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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
January 31, 1997
Date of Report (Date of earliest event reported)
CKS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27090 77-0385435
- ---------------------------- ----------------------- -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
10441 Bandley Drive
Cupertino, California 95014
(Address of principal executive offices)
(408) 366-5100
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 31, 1997, Raleigh Acquisition, Inc., a Delaware
corporation ("Sub") and wholly-owned subsidiary of CKS Group, Inc., a Delaware
corporation (the "Registrant" or "CKS"), acquired 100% of the capital units,
shares and capital accounts of McKinney & Silver, a North Carolina general
partnership ("M&S"), from the current and former general partners of M&S (the
"Partners") pursuant to an Acquisition Agreement, dated January 31, 1997 (the
"Acquisition Agreement") by and among the Registrant, Sub, the Partners, Robert
C. Doherty and Donald S. Maurer, as Partner Representatives, and Chemical Trust
Company of California, as Escrow Agent (the "Acquisition").
CKS issued an aggregate of 841,291 shares of Common Stock to the
Partners. An aggregate of 63,094 of such shares were deposited in escrow with
Chemical Trust Company of California to secure certain indemnity obligations of
the Partners contained in the Acquisition Agreement. In addition, pursuant to
the Acquisition Agreement, CKS will file a Registration Statement on Form S-3
with the Securities and Exchange Commission for the purpose of registering an
aggregate of 200,000 Shares under the Securities Act of 1933 as soon as
practicable after the closing of the Acquisition for resale by the Partners. CKS
is obligated to register the remainder of the Shares under the Securities Act
for resale by the Partners at various times through June 1998 pursuant to a
Registration Rights Agreement executed in connection with the Acquisition
Agreement.
The Acquisition will be treated as a "pooling of interests" for
financial accounting purposes.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and exhibits are filed as part
of this report, where indicated.
(a) Financial statements of business acquired,
prepared pursuant to Rule 3-05 of Regulation S-X:
It is impracticable for the Registrant to provide
the required financial statements of M&S for this
filing. The required financial statements will be
filed within 60 days of the date of this report.
(b) Pro forma financial information required pursuant
to Article 11 of Regulation S-X:
It is impracticable for the Registrant to file the
required pro forma financial information with this
filing. Such pro forma financial information will
be filed within 60 days of the date of this
report.
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(c) Exhibits in accordance with Item 601 of Regulation
S-K:
Exhibits.
2.1 Acquisition Agreement, dated as of January 31,
1997, by and among Registrant, the current and
former partners of McKinney & Silver, a North
Carolina general partnership, Raleigh Acquisition
Inc., a Delaware corporation, Robert C. Doherty
and Donald S. Maurer, as Partner Representatives,
and Chemical Trust Company of California as Escrow
Agent.
4.1 Registration Rights Agreement among CKS, Raleigh
Acquisition, Inc. and the current and former
partners of McKinney & Silver dated January 31,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CKS GROUP, INC.
Dated: February 11, 1997 By: /s/ Carlton H. Baab
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Carlton H. Baab
Executive Vice President, Chief Financial
Officer and Secretary
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EXHIBIT INDEX
Exhibit 2.1 Acquisition Agreement, dated as of January 31,
1997, by and among Registrant, the current and
former partners of McKinney & Silver, a North
Carolina general partnership, Raleigh Acquisition
Inc., a Delaware corporation, Robert C. Doherty
and Donald S. Maurer, as Partner Representatives,
and Chemical Trust Company of California as Escrow
Agent.
Exhibit 4.1 Registration Rights Agreement among CKS, Raleigh
Acquisition, Inc. and the current and former
partners of McKinney & Silver dated January 31,
1997.
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EXHIBIT 2.1
ACQUISITION AGREEMENT
BY AND AMONG
CKS GROUP, INC.,
RALEIGH ACQUISITION, INC.,
CHARLES C. MCKINNEY,
THE PERSONS LISTED ON EXHIBIT A HERETO,
ROBERT C. DOHERTY, DON S. MAURER
AND
CHEMICAL TRUST COMPANY OF CALIFORNIA
DATED AS OF JANUARY 31, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I. PURCHASE AND SALE OF PARTNERSHIP INTERESTS..................... 6
1.1 Purchase......................................................... 6
1.2 Consideration.................................................... 6
1.3 Delivery......................................................... 6
ARTICLE II. CLOSING........................................................ 6
2.1 The Closing...................................................... 6
2.2 Deliveries at the Closing by the Partners........................ 6
2.3 Deliveries at the Closing by Parent and Sub...................... 7
2.4 Delivery to Escrow Agent......................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARTNERS................. 7
3.1 Organization of the Partnership.................................. 7
3.2 Partnership Structure............................................ 8
3.3 Subsidiaries..................................................... 8
3.4 Authority........................................................ 8
3.5 Partnership Financial Statements................................. 9
3.6 No Undisclosed Liabilities....................................... 9
3.7 No Changes....................................................... 9
3.8 Tax and Other Returns and Reports................................ 11
3.9 Restrictions on Business Activities.............................. 12
3.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment .......................................... 13
3.11 Intellectual Property............................................ 13
3.12 Agreements, Contracts and Commitments............................ 15
3.13 Interested Party Transactions.................................... 17
3.14 Governmental Authorization....................................... 17
3.15 Litigation....................................................... 17
3.16 Accounts Receivable; Inventory................................... 17
3.17 Executive Committee Minute Books................................. 18
3.18 Environmental Matters............................................ 18
3.19 Brokers' and Finders' Fees; Third Party Expenses................. 19
3.20 Employee Matters and Benefit Plans............................... 19
3.21 Insurance........................................................ 22
3.22 Compliance with Laws............................................. 22
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3.23 Complete Copies of Materials.................................... 22
3.24 Pooling of Interests............................................ 22
3.25 Representations Complete........................................ 22
ARTICLE IIIA. FURTHER REPRESENTATION AND WARRANTIES
OF THE PARTNERS ...................................................... 23
3.1A Due Authorization............................................... 23
3.2A No Violation.................................................... 23
3.3A No Consent Needed............................................... 23
3.4A Ownership of Partnership Interest............................... 23
3.5A SEC Documents, Parent Financial Statements...................... 23
3.6A Tax Matters..................................................... 24
3.7A Absence of Claims by Partners................................... 24
3.8A Investment Representations of the Partners...................... 24
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............... 25
4.1 Organization, Standing and Power................................ 25
4.2 Authority....................................................... 25
4.3 Capital Structure............................................... 26
4.4 SEC Documents; Parent Financial Statements...................... 27
4.5 Brokers' and Finders' Fees...................................... 27
4.6 Litigation...................................................... 27
4.7 Sub............................................................. 27
4.8 No Purchases of Parent Stock.................................... 27
ARTICLE V. [INTENTIONALLY OMITTED]......................................... 28
ARTICLE VI. ADDITIONAL AGREEMENTS.......................................... 28
6.1 Filing of Form S-3............................................. 28
6.2 Expenses....................................................... 29
6.3 Reasonable Best Efforts........................................ 29
6.4 Affiliate Agreements........................................... 29
6.5 Tax Returns.................................................... 29
6.6 Additional Documents and Further Assurances.................... 30
6.8 Pooling Accounting............................................. 30
6.9 Nasdaq Listing................................................. 30
6.10 Financial Results of Combined Businesses....................... 30
6.11 Benefit Plans.................................................. 30
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6.12 Stock Options.................................................. 31
ARTICLE VII. CONDITIONS TO THE ACQUISITION................................. 31
7.1 Conditions to Obligations of Each Party to Effect the
Acquisition.................................................... 31
7.2 Additional Conditions to Obligations of the Partners........... 32
7.3 Additional Conditions to the Obligations of Parent and Sub..... 32
ARTICLE VIII. [INTENTIONALLY OMITTED]...................................... 33
ARTICLE IX. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW............. 33
9.1 Survival of Representations and Warranties..................... 34
9.2 Indemnity...................................................... 34
9.6 Indemnification by Parent and Sub of the Partners.............. 41
ARTICLE X. GENERAL PROVISIONS.............................................. 42
10.1 Notices........................................................ 42
10.2 Interpretation................................................. 44
10.3 Counterparts................................................... 44
10.4 Entire Agreement; Assignment................................... 44
10.5 Severability................................................... 44
10.6 Governing Law.................................................. 44
10.7 Rules of Construction.......................................... 44
10.8 Definitions.................................................... 45
10.9 Amendment...................................................... 47
10.10 Termination of Articles of Partnership......................... 47
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INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Names of Partners and amounts to be paid to each
Exhibit B Articles of Partnership of McKinney & Silver
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Affiliate Agreement
Exhibit E Form of Management Bonus Program
Exhibit G Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati
Exhibit G-1 Form of Legal Opinion of Davis & Gilbert
Exhibit G-2 Form Legal Opinion of Moore & Van Allen
Exhibit G-3 Form Legal Opinion of Smith, Anderson, Blount, Dorset, Mitchell
& Jernigan
Exhibit H-1 Form of Non-Competition Agreement to be executed by Persons
listed on Schedule 7.3(f)(1)
Exhibit H-2 Form of Non-Competition Agreement to be executed by Persons
listed on Schedule 7.3(f)(2)
Exhibit H-3 Form of Non-Competition Agreement to be executed by Persons
listed on Schedule 7.3(f)(3)
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ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT (the "Agreement") is made and entered into
as of January 31, 1997 among CKS Group, Inc., a Delaware corporation ("Parent"),
Raleigh Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Sub"), the current general partners of McKinney & Silver, a North
Carolina general partnership (the "Partnership") listed on Exhibit A hereto (the
"Current Partners") and Charles C. McKinney, a former general partner of the
Partnership who now holds certain interests in the profits of the Partnership
and the proceeds of any sale of the Partnership ("McKinney") (the Current
Partners and McKinney are referred to collectively herein as the "Partners"),
Robert C. Doherty and Don S. Maurer, as Partner Representatives and Chemical
Trust Company of California, as Escrow Agent.
RECITALS
A. The Boards of Directors of Parent and Sub and the Partners of the
Partnership believe it is in the best interests of Parent, Sub and the Partners
that Parent acquire all the equity and profits interests in the Partnership (the
"Acquisition") and, in furtherance thereof, have approved the Acquisition.
B. Pursuant to the Acquisition, among other things, 100% of the capital
units, shares and capital accounts of the Partnership shall be transferred to
Sub and the Partners shall receive shares of common stock, $0.001 par value per
share of Parent (the "Parent Common Stock").
C. The Partners, on the one hand, and Parent and Sub, on the other
hand, desire to make certain representations and warranties and other agreements
to one another in connection with the Acquisition.
D. The parties intend for the Acquisition to be accounted for as a
"pooling of interests."
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
1.1 Purchase. At the Closing provided for in Article II hereof, on the
terms and subject to the conditions set forth in this Agreement, the Partners
shall sell, convey, transfer, assign and deliver to Sub, free and clear of all
liens, encumbrances or other defects of title, and Sub shall
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purchase and acquire from the Partners 100% of the outstanding capital units,
shares and capital accounts of the Partnership, including after Closing all
rights to distributions of the Partnership and all rights to the proceeds of any
sale of the assets of, or partnership interests in, the Partnership held by
McKinney (the "Partnership Interests"), in each case relating to periods from
and after the Closing.
1.2 Consideration. The aggregate purchase price for the Partnership
Interests shall consist of a number of shares of Parent Common Stock (the
"Shares") determined by dividing $23,985,000 (the "Purchase Price") by $28.51
(the "Closing Price").
1.3 Delivery. At the Closing provided for in Article II hereof, the
Partners will deliver an instrument or instruments irrevocably assigning 100% of
the Partnership Interests in exchange for that number of shares as is set forth
opposite the name of each Partner in Column A of Exhibit A. A portion of the
Shares equal to 7.5% of the Purchase Price will be deposited by Parent into the
Escrow Fund (as defined in Section 9.2) on behalf of the Partners solely to fund
the indemnification obligations described in Section 9.2. The number of Shares
to be deposited into the Escrow Fund on behalf of each Partner is set forth in
Column B of Exhibit A.
ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall occur contemporaneously with the execution and
delivery of this Agreement and shall take place at the offices of Davis &
Gilbert in New York, New York, commencing at 10:00 a.m., E.S.T., on January 31,
1997 (the "Closing Date").
2.2 Deliveries at the Closing by the Partners. At the Closing, the
Partners shall deliver or cause to be delivered to Parent or Sub, as the case
may be, the following:
(a) An instrument or instruments irrevocably transferring 100% of
the Partnership Interests to Sub;
(b) All other documents, certificates, instruments or writings
required to be delivered by the Partners on or prior to the Closing pursuant to
this Agreement, including any required assignments of contracts of the
Partnership to Sub; and
(c) An instrument to Parent terminating that certain Redemption and
Loan Agreement dated December 31, 1990 between the Partnership and McKinney.
