an Article, Section, Schedule or
Exhibit, such reference shall be to an Article or Section of or Schedule or
Exhibit to this Agreement unless otherwise indicated. Where the reference
"hereof," "hereby" or "herein" appears in this Agreement, such reference shall
be deemed to be a reference to this Agreement as a whole. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." Words denoting the
singular include the plural, and vice versa, and references to it or its or
words denoting any gender shall include all genders. References to "$" or
"dollars" mean U.S. dollars unless otherwise specified.
ARTICLE II
CONTRIBUTION OF ESNI'S ASSETS
2.1 Contribution of the ESNI Contributed Assets. Subject to the terms and
conditions set forth herein, on the Closing Date, ESNI shall contribute, assign,
transfer, convey and deliver to the JV and the JV shall assume, receive and
accept from ESNI (the "Contribution") all of ESNI's right, title and interest in
and to all of ESNI's business and assets, exclusive of the Excluded Assets
described in detail in Section 2.2 below, free and clear of any Encumbrances,
except as specifically set forth on Section 4.4 of the ESNI Disclosure Schedule
(such business and assets, exclusive of the Excluded Assets, the "ESNI
Contributed Assets"). At the Closing, ESNI shall execute and deliver to the JV
such other instruments as are necessary to consummate the Contribution. Without
limiting the foregoing, the ESNI Contributed Assets include:
(a) Contracts; Agreements; Licenses; Prospect Lists. All of ESNI's
right, title and interest in and to all of the executory contracts, agreements,
licenses and prospect lists necessary and appropriate for the continued
operation of the ESNI Contributed Assets, including those set forth on Schedule
2.1(a) (the "Contracts");
(b) Leased Real Property. All right, title and interest of ESNI, as
lessee, in that certain lease of real property described on Schedule 2.1(b) (the
"Leased Real Property");
(c) Equipment. All shelving, furniture and fixtures, office
equipment, computers and other computer related hardware and equipment, tools,
maintenance and repair equipment, parts, accessories, miscellaneous inventories
and other items of tangible personal property, whether on or off the books of
ESNI, owned by, leased to or otherwise used or usable by or necessary to ESNI in
connection with the ESNI Contributed Assets, except those specified on Schedule
2.1(c) (the "Equipment");
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(d) Intellectual Property. All of ESNI's right, title and interest
in and to the intellectual property listed on Schedule 2.1(d), including all
right, title and interest in and to the "E-SYNC NETWORKS" name and the words
constituting such name (the "Intellectual Property");
(e) Warranties, Etc. All of ESNI's rights under manufacturers' and
vendors' warranties, and all similar rights against third parties, relating to
items included in the ESNI Contributed Assets, to the full extent such rights
are transferable (the "Warranties"); and
(f) Books and Records. Originals or, where not available, copies, of
all books, records, operating data, manuals, customer records and other
materials, which relate to, are a part of or are necessary for, the operation of
the ESNI Contributed Assets, except to the extent solely relating to or to the
extent the same constitute(s) the Excluded Assets or the Excluded Liabilities
(the "Books and Records").
2.2 Excluded Assets. The ESNI Contributed Assets shall not include such
business and assets of ESNI as are specifically listed on Schedule 2.2 (the
"Excluded Assets").
2.3 Assumption of Liabilities. The JV shall assume and accept the Assumed
Liabilities as follows:
(a) At the Closing and except as otherwise provided in Section
2.3(b), the JV shall assume and agree to pay, discharge or perform, as
appropriate, those liabilities and obligations of ESNI specifically listed on
Schedule 2.3(a) (the "Assumed Liabilities").
(b) The parties acknowledge that CRC shall not be the successor to
ESNI with respect to, and the JV does not assume and shall not be liable to pay,
perform or discharge, any of the debts, liabilities or obligations of ESNI,
known or unknown, contingent or liquidated or otherwise, including expenses of
ESNI, not specifically listed on Schedule 2.3(a) (the "Excluded Liabilities").
2.4 Apportionment with respect to Contracts. ESNI and the JV agree that
(a) ESNI is entitled to all revenues derived from the Contracts and is
responsible for all of the expenses incurred in connection with the Contracts,
attributable to the period ending with the day immediately preceding the Closing
Date, whether such revenues are received or such expenses are paid before or
after the Closing Date, and (b) the JV is entitled to all of the revenues
derived from the Contracts and is responsible for all of the expenses incurred
in connection with the Contracts, attributable to the period beginning with the
Closing Date; provided, however, that nothing in this Section 2.4 shall be read
to make ESNI responsible from and after the Closing Date for the Assumed
Liabilities, which Assumed Liabilities shall become the sole liability of the JV
on and after the Closing Date. Accordingly, revenues and expenses relating to
the Contracts shall be apportioned between ESNI and the JV as of the Closing
Date. ESNI and the JV shall cooperate reasonably and in good faith to agree
mutually to a final proration schedule as promptly as practicable. Adjustments
required as a result of such schedule as to which the parties have agreed shall
be made by prompt payment from ESNI to the JV or by the JV to ESNI, as the case
may be.
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2.5 Bridge Loan. Following the Effective Date, CRC may, at its sole
discretion, from time to time advance additional loan to ESNI, on terms and
conditions mutually acceptable to CRC and ESNI, to fund ongoing operations of
ESNI from the Effective Date until the Closing Date (such additional loan, the
"Bridge Loan").
ARTICLE III
CONSIDERATION FOR CONTRIBUTION
3.1 Consideration.
(a) In consideration for the Contribution by ESNI to the JV of the
ESNI Contributed Assets (the "Consideration"), the JV shall, contemporaneously
with the Contribution: (i) issue a fifty-one percent (51%) membership interest
in the JV to ESNI pursuant to, and in accordance with, the Operating Agreement
and (ii) assume all of the Assumed Liabilities.
(b) In order to induce ESNI to enter into this Agreement and the
other Transaction Documents to which it is a party, CRC hereby agrees to:
(i) concurrently with the Closing, in accordance with the
terms of the CRC Contribution Agreement, contribute to the JV the accounts
and/or contracts set forth on Schedule 3.1(b) (the "CRC Contributed
Assets"), which accounts and/or contracts provide network management
services or other professional services Recurring Revenues equal to the
Recurring Revenues generated by the ESNI Contributed Assets, determined on
an annualized basis based upon three (3) full calendar months immediately
preceding the date hereof in accordance with the provisions of Section
3.2, in exchange for a forty-nine percent (49%) membership interest in the
JV pursuant to, and in accordance with, the Operating Agreement;
(ii) advance and loan to ESNI the First Installment Amount
pursuant to, and in accordance with, the terms and conditions contained in
the promissory note to be made by ESNI, substantially in the form attached
hereto as Exhibit G (the "First Installment Note"); and
(iii) commit to advance and loan to ESNI the Extended
Installment Amount pursuant to, and in accordance with, the terms and
conditions contained in the promissory note to be made by ESNI,
substantially in the form attached hereto as Exhibit H (the "Extended
Installment Note," and together with the First Installment Note, the
"Promissory Notes").
(c) For tax and accounting purposes, the parties hereto hereby agree
that the First Installment Amount shall be treated as a purchase of the Warrant
and a purchase of the First Installment Note with the allocation thereto to be
provided by ESNI as promptly as practicable after the Closing Date in accordance
with GAAP.
3.2 Calculation of Recurring Revenues. No later than ten (10) Business
Days following the date hereof, each of ESNI and CRC shall each independently
calculate and present
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to the other party the amount of the Recurring Revenues for the immediately
prior three (3) full calendar months generated by the ESNI Contributed Assets
and the proposed CRC Contributed Assets, respectively. In the event that either
party disputes the calculation of the other, such party will have the right to
inspect such other party's books and records and to contact and ask questions of
such other party's officers and independent accountants. If such inspection and
inquisition does not resolve such dispute, then the arbitration provisions of
this Agreement shall govern the resolution of such dispute. In the event that it
is determined that the Recurring Revenues of the ESNI Contributed Assets exceeds
or is less than the Recurring Revenues of the proposed CRC Contributed Assets,
CRC will increase the proposed CRC Contributed Assets to cover such shortfall or
reduce the proposed CRC Contributed Assets to cover such overage.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ESNI
ESNI hereby represents and warrants to the JV and CRC as follows:
4.1 Organization; Standing; Qualification. ESNI is a corporation duly
incorporated, validly existing and, except as set forth on Section 4.1 of the
written disclosure schedule delivered by ESNI to the JV and CRC on the date
hereof (the "ESNI Disclosure Schedule"), in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own
its properties and assets and to carry on its business in the manner now
conducted and as proposed to be conducted. ESNI is duly qualified to transact
business and is in good standing as a foreign corporation in the jurisdictions
listed on Section 4.1 of the ESNI Disclosure Schedule, which are the only
jurisdictions in which the character of any property owned or the nature of any
business transacted by ESNI makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
4.2 Authority Relative to this Agreement. ESNI has full corporate power
and authority to execute and deliver this Agreement and, when executed and
delivered, any other Transaction Document to which it may be a party, and the
documents and instruments to be executed and delivered by it pursuant hereto and
thereto and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the documents and instruments to be
executed and delivered by ESNI pursuant hereto and the consummation of the
transactions contemplated hereby and thereby have been, and, when executed and
delivered, all other Transaction Documents to which ESNI may be a party and the
consummation of the transactions contemplated thereby will have been, duly and
validly authorized by ESNI's Board of Directors, do not require any further
corporate proceedings on the part of ESNI, except for the approval thereof by
the stockholders of ESNI in accordance with Delaware law and ESNI's certificate
of incorporation, and do not and will not violate or conflict with the
certificate of incorporation, by-laws or other charter documents applicable to
ESNI. This Agreement and the documents and instruments to be executed and
delivered by ESNI pursuant hereto have been, and, when executed and delivered,
all other Transaction Documents to which ESNI may be a party will be, duly and
validly executed and delivered by ESNI and this Agreement and the documents and
instruments to be executed and delivered by it pursuant hereto constitute, and,
when executed and delivered, all other Transaction Documents to which ESNI may
be a party will constitute, valid and binding agreements of ESNI, enforceable
against ESNI in accordance with their terms, except to the extent to which such
enforcement may be limited by
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bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally and
by general principles of equity relating to enforceability. ESNI has provided
access to CRC on or prior to the date hereof to review accurate and complete
copies of all of its books and records, minutes of meetings, consents,
resolutions and other documentation related to corporate governance, other than
(i) minutes or resolutions relating to meetings of the compensation committee of
ESNI's Board of Directors, (ii) materials distributed to members of the Board of
Directors and/or (iii) minutes of meetings of the Board of Directors not
approved by the Board of Directors. There are no material corporate actions that
have been taken by ESNI that are not reflected in such documentation.
4.3 Consents and Approvals; No Violations. The execution and delivery by
ESNI of this Agreement and the consummation of the transactions contemplated
hereby and thereby, and, when executed and delivered, all other Transaction
Documents to which ESNI is a party and the consummation of the transactions
contemplated thereby, either individually or in the aggregate, do not and will
not (i) except as set forth on Section 4.3 of the ESNI Disclosure Schedule,
require any consent, waiver, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority or any third Person, other
the filing and mailing of the Proxy Statement in compliance with Section 14(a)
of the Exchange Act and Rule 14a-3 promulgated thereunder and the approval
thereof of ESNI's stockholders in accordance with Delaware law and ESNI's
certificate of incorporation, (ii) except as set forth on Section 4.3 of the
ESNI Disclosure Schedule, result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default or
give rise to any right of termination, amendment, acceleration, cancellation,
suspension, material impairment, forfeiture or nonrenewal under, any of the
material terms, conditions or provisions of any of the Contracts, or any other
material agreement, instrument or obligation by which ESNI or any of the ESNI
Contributed Assets may be bound or affected or result in the imposition of any
material Encumbrance on the ESNI Contributed Assets, or (iii) assuming ESNI
complies with Section 6.1(c) hereof, result in a violation of any material Law
or any Order of any Governmental Authority applicable to ESNI or by which ESNI
or any of the ESNI Contributed Assets is bound.
4.4 Ownership and Use of ESNI Contributed Assets. Except as disclosed in
Section 4.4 of the ESNI Disclosure Schedule, ESNI has, and at the Closing shall
transfer to the JV, good and marketable title to all of the ESNI Contributed
Assets, free and clear of all Encumbrances. Section 4.4 of the ESNI Disclosure
Schedule sets forth all Permitted Liens outstanding to the knowledge of ESNI
after due inquiry and investigation.
4.5 Intellectual Property. Except, in each case, as disclosed in Section
4.5 of the ESNI Disclosure Schedule:
(a) ESNI owns, or has the right to use, sell or license all of the
Intellectual Property constituting part of the ESNI Contributed Assets;
(b) the execution, delivery and performance of this Agreement and,
when executed and delivered, all other Transaction Documents to which ESNI may
be a party and the consummation of the transactions contemplated hereby and
thereby will not constitute a breach of any instrument or agreement governing
any of the Intellectual Property and will not cause the
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forfeiture or termination or give rise to a right of forfeiture or termination
of any right with respect to the Intellectual Property or impair the right of
ESNI or, after the Closing, the JV to use, sell or license the Intellectual
Property or any portion thereof;
(c) there are no royalties, fees or other payments payable by ESNI
to any Person with respect to the Intellectual Property;
(d) the conduct of ESNI's business, as presently conducted, does not
and will not violate any license or agreement between ESNI and any third Person
or infringe any intellectual property rights of any other party, and there is no
pending or, to the knowledge of ESNI, threatened claim or litigation contesting
the validity, ownership or right of ESNI to use, sell, license or dispose of the
Intellectual Property nor, to the knowledge of ESNI, is there any basis for any
such claim, nor has ESNI received any notice asserting that any Intellectual
Property or the proposed use, sale, license or disposition thereof conflicts or
will conflict with the rights of any other party, nor, to the knowledge of ESNI,
is there any basis for any such assertion;
(e) ESNI has taken reasonable and practical steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all intellectual property rights which are part of or related to the
ESNI Contributed Assets. Since January 1, 2000, all consultants of ESNI who have
created intellectual property rights which are part of or related to the ESNI
Contributed Assets have executed and delivered to ESNI agreements assigning to
ESNI all intellectual property rights arising from their services and such
intellectual property rights are works made for hire and ESNI is the author and
owner of all such rights under the Copyright Act of 1976, as amended, and the
rules and regulations promulgated thereunder. No current or prior officers,
employees or consultants of ESNI claim or have a right to claim an ownership
interest in any intellectual property rights as a result of having been involved
in the development or licensing of such property while employed by or consulting
to ESNI, or otherwise;
(f) Section 4.5 of the ESNI Disclosure Schedule sets forth a list of
all applications, registrations, filings and other formal actions made or taken
pursuant to federal, state and foreign laws by ESNI to perfect or protect its
interests in intellectual property rights which are part of or used in
connection with the ESNI Contributed Assets, including, all patents, patent
applications, trademarks and service marks, trademark and service mark
applications, copyrights and copyright applications; and
(g) Section 4.5 of the ESNI Disclosure Schedule lists and briefly
describes the material terms of all intellectual property licenses held by ESNI
which are part of or related to the ESNI Contributed Assets; all such licenses
are valid, enforceable and in full force and effect, and will continue to be so
in all material respects on identical terms immediately following the Closing,
except as disclosed in Section 4.5 of the ESNI Disclosure Schedule or as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
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4.6 Contracts. True, correct and complete copies or access thereto of all
written Contracts listed on Schedule 2.1(a) have been provided to CRC prior to
the date hereof. Each of the Contracts is legal, valid and in full force and
effect and is valid, binding and enforceable by ESNI in accordance with its
terms (except as enforceability may be limited by bankruptcy and other laws
affecting creditors' rights generally). Except as set forth in Section 4.6 of
the ESNI Disclosure Schedule, ESNI is not in default under nor has it breached
any of the Contracts, and no act or omission by ESNI has occurred which, with
notice or lapse of time or both, would constitute a breach or default under any
term or provision of any Contract. To the knowledge of ESNI, no other party is
in breach or default under any of the Contracts, and no act or omission has
occurred by any other party thereto which, with notice or lapse of time or both,
would constitute such a breach or default under any term or provision thereof.
Except as set forth in Section 4.6 of the ESNI Disclosure Schedule, there are no
disputes with respect to any Contract. Except as set forth in Section 4.6 of the
ESNI Disclosure Schedule, the continuation and validity of the Contracts will in
no way be affected by the transfer of the Contracts under this Agreement or the
transactions contemplated by this Agreement and, when executed and delivered, by
the other Transaction Documents and no consent from any third Person is required
for the transfer and assignment of the Contracts to the JV pursuant to this
Agreement. Except as set forth in Section 4.6 of the ESNI Disclosure Schedule,
no party to any Contract has given notice of its intent to terminate, or not
renew, its relationship with ESNI and no such party has otherwise changed
significantly its relationship, or the terms upon which it conducts business
with ESNI, or notified ESNI that it intends to do so, whether in connection with
the transactions contemplated by this Agreement or otherwise.
4.7 Equipment. The Equipment is suitable for the purpose(s) for which it
is used and is in good working order and condition and has been maintained in
accordance with good workmanlike practices.
4.8 Real Property.
(a) Leased Real Property. Except for the Leased Real Property, ESNI
is not a lessor or lessee of any real property. ESNI has delivered to CRC a true
and complete copy of the lease (the "Property Lease") with respect to the Leased
Real Property pursuant to which ESNI is the lessee of such property. The
Property Lease is in full force and effect and has not been assigned, modified,
supplemented or amended, and constitutes the entire agreement between the
parties thereto with respect to the subject matter thereof. Neither ESNI nor the
lessor under the Property Lease is in material default thereunder nor, to the
best knowledge of ESNI, is there any fact or state of facts with respect to the
Property Lease which, upon notice or the passage of time or both would give rise
to a default thereunder. Except as set forth in Section 4.8(a) of the ESNI
Disclosure Schedule, the continuation and validity of the Property Lease will in
no way be affected by the transfer and assignment of the Property Lease under
this Agreement or the transactions contemplated by this Agreement and, when
executed and delivered, the other Transaction Documents and no consent from any
third Person is required for the transfer and assignment of the Property Lease
to CRC in accordance with the terms of this Agreement.
(b) Use of Property. The current uses of existing structures located
on the Leased Real Property are in compliance with all applicable zoning and
other land use requirements including building codes. To the knowledge of ESNI,
no Laws prohibit or interfere
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with the current use of the Leased Real Property by ESNI. ESNI, to the extent
required by any Law, is in possession of all certificates of occupancy with
respect to all of the Leased Real Property issued by the appropriate municipal
authorities.
(c) Eminent Domain. ESNI has not received any notice with respect to
the exercise of the power of eminent domain, any condemnation or taking as to
all or any portion of the Leased Real Property. No Governmental Authority having
the power of eminent domain over all or any part of the Leased Real Property has
commenced or, to the best knowledge of ESNI, intends to exercise the power of
eminent domain or a similar power with respect to all or any part of the Leased
Real Property.
4.9 Subsidiaries. Except as set forth in Section 4.9 of the ESNI
Disclosure Schedule or as contemplated hereby, ESNI does not directly or
indirectly, and the ESNI Contributed Assets does not include, any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, limited
liability company, partnership, joint venture or other business association or
entity.
4.10 Employees.
(a) Listed on Section 4.10(a) of the ESNI Disclosure Schedule is a
true and complete list of the names and current rates of compensation (whether
in the form of salary, bonuses, commissions or other supplemental compensation
now or hereafter payable) of ESNI's employees. Except as set forth on Section
4.10(a) of the ESNI Disclosure Schedule, since March 31, 2001, ESNI has not
promised or agreed to give any of its employees a pay raise or any additional
compensation, whether in the form of salary, bonus, commissions, severance,
benefits or any other form of compensation.
(b) Except as set forth on Section 4.10(b) of the ESNI Disclosure
Schedule, ESNI is not a party to or bound by (i) any collective bargaining
agreement or contract with any labor union relating to any of its employees,
(ii) any employment, termination or severance agreement, (iii) any agreement
with any of its employees (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
ESNI of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee extending for a
period of one year or longer or (C) providing severance benefits or other
benefits after the termination of employment of such individual, (iv) any
agreement, plan or arrangement under which any Person may receive payments that
may be subject to the tax imposed by Section 4999 of the Code or included in the
determination of such Person's "parachute payment" under Section 280G of the
Code, or (v) any agreement or plan, including any stock option plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting or
other realization of the benefits of which will be accelerated, by the
occurrence of the transactions contemplated by this Agreement and, when executed
and delivered, the other Transaction Documents or the value of any of the
benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement and, when executed and delivered, the other
Transaction Documents.
(c) Section 4.10(a) of the ESNI Disclosure Schedule sets forth each
employee benefit plan as defined in Section 3(3) of ERISA and each other plan,
policy, program, practice,
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agreement, understanding or arrangement providing compensation or other benefits
to any employee, or independent contractor of ESNI (or to any dependent or
beneficiary thereof) which ESNI maintains (each, a "Plan"). No Plan is or was
subject to Title IV of ERISA. With respect to each Plan, ESNI has provided to
CRC a correct and complete copy (or to the extent no such copy exists, an
accurate description thereof) of (i) the plan document and summary plan
description and (ii) any material communications to employees.
(d) To the knowledge of ESNI after due inquiry and investigation,
each Plan is and has been maintained in form and operation in all material
respects in compliance with its terms and all applicable Laws.
(e) As of the date hereof, no Plan is providing any individual with
benefits pursuant to the health care continuation coverage requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, and no individual is
currently eligible to elect such coverage under any Plan.
(f) There is no announced plan or commitment (whether or not legally
binding) to create any additional Plan or to amend, modify or terminate any
existing Plan.
4.11 Compliance with Laws. Except as set forth on Section 4.11 of the ESNI
Disclosure Schedule, ESNI has in all material respects complied with and is in
compliance with, ESNI has not received notice of any violation of, and ESNI is
not aware of any investigation related to, any and all Laws and Orders
applicable to ESNI, its business or the ownership of its assets.
4.12 Environmental Protection. ESNI has obtained all licenses,
certificates, permits, franchises, registrations and authorizations of any
Governmental Authority (collectively "Permits") which are required under
Environmental Laws. ESNI is in material compliance with all terms and conditions
of the required Permits, and is also in material compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in those Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder. ESNI is not
aware of, nor has received written notice of, any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans which may materially interfere with or prevent continued compliance, or
which may give rise to any material common law claim or other legal liability,
or otherwise form the basis of any material claim, action, suit, proceeding,
hearing or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Substance. Without limiting the generality of the foregoing, with
respect to the Leased Real Property, except as set forth on Section 4.12 of the
ESNI Disclosure Schedule: (i) ESNI has not nor, to the best knowledge of ESNI,
have any owners or prior operators of such premises, at any time used such
premises for the generation, storage, transportation, treatment, disposal or
handling of hazardous materials or substances, nor caused or suffered any spill,
discharge, release or contamination of or by Hazardous Substances at, on or
under such premises or any adjacent premises; (ii) there are not now any
underground storage tanks located at, on or under such premises, nor has ESNI
removed any such tanks at, on or under such premises, nor, to the best knowledge
of ESNI, have
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there ever been such tanks at, on or under such premises; and (iii) to the best
knowledge of ESNI, the premises covered by the Property Lease do not contain any
asbestos-containing materials.
4.13 Permits. Listed on Section 4.13 of the ESNI Disclosure Schedule is a
true and complete list of all Permits held by ESNI which are related to the
operation or ownership of the ESNI Contributed Assets (the "Material Permits"),
and all applications for any such Material Permits which are pending. Except as
disclosed on Section 4.13 of the ESNI Disclosure Schedule, (i) each of the
Material Permits is transferable to CRC without the consent, waiver, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, (ii) ESNI has obtained and maintains all Material Permits and all
Material Permits are in full force and effect and (iii) there is no action or
proceeding which might result in a termination, suspension, limitation,
revocation, impairment, forfeiture or nonrenewal of any such Material Permit
nor, to the best knowledge of ESNI, is there any fact or state of facts existing
which might result in, nor is there any basis for, any such termination,
suspension, limitation, revocation, impairment, forfeiture or nonrenewal.
4.14 Compliance with Other Instruments. ESNI is not in violation or
default in any respect of any provision of its certificate of incorporation or
by-laws or, except as set forth in Section 4.14 of the ESNI Disclosure Schedule,
in any material violation or default of any mortgage or indenture or any
material agreement, instrument or contract to which it is a party or by which it
or any of the ESNI Contributed Assets is bound or affected or of any Order
applicable to ESNI or any of the ESNI Contributed Assets.
4.15 Insurance. All property and liability insurance coverage presently in
effect and relating to the ESNI Contributed Assets is listed on Section 4.15 of
the ESNI Disclosure Schedule ("Insurance Policies"). There are no pending or, to
the best knowledge of ESNI, threatened disputes with underwriters under any such
Insurance Policies, and all premiums due and payable thereunder have been paid.
Each Insurance Policy is valid and enforceable in accordance with its terms and
in full force and effect. ESNI has not received notice of any default,
cancellation or nonrenewal under any such Insurance Policy, nor of any
misrepresentation or inaccuracy in any application therefor, which default,
misrepresentation or inaccuracy would give the insurer the right to terminate
such Insurance Policy or to refuse to pay a claim thereunder. As of the date
hereof, there is no outstanding unpaid claim or claims against ESNI under the
Insurance Policies relating to the ESNI Contributed Assets. Section 4.15 of the
ESNI Disclosure Schedule sets forth all claims related to the ESNI Contributed
Assets and made by ESNI under any Insurance Policy during the two (2) years
preceding the Closing.
4.16 Litigation. Except as set forth on Section 4.16 of the ESNI
Disclosure Schedule, no action, suit, arbitration, or other legal or
administrative proceeding or investigation is pending or threatened before any
Governmental Authority against or otherwise affecting ESNI or the ESNI
Contributed Assets. ESNI is not a party to, nor are the ESNI Contributed Assets
subject to, any Order of any Governmental Authority. There is no action, suit,
arbitration, or other proceeding by ESNI currently pending or that ESNI
currently intends to initiate. Section 4.16 of the ESNI Disclosure Schedule sets
forth a description of all legal proceedings in which ESNI has been a party
within the two (2) years preceding the Closing.
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4.17 Financial Statements. Except as set forth on Section 4.17 of the ESNI
Disclosure Schedule, each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the SEC Documents was
prepared in accordance with GAAP throughout the periods involved (except as may
be indicated in the notes thereto), and each fairly presents in all material
respects, the consolidated financial position of ESNI as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that for purposes of the foregoing representation, the
unaudited financial statements presented in the SEC Documents (i) shall be read
in conjunction with ESNI's consolidated financial statements (including the
notes thereto) contained in ESNI's Annual Report on Form 10-K for the fiscal
year end immediately preceding the date of such statement, and (ii) were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
4.18 Events Subsequent to Latest Balance Sheet Date. Except as set forth
on Schedule 4.18, since the Latest Balance Sheet Date (as defined below):
(a) ESNI has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible;
(b) No party (including ESNI) has accelerated, terminated, modified,
or cancelled the Property Lease;
(c) ESNI has not imposed any Encumbrance upon any of its assets,
tangible or intangible;
(d) ESNI has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property except in the ordinary course
of its business;
(e) ESNI has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property other than normal
wear and tear;
(f) ESNI has not entered into any contract for the sale of the ESNI
Contributed Assets or any part thereof, whether by merger, consolidation,
exchange of capital stock or otherwise (other than with respect to this
Agreement); and
(g) ESNI has not committed to any of the foregoing.
4.19 Bankruptcy. ESNI has not filed a petition for relief under the United
States Bankruptcy Code or under any state insolvency statute.
4.20 Commission Filings. Except as set forth on Section 4.20 of the ESNI
Disclosure Schedule, ESNI has filed all reports, schedules, forms, statements
and other documents (including all exhibits) required to be filed with the SEC
since January 1, 1999 (the "SEC Documents"). Except as disclosed in Section 4.20
of ESNI Disclosure Schedule or the SEC Documents, such reports, schedules,
forms, statements and other documents (i) were prepared in all material respects
in accordance with the applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain
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any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
4.21 No Undisclosed Liabilities. Except as set forth in Section 4.21 of
the ESNI Disclosure Schedule or the SEC Documents, ESNI has no liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) set forth
in ESNI's unaudited balance sheet (including any related notes thereto) as of
March 31, 2001 (the "Latest Balance Sheet Date"), included in ESNI's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2001 (the "2001 Balance
Sheet"), (b) incurred since March 31, 2001 in the ordinary course of business,
or (c) incurred in connection with this Agreement or the transactions
contemplated hereby.
4.22 Proxy Statement. The information supplied by ESNI for inclusion in
the Proxy Statement to be sent to all of the stockholders of ESNI in connection
with obtaining approval for the consummation of the transactions contemplated
under this Agreement, will not, on the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to such stockholders
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein not false or misleading. If at any time prior to the
Closing Date any event relating to ESNI or any of its respective Affiliates,
officers or directors should be discovered by ESNI which should be set forth in
a supplement to the Proxy Statement, ESNI shall promptly inform CRC. The Proxy
Statement shall comply in all material respects with the requirements of the
Exchange Act. Notwithstanding the foregoing, ESNI makes no representation or
warranty with respect to any information supplied by CRC which is contained or
incorporated by reference in, or furnished in connection with the preparation
of, the Proxy Statement.
4.23 Full Disclosure. All documents and other papers delivered by or on
behalf of ESNI in connection with this Agreement and, when executed and
delivered, all other Transaction Documents to which it may be a party, and the
transactions contemplated hereby and thereby are true, complete and authentic.
No representation, warranty or statement of ESNI made in this Agreement or, when
executed and delivered, the other Transaction Documents to which it may be a
party or the schedules or exhibits hereto or thereto or in any document,
statement or certificate furnished to CRC pursuant to this Agreement and, when
executed and delivered, the other Transaction Documents contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements made, in light of the
circumstances under which they were made, not false or misleading.
4.24 Schedules. All of the information contained on the ESNI Disclosure
Schedule with respect to the ESNI Contributed Assets and the Assumed Liabilities
is complete, accurate and correct in all material respects. Schedules 2.1(a),
(b), (c) and (d) set forth substantially all of ESNI's business and assets,
exclusive of the Excluded Assets, and Schedule 2.2 and Schedule 2.3(a) sets
forth completely and fully all of the Excluded Assets and the Assumed
Liabilities, respectively.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CRC AND JV
CRC and the JV each hereby represents and warrants severally, and not
jointly, to ESNI as follows:
5.1 Organization; Standing; Qualification. CRC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York. The JV is a limited liability company duly formed, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite limited liability company power and authority to assume, receive and
accept the ESNI Contributed Assets and the CRC Contributed Assets. CRC is duly
qualified to transact business and is in good standing as a foreign corporation
in each jurisdiction in which the character of the property owned or the nature
of the business transacted by it makes such qualification necessary, except
where the failure to be so qualified would have a Material Adverse Effect.
5.2 Authority Relative to this Agreement. Each of CRC and the JV has all
requisite power and authority to execute and deliver this Agreement and, when
executed and delivered, the other Transaction Documents to which each of them
may be a party, and the documents and instruments to be executed and delivered
by each of them pursuant hereto and thereto and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the documents and instruments to be executed and delivered by each of CRC
and the JV pursuant hereto and the consummation of the transactions contemplated
hereby and thereby have been, and, when executed and delivered, all other
Transaction Documents to which each of them may be a party and the consummation
of the transactions contemplated thereby will be, duly and validly authorized by
each of CRC and the JV, as the case may be, do not require any further corporate
or limited liability company proceedings on the part of each of CRC and the JV,
as the case may be, and do not and will not violate or conflict with the
certificate of incorporation or by-laws of CRC or the limited liability company
agreement of the JV, as the case may be. This Agreement and the documents and
instruments to be executed and delivered by each of CRC and the JV pursuant
hereto have been, and, when executed and delivered, all other Transaction
Documents to which each of them may be a party will be, duly and validly
executed and delivered by each of CRC and the JV, as the case may be, and this
Agreement and the documents and instruments to be executed and delivered by each
of them pursuant hereto constitute, and, when executed and delivered, all other
Transaction Documents to which each of them may be a party will constitute,
valid and binding agreements of each of CRC and the JV, as the case may be,
enforceable against each of them in accordance with their terms, except to the
extent to which such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability.
5.3 Consents and Approvals; No Violations. The execution and delivery by
each of CRC and the JV of this Agreement and the consummation of the
transactions contemplated hereby and thereby, and, when executed and delivered,
all other Transaction Documents to which each of them may be a party and the
consummation of the transactions contemplated thereby, either individually or in
the aggregate, do not and will not (i) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, any Governmental
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Authority, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default or give rise to any right
of termination, amendment, acceleration, cancellation, suspension, impairment,
forfeiture or nonrenewal under, any of the terms, conditions or provisions of
any agreement, instrument or obligation by which each of CRC and the JV, as the
case may be, or any of their respective assets or properties is bound, or (iii)
result in a violation of any Laws or any Order of any Governmental Authority
applicable to each of CRC and the JV, as the case may be, or by which each of
them is bound.
5.4 Formation of JV. The JV was formed under the laws of the State of
Delaware solely for the purpose of effecting the transactions contemplated by
this Agreement and the other Transaction Documents. The JV has not conducted any
operations, owned any assets or employed any employees and has no subsidiaries.
Except as contemplated hereby, the JV is not a party to or bound by any written
or oral contracts, commitments, leases or other agreements, including promissory
notes, loan agreements and other evidences of indebtedness, guarantees or
service agreements. Except for obligations provided in this Agreement and the
other Transaction Documents, the JV has no indebtedness, obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise, known or
unknown, whether due or to become due) arising out of transactions entered into
at or prior to the Closing Date.
5.5 Investment Representations. In order to induce ESNI to issue the
Warrant to CRC, CRC hereby represents and warrants to ESNI as follows (as of the
date hereof and as of the Closing Date):
(a) Investment. CRC is acquiring the Warrant and the Promissory
Notes and, upon the exercise of the Warrant, will be acquiring the shares of
Common Stock into which the Warrant may be exercised, for its own account for
investment only and not with a view to any distribution thereof within the
meaning of the Securities Act in any transaction that would violate the
registration requirements of the Securities Act or applicable state securities
laws, without prejudice, however, to the right of CRC at all times to sell or
otherwise dispose of the Warrant, the Promissory Notes or the shares of Common
Stock into which the Warrant may be exercisable, as the case may be, under an
effective registration statement or applicable exemption from registration under
the Securities Act and any applicable state securities laws. CRC is an
"accredited investor" as defined in Rule 501(a) under the Securities Act. CRC
understands that the Warrant, the Promissory Notes and the shares of Common
Stock into which the Warrant may be exercised have not been, and, except as
provided in the Registration Rights Agreement, will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act. CRC further understands that there is no
assurance that any exemption from the Securities Act will be available or, if
available, that such exemption will allow CRC to dispose of or otherwise
transfer any or all of the Warrant, the Promissory Notes or the Common Stock
(after exercise), in the amounts or at the times CRC might propose.
(b) Experience. CRC has reviewed the representations concerning ESNI
contained in this Agreement carefully and has made detailed inquiry concerning
ESNI, its business and its personnel; the officers of ESNI have made available
to CRC any and all written information which CRC has requested and have answered
to CRC's satisfaction all inquiries made by CRC; and CRC has sufficient
knowledge and experience in finance and business that it
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is capable of evaluating the risks and merits of its investment in ESNI. CRC has
had an opportunity to discuss ESNI's business, management and financial affairs
with its management.
(c) Rule 144. CRC is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including
(except as otherwise provided in Rule 144(k)), among other things, the existence
of a public market for the shares, the availability of certain current public
information about ESNI, the resale occurring not less than one year after a
party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" and the number of shares being sold during any three-month period
not exceeding specified limitations.
(d) Domicile. CRC's legal domicile is the State of New York.
ARTICLE VI
COVENANTS; CONDITIONS TO CLOSING
6.1 Covenants.
(a) Proxy Statement. As promptly as practicable after the Effective
Date, and no later than twenty (20) Business Days after the Effective Date, ESNI
shall file the preliminary Proxy Statement with the SEC. As promptly as
practicable thereafter, ESNI shall file with the SEC the definitive Proxy
Statement and mail it to its stockholders. CRC shall provide ESNI with any
information relating to CRC or the CRC Contributed Assets for inclusion in the
Proxy Statement as required by the Exchange Act and the regulations promulgated
thereunder.
(b) Consents; Approvals; Filings. ESNI shall use its reasonable best
efforts to obtain all consents (including, without limitation, all third Person
consents), waivers, approvals, authorizations or orders (including all United
States and non-United States governmental and regulatory rulings and approvals),
and shall make all filings (including all filings with United States and
non-United States Governmental Authority) required in connection with the
authorization, execution and delivery of this Agreement by ESNI and the
consummation of the transactions contemplated hereby. ESNI shall furnish all
information required to be included in the Proxy Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any United States or non-United States Governmental Authority in connection with
the transactions contemplated by, or in connection with, this Agreement. ESNI
shall notify CRC promptly upon the receipt of any comments from the SEC or its
staff or any other government officials in connection with any filing made
pursuant hereto and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Proxy Statement or any
other filings or for additional information and will supply CRC with copies of
all correspondence between ESNI or any of its representatives, on the one hand,
and the SEC or its staff or any other government officials, on the other hand,
with respect to the Proxy Statement or any other filing. ESNI shall cause all
documents that it is responsible for filing with the SEC or other Governmental
Authorities under this Agreement to comply in all material respects with all
applicable requirements of Law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement or any other filing, ESNI will
promptly inform
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CRC of such occurrence and cooperate in filing with the SEC or any other
Government Authority, and furnishing to the stockholders of ESNI, such amendment
or supplement.
(c) Absence of Consents. In the event that the assignment, transfer,
conveyance or delivery of any portion of the ESNI Contributed Assets, including
the Contracts, the Property Lease, the Equipment and the Intellectual Property,
to, or the assumption and acceptance of any of the Assumed Liabilities by, the
JV pursuant to this Agreement shall require the consent of any Person and such
consent has not been obtained prior to the Closing Date and ESNI's compliance
with Section 6.2(h) with respect to such consent has been waived by CRC, then:
(i) unless and until such consent is obtained, the rights to,
and obligations under, such asset or liability shall not be
assigned, transferred, conveyed or delivered to nor assumed or
accepted by the JV pursuant to this Agreement; and
(ii) with respect to each such asset or liability, the parties
hereto shall make and collect such payments (both among themselves
and to and from other Persons) and take such other actions as shall
be reasonably necessary to place the parties hereto in the economic
position as equivalent as possible to that which they would have
occupied had such consent been obtained and such asset or liability
been transferred or assumed.
Nothing in this Section 6.1(c) shall affect the liability (if any)
of ESNI hereunder for failing to have disclosed the need for any such consent or
the obligation of ESNI to use its best efforts to obtain such consent. When such
consents to the assignment, transfer, conveyance and delivery or the assumption
or acceptance of such asset or liability have been obtained, it shall thereupon
automatically be assigned, transferred, conveyed and delivered to or assumed and
accepted by the JV.
(d) Regular Course of Business. Except as otherwise consented to in
writing by CRC, until the Closing Date, ESNI shall carry on its business
diligently and in the ordinary course only and, without limiting the generality
of the foregoing, ESNI shall use its commercially reasonable efforts to:
preserve its present business organization and the ESNI Contributed Assets
intact; keep available the services of its executive officers and any management
or sales personnel and preserve its present relationships with distributors,
customers, suppliers and other Persons having business dealings with it;
maintain its properties and assets (other than those disposed of in the ordinary
course of business consistent with prior practice) in good repair and condition,
except for ordinary wear and tear; and maintain its books of account and records
in accordance with GAAP and in the usual, regular and ordinary manner and
consistent with prior practice. Notwithstanding anything to the contrary
contained in this Agreement, until the Closing Date, ESNI shall not enter into
any written or oral contracts, commitments, leases or other agreements incurring
obligation, either individually or in the aggregate, of more than one thousand
($1,000) dollars without the prior approval of CRC.
(e) Access to Books and Records. ESNI and the JV each agrees that it
shall preserve and keep the Books and Records or the parts thereof in its
possession, as the case may
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be, in accordance with its records retention policies or for any longer period
as may be required by Law. During such period and subject to appropriate
confidentiality undertakings, each party shall permit any of the other party or
its counsel, accountants, officers, employees or other representatives access to
such Books and Records upon such other party's reasonable request and during
normal business hours for the purpose of examining such Books and Records to the
extent reasonably required by such party in connection with (i) any insurance
claims by, legal proceedings against or governmental investigations of such
party, (ii) the preparation of any tax return required to be filed by such
party, the defense of any audit, examination, administrative appeal or
litigation of any tax return in which the results of operation of the ESNI
Contributed Assets were included or (iii) any other reasonable business purpose
related to the ESNI Contributed Assets or the business of the JV.
(f) Change of Name.