2.3 Deliveries at the Closing by Parent and Sub. At the Closing, Parent
or Sub, as the case may be, shall deliver to the Partners the following:
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(a) Certificates representing the Shares in the amounts and in the
names set forth in column A of Exhibit A;
(b) A copy of the resolutions of the Board of Directors of each of
Parent and Sub authorizing the execution, delivery and performance by Parent and
Sub of this Agreement and the transactions contemplated hereby and a certificate
of the Secretary of each company dated the Closing Date, certifying that such
resolutions were duly adopted and are in full force and effect; and
(c) All other documents, certificates or writings required to be
delivered by Parent or Sub on or prior to the Closing pursuant to this
Agreement.
2.4 Delivery to Escrow Agent. At the Closing, Parent shall cause to be
delivered to the Escrow Agent a certificate or certificates representing the
total number of Escrow Shares (as defined in Section 9.2 below) set forth in
Column B of Exhibit A. Each such certificate will include stock powers executed
by each Partner in respect of the certificate representing the Escrow Shares for
each Partner.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each of the Current Partners hereby jointly and severally represents
and warrants to Parent and Sub, subject to such exceptions as are specifically
disclosed in the disclosure letter (referencing the appropriate section number)
executed and delivered by or on behalf of each of the Current Partners to Parent
(the "Disclosure Schedules") and dated as of the date hereof, as follows:
3.1 Organization of the Partnership. The Partnership is a general
partnership validly existing under the laws of the State of North Carolina. The
Partnership has the requisite power to own its properties and to carry on its
business as now being conducted. The Partnership has filed a certificate of
doing business (or similar form) in each jurisdiction in which it is doing
business except where the failure to file such certificate or certificates in
the aggregate would not have a material adverse effect on the business, assets
(including intangible assets), financial condition or results of operations of
the Partnership (hereinafter referred to as a "Material Adverse Effect"). The
Current Partners have delivered a true and correct copy of the Articles of
Reorganization of Partnership of the Partnership dated December 31, 1990, as
amended to date (the "Articles of Partnership"), to Parent, a copy of which is
attached hereto as Exhibit B, which document is the only agreement establishing
the Partnership and the Partnership Interests.
3.2 Partnership Structure.
(a) All of the Partnership Interests, whether as general partner or
otherwise, and the names of the person or persons who are the owners of such
Partnership Interests are as set forth in
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Exhibit A hereto. At the Closing, the Partners shall have transferred to the Sub
100% of the outstanding Partnership Interests.
(b) Except for the Articles of Partnership and the Redemption and
Loan Agreement which shall be terminated as of Closing, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Partnership is a party or by which it is bound obligating the
Partnership to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any interests in the
Partnership or obligating the Partnership to grant or enter into any such
option, warrant, call, right, commitment or agreement.
3.3 Subsidiaries. Except as set forth on Schedule 3.3, the Partnership
does not have and has never had any subsidiaries or affiliated companies and
does not otherwise own and has never otherwise owned any shares of capital stock
or any interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
3.4 Authority. The execution and delivery of this Agreement by the
Partners does not, and, as of the Closing Date, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Articles of Partnership or (ii) if the consents, waivers
and approvals set forth on Schedule 3.4 are obtained or given, any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Partnership. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party (so as not to trigger any Conflict),
is required by or with respect to the Partnership in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 3.4.
3.5 Partnership Financial Statements. Schedule 3.5 sets forth (a) the
Partnership's audited balance sheet as of November 30, 1996 (the "November
Balance Sheet") and the related audited statements of income and cash flows for
the eleven months then ended and (b) the Partnership's audited balance sheet as
of December 31, 1995 and 1994 and the related audited statements of income and
cash flows for the two years then ended, in each case as reported on by Ernst &
Young, independent certified public accountants (collectively, the "Partnership
Financials"). The Partnership Financials have been prepared consistently for all
periods presented, and revenues presented on the Partnership Financials have
been recognized in accordance with generally accepted accounting principles
("GAAP"). The Partnership Financials present fairly the financial condition,
operating results and cash flows of the Partnership as of the dates and during
the periods indicated therein, subject to normal year-end adjustments, which
will not be material in amount or significance. The
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Partnership's current assets are not more than $200,000 less than its total
liabilities less accrued rent as determined in accordance with GAAP; provided,
however, in making such calculation, the Third Party Expenses remaining to be
paid plus the remaining payments to the estate of Toni Jordan shall be excluded
from total liabilities and a corresponding intercompany receivable of $1,265,000
from Parent shall be excluded as a current asset.
3.6 No Undisclosed Liabilities. Except as set forth in Schedule 3.6,
the Partnership does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, in excess of $25,000
individually or in the aggregate, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in the
financial statements if such financial statements were prepared in accordance
with GAAP), which individually or in the aggregate, (i) has not been reflected
in the November Balance Sheet, (ii) has not arisen in the ordinary course of the
Partnership's business consistent with past practice since November 30, 1996,
(iii) has not been specifically identified as a liability in a Schedule to this
Agreement, (iv) is not an executory obligation under a Contract listed on a
Schedule to this Agreement or (v) did not arise under Contracts of the type
required to be disclosed on any Schedule but because of the dollar amount or
other qualifications are not required to be listed on such Schedule.
3.7 No Changes. Except as set forth in Schedule 3.7, since November 30,
1996, there has not been, occurred or arisen any:
(a) transaction by the Partnership except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Partnership;
(c) capital expenditure or commitment by the Partnership, either
individually or in the aggregate, exceeding $100,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Partnership (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Partnership;
(g) revaluation by the Partnership of any of its assets;
(h) declaration, setting aside or payment of a distribution with
respect to the partnership interests in the Partnership, or any direct or
indirect redemption, purchase or other acquisition by the Partnership of any of
partnership interests;
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(i) except as otherwise contemplated by this Agreement, increase in
the salary or other compensation payable or to become payable by the Partnership
to any of its officers or employees, or the declaration, payment or commitment
or obligation of any kind for the payment, by the Partnership of a bonus or
other additional salary or compensation to any such person in each case whether
as a result of such increase or prior thereto receives aggregate compensation
from the Partnership at an annual rate of $50,000 or more;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Partnership, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Partnership is a party or by which it is bound;
(l) loan by the Partnership to any person or entity, incurring by
the Partnership of any indebtedness guaranteeing by the Partnership of any
indebtedness, issuance or sale of any debt securities of the Partnership or
guaranteeing of any debt securities of others;
(m) waiver or release of any right or claim of the Partnership,
including any write-off or other compromise of any account receivable of the
Partnership, in excess of $25,000 in the aggregate;
(n) the commencement or notice or, to the Current Partners'
knowledge, threat of commencement of any lawsuit or proceeding against or, to
the Current Partners' knowledge, investigation by any Governmental Entity of the
Partnership or its affairs;
(o) notice of any claim of ownership by a third party of the
Partnership's Intellectual Property (as defined in Section 3.11 below) or notice
of infringement by the Partnership of any third party's Intellectual Property
rights;
(p) issuance or sale by the Partnership of, or any sale by a Partner
of, interests in the Partnership;
(q) any event or condition of any character that has or, to the
knowledge of the Current Partners, may have a Material Adverse Effect;
(r) any loss of a client accounting for more than 10% of the
Partnership's net revenue during the last fiscal year or, to the Current
Partners' knowledge, notice by any such customer that it intends to terminate
its relationship with the Partnership; or
(s) negotiation or agreement by the Partnership or any Partner,
officer, or employee thereof to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
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3.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other similar governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Partnership as of the Closing Date will have
prepared and filed all federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") required to be filed by it
relating to any and all Taxes imposed upon the Partners and such Returns shall
be true and correct and shall have been completed in accordance with applicable
law.
(ii) The Partnership as of the Closing Date: (A) will have
paid all Taxes it is required to pay and will have withheld with respect to its
employees or independent contractors all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and (B) will have accrued on the
Partnership Financials all Taxes imposed on the Partners and attributable to the
periods covered by the Partnership Financials and will not have incurred any
liability for Taxes for the period prior to the Closing Date other than in the
ordinary course of business.
(iii) The Partnership has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding or assessed, or, to the
knowledge of the Current Partners, proposed against the Partnership, nor has the
Partnership executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax imposed upon the
Partnership.
(iv) No audit or other examination of any Return of the
Partnership is presently in progress, nor has the Partnership been notified of
any request for such an audit or other examination.
(v) The Partnership does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against on the Partnership Financials, whether asserted or unasserted,
contingent or otherwise.
(vi) The Partnership will make available upon request copies
of all federal and state income (or income information) and all state sales and
use Tax Returns for the Partnership for the last three taxable years.
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(vii) There are (and as of immediately following the Closing
Date there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Partnership relating to or
attributable to Taxes, other than liens for personal property, sales and payroll
taxes not yet due and payable.
(viii) None of the Partnership's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Internal
Revenue Code of 1986, as amended (the "Code").
(ix) The Partnership constitutes a partnership for federal,
state and local income tax purposes and for the purposes of the income tax laws
of each state in which it is doing business.
(x) The Partnership is not a party to a third-party tax
sharing or allocation agreement with any third party nor does the Partnership
owe any amount under any such agreement.
(xi) The Partnership has not made an election under Section
754 of the Code.
3.9 Restrictions on Business Activities. Except for (x) standard
confidentiality provisions contained in agreements with clients and (y)
exclusivity provisions in agreements with clients which limit the Partnership's
freedom to service competitive accounts during the term of such agency-client
agreement, there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which the Partnership or any of the
Partners is a party or otherwise binding upon the Partnership or any of the
Partners which has or reasonably could be expected to have the effect of
prohibiting or impairing any acquisition of property (tangible or intangible) by
the Partnership or the conduct of the Partnership's business by the Partnership
as heretofore conducted. Except as provided in clauses (x) and (y) above,
neither the Partnership nor any Partner has entered into any agreement under
which the Partnership is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
3.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Partnership does not own real property, nor has it ever
owned any real property. Schedule 3.10(a) sets forth a list of all real property
currently leased by the Partnership, the name of the lessor, the date of the
lease and each amendment thereto and, with respect to any current lease, the
aggregate annual rental and/or other fees payable under any such lease. All such
current leases are in full force and effect. All such current leases are valid
and effective in accordance with their respective terms. Neither the Partnership
nor, to the Current Partners' knowledge, any other party to any lease is in
default under any such lease (or has caused an event which with notice or lapse
of time, or both, would constitute a default).
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(b) The Partnership has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens (as defined in Section 3.8(vii)),
except as reflected in the Partnership Financials or in Schedule 3.10(b) and
except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby.
(c) Schedule 3.10(c) lists all material items of equipment (the
"Equipment") owned or leased by the Partnership and, to the Current Partners'
knowledge, such Equipment is, taken as a whole, (i) adequate for the conduct of
the business of the Partnership as currently conducted and (ii) in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
3.11 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the following
and all rights associated therewith: (i) all domestic and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
continuations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyright registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) all mask works, mask
work registrations and applications therefor; (v) all industrial designs and any
registrations and applications therefor; (vi) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith; and (vii) all
computer software including all source code, object code, firmware, development
tools, files, records and data, all media on which any of the foregoing is
recorded, all documentation related to any of the foregoing.
"Intellectual Property of the Partnership" shall mean any
Intellectual Property that: (i) is owned by or exclusively licensed to the
Partnership, or (ii) which is necessary to the operation of the Partnership,
including the design, manufacture and use of the products of the Partnership as
it currently is operated or is reasonably anticipated to be operated in the
future, but shall specifically not include any rights in or to materials created
for clients as "work-made-for-hire" or which are subject to an exclusive
assignment or license in favor of clients of the Partnership.
(b) The registrations of the Intellectual Property listed on
Schedule 3.11(b) are valid and subsisting, all necessary registration and
renewal fees in connection with such registrations have been made and all
necessary documents and certificates in connection with such registrations have
been filed with the relevant patent, copyright and trademark authorities in the
United States for the purposes of maintaining such Intellectual Property
registrations.
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(c) The contracts, licenses and agreements listed on Schedule
3.11(c) include all contracts, licenses and agreements, to which the Partnership
is a party with respect to any Intellectual Property of the Partnership, other
than "shrink wrap" and similar commercial end-user licenses.