(i) After the Effective Date, ESNI shall execute such
documents or consents as CRC shall require to enable the JV to
establish the aforesaid name as its company name and to use such
name on correspondence, documents and otherwise as the JV may
desire. ESNI shall transfer all right, title and interest in and to
the "E-Sync Networks" name to the JV on the Closing Date.
(ii) Prior to, or as of, the Closing Date, ESNI shall change
its corporate name to a name bearing no resemblance to the "E-Sync
Networks" name and which will not interfere in any jurisdiction with
the use by the JV (either alone or in conjunction with other words)
of all or any part of such name. From and after the Closing Date,
ESNI will cease using its present name, "E-Sync Networks, Inc.," or
any of the words constituting its present corporate name or any
other name included in the Intellectual Property and will not use,
or hold bank accounts or do business under, any name that bears
resemblance to or might be confused with such name.
(g) Certain Post-Closing Obligations. From and after the Closing
Date, ESNI shall (i) promptly take such further action and execute and deliver
to CRC or the JV, as the case may be, any additional document or instrument,
reasonably requested by CRC or the JV, to aid or assist the JV in collecting and
reducing to possession any of the ESNI Contributed Assets, to put the JV in full
operating control of the ESNI Contributed Assets, to convey and assign to the
JV, and to confirm the JV's title to, any of the ESNI Contributed Assets and to
otherwise consummate the transactions contemplated hereby, and (ii) promptly
upon receipt, transfer and deliver to the JV any cash or other property that
ESNI or any Affiliate of ESNI, may receive after the Closing Date in respect of
or arising out of any of the ESNI Contributed Assets.
(h) Non-competition. Except as shall be expressly permitted in
writing by CRC, for a period of five (5) years from and after the Closing Date,
ESNI shall not, directly or indirectly, (i) own, operate, render services to,
purchase or hold securities of or otherwise invest in, represent, advise or
otherwise participate as an officer, director, stockholder, member, partner,
Affiliate, agent, employee or consultant of or for any business or entity which
conducts business that is competitive to (1) the business conducted by ESNI or
CRC as of the date hereof or (2) the business conducted by the JV through the
utilization of the ESNI Contributed Assets or
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the CRC Contributed Assets as of the Closing Date or (3) the business conducted
by the JV at anytime during the six (6) month period following the Closing Date,
it being understood that any such business conducted during such six (6) month
period shall be reasonably ancillary or complimentary to the business conducted
by the JV as of the Closing Date (any such business hereinabove described in
clauses (1)-(3), a "Competing Business"), (ii) solicit the employment of any
employee or consultant (other than a non-exclusive consultant to the extent such
non-exclusive consultant is employed by ESNI on a non-exclusive, part time
basis) of CRC or of the JV, either on a full or part time or consulting basis,
(iii) induce or encourage, or cooperate with any Person in inducing or
encouraging, any employee or consultant (other than a non-exclusive consultant
to the extent such non-exclusive consultant is employed by such Competing
Business on a non-exclusive, part time basis) of CRC or of the JV to accept
employment, either on a full or part time or consulting basis, with any
Competing Business, (iv) persuade or seek to persuade any customer of ESNI, CRC
or the JV to cease to do business or to reduce the amount of business which such
customer has customarily done or contemplates doing with ESNI, CRC or the JV, or
(v) intentionally interfere in any manner in the relationship of CRC or of the
JV with any of its suppliers.
For purposes of this Section 6.1(h), the terms "customer" and
"supplier" of ESNI, CRC or the JV shall mean and include any individual
proprietorship, corporation, limited liability company, partnership, joint
venture, trust or other form of business entity which is, at the time of any
actual or contemplated prohibited action, or was, at any time during the
one-year period immediately preceding any actual or contemplated prohibited
action, a customer or supplier, as the case may be, of CRC or of the JV or which
was such a customer or supplier of ESNI at any time during the one-year period
immediately preceding the Effective Date.
ESNI hereby represents and warrants to CRC, and agrees with CRC,
that this Section 6.1(h) is fair, reasonable and necessary to protect the
business, operations, assets, goodwill and reputation of the JV or CRC, as the
case may be, and that in making its decision to receive and accept the ESNI
Contributed Assets, the JV and CRC relied upon and was induced by the covenants
made by ESNI in this Section 6.1(h).
ESNI hereby acknowledges that any breach or threatened breach of any
obligation set forth in this Section 6.1(h) shall cause immediate and
irreparable harm to the JV or CRC, as the case may be, which cannot be
adequately compensated by money damages. In the event of such a breach or
threatened breach, the JV or CRC, as the case may be, shall, in addition to all
other rights or remedies available at law or in equity, be entitled to apply for
and receive from any court of competent jurisdiction one or more of a temporary
restraining order, preliminary injunction or permanent injunction (without any
necessity of proving damages or any requirements for the posting of a bond or
other surety) restraining such breach or threatened breach or an order
compelling performance of obligations which, if not performed, constitute or
would constitute a breach.
Notwithstanding anything in this Section 6.1(h), ESNI shall not be
considered to be in breach of its covenants hereunder solely on the basis of any
investment in securities of a publicly held corporation that is a Competing
Business, provided that any such investment by ESNI shall be passive and that
ESNI shall not own or control (as determined in accordance with Section 318 of
the Code) 5% or more of the outstanding equity securities of such corporation.
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(i) Discharge of Unassumed Liabilities. ESNI hereby agrees that it
intends to, and will, pay or otherwise discharge in full when due all of ESNI's
liabilities and obligations (whether accrued, absolute, contingent or otherwise)
which are not assumed by the JV pursuant to Section 2.3.
(j) Satisfaction of Certain Encumbrances and Liabilities. ESNI
hereby agrees that on or before the Closing Date, all actions necessary to
convey good and marketable title to the ESNI Contributed Assets, free and clear
of all Encumbrances, shall have been completed to CRC's satisfaction.
6.2 Conditions Precedent to Obligations of the JV and CRC. The obligation
of each of CRC and the JV to consummate the transactions contemplated hereunder
at the Closing is subject to the satisfaction (or waiver by CRC) of the
following conditions precedents on or prior to the Closing Date:
(a) ESNI shall have obtained approval of ESNI's stockholders for the
Contribution and the other transactions contemplated in this Agreement and in
the other documents related hereto to the extent required.
(b) The representations and warranties made by ESNI herein and in
the documents and instruments to be delivered pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, except for representations and warranties which speak as of a
specific date which shall be true and correct in all material respects as of
such date.
(c) ESNI shall have performed and complied in all material respects
with all covenants, agreements and conditions set forth or contemplated in this
Agreement and in the other documents related hereto required to be performed or
complied with by it on or prior to the Closing Date.
(d) All Permits of all Governmental Authorities, given or obtained
that are necessary in connection with the transactions contemplated herein and
in the other documents related hereto, shall have been taken, given or obtained,
be in full force and effect and not be subject to any waiting periods or any
pending proceedings or appeals, administrative, judicial or otherwise.
(e) Since the date of this Agreement, there shall not have occurred
any Material Adverse Effect with respect to ESNI or the ESNI Contributed Assets.
(f) The Contribution of the ESNI Contributed Assets hereunder shall
not (i) be prohibited by any applicable Law, (ii) subject CRC or the JV to any
material penalty pursuant to any applicable Law, or (iii) be prevented,
prohibited or materially restricted by any Order of any Governmental Authority
at the Closing Date.
(g) ESNI shall have executed and delivered the following:
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(i) the First Installment Note and, if applicable, the
Extended Installment Note;
(ii) the Warrant, substantially in the form attached hereto as
Exhibit I;
(iii) the Security Agreement;
(iv) the Registration Rights Agreement;
(v) the Management Services Agreement; and
(vi) the Operating Agreement.
(h) ESNI shall have obtained, in form reasonably satisfactory to
CRC, the third Person consents for the assignment and transfer to the JV of all
Contracts, including the Property Lease, and the other consents set forth on
Schedule 6.2(h) and all other executory contracts necessary or appropriate for
the operation of the ESNI Contributed Assets by the JV.
(i) ESNI shall have obtained approval from its creditors with
respect to the transactions contemplated hereby, and in particular the
transaction contemplated in the Security Agreement, which approvals may be
conditioned by such creditors upon receipt from ESNI of certain specified
payments within a specified period following the Closing, provided the aggregate
amount of all such payments is reasonably acceptable to CRC.
(j) The JV shall have entered into a line of credit or revolving
credit facility (the "Credit Facility") on terms and in an amount mutually
acceptable to CRC and ESNI, such acceptance not to be unreasonably withheld;
provided that the granting or providing of such Credit Facility shall not,
unless otherwise agreed to by CRC, require or be conditioned upon the providing
of (i) any guaranty (or other surety or similar commitment) from CRC, its
Affiliates, principals or stockholders, or (ii) the pledge of any assets other
than those owned by the JV.
(k) The JV shall have entered into an employment agreement with and
each Key Employee on terms reasonably acceptable to CRC.
(l) CRC shall have received all of the following from ESNI in form
and substance reasonably satisfactory to CRC:
(i) Certificate of the Secretary of ESNI, dated as of the
Closing Date, certifying as to (A) the full and complete copies of (x) the
certificate of incorporation and by-laws of ESNI, each as currently in
effect, and (y) the resolutions adopted by ESNI's Board of Directors and
ESNI's stockholders with respect to the transactions contemplated hereby,
and (B) the incumbency and signatures of the officers of ESNI executing
this Agreement or any other documents related hereto to which ESNI is a
party and any other certificate or document delivered pursuant hereto or
thereto;
(ii) Certificate of the President of ESNI, dated as of the
Closing Date, certifying as to the matters set forth in Sections
6.2(a)-(e);
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(iii) Certificate of Good Standing of ESNI issued by the
Secretary of State of the State of Delaware, dated a recent date; and
(iv) An opinion of counsel of ESNI, addressed to CRC and dated
as of the Closing Date, as to the matters set forth in Exhibit J.
6.3 Conditions Precedent to Obligations of ESNI. The obligation of ESNI to
contribute the ESNI Contributed Assets to the JV at the Closing is subject to
the satisfaction (or waiver by ESNI) of the following conditions precedents on
or prior to the Closing Date:
(a) ESNI shall have obtained approval of its stockholders for the
Contribution and the other transactions contemplated in this Agreement and in
the other documents related hereto to the extent required.
(b) The representations and warranties made by CRC herein and in the
documents and instruments to be delivered pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, except for representations and warranties which speak as of a
specific date which shall be true and correct in all material respects as of
such date.
(c) Each of CRC and the JV shall have performed and complied in all
material respects with all covenants, agreements and conditions set forth or
contemplated in this Agreement and in the other documents related hereto
required to be performed or complied with by it on or prior to the Closing Date.
(d) The assumption and receipt by the JV of the CRC Contributed
Assets hereunder shall not (i) be prohibited by any applicable Law, (ii) subject
ESNI or the JV to any penalty pursuant to any applicable Law, or (iii) be
prevented, prohibited or materially restricted by any Order of any Governmental
Authority at the Closing Date.
(e) CRC shall have delivered to ESNI the proceeds payable in
connection with the Promissory Notes, as applicable.
(f) CRC shall have executed and delivered the CRC Contribution
Agreement and contributed the CRC Contributed Assets to the JV pursuant to the
terms thereof.
(g) CRC and the JV each shall have executed and delivered the
Operating Agreement and the other Transaction Documents to which it is a party.
(h) ESNI shall have received all of the following from CRC in form
and substance reasonably satisfactory to ESNI:
(i) Certificate of the Secretary of CRC, dated as of the
Closing Date, certifying as to (i) the full and complete copies of (A) the
certificate of incorporation and by-laws of CRC, each as currently in
effect, and (B) the resolutions adopted by CRC's Board of Directors and
CRC's stockholders with respect to the transactions contemplated hereby,
and (ii) the incumbency and signatures of the officers of CRC executing
this
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Agreement or any other documents related hereto to which CRC is a party
and any other certificate or document delivered pursuant hereto or
thereto;
(ii) Certificate of the President of CRC, dated as of the
Closing Date, certifying as to the matters set forth in Sections
6.3(b)-(c);
(iii) Certificate of Existence of CRC issued by the Secretary
of State of the State of New York, dated a recent date;
(iv) An opinion of counsel of CRC, addressed to ESNI and dated
as of the Closing Date, as to the matters set forth in Exhibit K;
(i) All Permits of all Governmental Authorities, given or obtained
that are necessary in connection with the transactions contemplated herein and
in the other documents related hereto, shall have been taken, given or obtained,
be in full force and effect and not be subject to any waiting periods or any
pending proceedings or appeals, administrative, judicial or otherwise.
(j) CRC shall have obtained, in form reasonably satisfactory to
ESNI, the third Person consents set forth on Schedule 6.3(j) for the assignment
and transfer to the JV of all CRC Assigned Contracts (as defined in the CRC
Contribution Agreement) and all other executory contracts necessary or
appropriate for the operation of the CRC Contributed Assets by the JV.
(k) The JV shall have issued the fifty-one percent (51%) membership
interest in the JV to ESNI.
(l) Since the date of this Agreement, there shall not have occurred
any Material Adverse Effect with respect to the CRC Contributed Assets.
ARTICLE VII
CLOSING
7.1 Time and Place of Closing. The transactions contemplated by this
Agreement shall be consummated at a closing (the "Closing"), which shall be held
at the offices of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New
York, New York 10022, at 10:00 a.m. no later than the third Business Day
following the satisfaction of all of the conditions set forth in Sections 6.2
and 6.3 (the "Closing Date"), except as may be otherwise mutually agreed in
writing by the parties hereto.
7.2 Deliverables.
(a) Deliveries at Closing by ESNI. At or prior to the Closing, ESNI
shall execute and deliver, as applicable, to CRC:
(i) a counterpart to this Agreement;
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(ii) the First Installment Note and, if applicable, the
Extended Installment Note;
(iii) the Warrant;
(iv) the Security Agreement;
(v) the Registration Rights Agreement;
(vi) the Management Services Agreement;
(vii) the Operating Agreement;
(viii) resolutions adopted by both ESNI's Board of Directors
and ESNI's stockholders with respect to this Agreement and the
transactions contemplated hereby;
(ix) consents of third Persons set forth in Schedule 6.2(h) in
a form reasonably acceptable to CRC;
(x) the Amendment, Assignment and Consent to Assignment of
Lease, substantially in the form attached hereto as Exhibit L, executed by
all parties thereto;
(xi) possession of the Leased Real Property vacant and free of
the rights of any third parties;
(xii) the employment agreements between the JV and each of the
Key Employees in a form reasonably acceptable to CRC;
(xiii) an Assignment of Intellectual Property Rights,
substantially in the form attached hereto as Exhibit M; and
(xiv) the Books and Records.
(b) Deliveries at Closing by CRC: At the Closing, CRC shall execute
and deliver, as applicable, to ESNI:
(i) a counterpart of this Agreement;
(ii) the Operating Agreement;
(iii) the CRC Contribution Agreement;
(iv) the Registration Rights Agreement;
(v) the Management Services Agreement;
(vi) resolutions adopted by CRC's Board of Directors;
(vii) the Security Agreement; and
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(viii) consents of third Persons set forth in Schedule 6.3(j)
in a form reasonably acceptable to ESNI.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations, warranties, covenants and other
agreements of the parties contained herein, or in any signed writing delivered
pursuant hereto or in connection herewith shall survive the Closing for the
Survival Period.
8.2 Indemnification.
(a) ESNI shall indemnify CRC or the JV, as the case may be, and each
of their respective Affiliates, directors, principals, officers, employees,
independent contractors, agents and representatives, in their capacities as
such, and the successors, heirs and personal representatives of any of them
(collectively, "CRC Indemnified Parties") and hold them harmless from any and
all claims, suits, actions, proceedings, investigations, judgments, damages,
losses, liabilities and expenses (including, reasonable expenses of
investigation and attorneys' fees and expenses) (collectively, "Damages")
incurred or suffered by any CRC Indemnified Party arising out of or relating to
(i) any breach or inaccuracy of any representation, warranty, covenant or other
agreement of ESNI contained herein (including the Exhibits and Schedules
attached hereto) or the Transaction Documents or any instruments delivered by
ESNI pursuant to this Agreement, (ii) the Excluded Assets, the Excluded
Liabilities and the enforcement of Permitted Liens, and (iii) the ownership,
operation and use of the ESNI Contributed Assets before the Closing Date
(including, the employment of or dealings with the Key Employees by ESNI prior
to the Closing).
(b) The JV or CRC, as the case may be, shall indemnify ESNI and each
of its Affiliates, directors, principals, officers, employees, independent
contractors, agents and representatives, in their capacities as such, and the
successors, heirs and personal representatives of any of them (collectively,
"ESNI Indemnified Parties") and hold them harmless from any and all Damages
incurred or suffered by any ESNI Indemnified Party arising out of or relating to
(i) any breach or inaccuracy of any representation or warranty of the JV
contained herein (including the Exhibits and Schedules attached hereto) or the
Transaction Documents or any instruments delivered by the JV pursuant to this
Agreement, (ii) any breach of any covenant or other agreement of the JV
contained herein (including the Exhibits and Schedules attached hereto) or the
Transaction Documents or any instruments delivered by the JV pursuant to this
Agreement, and (iii) only with respect to the JV, the ownership, operation and
use of the ESNI Contributed Assets on or after the Closing Date.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no amounts of indemnity pursuant to this Section 8.2 shall be
payable:
(i) by any party to another party unless and until the party
seeking indemnity has suffered or paid Damages in excess of one
hundred thousand dollars ($100,000), but upon reaching such amount,
such indemnity shall be
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payable from the first dollar to the full extent of all Damages
(subject to the other terms and conditions set forth in clause (ii)
below);
(ii) by any party to another party to the extent that, as a
result of such payment, the cumulative Damages payable by the
indemnifying party in the aggregate would be in excess of three
million dollars ($3,000,000); provided that the foregoing limitation
shall not apply to any claims relating to the Excluded Assets or the
Excluded Liabilities; or
(iii) to the extent the party seeking indemnity has been made
whole, net of tax obligations, with respect to the claimed Damages
by insurance or any non-refundable payment by any third Person.
8.3 Indemnification; Notice and Settlements. A party seeking
indemnification pursuant to Section 8.2 (an "Indemnified Party") with respect to
a claim, action or proceeding by a Person who is not a CRC Indemnified Party
shall give prompt written notice to the party from whom such indemnification is
sought (the "Indemnifying Party") of the assertion of any claim, or the
commencement of any action or proceeding, in respect of which indemnity may be
sought hereunder; provided that the failure to give such notice shall not affect
the Indemnified Party's rights to indemnification hereunder, except to the
extent such failure shall actually prejudice in any material respect the
Indemnifying Party's ability to defend such claim, action or proceeding. The
Indemnifying Party shall have the right to assume the defense of any such action
or proceeding at its expense, with counsel approved by the Indemnified Party
(which approval will not be unreasonably withheld). If the Indemnifying Party
shall elect not to assume the defense of any such action or proceeding, or fails
to make such an election within 20 days after it receives such notice pursuant
to the first sentence of this Section 8.3, the Indemnified Party may assume such
defense at the expense of the Indemnifying Party. The Indemnified Party shall
have the right to participate in (but not control) the defense of an action or
proceeding defended by the Indemnifying Party hereunder and to retain its own
counsel in connection with such action or proceeding, but the fees and expenses
of such counsel shall be at the Indemnified Party's expense unless (i) the
Indemnifying Party and the Indemnified Party have mutually agreed in writing to
the retention of such counsel or (ii) the named parties in any such action or
proceeding (including impleaded parties) include the Indemnifying Party and the
Indemnified Party, and representation of the Indemnifying Party and the
Indemnified Party by the same counsel would create a conflict (in which case the
Indemnifying Party shall not be permitted to assume the defense of such claim,
action or proceeding); provided that, unless otherwise agreed by the
Indemnifying Party, if the Indemnifying Party is obligated to pay the fees and
expenses of such counsel, the Indemnifying Party shall be obligated to pay only
the fees and expenses associated with one attorney or law firm, as applicable,
for the Indemnified Party. An Indemnifying Party shall not be liable under
Section 8.2 for any settlement effected without its written consent, which
consent will not be unreasonably withheld, of any claim, action or proceeding in
respect of which indemnity may be sought hereunder.
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ARTICLE IX
EXCLUSIVE DEALING; TERMINATION
9.1 Exclusive Dealing. Until the earlier of (i) the Closing Date and (ii)
the termination of this Agreement in accordance with its terms, neither ESNI nor
any of its respective agents or representatives will take, directly or
indirectly, any action to initiate, continue, assist, solicit, receive,
negotiate, encourage or accept any offer or inquiry from any Person:
(a) to engage in any Business Combination;
(b) to reach any agreement or understanding (whether or not such
agreement or understanding is absolute, revocable, contingent or conditional)
for, or otherwise attempt to consummate, any Business Combination; or
(c) to furnish or cause to be furnished any information with respect
to ESNI or its assets to any Person (other than as contemplated in this
Agreement) who ESNI knows or has reason to believe is in the process of
considering any Business Combination.
Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in this Section 9.1 by any officer or director of
ESNI or any financial advisor, attorney or other advisor or representative of
ESNI, whether or not such Person is purporting to act on behalf of ESNI or
otherwise, shall be deemed to be a breach of this Section 9.1 by ESNI.
For purposes of this Article IX, "Business Combination" means any
merger, consolidation or combination to which ESNI is a party which would
adversely affect ESNI's ability to contribute the ESNI Contributed Assets to the
JV, any sale, dividend, split (other than the reverse stock split currently
contemplated by ESNI in connection with its appeal to The Nasdaq SmallCap
Market's determination to delist the Common Stock) or other disposition of
capital stock or other equity interest of ESNI which would adversely affect
ESNI's ability to contribute the ESNI Contributed Assets to the JV or any sale,
dividend or other disposition of any of the ESNI Contributed Assets.
9.2 Termination. This Agreement may be terminated at any time prior to the
Closing only as follows:
(a) by mutual written consent of ESNI and CRC;
(b) by ESNI by giving written notice to CRC if CRC is in breach of
any representation, warranty or covenant under this Agreement (and ESNI is not
then in breach of any representation, warranty or covenant);
(c) by CRC by giving written notice to ESNI if ESNI is in breach of
any representation, warranty or covenant under this Agreement (and CRC is not
then in breach of any representation, warranty or covenant);
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(d) by either ESNI or CRC if ESNI's stockholders shall not approve
the Contribution and the other transactions contemplated in this Agreement and
the other Transaction Documents; or
(e) by CRC giving written notice to ESNI if the Closing shall not
have occurred on or before December 31, 2001, otherwise than on account of a
breach of this Agreement by CRC.
In the case of any termination of this Agreement other than pursuant
to clause (b) above, ESNI shall pay CRC by wire transfer, within one business
day of the date of such termination, the amount of five hundred thousand dollars
($500,000).
Each party's right to terminate hereunder is in addition to any of
the rights it may have hereunder or otherwise.
9.3 Effects of Termination. Notwithstanding any other provision of this
Agreement, no termination of this Agreement shall release (i) ESNI from its
obligation under Section 9.2 or Section 10.12 or (ii) any party of any
liabilities arising hereunder for any pre-termination breaches hereof or
intentional misrepresentations made herein.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, and the documents and instruments to be executed and delivered
pursuant hereto and, when executed and delivered, the other Transaction
Documents constitute the entire agreement among the parties with respect to the
subject matter hereof, supercede all prior agreements and understandings among
the parties with respect thereto, including the letter of intent dated June 17,
2001 between ESNI and CRC, and no party shall be liable or bound to any other
party in any manner by any promises, conditions, warranties, representations, or
covenants except as specifically set forth herein or therein.
10.2 Confidentiality. Except as may be required to be disclosed under
applicable Law, CRC and ESNI shall keep all information relating to the other
party furnished to it by such party, or any agents of such party, confidential
in accordance with the terms of the Confidentiality Agreement, dated March 7,
2001 (the "Confidentiality Agreement"), between CRC and ESNI. In addition, both
CRC and ESNI agree that if the Closing does not occur, each of CRC and ESNI will
maintain in confidence such information, including information concerning such
party's business, the ESNI Contributed Assets or the Assumed Liabilities and
such party's financial condition, and will not disclose such information to
others, or use such information for any purpose unless and until such
information is in or enters the public domain by reason other than disclosure by
such party not pursuant to, or in accordance with, this Agreement or any of the
other agreements related to the Contribution by ESNI to CRC of the ESNI
Contributed Assets, except as such information may be required to be disclosed
by such party under applicable Law. If this Agreement is terminated, each of CRC
and ESNI shall return all confidential information received from the other party
and all copies and summaries thereof.
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10.3 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties; provided, however, that no party may assign this
Agreement without prior written consent of the other parties, except that any or
all of CRC's rights hereunder may be assigned to any direct or indirect
wholly-owned subsidiary of CRC. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
10.4 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable Law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
10.5 Amendments and Waivers. This Agreement may not be modified, nor may
any term or provision hereof be waived or discharged, except by an instrument in
writing signed by the party against whom enforcement of such modification,
waiver or discharge is sought. No such waiver or discharge shall be deemed to be
or shall constitute a waiver or discharge with respect to any other terms or
provisions of this Agreement, whether or not similar. Each such waiver or
discharge shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or
discharge.
10.6 Arbitration. The parties hereto agree that any and all disputes,
claims or controversies arising out of or relating to this Agreement that are
not resolved by their mutual agreement shall be submitted to final and binding
arbitration before JAMS, or its successor, pursuant to the United States
Arbitration Act, 9 U.S.C. Sec. 1, et seq. Either party may commence the
arbitration process called for in this Agreement by filing a written demand for
arbitration with JAMS, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of JAMS' Comprehensive Arbitration
Rules and Procedures in effect at the time of filing of the demand for
arbitration. The parties will cooperate with JAMS and with one another in
selecting an arbitrator from JAMS' panel of neutrals, and in scheduling the
arbitration proceedings. The parties covenant that they will participate in the
arbitration in good faith, and that they will share equally in its costs. The
provisions of this paragraph may be enforced by any court of competent
jurisdiction, and the party seeking enforcement shall be entitled to an award of
all costs, fees and expenses, including attorneys fees, to be paid by the party
against whom enforcement is ordered.
10.7 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by, interpreted under and
construed in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed wholly in that state
without giving effect to the choice or conflict of laws principles or provisions
thereof.
(b) ESNI and CRC each hereby irrevocably submits to the jurisdiction
of any state or federal court sitting in the City, County and State of New York
in respect of any enforcement proceeding arising out of or relating to this
Agreement, which courts shall have
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exclusive jurisdiction over and with respect to any such enforcement proceeding,
and irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the aforesaid courts. ESNI and CRC each hereby
irrevocably waives, to the fullest extent such party may effectively do so under
applicable Law, trial by jury and any objection that such party may now or
hereafter have to the laying of venue of any such enforcement proceeding brought
in any such court and any claim that any such enforcement proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of any party to serve process in any manner permitted by law or
to commence enforcement proceedings or otherwise proceed against the other party
in any other jurisdiction.
10.8 Counterparts. This Agreement may be executed in two or more
counterparts (and by facsimile), each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
10.9 Interpretation. The parties hereto acknowledge and agree that: (i)
each party and its counsel reviewed and negotiated the terms and provisions of
this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
10.10 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given (i) upon delivery, if delivered personally, (ii) three (3) Business Days
after deposit in the United States mail, if sent by registered or certified
mail, return receipt requested, postage prepaid (provided that such method of
notice shall be acceptable only if posted in the United States to a United
States address), (iii) two (2) Business Days after deposit with a nationally
recognized overnight courier service, if sent by courier service, or (iv) upon
confirmation of receipt, if sent by facsimile transmission, and, in any case,
properly addressed to the parties as follows:
IF TO PURCHASER: CRC, Inc.
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attn: Chief Executive Officer
Telecopier: (212) 906-9500
with a copy (which shall not constitute notice) to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attn: Ely D. Tendler, Esq.
Telecopier: (212) 715-8000
IF TO SELLER: E-Sync Networks, Inc.
35 Nutmeg Drive
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Trumbull, Connecticut 06611
Attn: President and Chief Operating Officer
Telecopier: (203) 601-3151
with a copy (which shall not constitute notice) to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901-2689
Attn: David I. Albin, Esq.
Telecopier: (203) 348-5777
or to such other address or addresses as a party may from time to time designate
as to itself, by notice as provided herein, provided that any such notice shall
be deemed effectively given only upon receipt.
10.11 Finders' Fees. ESNI and CRC each represents to the other parties
that it neither is nor will be obligated to pay any finder's fee, brokerage
commission or similar fee in connection with the transactions contemplated by
this Agreement, and that it has dealt with no finder, broker or other third
Person in connection with the transactions contemplated by this Agreement. ESNI
and CRC each agrees to indemnify and hold the other parties harmless from any
liability for any commission or compensation in the nature of a finder's fee,
brokerage commission or similar fee (and the costs and expenses, including,
reasonable attorneys' fees, of defending against such liability or asserted
liability) incurred by such other parties, including any arising out of any
breach of such other party's foregoing representation.
10.12 Expenses. Each of the parties shall bear its own expenses, including
but not limited to counsel and accounting fees, in connection with the
transactions contemplated hereby. ESNI agrees to pay any transfer taxes that may
be payable in connection with the execution, delivery and performance of this
Agreement or the transfer of any or all of the ESNI Contributed Assets, and
shall indemnify CRC against any liability for payment thereof and shall furnish
to CRC evidence of payment upon request. ESNI shall prepare and file any
required tax returns and other required documents with respect to such taxes.
10.13 Further Assurances. Each party hereto agrees to execute and deliver,
from time to time as necessary or desirable, at its own expense, such further
documents and instruments, and to perform such additional acts as any other
party may reasonably request to effectuate or carry out and perform all the
terms, provisions and conditions of this Agreement and the transactions
contemplated hereby and to effectuate the intent and purposes hereof.
10.14 Publicity. ESNI and CRC each agrees that no publicity announcements
concerning the terms of this Agreement or concerning the transactions
contemplated hereby shall be made without the mutual consent of CRC and ESNI,
except that ESNI may make disclosures it deems necessary as a publicly traded
company, in which event ESNI shall use its commercially reasonable efforts to
provide to CRC in advance of such disclosure a copy of such disclosure to be
made so that CRC may comment upon such disclosure.
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10.15 Specific Performance. ESNI and CRC each acknowledges and agrees that
the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, ESNI and CRC each agrees that the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and all agreements and transactions
contemplated hereby, and to enforce specifically this Agreement and all
agreements and transactions contemplated hereby, and the terms and provisions
hereof or thereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the parties and the matter (subject
to the provisions set forth in Section 10.6), in addition to any other remedy to
which it may be entitled, at law or in equity.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
E-SYNC NETWORKS, LLC
By: CRC, Inc.
By: /s/ Joshua Wurzburger
__________________________________
Name: Joshua Wurzburger
Title: President
E-SYNC NETWORKS, INC.
By: /s/ Michael A. Clark
__________________________________
Name: Michael A. Clark
Title: President and Chief Operating Officer
CRC, INC.
By: /s/ Joshua Wurzburger
__________________________________
Name: Joshua Wurzburger
Title: President
EXHIBIT L
AMENDMENT, ASSIGNMENT AND CONSENT TO ASSIGNMENT OF LEASE
[ TO COME ]
EXHIBIT M
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
This ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS (this "Assignment") is
dated as of [_______, 2001], by and between E-SYNC NETWORKS, INC., a Delaware
corporation ("Assignor"), and E-SYNC NETWORKS, LLC, a Delaware limited liability
company ("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor and Assignee entered into that certain Contribution
Agreement of even date herewith (the "Contribution Agreement"), pursuant to
which Assignee is acquiring the ESNI Contributed Assets (as such term is defined
in the Contribution Agreement); and
WHEREAS, Assignor licenses certain intellectual property set forth on
Schedule 2.1(d) of the Contribution Agreement and attached hereto as Annex A
("Intellectual Property"), including all common law rights therein;
WHEREAS, Assignor owns certain intellectual property set forth on Schedule
2.1(d) of the Contribution Agreement and attached hereto as Annex B
("Intellectual Property"), including all common law rights therein and the
goodwill of the business symbolized thereby; and
WHEREAS, Assignee desires to acquire the entire right, title and interest
in and to the Intellectual Property, including all common law rights therein and
the goodwill of the business symbolized thereby.
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby acknowledged and
agreed that:
1. Assignment. Assignor hereby sells, assigns and transfers to Assignee
its entire right, title and interest in and to the Intellectual
Property, including all common law rights therein and the goodwill
of the business associated therewith, together with all actions that
accrue by virtue of this Assignment, including the right to sue for
infringement and collect damages.
2. Execution and Delivery of Further Documents. Assignor hereby agrees
to execute all documents, and do all things necessary to obtain such
registrations and to perfect Assignee's rights in and to the
Intellectual Property hereby assigned.
3. Governing Law. This Assignment shall be governed by the laws of the
State of New York without regard to its conflicts of laws
principals.
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4. Counterparts. This Assignment may be executed in any number of
counterparts by the parties hereto, each of which when so executed
and delivered shall be deemed an original and all of which
counterparts taken together constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date first above written.
E-SYNC NETWORKS, INC. ("ASSIGNOR")
By:________________________________
Name:
Title:
E-SYNC NETWORKS, LLC ("ASSIGNEE")
By:________________________________
Name:
Title:
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Exhibit A
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into as
of [______, 2001] by and between CRC, INC., a New York corporation ("CRC"), and
E-SYNC NETWORKS, LLC, a Delaware limited liability company (the "JV").
BACKGROUND
A. CRC is in the technology management services business.
B. E-Sync Networks, Inc., a Delaware corporation ("ESNI"), is a provider
of e-business infrastructure products and services.
C. Pursuant to the ESNI Contribution Agreement, ESNI is contributing the
ESNI Contributed Assets (as defined in the ESNI Contribution Agreement) to the
JV.
D. On the terms and conditions set forth in this Agreement, CRC desires to
contribute to the JV those certain assets set forth on Schedule A hereto (the
"CRC Contributed Assets") as the initial Capital Contribution to the JV of CRC
as further detailed in Section 6.1 of the Operating Agreement.
E. CRC and ESNI desire that the JV exploit commercially the CRC
Contributed Assets, the ESNI Contributed Assets and the synergies between the
respective businesses of CRC and ESNI.
F. Unless otherwise defined herein or the context otherwise requires,
capitalized terms used and not otherwise defined in this Agreement shall have
the meanings ascribed to them in the ESNI Contribution Agreement. Other
capitalized terms used in this Agreement shall, unless the context otherwise
requires, have the meanings given to them in Section 7.1.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants and agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
CAPITAL CONTRIBUTION
Section 1.1 Contribution of the CRC Contributed Assets. Upon the terms and
subject to the conditions set forth in this Agreement, CRC shall, upon the due
execution of this Agreement, contribute, convey, assign and deliver to
("Transfer") the JV, and the JV shall assume, receive and accept from CRC, as a
capital contribution to the JV, all rights, valid and marketable title and
interest in and to the CRC Contributed Assets. Pursuant to Section 6.1 of the
Operating Agreement, the CRC Contributed Assets are deemed to be the initial
Capital Contribution of CRC.
Section 1.2 CRC Excluded Assets. The CRC Contributed Assets shall not
include, and CRC shall not convey and the JV shall not acquire, any right, title
or interest of CRC in or to any assets, rights or properties not expressly set
forth on Schedule A hereto (the "CRC Excluded Assets").
Section 1.3 Assumed Liabilities. Upon the Transfer of the CRC Contributed
Assets to the JV, the JV shall assume and agree to pay, discharge or perform,
when due, those liabilities and obligations specifically set forth on Schedule B
hereto to the extent such obligations arise on or after the Closing Date with
respect to events occurring on or after the Closing Date (the "Assumed
Liabilities").
Section 1.4 Excluded Liabilities. The parties acknowledge that the JV
shall not be the successor to CRC with respect to, and the JV does not assume
and shall not be liable to pay, perform or discharge, any of the debts,
liabilities or obligations of CRC or associated with the CRC Contributed Assets,
known or unknown, contingent or liquidated or otherwise, including expenses of
CRC, not specifically listed on Schedule B hereto (the "Excluded Liabilities").
Section 1.5 Valuation of the Contributed Assets. The valuations of the
JV's assets immediately following the Transfer as contemplated hereunder and the
Contribution as contemplated under the ESNI Contribution Agreement are specified
on Schedule A to the Operating Agreement.
ARTICLE II
ADDITIONAL AGREEMENTS
Section 2.1 Books and Records. (a) On the date hereof, CRC shall deliver
to the JV, and the JV shall acquire and take possession of, copies or originals
of the books and records relating directly and solely to the CRC Contributed
Assets (the "Books and Records"); provided that if any part of such Books and
Records cannot be separated from books, records, files and other data that do
not constitute Books and Records or relate to services or support to be provided
by CRC under the Operating Agreement or any other Transaction Document, CRC
shall retain such part of the Books and Records but make such part available to
the JV as provided herein.
(b) CRC and the JV each agrees that it shall preserve and keep the
Books and Records or the parts thereof in its possession, as the case may be, in
accordance with its records retention policies or for any longer period as may
be required by statute, ordinance, rule, regulation, order or policy ("Law") of
any governmental or regulatory body, agency or authority ("Authority"). During
such period and subject to appropriate confidentiality undertakings, each party
shall permit any of the other parties or their respective counsel, accountants,
officers, employees or other representatives access to such Books and Records
upon such other party's reasonable request and during normal business hours for
the purpose of examining such Books and Records to the extent reasonably
required by such party in connection with (i) any insurance claims by, legal
proceedings against or governmental investigations of such party, (ii) the
preparation of any tax return required to be filed by such party, the defense of
any audit, examination, administrative appeal or litigation of any tax return in
which the results of
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operation of the CRC Contributed Assets were included or (iii) any other
reasonable business purpose related to the CRC Contributed Assets or the
business of the JV.
Section 2.2 Apportionment with respect to CRC Assigned Contracts. CRC and
the JV agree that (a) CRC is entitled to all revenues derived from the CRC
Assigned Contracts (as defined in Section 3.6 below) and is responsible for all
of the expenses incurred in connection with the CRC Assigned Contracts,
attributable to the period ending with the day immediately preceding the Closing
Date, whether such revenues are received or such expenses are paid before or
after the Closing Date, and (b) the JV is entitled to all of the revenues
derived from the CRC Assigned Contracts, and is responsible for all of the
expenses incurred in connection with the CRC Assigned Contracts, attributable to
the period beginning with the Closing Date; provided, however, that nothing in
this Section 2.2 shall be read to make CRC responsible from and after the
Closing Date for the Assumed Liabilities, which Assumed Liabilities shall become
the sole liability of the JV on and after the Closing Date. Accordingly,
revenues and expenses relating to the CRC Assigned Contracts shall be
apportioned between CRC and the JV as of the Closing Date. CRC and the JV shall
cooperate reasonably and in good faith to agree mutually to a final proration
schedule as promptly as practicable. Adjustments required as a result of such
schedule as to which the parties have agreed shall be made by prompt payment
from CRC to the JV or by the JV to CRC, as the case may be.
Section 2.3 Further Assurances. At any time or from time to time after the
date hereof, each of CRC and the JV shall, at the reasonable request of the
other, execute and deliver any further instruments or documents and take any and
all such further actions as the requesting party may reasonably request in order
to consummate and make effective the transactions contemplated by this Agreement
and to put the JV in operating control of the CRC Contributed Assets. Without
limiting the foregoing, except as indicated on Schedule 3.3(a), CRC shall use
its reasonable best efforts after the Effective Date to obtain the Required
Consents (as defined in Section 3.3(b) below).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CRC
CRC hereby represents, warrants and agrees as follows:
Section 3.1 Existence and Good Standing. CRC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York, and has all requisite corporate power and authority to own its
property, to carry on its business as presently conducted and to Transfer the
CRC Contributed Assets as contemplated under this Agreement. CRC is duly
qualified to transact business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect.
Section 3.2 Corporate Authority. CRC has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by CRC and (assuming the due
and valid execution and delivery of this Agreement by the JV) constitutes the
legal, valid and binding obligation of CRC, enforceable
-3-
against CRC in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the rights of
creditors generally and by the availability of the remedy of specific
performance.
Section 3.3 Consents and Approvals; No Violations.
(a) The execution and delivery by CRC of this Agreement, CRC's
performance of its obligations hereunder and the consummation by CRC of the
transactions contemplated hereby do not and will not, with or without the giving
of notice or the lapse of time or both (i) violate, conflict with or result in a
breach of or default by CRC under any provision of its corporate organizational
documents or of any agreement to which it is a party or by which it or any of
the CRC Contributed Assets is bound, (ii) except as set forth on Schedule
3.3(a), require CRC to obtain any consent, waiver, approval, authorization,
permit or action of, or any filing with or notification to any Governmental
Authority or any third Person that has not been obtained or made, (iii) to its
knowledge, contravene any Law, judgment, decree or order applicable to CRC or
any of the CRC Contributed Assets or (iv) violate, conflict with, result in a
breach of or default by CRC (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Encumbrance upon any of the CRC Contributed Assets under any provision of any
agreement to which CRC is a party or by which it or any of the CRC Contributed
Assets is bound; except, in the case of the foregoing clauses (i) through (iv),
where there would not exist a Material Adverse Effect.
(b) In the event that the contribution, conveyance, assignment or
delivery of any of the CRC Contributed Assets to, or the assumption and
acceptance of any of the Assumed Liabilities by, the JV pursuant to this
Agreement shall require the consent of any Person and such consent has not been
obtained prior to the Closing Date (the "Required Consents"), then:
(i) unless and until such consent is obtained, the rights to,
and obligations under, such asset or liability shall not be assigned,
transferred, conveyed or delivered to nor assumed or accepted by the JV
pursuant to this Agreement; and
(ii) with respect to each such asset or liability, the parties
hereto shall make and collect such payments (both among themselves and to
and from other Persons) and take such other actions as shall be reasonably
necessary to place the parties hereto in the economic position as
equivalent as possible to that which they would have occupied had such
consent been obtained and such asset or liability been transferred or
assumed.
When such consents to the assignment, transfer, conveyance and delivery or
the assumption or acceptance of such asset or liability have been obtained, it
shall thereupon automatically be assigned, transferred, conveyed and delivered
to or assumed and accepted by the JV.
Section 3.4 Restrictive Documents. CRC is not subject to, or a party to,
any charter, by-law, mortgage, lien, lease, license, permit, agreement,
contract, instrument, Law, judgment or decree, or any other restriction of any
kind or character, which materially and adversely affects any of the CRC
Contributed Assets, or which conflicts with or would prevent (i) consummation
-4-
of the transactions contemplated by this Agreement or (ii) compliance by CRC
with the terms, conditions and provisions hereof.
Section 3.5 Title to Properties; Encumbrances; Condition. The CRC
Contributed Assets are free of any Encumbrance of any kind except for
Encumbrances for current Taxes, assessments or governmental charges or levies on
property not yet due and delinquent, or statutory Encumbrances of landlords,
carriers, mechanics and similar Encumbrances arising by operation of law in the
ordinary course of business for sums not yet delinquent (such liens
collectively, the "Permitted Encumbrances"), and pursuant to this Agreement the
JV will acquire valid and marketable title to the CRC Contributed Assets free of
Encumbrances other than Permitted Encumbrances.
Section 3.6 CRC Assigned Contracts. Each and every contract and/or account
included as part of the CRC Contributed Assets (the "CRC Assigned Contracts") is
in full force and effect and is a valid and enforceable agreement, and there
exists no default thereunder by CRC or event of default or event, occurrence,
condition or act (including without limitation the conveyance of the CRC
Contributed Assets hereunder) by or with respect to CRC which, with the giving
of notice, the lapse of time or the happening of any other event or condition,
would become a default or event of default thereunder. To the knowledge of CRC,
all of the covenants to be performed by any other party thereto have been fully
performed. Except as set forth on Schedule 3.6, there are no disputes with
respect to any CRC Assigned Contract. Except as set forth on Schedule 3.6, the
continuation and validity of the CRC Assigned Contracts will in no way be
affected by the transfer of the CRC Assigned Contracts under this Agreement or
the transactions contemplated hereby. Except as set forth on Schedule 3.6, no
party to any CRC Assigned Contract has given notice of its intent to terminate,
or not renew, its relationship with CRC and no such party has otherwise changed
significantly its relationship, or the terms upon which it conducts business
with CRC, or notified CRC that it intends to do so, whether in connection with
the transactions contemplated by this Agreement or otherwise. CRC has provided
the JV with true, correct and complete copies of each of the CRC Assigned
Contracts, including all amendments thereto.
Section 3.7 Permits. CRC holds all material governmental and other third
party permits (including occupancy permits), licenses, consents and
authorizations ("Permits") required in connection with the use, operation or
ownership of the CRC Contributed Assets. Each of such Permits are transferable
with the CRC Contributed Assets to the JV. Any applications for the renewal of
any such Permit due prior to the Closing Date have been timely filed. No
proceeding to modify, suspend, revoke, withdraw, terminate or otherwise limit
any such Permit is pending or, to the knowledge of CRC, threatened. No
administrative or governmental action has been taken or, to the knowledge of
CRC, threatened in connection with the expiration, continuance or renewal of any
such Permit.
Section 3.8 Litigation. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or, to
the knowledge of CRC, any investigation by) any Authority pending or, to the
knowledge of CRC, threatened, affecting the CRC Contributed Assets or affecting
the ability of CRC to carry out its obligations under this Agreement.
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Section 3.9 Taxes; Assessments. All tax returns required to be filed by
CRC with respect to the CRC Contributed Assets have been duly and timely filed.
All federal, local and foreign Taxes relating to the CRC Contributed Assets
(other than Taxes not yet due and payable), whether due on the tax returns
specified in the previous sentence or otherwise due from CRC, have been duly
paid by CRC and there are no liens for Taxes payable by CRC on, or other
disputes relating to Taxes payable in respect of, any of the CRC Contributed
Assets. To the knowledge of CRC, there are no supplemental Taxes affecting the
CRC Contributed Assets, other than those that may arise from the consummation of
the transactions set forth in this Agreement. To the knowledge of CRC, the
acquisition of the CRC Contributed Assets pursuant to this Agreement shall not
result in a reassessment of the CRC Contributed Assets for the purposes of
personal property taxes.
Section 3.10 Compliance with Laws. CRC is in compliance with all Laws,
judgments, licenses, Permits, certificates, approvals and decrees applicable to
the CRC Contributed Assets, in each case the failure to comply with which would
have a Material Adverse Effect. CRC is not in violation of its certificate of
incorporation or by-laws in any respect or in default in the performance of any
obligation, agreement or condition contained in any debenture, note, other
evidence of indebtedness, indenture, lease, loan or other agreement or
instrument in any respect that would have a Material Adverse Effect.
Section 3.11 Liabilities. Except as set forth in Schedule 3.12, CRC does
not have any outstanding claim, liability, indebtedness or obligation in respect
of the CRC Contributed Assets in excess of $50,000 in any individual case or
$250,000 in the aggregate, contingent or otherwise.
Section 3.12 Real Property. CRC owns no real property in connection with
the CRC Contributed Assets and has no real property lease or sublease other than
those leases constituting CRC Assigned Contracts and set forth on Schedule A.
CRC is in compliance in all material respects with all applicable environmental
and safety Laws (including, without limitation, all material permits and
licenses required thereunder). CRC has received no written notice of any
violation of or any liability arising from, or of any facts or circumstances
with respect to the past or current operations of CRC that would give rise to,
any investigatory, corrective or remedial obligation under any environmental or
safety Law. The consummation of the transactions contemplated by this Agreement
will not result in any obligations for site investigation or cleanup, or
notification to or consent of any Authority or third Persons pursuant to any
"transaction-triggered" or "responsible party transfer" environmental or safety
Law.
Section 3.13 Full Disclosure. All documents and other papers delivered by
or on behalf of CRC in connection with this Agreement and all other Transaction
Documents to which it may be a party, and the transactions contemplated hereby
and thereby are true, complete and authentic. No representation, warranty or
statement of CRC made in this Agreement or the other Transaction Documents to
which it may be a party or the schedules or exhibits hereto or thereto or in any
document, statement or certificate furnished to the JV pursuant to this
Agreement and the other Transaction Documents contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in light of the circumstances under which
they were made, not false or misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The JV represents, warrants and agrees as follows:
Section 4.1 Existence and Good Standing. The JV is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Delaware. The JV is newly formed by CRC for the purposes of
consummating the transactions contemplated in this Agreement, the Operating
Agreement, the ESNI Contribution Agreement and the other Transaction Documents
and has no liabilities or obligations other than those arising in connection
with the transactions contemplated under the Transaction Documents.
Section 4.2 Corporate Authority. The JV has all requisite power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Such
execution, delivery, performance and consummation by the JV have been duly and
validly authorized and approved by all required action of the JV. This
Contribution Agreement has been duly and validly executed and delivered by the
JV and constitutes the legal, valid and binding obligation of the JV,
enforceable against the JV in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting the
rights of creditors generally and by the availability of the remedy of specific
performance.
Section 4.3 Consents and Approvals; No Violations. The execution and
delivery by the JV of this Agreement, the JV's performance of its obligations
hereunder and the consummation by the JV of the transactions contemplated hereby
do not and will not, with or without the giving of notice or the lapse of time
or both (i) violate, conflict with or result in a breach of or default by the JV
under any provision of its organizational documents or of any agreement to which
the JV is a party or by which it or any of its assets is bound, (ii) require the
JV to obtain any consent, waiver, approval, authorization, permit or action of,
make any filing with, or give any notice to, any Person, (iii) to its knowledge,
contravene any Law, judgment, decree or order applicable to the JV or any of its
assets or (iv) violate, conflict with, result in a breach of or default by the
JV (or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any Encumbrance upon any of
its assets under any provision of any agreement to which the JV is a party or by
which it or any of its assets is bound; except, in the case of the foregoing
clauses (i) through (iv), where there would not exist a Material Adverse Effect.
Section 4.4 Restrictive Documents. The JV is not subject to, or a party
to, any charter, by-law, mortgage, lien, lease, license, permit, agreement,
contract, instrument, law, rule, ordinance, regulation, order, judgment or
decree, or any other restriction of any kind or character, which would prevent
(i) consummation of the transactions contemplated by this Agreement or (ii)
compliance by the JV with the terms, conditions and provisions hereof.
Section 4.5 Litigation. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or, to
the knowledge of the JV,
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any investigation by) any Authority pending or, to the knowledge of the JV,
threatened, affecting the CRC Contributed Assets or affecting the ability of the
JV to carry out its obligations under this Agreement or affecting the continued
commercial exploitation of the CRC Contributed Assets after the date hereof.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
Section 5.1 Survival of Representations and Warranties. The respective
representations and warranties of CRC and the JV contained in this Agreement or
in any schedule attached hereto shall survive the transfer of the CRC
Contributed Assets contemplated hereby for a period of fifteen (15) months. Each
of the parties hereto shall be entitled to rely on all such representations and
warranties regardless of any investigation by or on its behalf and regardless of
whether it knew or should have known that such representation or warranty was
not true, correct or complete.
Section 5.2 Indemnification.
(a) CRC shall indemnify the JV and each of its Affiliates
(including, without limitation, ESNI), directors, principals, officers,
employees, independent contractors, agents and representatives, in their
capacities as such, and the successors, heirs and personal representatives of
any of them (collectively, "JV Indemnified Parties") and hold them harmless from
any and all claims, suits, actions, proceedings, investigations, judgments,
damages, losses, liabilities and expenses (including, reasonable expenses of
investigation and attorneys' fees and expenses) (collectively, "Damages")
incurred or suffered by any JV Indemnified Party arising out of or relating to
(i) any breach or inaccuracy of any representation or warranty of CRC contained
herein (including the Annexes and Schedules attached hereto) or the Transaction
Documents or any instruments delivered by CRC pursuant to this Agreement, (ii)
any breach of any covenant or other agreement of CRC contained herein (including
the Annexes and Schedules attached hereto) or the Transaction Documents or any
instruments delivered by CRC pursuant to this Agreement, (iii) the CRC Excluded
Assets and the Excluded Liabilities, and (iv) the ownership, operation and use
of the CRC Contributed Assets before the Closing Date.
(b) The JV shall indemnify CRC and each of its Affiliates,
directors, principals, officers, employees, independent contractors, agents and
representatives, in their capacities as such, and the successors, heirs and
personal representatives of any of them (collectively, "CRC Indemnified
Parties") and hold them harmless from any and all Damages incurred or suffered
by any CRC Indemnified Party arising out of or relating to (i) any breach or
inaccuracy of any representation or warranty of the JV contained herein
(including the Annexes and Schedules attached hereto) or the Transaction
Documents or any instruments delivered by the JV pursuant to this Agreement,
(ii) any breach of any covenant or other agreement of the JV contained herein
(including the Annexes and Schedules attached hereto) or the Transaction
Documents or any instruments delivered by the JV pursuant to this Agreement, and
(iii) the ownership, operation and use of the CRC Contributed Assets on or after
the Closing Date.
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(c) The obligations to indemnify and hold harmless pursuant to this
Section 5.2, other than pursuant to Sections 5.2(a)(ii), 5.2(a)(iii),
5.2(a)(iv), 5.2(b)(ii) and 5.2(b)(iii), shall survive the consummation of the
transactions contemplated by this Agreement for a period of fifteen (15) months.
The obligations to indemnify and hold harmless pursuant to Sections 5.2(a)(ii),
5.2(a)(iii), 5.2(a)(iv), 5.2(b)(ii) and 5.2(b)(iii) shall survive the
consummation of the transactions contemplated by this Agreement indefinitely.
(d) Notwithstanding anything to the contrary contained in this
Agreement, no amounts of indemnity shall be payable:
(i) by any party to another party unless and until the party
seeking indemnity has suffered or paid Damages in excess of one hundred
thousand dollars ($100,000), but upon reaching such amount, from the first
dollar to the full extent of all Damages (subject to the other terms and
conditions set forth in this Section);
(ii) by any party to another party to the extent that, as a
result of such payment, the cumulative Damages payable by the indemnifying
party in the aggregate would be in excess of three million dollars
($3,000,000); provided that the foregoing limitation shall not apply to
any claims relating to CRC Excluded Assets or Excluded Liabilities; or
(iii) to the extent the party seeking indemnity has been made
whole, net of tax obligations, with respect to the claimed Damages by
insurance or any non-refundable payment by any third Person.
(e) A party seeking indemnification pursuant to this Section 5.2 (an
"Indemnified Party") with respect to a claim, action or proceeding by any other
Person shall give prompt written notice to the party from whom such
indemnification is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any action or proceeding, in respect of which
indemnity may be sought hereunder; provided that the failure to give such notice
shall not affect the Indemnified Party's rights to indemnification hereunder,
except to the extent such failure shall actually prejudice in any material
respect the Indemnifying Party's ability to defend such claim, action or
proceeding. The Indemnifying Party shall have the right to assume the defense of
any such action or proceeding at its expense, with counsel approved by the
Indemnified Party (which approval will not be unreasonably withheld). If the
Indemnifying Party shall elect not to assume the defense of any such action or
proceeding, or fails to make such an election within 20 days after it receives
such notice pursuant to the first sentence of this Section 5.2(e), the
Indemnified Party may assume such defense at the expense of the Indemnifying
Party. The Indemnified Party shall have the right to participate in (but not
control) the defense of an action or proceeding defended by the Indemnifying
Party hereunder and to retain its own counsel in connection with such action or
proceeding, but the fees and expenses of such counsel shall be at the
Indemnified Party's expense unless (i) the Indemnifying Party and the
Indemnified Party have mutually agreed in writing to the retention of such
counsel or (ii) the named parties in any such action or proceeding (including
impleaded parties) include the Indemnifying Party and the Indemnified Party, and
representation of the Indemnifying Party and the Indemnified Party by the same
counsel would create a conflict (in which case the Indemnifying Party shall not
be permitted to assume the defense of such claim, action or
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proceeding); provided that, unless otherwise agreed by the Indemnifying Party,
if the Indemnifying Party is obligated to pay the fees and expenses of such
counsel, the Indemnifying Party shall be obligated to pay only the fees and
expenses associated with one attorney or law firm, as applicable, for the
Indemnified Party. An Indemnifying Party shall not be liable under this Section
5.2 for any settlement effected without its written consent, which consent will
not be unreasonably withheld, of any claim, action or proceeding in respect of
which indemnity may be sought hereunder.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Annexes and Schedules. The Annexes and Schedules to this
Agreement are deemed a part of this Agreement and are subject to all of the
provisions herein. Any fact or item that is clearly disclosed on any Annex or
Schedule in such a way as to make its relevance to any representation made
elsewhere in this Agreement or to the information called for by any other Annex
or Schedule readily apparent shall be deemed to be an exception to such
representation or to be disclosed on such other Annex or Schedule, as the case
may be, notwithstanding the omission of a reference or cross-reference thereto.
Any fact or item disclosed on any Annex or Schedule shall not by reason only of
such inclusion be deemed to be material and shall not be employed as a point of
reference in determining any standard of materiality under this Agreement.
Section 6.2 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by, interpreted under and
construed in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed wholly in that state
without giving effect to the choice or conflict of laws principles or provisions
thereof.
(b) CRC and the JV each hereby irrevocably submits to the
jurisdiction of any state or federal court sitting in the City, County and State
of New York in respect of any enforcement proceeding arising out of or relating
to this Agreement, which courts shall have exclusive jurisdiction over and with
respect to any such enforcement proceeding, and irrevocably accepts for itself
and in respect of its property, generally and unconditionally, jurisdiction of
the aforesaid courts. CRC and the JV each hereby irrevocably waives, to the
fullest extent such party may effectively do so under applicable Law, trial by
jury and any objection that such party may now or hereafter have to the laying
of venue of any such enforcement proceeding brought in any such court and any
claim that any such enforcement proceeding brought in any such court has been
brought in an inconvenient forum. Nothing herein shall affect the right of any
party to serve process in any manner permitted by law or to commence enforcement
proceedings or otherwise proceed against the other party in any other
jurisdiction.
Section 6.3 Notice. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon delivery, if delivered personally, (ii) three (3)
Business Days after deposit in the United States mail, if sent by registered or
certified mail, return receipt requested, postage prepaid (provided
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that such method of notice shall be acceptable only if posted in the United
States to a United States address), (iii) two (2) Business Days after deposit
with a nationally recognized overnight courier service, if sent by courier
service, or (iv) upon confirmation of receipt, if sent by facsimile
transmission, and, in any case, properly addressed to the parties as follows:
IF TO CRC: CRC, Inc.
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attn: Chief Executive Officer
Telecopier: (212) 906-9500
with copies (which shall not constitute notice) to:
E-Sync Networks, Inc.
[35 Nutmeg Drive
Trumbull, Connecticut 06611]
Attn: President and Chief Operating Officer
Telecopier: (203) 601-3151
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901-2689
Attn: David I. Albin, Esq.
Telecopier: (203) 348-5777
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attn: Ely D. Tendler, Esq.
Telecopier: (212) 715-8000
IF TO THE JV: E-Sync Networks, LLC
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attn: General Manager
Telecopier: (212) 906-9500
with copies (which shall not constitute notice) to:
E-Sync Networks, Inc.
[35 Nutmeg Drive
Trumbull, Connecticut 06611]
Attn: President and Chief Operating Officer
Telecopier: (203) 601-3151
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Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901-2689
Attn: David I. Albin, Esq.
Telecopier: (203) 348-5777
or to such other address or addresses as a party may from time to time designate
as to itself, by notice as provided herein, provided that any such notice shall
be deemed effectively given only upon receipt.
Section 6.4 Finders' Fees. CRC and the JV each represents to the other
parties that it neither is nor will be obligated to pay any finder's fee,
brokerage commission or similar fee in connection with the transactions
contemplated by this Agreement or any other Transaction Documents, and that it
has dealt with no finder, broker or other third Person in connection with the
transactions contemplated by this Agreement or any other Transaction Documents.
CRC and the JV each agrees to indemnify and hold the other parties harmless from
any liability for any commission or compensation in the nature of a finder's
fee, brokerage commission or similar fee (and the costs and expenses, including,
reasonable attorneys' fees, of defending against such liability or asserted
liability) incurred by such other parties, including any arising out of any
breach of such other party's foregoing representation.
Section 6.5 Expenses. Each of the parties shall bear its own expenses,
including but not limited to counsel and accounting fees, in connection with the
transactions contemplated hereby. CRC agrees to pay any transfer Taxes that may
be payable in connection with the execution, delivery and performance of this
Agreement or the transfer of any or all of the CRC Contributed Assets, and shall
indemnify the JV against any liability for payment thereof and shall furnish to
the JV evidence of payment upon request. CRC shall prepare and file any required
tax returns and other required documents with respect to such taxes.
Section 6.6 Specific Performance. CRC and the JV each acknowledges and
agrees that the other parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, CRC and the JV each
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and all agreements and
transactions contemplated hereby, and to enforce specifically this Agreement and
all agreements and transactions contemplated hereby, and the terms and
provisions hereof or thereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter
(subject to the provisions set forth in Section 6.2 of this Agreement and
Section 10.6 of the ESNI Contribution Agreement incorporated herein by
reference), in addition to any other remedy to which it may be entitled, at law
or in equity.
Section 6.7 Other Provisions. The provisions of Sections 10.1, 10.3-10.6,
10.8, 10.9, 10.13 of the ESNI Contribution Agreement are incorporated herein by
reference and made a part hereof, mutatis mutandis.
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ARTICLE VII
DEFINITIONS
Section 7.1 Defined Terms. The terms listed below in this Section 7.1
shall have the following respective meanings in this Agreement:
"Assumed Liabilities" shall have the meaning set forth in Section
1.3 hereunder.
"Authority" shall have the meaning set forth in Section 2.1(b)
hereunder.
"Books and Records" shall have the meaning set forth in Section
2.1(a) hereunder.
"Capital Contribution" shall have the meaning set forth in Section
1.1 of the Operating Agreement.
"CRC" shall have the meaning set forth in the Preamble hereunder.
"CRC Assigned Contracts" shall have the meaning set forth in Section
3.6 hereunder.
"CRC Contributed Assets" shall have the meaning set forth in Recital
D hereunder.
"CRC Excluded Assets" shall have the meaning set forth in Section
1.2 hereunder.
"Damages" shall have the meaning set forth in Section 5.2 hereunder.
"Encumbrances" shall mean liens, security interests, options, rights
of first refusal, easements, mortgages, charges, debentures, indentures,
deeds of trust, rights-of-way, restrictions, agreements, encroachments,
licenses, leases, permits, security agreements or any other encumbrances
and other restrictions or limitations on use of real or personal property
or irregularities in title thereto.
"ESNI" shall have the meaning set forth in Recital B hereunder.
"ESNI Contribution Agreement" is that certain Contribution
Agreement, dated as of August ___, 2001, by and among the JV, ESNI and
CRC, as the same may be amended from time to time.
"Excluded Liabilities" shall have the meaning set forth in Section
1.4 hereunder.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency.
"JV" shall have the meaning set forth in the Preamble hereunder.
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"Law" shall have the meaning set forth in Section 2.1(b) hereunder.
"Lien" or "Liens" shall mean any mortgage, pledge, security
interest, conditional sale or other title retention agreement,
encumbrance, lien, easement, claim, right, covenant, restriction, right of
way, warrant, option or charge of any kind, including any liens to secure
the payment or collection of Taxes.
"Material Adverse Effect" means any material adverse effect on the
business, properties, assets, operations, results of operations,
liabilities, financial condition or prospects of CRC or the JV, as the
case may be, or on the transactions contemplated hereby.
"Operating Agreement" means the Operating Agreement of the JV, dated
as of the date hereof, by and among the JV, CRC and ESNI, as the same may
be amended from time to time.
"Permitted Encumbrances" shall have the meaning set forth in Section
3.5 hereunder.
"Permits" shall have the meaning set forth in Section 3.7 hereunder.
"Person" means an individual, a partnership, a limited liability
partnership, a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization or a Governmental Entity or any other entity.
"Tax" means any of the Taxes, and "Taxes" means all taxes, fees,
charges, levies, excises, duties, or assessments of any kind whatsoever,
including income, gross receipts, ad valorem, premium, excise, real
property, personal property, windfall profit, sales, use, transfer,
licensing, import, export, withholding, employment, payroll, social
security, medicare, environmental, customs duties, value added,
alternative or add-on minimum estimated and franchise taxes, together with
additions to tax or additional amounts, interests and penalties relating
thereto that may be imposed by any Governmental Entity.
"Transfer" shall have the meaning set forth in Section 1.1
hereunder.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
caused their authorized representatives to execute this Agreement as of the date
first above written.
E-SYNC NETWORKS, LLC
By: CRC Management Services, Inc.
Its: General Manager
By:________________________________
Name:
Title:
CRC, INC.
By:___________________________
Name:
Title:
Exhibit B
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT (this "Agreement") is entered
into as of [_______, 2001] (the "Effective Date"), by and between CRC MANAGEMENT
SERVICES, INC. (the "Manager"), a New York corporation and an affiliate of CRC,
Inc. ("CRC"), a New York corporation, and E-SYNC NETWORKS, LLC, a Delaware
limited liability company (the "Company").
WHEREAS, E-Sync Networks Inc., a Delaware corporation ("ESNI"),
holds a fifty-one (51%) percent membership interest in the Company and CRC holds
a forty-nine (49%) percent membership interest in the Company;
WHEREAS, the Company has the need for and wishes the Manager to
provide the Management Services (as defined below) relating to the operations of
its business, offices and facilities by acting as the General Manager of the
Company, with all of the power, authority, duties and responsibilities
associated with such position as described under Article III of the Operating
Agreement of E-Sync Networks, LLC dated [_______, 2001] (the "Operating
Agreement") among CRC, ESNI and the Company;
WHEREAS, the Manager wishes to provide the Management Services for
the Company; and
WHEREAS, the Company has agreed to compensate the Manager and
reimburse the Manager for the cost of the Management Services as provided in
this Agreement; and
NOW, THEREFORE, for and in consideration of the foregoing and the
terms and conditions contained hereinafter, the parties hereto agree as follows:
1. Term. This agreement shall remain in full force, as amended in
accordance with Section 9(a) herein from time to time, indefinitely unless
earlier terminated in accordance with the following:
(a) subject to clause (c) below, this agreement may be
terminated at any time by written agreement between the Manager and the Company;
(b) subject to clause (c) below, from and after [_______,
2004], this agreement may be terminated by either party upon 120 days advance
written notice to the other; provided that if the Company terminates this
Agreement pursuant to this clause (b) for any reason other than (i) for Cause
(as defined below) or (ii) upon the sale by CRC of a majority of its Interests
in the Company pursuant to Article 8 of the Operating Agreement (other than
Section 8.2 therein) (in which event notwithstanding anything to the contrary
contained herein the Company may terminate this Agreement upon sixty (60) days
notice), the Company must pay a termination fee in an amount equal to twice the
Company's reported revenues for the immediately preceding twelve (12) months;
provided, however, that if the Company terminates this Agreement pursuant to
this clause (b) for any reason including pursuant to clause (i) or (ii)
above, all amounts payable from the Company or ESNI to the Manager or its
affiliates and contractors must be paid in full prior to termination; and
(c) notwithstanding any other provisions of this Agreement, at
no time and under no circumstances may this Agreement be terminated by the
Company or CRC Management Services, Inc. be removed from the position of
Manager, if at such time the Company has a credit facility that is guaranteed by
CRC or Joshua Wurzburger ("JW"), unless CRC and JW are fully and unconditionally
released from such guaranty or all obligations of CRC and/or JW pursuant to such
guaranty are guaranteed by a third party, such release or third party to be
approved by CRC and/or JW, such approval not to be unreasonably withheld. The
Manager shall not enter into a credit facility guaranteed by CRC or JW if an
alternative credit facility, with terms substantially the same as those of the
credit facility to be guaranteed by CRC or JW, is available to the Company.
For the purposes of this Section 1, "Cause" shall be limited
to (A) material breaches of this Agreement that either (i) cannot be cured, or
(ii) that the Manager fails to cure within a reasonable period following receipt
of written notice thereof from the Company, or (B) any material act of fraud or
gross negligence ("Actionable Conduct") in connection with the performance of
the Manager's duties hereunder. Any dispute as to materiality of a breach, the
alleged Actionable Conduct or whether the Company has Cause to terminate this
Agreement pursuant to Section 1(b) shall be submitted to arbitration pursuant
to, and in accordance with, Section 9(c) below.
2. Services. The Manager agrees to provide, and the Company agrees
to accept, the administrative, financial and other management services necessary
for the operations of the Company (collectively, the "Management Services").
3. Compensation. The Company shall pay the Manager as follows:
(a) Base Rate. The Company shall pay the Manager 1% of the
Company's reported revenues, calculated on a monthly basis (the "Base Rate").
Payment to the Manager of the Base Rate shall be made no later than thirty days
after the end of each month. If such payment is not made within such thirty-day
period, until such amount is paid to the Manager, interest thereon shall accrue
and be payable at the rate of prime plus 2%.
(b) Incentive Payment. The Base Rate shall increase to 1.5% of
the Company's reported revenues with respect to each semi-annual period during
which the Company's reported revenues have increased at least 15% from the
corresponding period in the previous year. The six-month periods are to be
calculated commencing January 1 and July 1, beginning with January 1, 2002;
provided that the Base Rate shall increase to 1.5% of the Company's reported
revenues if the Company's reported revenues during the fourth quarter of the
year ended December 31, 2001 have increased at least 15% from the third quarter
of such year. In the event of any such increase in the Base Rate, the
differential between the payments made with respect to such semi-annual period
in accordance with Section 3(a) above and the payments to which the Manager is
entitled pursuant to this Section 3(b) shall be paid by the Company to the
Manager within 5 business days of the Company's receipt from the Manager of
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a written notice, setting forth the calculation evidencing such 15% increase in
the Company's reported revenues for the relevant period.
(c) Additional Fees. The Company agrees to compensate the
Manager for all services other than the Management Services and general
management relating to specific projects. Such compensation will be paid at the
mean rate paid by the Manager's other customers for similar services during the
prior three months. Examples of services that would qualify for this payment of
additional fees include, without limitation, software development or programming
and help-desk.
4. Expenses.
(a) The Manager shall have full and complete authority, power
and discretion, in the name and on behalf of the Company, to do all things
necessary or convenient to manage and control the business, affairs and
properties of the Company, including, without limitation, the power to:
(i) hire and fire personnel and retain and engage
professionals directly involved in the Management Activities;
(ii) invoice and collect payments from customers;
(iii) make disbursements to vendors and suppliers; and
(iv) pay personnel through its own paymaster;
provided, however, in no event shall the Manager be obligated
to advance or loan money to the Company; and provided further, however, that
nothing in this Section 4(a) shall in any way permit the Manager to take any
action that it is prohibited from taking (or prohibited from taking without the
consent of ESNI) under the Operating Agreement.
(b) The Company will pay expenses incurred by the Manager in
connection with its performance of the Management Services. Allocable general
costs, administrative costs, sales costs, marketing costs, recruiting costs and
overhead will be allocated between the Manager and the Company according to the
effort expended for providing the Management Services. Generally this shall be
allocated in proportion to the relative revenues of the Manager and the Company.
However, the Manager may allocate expenses according to different criteria (for
example, actual expenses, planned revenue, planned expenses, research and
development, special projects) when the relative revenues do not represent an
accurate measure of effort expended.
(c) The Company shall also reimburse the Manager for the
allocable expenses pursuant to Section 4(b) above and for its reasonable
out-of-pocket expenses incurred in connection with the Management Services. The
Manager shall provide the Company with an invoice with respect to such expenses
on a monthly basis, and payment to the Manager by the Company shall be made
within thirty days of the date of such invoice. If such payment is not made
within such thirty-day period, until such amount is paid to the Manager,
interest thereon shall accrue and be payable at the rate of prime plus 2%.
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(d) Neither the Manager nor any affiliate of the Manager shall
enter into any material business transaction, including, without limitation, any
loans or extensions of credit or royalty agreements, with the Company, except in
the ordinary course of business and on terms not less favorable to the Company
than the Company would reasonably expect to obtain in a similar business
transaction between unrelated parties. The foregoing shall not be deemed to
limit in any manner the right of the Manager or any of its affiliates from (i)
performing or exercising any rights under the Operating Agreement or pursuant to
the transactions contemplated thereby, or (ii) obtaining and perfecting any
purchase money security interest in equipment or other supplies provided to the
Company by the Manager or any of its affiliates or for which purchase money
financing with respect to such equipment or supplies was provided to the Company
by the Manager or its affiliates.
5. Obligations.
(a) The Company agrees to fully cooperate with the Manager and
to supply the Manager with any and all information reasonably necessary to
enable the Manager to perform the Management Services hereunder, in such form as
may be reasonably requested. The Company will give the Manager representatives
free access to any and all sources of information necessary to enable the
Manager to perform its obligations hereunder.
(b) The Manager agrees to cooperate with the Company and to
supply the Company with information reasonably necessary to enable the Company
to meet its legal and tax reporting requirements, including, without limitation,
its Members' periodic reporting obligations under the Securities Exchange Act of
1934, as amended. The Company shall reimburse the Manager for the expenses
incurred in providing such information to the Company.
(c) The Manager agrees to act in a commercially reasonable
manner in exercising its powers, taking actions in the Company's behalf and
performing its activities and responsibilities pursuant to this Management
Services Agreement and the Operating Agreement.
6. Liability. The Manager shall have no liability to the Company for
damages except to the extent of the actual damages (excluding lost profits or
special or punitive damages) suffered by the Company as a direct result of the
willful misconduct of the Manager.
7. Indemnification by the Company. (a) The Company shall indemnify
an indemnified representative (defined herein) against any liability (defined
herein) incurred in connection with any proceeding (defined herein) in which the
indemnified representative may be involved as a party or otherwise, as and when
incurred, by reason of the fact that such indemnified representative is or was
serving in an indemnified capacity (defined herein), including, without
limitation, liabilities resulting from any actual or alleged breach or neglect
of duty, error, misstatement or misleading statement, negligence, gross
negligence or act giving rise to liability, except:
(i) where such indemnification is expressly prohibited
by applicable law;
(ii) where the conduct of the indemnified representative
has been finally determined (A) to constitute gross negligence, reckless
conduct, intentional
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misconduct or a knowing violation of law, sufficient in the circumstances to bar
indemnification against liabilities arising from the conduct; (B) to constitute
a breach of Section 5.1 of the Operating Agreement; or (C) to be based upon or
attributable to the receipt by the indemnified representative from the Company
of a personal benefit to which the indemnified representative is not legally
entitled; or
(iii) to the extent such indemnification has been
finally determined in a final adjudication to be otherwise unlawful.
(b) If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such indemnified representative may be subject, the Company shall
indemnify such indemnified representative to the maximum extent for such portion
of the liabilities.
(c) The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.
(d) Definitions. For purposes of this Section 7:
(i) "indemnified capacity" means any and all past,
present and future service by an indemnified representative in one or more
capacities as General Manager, officer, or authorized agent of the Company or
the General Manager;
(ii) "indemnified representative" means the Manager, all
employees, agents, representatives and authorized agents of the Manager and any
other natural person or entity designated as an indemnified representative by
the mutual consent of the Manager and the Company;
(iii) "liability" means any damage, judgment, amount
paid in settlement, fine, penalty, punitive damages, tax, or cost or expense of
any nature (including, without limitation, attorneys' fees and disbursements);
and
(iv) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal, and
whether brought by or in the right of the Company, a class of its Members or
security holders or otherwise.
(e) Proceedings Initiated by Indemnified Representatives. The
provisions of this Section 7 shall apply to an indemnified representative with
respect to any liability incurred in a proceeding initiated (which shall not be
deemed to include counterclaims or affirmative defenses) or participated in as
an intervenor or amicus curiae by the indemnified representative seeking
indemnification.
(f) Advancing Expenses. The Company shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7(a) or the initiation of or participation in which is
authorized pursuant to Section 7(e) upon receipt of an
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undertaking by or on behalf of the indemnified representative to repay the
amount if it is ultimately determined that such indemnified representative is
not entitled to be indemnified by the Company pursuant to this Section 7. The
financial ability of an indemnified representative to repay an advance shall not
be a prerequisite to the making of such advance.
(g) Payment of Indemnification. An indemnified representative
shall be entitled to payment with respect to indemnification within twenty (20)
days after a written request for such payment has been delivered to the Company.
(h) Contribution. If the indemnification provided for in this
Section 7 or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the Company shall contribute to the liabilities to which the
indemnified representative may be subject in such proportion as is appropriate
to reflect the intent of this Section 7.
(i) Mandatory Indemnification of Manager. To the extent that
an indemnified representative has been successful on the merits or otherwise in
defense of any proceeding or in defense of any claim, issue or matter therein,
such indemnified representative shall be indemnified against expenses (including
attorneys' fees and disbursements) actually incurred by such representative in
connection therewith. This Section 7(i) shall not be interpreted in any way that
limits the applicability or scope of Section 7(f).
(j) Contract Rights; Amendment or Repeal. All rights under
this Section 7 shall be deemed a contract between the Company and the
indemnified representative pursuant to which the Company and each indemnified
representative intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall not affect any rights or obligations
then existing.
(k) Scope of Section. The rights granted by this Section 7
shall not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement or vote of disinterested members of the Company, both as
to action in an indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by or granted
pursuant to this Section 7 shall continue as to any person or entity who has
ceased to be an indemnified representative in respect of matters arising prior
to such time, and shall inure to the benefit of the heirs, executors,
administrators, personal representatives, successors and permitted assigns of
such a person or entity.
(l) Reliance on Provisions. Each person or entity who shall
act as an indemnified representative of the Company shall be deemed to be doing
so in reliance upon the rights of indemnification, contribution and advancement
of expenses provided by this Section.
(m) Indemnification Insurance. The Company shall obtain and
maintain indemnification insurance of a character and nature that provides
coverage satisfactory to the Manager.
8. Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be (i) sent by
registered or certified mail, return receipt requested, (ii) hand delivered,
(iii) sent by electronic mail, or (iv) sent by prepaid
-6-
overnight carrier, with a record of receipt, to the parties at the following
addresses (or at such other addresses as shall be specified by the parties by
like notice):
(a) if to the Manager:
CRC Management Services, Inc.
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attn: Chief Executive Officer
Telecopier: (212) 906-9500
with a copy (which shall not constitute notice) to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attn: Ely D. Tendler, Esq.
Telecopier: (212) 715-8000
(b) if to the Company:
E-Sync Networks, LLC
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attn: General Manager
Telecopier: (212) 906-9500
with a copy (which shall not constitute notice) to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901-2689
Attn: David I. Albin, Esq.
Telecopier: (203) 348-5777
Each notice or communication shall be deemed to have been given on the date
received.
9. Miscellaneous Provisions.
(a) This Agreement contains the complete understanding of the
parties hereto and there are no understandings, representations, or warranties
of any kind, express or implied not specifically set forth herein. This
Agreement may be amended only by written documents signed by duly authorized
representatives of each of the parties hereto.
(b) This Agreement shall be governed by, interpreted under and
construed in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed wholly in that state
without giving effect to the choice or conflict of laws principles or provisions
thereof
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(c) The parties hereto agree that any and all disputes, claims
or controversies arising out of or relating to this Agreement that are not
resolved by their mutual agreement shall be submitted to final and binding
arbitration before JAMS, or its successor, pursuant to the United States
Arbitration Act, 9 U.S.C. Sec. 1, et seq. Either party may commence the
arbitration process called for in this Agreement by filing a written demand for
arbitration with JAMS, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of JAMS' Comprehensive Arbitration
Rules and Procedures in effect at the time of filing of the demand for
arbitration. The parties will cooperate with JAMS and with one another in
selecting an arbitrator from JAMS' panel of neutrals, and in scheduling the
arbitration proceedings. The parties covenant that they will participate in the
arbitration in good faith, and that they will share equally in its costs. The
provisions of this paragraph may be enforced by any court of competent
jurisdiction, and the party seeking enforcement shall be entitled to an award of
all costs, fees and expenses, including attorneys fees, to be paid by the party
against whom enforcement is ordered.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
(e) This Agreement shall be for the benefit of the Manager and
the Company and shall be binding upon the parties and their respective
successors and permitted assigns.
(f) Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such term or provision shall be enforced to the maximum extent
permitted by law and, in any event, such illegality or invalidity shall not
affect the validity of the remainder of the Agreement.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and year first above written.
E-SYNC NETWORKS, LLC
By: CRC Management Services, Inc.
Its: General Manager
By:________________________________
Name:
Title:
CRC MANAGEMENT SERVICES, INC.
By:________________________________
Name:
Title:
CONSENTED TO AND ACKNOWLEDGED:
E-SYNC NETWORKS, INC.
By:__________________________
Name:
Title:
Signature Page to Management Services Agreement
Exhibit C
================================================================================
E-SYNC NETWORKS, LLC
OPERATING AGREEMENT
by and among
E-SYNC NETWORKS, LLC
CRC, INC.
and
E-SYNC NETWORKS, INC.