(d) The contracts, licenses and agreements listed on Schedule
3.11(c) are in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of the contracts,
licenses and agreements listed on Schedule 3.11(c). The Partnership is in
compliance with, and has not breached any material term of, the contracts,
licenses and agreements listed on Schedule 3.11 (c), and, to the knowledge of
the Current Partners, all other parties to the contracts, licenses and
agreements listed on Schedule 3.11(c) are, in compliance with, and have not
breached any material term of, the contracts, licenses and agreements.
(e) Except as set forth in Schedule 3.11(e): (i) no person has any
rights to use any of the Intellectual Property of the Partnership; and (ii) the
Partnership has neither granted to any Person, nor authorized any Person to
retain, any rights in the Intellectual Property of the Partnership.
(f) Except as set forth on Schedule 3.11(f) the Partnership owns
and has good and exclusive title to each item of Intellectual Property of the
Partnership, free and clear of any Lien; and (ii) the Partnership owns, or has
the right; pursuant to a valid Contract to use or operate under, all other
Intellectual Property of the Partnership.
(g) The operation of the business of the Partnership as it
currently is conducted, including its development of advertising campaigns, the
production of advertising materials developed for clients and provision of
services in respect thereto, does not infringe the Intellectual Property of any
other Person.
(h) The Partnership has not received notice from any person that
the operation of the business of the Partnership, including its development of
advertising campaigns, the production of advertising materials developed for
clients and provision of services in respect thereto, infringes the Intellectual
Property of any Person.
(i) To the knowledge of each Current Partner, except for
indemnification agreements running in favor of clients with respect to the
non-infringement of advertising campaigns and materials created by the
Partnership of the Intellectual Property of any Person contained in
agency-client agreements of the Partnership, Schedule 3.11(j) lists all
contracts, licenses and agreements between the Partnership and any other Person
wherein or whereby the Partnership has agreed to assume or incur any obligation
or liability with respect to the infringement by the Partnership or such other
Person of the Intellectual Property rights of any other Person.
(j) There are no contracts, licenses and agreements between the
Partnership and any other Person with respect to Partnership Intellectual
Property which there is any dispute known to the Partnership regarding the scope
of such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Partnership thereunder.
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(k) To the knowledge of the Current Partners, no Person is
infringing or misappropriating any of the Partnership's Intellectual Property.
(l) There are no claims asserted against the Partnership or, to
the Current Partners' knowledge, against any customer of the Partnership related
to any advertising campaigns or advertising materials developed for clients or
services of the Partnership rendered to its clients.
(m) No Intellectual Property of the Partnership is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the use or licensing thereof by the Partnership.
3.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 3.12, the Partnership is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization, which is not cancelable without penalty or other financial
obligation within 30 days or which has total annual remuneration in excess of
$100,000,
(v) any agreement or plan, including, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property with fixed annual rental
payments in excess of $25,000,
(viii) any agreement of indemnification (other than
indemnification provisions contained in agency-client agreements running in
favor of clients with respect to the non-infringement of advertising campaigns
and materials created by the Partnership of the Intellectual Property of any
Person) or guaranties, (other than the endorsement of negotiable instruments for
collection in the ordinary course of business)
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(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Partnership to engage in any line of
business or to compete with any person, including agreements which limit the
Partnership's ability to service competitive accounts after the termination of
the agency-client agreement or limit the ability of affiliates of the
Partnership to service competitive accounts during or after the termination of
the agency-client agreement; provided, however, (x) standard confidentiality
provisions in agreements with clients entered into in the ordinary course of
business and (y) exclusivity provisions in agreements with clients which limit
the Partnership's freedom to service competitive accounts during the term of
such agency-client agreement do not have to be set forth,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Partnership's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $50,000 or more; provided, however, that (x) commitments to
media and production expenses which are fully reimbursable from clients, and (y)
estimates or purchase orders given in the ordinary course of business relating
to the execution of projects, do not have to be set forth on Schedule 3.12,
(xiv) any construction contracts,
(xv) any joint venture agreement, or
(xvi) any other agreement, contract or commitment that
involves $100,000 or more or is not cancelable without penalty within thirty
(30) days.
The Partnership has not breached, violated or defaulted under, or
received notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any such agreement, contract or commitment set
forth on Schedule 3.12 (any such agreement, contract or commitment, a
"Contract"). Each Contract set forth in any of the Disclosure Schedules is in
full force and effect and is not subject to any default thereunder by the
Partnership and, to the knowledge of the Current Partners, is not subject to
default of the other party obligated to the Partnership pursuant thereto.
Schedule 3.12 also lists all consents, waivers, approvals and assignments of the
parties to any Contract as are required thereunder in connection with the
Acquisition or necessary for such Contract to remain in effect without
modification after the Closing.
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3.13 Interested Party Transactions. No officer or Partner of the
Partnership or Affiliate (as such term is defined in the Securities Act of 1933,
as amended (the "Securities Act")) of the Partnership, has or has had within the
prior three years, directly or indirectly, (i) an interest in any entity which
furnished or sold, or furnishes or sells, services or products that the
Partnership furnishes or sells, or proposes to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to the
Partnership, any goods or services or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"interest in any entity" for purposes of this Section 3.13.
3.14 Governmental Authorization. Schedule 3.14 accurately lists each
consent, license, permit, grant or other authorization issued to the Partnership
by a Governmental Entity (i) pursuant to which the Partnership currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "Partnership Authorizations"), which Partnership
Authorizations are in full force and effect and constitute all Partnership
Authorizations required to permit the Partnership to operate or conduct its
business or hold any interest in its properties or assets.
3.15 Litigation. There is no action, suit or proceeding of any nature
pending or, to the knowledge of the Current Partners, threatened against the
Partnership, its properties or any of its officers (in respect to the
Partnership business) nor, to the knowledge of the Current Partners, is there
any reasonable basis therefor. There is no investigation by any Governmental
Entity pending or, to the knowledge of the Current Partners, threatened against
the Partnership, its properties or any of its officers (in respect to the
Partnership business), nor, to the knowledge of the Current Partners, is there
any reasonable basis therefor by or before any Governmental Entity. No
Governmental Entity has at any time within the last three years challenged or
questioned the legal right of the Partnership to offer or sell any of its
services in the present manner or style thereof.
3.16 Accounts Receivable; Inventory.
(a) The Current Partners have made available to Parent a list of
all accounts receivable of the Partnership reflected on the November Balance
Sheet ("Accounts Receivable") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Partnership arose in the
ordinary course of business, are carried at values determined in accordance with
GAAP consistently applied and, to the knowledge of the Current Partners, are
collectible except to the extent of reserves thereof set forth in the November
Balance Sheet. No Person has any Lien on any of such Accounts Receivable and no
request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable.
3.17 Executive Committee Minute Books. The minute books of the
Executive Committee of the Partnership made available to counsel for Parent are
the only minute books of the Executive
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Committee of the Partnership and the minutes contained therein accurately
describe in all material respects the meetings stated to be held.
3.18 Environmental Matters.
(a) Hazardous Material. The Partnership has not: (i) operated any
underground storage tanks at any property that the Partnership has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Partnership or, to the knowledge of the Current
Partners, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Partnership has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. The Partnership has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, and has not disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Partnership currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Partnership's Hazardous Material
Activities and other business of the Partnership as such activities and business
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Current Partners' knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Partnership. The
Current Partners are not aware of any fact or circumstance which could involve
the Partnership in any environmental litigation or impose upon the Partnership
any environmental liability.
3.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on Schedule 3.19, the Partnership has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 3.19 sets forth the principal terms
and
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conditions of any agreement, written or oral, with respect to such fees.
Schedule 3.19 sets forth a reasonable estimate of all Third Party Expenses (as
defined in Section 6.2) expected to be incurred by the Partnership in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
3.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 3.20(a)(i) below (such definition shall only
apply to this Section 3.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person or entity under
common control with the Partnership within the meaning of Section 414(b) or (c)
of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Partnership Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, fringe
benefits or other employee benefits or remuneration of any kind, funded or
unfunded, including, without limitation, each "employee benefit plan" within the
meaning of Section 3(3) of ERISA which is maintained, contributed to, or
required to be contributed to, by the Partnership or any Affiliate for the
benefit of any "Employee" (as defined below), and pursuant to which the
Partnership or any Affiliate has or may have any material liability, contingent
or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Partnership or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting or similar agreement or contract between the
Partnership or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Partnership Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 3.20(b) contains an accurate and complete
list of (i) each current Employee of the Partnership and each such Employee's
current salary and bonus applicable
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to the current fiscal period and (ii) each Partnership Employee Plan and each
Employee Agreement. Except for the Management Bonus Plan referred to in Section
6.8, the Partnership does not have any plan or commitment to establish any new
Partnership Employee Plan or Employee Agreement, to materially modify any
Partnership Employee Plan or Employee Agreement (except to the extent required
by law or to conform any such Partnership Employee Plan or Employee Agreement to
the requirements of any applicable law), or to enter into any Partnership
Employee Plan or Employee Agreement.
(c) Documents. The Partnership has provided to Parent (i) correct
and complete copies of all documents embodying each Partnership Employee Plan
and each Employee Agreement including all amendments thereto; (ii) the most
recent annual actuarial valuations, if any, prepared for each Partnership
Employee Plan; (iii) the two most recent annual reports (Series 5500 and all
schedules thereto), if any, required under ERISA in connection with each
Partnership Employee Plan or related trust; (iv) if the Partnership Employee
Plan is funded, the most recent annual and periodic accounting of Partnership
Employee Plan assets; (v) the most recent summary plan description together with
the most recent summary of material modifications, if any, required under ERISA
with respect to each Partnership Employee Plan; (vi) the most recent IRS
determination letters and rulings relating to Partnership Employee Plans; (vii)
the forms of initial and qualifying COBRA notices; and (viii) the form of
enrollment form completed by individuals enrolling in any Section 125
("cafeteria") plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
3.20(d), (i) the Partnership has performed in all material respects all
obligations required to be performed by it under each Partnership Employee Plan,
and each Partnership Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Partnership Employee Plan; (iii) there are no actions, suits or
claims pending, or, to the knowledge of the Current Partners, threatened or
anticipated (other than routine claims for benefits) against any Partnership
Employee Plan or against the assets of any Partnership Employee Plan; (iv) in
the past two years there has been no audit of any Partnership Employee Plan by
the IRS or the Department of Labor; (v) there are no inquiries or proceedings
pending or, to the knowledge of the Current Partners or any Affiliates,
threatened by the IRS or Department of Labor with respect to any Partnership
Employee Plan; and (vi) neither the Partnership nor any Affiliate is subject to
any penalty or tax with respect to any Partnership Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Partnership does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Partnership
contributed to any Multiemployer Plan.
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(g) No Post-Employment Obligations. Except as set forth in
Schedule 3.20(g), no Partnership Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and the Partnership has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Partnership Employee Plan, Employee Agreement, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(i) Employment Matters. The Partnership (i) is in compliance in
all material respects with all applicable foreign, federal and state laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees or other
Persons who by virtue of their activities performed on behalf of the Partnership
may be deemed employees within the meaning of applicable law; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees or other Persons who by virtue of their activities
performed on behalf of the Partnership may be deemed employees within the
meaning of applicable law (other than routine payments to be made in the normal
course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the
Partnership is pending or, to the knowledge of the Current Partners, threatened.
The Partnership is not involved in or, to the knowledge of the Current Partners,
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in liability to the Partnership. The Partnership has not engaged in any unfair
labor practices within the meaning of the National Labor Relations Act which
would, individually or in the aggregate, directly or indirectly result in a
liability to the Partnership. The Partnership is not presently, nor has it been
in the past three fiscal years, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by the Partnership.
3.21 Insurance. Schedule 3.21 lists all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees and Partners of the Partnership. There
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is no claim by the Partnership pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Partnership are otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Current Partners have no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
3.22 Compliance with Laws. The Partnership is not currently in
violation of, has not been in material violation of for the past three fiscal
years, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation; provided, however,
that this representation shall not limit the scope of any other representation
made by the Partners hereunder.
3.23 Complete Copies of Materials. The Current Partners have caused the
Partnership to deliver or made available true and complete copies of each
document (or summaries of same) referred to in Article III or in any Schedule to
this Agreement.
3.24 Pooling of Interests. To the knowledge of the Current Partners,
based solely on consultation with the Partnership's independent accountants,
neither the Partnership nor any of its officers or Partners has taken any action
which would prevent Parent from accounting for the Acquisition as a pooling of
interests.
3.25 Representations Complete. None of the representations or
warranties made by the Current Partners (as modified by the Disclosure
Schedules), nor any statement made in any Schedule or certificate furnished by
the Current Partners pursuant to this Agreement, contains or will contain on the
Closing Date, any untrue statement of a material fact.