================================================================================
TABLE OF CONTENTS
ARTICLE I GENERAL PROVISIONS..........................................1
Section 1.1 Certain Definitions...........................................1
Section 1.2 The Company; Formation........................................8
Section 1.3 Company Name; Place of Business; Registered Office and Agent..8
Section 1.4 Term..........................................................9
Section 1.5 Business of the Company; Powers...............................9
Section 1.6 Taxed as Partnership..........................................9
Section 1.7 Fiscal Year...................................................9
Section 1.8 Membership Interests Certificated; Nature of Members'
Interests.....................................................9
Section 1.9 Business Transactions of Members with the Company............10
Section 1.10 Capacity of the Members......................................10
ARTICLE II MEMBERS....................................................10
Section 2.1 Members as of Effective Date.................................10
Section 2.2 Admission of New Members.....................................10
Section 2.3 Manner of Acting.............................................10
Section 2.4 Meetings of the Members......................................10
Section 2.5 Record Date..................................................12
Section 2.6 Relationship of the Members..................................12
ARTICLE III MANAGEMENT OF THE COMPANY..................................12
Section 3.1 Power and Authority of Members...............................13
Section 3.2 Power and Authority of the General Manager...................13
ARTICLE IV APPROVAL OF CERTAIN MATTERS................................14
Section 4.1 Approval of Certain Matters..................................14
Section 4.2 Procedure in Event of Deadlock...............................15
ARTICLE V EXCULPATION AND INDEMNIFICATION............................16
Section 5.1 Duties of the General Manager................................16
Section 5.2 Exculpation..................................................16
Section 5.3 Reliance on Reports and Information by Members or General
Manager......................................................16
Section 5.4 Indemnification by the Company...............................16
Section 5.5 Proceedings Initiated by Indemnified Representatives.........18
Section 5.6 Advancing Expenses...........................................18
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Section 5.7 Payment of Indemnification...................................18
Section 5.8 Contribution.................................................18
Section 5.9 Mandatory Indemnification of Members and General Manager.....18
Section 5.10 Contract Rights; Amendment or Repeal........................18
Section 5.11 Scope of Article............................................19
Section 5.12 Reliance on Provisions......................................19
Section 5.13 Indemnification Insurance...................................19
ARTICLE VI CAPITAL ACCOUNTS...........................................19
Section 6.1 Capital Contributions........................................19
Section 6.2 Liability for Contribution...................................19
Section 6.3 Capital Accounts.............................................20
Section 6.4 No Interest on or Return of Capital..........................20
Section 6.5 Membership Interest..........................................20
Section 6.6 Allocations of Profits and Losses Generally..................21
Section 6.7 Allocations Under Regulations................................21
Section 6.8 Other Allocations............................................21
ARTICLE VII DISTRIBUTIONS..............................................22
Section 7.1 Distributions................................................22
Section 7.2 Limitations on Distributions.................................24
Section 7.3 Amounts of Tax Paid or Withheld..............................25
Section 7.4 Distribution in Kind.........................................25
ARTICLE VIII TRANSFER OF MEMBERSHIP INTERESTS...........................25
Section 8.1 Restriction on Transfers.....................................25
Section 8.2 Transfers of Membership Interests to Affiliates..............25
Section 8.3 Buy-Sell Procedure...........................................25
Section 8.4 Right of First Refusal.......................................26
Section 8.5 Rights of Inclusion (Tag Along Rights).......................28
Section 8.6 Drag-Along Obligation........................................29
Section 8.7 Redemption of ESNI's Membership Interests....................30
Section 8.8 Adjustments in Membership Interests..........................31
Section 8.9 Consent of ESNI Stockholders.................................32
Section 8.10 Invalid Transfers Void......................................32
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Section 8.11 Change in Ownership.........................................33
Section 8.12 Effect of Transfer; Exclusions..............................33
ARTICLE IX DISSOLUTION; TERMINATION; REORGANIZATION...................34
Section 9.1 Dissolution..................................................34
Section 9.2 Events of Bankruptcy of Member...............................34
Section 9.3 Withdrawal of Members........................................35
Section 9.4 Winding Up...................................................35
Section 9.5 Liquidation and Distribution of Assets.......................35
Section 9.6 Reorganization...............................................36
ARTICLE X ADDITIONAL UNDERTAKINGS....................................36
Section 10.1 Confidentiality.............................................36
Section 10.2 Return of Confidential Information..........................37
Section 10.3 No License..................................................37
Section 10.4 No Hire.....................................................37
Section 10.5 Non-Competition.............................................38
Section 10.6 Business Opportunities......................................38
Section 10.7 Allocation of Expenses......................................39
ARTICLE XI BOOKS; REPORTS TO MEMBERS; TAX ELECTIONS...................40
Section 11.1 Books and Records...........................................40
Section 11.2 Reporting...................................................41
Section 11.3 Tax Matters Member..........................................42
Section 11.4 Tax Audits/Special Assessments..............................43
Section 11.5 Tax Elections...............................................43
Section 11.6 Taxes and Charges; Governmental Rules.......................43
ARTICLE XII MISCELLANEOUS..............................................43
Section 12.1 Binding Effect..............................................43
Section 12.2 Entire Agreement............................................43
Section 12.3 Amendments..................................................43
Section 12.4 Governing Law; Consent to Jurisdiction......................43
Section 12.5 Notices to Members..........................................44
Section 12.6 Bank Accounts...............................................44
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Section 12.7 Headings....................................................44
Section 12.8 Waivers.....................................................44
Section 12.9 No Third Party Beneficiaries................................44
Section 12.10 Interpretation.............................................45
Section 12.11 Further Assurances.........................................45
Section 12.12 Arbitration................................................45
Section 12.13 Illegality and Severability................................45
Section 12.14 Injunctive Relief..........................................46
Section 12.15 Authority/No Conflicts.....................................46
Section 12.16 Publicity..................................................46
Section 12.17 Expenses...................................................47
Section 12.18 Counterparts...............................................47
SCHEDULE A Members; Membership Interests; Agreed Values of Company
Assets; Capital Accounts
SCHEDULE B ESNI Board Members
EXHIBIT A CRC Contribution Agreement
EXHIBIT B ESNI Contribution Agreement
EXHIBIT C Management Services Agreement
EXHIBIT D Membership Interest Certificate
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E-SYNC NETWORKS, LLC
OPERATING AGREEMENT
This OPERATING AGREEMENT is made and entered into as of [_______, 2001]
(the "Effective Date") by and among E-SYNC NETWORKS, LLC, a Delaware limited
liability company (the "Company"), CRC, INC., a New York corporation ("CRC"),
and E-SYNC NETWORKS, INC., a Delaware corporation ("ESNI"). Certain other
capitalized terms used in this Operating Agreement have the meanings given to
them in Section 1.1.
BACKGROUND
A. CRC is in the technology management services business.
B. ESNI is a provider of e-business infrastructure products and services.
C. Prior to the consummation of the transactions contemplated under the
ESNI Contribution Agreement, the Company is a wholly-owned subsidiary of CRC.
D. CRC and ESNI desire that the Company exploit commercially the CRC
Contributed Assets, the ESNI Contributed Assets and the synergies between the
respective businesses of CRC and ESNI.
E. This Operating Agreement is being entered into in connection with (i)
the ESNI Contribution Agreement, pursuant to which ESNI will contribute the ESNI
Contributed Assets to the Company in exchange for 51% of the Membership
Interests and (ii) the CRC Contribution Agreement pursuant to which CRC will
contribute the CRC Contributed Assets to the Company in exchange for 49% of the
Membership Interests.
F. ESNI has agreed to change its corporate name from "E-Sync Networks,
Inc." and to transfer all of its rights, title and interests to the "E-Sync
Networks" name to the Company.
ARTICLE I
GENERAL PROVISIONS
Section 1.1 (a) Certain Definitions. As used in this Operating Agreement,
the following terms have the respective meanings assigned to them below:
"Act" means the Delaware Limited Liability Company Act, Title 6, Sections
18-101 et seq., and any successor statute, as the same may be amended from time
to time.
"Additional Agreements" means each of the following agreements of even
date herewith and the agreements and documents executed and delivered pursuant
thereto:
(a) ESNI Contribution Agreement;
(b) CRC Contribution Agreement;
(c) Management Services Agreement;
(d) First Installment Note;
(e) Extended Installment Note, if applicable (together with the First
Installment Note, the "Promissory Notes");
(f) Security Agreement;
(g) Warrant;
(h) Registration Rights Agreement; and
(i) the agreements and instruments evidencing the Credit Facility;
Except as may be expressly set forth in this Operating Agreement to the
contrary, any breach by a Member's Affiliate of an Additional Agreement or other
agreement between the Company and such Affiliate shall be attributed to the
applicable Member and shall be construed as a breach by such Member for all
purposes hereunder. Without limiting the foregoing, it is expressly acknowledged
that a breach by the General Manager of the Management Services Agreement shall
constitute a breach by CRC and, subject to Section 12.12 and provided that the
General Manager is an Affiliate of CRC, the other Members may enforce any claim
they have against the General Manager arising under the Management Services
Agreement against CRC.
"Adjusted Capital Account" means, for any Member, its Capital Account
balance maintained and adjusted as required by Treasury Regulations Section
1.704-1(b)(2)(iv).
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with, such
Person; and for purposes of the foregoing, "control" means (i) the ownership of
more than 50% of the voting securities or other voting interests of another
Person, or (ii) the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting shares, by contract or otherwise.
"Agreed Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Agreed Value of any asset contributed by a Member to
the Company shall be the gross Fair Market Value of such asset;
(b) The Agreed Values of all Company assets shall be adjusted to
equal their respective gross Fair Market Values (taking IRC Section
7701(g) into account) as of the following times: (i) the acquisition of an
additional interest in the Company by any new or existing Member in
exchange for more than a de minimis capital contribution; (ii) the
distribution by the Company to a Member of more than a de minimis amount
of Company property as consideration for an interest in the Company; (iii)
the liquidation of the Company within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); (iv) the dissolution of the Company in
accordance with Article IX; and (v) at such other times as the Tax Matters
Member shall reasonably determine necessary or advisable in order to
comply with Treasury Regulations Sections 1.704-1(b) and 1.704-2; provided
that the adjustments described in clauses (i) and (ii) of this paragraph
shall be made only if the Tax Matters Member reasonably determines that
such adjustment is necessary or appropriate to reflect the relative
economic interests of the Members in the Company.
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(c) The Agreed Value of any Company asset distributed to any Member
shall be the gross Fair Market Value (taking IRC Section 7701(g) into
account) of such asset on the date of distribution; and
(d) The Agreed Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to IRC Section 732(d), IRC Section 734(b) or IRC Section 743(b),
but only to the extent that such adjustments are taken into account in
determining capital accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m); provided that Agreed Values shall not be adjusted
pursuant to this clause (d) to the extent that an adjustment pursuant to
clause (b) of this definition is made in connection with a transaction
that would otherwise result in an adjustment pursuant to this clause (d).
The Agreed Values of the Company's assets immediately following the contribution
of the ESNI Contributed Assets pursuant to the ESNI Contribution Agreement and
the contribution of the CRC Contributed Assets pursuant to the CRC Contribution
Agreement are specified on Schedule A to this Operating Agreement. If the Agreed
Value of an asset has been determined or adjusted pursuant to this definition of
Agreed Value, such Agreed Value shall thereafter be adjusted by the Depreciation
with respect to such asset taken into account in computing Profits and Losses.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" means, with respect to a Member, such Member's capital
account established and maintained in accordance with the provisions of Section
6.3.
"Capital Contribution" means the amount in cash and the value of property
or services contributed or undertaken to be contributed by each Member to the
capital of the Company, whenever made. A loan by a Member of the Company shall
not be considered a Capital Contribution.
"Company" means E-Sync Networks, LLC, a Delaware limited liability
company.
"Contract" means any agreement, lease, evidence of indebtedness, mortgage,
indenture, security agreement or other contract or commitment, whether written
or oral.
"CRC Contributed Assets" has the same meaning as that used in the CRC
Contribution Agreement.
"CRC Contribution Agreement" means that certain Contribution Agreement
dated the date hereof among CRC and the Company in the form of Exhibit A,
pursuant to which CRC shall contribute to the Company the CRC Contributed
Assets.
"Credit Facility" means that certain Credit Facility dated [_______, 2001]
by and among the Company and [Lenders].
"Depreciation" means, for any relevant period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or
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other relevant period, except that if the Agreed Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
year, Depreciation shall be an amount which bears the same ratio to such
beginning Agreed Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year bears to such beginning adjusted tax
basis (except as otherwise required under Treasury Regulations Section
1.704-3(d)); provided that if the federal income tax depreciation, amortization
or other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Agreed Value using any reasonable
method selected by the Tax Matters Member.
"Entity" means any corporation, firm, unincorporated organization,
association, partnership, limited liability company, business trust, joint stock
company, joint venture or other organization, entity or business.
"ESNI Contributed Assets" has the same meaning as that used in the ESNI
Contribution Agreement.
"ESNI Contribution Agreement" means that certain Contribution Agreement
dated as of August ___, 2001 by and among the Company, ESNI and CRC, attached
hereto as Exhibit B, pursuant to which ESNI shall contribute to the Company the
ESNI Contributed Assets.
"Extended Installment Note" has the same meaning as that used in the ESNI
Contribution Agreement.
"Fair Market Value" means, with respect to any asset, as of the date of
determination, the cash price at which a willing seller would sell, and a
willing buyer would buy, each being apprised of all relevant facts and neither
acting under compulsion, such asset in an arms-length negotiated transaction
with an unaffiliated third party without time constraints, as conclusively
determined by the General Manager in good faith and subject to its duties set
forth in Section 5.1, except with respect to matters governed by Section 8.3,
which shall be determined in accordance with the provisions set forth therein.
"First Installment Note" has the same meaning as that used in the ESNI
Contribution Agreement.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"General Manager" means CRC Management Services, Inc., a New York
corporation and an Affiliate of CRC.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Management Services Agreement" means that certain Management Services
Agreement dated the date hereof between CRC and the Company, in the form of
Exhibit C.
"Material Adverse Effect" shall mean, with respect to any party hereto,
any action, event or occurrence which has or could have a material adverse
effect on the business, assets,
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operations, prospects, financial condition or results of operations of such
party or its respective subsidiaries taken as a whole.
"Members" means CRC, ESNI and such other Persons who are admitted to the
Company in the future in accordance with the terms of this Operating Agreement
and shall have agreed to be bound hereby; and "Member" means any one of the
Members.
"Membership Interest" means, with respect to each Member, the entire
ownership interests and rights of such Member (expressed as a percentage) in the
Company. The sum of the Membership Interests for all Members shall equal one
hundred percent (100%).
"Operating Agreement" means this Operating Agreement, as it may be amended
or restated from time to time.
"Person" means any natural person or Entity.
"Profits" and "Losses" mean, for each Fiscal Year, an amount equal to the
Company's taxable income or loss for such Fiscal Year, determined in accordance
with IRC Section 703(a). For the purpose of this definition, all items of
income, gain, loss or deduction required to be stated separately pursuant to IRC
Section 703(a)(1) shall be included in taxable income or loss with the following
adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in IRC Section
705(a)(2)(B) or treated as IRC Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition shall be subtracted from such taxable income or loss;
(c) If the Agreed Value of any Company asset is adjusted pursuant to
clause (b) or clause (c) of the definition of Agreed Value above, the
amount of such adjustment shall be taken into account as gain or loss from
the disposition of such asset for purposes of computing Profits or Losses;
(d) Gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Agreed Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Agreed Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year
or other relevant period;
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(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to IRC Section 734(b) is required, pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into
account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's interest in the Company, the
amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) from the disposition of such asset and shall be
taken into account for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 6.8 shall not be
taken into account in computing Profits or Losses.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated the date hereof between CRC and ESNI.
"Security Act" means the Securities Act of 1933, as amended from time to
time, and including the rules and regulations of the Securities and Exchange
Commission thereunder.
"Security Agreement" means that certain Amended and Restated Pledge and
Security Agreement dated August ___, 2001 by and between CRC and ESNI.
"Subsidiary" means any Entity in which a Person beneficially owns or
controls 50% or more of the outstanding voting power of such Entity.
"Tax Rate" means [40%](1).
"Treasury Regulations" include proposed, temporary and final regulations
promulgated under the IRC in effect as of the date of this Operating Agreement
and the corresponding sections of any regulations subsequently issued that amend
or supersede such regulations.
"Warrant" means that certain warrant dated the date hereof issued by ESNI
to CRC.
(b) The following terms, when used in this Operating Agreement, shall have
the meanings defined for such terms in the Section set forth below:
Term Section
---- -------
"Appraisal Notice" 8.3(a)
"Appraiser" 8.3(a)
"Approved Banker" 8.7(b)
"Approved Sale" 8.6(a)
"Benefactor" 6.2(a)
"CRC" introductory paragraph
"Certificate" 1.2
- ----------
(1) Subject to review by tax counsel.
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"Change in Control" 8.8(a)
"Change in Ownership" 8.11(a)
"Confidential Information" 10.1(a)
"Control Entity" 8.11(a)
"Disclosing Party" 10.1(b)
"Distribution Period" 7.1(c)
"Effective Date" introductory paragraph
"ESNI" introductory paragraph
"Exercising Member" 8.3(a)
"Expense Allocation Report" 10.6(e)(i)
"First Offer Exercise Period" 8.4(b)
"Fiscal Year" 1.7
"Interest Purchase Option" 8.8(a)
"Liquidating Trustee" 9.4(a)
"Mandatory Distribution" 7.1(c)
"Mandatory Redemption" 8.7(a)
"Mandatory Redemption Date" 8.7(c)
"Mandatory Redemption Price" 8.7(a)
"Member Notice" 8.4(b)
"Member Option" 8.4(b)
"Notice of Election" 8.3(b)
"Offer Notice" 8.4(a)
"Offered Membership Interest" 8.4(a)
"Offering Member" 8.4(a)
"Option Exercise Notice" 8.8(a)
"Outstanding Balance" 8.7(d)
"Preferred Distribution" 7.1(b)
"Receiving Party" 10.1(b)
"Recipient" 8.3(a)
"Redemption Request" 8.7(a)
"Relevant Event" 8.8(a)
"Remaining Members" 8.4(a)
"Reorganized Company" 9.6
"Rollup" 9.6
"Sale Notice" 8.3(a)
"Section 704(c) Assets" 6.8(a)
"Tag-Along Interests" 8.5(b)
"Tag-Along Notice" 8.5(b)
"Tag-Along Transfer" 8.5(b)
"Tax Distributions" 7.1(a)
"Tax Matters Member" 11.3(a)
"Third Party" 8.4(a)
"Third Party Offer" 8.5(a)
"Unaffiliated Entity" 8.11(a)
"Wholly-Owned Subsidiary Transferee" 8.2
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(c) Unless the context of this Operating Agreement otherwise requires, (i)
words of any gender include each other gender; (ii) words using the singular or
plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Operating Agreement; and (iv) the terms "Article", "Section" or
"subsection" refer to the specified Article, Section or subsection of this
Operating Agreement.
Section 1.2 The Company; Formation. The Company is a limited liability
company governed by the Members and managed by the General Manager. The Company
was formed on August 1, 2001 by the execution and filing of a Certificate of
Formation (as the same may be amended from time to time, the "Certificate") with
the Secretary of State of the State of Delaware. From the date hereof, the
Membership Interests of the Members in the Company, and the rights and
obligations of the Members with respect thereto and the Company, are subject to
all of the provisions of this Operating Agreement and to the provisions of the
Act. Where any rights or obligations of a Member are different by reason of any
provision of this Operating Agreement than they would be without such provision,
this Operating Agreement shall control to the extent permitted by the Act.
Promptly following the execution hereof, and from time to time thereafter, the
Members shall execute and file or cause to be executed and filed (i) all
certificates and statements contemplated by the Act that are approved by the
General Manager and are not inconsistent with the provisions of this Operating
Agreement and (ii) all other necessary certificates and documents, and shall
make all other such filings and recordings, and shall do all other acts as may
be reasonably necessary or appropriate from time to time to give effect to this
Operating Agreement.
Section 1.3 Company Name; Place of Business; Registered Office and Agent.
(a) The Company shall do business under the name "E-SYNC NETWORKS, LLC" or
such other name as the General Manager may determine from time to time. ESNI
represents and warrants that it has taken all necessary action to change, and
has changed, it name from E-Sync Networks, Inc. to a name reasonably
satisfactory to all the Members. The name "E-Sync Networks" shall be the
exclusive property of the Company, and no Member shall have any right to use,
and each Member agrees not to use, such name other than on behalf of the
Company, except as may be permitted from time to time by the General Manager.
The General Manager shall promptly notify the Members of any change of name of
the Company. The General Manager shall from time to time execute and file or
cause to be executed and filed all necessary assumed or fictitious business name
statements as may be required by law for the operation of the Company in all
jurisdictions where the Company does business. Notwithstanding the foregoing,
ESNI may continue to use the name "E-Sync Networks" solely to the extent
necessary to reference its historical use of such name; provided, however, that
in no event shall ESNI continue to use such name for commercial purposes.
(b) The Company's principal place of business will be at 1290 Avenue of
the Americas, 39th floor, New York, New York, 10104, or such location as the
General Manager may from time to time designate. The Company may also have
offices at such other places within or outside of the State of Delaware as the
General Manager may from time to time determine. Prior to conducting business in
any jurisdiction other than the State of Delaware, the General Manager shall use
reasonable efforts to cause the Company to comply with all
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requirements necessary to qualify the Company as a foreign limited liability
company in such jurisdiction. At the request of the General Manager, each Member
shall execute, acknowledge, swear to and deliver all certificates and other
instruments conforming with this Operating Agreement that are necessary or
appropriate from time to time to qualify, continue or terminate the Company as a
foreign limited liability company in each such jurisdiction in which the Company
may conduct business from time to time.
(c) The registered agent for service of process on the Company in the
State of Delaware shall be the initial registered agent named in the Certificate
and the registered office of the Company required by the Act to be maintained in
the State of Delaware shall be the offices of the registered agent. The
registered agent and the registered office of the Company may be changed from
time to time by action of the General Manager by filing notice of such change
with the Secretary of State of the State of Delaware. The General Manager will
promptly notify the Members of any such change.
Section 1.4 Term. The term of the Company shall commence on the date on
which the Certificate was filed with the Secretary of State of the State of
Delaware and shall continue in perpetuity until dissolved pursuant to the
provisions of this Operating Agreement or applicable law.
Section 1.5 Business of the Company; Powers.
(a) The purpose of the Company is to exploit commercially the assets to be
contributed to it, to engage in any business that is necessary, appropriate or
incidental to the foregoing, and to engage in any additional activity for which
limited liability companies may be formed under the Act and which is approved in
accordance with the provisions of Section 4.1. The Company shall possess and may
exercise all the powers and privileges now or hereafter granted by the Act, by
any other law or by this Operating Agreement, together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, protection, benefit, promotion or attainment of the
business, purposes or activities of the Company.
(b) Subject to the provisions of this Operating Agreement, the Company
may, with the approval of the General Manager, enter into and perform any and
all Contracts without any further act, vote or approval of the Members, and the
General Manager may authorize any Person to enter into and perform any Contract
on behalf of the Company.
Section 1.6 Taxed as Partnership. The Members intend that the Company
shall be treated as a partnership solely for federal, state and local tax
purposes. Each Member and the Company shall file all tax returns and shall
otherwise take all tax and financial reporting positions in a manner consistent
with such treatment.
Section 1.7 Fiscal Year. The "Fiscal Year" of the Company shall be the
period commencing on January 1 in any year and ending on December 31 in such
year, except that the first Fiscal Year of the Company shall commence on the
date of formation of the Company and end on the first December 31 to occur
following such formation.
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Section 1.8 Membership Interests Certificated; Nature of Members'
Interests. The Membership Interests of the Members in the Company shall be
certificated. The form of the Membership Interest certificates is attached
hereto as Exhibit D. The interests of the Members in the Company will be
personal property for all purposes. All property owned by the Company, whether
real or personal, tangible or intangible, will be owned by the Company as an
entity, and no Member, individually, will have any ownership of such property.
Section 1.9 Business Transactions of Members with the Company. Subject to
Section 4.1(c), a Member may lend money to, borrow money from, act as a surety,
guarantor or endorser for, guarantee or assume one or more obligations of,
provide collateral for, and transact any and all other business with the Company
and, subject to other applicable law, has the same rights and obligations with
respect to any such matter as a Person who is not a Member.
Section 1.10 Capacity of the Members. No Member shall have any authority
to act for, or to assume any obligation or responsibility on behalf of, any
other Member or the Company, except as expressly provided in this Operating
Agreement or as authorized by the General Manager.
ARTICLE II
MEMBERS
Section 2.1 Members as of Effective Date. As of the Effective Date of this
Operating Agreement, the Members are set forth on Schedule A and each such
Member shall have the Membership Interests set forth opposite its name on
Schedule A.
Section 2.2 Admission of New Members. From and after the Effective Date, a
Person acquiring an interest in the Company is admitted as a Member upon the
satisfaction of all requirements set forth in this Operating Agreement.
Section 2.3 Manner of Acting. Except as otherwise required by the Act or
this Operating Agreement, including, without limitation, Sections 3.2 and 4.1,
whenever any Company action is to be taken by vote of the Members of the
Company, it shall be authorized upon receiving the affirmative unanimous vote of
all Members entitled to vote. Each Member of the Company shall be entitled to a
percentage of the total votes equal to that Member's then current Membership
Interest.
Section 2.4 Meetings of the Members.
(a) Timing; Notice. Meetings of the Members, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by any Member by giving
written notice thereof to each Member of record entitled to vote at the meeting
(with a copy to counsel of such Member) at least ten (10) but not more than
sixty (60) Business Days prior to the day named for the meeting. Each notice of
meeting shall specify the place, day and hour of the meeting; provided,
however, that in no event shall any meeting of the Members be held on a Friday
or any religious holiday. If no place is designated, the place of meeting shall
be the principal office of the Company. The business to be transacted at, and
the purpose of, a meeting need not be specified in the notice of the meeting.
Notice shall be given in accordance with Section 12.5. Any required notice of a
meeting to any Member may be waived by such Member in writing at any
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time, whether before or after the holding of such meeting. Attendance by a
Member at a meeting shall constitute a waiver of any required notice of such
meeting by such Member, except when such Member attends such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not properly
called or convened.
(b) Quorum. A meeting of Members of the Company duly called shall not be
organized for the transaction of business unless a quorum is present. The
presence of each Member of record, represented in person or by proxy, shall
constitute a quorum at any meeting of Members; provided that if notice of a
meeting is provided to the Members, and such notice describes the business to be
considered, the actions to be taken and the matters to be voted on at the
meeting in reasonable detail, and insufficient Members attend the meeting to
constitute a quorum, the meeting may be adjourned by those Members attending
such meeting for a period not to exceed twenty (20) days. Such meeting may be
reconvened by providing notice of the reconvened meeting to the Members no less
than ten (10) days prior to the date of the meeting specifying that the business
to be considered, the actions to be taken and the matters to be voted upon are
those set forth in the notice of the original adjourned meeting. If, at the
reconvened meeting, a quorum of Members is not present, a majority of the
Members present and voting will constitute a quorum for purposes of the
reconvened meeting; provided that such Members may only consider the business,
take the actions or vote upon the matters set forth in the notice of the
original meeting. At an adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The Members present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal during the meeting of Members whose absence would cause less than a
quorum.
Notwithstanding the foregoing or any other provision in this
Operating Agreement, no Member shall have any power or authority to do or
perform any act with respect to any of the matters set forth in Section 4.1
unless such matter has been approved in accordance with the provisions of
Section 4.1.
(c) Attendance by Telephone, Etc. Members may, unless prohibited by
applicable law, rule or regulation, participate in a meeting of the Members by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting, except where
a Member participates in the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting is not properly called or convened.
(d) Action by Written Consent. Unless prohibited by applicable law, rules
and regulations, any action required or permitted to be taken at a meeting of
the Members may be taken without a meeting if a written consent setting forth
the action so taken is signed by the number of Members that would be necessary
to authorize the action at a meeting of the Members duly called and held, and is
filed with the minutes of the Company; provided that prior to any such written
consent becoming effective, such written consent has been provided to all
Members entitled to vote, and the Members shall have five (5) days to review
such consent prior to such written consent becoming effective (unless otherwise
agreed to by all Members). Any consent
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shall have the same force and effect as a vote of the Members at a meeting duly
called and held at which a quorum was present. Prompt notice of the taking of
Company action without a meeting by less than unanimous written consent shall be
given to those Members who have not consented in writing.
Section 2.5 Record Date. For the purpose of determining Members entitled
to notice of, or to vote at, any meeting of Members or any adjournment of the
meeting, or Members entitled to receive payment of any distribution, or to make
a determination of Members for any other purpose, the date on which notice of
the meeting is sent or the date on which the resolution declaring the
distribution or relating to such other purpose is adopted, as the case may be,
shall be the record date for such determination. Only Members of record on the
date fixed shall be so entitled, notwithstanding any permitted transfer of a
Member's Membership Interest after any record date fixed as provided in this
Section. When a determination of Members entitled to vote at any meeting of
Members has been made as provided in this Section 2.5, the determination shall
apply to any adjournment of the meeting.
Section 2.6 Relationship of the Members.
(a) The relationship of the Members shall be limited solely to the purpose
and scope of the Company as expressed in this Operating Agreement and the
Additional Agreements. This Operating Agreement shall not constitute the
appointment of any party to this Operating Agreement as the legal representative
or agent of any other party to this Operating Agreement. No party to this
Operating Agreement, by reason of such status, shall have any right or authority
to assume, create or incur any liability or any obligation of any kind, express
or implied, against or in the name of or on behalf of any other party to this
Operating Agreement. Except as may be specifically provided in this Operating
Agreement or any Additional Agreement, neither the Company nor any party to this
Operating Agreement shall assume or be responsible for any liability or
obligation of any nature of, or any liability or obligation that arises from any
act or omission to act of, any other party to this Operating Agreement however
or whenever arising.
(b) Subject to Section 10.6, nothing contained in this Operating Agreement
(other than references to the binding nature of the Additional Agreements) shall
be deemed to restrict or limit in any way the carrying on, directly or
indirectly, of separate businesses or activities by any Member or its
Affiliates, now or in the future, independently or with others, even if such
businesses or activities are competitive with the Company (it being understood
that the Additional Agreements may so restrict or limit such businesses or
activities), and neither the Company nor the other Members shall, by virtue of
this Operating Agreement, have any interest or rights in or to such other
businesses or activities or any income, profits, liabilities or obligations with
respect thereto or derived therefrom. Subject to Section 10.6, no Member or any
of its Affiliates or any of their respective officers, directors, employees or
former employees shall have any obligation, or be liable, to the Company or any
other Member pursuant to this Operating Agreement, any Additional Agreement or
otherwise (i) for, or arising out of, the conduct described in this Section
2.6(b), (ii) solely by reason of such conduct, for breach of any fiduciary or
similar duty to the Company or any Member or (iii) for exercising or failing to
exercise its rights as a Member; except in each case for a breach of Sections
5.1, 10.1 or any other express provisions of this Operating Agreement or any
Additional Agreement.
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ARTICLE III
MANAGEMENT OF THE COMPANY
Section 3.1 Power and Authority of Members. Except for situations in which
the approval of the Members is expressly required by this Operating Agreement or
by non-waivable provisions of the Act, the Members shall govern the Company only
through the General Manager, to whom all discretion to manage the Company is
delegated, and the Members, in their capacity as such, shall have no authority
or right to act on behalf of or bind the Company in connection with any matter.
No Member shall take any action in the name of or on behalf of the Company,
including, without limitation, assuming any obligation or responsibility on
behalf of the Company, unless such action, and the taking thereof by such
Member, shall have been expressly authorized by the General Manager or shall be
expressly and specifically authorized by this Operating Agreement or by
non-waivable provisions of the Act.
Section 3.2 Power and Authority of the General Manager.
(a) Scope of Power. The business and affairs of the Company shall be
managed by or under the direction of the General Manager, except as may
otherwise be provided in this Operating Agreement or by non-waivable provisions
of the Act. The General Manager shall have the power on behalf and in the name
of the Company to carry out any and all objects and purposes of the Company
contemplated by this Operating Agreement and to perform all acts which it may
deem necessary, advisable or appropriate in connection therewith. The Members
agree that all determinations, decisions and actions made or taken by the
General Manager (or its designee(s)) shall be conclusive and absolutely binding
upon the Company, the Members (but only in their capacity as such) and their
respective successors, assigns and personal representatives.
(b) Authority. Except as otherwise expressly provided herein or as
otherwise determined by the General Manager:
(i) no Member other than the General Manager shall take part in the
day-to-day management or the operations or control of the business and
affairs of the Company; and
(ii) no Member or Person other than the General Manager shall be an
agent of the Company or have any right, power or authority to transact any
business in the name of the Company or to act for or on behalf of or to
bind the Company.
(c) Consultation With Members. The General Manager shall make a reasonable
and good faith effort to initiate discussion with, and obtain consultation from,
each of the Members regarding any matter which could have a Material Adverse
Effect or which could otherwise materially modify the operations of the Company
from its normal and ordinary course of business. Such discussion and
consultation shall not, in any way, restrict the ability of the General Manager
to perform the duties of General Manager within the scope of the General
Manager's power and authority delineated under this Article III. The General
Manager shall act in a commercially reasonable manner in exercising its powers,
taking actions in the Company's
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behalf and performing its activities and responsibilities pursuant to this
Operating Agreement and the Management Services Agreement.
(d) Delegation of Authority. In carrying out this Section 3.2, the General
Manager shall have the power and authority to delegate authority to qualified
Persons. Any such delegation may be rescinded at any time by the General
Manager.
(e) Management Services Agreement. The General Manager is to be
compensated for its management of the Company in accordance with the terms of
the Management Services Agreement.
ARTICLE IV
APPROVAL OF CERTAIN MATTERS
Section 4.1 Approval of Certain Matters. Notwithstanding any provision of
this Operating Agreement or the Act to the contrary, and to the extent not
agreed and set forth in an Additional Agreement, where the General Manager or a
Member proposes for the Company to undertake any of the following matters, the
General Manager shall have no power or authority to do or perform any act with
respect to any of the following matters without first obtaining the unanimous
approval of all the Members at a meeting or by written consent given in
accordance with the provisions of this Operating Agreement. The relevant matters
are as follows:
(a) Bankruptcy. The voluntary dissolution or liquidation of the Company,
the making by the Company of a voluntary assignment for the benefit of
creditors, the filing of a petition in bankruptcy by the Company, the Company
petitioning or applying to any tribunal for any receiver or trustee, the Company
commencing any proceeding relating to itself under any bankruptcy,
reorganization, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction, the Company indicating its consent to, approval of or
acquiescence in any such proceeding and failing to use its best efforts to have
discharged the appointment of any receiver of or trustee for the Company or any
substantial part of their respective properties.
(b) Preservation of Existence. Any action contrary to the preservation and
maintenance of the Company's existence, rights, franchises and privileges as a
limited liability company under the laws of the State of Delaware.
(c) Dealings with Affiliates. Except pursuant to this Operating Agreement
or any Additional Agreement, the Company's entrance into, amendment of, waiver
of rights under, termination of, or permitting or causing the termination of,
any material business transaction, including, without limitation, any loans or
extensions of credit or royalty agreements, with any Member or any Affiliate of
any Member, except in the ordinary course of business and on terms not less
favorable to the Company than it would reasonably expect to obtain in a similar
business transaction between unrelated parties. The foregoing shall not be
deemed to limit in any manner the right of any Member or any of its Affiliates
from performing or exercising its rights under this Operating Agreement or any
Additional Agreement; it being understood, however, that the termination of the
General Manager under circumstances that would entitle the General Manager to
receive a termination fee pursuant to the Management Services Agreement shall
require the unanimous approval of all Members.
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(d) Issuance of Membership Interests. The authorization or issuance of any
Membership Interests in, or the admission of any Members to, the Company (other
than with respect to CRC, ESNI, or their respective permitted transferees in
accordance with Section 8.2).
(e) Repurchase of Membership Interests. The redemption or repurchase by
the Company of any Membership Interests in the Company, other than pursuant to
the provisions of this Operating Agreement.
(f) Modification of Operating Agreement. Any amendment, modification or
waiver of any provision (other than ministerial, non-substantive amendments,
modifications or waivers) of this Operating Agreement or any Additional
Agreement or other agreement between the Company and any Member or its
Affiliates.
(g) Additional Capital Contributions. Any capital contributions to the
Company by any Member other than such Member's initial capital contribution,
whether required or permitted.
(h) Removal of Liquidating Trustee. The removal of the Liquidating Trustee
as described in Section 9.4.
(i) Appointment of New General Manager. The appointment of a new General
Manager that is not an Affiliate of CRC.
Section 4.2 Procedure in Event of Deadlock. In the event of deadlock of
the Members in connection with the matters set forth in Section 4.1 above, or
any other matters under this Operating Agreement, an Additional Agreement or an
applicable provision of the Act requiring the unanimous approval of the Members,
the Members shall promptly meet and negotiate in good faith to determine a
mutually acceptable resolution, as evidenced by a unanimous vote of the Members
approving any such resolution. Each Member shall be represented in such
negotiations by one or more senior executive officers with authority to bind
such Member, subject only to the approval of such Member's Board of Directors,
General Manager or similar governing body. In the event that no resolution is
agreed within thirty (30) days of the occurrence of the deadlock,
(a) the disagreement shall first be submitted for mediation to a Person
mutually agreeable to all the Members, the expenses for such mediation,
excluding legal expenses which are to be borne by the Member incurring such
expenses, to be borne equally by the Members; and
(b) if the disagreement is not settled by mediation, it shall be submitted
in New York, New York to arbitration pursuant to Section 12.12 hereunder.
Without in any way limiting the foregoing, the procedures set forth in
this Section 4.2 as to meditation and arbitration would be followed in the event
that a Member other than CRC wishes the Company to terminate the Management
Services Agreement, or seek legal recourse against CRC under the CRC
Contribution Agreement or this Operating Agreement, and any other Member or
Members do not consent to such action (i.e., the matter would go to mediation
and arbitration as aforesaid, and if the Member initiating the complaint won,
the Member would
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then be authorized to act on behalf of the Company in implementing such
termination and/or claim).
ARTICLE V
EXCULPATION AND INDEMNIFICATION
Section 5.1 Duties of the General Manager. The duties of the General
Manager shall be as set forth in the Management Services Agreement which is
attached hereto as Exhibit C. The General Manager shall owe such duty of loyalty
and due care to the Company as is required of a director of a Delaware
corporation under applicable Delaware law, shall discharge its duties in good
faith with the care an ordinary prudent person in like position would exercise
under similar circumstances and in a manner it reasonably believes to be in the
best interests of the Company, and shall enjoy each and every protection
afforded to the directors of a Delaware corporation under applicable Delaware
law, including, without limitation, those afforded by the business judgment rule
and the presumptions afforded thereby and the limitation on personal liability
to the maximum extent permitted by Section 102 of the Delaware General
Corporation Law as if the provisions thereof were set forth in this Operating
Agreement (and for all such purposes, the General Manager shall be treated as
not "interested" for Delaware corporation law purposes).
Section 5.2 Exculpation. The Members and General Manager of the Company
shall not be liable to the Company or to any Member for any losses, claims,
damages or liabilities arising from, related to, or in connection with, this
Operating Agreement or the business or affairs of the Company, except for any
losses, claims, damages or liabilities as are determined by final judgment of a
court of competent jurisdiction to have resulted from such Members' or General
Manager's gross negligence, reckless conduct, intentional misconduct, knowing
violation of law, or breach of the provisions of Section 5.1. The provisions of
this Operating Agreement, to the extent that they restrict the duties and
liabilities of any Member or the General Manager otherwise existing at law or in
equity, are agreed by the Members to replace such other duties and liabilities
of the Members or General Manager.
Section 5.3 Reliance on Reports and Information by Members or General
Manager. A Member or the General Manager of the Company shall be fully protected
in relying in good faith upon the records of the Company and upon such
information, opinions, reports or statements presented to the Company by a
Member, the General Manager, or officers, employees or committees of the
Company, or by any other Person, as to matters the Member or the General Manager
reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits or losses of the Company or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
Section 5.4 Indemnification by the Company.
(a) The Company shall indemnify an indemnified representative (defined
herein) against any liability (defined herein) incurred in connection with any
proceeding (defined herein) in which the indemnified representative may be
involved as a party or otherwise, as and when
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incurred, by reason of the fact that such Person is or was serving in an
indemnified capacity (as defined herein), including, without limitation,
liabilities resulting from any actual or alleged breach or neglect of duty,
error, misstatement or misleading statement, negligence, gross negligence or act
giving rise to liability, except:
(i) where such indemnification is expressly prohibited by applicable
law;
(ii) where the conduct of the indemnified representative has been
finally determined:
(A) to constitute gross negligence, reckless conduct,
intentional misconduct or a knowing violation of law, sufficient in
the circumstances to bar indemnification against liabilities arising
from the conduct;
(B) to constitute a breach of Section 5.1; or
(C) to be based upon or attributable to the receipt by the
indemnified representative from the Company of a personal benefit to
which the indemnified representative is not legally entitled; or
(iii) to the extent such indemnification has been finally determined
in a final adjudication to be otherwise unlawful; or
(iv) where such indemnification relates to any proceeding solely
between or among the Members and solely in their capacity as Members.
(b) If an indemnified representative is entitled to indemnification in
respect of a portion, but not all, of any liabilities to which such Person may
be subject, the Company shall indemnify such indemnified representative to the
maximum extent for such portion of the liabilities.
(c) The termination of a proceeding by judgment, order, settlement or
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the indemnified representative is not entitled
to indemnification.
(d) Definitions. For purposes of this Article V:
(i) "indemnified capacity" means any and all past, present and
future service by an indemnified representative in one or more capacities
as a Member, General Manager, officer or authorized agent of the Company;
(ii) "indemnified representative" means any and all Members, the
General Manager, all employees, agents, representatives and authorized
agents of the Company, all employees, agents, representatives and
authorized agents of the General Manager and any other Person designated
as an indemnified representative by the mutual consent of CRC and ESNI,
given in accordance with the provisions of this Operating Agreement;
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(iii) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements); and
(iv) "proceeding" means any threatened, pending or completed action,
suit, appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether
brought by or in the right of the Company, a class of its Members or
security holders or otherwise.
Section 5.5 Proceedings Initiated by Indemnified Representatives.
Notwithstanding any other provision of this Article V, the Company shall not
indemnify under this Article V an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include
counterclaims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the Person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the consent of the General Manager. This Section does not apply
to reimbursement of expenses incurred in successfully prosecuting or defending
the rights of an indemnified representative granted by or pursuant to this
Article V.
Section 5.6 Advancing Expenses. The Company shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 5.4 or the initiation of or participation in which is
authorized pursuant to Section 5.5 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is ultimately
determined that such Person is not entitled to be indemnified by the Company
pursuant to this Article V. The financial ability of an indemnified
representative to repay an advance shall not be a prerequisite to the making of
such advance.
Section 5.7 Payment of Indemnification. An indemnified representative
shall be entitled to payment with respect to indemnification within twenty (20)
days after a written request for such payment has been delivered to the General
Manager.
Section 5.8 Contribution. If the indemnification provided for in this
Article V or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the Company shall contribute to the liabilities to which the
indemnified representative may be subject in such proportion as is appropriate
to reflect the intent of this Article V.
Section 5.9 Mandatory Indemnification of Members and General Manager. To
the extent that an indemnified representative of the Company has been successful
on the merits or otherwise in defense of any proceeding or in defense of any
claim, issue or matter therein, such Person shall be indemnified against
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such Person in connection therewith. This Section 5.9 shall not be
interpreted in any way that limits the applicability or scope of Section 5.6.
Section 5.10 Contract Rights; Amendment or Repeal. All rights under this
Article V shall be deemed a contract between the Company and the indemnified
representative pursuant to
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which the Company and each indemnified representative intend to be legally
bound. Any repeal, amendment or modification hereof shall be prospective only
and shall not affect any rights or obligations then existing.
Section 5.11 Scope of Article. The rights granted by this Article V shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement or vote of disinterested Members, both as to action in an
indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by or granted
pursuant to this Article V shall continue as to a Person who has ceased to be an
indemnified representative in respect of matters arising prior to such time, and
shall inure to the benefit of the heirs, executors, administrators, personal
representatives, successors and permitted assigns of such a Person.
Section 5.12 Reliance on Provisions. Each Person who shall act as an
indemnified representative of the Company shall be deemed to be doing so in
reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article V.
Section 5.13 Indemnification Insurance. To the extent available on
commercially reasonable terms, the Company shall obtain indemnification
insurance of a character and nature that provides coverage reasonably
satisfactory to CRC. Additionally, upon request of ESNI, the Company shall
obtain supplemental insurance of a character and nature that provides coverage
reasonably satisfactory to ESNI. All expenses incurred by the Company upon
fulfilling ESNI's request shall be borne by ESNI and shall be paid by ESNI
within ten (10) days of receiving an invoice thereof.
ARTICLE VI
CAPITAL ACCOUNTS
Section 6.1 Capital Contributions.
(a) The CRC Contributed Assets are deemed to be the initial Capital
Contribution of CRC and the ESNI Contributed Assets is deemed to be the initial
Capital Contribution of ESNI.
(b) The Capital Contributions shall be deemed made upon the consummation
of the transactions contemplated by the ESNI Contribution Agreement and the CRC
Contribution Agreement.
(c) No Member shall be obligated or permitted to make any additional
capital contributions to the Company, except as may be approved in accordance
with the provisions of Section 4.1.
Section 6.2 Liability for Contribution.
(a) A Member of the Company is obligated to the Company to perform any
promise to contribute cash or property or to perform services made by, on behalf
of, or for the benefit of such Member, even if the Member (or the Person
promising on behalf of or for the benefit of the Member (a "Benefactor")) is
unable to perform because of death, disability or any other reason.
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If a Member or a Benefactor does not make the required contribution of property
or services, the Member is obligated at the option of the Company to contribute
cash equal to that portion of the Agreed Value (as stated in the records of the
Company) of the contribution that has not been made. The foregoing option shall
be in addition to, and not in lieu of, any other rights, including the right to
specific performance, that the Company may have against such Member or
Benefactor under applicable law.
(b) The obligation of a Member or a Benefactor to make a contribution or
return money or other property paid or distributed in violation of the Act may
be compromised only by consent of all the Members or Benefactors.
Notwithstanding the compromise, a creditor of the Company who extends credit,
after entering into this Operating Agreement or an amendment hereof which, in
either case, reflects the obligation, and before the amendment hereof to reflect
the compromise, may enforce the original obligation to the extent that, in
extending credit, the creditor reasonably relied on the obligation of a Member
or a Benefactor to make a contribution or return. A conditional obligation of a
Member or a Benefactor to make a contribution or return money or other property
to the Company may not be enforced unless the conditions of the obligation have
been satisfied or waived as to or by such Member or Benefactor. Conditional
obligations include contributions payable upon a discretionary call of the
Company prior to the time the call occurs.
(c) Nothing in this Section 6.2 is meant to imply that a Member or
Benefactor is required to make, or to require a Member or Benefactor to make,
any contribution of cash, property or services to the Company unless and until
such time as said Member or Benefactor specifically agrees in writing to do the
same.
Section 6.3 Capital Accounts. A separate Capital Account will be
maintained for each Member. Notwithstanding any other provision hereof, the
Company shall determine and adjust the Capital Accounts in accordance with the
rules of Treasury Regulations Section 1.704-1(b)(2)(iv). Upon the consummation
of the transactions contemplated by the Additional Agreements, the initial
Capital Accounts of the Members shall be as set forth on Schedule A. Except as
otherwise required in the Act, no Member shall have any liability to restore all
or any portion of a deficit balance in the Member's Capital Account.
Section 6.4 No Interest on or Return of Capital. No Member shall be
entitled to interest on any Capital Contribution or Capital Account. No Member
shall have the right to demand or receive the return of all or any part of any
Capital Contribution or Capital Account except as may be expressly provided
herein, and no Member shall be personally liable for the return of the Capital
Contributions of any other Member.
Section 6.5 Membership Interest. The Membership Interests of the Members
are as set forth on Schedule A. Membership Interests will be varied only as
specifically agreed by the parties pursuant to this Operating Agreement and will
not be affected by allocations of Profits and Losses or other changes in
Members' Capital Accounts. The Membership Interests shall be updated by the
General Manager to reflect any adjustment of Membership Interests, set forth on
a revised Schedule A and filed with the records of the Company.
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Section 6.6 Allocations of Profits and Losses Generally. After the
allocations in Section 6.7, at the end of each Fiscal Year (or shorter period if
necessary or longer period if agreed by all of the Members), Profits and Losses
shall be allocated to the Members in proportion to their respective Membership
Interests.
Section 6.7 Allocations Under Regulations.
(a) Company Nonrecourse Deductions. Loss attributable (under Treasury
Regulations Section 1.704-2(c)) to "partnership nonrecourse liabilities" (within
the meaning of Treasury Regulations Section 1.704-2(b)(1)) shall be allocated
among the Members in the same proportion as their respective Membership
Interests.
(b) Member Nonrecourse Deductions. Loss attributable (under Treasury
Regulations Section 1.704-2(i)(2)) to "partner nonrecourse debt" (within the
meaning of Treasury Regulations Section 1.704-2(b)(4)) shall be allocated, in
accordance with Treasury Regulations Section 1.704-2(i)(1), to the Member who
bears the economic risk of loss with respect to the debt to which the Loss is
attributable.
(c) Minimum Gain Chargeback. Each Member will be allocated Profits at such
times and in such amounts as necessary to satisfy the minimum gain chargeback
requirements of Treasury Regulations Sections 1.704-2(f) and 1.704-2(i)(4).
(d) Qualified Income Offset. Losses and items of income and gain shall be
specially allocated when and to the extent required to satisfy the "qualified
income offset" requirement within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(d).
Section 6.8 Other Allocations.
(a) Allocations when Agreed Value Differs from Tax Basis. When the Agreed
Value of a Company asset is different from its adjusted tax basis for income tax
purposes, then, solely for federal, state and local income tax purposes and not
for purposes of computing Capital Accounts, income, gain, loss, deduction and
credit with respect to such assets ("Section 704(c) Assets") shall be allocated
among the Members to take this difference into account in accordance with the
principles of IRC Section 704(c), as set forth herein and in the Treasury
Regulations thereunder and under IRC Section 704(b). The calculation and
allocations eliminating the differences between Agreed Value and adjusted tax
basis of the Section 704(c) Assets shall be made on an asset-by-asset basis
using remedial allocations under Treasury Regulations Section 1.704-3(d).
(b) Change in Member's Interest.
(i) If during any Fiscal Year of the Company there is a change in
any Member's Membership Interest, then for purposes of complying with IRC
Section 706(d), the determination of Company items allocable to any period
shall be made by using the closing of the books method.
(ii) The Members agree to be bound by the provisions of this Section
6.8(b) in reporting their shares of Company income, gain, loss, and
deduction for tax purposes.
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ARTICLE VII
DISTRIBUTIONS
Section 7.1 Distributions.
(a) Tax Distributions. The Company shall distribute to the Members in
accordance with the Members' Membership Interests as promptly as practicable
(and in any event within forty-five (45) days) after the end of each fiscal
quarter an amount equal to the product of the Tax Rate and the amount of Profits
for such fiscal quarter ("Tax Distributions").
(b) Preferred Distributions. Subject to the provisions of the Act, on
January 1, 2006, the Company shall make a distribution to CRC in the aggregate
amount of $640,000 (the "Preferred Distribution"). To the extent the Company is
not able to make such distribution pursuant to the Act, the Company shall make
such distribution as soon as permissible under the Act.
(c) Mandatory Distributions.
(i) From and after the second anniversary of the date hereof, as
soon as practicable following the end of each annual calendar period (a
"Distribution Period") (excluding December 31, 2003), the Managing Member shall
calculate the amount of Distributable Funds, if any, for such period. The amount
of Distributable Funds, if any, for such period shall be distributed to the
Members (a "Mandatory Distribution") within 20 days following the completion of
the Company's annual audit and at such other times as determined by the Managing
Member in accordance with the percentages of the Member's respective Percentage
Interests, less, with respect to each Member, each such Member's distributed or
to be distributed Tax Distributions for such period, if any.
As used herein, "Distributable Funds" with respect to any
Distribution Period shall mean an amount equal to twenty-five percent (25%) of
the Cash Flow of the Company for such period, as reduced by commercially
reasonable amounts for anticipated future: (i) working capital needs, (ii)
development fees and other expenses (including "hard" and "soft" costs), (iii)
capital expenditures, (iv) operating expenses and (v) other purposes (to the
extent not included in calculating "Cash Flow" pursuant to the definition
thereof herein contained) reserved during such period and as increased by
amounts released from Company reserves (other than for payment of costs or other
obligations) during the relevant Distribution Period, in each case consistent
with the Company's past accounting practice, as shall be determined from time to
time by the Managing Member.
As used herein "Cash Flow" shall mean, for any Distribution Period,
gross cash receipts of the Company (excluding receipts from loans or Member
contributions) less (i) all costs and expenses incurred by the Company in the
course of carrying on the business of the Company which required a cash
expenditure during the relevant Distribution Period (including, without
limitation, license fees, insurance premiums, utility charges, advertising and
marketing expenses, salaries, wages and fringe benefits, property taxes and
assessments, technology development and leasing fees and other amounts and
accounting, legal and other administrative costs and costs incurred by the
Company), (ii) all payments of principal of, interest on and any
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other amounts due with respect to or required to be paid or reserved by the
terms of any debt, leases or other commitments or obligations of the Company
during such period, (iii) any sum expended by the Company for capital
expenditures during such period, (iv) any expenses of the Company prepaid during
such period, (v) all Tax Distributions made or to be made with respect to such
period and (vi) any sums expended by the Company during such period which are
otherwise capitalized.
(ii) The provisions of Section 7.1(c)(i) notwithstanding, the
Company shall not make any Mandatory Distributions unless all of the following
conditions are satisfied at the time of such distribution:
1. Payment of the Mandatory Distribution will not breach any
covenant under any debt or financing agreement of the Company;
provided, however, that if such covenant restricts such payment only
absent a creditor's consent, the Company shall use reasonable
efforts (without incurring any costs, expenses or fees) to obtain
such consent.
2. If the Company were to borrow the amount of the Mandatory
Distribution, such borrowing, alone or together with the Company's
other borrowings, would not result in a breach of any covenant under
any debt or financing agreement of the Company.
3. The Company's revenues recognized during the relevant
Distribution Period (excluding revenues from the sale or resale of
packaged software of hardware products) shall equal or exceed $30
million.
4. The Company's pre-tax income during the relevant
Distribution Period shall equal or exceed 7.5% of the Company's
recognized revenues during such period.
5. The Company's recognized revenues during the relevant
Distribution Period equal or exceed 120% of the Company's recognized
revenues during the calendar year immediately prior to the relevant
Distribution Period.
6. The payment of the Mandatory Distribution will not increase
the Company's D/E Ratio above 2:1. "DE Ratio" means, with respect to
the Company, the ratio of (i) all debt and other liabilities of the
Company reflected on the face of the Company's balance sheet as of
the end of the relevant Distribution Period, other than accounts
payable to (ii) the total Members' equity in the Company reflected
on the face of such balance sheet, less the value of the intangible
assets reflected on the face of such balance sheet.
7. The Company's retained earnings as reflected on the face of
the Company's balance sheet as of the end of the relevant
Distribution Period equals or exceeds the Company's tangible net
worth on the Closing Date, and the payment of the Mandatory
Distribution will not reduce such retained earnings below such
tangible net worth.
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8. With respect to any Mandatory Distribution to be made after
December 31, 2005, the Preferred Distribution shall have been fully
paid to CRC.
(d) Additional Distributions. The Company may distribute Profits of the
Company to the Members in accordance with the Members' Membership Interests, at
such times and in such amounts as approved by the Members and the General
Manager in accordance with the provisions of Section 4.1.
(e) Minimum Annual Distributions. Subject to the other provisions of this
Operating Agreement and the Act, the aggregate amount of distributions
distributed by the Company to each Member in any fiscal year pursuant to this
Section 7.1 shall equal at least $65,000.
(f) Payment of ESNI Distributions. Notwithstanding paragraphs (a), (c),
(d) and (e) above, all distributions to ESNI shall be made pursuant to, and in
accordance with, the following:
(i) In the event that ESNI has been finally adjudged to be required
to indemnify CRC pursuant to, and in accordance with, Article VIII of the
ESNI Contribution Agreement, all distributions otherwise payable to ESNI
hereunder shall be withheld and paid directly to CRC to the extent
necessary to discharge fully and completely ESNI's indemnity obligations
to CRC thereunder.
(ii) Sixty percent (60%) of all distributions otherwise payable to
ESNI hereunder (after giving effect to clause (i) above) shall be withheld
and paid directly to CRC to the extent necessary to repay ESNI's
outstanding obligations to CRC under the Promissory Notes.
(iii) Any distributions otherwise payable to ESNI hereunder (after
giving effect to clauses (i) and (ii) above) shall be paid directly to
ESNI.
In the event that any distribution otherwise payable to ESNI is paid to
CRC pursuant to clauses (i) or (ii) above, the Company shall provide written
notice to ESNI, setting forth (A) the full amount of such distribution to ESNI
without giving effect to any amount withheld and paid to CRC pursuant to this
Section 7.1(f) and (B) the amount of such distribution delivered to CRC.
Notwithstanding such payment to CRC pursuant to this Section 7.1(f), the full
amount of any such distribution shall be deemed to be a distribution to ESNI for
all other purposes under this Operating Agreement.
Section 7.2 Limitations on Distributions.
(a) The Company shall not make a distribution to a Member to the extent
that at the time of the distribution, after giving effect to the distribution,
all liabilities of the Company, other than liabilities to Members on account of
their interests in the Company and liabilities for which the recourse of
creditors is limited to specified property of the Company, exceed the Fair
Market Value of the assets of the Company, except that the Fair Market Value of
property that is subject to a liability for which the recourse of creditors is
limited shall be included in the assets of the Company only to the extent that
the Fair Market Value of that property exceeds that liability.
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(b) A Member who receives a distribution in violation of subsection (a),
and who knew at the time of the distribution that the distribution violated
subsection (a), shall be liable to the Company for the amount of the
distribution. A Member who receives a distribution in violation of subsection
(a) and who did not know at the time of the distribution that the distribution
violated subsection (a) shall not be liable for the amount of the distribution.
Subject to subsection (c), this subsection shall not affect any obligation or
liability of a Member under other applicable law for the amount of a
distribution.
(c) A Member who receives a distribution from the Company shall have no
liability under this Section, the Act or other applicable law for the amount of
the distribution after the expiration of three (3) years from the date of the
distribution unless an action to recover the distribution from such Member is
commenced prior to the expiration of the said three (3)-year period and an
adjudication of liability against such Member is made in the action.
Section 7.3 Amounts of Tax Paid or Withheld. All amounts paid or withheld
pursuant to the IRC or any provision of any state or local tax law with respect
to any Member shall be treated as amounts distributed to the Member pursuant to
this Article VII for all purposes under this Operating Agreement.
Section 7.4 Distribution in Kind. The Company shall not distribute any
assets in kind.
ARTICLE VIII
TRANSFER OF MEMBERSHIP INTERESTS
Section 8.1 Restriction on Transfers. Except as contemplated under the
Security Agreement, no Member shall have the right, directly or indirectly, to
sell, assign, transfer, pledge, hypothecate, mortgage or dispose of, by gift or
otherwise, or in any way encumber, voluntarily, involuntarily or by operation of
law (any such transaction being referred to as a "transfer" under this Article
VIII), any of the Membership Interest (including, without limitation, any of the
economic interest associated therewith) in the Company held by such Member,
except (a) in accordance with the provisions of this Article VIII and (b) upon
the written consent of the other Members, which consent may be determined in
their sole discretion.
Section 8.2 Transfers of Membership Interests to Affiliates. Any Member
shall have the right, without the consent of the other Members, to transfer
ownership of all (but not part) of its Membership Interest to its own direct or
indirect wholly-owned subsidiary (a "Wholly-Owned Subsidiary Transferee"). In
the event of any such transfer, the Wholly-Owned Subsidiary Transferee shall be
entitled to the rights and privileges set forth in this Operating Agreement and
shall be bound and obligated by the provisions hereof and thereof and shall, by
a binding written instrument which shall be enforceable by the Company and the
other Members, assume all obligations and liabilities hereunder of the
transferring Member.
Section 8.3 Buy-Sell Procedure.
(a) Each of CRC and ESNI (the "Exercising Member") shall have the right,
at any time after the fourth anniversary of the Effective Date, exercisable by
written notice (the "Sale Notice") to the other (the "Recipient"), to offer to
sell all of its Membership Interest at a
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purchase price payable in cash at the closing and on such other reasonable terms
and conditions as may be specified in the Sale Notice. In the event the
Exercising Member fails to name a price in its Sale Notice and fails to remedy
such omission within thirty (30) days following receipt of written notice
thereof from the Recipient or expressly states that a price is omitted in
accordance with this Section, the Company shall engage an independent third
Person reasonably known and respected in the field to determine the fair market
value of the Company (the "Appraiser"). The Appraiser shall notify each of the
Exercising Member and the Recipient in writing of such fair market value
determination within thirty (30) days after its engagement ("Appraisal Notice").
(b) The Recipient shall elect, by written notice to the Exercising Member
("Notice of Election") within sixty (60) days of receipt of the later of the
Sale Notice or the Appraisal Notice, as the case may be, either (i) to purchase
all of such offered Membership Interest at the purchase price and on the terms
and conditions specified in the Sale Notice or Appraisal Notice, as the case may
be or (ii) to sell all of its own Membership Interest to the Exercising Member
at a purchase price which bears the same proportional relationship to its
Membership Interest as the purchase price set forth in the Sale Notice or
Appraisal Notice, as the case may be, bears to the Exercising Member's
Membership Interest; provided, however, that if ESNI is the Recipient, in no
event shall ESNI be required to sell its Membership Interest for a purchase
price less than the then outstanding principal amount under the Promissory
Notes.
(c) If the Recipient elects to proceed pursuant to Section 8.3(b)(i), the
Members shall, within thirty (30) days after receipt of the Notice of Election,
execute such documents and instruments reasonably required to cause the purchase
and sale of the Exercising Member's Membership Interest at the purchase price
and the terms and conditions specified in the Sale Notice or Appraisal Notice,
as the case may be, and the closing of such sale shall take place as soon as
practicable, but in any event within thirty (30) days thereafter. At the
closing, the Exercising Member shall transfer its Membership Interest to the
Recipient free and clear of any and all encumbrances.
(d) If the Recipient elects to proceed pursuant Section 8.3(b)(ii), the
Members shall, within thirty (30) days after receipt of the Notice of Election,
execute such documents and instruments reasonably required to cause the purchase
and sale of the Recipient's Membership Interest at a purchase price which bears
the same proportional relationship to its Membership Interest as the purchase
price set forth in the Sale Notice or Appraisal Notice, as the case may be,
bears to the Exercising Member's Membership Interest, and on such terms and
conditions that are equivalent to the terms and conditions specified in the Sale
Notice or Appraisal Notice, as the case may be. The closing of such sale shall
take place as soon as practicable, but in any event within thirty (30) days
thereafter. At the closing, the Recipient shall transfer its Membership Interest
to the Exercising Member free and clear of any and all encumbrances.
Section 8.4 Right of First Refusal.
(a) If any Member wishes to transfer all of its Membership Interest (such
person or entity wishing to transfer its Membership Interest, the "Offering
Member") to any person other than pursuant to Sections 8.2 or 8.3 above
(hereafter referred to as a "Third Party") and receives a bona fide offer from
such Third Party, such Offering Member shall deliver a written notice (an "Offer
Notice") to the other Members (the "Remaining Members"). The Offer Notice will
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describe in reasonable detail the offer from the Third Party, including the
percentage of the Membership Interest being offered (the "Offered Membership
Interest"), the purchase price and all other material terms and conditions of
the proposed transfer. As used in this Section 8.4(a), the term "bona fide
offer" means an offer not contingent on the Third Party obtaining necessary
financing or subject to any other material contingency, is made with express
recognition by the Third Party of the rights set forth in Section 8.5 below, and
is received from a Third Party which the Offering Member reasonably believes has
the financial resources to purchase the Offered Membership Interests and, if
required, such additional Membership Interests in accordance with Section 8.5
below.
(b) Upon receipt of an Offer Notice from an Offering Member, the Remaining
Members shall have the option (the "Member Option") to purchase at the price and
on the terms and conditions specified in the Offer Notice, all or any part of
such Remaining Member's Proportionate Share (as defined below) of the Offered
Membership Interest by notifying the Offering Member and the other Remaining
Members in writing (the "Member Notice") within ten (10) Business Days after the
date of receipt of the Offer Notice (the "First Offer Exercise Period") whether
and to what extent such Remaining Member intends to exercise the Member Option.
If any Remaining Member fails to exercise its Member Option as to all of its
Proportionate Share of the Offered Membership Interest, then any of the other
Remaining Members shall have the right to purchase all or part of the Offered
Membership Interest that such Remaining Member has elected not to purchase by
amending its respective Member Notice within five (5) Business Days after the
date that it receives notice that any other Remaining Member has so declined to
exercise its Member Option in full. Failure to deliver the Member Notice within
the applicable periods shall constitute a waiver of the applicable Remaining
Member's purchase right as to the Offered Membership Interest. For purposes of
this Section 8.4, "Proportionate Share" shall mean the product obtained by
multiplying (i) the Offered Membership Interest by (ii) a fraction, the
numerator of which is the percentage of the Membership Interests held by the
applicable Remaining Member and the denominator of which is the aggregate
percentage of all the Membership Interests held by the other Remaining Members
who did elect to purchase a portion of the Offered Membership Interest.
(c) If the Remaining Members elect to purchase all of the Offered
Membership Interest in accordance with this Section 8.4, the Offering Member
shall have the obligation to sell such Offered Membership Interest to the
Remaining Members electing to so purchase. Otherwise, subject to Section 8.5,
the Offering Member may sell to the Third Party the Offered Membership Interest
within 120 days after the expiration of the First Offer Exercise Period,
provided the purchase price for such Offered Membership Interest is no less than
the purchase price contained in the Offer Notice and the other terms offered to
such Third Party are no more favorable to such Third Party than those contained
in the Offer Notice. If such sale to such Third Party is not consummated within
the time period specified herein, the Offered Membership Interest shall again be
subject to the restrictions contained in this Operating Agreement.
(d) The closing for any purchase of the Offered Membership Interest by the
Remaining Members shall be held at the offices of the Company no later than the
90th day after the date of the Offer Notice or at such other time and place as
the parties shall agree. At the closing, each applicable Remaining Member shall
pay for its applicable share of the Offered Membership Interest in accordance
with the terms of the Offer Notice.
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(e) Neither the Company nor any transfer agent shall give any effect in
the Company's records to any transfer that does not fully comply with the
provisions of this Article VIII.
Section 8.5 Rights of Inclusion (Tag Along Rights).
(a) In addition to the terms and provisions set forth in Section 8.4
above, an Offering Member shall not transfer or otherwise dispose of any of its
Membership Interests to a Third Party unless the terms and conditions of such
sale or other disposition include a written offer by the Third Party to purchase
or otherwise acquire from the Remaining Members the Membership Interests of such
Remaining Members (determined in accordance with Section 8.5(b) below) on the
same terms and conditions as those made to the Offering Member (the "Third Party
Offer").
(b) An Offering Member shall give notice of any intended transfer to a
Third Party its Membership Interests (a "Tag-Along Transfer") to the Remaining
Members. Such notice (the "Tag-Along Notice") shall set forth the material terms
and conditions of such proposed Tag-Along Transfer, including the name of the
Third Party, the amount of Membership Interests proposed to be transferred by
the Offering Member (the "Tag-Along Interests"), the purchase price per
percentage of Membership Interest proposed to be paid therefor, the payment
terms and type of Tag-Along Transfer to be effectuated, and any other material
terms and conditions of such proposed Tag-Along Transfer. Within twenty (20)
Business Days following the delivery of the Tag-Along Notice by the Offering
Member, each Remaining Member shall have the right, but not the obligation, to
participate in such Tag-Along Transfer by transferring up to a fraction of such
Remaining Member's Membership Interests which is equal to the fraction, the
numerator of which is the Tag-Along Interests and the denominator of which is
the total Membership Interests held by the Offering Member immediately prior to
the Tag-Along Transfer. Any participation in a Tag-Along Transfer by a Remaining
Member shall be on the same terms and conditions as the proposed Tag-Along
Transfer by the Offering Member. Notwithstanding the foregoing, in the event
that ESNI delivers to CRC a written legal opinion of counsel, such counsel being
located in ESNI's jurisdiction of incorporation and having a nationally
recognized expertise in such jurisdiction's corporation law, stating that it
cannot opine that ESNI's sale of its Membership Interests pursuant to this
Section 8.5 does not require the prior approval of ESNI stockholders, ESNI
shall, within ten (10) Business Days following the delivery of the Tag-Along
Notice by the Offering Member, send written notice to the Offering Member of its
desire to participate in the Tag-Along Transfer subject to stockholder approval
and shall have 60 days (and an additional 15 days if ESNI receives comments from
the Securities and Exchange Commission with respect to such stockholder
approval) following delivery of the Tag-Along Notice by the Offering Member to
obtain such stockholder approval.
(c) At the closing of any proposed Tag-Along Transfer in respect of which
a Tag-Along Notice has been delivered, the Offering Member, together with all
Tag-Along Offerees electing to transfer Membership Interests in accordance with
this Section 8.5, shall deliver to the Third Party certificates or other
instruments evidencing the Membership Interests to be transferred pursuant
hereto and all other documents to be delivered in connection with the transfer
and shall receive in exchange therefor the consideration to be paid or delivered
by the Third Party in respect of such Membership Interests as described in the
Tag-Along Notice.
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Section 8.6 Drag-Along Obligation.
(a) Subject to Section 8.4, so long as CRC owns at least 10% of the
Membership Interests, if CRC approves a sale, transfer, or other disposition
(including by merger, consolidation or other business combination) to a Person
that is not an Affiliate of CRC, of (i) all of the Membership Interests or (ii)
all or substantially all of the assets of the Company and its subsidiaries
determined on a consolidated basis (each an "Approved Sale"), each Member shall
consent to and raise no objection to the Approved Sale or the process pursuant
to which the Approved Sale was arranged, waive any dissenter's rights and other
similar rights, and (1) if the Approved Sale is structured as a sale of
Membership Interests, shall agree to sell all Membership Interests owned by such
Member on the terms and conditions approved by CRC, (2) if the Approved Sale is
structured as a merger or consolidation, each Member shall vote in favor
thereof, and (3) if the Approved Sale is structured as a sale of all or
substantially all of the assets of the Company and a subsequent dissolution and
liquidation of the Company, each Member Party shall vote in favor thereof and
will vote in favor of the subsequent dissolution and liquidation of the Company;
provided, however, that in no event shall ESNI be required to consent to any
Approved Sale if the Fair Market Value of the aggregate consideration to be
received by ESNI from such Approved Sale is less than the then outstanding
principal amount under the Promissory Notes. Each Member will take all necessary
and desirable actions as directed by CRC in connection with the consummation of
any Approved Sale, including, without limitation, executing the applicable
purchase agreement and granting identical indemnification rights.
Notwithstanding the foregoing, no Member shall be required to agree to (1) make
representations and warranties in connection with such Approved Sale, except
representations and warranties with respect to such Member and such Member's
Membership Interest, and (2) indemnify the buyer or any other Person in
connection with such Approved Sale or make a payment in connection with a
purchase price adjustment for an amount in excess of the lesser of (I) its pro
rata share of such indemnification or purchase price adjustment obligation,
other than indemnification obligations with respect to representations and
warranties regarding such Member or (II) the proceeds such Member receives in
such Approved Sale.
(b) The obligations of each Member with respect to an Approved Sale are
subject to the satisfaction of the following condition: upon the consummation of
the Approved Sale, each Member will receive the same form and amount of
consideration as each other Member (proportional to each Member's Membership
Interest) or if any Members are given an option as to the form and amount of
consideration to be received, all Members shall be given the same option. In
addition, the obligations of ESNI with respect to an Approved Sale is subject to
the receipt by ESNI of an amount of consideration equal to at least the then
outstanding principal amount under the Promissory Notes.
(c) All Members shall bear their pro rata share of any reasonable costs
related to the Approved Sale, to the extent such costs are not otherwise paid by
the Company or the acquiring party (provided that no Member shall be obligated
to bear any costs in excess of the proceeds payable to such Member in such
Approved Sale). Costs incurred by Members on their own behalf will not be
considered costs of the transaction hereunder.
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Section 8.7 Redemption of ESNI's Membership Interests.
(a) Upon the written request (the "Redemption Request") of ESNI to the
Company, delivered on the maturity date of the Promissory Notes, that all of
ESNI's Membership Interests be redeemed (a "Mandatory Redemption"), subject to
obtaining any necessary lender consent without cost or expense (other than costs
or expenses that ESNI is willing to bear), the Company shall redeem from ESNI
its Membership Interests by payment in cash of an amount equal to the Mandatory
Redemption Price. Subject to the foregoing, the Company agrees to use
commercially reasonable efforts to obtain, or cooperate with ESNI to obtain,
such necessary lender consents. In addition, CRC agrees that during such time
that the Company and ESNI are attempting to obtain the necessary lender consent,
such time period not to exceed thirty (30) days from the date of the Redemption
Request, CRC will not foreclose or take any other action to enforce its rights
under the Promissory Notes. During such thirty-day period, interest, including
any applicable default interest, shall continue to accrue pursuant to the
Promissory Notes. As used herein:
"Mandatory Redemption Price" equals 50% of the Appraised Value.
"Appraised Value" means the amount that a willing buyer would pay to a
willing seller for ESNI's Membership Interests, as determined by the Approved
Banker in accordance with the provisions of this Section 8.7.
"Banker" means an individual affiliated with a nationally or regionally
recognized investment banking, accounting or financial consulting firm, in his
or her capacity as a member or senior employee of such firm, such firm to be
unaffiliated with CRC or the Company, with recognized expertise in the field of
appraising non-public entities in the businesses that the Company is engaged.
(b) Within 10 Business Days of the Company's receipt of the Redemption
Request, the Company shall provide ESNI with a list of three (3) Bankers. Within
10 Business Days of ESNI's receipt of such list, ESNI shall select a Banker (the
"Approved Banker") from such list to determine the Appraised Value and shall
inform the Company in writing of such selection. If ESNI fails to timely select
a Banker, the Company may select a Banker from such list and such Banker
selected by the Company shall for all purposes be the Approved Banker.
(c) At the time of its appointment, the Approved Banker shall be
instructed to deliver to the Company and ESNI within thirty (30) days of its
appointment, such firm's determination of the Appraised Value as of the date of
the Company's receipt of the Redemption Request, together with an explanation,
in reasonable detail, of the assumptions, factual bases and methodology used to
make its determination. In making its determination of the Appraised Value, the
Approved Banker shall consider all relevant factors, including, without
limitation: (i) the liquidity of ESNI's Membership Interests; (ii) the
percentage of the total Membership Interests represented by ESNI's Membership
Interests; (iii) the general voting and management rights represented by ESNI's
Membership Interests; (iv) the effect of the Management Services Agreement; (v)
the history of and likelihood of continuing and/or future cash distributions by
the Company with respect to ESNI's Membership Interests; (vi) industry and
competitive factors in the businesses that the Company is engaged at the time of
the Redemption Request; and (vii)
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general economic and business factors. The Company or ESNI, as the case may be,
shall provide the other with a copy of the appointment and letter of instruction
simultaneously with its delivery to the Approved Banker. The fees and expenses
of the Approved Banker shall be borne by ESNI.
(d) Notwithstanding the foregoing, if the Mandatory Redemption Price as
finally determined is greater than the outstanding aggregate balance under the
Promissory Notes (including accrued and unpaid interest thereunder, the
"Outstanding Balance"), then the Mandatory Redemption Price shall equal the
Outstanding Balance. It is further acknowledged that if there is no Outstanding
Balance, this Section 8.7 in its entirety shall be of no force and effect.
(e) The Company shall redeem ESNI's Membership Interests no later than
thirty (30) days after the final determination of the Mandatory Purchase Price.
Such date shall be the "Mandatory Redemption Date" as described herein. Payment
of the Mandatory Redemption Price by the Company to ESNI shall be made pursuant
to, and in accordance with, the following:
(i) In the event that ESNI is required to indemnify CRC pursuant to,
and in accordance with, Article VIII of the ESNI Contribution Agreement,
all distributions otherwise payable to ESNI hereunder shall be withheld
and paid directly to CRC to the extent necessary to discharge fully and
completely ESNI's indemnity obligations to CRC thereunder.
(ii) After giving effect to clause (i) above, the remaining
Mandatory Redemption Price shall be withheld and paid directly to CRC to
repay ESNI's outstanding obligations to CRC under the Promissory Notes.
Section 8.8 Adjustments in Membership Interests. (a) CRC shall have an
option to purchase (the "Interest Purchase Option") Membership Interests of ESNI
representing up to an aggregate of 17% of all Membership Interests as follows:
(i) Membership Interests of ESNI representing up to, and including,
2% of the Membership Interests at a price of $150,000 for each 1%
Membership Interest purchased;
(ii) Membership Interests of ESNI representing up to an additional
5% of the Membership Interests at a price of $200,000 for each 1%
Membership Interest purchased; and
(iii) Membership Interests of ESNI representing up to an additional
10% of the Membership Interests at a price of $250,000 for each 1%
Membership Interest purchased;
provided that, if (1) there is a Change of Control of ESNI (as defined below),
(2) ESNI, or an authorized appointee, initiates a bankruptcy proceeding on
ESNI's own behalf, or (3) ESNI defaults on, or fails to perform, any of its
material obligations under any of the Additional Agreements or this Operating
Agreement (each such event, a "Relevant Event"), then the exercise prices
described in clause (i), (ii) or (iii) of this Section 8.8(a) shall be reduced
by $50,000 for each 1% Membership Interest purchased by CRC under this Section
8.8(a). For
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purposes of this Operating Agreement, a "Change in Control" shall be deemed to
have occurred if the majority of the Board of Directors of ESNI shall not be
composed of (i) individuals who compose ESNI's Board as of the date hereof, (ii)
individuals listed on Schedule B hereto and/or (iii) individuals approved in
writing by CRC at the time of their election or appointment (which approval
shall not be unreasonably withheld).
So long as no Relevant Event takes place, CRC shall not exercise this
Interest Purchase Option for eighteen (18) months from the Effective Date and
shall give ESNI at least sixty (60) days' notice of its intention to exercise
such option ("Option Exercise Notice"), in whole or in part. The Interest
Purchase Option shall be exercisable by CRC for five (5) years from the
Effective Date or, if later, until two (2) years after ESNI fully and completely
fulfills its obligations and discharges its debt under the Promissory Notes.
(b) If CRC elects to proceed pursuant to this Section 8.8, the Members
shall, within thirty (30) days after ESNI's receipt of the Option Exercise
Notice, execute such documents and instruments reasonably required to cause the
purchase and sale of ESNI's Membership Interests at the purchase price and the
terms and conditions specified in this Section, as the case may be, and the
closing of such sale shall take place as soon as practicable, but in any event
within thirty (30) days thereafter. At the closing, ESNI shall transfer its
Membership Interests to CRC free and clear of any and all encumbrances (other
than liens in favor of CRC).
(c) In the event that the Management Services Agreement is terminated for
any reason other than for Cause (as defined in the Management Services
Agreement) by any Person other than CRC or its affiliates, and provided that at
the time of such termination of the Management Services Agreement CRC has not
exercised its Interest Purchase Option under this Section 8.8, ESNI shall
transfer to CRC 1% of its Membership Interest, executing such documents and
instruments reasonably required to effectuate such transfer, within thirty (30)
days of such termination. ESNI shall transfer the 1% Membership Interest to CRC
free and clear of any and all encumbrances.
Section 8.9 Consent of ESNI Stockholders. In the event that ESNI delivers
to CRC a written legal opinion of counsel, such counsel being located in ESNI's
jurisdiction of incorporation and having a nationally recognized expertise in
such jurisdiction's corporation law, stating that it cannot opine that ESNI's
compliance with Sections 8.3 and 8.6 of this Operating Agreement does not
require the prior approval of ESNI stockholders, ESNI shall not be required to
take any actions required under Sections 8.3 and 8.6 prior to obtaining such
stockholder approval and shall use its best efforts to obtain such stockholder
approval as promptly as practicable.
Section 8.10 Invalid Transfers Void. Notwithstanding anything contained
herein to the contrary, no transfer of a Membership Interest may be made if such
transfer (i) would violate the registration requirements of then applicable
federal or state securities laws or rules and regulations of the Securities and
Exchange Commission, state securities commissions, or rules and regulations of
any other government agencies with jurisdiction over such transfer or (ii) would
affect the Company's existence or qualification under the Act. In the event a
transfer of a Membership Interest is otherwise permitted hereunder,
notwithstanding any provision hereof, no Member shall transfer all or any
portion of such Member's Membership Interest
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unless and until such Member, upon the request of the Company, delivers to the
Company an opinion of counsel, addressed to the Company, reasonably satisfactory
to the Company, to the effect that (a) such Membership Interest has been
registered under the Securities Act and any applicable state securities laws, or
that the proposed transfer of such Membership Interest is exempt from any
registration requirements imposed by such laws and (b) that such transfer will
not result in the Company being taxed as a corporation or as an association
taxable as a corporation. Such opinion shall not be deemed delivered until the
Company confirms to such Member that such opinion is acceptable, which
confirmation will not be unreasonably withheld. Any purported transfer of any
Membership Interest or any part thereof not in compliance with this Article VIII
shall be void and of no force or effect and the transferring Member shall be
liable to the other Members and the Company for all liabilities, obligations,
damages, losses, costs and expenses (including reasonable attorneys' fees and
disbursements) arising as a result of such noncomplying transfer.
Section 8.11 Change in Ownership.