ARTICLE IIIA
FURTHER REPRESENTATION AND WARRANTIES OF THE PARTNERS
Each Partner further represents and warrants severally to Parent and
Sub as follows:
3.1A Due Authorization. This Agreement has been duly and validly
executed and delivered by, or on behalf of, the Partner and, assuming the due
authorization, execution and delivery by Parent and Sub, constitutes a valid and
binding obligation of the Partner, enforceable against the Partner in accordance
with its terms except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.2A No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Partner of its obligations hereunder will violate, be
in conflict with, or constitute a default under any agreement or commitment to
which the Partner is a party, or violate any statute
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or law or any judgment, decree, order, regulation or rule of any court or other
Governmental Entity applicable to the Partner.
3.3A No Consent Needed. No consent, waiver, approval, order or
authorization of, or declaration, filing or registration with, any Governmental
Entity or any third party is required to be made or obtained by the Partner in
connection with the execution and delivery by the Partner of this Agreement or
the performance by the Partner of its obligations hereunder or the consummation
by the Partner of the transactions contemplated herein.
3.4A Ownership of Partnership Interest. The Partner is the sole record
and beneficial owner of the percentage interest in the Partnership of the amount
in the Partnership set forth next to its name on Exhibit A, and such interest is
to be sold pursuant to this Agreement. Such interest is not subject to any Lien.
Except for the Articles of Partnership and the Redemption and Loan Agreement,
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Partner is party or by which it is
bound obligating the Partner to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any interests in
the Partnership or obligating the Partner to grant or enter into any such
option, warrant, call, right, commitment or agreement. The Partner has the sole
right to transfer such interest to Sub. Such interest constitutes the entire
Partnership Interest owned, beneficially or of record, by the Partner. Upon
delivery to Sub of a duly executed transfer instrument, Sub will receive good
title to such Partnership Interest, subject to no Lien retained, granted or
permitted by the Partner. The Partner has not engaged in any sale or other
transfer of its Partnership Interest in contemplation of the Acquisition.
3.5A SEC Documents, Parent Financial Statements. The Partner has
received and read information concerning the Parent, including without
limitation the SEC Documents and Parent Financial Statements, both as defined
below, and has had an opportunity to ask questions and receive answers from
representatives of Parent concerning the terms of the Acquisition.
3.6A Tax Matters. The Partner has had an opportunity to review with its
own tax advisors the tax consequences to the Partner of the Acquisition and the
transactions contemplated by this Agreement. The Partner understands that it
must rely solely on its advisors and not on any statements or representations by
Parent, or any of their agents. The Partner understands that it (and not Parent)
shall be responsible for its own tax liability that may arise as a result of the
Acquisition or the transactions contemplated by this Agreement.
3.7A Absence of Claims by Partners. Except as set forth in Schedule
3.7A, such Partner has no claim against the Partnership whether present or
future, contingent or unconditional, fixed or variable under any contract or on
any other legal basis whatsoever, except for claims in the ordinary course of
business such as for accrued salary and vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements existing on the date
hereto and which claims are consistent with past practice.
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3.8A Investment Representations of the Partners.
(a) The Partner represents that the Shares to be received by him
will be acquired for investment for his own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting any participation in or otherwise
distributing the same. The Partner further represents that he does not have any
contract, undertaking, agreement or arrangement with any Person to sell,
transfer or grant participation to such Person or to any third Person, with
respect to any of the Shares.
(b) Each Partner understands and acknowledges that the offering of
the Shares pursuant to this Agreement will not be registered under the
Securities Act on the ground that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt pursuant to Section 4(2) of the
Securities Act, and that the Parent's reliance on such exemption is predicated
on each Partner's representations set forth herein.
(c) The Partner covenants that in no event will he or she dispose
of any Shares (other than pursuant to an effective registration statement)
unless and until the Partner shall have notified the Parent of the proposed
disposition and shall have furnished the Parent with a statement of the
circumstances surrounding the proposed disposition, and if requested by the
Parent, the Partner shall have furnished the Parent with a legal opinion in form
and substance reasonably acceptable to the Parent and delivered by counsel
deemed acceptable to the Parent in its sole discretion to the effect that (x)
such disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act and any
applicable state, local, or foreign law has been taken.
(d) The Partner further represents that he or she: (i) has such
knowledge and experience (directly or through independent advisors) in financial
and business matters as to be capable of evaluating the merits and risks of the
undersigned's prospective investment in the Shares; (ii) has received copies of
(A) Parent's Annual Report on Form 10-K for the fiscal year ended November 30,
1995, (B) Parent's Annual Report to its stockholders for the fiscal year ended
November 30, 1995, (C) Parent's Proxy Statement to its stockholders dated April
5, 1996, (D) Parent's final prospectus dated June 21, 1996 relating to its
secondary public offering, (E) Parent's Current Report on Form 8-K filed June
19, 1996, as amended, (F) Parent's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 31, 1996, (G) Parent's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1996, and (H) and Parent's definitive proxy
statement dated November 27, 1996, relating to its Special Meeting of
Stockholders held on December 17, 1996, (I) Parent's Current Report on Form 8-K
filed June 19, 1996, (J) Parent's Current Report on Form 8-K filed December 27,
1996 and (K) Parent's Current Report on Form 8-K filed January 17, 1997
(collectively, the "SEC Documents"); (iii) has been given an opportunity to ask
any and all questions and receive answers from members of management of Parent
concerning the Parent; (iv) has the ability to bear the economic risks of the
undersigned's prospective investment; and (v) may be required to hold
indefinitely the Shares unless such Shares are subsequently registered under the
Securities Act or an exemption from such registration is available.
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(e) The Partner understands and agrees that all certificates for
the Shares shall bear the following legend and any legends required by
applicable state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE 1933 ACT,
AS AMENDED ("ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, OR IN THE OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE
144 OR REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Partnership and the
Partners as follows:
4.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of Parent and Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent and Sub to consummate the transactions
contemplated hereby. A true and complete copy of the charter documents and
by-laws of the Parent and Sub have been delivered to the Partnership.
4.2 Authority. Parent and Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub and constitutes the valid
and binding obligations of Parent and Sub, enforceable in accordance with its
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies. The execution and
delivery of this Agreement by the Parent and Sub do not, and, as of the Closing
Date, the consummation of the transactions contemplated hereby will not,
conflict with, result in any violation of, default under (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any benefit under (i) any provision
of the charter documents or by-laws of Parent or Sub or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Parent or Sub except where such Conflict will not
have a material adverse affect on the business, assets, financial conditions or
results of operations of Parent and Sub taken as a whole. No consent, waiver,
approval, order or authorization of, or registration, declaration or
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filing with, any Governmental Entity or any third party (so as not to trigger
any Conflict), is required by or with respect to Parent or Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and such other
consents, waivers, authorizations, filings, approvals and registrations which if
not obtained, would not have a material adverse affect on the business, assets,
financial condition or results of operations of Parent and Sub taken as a whole.
4.3 Capital Structure.
(a) The authorized stock of Parent consists of 30,000,000 shares
of Common Stock, $.001 par value, of which 13,162,000 shares were issued and
outstanding as of November 30, 1996, and 5,000,000 shares of undesignated
Preferred Stock, $.001 par value. No shares of Preferred Stock are issued or
outstanding. The authorized capital stock of Sub consists of 1,000 shares of
Common Stock, $.001 par value, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issued,
are fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
Parent has also reserved (i) 2,600,000 shares of Common Stock for issuance to
employees and consultants pursuant to the Parent's 1995 Stock Plan, (ii) 100,000
shares of Common Stock for issuance to directors under its 1995 Directors'
Option Plan, (iii) 300,000 shares of Common Stock for issuance under the
Parent's 1995 Employee Stock Purchase Plan and (iv) 750,000 shares of Common
Stock for issuance under the 1995 Series B Stock Plan. There are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Parent is a party or by which it is bound obligating Parent to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of Parent or obligating
Parent to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Acquisition will be duly authorized, validly issued, fully paid, non-assessable
and will not be subject to preemptive rights of any Person.
4.4 SEC Documents; Parent Financial Statements. Parent has furnished
to each of the Partners true and complete copies of the SEC Documents. Since
November 30, 1996, there has been no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or the
results of consolidated operation of Parent and its subsidiaries. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act, or the Securities Exchange Act of
1934, as amended, as applicable and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently filed with the SEC. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "Parent Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
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regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto)
and present fairly the consolidated financial position of Parent at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
4.5 Brokers' and Finders' Fees. The Parent has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
4.6 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or, to the
knowledge of Parent, threatened against Parent or Sub, which in any manner
challenges or seeks to prevent, enjoin, alter, or materially delay the
Acquisition or any of the others transaction contemplated by this Agreement.
4.7 Sub. Sub was formed solely for the purpose of the Acquisition and
engaging in the transactions contemplated hereby. As of the date hereof and the
Closing Date, the capital stock of Sub is and will be directly owned 100% by
Parent. Except for this Agreement, there are not as of the date hereof and there
will not be on the Closing Date any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements requiring Sub to issue,
transfer, sell, purchase, redeem or acquire any shares of capital stock. Except
for this Agreement and for obligations or liabilities incurred in connection
with its incorporation or organization, as of the date hereof and the Closing
Date, Sub has not and will not have incurred, directly or indirectly through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business or activities of any type of kind whatsoever or entered into any
agreements or arrangements with any person or entity.
4.8 No Purchases of Parent Stock. Neither Parent, Sub nor any other of
Parent's subsidiaries have purchased any Parent Common Stock (whether pursuant
to open-market purchases or otherwise) during the fifteen consecutive trading
days ending on the second day immediately prior to the Closing Date.
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Filing of Form S-3. Within three business days of the earlier of
(i) receipt of the Partnership's balance sheets as of December 31, 1996 and
1995, and the related statements of income and cash flows for each of the three
years for the period ended December 31, 1996 (the "Partnership Financial
Statements") (such Partnership Financial Statements prepared in accordance with
GAAP
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and consistent with the policies and reporting practices used by Parent and
audited by its prior independent public accountants), (ii) receipt of (A) the
Partnership Financial Statements audited by the Partnership's prior independent
public accountants and unaudited restated Partnership Financial Statements that
include such reclassifying entries necessary to be made by Parent in order for
such restated Partnership Financial Statements to be in accordance with GAAP and
consistent with the policies and reporting practices used by Parent, and (B)
written consent of the Partnership's prior independent public accountants given
with the knowledge that the restated Financial Statements will be included in
the restated consolidated financial statements of Parent giving effect to the
pooling of interests treatment of the Acquisition, and (iii) receipt of the
Restated Partnership Financial Statements prepared in accordance with GAAP and
consistent with the policies and reporting practices used by Parent and audited
by KPMG Peat Marwick LLP, Parent shall file with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 for the
purpose of registering an aggregate of 200,000 Shares under the Securities Act
for resale by the holders thereof and shall use commercially reasonable efforts
to cause the Registration Statement to be declared effective by the Commission
as soon as practicable after filing. Parent shall file a Registration Statement
on Form S-3 with the Commission for the purpose of registering an aggregate of
an additional 300,000 Shares under the Securities Act for resale by the holders
thereof and shall use commercially reasonable efforts to cause such Registration
Statement to be declared effective on or before June 30, 1997. Parent shall file
a Registration Statement on Form S-3 with the Commission for the purpose of
registering an aggregate of an additional 250,000 Shares under the Securities
Act for resale by the holders thereof and shall use commercially reasonable
efforts to cause such Registration Statement to be declared effective on or
before December 31, 1997. Parent shall file a Registration Statement on Form S-3
with the Commission for the purpose of registering the remaining Shares issued
pursuant to this Agreement and shall use commercially reasonable efforts to
cause such Registration Statement to be declared effective on or before June 30,
1998. In the case of each such Registration Statement, the holders of Shares
shall have the right to sell a number of Shares equal to the product of (a) the
quotient of (1) the number of Shares received by such Partner in the Acquisition
and (2) the total number of Shares issued in the Acquisition, and (b) the total
number of Shares covered by the Registration Statement then being filed. The
rights and obligations of the parties with respect to all of such Registration
Statements shall be as set forth in Exhibit C. In the event Parent is required
to obtain the audited Partnership Financial Statements under Subsection (iii)
above, Parent agrees to use commercially reasonable efforts to obtain such
financial statements as soon as practicable, it being understood by the parties
that the completion of the audit of the Partnership Financial Statements by KPMG
Peat Marwick LLP is expected to require at least 30 days. Nothing in the
preceding sentence shall require Parent to obtain the audited Partnership
Financial Statements specified in Subsection (iii) above within 30 days or any
other time period. Parent agrees to pay all costs of KPMG Peat Marwick LLP in
connection with any of the above services rendered by it.