(a) For purposes of this Operating Agreement, a "Change in Ownership" of a
Member shall be deemed to have occurred when (i) any Person that does not
beneficially own or control, directly or indirectly, 50% or more of the
outstanding voting power of such Member or is not a direct or indirect
wholly-owned subsidiary of a Person beneficially owning or controlling, directly
or indirectly, 50% or more of the outstanding voting power of such Member (an
"Unaffiliated Entity"), shall acquire (whether by merger, consolidation, sale,
assignment, lease, transfer or otherwise, in one transaction or series of
related transactions), or otherwise beneficially own or control 50% or more of
the outstanding voting power of such Member or any Unaffiliated Entity which,
directly or indirectly, through the ownership of one or more majority-owned
successive subsidiary Entities, owns more than 50% of the outstanding voting
power of or controls such Member (a "Control Entity") or (ii) an Unaffiliated
Entity, or group or persons acting in concert therewith, shall acquire the power
to direct or cause the direction of the management and policies of such Member
or a Control Entity thereof; provided that the foregoing shall not be deemed to
extend to any grant or transfer of outstanding voting power in such Member
pursuant to a plan of internal reorganization undertaken solely for
administrative or tax purposes.
(b) Any Change in Ownership of a Member shall be deemed for all purposes
hereof to be a proposed transfer of the Membership Interest of such Member to
the Unaffiliated Entity and shall be subject to all of the terms, conditions and
restrictions set forth in this Article VIII.
Section 8.12 Effect of Transfer; Exclusions.
(a) In addition to satisfaction of Section 8.1 above, no assignee or
transferee of all or part of a Membership Interest in the Company shall have the
right to become admitted as a Member, unless and until:
(i) The assignee or transferee has executed an instrument reasonably
satisfactory to the General Manager accepting and adopting the provisions
of this Operating Agreement; and
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(ii) The assignee or transferee has paid all reasonable expenses of
the Company requested to be paid by the General Manager in connection with
the admission of such assignee or transferee as a Member.
(b) A Person who is a permitted assignee or transferee of a Membership
Interest in the Company transferred in compliance with the provisions of this
Article VIII shall be admitted to the Company as a Member and shall receive a
Membership Interest in the Company without making a contribution or being
obligated to make a contribution to the Company and shall thereupon be bound by
the provisions of this Operating Agreement.
ARTICLE IX
DISSOLUTION; TERMINATION; REORGANIZATION
Section 9.1 Dissolution. The Company shall be dissolved only upon the
occurrence of any of the following events:
(a) By the written consent of all Members; and
(b) Upon the occurrence of any of the events set forth in Section 18-801
of the Act, except as may be provided to the contrary in this Operating
Agreement as permitted by the Act.
Section 9.2 Events of Bankruptcy of Member. Without limiting the
generality of Section 9.1, the occurrence of any of the events set forth in this
Section with respect to any Member shall not result in the dissolution of the
Company. Such Member shall cease to be a Member of the Company, but shall,
however, retain its interest in allocations and distributions, upon the
happening of any of the following bankruptcy events:
(a) A Member takes any of the following actions:
(i) Makes an assignment for the benefit of creditors;
(ii) Files a voluntary petition in bankruptcy;
(iii) Is adjudged a bankrupt or insolvent, or has entered against it
an order for relief, in any bankruptcy or insolvency proceeding;
(iv) Files a petition or answer seeking for it any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any statute, law or regulation;
(v) Files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature; or
(vi) Seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator for itself or for all or any substantial
part of its properties; or
(b) One hundred twenty (120) days after the commencement of any proceeding
against the Member seeking reorganization, arrangement, composition,
readjustment, liquidation,
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dissolution or similar relief under any statute, law or regulation, if the
proceeding has not been dismissed, or if within ninety (90) days after the
appointment without the consent or acquiescence of the Member, of a trustee,
receiver or liquidator of the Member or of all or any substantial part of the
properties of the Member, the appointment is not vacated or stayed, or within
ninety (90) days after the expiration of any such stay, the appointment is not
vacated.
Section 9.3 Withdrawal of Members. No Member shall have the right to
withdraw from the Company except following a transfer of its Membership Interest
in accordance with Section 8.1. However, if despite such prohibition a Member
gives the Company notice (which must be in writing) of its desire to wrongfully
withdraw from the Company, upon the Company's receipt of such written notice
from such Member, such Member shall cease to be a Member of the Company, and
such withdrawal shall be deemed wrongful. The withdrawal of a Member (wrongful
or otherwise) shall not result in the dissolution of the Company.
Section 9.4 Winding Up.
(a) Upon the dissolution of the Company, the General Manager shall engage
an independent third Person reasonably known and respected in the field to wind
up the affairs of the Company (the "Liquidating Trustee"). All actions taken by
the Liquidating Trustee in respect of such winding up shall be taken in
accordance with this Section 9.4 and with Section 9.5. The Liquidating Trustee
shall be entitled to receive such compensation for its services as may be
approved by the General Manager. The Liquidating Trustee may resign only upon at
least fifteen (15) days' notice to the General Manager. The Liquidating Trustee
may be removed by the General Manager in accordance with Section 4.1(h) upon
fifteen (15) days' notice. Within fifteen (15) days of the effective date of
such resignation or removal, the General Manager shall engage a replacement who
shall succeed to all the rights, powers and obligations of its predecessor.
(b) The Liquidating Trustee may, in the name of, and for and on behalf of,
the Company, prosecute and defend suits, whether civil, criminal or
administrative, gradually settle and close the business of the Company, dispose
of and convey the property of the Company, discharge or make reasonable
provision for the liabilities and obligations of the Company, including all
contingent, conditional or unmatured liabilities and obligations, and distribute
to the Members any remaining assets of the Company, all in accordance with
Section 9.5 and without affecting the liability of the Members and the General
Manager and without imposing liability on the Liquidating Trustee.
(c) The Liquidating Trustee shall exercise all powers conferred upon the
Tax Matters Member to the extent necessary in its good faith judgment to effect
the liquidation, and the Tax Matters Member shall not interfere with or
duplicate the exercise of such powers.
Section 9.5 Liquidation and Distribution of Assets.
(a) In the event of a dissolution of the Company, the Liquidating Trustee
shall use all commercially reasonable efforts to effect a sale of the Company as
a going concern. In the event that no buyer can be found to purchase the Company
as a going concern, the Liquidating Trustee
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shall offer for sale the separate assets of the Company. All sales, whether of
the Company as a going concern or of separate assets, shall be at the best price
reasonably available.
(b) Any proceeds from a sale of the Company or its assets shall be
distributed as follows:
(i) First, to creditors, including the Members and the General
Manager who are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Company (whether by payment or the
making of reasonable provision for payment thereof) other than liabilities
for which reasonable provision for payment has been made; and
(ii) Then, to the Members in proportion to their positive Adjusted
Capital Accounts.
Section 9.6 Reorganization. The General Manager may, in connection with an
initial public offering of the Company, cause the Company to convert (a
"Rollup") from the limited liability company form to the corporate form (such
successor corporate form, whether effected by contribution of Membership
Interests, contribution of assets, merger, reorganization or otherwise, the
"Reorganized Company"). Each Member shall consent to and raise no objections
against, and shall take all actions reasonably necessary and desirable (to the
extent permissible in his, her or its capacity as such person) to effect such an
approved Rollup. It is the intention of the Members that any Rollup shall be
effected in a manner that (a) does not modify the economic terms of this
Operating Agreement and (b) avoids or minimizes to the maximum extent possible
(i) any limitations for purposes of Rule 144 under the Securities Act on the
tacking by a Member of the holding periods of Membership Interests surrendered
in such exchange to the holding periods of the new securities respectively
issued, and (ii) the recognition of taxable income by the Company or the Members
as a result of such exchange.
ARTICLE X
ADDITIONAL UNDERTAKINGS
Section 10.1 Confidentiality.
(a) Maintenance of Confidentiality. Each of the Members shall, during the
term of this Operating Agreement and at all times thereafter, maintain in
confidence all confidential and proprietary information and data of the Company
and that the other Members or its Affiliates disclosed to it (the "Confidential
Information"). Each of the Members further agrees that it shall not use the
Confidential Information during the term of this Operating Agreement or at any
time thereafter for any purpose other than the performance of its obligations or
the exercise of its rights under this Operating Agreement. The Company and each
Member shall take all reasonable measures necessary to prevent any unauthorized
disclosure of the Confidential Information by any of their Affiliates and their
respective officers, directors, employees, agents or consultants.
(b) Permitted Disclosures. Nothing herein shall prevent the Company, any
Member, or any employee, agent or consultant of the Company or any Member (in
such capacity, the "Receiving Party") from using, disclosing or authorizing the
disclosure of any information it
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receives in the course of the business of the Company from the Company or
another Member (in such capacity, the "Disclosing Party") which:
(i) Becomes publicly available without default hereunder by the
Receiving Party;
(ii) Is lawfully acquired by the Receiving Party from a source not
known to the Receiving Party to be under any obligation to the Disclosing
Party regarding disclosure of such information;
(iii) Is in the possession of the Receiving Party in written or
other recorded form at the time of its disclosure hereunder;
(iv) Is non-confidentially disclosed to any third party by or with
the permission of the Disclosing Party; or
(v) The Receiving Party believes in good faith to be required by law
or by the terms of any listing agreement with a securities exchange;
provided that the Receiving Party consults with the other Members prior to
making such disclosure.
Section 10.2 Return of Confidential Information. Upon expiration or
termination of this Operating Agreement, the Receiving Party shall return to the
Disclosing Party all requested Confidential Information of the Disclosing Party,
including all copies thereof, in the possession or under the control of it, its
Affiliates or any of their respective personnel, or, at the Disclosing Party's
option, destroy or purge all such Confidential Information from its and its
Affiliates' systems and files and deliver to the Disclosing Party a written
confirmation that such destruction and purging have been carried out.
Section 10.3 No License. The furnishing of Confidential Information of the
Disclosing Party to the Receiving Party shall not constitute any grant of
license to the Receiving Party except (i) for the purposes of performing under
this Operating Agreement, (ii) as otherwise expressly provided in this Operating
Agreement or (iii) as hereafter expressly agreed in writing by the Disclosing
Party.
Section 10.4 No Hire. During the term of this Operating Agreement, each
Member agrees, and for one (1) year after the withdrawal of a Member or transfer
of a Member's Membership Interest in accordance with this Operating Agreement or
otherwise, such withdrawing or transferring Member agrees, that it shall not,
and shall make its best efforts to cause its Affiliates to not, directly or
indirectly, (i) solicit, induce, recruit or encourage any of the Company's
employees or consultants to terminate their relationship with the Company in
favor of a relationship with such Member or Affiliate, as the case may be, or
any other Person or (ii) hire or retain the services of any such employees or
consultants; provided that this obligation shall not apply to consultants who
regularly provide services concurrently to multiple clients in the normal course
of their business, to the extent that the hiring or retention of such
consultants is not likely to materially impair the ability of such consultants
to provide services to the Company. In addition, the Company and each Member
agrees that, for one (1) year after the proper withdrawal of a Member or
transfer of a Member's Membership Interest in accordance with this
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Operating Agreement, it shall comply with the foregoing restrictions applied
with respect to the employees and consultants of such withdrawing or
transferring Member.
Section 10.5 Non-Competition. The Company and the other Members
acknowledge that CRC and its Affiliates engage in the same or similar activities
or lines of business as the Company and have an interest in the same area of
business opportunities. The Company and the other Members agree that CRC and its
Affiliates shall have the right to (a) subject to Section 10.6 below, engage in
the same or similar business activities or lines of business as the Company, (b)
do business with any client or customer of the Company and (c) Section 10.4
notwithstanding, employ or otherwise engage any officer or employee of the
Company if (i) prior to employment by the Company such person was an officer,
director or employee of CRC or an Affiliate thereof, or (ii) such employment or
engagement by CRC or its Affiliate would not harm the Company in any significant
manner, and neither CRC nor any Affiliate thereof, nor any officer, director,
employee, agent or other representative of CRC or such Affiliate, shall be
liable to the Company or any Member by reason of any such activities of CRC or
its Affiliates or of such Person's participation therein.
Section 10.6 Business Opportunities. In the event that (a) CRC or any of
its Affiliates, or (b) any officer, director or employee of the Company who is
also an officer, director or employee of CRC or any Affiliate thereof, acquires
knowledge of a potential transaction or matter which may be a business
opportunity for both the Company and CRC or any of its Affiliates, such business
opportunity shall belong only to CRC and not to the Company, and any such
officer, director or employee of the Company shall treat such business
opportunity as belonging only to CRC and not to the Company, subject to the
following sentence. In the case of clause (b) of the preceding sentence, the
General Manager shall determine in good faith whether, based on the
circumstances under which such individual acquired his or her knowledge, such
business opportunity instead was offered to such individual solely in his or her
capacity as an officer, director or employee of the Company ("Company
Capacity").
For purposes of the foregoing determination, there shall be a presumption
that such business opportunity was offered to such person in his capacity as an
officer, director or employee of CRC or any Affiliate thereof. In the event the
General Manager determines that it was so offered to such person in his Company
Capacity, such business opportunity shall belong only to the Company and not to
CRC and such officer, director or employee shall treat such business opportunity
as belonging only to the Company and not to CRC. With respect to any business
opportunity belonging to CRC pursuant to this Section 10.6, CRC shall decide how
to allocate and pursue such business opportunity based on its sole determination
of what is in the best interests of CRC. The General Manager's good faith
determination of the allocation of business opportunities pursuant to this
Section shall be conclusive and binding for all purposes.
The foregoing notwithstanding, and in order to minimize the circumstances
subject to the preceding paragraph, the Members and the Company agree as
follows:
(a) Each of the following business activities shall be deemed the
exclusive business opportunities of the Company ("Company Opportunities"):
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(i) Messaging and/or directory services, architecture and design;
(ii) Hosting; and
(iii) Any new CRC Opportunities to be performed in Connecticut or
Westchester County, New York.
All Company Opportunities, whether originated by Company representatives
or CRC representatives, shall belong to the Company, subject to subsection (c)
below.
(b) Each of the following business activities shall be deemed the
exclusive business opportunities of CRC ("CRC Opportunities"):
(i) Support Services;
(ii) Programming;
(iii) Life cycle services/help desk services; and
(iv) Software development.
All CRC Opportunities, whether originated by Company representatives or
CRC representatives, shall belong to CRC.
(c) In the event that the General Manager makes a good faith determination
that the Company does not have the financial resources to execute on any new
Company Opportunity, CRC shall be entitled to pursue such opportunity pursuant
to this Article X, and such opportunity shall be deemed a CRC Opportunity.
(d) Company Opportunities originated by CRC shall be billed and collected
by CRC. Subject to the provisions hereof, CRC shall promptly forward the
appropriate funds to the Company following receipt thereof.
Section 10.7 Allocation of Expenses. Shared expenses and overhead of CRC
and the Company shall be allocated between the Company and CRC based on relative
revenues, as adjusted, such allocation being subject to reasonable adjustments
by the General Manager if the General Manager determines in its good faith
judgment that such allocation is not reasonable under the circumstances. Project
based expenses overhead will be allocated in the General Manager's reasonable
good faith judgment based on which entity is servicing such project. Further:
(i) the General Manager shall provide to the Members quarterly
reports of how such expenses and overhead are allocated (the "Expense
Allocation Report");
(ii) upon receiving a Quarterly Expense Allocation Report from the
General Manager, each Member shall have thirty (30) days to object to such
Expense Allocation Report;
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(iii) any objections to a Expense Allocation Report must be made
based on the entire Expense Allocation Report and not on a line item
basis;
(iv) the General Manager shall have fifteen (15) days from receipt
of an objection to respond to the objecting Member;
(v) upon receipt of the General Manager's response to an objection,
there shall be a ten (10) day period for the parties to resolve any
further disputes related to the objection, after which any remaining
disputes shall be handled pursuant to and in accordance with the dispute
resolution provisions of Sections 4.2(a) and (b) and Section 12.12 of this
Operating Agreement, subject to subsection (vii) below;
(vi) in the event that an objection to an Expense Allocation Report
is submitted to an arbitrator pursuant to Section 12.12 of this Operating
Agreement, such Expense Allocation Report shall be adjusted by the General
Manager to conform to the arbitrator's findings and judgment;
(vii) in the event that the arbitrator's findings (x) uphold the
General Manager's original Expense Allocation Report, (y) show any
discrepancy in favor of ESNI from the original Expense Allocation Report
or (z) show a discrepancy in favor of CRC of less than or equal to 5% from
the original Expense Allocation Report, ESNI shall, notwithstanding the
provisions of Section 12.12 of this Operating Agreement, pay all expenses
related to the arbitration, and CRC shall pay a penalty to ESNI equal to
the amount of any discrepancy between the original Expense Allocation
Report and the arbitrator's findings;
(viii) in the event that there is a discrepancy of more than 5% in
favor of CRC between the arbitrator's findings and the original Expense
Allocation Report, CRC shall, (x) notwithstanding the provisions of
Section 12.12 of this Operating Agreement, pay all expenses related to the
arbitration and (y) if the discrepancy shall be deemed the result of CRC's
willful or intentional misconduct, pay a penalty to ESNI equal to such
discrepancy.
ARTICLE XI
BOOKS; REPORTS TO MEMBERS; TAX ELECTIONS
Section 11.1 Books and Records.
(a) As part of its general administrative duties for the Company, the
General Manager shall maintain or cause to be maintained proper and complete
books and records in which shall be entered fully and accurately all
transactions and other matters relating to the Company's business in the detail
and completeness customary and usual for businesses of the type engaged in by
the Company. The Company's financial statements shall be kept on the accrual
basis and in accordance with GAAP. The Company's financial statements shall be
audited annually by independent certified public accountants selected by the
General Manager. The fact that such independent certified public accountants may
audit the financial statements of one or more of the Members or their Affiliates
shall not disqualify such accountants from auditing the Company's financial
statements.
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(b) At a minimum, the Company shall keep such books and records as may be
required by the Act and such other books and records as are customary and usual
for businesses of the type engaged in by the Company.
(c) Each Member or its duly authorized representatives shall have the
right, during normal business hours, to inspect and copy the Company's books and
records at the requesting Member's expense.
(d) The Members shall have the right to cause the Company to take all
actions necessary to afford, at the requesting party's expense, such party's
independent certified public accountants access to the Company's books, records,
General Manager, employees and agents to the full extent reasonably determined
by such party's independent certified public accountants to be necessary in
order to perform their audit or review of such party's financial statements. In
addition, the internal auditors of each such party shall have full right of
access to the Company's books, records, General Manager, employees and agents to
the full extent reasonably determined by such party's internal auditors to be
necessary in order to perform their audit or review of such party's financial
statements; provided that in exercising such right, such internal auditors to
the extent reasonably practicable shall coordinate their visits with those by
internal auditors of other parties requesting access under this subsection.
Section 11.2 Reporting.
(a) Monthly. The General Manager will deliver to the Members operating and
financial reports for each month (other than quarter and year end) within 30
days following the end of that month, including balance sheet, operating
statement, income statement, and detailed fee invoicing, including backup
supporting expense changes.
(b) Quarterly. The General Manager will deliver to the Members operating
and financial reports for each quarter within 30 days following the end of that
quarter, including balance sheet, operating statement, income statement, and
detailed fee invoicing, including backup supporting expense changes.
(c) Annual. The General Manager will deliver to the Members (1) unaudited
financial statements, prepared in accordance with GAAP, not later than 45 days
following the end of each Fiscal Year and (2) audited financial statements,
prepared in accordance with GAAP, not later than 75 days following the end of
each Fiscal Year.
(d) Management Review. As part of its general management services, the
General Manager shall review annually the Company's audited financial statements
and operations with the Members in connection with the delivery to the Members
of such financial statements or at such time and at such place as the Members
and General Manager may mutually agree. Additionally, a Member may request
additional interim presentations by the General Manager, at that Member's
expense, subject to the availability of the General Manager or its appointees.
(e) Tax Information. As part of its general management services, the
General Manager shall, within ninety (90) days after the end of each Fiscal
Year, supply to each Member all information necessary and appropriate to be
included in each Member's income tax returns for that year.
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(f) Objection to Information from General Manager. Except as otherwise
expressly provided in this Agreement, each Member shall have sixty (60) days
following receipt of any report, financial statements or information from the
General Manager provided in accordance with this Agreement to object to any such
report, financial statements or information. The General Manager shall have
thirty (30) days from receipt of an objection to respond to the objecting
Member. Upon receipt of the General Manager's response to an objection, there
shall be a fifteen (15) day period for the parties to resolve any further
disputes related to the objection, after which any remaining disputes shall be
handled pursuant to and in accordance with the dispute resolution provisions of
Sections 4.2(a) and (b) and Section 12.12 of this Operating Agreement.
Section 11.3 Tax Matters Member.
(a) Subject to Section 9.4(c), CRC is hereby appointed and shall serve as
the tax matters Member of the Company (the "Tax Matters Member") within the
meaning of IRC Section 6231(a)(7) for so long as it is not the subject of a
bankruptcy event as defined in Section 9.2 and otherwise is entitled to act as
the Tax Matters Member. The Tax Matters Member may file a designation of itself
as such with the Internal Revenue Service. The Tax Matters Member shall (i)
furnish to each Member affected by an audit of the Company income tax returns a
copy of each notice or other communication received from the IRS or applicable
state authority, (ii) keep such Member informed of any administrative or
judicial proceeding, as required by IRC Section 6223(g), and (iii) allow such
Member an opportunity to participate in all such administrative and judicial
proceedings. The Tax Matters Member shall take such action as may be reasonably
necessary to constitute the other Member a "notice partner" within the meaning
of IRC Section 6231(a)(8); provided that the other Member provides the Tax
Matters Member with the information that is necessary to take such action.
(b) The Company shall not be obligated to pay any fees or other
compensation to the Tax Matters Member in its capacity as such. However, the
Company shall reimburse the expenses (including reasonable attorneys' and other
professional fees and disbursements) incurred by the Tax Matters Member in such
capacity. Each Member who elects to participate in Company administrative tax
proceedings shall be responsible for its own expenses incurred in connection
with such participation. In addition, the cost of any adjustments to a Member
and the cost of any resulting audits or adjustments of a Member's tax return
shall be borne solely by the affected Member.
(c) The Company shall indemnify and hold harmless the Tax Matters Member
from and against any loss, liability, damage, cost or expense (including
reasonable attorneys' fees and disbursements) sustained or incurred as a result
of any act or decision concerning Company tax matters and within the scope of
such Member's responsibilities as Tax Matters Member, so long as such act or
decision was not the result of gross negligence, fraud, bad faith or willful
misconduct by the Tax Matters Member. The Tax Matters Member shall be entitled
to rely on the advice of legal counsel as to the nature and scope of its
responsibilities and authority as Tax Matters Member, and any act or omission of
the Tax Matters Member pursuant to such advice shall in no event subject the Tax
Matters Member to liability to the Company or any Member.
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Section 11.4 Tax Audits/Special Assessments. If a tax return of the
Company or an individual Member with respect to an item or items of Company
income, loss, deduction, etc., potentially affecting any tax liability of the
Members generally is subject to an audit by the Internal Revenue Service (or
other similar governmental agency), the General Manager may, in the exercise of
their business judgment, determine that it is necessary to contest proposed
adjustments to such return or items.
Section 11.5 Tax Elections. The Company will elect to amortize
organizational costs. The Company may file an election under IRC Section 754, in
accordance with applicable Treasury Regulations, to cause the basis of the
Company's property to be adjusted for federal income tax purposes as provided by
IRC Section 734 and IRC Section 743. The determination whether to make and file
any such election shall be made by the General Manager in its sole discretion.
Section 11.6 Taxes and Charges; Governmental Rules. Each Member shall (a)
promptly pay all applicable taxes and other governmental charge imposed on or
against such Member, except to the extent (i) the failure to promptly pay such
taxes or other governmental charges will not have a material adverse effect on
the Company or its assets or (ii) any such taxes or other governmental charges
are being contested in good faith by appropriate proceedings, and (b) comply
with all applicable governmental rules, except to the extent that such
noncompliance will not have a material adverse effect on the Company.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Binding Effect. This Operating Agreement shall be binding
upon any Person who executes this Operating Agreement or any permitted
transferee or permitted assignee of an interest in the Company.
Section 12.2 Entire Agreement. This Operating Agreement and the Additional
Agreements, when executed and delivered, contain the entire agreement of the
parties hereto with respect to the subject matter hereof and supersede all prior
understandings and agreements of the parties with respect thereto.
Section 12.3 Amendments. This Operating Agreement may not be amended
except by the written agreement of all of the Members.
Section 12.4 Governing Law; Consent to Jurisdiction. This Operating
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of Delaware without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware. Each of the parties hereto hereby irrevocably
submits to the jurisdiction of any state or federal court sitting in the City,
County and State of New York in respect of any enforcement proceeding arising
out of or relating to this Operating Agreement, which courts shall have
exclusive jurisdiction over and with respect to any such enforcement proceeding,
and irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the aforesaid courts. Each of the parties
hereto
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hereby irrevocably waives, to the fullest extent such party may effectively do
so under applicable law, trial by jury and any objection that such party may now
or hereafter have to the laying of venue of any such enforcement proceeding
brought in any such court and any claim that any such enforcement proceeding
brought in any such court has been brought in an inconvenient forum. Nothing
herein shall affect the right of any party hereto to serve process in any manner
permitted by law or to commence enforcement proceedings or otherwise proceed
against the other party in any other jurisdiction.
Section 12.5 Notices to Members. Except as otherwise provided in this
Operating Agreement, any notice, demand or communication to a Member required or
permitted to be given by any provision of this Operating Agreement shall be
deemed to have been sufficiently given or served for all purposes if delivered
personally, sent by facsimile transmission or electronic mail (with confirmation
of receipt), overnight express courier or registered or certified mail,
postage/charges-prepaid, return receipt requested, and addressed to the Member
(with a copy to counsel of the Member) as set forth on Schedule A. All such
notices, demands and other communications will (i) if delivered personally to
the address as provided in this Section 12.5, be deemed given upon delivery,
(ii) if delivered by facsimile or electronic mail transmission to the facsimile
number or electronic mail address, as the case may be, as provided in this
Section 12.5, be deemed given upon receipt, (iii) if delivered by overnight or
express courier to the address as provided in this Section 12.5, be deemed given
on the earlier of the second Business Day following the date sent by such
overnight or express courier or upon receipt and (iv) if delivered by mail in
the manner described above to the address as provided in this Section 12.5, be
deemed given on the earlier of the sixth Business Day following mailing or upon
receipt, in each case regardless of whether such notice, demand or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section 12.5. Any party from time to time may
change its address or other information for the purpose of notices to that party
by giving notice in accordance with this Section 12.5 specifying such change to
the other party hereto at least ten (10) Business Days prior to the effective
date of such notice.
Section 12.6 Bank Accounts. The Company shall maintain appropriate
accounts at one or more financial institutions for all funds of the Company.
Such accounts shall be used solely for the business of the Company. Withdrawal
from such accounts shall be made only upon the signature of the General Manager
and those persons authorized by the General Manager.
Section 12.7 Headings. The titles of the Articles and the headings of the
Sections of this Operating Agreement are for convenience of reference only and
are not to be considered in construing the terms and provisions of this
Operating Agreement.
Section 12.8 Waivers. The failure of any party to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Operating Agreement shall not prevent a subsequent act, that
would have originally constituted a violation, from having the effect of an
original violation.
Section 12.9 No Third Party Beneficiaries. None of the provisions of this
Operating Agreement shall be for the benefit of or enforceable by any Person
other than the parties to this
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Operating Agreement and their respective permitted successors and permitted
transferees and assigns and the Persons entitled to the benefits of Article V of
this Operating Agreement.
Section 12.10 Interpretation. It is the intention of the Members that,
during the term of this Operating Agreement, the rights and obligations of the
Members and their successors-in-interest shall be governed by the terms of this
Operating Agreement, and that the right of any Member or successor-in-interest
to assign, transfer, sell or otherwise dispose of any interest in the Company
shall be subject to limitations and restrictions of this Operating Agreement.
This Operating Agreement shall be construed without regard to any presumption or
other rule requiring construction hereof against the party causing this
Operating Agreement to be drafted.
Section 12.11 Further Assurances. ESNI shall, and shall cause its
Affiliates to, use all commercially reasonable efforts to obtain the consents
and perform such other acts as are required by Article VI of the ESNI
Contribution Agreement as promptly as reasonably practicable. Upon the
satisfaction of the conditions set forth in Article VI of the ESNI Contribution
Agreement, each of CRC and ESNI shall, and shall cause their respective
Affiliates to, promptly execute and deliver the Additional Agreements as
required by Article VI of the ESNI Contribution Agreement. Each Member shall
execute all such certificates and other documents and shall do all such other
acts as the General Manager deem reasonably appropriate to comply with the
requirements of law for the formation of the Company and to comply with any
laws, rules, regulations and third-party requests relating to the acquisition,
operation or holding of the property of the Company.
Section 12.12 Arbitration. Subject to Section 4.2, the parties hereto
agree that any and all disputes, claims or controversies arising out of or
relating to this Operating Agreement that are not resolved by their mutual
agreement shall be submitted to final and binding arbitration before JAMS, or
its successor, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1,
et seq. Either party may commence the arbitration process called for in this
Operating Agreement by filing a written demand for arbitration with JAMS, with a
copy to the other party. The arbitration will be conducted in accordance with
the provisions of JAMS' Comprehensive Arbitration Rules and Procedures in effect
at the time of filing of the demand for arbitration. The parties will cooperate
with JAMS and with one another in selecting an arbitrator from JAMS' panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys fees,
to be paid by the party against whom enforcement is ordered.
Section 12.13 Illegality and Severability. If application of any one or
more of the provisions of this Operating Agreement shall be unlawful under
applicable law and regulations, then the parties will attempt in good faith to
make such alternative arrangements as may be legally permissible and which carry
out as nearly as practicable the terms of this Operating Agreement. Should any
portion of this Operating Agreement be deemed unenforceable by a court of
competent jurisdiction, the remaining portion hereof shall remain unaffected and
be interpreted as if such unenforceable portions were initially deleted.
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Section 12.14 Injunctive Relief. Each Member acknowledges that in the
event of any breach of this Operating Agreement, including, without limitation,
of Article X, the non-breaching Member(s) shall suffer irreparable injury not
compensable by money damages and for which such non-breaching Member(s) shall
not have an adequate remedy available at law. The non-breaching Member(s) shall
be entitled to obtain, without the posting of any bond or other security, such
injunctive or other equitable relief as may be reasonably necessary to prevent
or curtail any such breach, threatened or actual. The foregoing shall be in
addition to and without prejudice to such other rights as the non-breaching
Member(s) may have under this Operating Agreement or applicable law.
Section 12.15 Authority/No Conflicts. Each Member represents and warrants
as follows:
(a) It, and to its best knowledge, each of its Control Entities, is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation or organization;
(b) It has full power and authority and legal right to execute and deliver
this Operating Agreement and, when executed and delivered, any Additional
Agreement to which it may be a party;
(c) Its execution, delivery and performance of this Operating Agreement
has been, and, when executed and delivered, all Additional Agreements to which
it may be a party will have been, duly authorized by all necessary action;
(d) This Operating Agreement and, when executed and delivered, each
Additional Agreement to which it may be a party has been duly executed and
delivered by it, as the case may be;
(e) This Operating Agreement and, when executed and delivered, each
Additional Agreement to which it may be a party constitutes its, as the case may
be, legal, valid and binding obligation, enforceable in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by the availability of the remedy of specific
performance; and
(f) None of the execution, delivery or performance by it of this Operating
Agreement and, when executed and delivered, any Additional Agreement to which it
may be a party (i) will violate or conflict with its organizational documents,
(ii) will result in any breach of or default under any other Contract to which
it may be a party or (iii) is prohibited or, except as expressly disclosed in
this Operating Agreement or any Additional Agreement to which it may be a party,
requires it to obtain any consent, approval or authorization or make any
registration or filing with any governmental authority or other Person.
Section 12.16 Publicity. Without the prior written consent of the other
Members, no Member shall, and each will cause its representatives not to, make
any release to the press or other public disclosure, or make any statement to
any other Person other than their respective representatives, with respect to
either the fact that discussions or negotiations are taking place
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concerning the collaboration between the parties hereto or the existence or
contents of this Operating Agreement, except for such public disclosure as may
be necessary for the disclosing Person not to be in violation of or in default
under any applicable law, regulation, government order or securities exchange
rules, in which event the disclosing Person shall use its commercially
reasonable efforts to provide to the other Members in advance of such disclosure
a copy of such disclosure to be made so that the other Members may comment upon
such disclosure.
Section 12.17 Expenses. Each Member shall pay its own expenses incident to
the negotiation and preparation of this Operating Agreement and the Additional
Agreements and the consummation of the transactions provided for herein and
therein (including, without limitation, the fees of any accountant, broker or
financial advisor retained by such Member).
Section 12.18 Counterparts. This Operating Agreement may be executed in
counterparts (and by facsimile), each of which shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have caused their authorized representatives to execute this Operating Agreement
as of the date first above written.
E-SYNC NETWORKS, LLC
By: CRC Management Services, Inc.
Its: General Manager
By:___________________________
Name:
Title:
CRC, INC.
By:________________________________
Name:
Title:
E-SYNC NETWORKS, INC.
By:________________________________
Name:
Title:
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SCHEDULE A
MEMBERS; MEMBERSHIP INTERESTS; AGREED VALUES OF COMPANY
ASSETS; CAPITAL ACCOUNTS
MEMBER NAME MEMBERSHIP
AND NOTICE ADDRESS MEMBER'S COUNSEL INTEREST
- ------------------------------- ------------------------------------ ----------
CRC, INC. Kramer Levin Naftalis & Frankel LLP 49%
1290 Avenue of the Americas, 919 Third Avenue
39th Floor New York, New York 10022
New York, New York 10104 Attn: Ely D. Tendler, Esq.
Attn: Chief Executive Officer Tel: (212) 715-9100
Tel: (212) 906-1000 Fax: 212-715-8000
Fax: (212) 906-9500 e-Mail:
e-Mail:
E-SYNC NETWORKS, INC. Finn Dixon & Herling LLP 51%
[35 Nutmeg Drive One Landmark Square, Suite 1400
Trumbull, Connecticut 06611] Stamford, Connecticut 06901-2689
Attn: President and Chief Attn: David I. Albin, Esq.
Operating Officer Tel: (203) 325-5000
Tel: (203) 601-3600 Fax: (203) 348-5777
Fax: (203) 601-3151 e-Mail:
e-Mail:
AGREED VALUES OF COMPANY ASSETS
-------------------------------
Total:
CRC:
ESNI:
CAPITAL ACCOUNTS OF THE MEMBERS
-------------------------------
CRC:
ESNI:
Exhibit D
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on and as of [_______, 2001] by and between E-Sync Networks, Inc.,
a Delaware corporation (the "Company"), and CRC, Inc., a New York corporation
("CRC").
WHEREAS, simultaneously with the execution of this Agreement, CRC is
providing certain loans to the Company, and it is a condition precedent to CRC
making such loans that the Company issue to CRC a certain Common Stock Purchase
Warrant (the "Warrant") to purchase shares of Common Stock (as hereinafter
defined) and grant to CRC the registration rights provided for herein.
NOW, THEREFORE, the Parties hereto agree as follows:
1. DEFINITIONS
In addition to the terms defined elsewhere herein, when used herein the
following terms shall have the meanings indicated:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Shares" shall mean the shares of Common Stock acquired by the Holders
upon exercise of the Warrant (subject to adjustment for stock splits, reverse
stock splits, stock dividends, or other similar transactions involving Common
Stock).
"Common Stock" shall mean the common stock, par value $0.01 per share, of the
Company, and any capital stock of the Company into which such Common Stock
thereafter may be changed.
"Common Stock Equivalents" shall mean (without duplication with any other Common
Stock or Common Stock Equivalents) rights, warrants, options (other than any
options issued pursuant to the Company's stock option plans), convertible
securities or convertible indebtedness, exchangeable securities or exchangeable
indebtedness, or other rights, exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock, whether at the time or upon the
occurrence of some future event.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Holder" shall mean CRC, any Person that owns all or any part of the Warrant or
any Person that owns any of the Registrable Shares issuable upon exercise of the
Warrant, including successors and assigns of CRC or such Person.
"Material Adverse Effect" shall have the meaning set forth in Section 2(d).
"Person" shall mean a natural person, corporation, general partnership, limited
partnership, limited liability company, joint stock company, joint venture,
association, company, trust, bank,
trust company, land trust, business trust or other organization, whether or not
a legal entity, or a government or agency or political subdivision thereof.
"Registrable Shares" shall mean at any time (i) any Common Shares and (ii) any
shares of Common Stock issuable upon exercise or conversion by the Holders of
any Common Stock Equivalent; provided, however, that Registrable Shares shall
not include any shares (x) the sale of which has been registered pursuant to the
Securities Act and which shares have been sold pursuant to such registration,
(y) which have been sold to the public pursuant to Rule 144 (or any other
similar provision then in force) promulgated under the Securities Act ("Rule
144"), or (z) which may be sold without registration and without volume
limitations pursuant to Rule 144(k).
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. DEMAND REGISTRATION
(a) Request for Registration. At any time after the earlier of (i) the one (1)
year anniversary of date hereof or (ii) such time as the closing bid price
for the Common Stock equals at least five (5) times the closing bid price
of the Common Stock on the date hereof, a Holder may make a written
request to the Company (a "Demand Request"), for the registration under
the Securities Act of all or part of such Holder's Registrable Shares (a
"Demand Registration") so as to permit a public offering and sale of such
Registrable Shares for up to twelve (12) consecutive months in accordance
with the manner specified in such notice; provided, however, that the
Company shall not be obligated to register Registrable Securities pursuant
to such request: (i) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration when it was
not then so qualified and had not filed such a consent; (ii) if the
Company determines upon advice of counsel to the Company that the filing
of such a registration statement would require the disclosure of material
non-public information about the Company, the disclosure of which could
have a material adverse effect on the business or financial condition of
the Company and provides written notice of such determination to the
requesting Holders, in which event no such registration statement shall be
filed until the earlier of the lapse of ninety (90) days from the date of
delivery of such notice or the Company's determination that such
information is no longer required to be disclosed, is not material or
non-public or its disclosure would not have a material adverse effect on
the business or financial condition of the Company; provided, however,
that (A) the Company shall evaluate all relevant facts and circumstances
no less often than once every thirty (30) days in order to determine
whether such information is no longer required to be disclosed, is not
material or non-public or its disclosure would not have a material adverse
effect on the business or financial condition of the Company and shall
promptly notify the requesting Holders of such determination; and (B) the
Company may not exercise its right under this clause (ii) and clause (iii)
below more than once in any 12-month period and the aggregate number of
days of any such deferral shall not exceed 90; or (iii) if the Company is
in the process of consummating an underwritten primary registration at the
time that a Demand Request is made, and the managing underwriters advise
the Company in writing that in their reasonable opinion based upon market
conditions such Demand Registration would have
-2-
a Material Adverse Effect on the Company's underwritten primary
registration; provided, however, that (A) a copy of such written opinion
shall be promptly provided to each Requesting Holder; (B) within twenty
(20) days after receiving such written opinion, the Holders of a majority
of the Registrable Shares held by the Requesting Holders and for which
registration was previously requested may withdraw such request by giving
notice to the Company and, if so withdrawn, the Demand Request shall be
deemed not to have been made for all purposes of this Agreement; and (C) a
deferral of the filing of a registration statement pursuant to this clause
(iii) shall be lifted, and the requested registration statement shall be
filed forthwith upon the effectiveness of the Company's underwritten
primary registration. Notwithstanding anything to the contrary contained
herein, no request may be made under this Section 2(a) within 180 days
after the effective date of a registration statement filed by the Company
covering a firm commitment underwritten public offering in which the
Holders of Registrable Securities shall have been entitled to join
pursuant to this Section 2 or Section 3 hereof and in which there shall
have been effectively registered all shares of Registrable Securities as
to which registration shall have been so requested. Such request shall
specify the number of Registrable Shares proposed to be sold and the
intended method of disposition thereof. Upon receipt of such request, the
Company shall promptly (but in any event within ten (10) days after
receipt) give written notice of such registration request to all Holders.
Such Holders shall have the right, by giving written notice to the Company
within ten (10) days after the receipt of notice from the Company, to
elect to have included in such registration all or part of their
Registrable Shares as such Holders may request in such notice of election.
Each such request will also specify the number of Registrable Shares to be
registered and the intended method of disposition thereof. The Company
shall file the Demand Registration within (i) forty-five (45) days if the
Company is eligible to use Form S-3 or any substitute form adopted by the
Commission ("Short-Form Registration") or (ii) sixty (60) days if the
Company is not eligible to use such Short-Term Registration, after
receiving a Demand Request (the "Required Filing Date") and shall use its
best efforts to cause the same to be declared effective by the Commission
as promptly as practicable after such filing. Notwithstanding the
foregoing, in no event shall the Company be required to effect more than
two (2) Demand Registrations pursuant to this Section 2(a); provided,
however, that if a Holder elects to include all or part of such Holder's
Registrable Shares in a Demand Registration, such registration shall not
be counted as one of the registrations permitted hereunder unless such
Holder is permitted to include in the Demand Registration all of the
Registrable Shares that it desires to sell due to the limitations
contained in Section 2(d) hereof.