6.2 Expenses. Except as provided in Schedule 3.19, all fees and
expenses incurred by the Partnership in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("Third Party Expenses") incurred, shall be the obligation of the Partners.
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6.3 Reasonable Best Efforts. Following the Closing Date, each of the
parties hereto shall use its reasonable best efforts to take promptly, or cause
to be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Partnership
or any of Parent's subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of Parent or its subsidiaries or affiliates or
the Partnership or its affiliates, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
6.4 Affiliate Agreements. Schedule 6.4 sets forth those persons who,
in the Partners' reasonable judgment, are or may be "affiliates" of the
Partnership within the meaning of Rule 145 (each such Person an "Affiliate")
promulgated under the Securities Act ("Rule 145"). The Partners shall deliver or
cause to be delivered to Parent on the Closing Date from each of the Affiliates
of the Partnership, an executed Affiliate Agreement in the form attached hereto
as Exhibit D. Parent and Sub shall be entitled to place appropriate legends on
the certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
6.5 Tax Returns. The Parent shall cause the Partnership to file all
tax returns of the Partnership for all taxable periods ending on or before the
Closing Date or thereafter (and not required to be filed prior to the Closing
Date); provided, however, that the federal and state income tax returns of the
Partnership for the taxable year ending on the Closing Date shall be prepared
under the direction of the agent of the Partners (and at their expense) in a
manner consistent with applicable law and past practices. Such returns shall be
subject to the review (but not approval) of Parent. After the Closing Date,
Parent and the Partners will make available to the other, as reasonably
requested, all information, records or documents relating to the liability for
Taxes of the Partnership for all periods ending on or prior to the Closing Date
and will preserve such information, records or document until the expiration of
any applicable statute of limitations or extensions thereof.
6.6 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby; provided that such
transaction is performed in compliance with all applicable federal and state
securities laws.
6.7 Bonus Plan. Parent and Sub agree that at the Closing, Sub will
institute a management bonus program for senior management of Sub (the
"Management Bonus Program") in the form attached hereto as Exhibit E to this
Agreement. Each member of Sub's senior management (as
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determined by the Chief Executive Officer of Sub) shall be eligible to
participate in the Management Bonus Program. The Management Bonus Program shall
be effective for four years beginning at the beginning of the first calendar
month after the Closing Date. Beginning with Parent's fiscal year starting on
December 1, 1999, Sub may amend the Management Bonus Program with the approval
of Sub's Chief Executive Officer. Subsequent to the fourth anniversary of the
Closing Date, Parent agrees to cause Sub to create a management bonus program
for senior management of Sub that is comparable and prepared on the same basis
as management bonus programs, if any, maintained at such time for other business
units of Parent.
6.8 Pooling Accounting. Parent and the Partners shall each use their
best efforts to cause the business combination to be effected by the Acquisition
to be accounted for as a pooling of interests. Each of Parent and the Partners
shall use their best efforts to cause its Affiliates (as defined in Section 6.4)
not to take any action that would adversely affect the ability of Parent to
account for the business combination to be effected by the Acquisition as a
pooling of interests.
6.9 Nasdaq Listing. Parent shall authorize for listing on the Nasdaq
National Market the Shares issuable to the Partners pursuant to this Agreement,
upon official notice of issuance.
6.10 Financial Results of Combined Businesses. Parent agrees to
prepare, as required by the accounting rules referred to below, combined interim
financial results of Parent and the Partnership covering at least 30 days of
combined operations (the "Combined Results") and satisfying all applicable FASB
pooling-of-interests requirements as follows and Parent shall make the Combined
Results publicly available on or before March 21, 1997.
6.11 Benefit Plans. Parent and Sub shall recognize under their employee
benefit plans, programs, arrangements and policies in which a former Partnership
employee will participate the service credited to such employee as of the
Closing Date for purposes of any waiting period, eligibility conditions and
benefits. In addition, upon retirement of Louis Lloyd Jacobs and Robert C.
Doherty, such persons shall be eligible to continue to participate in the health
plan applicable to Sub at such time on the same basis as the other senior
executives of Sub (including, cost contribution).
6.12 Stock Options. After the Closing, upon instruction from the Chief
Executive Officer of Sub, the Parent shall issue to such employees of Sub and in
such amounts as designated by such Chief Executive Officer, a one-time grant of
options to purchase an aggregate of 35,000 shares of Parent Common Stock
pursuant to Parent's standard form option agreement with four year vesting as
follows: (i) 1/4 of the shares subject to the option will vest on the first
anniversary of the date of grant and (ii) the remaining shares will vest 1/36
each month thereafter.
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ARTICLE VII
CONDITIONS TO THE ACQUISITION
7.1 Conditions to Obligations of Each Party to Effect the Acquisition.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) No Adverse Litigation. There shall not be pending or
threatened in writing any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit or invalidate or
collect damages arising out of the Agreement, the Acquisition or any other
transaction contemplated hereby, and which makes it inadvisable to proceed with
the Agreement, the Acquisition and other transactions contemplated hereby.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by a Governmental Entity, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Acquisition,
which makes the consummation of the Acquisition illegal.
(c) Nasdaq Listing. The Shares issuable to the Partners pursuant
to this Agreement and any other shares required to be reserved for issuance in
connection with the Acquisition shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
(d) Opinion of Accountants. Each of Parent and the Partnership
shall have received letters from KPMG Peat Marwick LLP dated within two (2)
business days prior to the Closing Date, regarding that firm's concurrence with
Parent's managements' and Partnership's managements' conclusions as to the
appropriateness of pooling of interest accounting for the Acquisition under
Accounting Principles Board Opinion No. 16, if the Acquisition is consummated in
accordance with this Agreement and Ernst & Young LLP shall have delivered to
KPMG Peat Marwick LLP a letter to the effect that the Partnership complies with
all pooling criteria that relate to the Partnership.
7.2 Additional Conditions to Obligations of the Partners. The
obligations of the Partners to consummate and effect the Acquisition shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, each by the
Partners acting individually:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, with the same
force and effect as if made on and as of the Closing Date; and the Partners
shall have received certificates to such effect signed on behalf of Parent by
the President or
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the Chief Financial Officer of Parent and on behalf of Sub by the President or
Chief Financial Officer of Sub;
(b) Legal Opinion. The Partners shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, counsel to the Parent, in
substantially the form attached hereto as Exhibit F.
(c) Consents. Parent and Sub shall have received all consents,
waiver and approvals listed to Schedule 4.2 hereto.
(d) Registration Rights Agreement. Parent shall have executed the
Registration Rights Agreement in substantially the form attached as Exhibit C.
7.3 Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate and effect the Acquisition shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and
warranties of the Partners, made either jointly or individually, contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date, with the same force and effect as if made on and as of the
Closing Date, and Parent and Sub shall have received a certificate to such
effect signed by each of the Partners;
(b) Legal Opinions. Parent shall have received legal opinions from
(i) Davis & Gilbert and Moore & Van Allen, special counsels to the Partners, in
substantially the forms attached hereto as Exhibit G-1 and G-2; and (ii) Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, special counsel to McKinney, in
substantially the form attached hereto as Exhibit G-3.
(c) Consents; Assignments. The Partnership shall have received all
consents, waivers, approvals and assignments to the Contracts listed in Schedule
3.12 hereto, unless waived by Parent;
(d) Securities Laws. Parent shall have received all necessary
consents and otherwise complied with the Securities Act and with any state Blue
Sky or securities laws applicable to the issuance of the Shares;
(e) Closing Financial Statements. The Partners shall deliver a
certificate executed on their behalf by the Partner Representatives certifying
that on the Closing Date, the Partnership's current assets are not more than
$200,000 less than its total liabilities less deferred rent as determined in
accordance with GAAP; provided, however, in making such calculation the Third
Party Expenses remaining to be paid plus the remaining payments to the estate of
Toni Jordan shall be excluded from total liabilities and a corresponding
inter-company receivable of $1,265,000 from Parent shall be excluded as a
current asset.
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(f) Non-Compete. Each of the persons listed on Schedule 7.3(f)(1)
hereto shall have executed a non-competition agreement in the form attached as
Exhibit H-1, each of the persons listed on Schedule 7.3(f)(2) hereto shall have
executed a non-competition agreement in the form attached as Exhibit H-2 and
each of the persons listed on Schedule 7.3(f)(3) hereto shall have executed a
non-competition agreement in the form attached as Exhibit H-3, and all of such
non-competition agreements shall be in full force and effect;
(g) Termination of McKinney Agreement. McKinney shall have
delivered to Parent an instrument terminating that certain Redemption and Loan
Agreement dated December 31, 1990;
(h) Employment Agreements. Each of the persons listed on Schedule
7.3(h) hereto shall have executed an employment agreement in a form mutually
agreeable to Parent, Sub and such persons and all of such employment agreements
shall be in full force and effect;
(i) Affiliate Agreements. Each of the persons listed on Schedule
6.10 shall have executed an Affiliate Agreement in substantially the form
attached as Exhibit D; and
(j) Registration Rights Agreement. Each of the Partners shall have
executed the Registration Rights Agreement in substantially the form attached as
Exhibit C.
ARTICLE VIII
[INTENTIONALLY OMITTED]
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
9.1 Survival of Representations and Warranties. Subject to the
limitations set forth in Section 9.2(d)(i) and 9.2(d)(xiv) hereof, all of the
Current Partners' representations and warranties contained in Articles III and
IIIA of this Agreement (each as modified by the Disclosure Schedules), or in any
certificate delivered at Closing, shall survive the Acquisition and continue
until the first anniversary of the Closing Date. All of the Partners'
representations and warranties contained in Section 3.4A of this Agreement shall
survive indefinitely. All of the Parent's and Sub's representations and
warranties contained herein or in any certificate delivered at the Closing shall
terminate on the first anniversary of the Closing Date.
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9.2 Indemnity.
(a) General. Subject to Section 9.2(d)(xiv), the Partners
(including all Current Partners and McKinney), solely through the mechanism of
the Escrow Fund (as defined in Section 9.2(d) below), hereby agree, jointly and
severally to indemnify and hold Parent and Sub and their respective officers,
directors and affiliates (including Sub) harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation to the extent not reduced by
proceeds received or reasonably expected to be received from insurance
maintained for the benefit of any indemnified party (hereinafter individually a
"Loss" and collectively "Losses") incurred by Parent and Sub, or their
respective officers, directors or affiliates, directly or indirectly, as a
result of any inaccuracy or breach of a representation or warranty of the
Current Partners contained in Article III herein (as modified by the Disclosure
Schedules).
(b) Procedure For Claims and Minimum Claim Amount. Parent shall
promptly notify the Partners in writing of any Losses for which they shall seek
indemnification under this Section by delivery to the Partner Representatives of
a certificate signed by any officer of Parent (an "Officer's Certificate"): (A)
stating the grounds for recovery by Parent or Sub in sufficient detail to permit
the Partners to understand the general basis for the claim, (B) stating that
Parent has paid or properly accrued or reasonably anticipates that it will have
to pay or accrue Losses (C) specifying in reasonable detail the individual items
of Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability. Notwithstanding
the foregoing subsection, except as provided in Section 9.2(d)(xiv) hereof, the
maximum aggregate recourse by Parent and Sub under this Article IX shall not
exceed the aggregate value of the Escrow Fund, and no action may be taken to
collect any amount owing by the Partners (including, without limitation,
commencement of any legal action, exercise of rights against the Escrow Fund (as
defined below), unless and until the Parent has complied with the claims
procedures set forth in this subsection and unless and until the amounts of such
claims recoverable under this Section 9.2(b), in the aggregate, exceed $75,000,
in which case, the Partners shall only be liable for Losses in excess of $75,000
(in each case subject to the further limitations set forth in Section 9.2(d)
below).
(c) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent in good faith reasonably believes will be covered
by the indemnification and/or defense obligation contained in this Article,
Parent shall notify the Partner Representatives of such claim, and the Partners
(through the Partner Representatives)shall be entitled, at their expense, to
participate in any defense of such claim. Parent shall have the right in its
sole discretion to settle any such claim in the event that the claimed amount of
such claim is $500,000 or more in excess of the value of the Escrow Shares
remaining in the Escrow Fund at the time the claim is made, determined in
accordance with Section 9.2(d)(vii) of this Agreement; provided, however, that
except with the consent of the Partner Representatives, no settlement of any
such claim with third-party claimants shall be determinative of the amount of
any claim against the Partners. In the event that the claimed amount of such
claim is less than $500,000 in excess of the value of the Escrow Shares
remaining in the Escrow Fund at the time such claim is made, determined in
accordance with Section 9.2(d)(vii) of this Agreement, then Parent shall not
have the right to settle such claim except with the consent of
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the Partner Representatives, which consent shall not be unreasonably withheld.
In the event that the Partner Representatives have consented to any such
settlement pursuant to the preceding sentence, the Partners shall have no power
or authority to object under any provision of this Article IX to the amount of
any such claim by Parent with respect to such settlement.
(d) Escrow Fund. Solely as security for the recovery by the Parent
and the Sub of the amounts owing to them under the Partners' indemnification
obligations set forth in Section 9.2(a) above (the "Partners' Indemnities"), the
Partners will be deemed to have received and deposited with the Escrow Agent (as
defined below) 7.5% of the number of Shares issuable at the Closing (plus any
additional shares as may be issued upon any stock splits, stock dividend or
recapitalization effected by Parent after the Closing Date) (the "Escrow
Shares"). At the Closing, the Escrow Shares, together with stock powers for such
shares, without any act of the Partners, will be deposited with Chemical Trust
Company of California (or other institution reasonably acceptable to Parent and
the Partners) as Escrow Agent (the "Escrow Agent"), such deposit to constitute
an escrow fund (the "Escrow Fund" ) to be governed by the terms set forth herein
and at Parent's cost and expense.
(i) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Closing and shall terminate on the earlier
of (x) the date of completion of the audit of the Parent's financial statements
for the fiscal year ending November 30, 1997 and (y) the date which is the one
year anniversary of the Closing Date (the "Escrow Period Termination Date").
Within 10 days following the Escrow Period Termination Date, the Escrow Shares
remaining in the Escrow Fund shall be released from the Escrow Fund and shall be
distributed pro rata to the Partners, based upon the number of Shares received
by each. Such remaining Escrow Shares shall be reduced by an amount of Shares
which, in the reasonable judgment of Parent, subject to the objection of the
Partners and any subsequent arbitration of the matter in the manner provided in
Section 9.2(d)(v) hereof, is in value necessary to satisfy any then pending
unsatisfied Partners' Indemnities, which have been specified in any Escrow Fund
Claim delivered to the Escrow Agent and the Partners prior to the Escrow Period
Termination Date pursuant to Subsection 9.2(d)(iii) below
(ii) Protection of Escrow Shares.
(1) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(2) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split, stock dividend or recapitalization) ("New Shares") in respect of the
Escrow Shares which have not been released from the Escrow Fund shall be added
to the Escrow Fund and become a part thereof. New Shares issued in respect of
Escrow Shares which have been released from the Escrow Fund shall not be added
to the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on the Escrow
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Shares shall not be added to the Escrow Fund but shall be distributed to the
Partners, based upon the number of Shares received by each. The Parent shall
make arrangements for such cash dividends to be paid directly to the Partners;
provided, if the Escrow Agent receives any such dividends it shall promptly
distribute the same to the Partners based upon the number of shares received by
each.
(3) The Partners shall have voting rights with respect
to the Escrow Shares contributed to the Escrow Fund by the Partners (and on any
voting securities added to the Escrow Fund in respect of the Escrow Shares) and
the Escrow Agent shall promptly upon receipt thereof deliver to such Partner any
proxy statement and proxies with respect thereto which the Escrow Agent
receives.
(iii) Notice of Election To Satisfy Claim With Escrow Fund. In
case Parent incurs a Loss coverable hereunder, Parent shall deliver to the
Escrow Agent and the Partner Representatives a written notice (the "Escrow Fund
Claim"), which contains a copy of the Officer's Certificate described in
Subsection 9.2(b) above and a statement of the amount the Partners' Indemnity to
be satisfied by distribution of Escrow Shares from the Escrow Fund.
(iv) Objections to Escrow Fund Claim. For a period of thirty
(30) days after delivery of an Escrow Fund Claim to the Partner Representatives,
Parent shall not be entitled to any Escrow Shares, unless Parent shall have
received written authorization from the Partner Representatives to take the
amounts claimed in the Escrow Fund Claim. After the expiration of such thirty
(30) day period, Parent shall be entitled to such number of Escrow Shares with a
value equal to the amounts claimed in the Escrow Fund Claim, provided that no
such delivery may be made if the Partner Representatives shall object in a
written statement to the Escrow Fund Claim, and such statement shall have been
delivered to Parent prior to the expiration of such thirty (30) day period,
specifying in reasonable detail the basis for the objection (an "Escrow Claim
Objection").
(v) Resolution of Conflicts; Arbitration.
(1) If the Partner Representatives so deliver an Escrow
Claim Objection within thirty (30) days after delivery of an Escrow Fund Claim,
the Partner Representatives and Parent shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Partner Representatives and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent, indicating the value, if any, of the Escrow
Shares that should be distributed to Parent from the Escrow Fund to satisfy the
Escrow Fund Claim. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute such Escrow Shares from the Escrow Fund in accordance
with the terms thereof.
(2) If no such agreement can be reached after good faith
negotiation, either Parent or the Partner Representatives may demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by one
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arbitrator mutually agreeable to Parent and the Partner Representatives.
Arbitration of a claim may only be commenced for claims made prior to the Escrow
Period Termination Date. In the event that within 30 days after submission of
any dispute to arbitration Parent and the Partner Representatives cannot
mutually agree on an arbitrator, Parent and the Partner Representatives shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The arbitrator or arbitrators, as the case may be, shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator or arbitrators, as the case may be, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator or arbitrators, as the case may be, shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorney's fees and costs, to the extent as a court of
competent law or equity, should the arbitrators determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator or
a majority of the three arbitrators, as the case may be, as to the validity and
amount of any claim raised by the Escrow Fund Claim shall be binding and
conclusive upon the parties to this Agreement, and the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrators.
(3) Judgment upon any award rendered by the arbitrator
or arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Raleigh, North Carolina under the rules then in
effect of the American Arbitration Association. The arbitrators shall determine
how the fees of each arbitrator and the administrative fee of the American
Arbitration Association shall be paid. The respective expenses (including
attorneys' fees) of each party to the arbitration shall be borne by each such
party.
(4) The Arbitrator's award shall be limited to the
shares of Parent Common Stock then remaining in the Escrow Fund.
(vi) Reduction of Escrow Fund. Upon (a) a decision of the
arbitrator or arbitrators in favor of Parent, (b) written authorization from the
Partner Representatives pursuant to Section 9.2(d)(iv) or (c) expiration of the
30 day period specified in Section 9.2(d)(iv), Parent shall be entitled to that
number of Escrow Shares in the Escrow Fund with a value equal to the amount of
the Partners' Indemnity obligation covered by the Escrow Fund Claim. The Escrow
Agent shall deliver to Parent out of the Escrow Fund, as promptly as practicable
such Escrow Shares, provided that sufficient Escrow Shares remain in the Escrow
Fund.
(vii) Valuation of Shares. For the purposes of determining the
number of Escrow Shares to be delivered to Parent out of the Escrow Fund and for
purposes of Section 9.2(c) hereof, the Escrow Shares shall be valued at the
Closing Price.
(viii) Fractional Shares. No fractional shares of the Parent
Common Stock shall be issued or delivered pursuant to any provision contained in
this Article IX. In the event of any
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distribution of the Escrow Shares to the Parent under this Section 9.2, the
award of the arbitrator or written authorization from the Partner
Representatives under Section 9.2(d)(vi) or the Escrow Fund Claim delivered
pursuant to Section 9.2(d)(iii) shall direct the Escrow Agent to round off (up
or down) any fractional share resulting from any calculation hereunder to the
nearest whole share.
(ix) Allocation. All distributions made from the Escrow Fund,
whether payable to Parent or to the Partners, shall be made proportionately from
the Escrow Shares set forth opposite the name of each Partner as his respective
interest appears on Column B of Exhibit A hereto except for any indemnity
payment to be made by Louis Lloyd Jacobs, Robert C. Doherty and Don S. Maurer
pursuant to Section 9.2(d)(xiv).
(x) Distribution Consent. Any other provision of this Section
9.2 to the contrary notwithstanding, the Escrow Agent shall distribute the
Escrow Shares in such manner at such time or times as Parent and the Partner
Representatives may, in writing, jointly direct.
(xi) Escrow Agent's Duties.
(1) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Partner Representatives, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(2) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other Person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other Person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(3) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(4) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
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(5) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any Person acting or purporting to act on behalf
of any party to this Agreement.
(6) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents, cash and Escrow Shares and may wait for settlement of
any such controversy by final appropriate legal proceedings or other means as,
in the Escrow Agent's discretion, the Escrow Agent may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage.
(7) Parent agrees to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(8) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to the Parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent. The successor escrow agent shall execute and deliver
an instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers and duties of the
predecessor escrow agent as if originally named as Escrow Agent. The Escrow
Agent shall be discharged from any duties and liability under this Agreement
assumed by the replacement agent.
(xii) Fees. The Escrow Agent's fees for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that
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the conditions of this Agreement are not promptly fulfilled, or if the Escrow
Agent renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated by Parent, for such extraordinary services and reimbursed
for all costs, attorney's fees, including allocated costs of in-house counsel,
and expenses occasioned by such default, delay, controversy or litigation. The
Parent promises to pay these sums upon demand.
(xiii) Partner Representatives.
(1) Each Partner hereby irrevocably appoints and
constitutes Robert C. Doherty and Don S. Maurer as such Partner's agent (the
"Partner Representatives") for and on behalf of such Partner (i) to give and
receive notices and communications; (ii) to authorize delivery to Parent of
Escrow Shares held by the Escrow Agent; (iii) to represent the Partners with
respect to Article IX of this Agreement, including the power to object to
deliveries out of the Escrow Fund; (iv) to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and to comply with orders
of courts and awards of arbitrators with respect to such claims; and (v) to make
all actions necessary or appropriate in the judgment of the Partner
Representatives for the accomplishment of the foregoing. No action taken by one
Partner Representative shall be valid unless both join in such action. No bond
shall be required by the Partner Representatives. Notices or communications to
or from the Partner Representatives shall constitute notice to or from each of
the Partners. All expenses and costs of the Partner Representatives shall be the
sole responsibility of the Partners.
(2) The Partner Representatives shall not be liable for
any act done or omitted hereunder as Partner Representatives while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith. The Partners shall severally indemnify the Partner Representatives
and hold him or her harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Partner Representatives
and arising out of or in connection with the acceptance or administration of his
or her duties hereunder.
(3) The Partner Representatives shall have reasonable
access to information about Parent and Sub and the reasonable assistance of
Parent's and Sub's officers and employees for purposes of performing his duties
and exercising his right hereunder, provided that the Parent Representatives
shall treat confidentially and not disclose any nonpublic information from or
about Parent and Sub to anyone.
(4) A decision, act, consent or instruction of the
Partner Representatives shall constitute a decision of all Partners with respect
to the Escrow Fund and shall be final, binding and conclusive upon each such
Partner, and the Escrow Agent and Parent may rely upon any decision, act,
consent or instruction of the Partner Representatives as being the decision,
act, consent or instruction of each and every such Partner.
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(5) In the event of the death or incapacity of a Partner
Representative, the remaining Partner Representative shall appoint a new Partner
Representative who shall have all of the powers and rights of the Partner
Representatives originally appointed hereunder; provided, however, that any such
replacement Partner Representative shall be a former Current Partner of the
Partnership.
(xiv) Exclusive Remedy. The indemnity set forth in this
Article IX and the Escrow Fund provided for herein shall apply only to breaches
by the Partners of any representation or warranty of the Partners contained in
Article III hereof and, except as provided below, resort to the Escrow Fund
shall be the exclusive right and remedy of Parent for such breaches.
Accordingly, Parent and Sub agree that none of the indemnified parties shall
have any recourse for the payment of Losses of any kind whatsoever arising under
Section 9.2(a) against the Partners, nor shall any of such persons be personally
liable for any such Losses except as provided in the foregoing sentence;
provided, however notwithstanding the foregoing, the existence of this Article
IX and of the rights and restrictions set forth herein do not limit any other
potential remedies of Parent (A) against any Partner with respect to any
breaches of Section 3.4A hereof; provided that each Partner shall be severally
liable to Parent for any breach of his or her representation and warranty set
forth in Section 3.4A or (B) with respect to any knowing and intentional
misrepresentation of a fact in connection with a representation or warranty of
the Current Partners contained in any Article III of this Agreement; provided
that only Louis Lloyd Jacobs, Robert C. Doherty and Don S. Maurer shall be
liable to Parent, severally in an amount not to exceed the value of the total
number of Shares received by such individual received in the Acquisition
(including Shares deposited on behalf of such individual in the Escrow Fund).