(b) Effective Registration and Expenses. A registration will not count as a
Demand Registration until it has become effective (unless all Holders
making or joining such request pursuant to Section 2(a) above (the
"Requesting Holders") withdraw all their Registrable Shares, in which case
such demand will count as a Demand Registration unless the Requesting
Holders pay all expenses in connection with such withdrawn registration);
provided that if, after it has become effective, an offering of
Registrable Shares pursuant to a registration is interfered with by any
stop order, injunction, or other order or requirement of the Commission or
other governmental agency or court, such registration will be deemed not
to have been effected.
-3-
(c) Selection of Underwriters. If the Holders of a majority of the Registrable
Shares to be registered in a Demand Registration so elect, the offering of
Registrable Shares pursuant to a Demand Registration shall be in the form
of an underwritten public offering. The Requesting Holders who hold a
majority of the Registrable Shares to be registered in the Demand
Registration shall be entitled to select the investment banking firm or
firms to manage the underwritten offering, subject to the approval of the
Company (not to be unreasonably withheld).
(d) Priority on Demand Registrations. No securities to be sold for the account
of any Person (including the Company and including any other holder of
capital stock of the Company) other than Requesting Holders shall be
included in a Demand Registration that is an underwritten public offering
unless (i) the managing underwriter or underwriters shall advise the
Company or the Requesting Holders in writing that the inclusion of such
securities will not materially and adversely affect the price or success
of the offering (a "Material Adverse Effect") and (ii) the Holders of not
less than a majority of the Registrable Shares to be covered by such
registration (calculated by using numbers of shares of Common Stock of the
Company represented by such Registrable Shares on an as-if-converted
basis) shall have consented in writing to the inclusion of such other
securities. Furthermore, and subject to the immediately following
sentence, in the event the managing underwriter or underwriters shall
advise the Company or the Requesting Holders that even after exclusion of
all securities of other Persons pursuant to the immediately preceding
sentence, the amount of Registrable Shares proposed to be included in such
Demand Registration by Requesting Holders is sufficiently large to cause a
Material Adverse Effect, the Registrable Shares of Requesting Holders to
be included in such Demand Registration shall be allocated pro rata among
the Requesting Holders on the basis of the number of Registrable Shares
requested to be included in such Demand Registration by each such
Requesting Holder.
3. PIGGYBACK REGISTRATION
(a) Right to Piggyback. If the Company proposes to file a registration
statement under the Securities Act with respect to an equity security of
the Company for its own account or for the account of any of its
securityholders (other than pursuant to Section 2 and other than a
registration statement on Form S-4 or S-8 (or any substitute forms adopted
by the Commission)), then the Company shall give prompt written notice to
the Holders of its intention to effect such a registration (which notice
shall be given not less than thirty (30) days prior to the anticipated
filing date of such registration statement) and such notice shall offer
the Holders who are holders of Registrable Shares the opportunity to have
any or all of their Registrable Shares included in such registration
statement, subject to the limitations contained in Section 3(b) hereof.
The Holders shall advise the Company in writing within twenty (20) days
after the date of receipt of such notice from the Company of such Holder's
desire to have their Registrable Shares registered under this Section 3.
Subject to Section 3(b) below, the Company shall include in such
registration statement all such Registrable Shares so requested to be
included therein pursuant to the piggyback rights granted under this
Section 3(a); provided, however, that the Company may at any time withdraw
or cease proceeding with any such registration if it shall at the same
time withdraw or cease proceeding with the registration of all other
equity securities originally
-4-
proposed to be registered without any obligation to the Holders of any
Registrable Securities. The Company (or such other Holders, as the case
may be,) shall be entitled to select the investment banking firm or firms
to manage any underwritten offering contemplated by this Section 3(a).
(b) Priority on Registrations. If any managing underwriter advises the Company
in writing that including all the shares of Common Stock requested to be
included in the registration by all Persons (including the Company) would
have a Material Adverse Effect, subject to the immediately following
sentence, the Company will be obligated to include in such registration
only Common Shares in the following priority: (i) first, if the
registration statement has been proposed to be filed by the Company for
its own account, any Common Stock for sale by the Company, and (ii)
second, (x) if the registration statement has been proposed to be filed by
the Company for its own account, pro rata among the Holders of the
Registrable Shares requesting to be included in the registration based on
the number of Registrable Shares, on an as-if-converted basis, requested
to be included in such registration by each such Holder, or (y) if the
registration statement has been proposed to be filed at the request and
for the account of any of the Company's securityholders, pro rata among
such requesting securityholders and the Holders of the Registrable Shares
requesting to be included in the registration based on the number of
shares of Common Stock, on an as-if-converted basis, requested to be
included in such registration by each such Holder and each such
securityholder, and (iii) third, in the event that all Common Stock for
sale by the Company and all Registrable Shares requested to be included in
such registration statement by the Holders of Registrable Shares and, if
applicable, all Common Stock for sale by the requesting securityholders
have been included in such registration, any other Common Stock requested
to be included pursuant to any other registration rights that may
hereafter be and to the extent granted by the Company (pro rata on the
basis of the total number of shares of Common Stock that each holder of
such shares has requested to be registered).
4. MISCELLANEOUS REGISTRATION RIGHTS PROVISIONS
(a) Holdback Agreement. If the Company previously shall have received a
request for registration pursuant to Section 2 hereof or any Holder shall
have requested to have such Holder's Registrable Shares registered
pursuant to Section 3 hereof, and if such previous registration shall not
have been withdrawn or abandoned, the Company agrees (A) not to effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and during the 180-day period beginning on
the effective date of such previous registration, and (B) to use its best
efforts to cause each officer and director of the Company or any of its
subsidiaries and each other holder of 5% or more of its equity securities
(or any securities convertible into or exchangeable for such securities),
on a fully diluted basis purchased from the Company at any time (other
than in a registered public offering), to agree not to effect any public
sale or distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such registration, if
otherwise permitted), unless the Holders of a majority of the Registrable
Shares to be registered in such registration agree. Additionally, each
Holder of Registrable Securities agrees, if so required by the managing
underwriter of the public offering, not to effect any public sale
-5-
or distribution of securities of the Company of the same class as the
securities included in such registration statement, during the seven (7)
days prior to the date on which any underwritten registration pursuant to
Section 2 or 3 has become effective and the ninety (90) days (or such
longer period as shall have been agreed to by all of the holders of
securities included in such registration statement other than the Holders
of Registrable Securities) thereafter, except as part of such underwritten
registration or to the extent that such Holder is prohibited by applicable
law from agreeing to withhold Registrable Securities from sale or is
acting in its capacity as a fiduciary or an investment adviser. The
Company agrees not to effect any public sale or distribution of its equity
securities or securities convertible into or exchangeable or exercisable
for any of such securities during the seven (7) days prior to and the
ninety (90) days after any underwritten registration pursuant to Section 2
or 3 has become effective, except as part of such underwritten
registration.
(b) Registration Procedures. Whenever the Holders have requested that any
Registrable Shares be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Shares in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and, subject to Section 2(e), file with the Commission a
registration statement on any appropriate form under the Securities
Act, with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become effective at
the earliest possible time (provided that before filing a
registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel
selected by the Holders of a majority of the Registrable Shares
covered by such registration statement copies of all such documents
proposed to be filed);
(ii) prepare and file with the Commission and notify each seller of such
Registrable Shares immediately after the filing of such amendments,
post-effective amendments, and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period of not less than 180 days, in the case of a piggyback
registration, or 360 days in the case of a Demand Registration (or
such lesser periods as is necessary for the underwriters in an
underwritten offering to sell unsold allotments) and comply with
the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
registration statement;
(iii) furnish to each seller of Registrable Shares and the underwriters
of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto (in
each case including all exhibits), the prospectus included in such
registration statement (including each preliminary and summary
prospectus) and any other prospectus filed under Rule 424 or Rule
430-A under the Securities Act, and such other documents as such
seller or
-6-
underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or the
sale of such securities by such underwriters;
(iv) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions
as the managing underwriter and each seller reasonably requests, to
keep such registration or qualification in effect for so long as
such registration statement remains in effect, and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition of
the Registrable Shares owned by such seller in such jurisdictions
(provided, however, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subparagraph, (B)
consent to general service of process in any such jurisdiction or
(C) subject itself to any taxation (other than stamp taxes) in any
such jurisdiction);
(v) notify each seller of Registrable Shares promptly after it shall
receive notice thereof, of the time when such registration
statement has become effective;
(vi) notify each seller of Registrable Shares promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(vii) provide a transfer agent and registrar for all Registrable Shares
sold under the registration not later than the effective date of
the registration statement;
(viii) furnish to each Holder participating in the registration a signed
counterpart, addressed to such Holder (a) of an opinion of counsel
as to such matters that are customarily covered in an opinion of
counsel delivered to an underwriter, including that the
registration is valid and effective and such other matters as such
Holder may reasonably request and (b) of a "cold comfort" letter
signed by the independent public accountants who have issued a
report on the Company's financial statements included in the
registration statement, covering substantially the same matters
with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountant's letter,
with respect to events subsequent to the date of such financial
statements, as are customarily delivered to underwriters in
underwritten public offerings of securities and such other
financial matters as such Holder may reasonably request;
(ix) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance
of any stop order by the Commission suspending the effectiveness of
such registration statement or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration
statement for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and promptly use
reasonable best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
-7-
(x) notify each seller of Registrable Shares covered by such
registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the
request of any such seller promptly prepare, file with the
Commission and to furnish such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue
statement of a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(xi) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securityholders, as required, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act, and Rule 158 promulgated
thereunder and will furnish to each such seller at least two
business days prior to the filing thereof a copy of any amendment
or supplement to such registration statement or prospectus and
shall not file any thereof to which any such seller shall have
reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(xii) use its reasonable best efforts to list all Registrable Shares
covered by such registration statement on any securities exchange
on which similar securities of the Company are then listed;
(xiii) enter into such customary agreements (including underwriting
agreements in customary form) and take such other customary actions
as the Holders of Registrable Shares or the underwriters, if any,
shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares;
(xiv) make available for reasonable inspection by any seller of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to
supply all information reasonably requested by any such sellers,
underwriter, attorney, accountant or agent in connection with such
registration statement;
-8-
(xv) deliver promptly to each Holder participating in an offering who so
requests the file correspondence and memoranda described below,
copies of all correspondence between the Commission and the
Company, its counsel or auditors with respect to the registration
statement and permit each Holder to do such investigation, upon
reasonable advance notice, with respect to information contained in
or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or the rules
and regulations of the NASD. Such investigation shall include
reasonable access to books, records and properties and
opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent
and at such reasonable times and as often as any such Holder shall
reasonably request; and
(xvi) permit any Holder of Registrable Shares, which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to
require the insertion therein of materials, furnished to the
Company in writing, which in the reasonable judgment of such Holder
and its counsel should be included.
If any such registration or comparable statement refers to any Holder by
name or otherwise as the holder of any securities of the Company and if,
in its sole and exclusive judgment, such Holder is or might be deemed to
be a controlling person of the Company, such Holder shall have the right
to require (i) the insertion therein of language, in form and substance
satisfactory to such Holder and presented to the Company in writing, to
the effect that the holding by such Holder of such securities is not to be
construed as a recommendation by such Holder of the investment quality of
the Company's securities covered thereby and that such holding does not
imply that such Holder will assist in meeting any future financial
requirements of the Company, or (ii) in the event that such reference to
such Holder by name or otherwise is not required by the Securities Act or
any similar federal statute then in force, the deletion of the reference
to such Holder; provided that with respect to this clause (ii) such Holder
shall furnish to the Company an opinion of counsel to such effect, which
opinion and counsel shall be reasonably satisfactory to the Company.
The Company may require each Holder of Registrable Shares to be included
in such registration statement to promptly furnish in writing to the
Company such information regarding the distribution of the Registrable
Shares as the Company may from time to time reasonably request and any
such other information as may be legally required in connection with such
registration.
(c) Suspension of Dispositions. Each Holder agrees by acquisition of any
Registrable Shares that, upon receipt of any notice (a "Suspension
Notice") from the Company of the happening of any event of the kind which,
in the opinion of the Company, requires the amendment or supplement of any
prospectus, such Holder will forthwith discontinue disposition of
Registrable Shares until such Holder's receipt of the copies of the
supplemented or amended prospectus (which the Company shall prepare and
file as promptly as practicable), or until it is advised in writing (the
"Advice") by the Company
-9-
that the use of the prospectus may be resumed, and such Holder has
received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, and, if so directed by the
Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Shares current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of registration statements set forth in
Section 4(b)(ii) hereof shall be extended by the number of days during the
period from and including the date of the giving of the Suspension Notice
to and including the date when each seller of Registrable Shares covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus or the Advice.
(d) Registration Expenses. All expenses incident to the Company's performance
of or compliance with this Agreement including, without limitation, all
registration and filing fees, reasonable fees and expenses of one legal
counsel for all Holders of Registrable Shares to be included in the
registration statement (up to a maximum of $15,000 in the aggregate if
such registration is on a Short-Form Registration), all fees and expenses
associated with filings required to be made with the NASD (including, if
applicable, the fees and expenses of any "qualified independent
underwriter" as such term is defined in Schedule E of the By-Laws of the
NASD, and of its counsel), as may be required by the rules and regulations
of the NASD, fees and expenses of compliance with securities or "blue sky"
laws (including reasonable fees and disbursements of counsel in connection
with "blue sky" qualifications of the Registrable Shares), all word
processing, duplicating and printing expenses (including expenses of
printing certificates for the Registrable Shares and of printing
prospectuses if the printing of prospectuses is requested by a Holder of
Registrable Shares) (provided, however, that the manner and form of
printing the registration statement and prospectuses shall be at the sole
discretion of the Company), messenger and delivery expenses, fees and
expenses of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such insurance), the
fees and expenses of any special experts retained by the Company in
connection with such registration, the fees and expenses of underwriters
customarily paid by issuers or sellers of securities (including fees paid
to a qualified independent underwriter but excluding underwriting
discounts and commissions), and the fees and expenses of other persons
retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company whether or not any
registration statement becomes effective; provided that in no event shall
Registration Expenses include any underwriting discounts, commissions, or
any out of pocket expenses of the Holders (or agents who manage their
accounts) other than as expressly provided above.
(e) Requirements to Participate. No Holder may participate in any registration
hereunder unless such Holder (x) agrees to sell such Holder's Registrable
Shares on the basis provided in any underwriting arrangements approved by
the Company and (y) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, and other documents
required under the terms of such underwriting arrangements; provided,
however, that no such Holder shall be required to make any
-10-
representations or warranties in connection with any such registration
other than representations and warranties as to (i) such Holder's
ownership of such Holder's Registrable Shares to be sold or transferred
free and clear of all liens, claims, and encumbrances, (ii) such Holder's
power and authority to effect such transfer, and (iii) such matters
pertaining to compliance with securities laws as may be reasonably
requested; provided further, however, that the obligation of such Holder
to indemnify pursuant to any such underwriting arrangements shall be
several, not joint and several, among such Persons selling securities
thereunder, and the liability of each such Holder will be in proportion to
and limited to the net amount received by such Holder from the sale of
such Holder's Registrable Shares pursuant to such registration.
5. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless, to the fullest extent
permitted by law, each seller of Registrable Shares, and each of its
employees, advisors, agents, representatives, partners, officers,
directors and affiliates and each Person who controls such seller (within
the meaning of the Securities Act or the Exchange Act) (collectively, the
"Seller Affiliates") and each other Person who participated as an
underwriter in the offering or sale of such securities and each of its
employees, advisors, agents, representatives, partners, officers,
directors and affiliates and each Person who controls such underwriters
(within the meaning of the Securities Act or the Exchange Act) (i) against
any and all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorneys' fees except as limited by
Section 5(c) below) arising out of or caused by any untrue or alleged
untrue statement of a material fact contained in any registration
statement, preliminary prospectus, final prospectus, summary prospectus,
or any amendment thereof or supplement thereto if the Company shall have
furnished any amendments or supplements, or any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) against any and all
losses, claims, damages, liabilities and expenses whatsoever, as incurred,
to the extent of the aggregate amount paid in settlement of any litigation
or investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission or alleged untrue statement or omission, and
(iii) against any and all costs and expenses (including reasonable fees
and disbursements of counsel) as may be reasonably incurred in
investigating, preparing, or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue
statement or omission or alleged untrue statement or omission, to the
extent that any such expense or cost is not paid under subparagraph (i) or
(ii) above; except insofar as the same are made in reliance upon and in
strict conformity with information furnished in writing to the Company by
such seller or any Seller Affiliate for use therein. The reimbursements
required by this Section 5(a) will be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
(b) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such
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registration statement or prospectus and, to the fullest extent permitted
by law, each such seller will indemnify the Company, its directors,
agents, officers and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as the foregoing indemnity from the Company to
such seller and its Seller Affiliates, but only to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission is contained in any information or affidavit so furnished in
writing by such seller or any of its Seller Affiliates for specific
inclusion in such registration statement; provided that the obligation to
indemnify will be several, not joint and several, among such sellers of
securities thereunder, and the liability of each such seller will be in
proportion and limited to the net amount received by such seller from the
sale of such seller's Registrable Securities pursuant to such registration
statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give such
notice shall not limit the rights of such Person) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that any person entitled to indemnification hereunder shall have
the right to employ separate counsel and to participate in the defense of
such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (X) the indemnifying party has agreed to pay
such fees or expenses, (Y) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (Z) in the reasonable judgment of any
indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect
to such claim. An indemnifying party will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim. If such defense is assumed
by the indemnified party as permitted hereunder, the indemnifying party
will not be subject to any liability for any settlement made by the
indemnified party without its written consent (which consent shall not be
unreasonably withheld). If such defense is assumed by the indemnifying
party pursuant to the provisions hereof, such indemnifying party shall not
settle or otherwise compromise the applicable claim unless (1) such
settlement or compromise contains a full and unconditional release of the
indemnified party from all liabilities arising out of such proceeding or
(2) the indemnified party otherwise consents in writing.
(d) Each party hereto agrees that, if for any reason the indemnification
provisions contemplated by Section 5(a) or Section 5(b) are unavailable to
or insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, liabilities, or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference
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to, among other things, whether the untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or indemnified
party, and the parties' relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties
hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation (even
if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 5(d). The amount paid or
payable by an indemnified party as result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or,
except as provided in Section 5(c), defending any such action or claim.
Notwithstanding the provisions of this Section 5(d), no Holder shall be
required to contribute an amount greater than the dollar amount of the
proceeds received by such Holder with respect to the sale of any
Registrable Shares. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations in this Section
5(d) to contribute shall be several in proportion to the amount of
Registrable Shares registered by them and not joint.
(e) The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of
such indemnified party and will survive the transfer of securities.
6. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Holders that:
(a) The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware, and has corporate
power and corporate authority to own, operate, and lease its properties
and conduct its business as now conducted. The Company is duly qualified
to do business and is in good standing in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the
operations, business, financial conditions, assets, or liabilities of the
Company and its subsidiaries, taken as a whole.
(b) The Company has the corporate power and is duly authorized and empowered
to enter into and perform its obligations under this Agreement. This
Agreement has been duly and validly executed, issued, and delivered and
constitutes the legal, valid, and binding obligation of the Company.
(c) The execution, delivery, and performance of this Agreement by the Company
shall not, by the lapse of time, the giving of notice or otherwise,
constitute a violation of any applicable statute, law, rule or regulation
of any governmental authority, any applicable provision contained in the
certificate of incorporation or bylaws of the Company or
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contained in any agreement, instrument, or document to which the Company
is a party or by which it is bound, or any order, ruling, judgment or
decree of any court, arbitral body or governmental authority.
7. ARBITRATION AND DISPUTE RESOLUTION
The parties hereto agree that any and all disputes, claims or
controversies arising out of or relating to this Agreement that are not resolved
by their mutual agreement shall be submitted to final and binding arbitration
before JAMS, or its successor, pursuant to the United States Arbitration Act, 9
U.S.C. Sec. 1, et seq. Either party may commence the arbitration process called
for in this Agreement by filing a written demand for arbitration with JAMS, with
a copy to the other party. The arbitration will be conducted in accordance with
the provisions of JAMS' Comprehensive Arbitration Rules and Procedures in effect
at the time of filing of the demand for arbitration. The parties will cooperate
with JAMS and with one another in selecting an arbitrator from JAMS' panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys fees,
to be paid by the party against whom enforcement is ordered.
8. COMPLIANCE WITH RULE 144
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
Registrable Shares to the public without registration, at all times, the Company
agrees to:
(a) Make and keep available adequate current public information, as those
terms are understood and defined in Rule 144 under the Securities Act, at
all times after it has become subject to the reporting requirements of the
Exchange Act;
(b) Use its best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) Furnish to each Holder of Registrable Shares forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 ninety (90) days after any registration
statement covering a public offering of securities of the Company under
the Securities Act shall have become effective, and of the Securities Act
and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the
Company as such Holder may reasonably request availing itself of any rule
or regulation of the Commission allowing such Holder to sell any
Registrable Shares without registration.
9. SUBSEQUENT INVESTORS
The Company shall not grant registration rights or enter into any
registration rights agreement or similar agreement with any Person which are
equal to, superior to or conflict, impair or interfere in any way with the
rights granted hereunder, without the consent of Holders,
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at the time of determination, of 70% of the Registrable Shares (based on the
number of shares of Common Stock underlying the Registrable Shares on an as-if
converted basis).
10. TERMINATION
The provisions of this Agreement shall terminate upon the date on which
there are no longer any Registrable Shares.
11. NOTICES
All notices and communications to be given or otherwise to be made to any
party to this Agreement shall be deemed to have been duly given or delivered by
any party, (i) when received by such party if delivered by hand, (ii) upon
confirmation when delivered by telecopy, or (iii) within one day after being
sent by recognized overnight delivery service, and in each case addressed as
follows:
If to the Company:
E-Sync Networks, Inc.
Telecopy:
Attention: President and Chief Operating Officer
If to any other party, as indicated on the signature pages hereto.
Any party by written notice to the other parties pursuant to this Section
11 may change the address or the Persons to whom notices or copies thereof shall
be directed.
12. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
13. MODIFICATION
Except as otherwise provided herein, neither this Agreement nor any
provision hereof can be amended, modified, changed, discharged, waived or
terminated (each, an "Amendment") except by an instrument in writing executed in
good faith by the Company and the Holders, at the time of determination, of 70%
of Registrable Shares (based on the number of shares of Common Stock underlying
the Registrable Shares on an as-if converted basis), in which event such
Amendment shall be binding upon all of the Parties in accordance with its terms.
14. WAIVER
Any waiver by any party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that
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party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement. Subject to the provisions of Section 13
hereof, any waiver must be evidenced by a writing signed by the party against
whom the waiver is sought to be enforced.
15. AVAILABILITY OF EQUITABLE REMEDIES
Each party hereto acknowledges that a breach of the provisions of this
Agreement could not adequately be compensated by money damages. Accordingly, it
is the intention of the parties that any party shall be entitled, in addition to
any other right or remedy available to it, to an injunction restraining such
breach or a threatened breach and/or to specific performance of any such
provision of this Agreement, and in either case no bond or other security shall
be required in connection therewith, and the parties hereby consent to such
injunction and to the ordering of specific performance.
16. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding, and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
17. SEVERABILITY
If any provision of this Agreement shall be determined to be illegal or
unenforceable by any court of law of competent jurisdiction, the Parties intend
that such provision shall be deemed not to form part of this Agreement and, the
remaining provisions shall be severable and enforceable in accordance with their
terms.
18. GOVERNING LAW
This Agreement shall be governed by, interpreted under and construed in
accordance with the internal laws of the State of New York applicable to
contracts executed and to be performed wholly in that state without giving
effect to the choice or conflict of laws principles or provisions thereof. Each
of the parties hereto hereby irrevocably submits to the jurisdiction of any
state or federal court sitting in the City, County and State of New York in
respect of any enforcement proceeding arising out of or relating to this
Agreement, which courts shall have exclusive jurisdiction over and with respect
to any such enforcement proceeding, and irrevocably accepts for itself and in
respect of its property, generally and unconditionally, jurisdiction of the
aforesaid courts. Each of the parties hereto hereby irrevocably waives, to the
fullest extent such party may effectively do so under applicable law, trial by
jury and any objection that such party may now or hereafter have to the laying
of venue of any such enforcement proceeding brought in any such court and any
claim that any such enforcement proceeding brought in any such court has been
brought in an inconvenient forum. Nothing herein shall affect the right of any
party hereto to serve process in any manner permitted by law or to commence
enforcement proceedings or otherwise proceed against the other party in any
other jurisdiction.
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19. CAPTIONS
The captions herein are inserted for convenience only and shall not
define, limit, extend or describe the scope of this Agreement or affect the
construction hereof.
20. COUNTERPARTS
This Agreement may be executed in two or more counterparts (and via
facsimile), each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
as of the date first set forth above.
E-SYNC NETWORKS, INC.
By:________________________________________
Name:
Title:
CRC, INC.
By:________________________________________
Name:
Title:
Address for Notices:
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Telecopy:
Attention: Chief Executive Officer
Signature Page to Registration Rights Agreement
Exhibit E
Filed as Exhibit 2.5 to this Current Report on Form 8-K and incorporated
herein by reference thereto.
Exhibit F
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of August 6,
2001, by and among CRC, Inc., a New York corporation ("CRC"), and those
stockholders of E-Sync Networks, Inc., a Delaware corporation ("ESNI"), set
forth on the signature page hereto and listed on Schedule I attached hereto
(each, a "Stockholder" and collectively, the "Stockholders").
WHEREAS, E-Sync Networks, LLC, a Delaware limited liability company
(the "JV"), is a wholly-owned subsidiary of CRC;
WHEREAS, ESNI and JV are entering into a contribution agreement
dated the date hereof (the "ESNI Contribution Agreement;" capitalized terms used
but not otherwise defined herein shall have the meanings ascribed to them in the
ESNI Contribution Agreement) pursuant to which ESNI will contribute the ESNI
Contributed Assets along with the Assumed Liabilities to JV in exchange for a
fifty-one percent (51%) membership interest in JV pursuant to, and in accordance
with, the Operating Agreement;
WHEREAS, concurrently with the consummation of the transactions
contemplated by the ESNI Contribution Agreement, CRC will enter into and
consummate the transactions contemplated by the CRC Contribution Agreement;
WHEREAS, each Stockholder is the record owner of the number of
shares of equity securities of ESNI and options or rights to acquire shares of
equity securities of ESNI (such securities and any other securities of ESNI
hereafter acquired by such Stockholder, the "Subject Securities") set forth
opposite such Stockholder's name in Schedule I hereto; and
WHEREAS, as a condition of JV and CRC entering into the ESNI
Contribution Agreement and of CRC entering into the CRC Contribution Agreement,
CRC has requested each Stockholder, and each Stockholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be bound, hereby agree as follows:
1. Representations and Warranties. Each Stockholder severally, and
not jointly, represents and warrants to CRC as follows:
(a) Such Stockholder is the sole, true and lawful record owner of
the Subject Securities set forth opposite such Stockholder's name in Schedule I
hereto. Such Subject Securities are the only interests in the securities of ESNI
owned by such Stockholder, and such Stockholder has no other option to purchase
or right to subscribe for or otherwise acquire any securities of ESNI and has no
other interest in or voting rights with respect to any other securities of ESNI.
(b) Such Stockholder's Subject Securities are free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(c) Such Stockholder understands and acknowledges that CRC and JV,
as the case may be, are each entering into the Transaction Documents to which it
is a party in reliance upon such Stockholder's representations, warranties and
covenants in this Agreement. Such Stockholder acknowledges that the grant of
proxy and appointment of attorney set forth in Section 3 hereof is granted in
consideration for the execution and delivery by CRC of the CRC Contribution
Agreement and the other Transaction Documents to which CRC is a party.
2. Agreement to Vote. During the term of this Agreement, at every
meeting of the stockholders of ESNI called with respect to the following, and at
every adjournment thereof, and in every other circumstances upon which such
Stockholder's vote, consent or other approval is sought, each Stockholder shall
vote the Subject Securities that are voting securities and that such Stockholder
beneficially owns at the time of any such vote: (a) in favor of approval of the
Contribution and the other transactions contemplated under the Transaction
Documents, including, without limitation, in favor of approval of ESNI's
compliance with the provisions of Sections 8.3 and 8.6 of the Operating
Agreement, and (b) against (i) any Business Combination (other than as
contemplated by the ESNI Contribution Agreement and the other Transaction
Documents), reorganization, recapitalization, dissolution, liquidation or
winding up of or by ESNI and (ii) any other proposal or transaction involving
ESNI or any of its subsidiaries which proposal or transaction would in any
manner impede, frustrate, prevent or nullify, or result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
ESNI under or with respect to, the ESNI Contribution Agreement or any of the
transactions contemplated by the ESNI Contribution Agreement or any other
Transaction Document.
3. Grant of Irrevocable Proxy; Appointment of Proxy. To fully
implement the agreement of each Stockholder set forth in Section 2 above:
(a) Each Stockholder hereby irrevocably appoints CRC, its officers
and designees, with full power of substitution (each of CRC, its officers and
designees and its substitutes being referred to herein as the "Proxy"), and each
of them, as the true and lawful proxy and attorney-in-fact of such Stockholder,
until the termination of this Agreement, to vote all Subject Securities that are
voting securities on matters as to which such Stockholder is entitled to vote at
a meeting of the stockholders of ESNI or to which such Stockholder's vote,
consent or other approval is sought, in the Proxy's absolute, sole and binding
discretion, on the matters specified in Section 2 above. Each Stockholder agrees
that, until the termination of this Agreement, the Proxy may, in such
Stockholder's name and stead, (i) attend any annual or special meeting of the
stockholders of ESNI and vote all Subject Securities that are voting securities
at any such annual or special meeting as to the matters specified in Section 2
above, and (ii) provide with respect to all Subject Securities its vote, consent
and approval to corporate action respecting any matter specified in Section 2
above.
(b) Such Stockholder hereby revokes any and all previous proxies
granted with respect to the Subject Securities.
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(c) Such Stockholder hereby affirms that the grant of proxy and
appointment of attorney set forth in this Section 3 is irrevocable, until the
termination of this Agreement, and is coupled with an interest and agrees that a
Person designated as Proxy pursuant hereto may at any time name any other person
as its substituted Proxy to act pursuant hereto, either as to a specific matter
or as to all matters. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212 of the Delaware
General Corporation Law (the "DGCL"). Such Stockholder hereby ratifies and
confirms all that the Proxy may lawfully do or cause to be done by virtue
hereof.
4. No Transfers. From and after the date hereof until the
termination of this Agreement, each Stockholder severally, and not jointly,
agrees with, and covenants to, CRC that such Stockholder shall not, except as
contemplated by the terms of this Agreement, (i) transfer (the term "transfer"
shall include, without limitation, for the purposes of this Agreement, any sale,
transfer, gift, assignment, pledge or grant of security interest or other
disposition, by operation of law or otherwise), or consent or enter into any
contract, option or other agreement or understanding with respect to any
transfer of, any or all of such Stockholder's Subject Securities or any interest
therein to or in favor of any Person, unless prior to any such transfer, such
Person shall have agreed in writing, in form and substance reasonably acceptable
to CRC, for the benefit of and delivered to CRC, to be bound by all provisions
of this Agreement applicable to such Stockholder, (ii) grant any proxy,
power-of-attorney or other authorization or consent in or with respect to such
Subject Securities, (iii) deposit such Subject Securities into a voting trust or
enter into a voting agreement or arrangement with respect to such Subject
Securities, or (iv) take any other action that would in any way restrict, limit
or interfere with the performance of such Stockholder's obligations hereunder or
the transactions contemplated hereby.
5. Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Subject Securities
and shall be binding upon any Person to which legal or beneficial ownership of
such Subject Securities shall pass, whether by operation of law or otherwise,
including, without limitation, such Stockholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of ESNI affecting the Subject Securities, or the acquisition of
additional securities in ESNI after the date hereof by any Stockholder, Schedule
I shall be amended appropriately and this Agreement and the obligations
hereunder shall attach to such additional securities issued to or acquired by
such Stockholder.
6. Further Assurances. Each Stockholder shall, upon request of CRC
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by CRC to be necessary or desirable to carry out the
provisions hereof and to vest in CRC the power to vote such Stockholder's
Subject Securities as contemplated by Section 3 hereof.
7. Termination. This Agreement, and all rights and obligations of
the parties hereunder and the proxy provided in Section 3 hereof, shall
terminate upon the earlier of (1) the date upon which the ESNI Contribution
Agreement is terminated in accordance with its terms, and (2) the consummation
of the transactions contemplated by the ESNI Contribution Agreement and the
other Transaction Documents; provided, however, each Stockholder hereby
understands and agrees that the provisions of Sections 2 and 3 above shall
remain in full force and effect with
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respect to any stockholder approval sought pursuant to Section 8.9 of the
Operating Agreement (but only with respect to Subject Securities owned at the
relevant time by the Stockholders).
8. Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof,
and (ii) shall not be assigned under any circumstances, provided that CRC may
assign its rights and obligations hereunder to any of its Affiliates.
9. Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
10. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon delivery, if delivered personally, (ii) three (3)
Business Days after deposit in the United States mail, if sent by registered or
certified mail, return receipt requested, postage prepaid (provided that such
method of notice shall be acceptable only if posted in the United States to a
United States address), (iii) two (2) Business Days after deposit with a
nationally recognized overnight courier service, if sent by courier service, or
(iv) upon confirmation of receipt, if sent by facsimile transmission, and, in
any case, properly addressed to the parties as follows:
If to any Stockholder:
to the address, telephone number or fax number and person's
attention set forth under such Stockholder's name on Schedule I
attached hereto
with a copy (which shall not constitute notice) to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901-2689
Attention: David I. Albin, Esq.
Telephone: (203) 325-5000
Facsimile: (203) 348-5777
If to CRC, to:
CRC, Inc.
1290 Avenue of the Americas, 39th Floor
New York, New York 10104
Attention: Chief Executive Officer
Telephone: (212) 906-1000
Facsimile: (212) 906-9500
with a copy (which shall not constitute notice) to:
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Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Ely D. Tendler, Esq.
Telephone: (212) 715-9100
Facsimile: (212) 715-8000
or to such other address or addresses as a party may from time to time designate
as to itself, by notice as provided herein, provided that any such notice shall
be deemed effectively given only upon receipt.
11. Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and, to the extent expressly provided herein, the DGCL, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. The parties hereto each hereby irrevocably submits to the jurisdiction
of any state or federal court sitting in the City, County and State of New York
in respect of any suit, action or proceeding arising out of or relating to this
Agreement, which courts shall have exclusive jurisdiction over and with respect
to any such dispute, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the aforesaid courts.
The parties hereto each hereby irrevocably waives any objection that such party
may now or hereafter have to the laying of venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of any party to serve process in any
manner permitted by law or to commence legal proceedings or otherwise proceed
against the other party in any other jurisdiction.
12. Specific Performance. Each Stockholder acknowledges and agrees
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each Stockholder agrees that the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and all agreements and transactions
contemplated hereby, and to enforce specifically this Agreement and all
agreements and transactions contemplated hereby, and the terms and provisions
hereof or thereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the parties and the matter (subject
to the provisions set forth Section 11 above), in addition to any other remedy
to which it may be entitled, at law or in equity, without the posting of any
bond and without proving that damages would be inadequate.
13. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts (and by facsimile), each of which when so
executed and delivered shall be an original but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist of
a number of copies hereof each signed by less than all, but together signed by
all, of the parties hereto.
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14. Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
15. Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
16. WAIVER OF JURY TRIAL. EACH OF CRC AND STOCKHOLDERS HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
[Remainder of Page Intentionally Blank]
-6-
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Agreement as of the date first above written.
CRC, INC.
By: _______________________
Name:
Title:
STOCKHOLDERS:
COMMERCIAL ELECTRONICS CAPITAL
PARTNERSHIP
By: Electronics Investment, L.L.C., its General
Partner
By: ___________________________________
Name: Michael P. Schulhof
Title:
COMMERCIAL ELECTRONICS, L.L.C.
By: ___________________________________
Name: Michael P. Schulhof
Title: Manager
-7-
SCHEDULE I
STOCKHOLDERS
Name, Address, Telephone and Common Series A Series B Options Other
- ---------------------------- ------ -------- -------- ------- -----
Fax Stock Rights
- --- ----- ------
Commercial Electronics Capital
Partnership
Commercial Electronics, L.L.C.
-8-
Exhibit G
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT UNDER THE
ACT IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE OR TRANSFER
IS IN COMPLIANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION OR (B) AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE AND SUCH OFFER, SALE OR TRANSFER IS IN COMPLIANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
SECURED PROMISSORY NOTE
$500,000.00 ____________, 2001
FOR VALUE RECEIVED, the undersigned E-SYNC NETWORKS, INC. ("Maker"), a
Delaware corporation, having an address at [35 Nutmeg Drive, Trumbull,
Connecticut 06611], hereby unconditionally promises to pay to the order of CRC,
INC. ("Payee"), a New York corporation, with its principal business address at
1290 Avenue of the Americas, New York, New York 10104, at Payee's principal
business address, or such other office as Payee may designate, in lawful money
of the United States, the principal sum of FIVE HUNDRED THOUSAND DOLLARS and no
cents ($500,000.00), together with interest thereon as provided for below.
1. Interest Rate. Maker shall pay interest ("Interest") on the unpaid principal
balance hereof outstanding from time to time at a rate equal to seven percent
(7%) per annum; provided, however, that (i) Interest payments may be deferred
pursuant to the terms of Section 7(a) below, and (ii) upon the occurrence and
during the continuance of any Event of Default (as hereinafter defined),
Interest shall accrue and be payable at the rate of eighteen percent (18%) per
annum or, if less, the maximum rate permitted by applicable law. Interest shall
commence to accrue on the outstanding principal amount of this note (this
"Note") on the date hereof and shall continue to accrue thereon until the
outstanding principal thereof is paid in full (whether before or after maturity
or judgment). Interest due hereunder shall be paid monthly in arrears beginning
on [_______, 2001].
Anything contained in this Note to the contrary notwithstanding, Payee
does not intend to charge and Maker shall not be required to pay Interest or
other charges in excess of the maximum rate permitted by applicable law. Any
payments in excess of such maximum rate shall be refunded to Maker or credited
against principal.
2. Payments of Principal and Interest. All outstanding principal, together with
accrued and unpaid Interest thereon, shall be due and payable by Maker to Payee
on [_______, 2006].
3. Prepayments.
(a) Voluntary Prepayment. Maker may at any time prepay this Note in whole
or from time to time in part, without prior written consent of Payee and without
penalty or premium, by paying to Payee the principal amount to be prepaid
together with interest accrued thereon to the date of prepayment. Prepayments
pursuant to the immediately preceding sentence or Section 3(b) below shall first
be applied to accrued and unpaid interest, and then to unpaid principal.
(b) Mandatory Prepayment. Without limiting the provisions of Sections 2
and 3(a) above, Maker shall in addition prepay this Note in the following
amounts (it being understood that such prepayments shall be applied first to
accrued and unpaid Interest and then to principal): (i) 100% of the cash
proceeds (net of collection costs (including reasonable attorney's fees and
disbursements related to such collection)) received by Maker after the date of
this Note with respect to the first $600,000, in the aggregate, of accounts
receivable derived from Maker's "Professional Services" business or "Managed
Services" business (the "Receivables"), (ii) 20% of the excess (if any) of the
cash proceeds (net of collection costs (including reasonable attorney's fees and
disbursements related to such collection)) received by Maker with respect to the
Receivables in excess of $600,000, in the aggregate, from the date of this Note,
(iii) 100% of the amount of the direct or indirect (including from any
disposition of any non-cash consideration for cash or marketable securities)
cash proceeds or marketable securities (at fair market value, taking into
account any applicable illiquidity and minority discounts) (net of reasonable
attorney's fees and disbursements related to such sale or disposition) received
on account of or with respect to any sale or other disposition of all or any
portion of Maker's interest in E-Sync Networks, LLC, and (iv) 100% of all cash
payments received by Maker with respect to any exercise of that certain Common
Stock Purchase Warrant issued by Maker to Payee on the date hereof. Prepayments
pursuant to the immediately preceding sentence shall be made to Payer within two
(2) business days after receipt by Maker of such proceeds or payments, as
applicable.
4. Security Interest. The obligations of Maker hereunder are secured pursuant to
the Amended and Restated Security Agreement (the "Security Agreement"), dated as
of even date herewith, between Maker and Payee.
5. Use of Proceeds. The proceeds of the loan evidenced by this Note shall be
used solely to repay the obligations of Maker set forth on Schedule A attached
hereto.