9.6 Indemnification by Parent and Sub of the Partners.
(a) Indemnity. Parent and Sub agree to indemnify and hold the
Partners harmless against all Losses incurred by such indemnified parties
resulting from or attributable to any liability of the Partnership that exists
on the Closing Date. As used in this Section 9.3(a), "Losses" shall only exclude
losses or damages covered by insurance only to the extent that the Partners
receive the proceeds of such insurance. Notwithstanding the foregoing, the
Partners shall not be entitled to indemnification with respect to any Loss
resulting from or which constitutes an inaccuracy or breach of a representation
or warranty of the Partners contained in Article III and Article IIIA herein.
(b) Procedures for Asserting Claims. Upon obtaining knowledge of
the institution of any action, suit, proceeding or other event which would give
rise to a claim of indemnity pursuant to Section 9.3(a), the Partner
Representatives shall notify the Parent of such claim. The Parent shall have the
right in its sole discretion to settle any such claim. The failure of the
Partner Representatives to notify the Parent within 10 days of becoming aware of
any such claim shall excuse Parent's indemnity obligations under Section 9.3(a)
hereof if such failure materially prejudices Parent's ability to settle such
claim.
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ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given (a) upon personal delivery, if delivered by
hand, (b) three days after the date of deposit in the mail, postage prepaid, if
mailed by certified first class mail, or (c) the next business day if sent by
telecopier (if receipt is electronically confirmed) or by a prepaid overnight
courier service, to the parties at the following addresses or telecopy numbers
(or at such other address or telecopy numbers for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to:
CKS Group
10441 Bandley Drive
Cupertino, CA 95014
Attention: President and Chief Executive Officer
Telephone No.: (408) 366-5100
Telecopy No.: (408) 366-5120
with a copy at the same address to the attention of the
Executive Vice President of Business Development, and
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Daniel R. Mitz, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(b) If to the Partners, to:
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McKinney & Silver
333 Corporate Plaza, 9th Floor
Raleigh, NC 27601
Telephone No: (919) 821-6400
Telecopy No.: (919) 821-6599
with a copy to:
Davis & Gilbert
1740 Broadway, 3rd Floor
New York, NY 10019
Attention: Michael D. Ditzian, Esq.
Telephone No.: (212) 468-4800
Telecopy No.: (212) 468-4888
(c) If to McKinney, to:
Mr. Charles C. McKinney
1021 Cowper Drive
Raleigh, NC 27608
Telephone No.: (919) 834-4746
Telecopy No.: (919) 834-1338
with a copy to:
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, LLP
Attention: Henry A. Mitchell, Jr.
P.O. Box 2611
Raleigh, NC 27602
Telephone No.: (919) 821-6625
Telecopy No.: (919) 821-6805
(d) If to the Escrow Agent, to:
Chemical Trust Company of California
101 California St., Suite 2725
San Francisco, CA 94111
Attn: Michael B. McGhee
Telephone No: (415) 954-9561
Telecopy No.: (415) 693-8850
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(e) If to the Partner Representatives to:
Robert C. Doherty
Don S. Maurer
c/o McKinney & Silver
333 Corporate Plaza, 9th Floor
Raleigh, NC 27601
Telephone No: (919) 821-6400
Telecopy No.: (919) 821-6599
10.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents, instruments and other agreements among the
parties referenced herein: (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other Person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided.
10.5 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision provided
that Parent and Sub shall remain liable for their obligations hereunder.
10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
10.7 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application
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of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
10.8 Definitions. The following terms shall have the following
definitions in this Agreement.
(a) "Accounts Receivable" is defined on page 13 of this
Agreement.
(b) "Affiliate" is respectively defined on pages 15 and 25 of
this Agreement.
(c) "Agreement" is defined on page 1 of this Agreement.
(d) "Articles of Partnership" is defined on page 3 of this
Agreement.
(e) "Closing Price" is defined on page 2 of this Agreement.
(f) "Closing Date" is defined on page 2 of this Agreement.
(g) "Closing" is defined on page 2 of this Agreement.
(h) "Code" is defined on page 8 of this Agreement.
(i) "Combined Results" is defined on page 26 of this Agreement.
(j) "Commission" is defined on page 25 of this Agreement.
(k) "Conflict" is defined on page 4 of this Agreement.
(l) "Contract" is defined on page 12 of this Agreement.
(m) "Disclosure Schedules" is defined on page 3 of this
Agreement.
(n) "Employee" is defined on page 15 of this Agreement.
(o) "Employee Agreement" is defined on page 15 of this
Agreement.
(p) "Environmental Permits" is defined on page 14 of this
Agreement.
(q) "Equipment" is defined on page 9 of this Agreement.
(r) "ERISA" is defined on page 15 of this Agreement.
(s) "Escrow Fund" is defined on page 31 of this Agreement.
(t) "Escrow Fund Claim" is defined on page 32 of this Agreement.
(u) "Escrow Period Termination Date" is defined on page 30 of
this Agreement.
(v) "Escrow Shares" is defined on page 31 of this Agreement.
(w) "GAAP" is defined on page 4 of this Agreement.
(x) "Governmental Entity" is defined on page 4 of this
Agreement.
(y) "Greater Price" is defined on page 2 of this Agreement.
(z) "Hazardous Materials Activities" is defined on page 14 of
this Agreement.
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(aa) "Hazardous Material" is defined on page 14 of this
Agreement.
(bb) "Intellectual Property" is defined on page 9 of this
Agreement.
(cc) "Intellectual Property of the Partnership" is defined on
page 9 of this Agreement.
(dd) "IRS" is defined on page 15 of this Agreement.
(ee) "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by
reference to knowledge of a party, such term shall be
limited to the actual knowledge of such party after
reasonable investigation, except that in the case of Parent
and Sub, such term shall be limited to the actual knowledge
after reasonable investigation of any of the executive
officers of Parent and Sub.
(gg) "Liens" is defined on page 8 of this Agreement.
(hh) "Loss" is defined on page 30 of this Agreement.
(ii) "Management Bonus Program" is defined on page 26 of this
Agreement.
(jj) "Material Adverse Effect" is defined on page 3 of this
Agreement.
(kk) "Multiemployer Plan" is defined on page 16 of this
Agreement.
(ll) "New Shares" is defined on page 32 of this Agreement.
(mm) "November Balance Sheet" is defined on page 4 of this
Agreement.
(nn) "Parent Financial Statements" is defined on page 23 of this
Agreement.
(oo) "Partnership Authorizations" is defined on page 13 of this
Agreement.
(pp) "Partnership Employee Plan" is defined on page 15 of this
Agreement.
(qq) "Partnership Financials" is defined on page 4 of this
Agreement.
(rr) "Partnership Interests" is defined on page 1 of this
Agreement.
(ss) "Pension Plan" is defined on page 16 of this Agreement.
(tt) "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited
liability corporation or partnership, a trust, an
unincorporated organization and a government or other
department or agency thereof.
(uu) "Purchase Price" is defined on page 2 of this Agreement.
(vv) "Returns" is defined on page 7 of this Agreement.
(ww) "Rule 145" is defined on page 25 of this Agreement.
(xx) "SEC Documents" is defined on page 21 of this Agreement.
(yy) "Securities Act" is defined on page 13 of this Agreement.
42
<PAGE> 48
(zz) "Shares" is defined on page 2 of this Agreement.
(aaa) "Tax" or "Taxes" is defined on page 7 of this Agreement.
(bbb) "Third Party Expenses" is defined on page 25 of this
Agreement.
10.9 Amendment. This Agreement and the Schedules attached hereto may
be amended, supplemented or modified by the parties hereto at any time only by
an agreement in writing signed on behalf of both of the Partner Representatives
on behalf of all the Partners and each of the other parties hereto following due
authorization.
10.10 Termination of Articles of Partnership. On and after the Closing,
the Articles of Partnership shall terminate and cease to have any force and
effect. Without limiting the foregoing, on and after the Closing no Partner
shall be bound by nor have any liability under, Sections 20 or 21 of the
Articles of Partnership.
43
<PAGE> 49
IN WITNESS WHEREOF, Parent, Sub, the Partners, the Partner
Representatives and the Escrow Agent have caused this Agreement to be signed,
all as of the date first written above.
PARTNERS CKS GROUP, INC.
/s/ Larry L. Bennett By: /s/ Mark D. Kvamme
- ----------------------------- -----------------------------------------
Larry L. Bennett
Name: Mark D. Kvamme
/s/ Stephen E. Boase ---------------------------------------
- -----------------------------
Stephen E. Boase Title: President and Chief Executive Officer
--------------------------------------
/s/ Joan C. Brown
- ----------------------------- RALEIGH ACQUISITION, INC.
Joan C. Brown
By: /s/ Carlton H. Baab
/s/ Patrick H. Burnham -----------------------------------------
- -----------------------------
Patrick H. Burnham Name: Carlton H. Baab
---------------------------------------
/s/ J. Stephen Davis, III
- ----------------------------- Title: President
J. Stephen Davis, III --------------------------------------
/s/ Robert C. Doherty
- -----------------------------
Robert C. Doherty
/s/ Janice C. Hunter
- -----------------------------
Janice C. Hunter
/s/ Louis Lloyd Jacobs
- -----------------------------
Louis Lloyd Jacobs
PARTNERS REPRESENTATIVES
/s/ David B. Johnston
- -----------------------------
David B. Johnston By: Robert C. Doherty
---------------------------------
/s/ Don S. Maurer Robert C. Doherty
- -----------------------------
Don S. Maurer
By: /s/ Don S. Maurer
/s/ Charles C. McKinney ---------------------------------
- ----------------------------- Don S. Maurer
Charles C. McKinney
44
<PAGE> 50
CHEMICAL TRUST COMPANY
/s/ Emry L. McKinney OF CALIFORNIA
- --------------------------------------
Emry L. McKinney
/s/ Richard N. Myracle By: /s/ Michael McGhee
- -------------------------------------- --------------------------------
Richard N. Myracle
Name: Michael McGhee
/s/ Mark W. Schofield ------------------------------
- -------------------------------------- Assistant Vice President
Mark W. Schofield
45
<PAGE> 1
EXHIBIT 4.1
CKS GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made as of January
31, 1997, between CKS Group, Inc., a Delaware corporation ("CKS"), and the
partners and former partners of McKinney & Silver, a North Carolina General
Partnership (the "Partnership"), acquiring shares of the Common Stock of CKS
pursuant to that certain Acquisition Agreement dated as of January 31, 1997,
(the "Acquisition Agreement") among CKS, Raleigh Acquisition Inc., a Delaware
corporation ("Sub") and wholly-owned subsidiary of CKS, the persons listed on
Exhibit A thereto (the "Partners"), Chemical Trust Company of California, as
Escrow Agent, and Robert C. Doherty and Donald S. Maurer, as Partner
Representatives.
1. Definitions. As used in this Agreement:
(a) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(b) "1933 Act" means the Securities Act of 1933, as amended.
(c) "Closing Date" means the Closing Date as defined in Article II
of the Acquisition Agreement.
(d) "Material Event" means the happening of any event during the
period that the registration statement described in Section 2 hereof is required
to be effective as a result of which, in the judgment of CKS, such registration
statement or the related Prospectus contains or may contain any untrue statement
of a material fact or omits or may omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
(e) "Partner" shall mean each of the persons listed on Exhibit A to
the Acquisition Agreement.
(f) "Registrable Securities" means the shares of CKS Common Stock
issued or issuable to the Partners pursuant to Article I of the Acquisition
Agreement (including the shares deposited with the escrow agent pursuant to the
Acquisition Agreement).
(g) "Registration Statement" means such form under the 1933 Act as
in effect on the date hereof or any registration form under the 1933 Act
subsequently adopted by the SEC which permits registration of the Registrable
Securities under the 1933 Act.
(h) "SEC" means the Securities and Exchange Commission.
<PAGE> 2
Terms not otherwise defined herein have the meanings given to them
in the Acquisition Agreement.
2. Registration. CKS shall use commercially reasonable efforts to cause
the Registrable Securities held by each Partner to be registered under the 1933
Act at the times and in the amounts specified in Section 6.1 of the Acquisition
Agreement so as to permit the immediate resale thereof; provided, however, that
the Partners shall provide all such information and materials relating to the
Partners and take all such action as may be reasonably required in order to
permit CKS to comply with all the applicable requirements of the SEC and to
obtain any desired acceleration of the effective date of the Registration
Statements referred to in Section 6.1 of the Acquisition Agreement, such
provision of such information and materials to be a condition precedent to the
obligations of CKS pursuant to this Agreement and the Acquisition Agreement. The
offerings made pursuant to such registrations shall not be underwritten.