6. Expenses. Upon the occurrence of any Event of Default, Maker shall pay Payee,
on demand, for all reasonable costs and expenses (including, but not limited to,
reasonable
-2-
attorneys' fees and expenses) incurred in connection with the collection of this
Note and/or enforcement of Payee's rights and remedies related to this Note or
Maker's obligations and liabilities hereunder.
7. Default; Acceleration. The occurrence of any of the following shall
constitute an "Event of Default":
(a) Maker shall fail to make any payment of any principal, Interest or
other amount when due under this Note; provided, however, that the failure of
Maker to make any payment of Interest due under this Note during the period
prior to the third anniversary of the date of this Note shall not constitute an
Event of Default, provided that Interest shall accrue at the rate of fifteen
percent (15%) until all accrued and payable Interest thereof is paid in full.
(b) Maker shall be dissolved or shall make an assignment of all or
substantially all of its assets for the benefit of creditors; or shall have a
receiver, custodian, trustee, conservator or similar official appointed for all
or any material portion all its property, business or assets.
(c) Any case or proceeding under any bankruptcy, insolvency, receivership,
reorganization, moratorium or similar law for the relief or benefit or debtors
shall be commenced by or against Maker (provided that if such case or proceeding
is not commenced by Maker or consented to or acquiesced in by Maker, the same
remains undismissed for a period of thirty (30) days).
(d) Maker shall admit in writing its inability to pay its debts as they
become due; provided, however, that any such admission to which Payee has
consented in advance in writing shall not constitute an Event of Default.
(e) Maker shall be in material breach or violation of any of its
representations, warranties, covenants and other agreements set forth in this
Note or the Security Agreement or any of its binding, representations,
warranties, covenants and other agreements set forth in the other Transaction
Documents (as defined in that certain contribution agreement, dated as of August
___, 2001, by and among E-Sync Networks, LLC, Maker and Payee), and if the same
is curable, such breach or violation shall continue for twenty (20) days after
(i) Maker is given written notice thereof or (ii) if earlier, Maker otherwise
becomes aware of such breach or violation.
(f) That certain Master Services Agreement, dated of even date herewith,
by and between CRC Management Services, Inc., a New York corporation and an
affiliate of Payee, and Maker, shall be terminated by any party other than Payee
or any of its affiliates.
(g) Any judgment shall be entered against Maker in the amount of at least
fifty thousand dollars ($50,000) and such judgment shall not, within twenty (20)
days thereafter, have been discharged in full or stayed pending appeal.
(h) Maker shall sell or otherwise dispose of all or any material portion
of its property, business or assets other than in the ordinary course of
business (other than as contemplated by the Transaction Documents).
-3-
(i) An Event of Default (as defined in the Security Agreement) shall have
occurred.
Upon the occurrence, and at any time during the continuance, of any Event of
Default, Payee, at Payee's option and without the need for presentment, demand,
protest or other notice of any kind, may declare all unpaid principal hereof and
Interest hereunder to be immediately due and payable, and the same shall become
immediately due and payable upon such declaration; provided, however, that upon
the occurrence of an Event of Default as set forth in clause (b) or (c) above,
this Note and all amounts due hereunder shall become immediately due and payable
without any declaration on the part of Payee and without the need for
presentment, demand, protest or other notice of any kind.
8. Certain Waivers. Maker: (i) waives presentment, diligence, protest, demand,
notice of demand, notice of acceptance or reliance, notice of non-payment,
notice of dishonor, notice of protest and all other notices to parties in
connection with the delivery, acceptance, performance, default or enforcement of
this Note or any collateral or other security; (ii) consents to any and all
delays, extensions, renewals or other modifications with respect to this Note,
any related document or the debt or collateral evidenced hereby or thereby or
any waivers of any term hereof or thereof, any release, surrender, taking of
additional, substitution, exchange, failure to perfect, record, preserve,
realize upon or lawfully dispose of, or any other impairment of, any collateral,
or any other failure to act by Payee or any other forbearance or indulgence
shown by Payee, from time to time and in one or more instances (without notice
to or assent from Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of Maker's obligations or liabilities; and
(iii) otherwise waives any and all other defenses based on suretyship or
impairment of collateral. Nothing contained in this Section 8 shall be construed
or interpreted to limit the provisions of the last sentence of Section 13 below.
Maker acknowledges and agrees that Maker's obligations under this Note and the
Security Agreement are independent of any obligation of Payee under or pursuant
to the Transaction Documents and that, without limiting the scope or generality
of the foregoing, notwithstanding any breach or violation of any of the
Transaction Documents by Payee, the loan evidenced by this Note shall be
repayable in accordance with its terms and this Note and the Security Agreement
shall be enforceable in accordance with the terms hereof and thereof.
9. Commercial Transaction; Jury Waiver. EACH OF PAYEE AND MAKER ACKNOWLEDGES
THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION.
EACH OF PAYEE AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR
OUT OF, OR OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS NOTE AND/OR
ANY RELATED DOCUMENT.
10. Binding Nature. This Note shall bind Maker and Maker's successors and
assigns and shall inure to the benefit of Payee and its successors and assigns.
The term "Payee" as used herein shall include any successors, endorsees or other
assignees of Payee and shall also include any other holder of this Note. Payee
may, without notice to or consent of Maker (which notice and consent are hereby
expressly waived), endorse or otherwise transfer or assign this Note or any
right or interest herein to any other person or entity.
-4-
11. Arbitration. Maker and Payee agree that any and all disputes, claims or
controversies arising out of or relating to this Note that are not resolved by
their mutual agreement shall be submitted to final and binding arbitration
before JAMS, or its successor, pursuant to the United States Arbitration Act, 9
U.S.C. Sec. 1, et seq. Either party may commence the arbitration process called
for in this Note by filing a written demand for arbitration with JAMS, with a
copy to the other party. The arbitration will be conducted in accordance with
the provisions of JAMS' comprehensive Arbitration Rules and Procedures in effect
at the time of filing of the demand for arbitration. The parties will cooperate
with JAMS and with one another in selecting an arbitrator from JAMS' panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys fees,
to be paid by the party against whom enforcement is ordered.
12. Governing Law. This Note shall be governed by, interpreted under and
construed in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed wholly in that state
without giving effect to the choice or conflict of laws principles or provisions
thereof. Maker and Payee each hereby irrevocably submits to the jurisdiction of
any state or federal court sitting in the City, County and State of New York in
respect of any enforcement proceeding arising out of or relating to this Note,
which courts shall have exclusive jurisdiction over and with respect to any such
enforcement proceeding, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the aforesaid courts.
Maker and Payee each irrevocably waives, to the fullest extent such party may
effectively do so under applicable law, any objection that such party may now or
hereafter have to the laying of venue of any such enforcement proceeding brought
in any such court and any claim that any such enforcement proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of any party hereto to serve process in any manner permitted by
law or to commence enforcement proceedings or otherwise proceed against the
other party in any other jurisdiction.
13. Miscellaneous. No delay or omission by Payee in exercising any right or
remedy hereunder or under any guaranty hereof, or with respect to any collateral
or other security or surety related to this Note or Maker's obligations
hereunder, shall operate as a waiver of such right or remedy or any other right
or remedy, and a waiver on one occasion of any right or remedy shall not be a
bar to, or constitute a waiver, of such right or remedy on any other occasion or
of any other right or remedy on any occasion. All rights and remedies of Payee
hereunder, under any other applicable document and under applicable law shall be
cumulative and not in the alternative. No provision of this Note or any guaranty
or other security or surety related to this Note may be amended, waived or
modified orally but only by a writing signed by the party against whom
enforcement of such amendment, waiver or modification is sought to be enforced.
-5-
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered on its behalf by an officer or other representative thereunto duly
authorized, all as of the date first written above.
E-SYNC NETWORKS, INC.
By:________________________________________
Name:
Title:
-6-
SCHEDULE A
Use of Proceeds
-7-
Exhibit H
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT UNDER THE
ACT IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE OR TRANSFER
IS IN COMPLIANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION OR (B) AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE AND SUCH OFFER, SALE OR TRANSFER IS IN COMPLIANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
SECURED PROMISSORY NOTE
$1,500,000.00(1) ____________, 2001
FOR VALUE RECEIVED, the undersigned E-SYNC NETWORKS, INC. ("Maker"), a
Delaware corporation, having an address at [35 Nutmeg Drive, Trumbull,
Connecticut 06611], hereby unconditionally promises to pay to the order of CRC,
INC. ("Payee"), a New York corporation, with its principal business address at
1290 Avenue of the Americas, New York, New York 10104, at Payee's principal
business address, or such other office as Payee may designate, in lawful money
of the United States, the principal sum of ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS and no cents ($1,500,000.00), together with interest thereon as provided
for below.
1. Interest Rate. Maker shall pay interest ("Interest") on the unpaid principal
balance hereof outstanding from time to time at a rate equal to seven percent
(7%) per annum; provided,
- ----------
(1) This amount will be reduced by the aggregate of (A) 40% of the amount by
which the total amount (inclusive of costs and expenses paid to third parties to
assist in obtaining the discharge or reduction of the trade payables) needed to
discharge or satisfy all trade payables of Maker existing as of the closing of
the Sale is less than $1,200,000 and (B) one-half of the aggregate amount in
excess of $125,000 that Payee (and/or the Joint Venture Subsidiary), prior to
the lapse of 45 days following the closing of the Sale, has made or committed to
make (regardless of whether such commitment is for a future payment) to key
personnel of Maker as an inducement for such personnel to join or continue to
work for Payee or the Joint Venture Subsidiary, as the case may be.
The Good Faith Loan and, if made, the Bridge Loan will be terminated and
be folded into and made a part of this Note.
however, that (i) Interest payments may be deferred pursuant to the terms of
Section 7(a) below, and (ii) upon the occurrence and during the continuance of
any Event of Default (as hereinafter defined), Interest shall accrue and be
payable at the rate of eighteen percent (18%) per annum or, if less, the maximum
rate permitted by applicable law. Interest shall commence to accrue on the
outstanding principal amount of this note (this "Note") on the date hereof and
shall continue to accrue thereon until the outstanding principal thereof is paid
in full (whether before or after maturity or judgment). Interest due hereunder
shall be paid monthly in arrears beginning on [_______, 2001].
Anything contained in this Note to the contrary notwithstanding, Payee
does not intend to charge and Maker shall not be required to pay Interest or
other charges in excess of the maximum rate permitted by applicable law. Any
payments in excess of such maximum rate shall be refunded to Maker or credited
against principal.
2. Payments of Principal and Interest. All outstanding principal, together with
accrued and unpaid Interest thereon, shall be due and payable by Maker to Payee
on [_______, 2006].
3. Prepayments.
(a) Voluntary Prepayment. Maker may at any time prepay this Note in whole
or from time to time in part, without prior written consent of Payee and without
penalty or premium, by paying to Payee the principal amount to be prepaid
together with interest accrued thereon to the date of prepayment. Prepayments
pursuant to the immediately preceding sentence or Section 3(b) below shall first
be applied to accrued and unpaid interest, and then to unpaid principal.
(b) Mandatory Prepayment. Without limiting the provisions of Sections 2
and 3(a) above, after satisfaction and payment in full of all of Maker's
obligations under that certain Secured Promissory Note in the principal amount
of $500,000 issued by Maker to Payee (the "First Installment Note"), Maker shall
in addition prepay this Note in the following amounts, in each case exclusive of
any proceeds applied toward prepayment of the First Installment Note (it being
understood that such prepayments shall be applied first to accrued and unpaid
Interest and then to principal): (i) 100% of the cash proceeds (net of
collection costs (including reasonable attorney's fees and disbursements related
to such collection)) received by Maker after the date of the First Installment
Note with respect to the first $600,000, in the aggregate, of accounts
receivable derived from Maker's "Professional Services" business or "Managed
Services" business (the "Receivables"), (ii) 20% of the excess (if any) of the
cash proceeds (net of collection costs (including reasonable attorney's fees and
disbursements related to such collection)) received by Maker with respect to the
Receivables in excess of $600,000, in the aggregate, from the date of the First
Installment Note, (iii) 100% of the amount of the direct or indirect (including
from any disposition of any non-cash consideration for cash or marketable
securities) cash proceeds or marketable securities (at fair market value, taking
into account any applicable illiquidity and minority discounts) (net of
reasonable attorney's fees and disbursements related to such sale or
disposition) received on account of or with respect to any sale or other
disposition of all or any portion of Maker's interest in E-Sync Networks, LLC,
and (iv) 100% of all cash payments received by Maker with respect to any
exercise of that certain Common Stock Purchase Warrant issued by Maker to Payee
on the date of the First Installment
-2-
Note. Prepayments pursuant to the immediately preceding sentence shall be made
to Payer within two (2) business days after receipt by Maker of such proceeds or
payments, as applicable.
4. Security Interest. The obligations of Maker hereunder are secured pursuant to
the Amended and Restated Security Agreement (the "Security Agreement"), dated as
of [August ___, 2001], between Maker and Payee.
5. Use of Proceeds. The proceeds of the loan evidenced by this Note shall be
used solely to repay the obligations of Maker set forth on Schedule A attached
hereto.
6. Expenses. Upon the occurrence of any Event of Default, Maker shall pay Payee,
on demand, for all reasonable costs and expenses (including, but not limited to,
reasonable attorneys' fees and expenses) incurred in connection with the
collection of this Note and/or enforcement of Payee's rights and remedies
related to this Note or Maker's obligations and liabilities hereunder.
7. Default; Acceleration. The occurrence of any of the following shall
constitute an "Event of Default":
(a) Maker shall fail to make any payment of any principal, Interest or
other amount when due under this Note or the First Installment Note; provided,
however, that the failure of Maker to make any payment of Interest due under
this Note during the period prior to the third anniversary of the date of this
Note shall not constitute an Event of Default, provided that Interest shall
accrue at the rate of fifteen percent (15%) until all accrued and payable
Interest thereof is paid in full.
(b) Maker shall be dissolved or shall make an assignment of all or
substantially all of its assets for the benefit of creditors; or shall have a
receiver, custodian, trustee, conservator or similar official appointed for all
or any material portion all its property, business or assets.
(c) Any case or proceeding under any bankruptcy, insolvency, receivership,
reorganization, moratorium or similar law for the relief or benefit or debtors
shall be commenced by or against Maker (provided that if such case or proceeding
is not commenced by Maker or consented to or acquiesced in by Maker, the same
remains undismissed for a period of thirty (30) days).
(d) Maker shall admit in writing its inability to pay its debts as they
become due; provided, however, that any such admission to which Payee has
consented in advance in writing shall not constitute an Event of Default.
(e) Maker shall be in material breach or violation of any of its
representations, warranties, covenants and other agreements set forth in this
Note, the First Installment Note or the Security Agreement or any of its binding
representations, warranties, covenants and other agreements set forth in the
other Transaction Documents (as defined in that certain contribution agreement,
dated as of [August ___, 2001], by and among E-Sync Networks, LLC, Maker and
Payee), and if the same is curable, such breach or violation shall continue for
twenty (20) days
-3-
after (i) Maker is given written notice thereof or (ii) if earlier, Maker
otherwise becomes aware of such breach or violation.
(f) That certain Master Services Agreement, dated of even date herewith,
by and between CRC Management Services, Inc., a New York corporation and an
affiliate of Payee, and Maker, shall be terminated by any party other than Payee
or any of its affiliates.
(g) Any judgment shall be entered against Maker in the amount of at least
fifty thousand dollars ($50,000) and such judgment shall not, within twenty (20)
days thereafter, have been discharged in full or stayed pending appeal.
(h) Maker shall sell or otherwise dispose of all or any material portion
of its property, business or assets other than in the ordinary course of
business (other than as contemplated by the Transaction Documents).
(i) An Event of Default (as defined in the Security Agreement) shall have
occurred.
Upon the occurrence, and at any time during the continuance, of any Event of
Default, Payee, at Payee's option and without the need for presentment, demand,
protest or other notice of any kind, may declare all unpaid principal hereof and
Interest hereunder to be immediately due and payable, and the same shall become
immediately due and payable upon such declaration; provided, however, that upon
the occurrence of an Event of Default as set forth in clause (b) or (c) above,
this Note and all amounts due hereunder shall become immediately due and payable
without any declaration on the part of Payee and without the need for
presentment, demand, protest or other notice of any kind.
8. Certain Waivers. Maker: (i) waives presentment, diligence, protest, demand,
notice of demand, notice of acceptance or reliance, notice of non-payment,
notice of dishonor, notice of protest and all other notices to parties in
connection with the delivery, acceptance, performance, default or enforcement of
this Note or any collateral or other security; (ii) consents to any and all
delays, extensions, renewals or other modifications with respect to this Note,
any related document or the debt or collateral evidenced hereby or thereby or
any waivers of any term hereof or thereof, any release, surrender, taking of
additional, substitution, exchange, failure to perfect, record, preserve,
realize upon or lawfully dispose of, or any other impairment of, any collateral,
or any other failure to act by Payee or any other forbearance or indulgence
shown by Payee, from time to time and in one or more instances (without notice
to or assent from Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of Maker's obligations or liabilities; and
(iii) otherwise waives any and all other defenses based on suretyship or
impairment of collateral. Nothing contained in this Section 8 shall be construed
or interpreted to limit the provisions of the last sentence of Section 13 below.
Maker acknowledges and agrees that Maker's obligations under this Note and the
Security Agreement are independent of any obligation of Payee under or pursuant
to the Transaction Documents and that, without limiting the scope or generality
of the foregoing, notwithstanding any breach or violation of any of the
Transaction Documents by Payee, the loan evidenced by this Note shall be
repayable in accordance with its terms and this Note and the Security Agreement
shall be enforceable in accordance with the terms hereof and thereof.
-4-
9. Commercial Transaction; Jury Waiver. EACH OF PAYEE AND MAKER ACKNOWLEDGES
THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION.
EACH OF PAYEE AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR
OUT OF, OR OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS NOTE AND/OR
ANY RELATED DOCUMENT.
10. Binding Nature. This Note shall bind Maker and Maker's successors and
assigns and shall inure to the benefit of Payee and its successors and assigns.
The term "Payee" as used herein shall include any successors, endorsees or other
assignees of Payee and shall also include any other holder of this Note. Payee
may, without notice to or consent of Maker (which notice and consent are hereby
expressly waived), endorse or otherwise transfer or assign this Note or any
right or interest herein to any other person or entity.
11. Arbitration. Maker and Payee agree that any and all disputes, claims or
controversies arising out of or relating to this Note that are not resolved by
their mutual agreement shall be submitted to final and binding arbitration
before JAMS, or its successor, pursuant to the United States Arbitration Act, 9
U.S.C. Sec. 1, et seq. Either party may commence the arbitration process called
for in this Note by filing a written demand for arbitration with JAMS, with a
copy to the other party. The arbitration will be conducted in accordance with
the provisions of JAMS' comprehensive Arbitration Rules and Procedures in effect
at the time of filing of the demand for arbitration. The parties will cooperate
with JAMS and with one another in selecting an arbitrator from JAMS' panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys fees,
to be paid by the party against whom enforcement is ordered.
12. Governing Law. This Note shall be governed by, interpreted under and
construed in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed wholly in that state
without giving effect to the choice or conflict of laws principles or provisions
thereof. Maker and Payee each hereby irrevocably submits to the jurisdiction of
any state or federal court sitting in the City, County and State of New York in
respect of any enforcement proceeding arising out of or relating to this Note,
which courts shall have exclusive jurisdiction over and with respect to any such
enforcement proceeding, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the aforesaid courts.
Maker and Payee each irrevocably waives, to the fullest extent such party may
effectively do so under applicable law, any objection that such party may now or
hereafter have to the laying of venue of any such enforcement proceeding brought
in any such court and any claim that any such enforcement proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of any party hereto to serve process in any manner permitted by
law or to commence enforcement proceedings or otherwise proceed against the
other party in any other jurisdiction.
13. Miscellaneous. No delay or omission by Payee in exercising any right or
remedy hereunder or under any guaranty hereof, or with respect to any collateral
or other security or
-5-
surety related to this Note or Maker's obligations hereunder, shall operate as a
waiver of such right or remedy or any other right or remedy, and a waiver on one
occasion of any right or remedy shall not be a bar to, or constitute a waiver,
of such right or remedy on any other occasion or of any other right or remedy on
any occasion. All rights and remedies of Payee hereunder, under any other
applicable document and under applicable law shall be cumulative and not in the
alternative. No provision of this Note or any guaranty or other security or
surety related to this Note may be amended, waived or modified orally but only
by a writing signed by the party against whom enforcement of such amendment,
waiver or modification is sought to be enforced.
-6-
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered on its behalf by an officer or other representative thereunto duly
authorized, all as of the date first written above.
E-SYNC NETWORKS, INC.
By:________________________________________
Name:
Title:
-7-
SCHEDULE A
Use of Proceeds
Repayment of the Good Faith Loan (together with interest accrued thereon)
Repayment of Bridge Loan (together with interest accrued thereon)
Exhibit I
NEITHER THIS WARRANT NOR ANY SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND
NEITHER THIS WARRANT NOR ANY SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE ACT AND SUCH STATE SECURITIES
LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH STATE
SECURITIES LAWS.
E-SYNC NETWORKS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that CRC, INC., a New York corporation ("CRC"), or its
registered assigns, is entitled to purchase from E-Sync Networks, Inc., a
Delaware corporation (the "Company"), at any time on and after the Date of
Issuance but not later than 5:00 p.m., New York City time, on the date (the
"Expiration Date") that is the later of (i) [_______, 2011] or (ii) the second
anniversary of the repayment of all of the Loans (as hereinafter defined),
__________(1) Stock Units (as hereinafter defined) at the Exercise Price,
subject to the terms and conditions herein provided.
This Warrant is being issued to CRC in connection with CRC providing the
Loans to the Company.
The regulations of the Internal Revenue Service now in effect require
determination of the value of this Warrant. Accordingly, it is therefore agreed
by the Company and CRC that for federal income tax purposes the amount of the
issue price allocated to this Warrant is $_______ in the aggregate, which shall
be the value ascribed to this Warrant by the Company and CRC for all purposes,
including the preparation of tax returns and the preparation of the Company's
and CRC's financial statements.
As used in this Warrant, the following terms have the following
respective meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Affiliate" has the meaning set forth in Rule 405 under the Act.
(c) "Company" has the meaning set forth in the preamble of this Warrant.
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(1) This number is equal to 10% of the Company's capital stock (on a fully
diluted basis) determined as of the close of business on the date of the
Closing.
(d) "Convertible Security" means Securities of the Company which may be
convertible into Shares.
(e) "CRC" has the meaning set forth in the preamble of this Warrant.
(f) "Date of Issuance" means the date set forth next to the signature of
the Company on the signature page hereof.
(g) "Exercise Price" means $____(2), the price at which this Warrant is
convertible into Shares, subject to adjustment as provided herein.
(h) "Expiration Date" has the meaning set forth in the preamble of this
Warrant.
(i) "Holder" means any owner of all or any part of this Warrant from
time to time.
(j) "Loans" means, collectively, all amounts advanced or loaned to
Company by CRC.
(k) "Securities" has the meaning assigned to such term in the Act or any
rule or regulation thereunder.
(l) "Shares" means shares of the Company's common stock, par value $0.01
per share.
(m) "Stock Unit" means one (1) Share, as same may be adjusted from time
to time in accordance with Section 4(a) below, and shall include any
additional securities, cash or property in respect thereof in
accordance with Section 4 below.
(n) "Warrant" means this Common Stock Purchase Warrant, as same may be
amended from time to time in accordance herewith.
(o) "Warrant Stock" means, collectively, (i) the Shares purchasable by
the Holder hereof upon the exercise of this Warrant, and (ii) any
other securities forming a part of any Stock Unit in accordance with
Section 4 below.
2. Exercise of Warrant.
(a) In order to exercise this Warrant, in whole or in part, the Holder
hereof shall deliver to the Company, at its office set forth in Section 9 below,
at any time and from time to time between the Date of Issuance and the
Expiration Date, (i) a written notice in the form of the Form of Exercise Notice
attached hereto as Exhibit A (the "Exercise Notice"), (ii) such Holder's check
payable to the Company in an aggregate amount equal to the aggregate Exercise
Price for those Stock Units specified in the Exercise Notice, and (iii) this
Warrant; provided, however, that this Warrant may only be partially exercised
for a minimum of 200,000 Shares per Exercise Notice. Upon receipt thereof, the
Company shall, as promptly as practicable and in any event
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(2) This price is equal to 75% of the average closing sale prices of the
Common Stock during the 60 consecutive trading days ending on the second
trading day preceding the date of the Closing.
-2-
within three (3) days thereafter, cause to be executed and delivered to such
Holder a certificate or certificates representing the aggregate number of fully
paid and nonassessable shares of Warrant Stock, or any other property forming a
part of the subject Stock Unit(s) or both, issuable upon such exercise. Subject
to the provisions of this Section 2(a), such stock certificate(s) shall be in
such denominations as may be specified in the Holder's notice, and shall be
registered in the name of such Holder or such other name or names as shall be
designated in such notice.
(b) In addition to the method of payment set forth in Section 2(a) and in
lieu of any cash payment required thereunder, the Holder of the Warrant shall
have the right at any time and from time to time to exercise the Warrant in
whole or in part by surrendering the Warrant in the manner specified in Section
2(a) above in exchange for that number of Shares equal to the product of (x) the
number of shares as to which such Warrant is being exercised multiplied by (y) a
fraction, the numerator of which is the market price of the Shares less the
Exercise Price and the denominator of which is such market price. Solely for the
purposes of this Section 2(b), "market price" shall be calculated on the date on
which notice of the Holder's election to exercise is given pursuant to Section
2(a) above. The "market price" shall be the average of the closing sale prices
of the Shares as reported by Bloomberg Financial Markets or if not so reported
then as published in a nationally recognized daily publication, for the 60
consecutive trading days ending on the day prior to the date of exercise. Any
fractional share resulting from such cashless exercise shall be eliminated.
(c) All certificates representing Warrant Stock as aforesaid shall be
deemed to have been issued, and the Holder or other person designated to be
named therein shall be deemed to become a holder of record of the subject
Warrant Stock (including, to the extent permitted by law, the right to vote such
securities or grant consents therefor or receive notices as a stockholder), as
of the time the Holder's notice and payment is received by the Company as
aforesaid. If this Warrant shall have been exercised only in part, the Company
shall, concurrently with its delivery pursuant to Section 2(a) above, cancel
this Warrant and deliver to the subject Holder a new warrant (in substantially
the form of this Warrant) evidencing the rights of such Holder to purchase the
remaining Stock Units called for by this Warrant.
(d) All Warrant Stock issuable upon the exercise of this Warrant in whole
or in part shall, upon payment therefor in accordance herewith, be validly
issued, fully paid and nonassessable.
3. Transfer and Assignment.
This Warrant and all rights hereunder are transferable, in whole or in
part, on the books of the Company to be maintained for such purposes, upon
surrender of this Warrant at the office of the Company set forth in Section 9
below, accompanied by a written assignment duly executed by the Holder hereof
indicating the number of Warrants being transferred and the name, address and
tax identification number of each transferee. Upon any such delivery, the
Company shall execute and deliver to the Holder or the transferee(s) or both (as
the case may be) new warrants (in substantially the form of this Warrant) in the
appropriate denominations, and this Warrant shall thereupon be canceled.
-3-
4. Adjustment of Exercise Price and Number of Shares. In order to prevent
dilution of the rights granted under this Warrant and grant the Holder hereof
certain additional rights, the Exercise Price and the number of Shares or any
other property then constituting a Stock Unit obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 4.
(a) Adjustment of Exercise Price upon Issuance of Common Stock. If and
whenever on or after the Date of Issuance, the Company issues or sells, or in
accordance with Section 4(b) is deemed to have issued or sold, any Share for a
consideration per share less than the Exercise Price in effect immediately prior
to such issuance or sale, then immediately upon such issuance or sale the
Exercise Price shall be reduced to a price (rounded to the nearest cent)
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be (x) the sum of (A) the number of
Shares outstanding immediately prior to the issuance or sale of such additional
Shares multiplied by the Exercise Price in effect immediately prior thereto plus
(B) the aggregate consideration received by the Company (determined as provided
in Section 4(b)(iv)) for the issuance or sale of such additional Shares, and the
denominator of which shall be (y) the product of the number of shares
outstanding immediately after the issuance or sale of such additional Shares and
the Exercise Price in effect immediately prior thereto. No adjustment of the
Exercise Price shall be made upon the issuance or sale of Shares (i) pursuant to
the exercise or conversion of warrants, options or other convertible securities
outstanding on the date hereof as set forth on Schedule 4(a) attached hereto and
(ii) with the unanimous consent of the Holder(s) of the Warrant.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a), the following shall
be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
grants or sells any options to purchase Shares or Convertible Securities
("Options") and the lowest price per share for which any one Share is
issuable upon the exercise of any such Option, or upon conversion or
exchange of any Convertible Security issuable upon exercise of such
Option, is less than the Exercise Price in effect immediately prior to the
time of the granting or sale of such Option, then such Share shall be
deemed to have been issued and sold by the Company at such time for such
price per share. For purposes of this paragraph, the "lowest price per
share for which any one Share is issuable" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one Share upon the granting or sale of the
Option, upon exercise of the Option and upon conversion or exchange of the
Convertible Security. No further adjustment of the Exercise Price shall be
made upon the actual issue of such Shares or of such Convertible
Securities upon the exercise of such Options or upon the actual issue of
such Shares upon conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Security and the lowest price per
share for which any one Share is issuable upon conversion or exchange
thereof is less than the Exercise Price in effect immediately prior to the
time of such issue or sale, then such Share or Shares shall be deemed to
have been issued and sold by the Company at such time for such price per
share. For the purposes of this paragraph, the "lowest price per share for
which any one
-4-
Share is issuable" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one Share upon the issuance of the Convertible Security and upon
the conversion or exchange of such Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of
such Shares upon conversion or exchange of any Convertible Security, and
if any such issue or sale of such Convertible Security is made upon
exercise of any Options for which adjustments of the Exercise Price had
been or are to be made pursuant to other provisions of this Section 2, no
further adjustment of the Exercise Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Shares changes at any time, the
Exercise Price in effect at the time of such change shall be adjusted
immediately to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued
or sold and number of Shares issuable hereunder shall be correspondingly
adjusted; provided, that if such adjustment would result in an increase of
the Exercise Price then in effect, such adjustment shall not occur. For
purposes of this Section 4(b), if the terms of any Option or Convertible
Security which was outstanding as of the Date of Issuance are changed in
the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Shares deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change; provided, that no such change shall
at any time cause the Exercise Price hereunder to be increased.
(iv) Calculation of Consideration Received. If any Shares, Options
or Convertible Securities are issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Shares,
Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received
by the Company shall be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Company shall be the fair market value
thereof as of the date of receipt. In case any Shares, Options or
Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Shares, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by
the Company and the Holder of the Warrant. If such parties are unable to
reach agreement within a reasonable period of time, such fair value shall
be determined by an appraiser jointly selected by the Company and the
Holder of the Warrant. The determination of such appraiser shall be final
and binding on the Company and the Holder of the Warrant, and the fees and
expenses of such appraiser shall be paid by the Company.
-5-
(v) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued without consideration.
(vi) Treasury Shares. The disposition of any Shares owned or held by
or for the account of the Company or any subsidiary shall be considered an
issue or sale of Shares.
(vii) Record Date. If the Company takes a record of the holders of
Shares for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Shares, Options or in Convertible Securities
or (B) to subscribe for or purchase Shares, Options or Convertible
Securities, then such record date shall be deemed to be the date of the
issue or sale of the Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the
case may be.
(c) Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding Shares into a greater number of Shares,
the Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of Shares obtainable upon exercise of
this Warrant shall be proportionately increased. If the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares into a smaller number of Shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and the
number of Shares obtainable upon exercise of this Warrant shall be
proportionately decreased.
(d) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction, in
each case which is effected in such a way that the holders of Shares are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Shares is referred to
herein as "Organic Change." Prior to the consummation of any Organic Change, the
Company shall make appropriate provision (in form and substance satisfactory to
the Holder of the Warrant) to insure that the Holder of the Warrant shall
thereafter have the right to acquire and receive, in lieu of or addition to (as
the case may be) the Shares immediately theretofore acquirable and receivable
upon the exercise of such Holder's Warrant, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for the number
of Shares immediately theretofore acquirable and receivable upon exercise of
such Holder's Warrant had such Organic Change not taken place. In any such case,
the Company shall make appropriate provision (in form and substance reasonably
satisfactory to the Holder of the Warrant) with respect to such Holder's rights
and interests to insure that the provisions of this Section 4 hereof shall
thereafter be applicable to the Warrant (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Company, an immediate adjustment of the Exercise Price to the
value for the Shares reflected by the terms of such consolidation, merger or
sale, and a corresponding immediate adjustment in the number of Shares
acquirable and receivable upon exercise of the Warrant, if the value so
reflected is less
-6-
than the Exercise Price in effect immediately prior to such consolidation,
merger or sale). The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the Holder of the Warrant), the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Board of
Directors shall make an appropriate adjustment in the Exercise Price and the
number of Shares obtainable upon exercise of this Warrant so as to protect the
rights of the Holder of the Warrant; provided, that no such adjustment shall
increase the Exercise Price or decrease the number of Shares obtainable as
otherwise determined pursuant to this Section 4.
(f) Liquidating Dividends. If the Company declares or pays a dividend upon
the Shares payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in Shares (a
"Liquidating Dividend"), then the Company shall pay to the registered Holder of
this Warrant at the time of payment thereof the Liquidating Dividend which would
have been paid to such registered Holder on the Shares had this Warrant been
fully exercised immediately prior to the date on which a record is taken for
such Liquidating Dividend, or, if no record is taken, the date as of which the
record holders of Shares entitled to such Liquidating Dividend is to be
determined.
(g) Purchase Rights. If at any time the Company grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
capital stock (the "Purchase Rights"), then the Holder of this Warrant shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of Shares acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Shares are to be determined for the grant, issue or
sale of such Purchase Rights.
(h) Adjustment of Number of Shares. Upon each adjustment of the Exercise
Price as a result of the calculations made in Section 4 hereof, the number of
Shares for which this Warrant is exercisable immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of Shares obtained by (i) multiplying the number of
Shares covered by this Warrant immediately prior to this adjustment by the
Exercise Price in effect immediately prior to such adjustment of the Exercise
Price and (ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
-7-
5. Notice of Certain Events.
(a) As soon as practicable following any adjustment of the Exercise Price,
the Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at least ten (10)
days prior to the date on which the Company closes its books or takes a record
(i) with respect to any dividend or distribution upon the Shares, (ii) with
respect to any pro rata subscription offer to holders of Shares or (iii) for
determining rights to vote with respect to any Liquidating Dividend, Organic
Change or other dissolution or liquidation; provided, however, if notice of the
foregoing is given earlier to the Company's other stockholders of record, notice
to the Holder shall be given at such earlier time.
(c) The Company shall also given written notice to the registered Holder
at least ten (10) days prior to the date on which any Liquidation Event, Organic
Change or other dissolution or liquidation shall take place; provided, however,
if notice of the foregoing is given earlier to the Company's other stockholders
of record, notice to the Holder shall be given at such earlier time.
6. Capitalization; Reservation of Shares.
(a) The Company hereby represents and warrants to CRC that the number of
Shares for which this Warrant is exercisable as of the Date of Issuance, in the
aggregate, represents 10% (the "Threshold Percentage") of the voting stock of
the Company on a fully-diluted as-if-converted basis (i.e., 10% of all Shares
outstanding as of the Date of Issuance and all Shares underlying options,
warrants, preferred shares or other interests outstanding as of the Date of
Issuance which are exercisable, convertible or exchangeable for Shares,
including after giving effect to the issuance of this Warrant). In the event
that such number of Shares does not equal the Threshold Percentage as a result
of the existence of any Shares (or options or other interests exercisable,
convertible or exchangeable for Shares) which are not disclosed to CRC on or
before the Date of Issuance, the number of Shares to be issued upon exercise of
this Warrant shall be automatically increased (pro rata to each Holder and
without any further action by the Holders) by that number of Shares that when
added to the Shares which would otherwise be issued to the Holders upon exercise
of the Warrant shall equal an amount of Shares which represents the Threshold
Percentage. Any such adjustment shall be made promptly upon determination of the
discrepancy with the Threshold Percentage, whether such determination is made
before or after the Date of Issuance.
(b) The Company shall at all times reserve and keep available for issuance
upon the exercise hereof such number of authorized but unissued Shares as shall
be sufficient to permit the full exercise of this Warrant.
7. Expenses.
The Company shall pay any and all reasonable expenses, transfer taxes and
other charges, including all costs associated with the preparation, issuance and
delivery of stock or warrant
-8-
certificates, that may be incurred in respect of the issuance or delivery of
Warrant Stock upon any exercise of this Warrant.
8. No Rights as Stockholder.
This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
9. Notices.
Any and all notices to be given to the Company hereunder shall be given to
the Company at its offices located at [35 Nutmeg Drive, Trumbull, Connecticut
06611], Attention: President and Chief Operating Officer. Any and all notices to
be given to the Holder hereof shall be given to such Holder at its address as
same appears on the records of the Company.
10. Registration.
(a) Legend. Upon exercise, in part or in whole, of the Warrants,
certificates representing the Warrant Stock shall bear the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel of the issuer, that an exemption from
registration under such Act is available."
(b) Registration Rights. Upon exercise, in part or in whole, of the
Warrants, the Warrant Stock shall have the registration rights set forth in the
Registration Rights Agreement, dated [_______, 2001], by and between the Company
and CRC.
11. Miscellaneous.
(a) No provision hereof, in the absence of affirmative action by the
Holder to effect any exercise hereunder, shall give rise to any liability of
such Holder for the Exercise Price or as a stockholder of the Company,
regardless of whether such liability is asserted by the Company or by any
creditor or creditors of the Company.
(b) Neither this Warrant nor any of the terms or conditions hereof may be
waived, amended or modified, except with the written consent of the Company and
a majority in interest of the Warrant Stock.
(c) This Warrant shall be governed by, interpreted under and construed in
accordance with the internal laws of the State of New York applicable to
contracts executed and to be performed wholly in that state without giving
effect to the choice or conflict of laws principles or provisions thereof. The
parties agree that any and all disputes, claims or controversies arising out of
or relating to this Warrant that are not resolved by their mutual agreement
shall be
-9-
submitted to final and binding arbitration before JAMS, or its successor,
pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1, et seq. Any
party may commence the arbitration process called for in this Warrant by filing
a written demand for arbitration with JAMS, with a copy to the other party. The
arbitration will be conducted in accordance with the provisions of JAMS'
Comprehensive Arbitration Rules and Procedures in effect at the time of filing
of the demand for arbitration. The parties will cooperate with JAMS and with one
another in selecting an arbitrator from JAMS' panel of neutrals, and in
scheduling the arbitration proceedings. The parties covenant that they will
participate in the arbitration in good faith, and that they will share equally
in its costs. The provisions of this paragraph may be enforced by any court of
competent jurisdiction, and the party seeking enforcement shall be entitled to
an award of all costs, fees and expenses, including attorney fees, to be paid by
the party against whom enforcement is ordered. The Company hereby irrevocably
submits to the jurisdiction of any state or federal court sitting in the City,
County and State of New York in respect of any enforcement proceeding arising
out of or relating to this Warrant, which courts shall have exclusive
jurisdiction over and with respect to any such enforcement proceeding, and
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the aforesaid courts. The Company hereby
irrevocably waives, to the fullest extent such party may effectively do so under
applicable law, trial by jury and any objection that such party may now or
hereafter have to the laying of venue of any enforcement proceeding brought in
any such court and any claim that any such enforcement proceeding brought in any
such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of the Holder to serve process in any manner permitted by law
or to commence enforcement proceedings or otherwise proceed against the Company
in any other jurisdiction.
(d) The captions and section headings used in this Warrant are for
convenience of reference only, and shall not be referred to in connection with
any interpretation or construction hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company, having validly authorized the issuance of
this Warrant and all performance hereunder, has caused this Warrant to be
executed by its duly authorized officer on the Date of Issuance.
Dated: [_______, 2001]
E-SYNC NETWORKS, INC.
By: __________________________________
Name:
Title:
Signature Page to Common Stock Purchase Warrant
EXHIBIT A
FORM OF EXERCISE NOTICE
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_______________ of the shares of common stock of E-Sync Networks, Inc., a
Delaware corporation (the "Company"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a cashless exercise pursuant to the terms of the Warrant,
pursuant to which the undersigned is surrendering the right to purchase
_______________ shares for an Exercise Price of $_______________, with the
current market price being $_______________], all in accordance with the
conditions and provisions of said Warrant.
The undersigned represents and warrants that the representations in
Section __ of the Asset Purchase and Sale Agreement, dated as of [_____, 2001]
by and among the Company, CRC, Inc. and certain stockholders of the Company are
true and correct in all material respects as of the date hereof, as if made on
the date hereof.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designees) at the
address (or addresses) set forth below:
Date:_____________________ ________________________________
Signature of Holder
________________________________
Name of Holder (Print)
Address:
________________________________
________________________________