Notwithstanding the foregoing, CKS shall not be required to cause the
Registrable Securities to be registered if CKS legal counsel delivers a legal
opinion to the individual Partner seeking to sell Registrable Securities that
such sale may be effected without registration under the 1933 Act.
3. Postponement of Registration.
(a) Registration. Notwithstanding Section 2 above, CKS shall be
entitled to postpone the declaration of effectiveness of any Registration
Statement prepared and filed pursuant to Section 2 for a reasonable period of
time, but not in excess of thirty (30) calendar days after the applicable
deadline, if the Board of Directors of CKS, acting in good faith, after
consultation with its principal securities counsel, determines that there exists
material non-public information about CKS which CKS has a bona fide business
purpose for preserving as confidential and CKS provides the Partners written
notice of the postponement promptly after CKS makes such determination.
(b) Material Event. The Partners agree that, upon receipt of any
notice from CKS of the happening of a Material Event, the Partners will
forthwith discontinue disposition of the Registrable Securities pursuant to any
Registration Statement described in Section 2 until the Partners' receipt of
copies of supplemented or amended prospectuses prepared by CKS, and, if so
directed by CKS, the Partners will deliver to CKS (at the expense of CKS) all
copies in its possession, other than permanent file copies then in the Partners'
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. In no event shall CKS delay causing to be
effective a supplement or post-effective amendment to a Registration Statement
filed pursuant to Section 2 or the related prospectus, for more than thirty (30)
consecutive days or one hundred twenty days (120) days during any 365
consecutive calendar day period.
4. CKS Registration.
(a) If (but without any obligation to do so) (A) CKS proposes to
register any of its Common Stock or other securities under the Act in connection
with a public offering of such securities solely for cash (not including (i) a
registration effected by CKS for stockholders other than the Partners, (ii) a
registration relating solely to CKS's employee benefit plans, (iii) a
registration relating solely to an acquisition, or (iv) a registration on any
form that does not include substantially the same information as
<PAGE> 3
would be required to be included in a registration statement covering the sale
of the Registrable Securities) and (B)(i) CKS has not previously registered the
Partner's Registrable Securities under the Act and (ii) it is prior to the third
anniversary of the Closing Date, CKS shall, at such time, promptly give each
Partner written notice of such registration. Upon the written request of each
Partner given within twenty (20) days after mailing of such notice by CKS, CKS
shall, subject to the provisions of Section 4(b) and (c) below, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
(b) In connection with any offering involving an underwriting of
shares of CKS's capital stock, CKS shall not be required under Section 4(a) to
include any of the Partners' securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between CKS and the underwriters
selected by it (or by other persons entitled to select the underwriters), and
then only in such quantity as the managing underwriter determines in its sole
discretion will not, due to marketing factors, jeopardize the success of the
offering by CKS.
(c) If the total amount of securities, including Registrable
Securities, requested by shareholders of CKS to be included in such offering
exceeds the amount of securities sold other than by CKS that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then CKS shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
stockholders of CKS requesting inclusion in such registration according to the
total amount of securities entitled to be included therein owned by each such
shareholder of CKS on a pro rata basis). In no event shall any securities of CKS
be excluded from such registration prior to the cut back of all shares proposed
to be sold in such offering by the shareholders of CKS.
(d) If any Partner disapproves of the terms of any such
underwriting, such Partner may elect to withdraw therefrom by written notice to
CKS and the underwriters. If such Partner's shares are withdrawn from
registration, or if the number of shares of Registrable Securities was
previously reduced due to marketing factors, CKS shall offer to all Partners
retaining the right to include securities in the registration the right to
include additional Registrable Securities in the registration, with such shares
being allocated on a pro rata basis among the stockholders of CKS requesting
inclusion in such Registration Statement.
(e) No Partner shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 4.
5. Obligations of CKS. Within three business days of the earlier of (i)
receipt of the Partnership's balance sheets as of December 31, 1996 and 1995,
and the related statements of income and cash flows for each of the three years
in the period ended December 31, 1996 (the "Partnership Financial Statements")
(such Partnership Financial Statements prepared in accordance with GAAP and
-3-
<PAGE> 4
consistent with the policies and reporting practices used by CKS and audited by
its prior independent public accountants), (ii) receipt of (A) the Partnership
Financial Statements audited by the Partnership's prior independent public
accountants and unaudited restated Partnership Financial Statements that include
such reclassifying entries necessary to be made by CKS in order for such
restated Partnership Financial Statements to be in accordance with GAAP and
consistent with the policies and reporting practices used by CKS, and (B)
written consent of the Partnership's prior independent public accountants given
with the knowledge that the Partnership Financial Statements will be included in
the restated consolidated financial statements of CKS giving effect to the
pooling of interests treatment of the Acquisition, and (iii) receipt of the
Partnership Financial Statements prepared in accordance with GAAP and consistent
with the policies and reporting practices used by CKS and audited by KPMG Peat
Marwick LLP, CKS shall file with the SEC a Registration Statement for the
purpose of registering an aggregate of 200,000 Registrable Securities under the
1933 Act for resale by the holders thereof and shall use commercially reasonable
efforts to cause such Registration Statement to be declared effective as soon as
practicable after the date of filing. CKS shall file a Registration Statement
with the SEC for the purpose of registering an aggregate of an additional
300,000 Registrable Securities under the 1933 Act for resale by the Partners and
use commercially reasonable efforts to cause such Registration Statement to be
declared effective on or before June 30, 1997. CKS shall file a Registration
Statement with the SEC for the purpose of registering an aggregate of an
additional 250,000 Registrable Securities under the 1933 Act for resale by the
Partners and use commercially reasonable efforts to cause such Registration
Statement to be declared effective on or before December 31, 1997. CKS shall
file a Registration Statement with the SEC for the purpose of registering the
remaining Registrable Securities issued pursuant to the Acquisition Agreement
and use commercially reasonable efforts to cause such Registration Statement to
be declared effective on or before June 30, 1998. In the case of each such
Registration Statement, the Partners shall have the right to sell a number of
Registrable Securities equal to the product of (a) the quotient of (1) the
number of Registrable Securities received by such Partner in the Acquisition and
(2) the total number of Registrable Securities issued in the Acquisition and (b)
the total number of Registrable Securities covered by the Registration Statement
then being filed. In the event CKS is required to obtain the audited Partnership
Financial Statements under Subsection (iii) above, CKS agrees to use
commercially reasonable efforts to obtain such financial statements as soon as
practicable, it being understood by the parties that the completion of the audit
of the Partnership Financial Statements by KPMG Peat Marwick LLP is expected to
require at least 30 days. Nothing in the preceding sentence shall require CKS to
obtain the audited Partnership Financial Statements specified in Subsection
(iii) above within 30 days or any other time period. CKS agrees to pay all costs
of KPMG Peat Marwick LLP in connection with any of the above services rendered
by it. Except as set forth herein, (i) CKS shall keep such Registration
Statements effective until the earlier of the sale of all the Registrable
Securities so registered or the second anniversary of the Closing Date (ii)
promptly prepare and file with the SEC such amendments and supplements to such
Registration Statements and the prospectus used in connection therewith as may
be necessary and to comply with the provisions of the 1933 Act with respect to
the sale or other disposition of all securities proposed to be registered in
such Registration Statement until the earlier of the sale of all of the shares
of Registrable Securities so registered or the second anniversary of the Closing
Date; (iii) furnish to the Partners without charge such number of copies of such
Registration Statements, each amendment and supplement thereto (in each case,
including all exhibits), and any
-4-
<PAGE> 5
prospectus (including any preliminary prospectus and any amended or supplemented
prospectus) in conformity with the requirements of the 1933 Act, and such other
documents, as the Partners may reasonably request in order to effect the
offering and sale of the shares of the Registrable Securities to be offered and
sold, but only while CKS shall be required under the provisions hereof to cause
such Registration Statement to remain current; (iv) use its commercially
reasonable efforts to register or qualify the shares of the Registrable
Securities covered by such Registration Statement under the securities or blue
sky laws of such jurisdictions as the Partners shall reasonably request
(provided that CKS shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction where it has not been qualified),
keep such registration or qualification in effect for as long as such
Registration Statement remains in effect, and do any and all other acts or
things which may be necessary or advisable to enable the Partners to consummate
the public sale or other disposition of the Registrable Securities in such
jurisdictions; (v) cause all such Registrable Securities to be listed on each
securities exchange or National Association of Securities Dealers, Inc.
Automated Quotation System on which similar securities issued by CKS are then
listed, and enter into such customary agreements as may be required in
furtherance thereof, including, without limitation, listing applications and
indemnification agreements in customary form; (vi) notify the Partners 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 a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; (vii) so long as the Registration Statement remains
effective, promptly prepare, file and furnish to the Partners 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 the Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing; (viii) notify the Partners, promptly after it shall receive
notice thereof, of the date and time the Registration Statement and each
post-effective amendment thereto has become effective or a supplement to any
prospectus forming a part of such Registration Statement has been filed; (ix)
notify the Partners promptly of any request by the SEC for the amending or
supplementing of such Registration Statement or prospectus or for additional
information; and (x) advise the Partners, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of the Registration Statement or the issuance by
any state of securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of the
Registrable Securities under state securities or "blue sky" laws, or the
initiation or threatening of any proceeding for that purpose and promptly use
its commercially reasonable efforts to prevent the issuance of any stop order or
other order or to obtain its withdrawal if such stop order or other order should
be issued. In connection with any offering of shares of Registrable Securities
registered pursuant to this Agreement, CKS shall (x) furnish the Partners, at
CKS's expense, with unlegended certificates representing ownership of the shares
of Registrable Securities being sold in such denominations as the Partners shall
request and (y) instruct the transfer agent and registrar of the Registrable
Securities to release any stop transfer orders with respect to the shares of
Registrable Securities being sold.
-5-
<PAGE> 6
6. Expenses. CKS shall pay the expenses incurred by CKS in connection
with any registration of Registrable Securities pursuant to this Agreement
including all SEC, NASD and blue sky registration and filing fees, printing
expenses, transfer agents' and registrars' fees, and the fees and disbursements
of CKS's outside counsel and independent accountants. The Partners shall be
responsible for all underwriting discounts, commissions and transfer taxes
imposed on the Partners by reason of a transfer of Registrable Securities, as
well as any other expenses incurred by the Partners, including the fees and
disbursements of counsel to the Partners.
7. Indemnification. In the event of any offering registered pursuant to
this Agreement:
(a) CKS will indemnify and hold harmless, to the extent
permitted by law, each Partner, with respect to whom registration, qualification
or compliance has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading, or any violation by CKS of any rule or regulation promulgated
under the 1933 Act, or state securities laws, or common law, applicable to CKS
in connection with any such registration, qualification or compliance, and will
reimburse each Partner, for any legal and any other expenses reasonably incurred
in connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided that CKS will not be liable in any such
case (i) to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to CKS by an instrument duly executed by the Partners and
stated to be specifically for use therein or (ii) if a copy of the final
prospectus relating to the Registration Statement (as then amended or
supplemented if CKS shall have furnished any amendments or supplements thereto)
(the "Final Prospectus") was not sent or given by or on behalf of such Partner
to a purchaser of such Partner's Registrable Securities, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Registrable Securities to such purchaser, and if the final prospectus (as so
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Partner and shall
survive the transfer of such securities by the Partner.
(b) Each Partner will indemnify CKS, each of its directors and
officers, each person who controls CKS within the meaning of Section 15 of the
1933 Act, against all claims, losses, damages and liabilities (or actions in
respect thereof) solely arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent,
-6-
<PAGE> 7
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to CKS by an instrument duly executed by such Partner and stated to be
specifically for use therein and will reimburse CKS, such directors, officers,
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to CKS by an
instrument duly executed by such Partner and stated to be specifically for use
therein. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of CKS and shall survive the transfer of such
securities by the Partner.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has written notice of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to participate in and assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is actually impaired as a result of such
failure to give notice. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of an unconditional release from all liability in respect to
such claim or litigation. Whether or not the defense of any claim or action is
assumed by the Indemnifying Party, such Indemnifying Party will not be subject
to any liability for any settlement without its consent, which consent will not
be unreasonably withheld.
(d) The obligations of CKS and the Partners under this Section
7 shall survive the completion of any offering of stock in a registration
statement under this Agreement.
8. Non-Assignment of Registration Rights. The rights to cause CKS to
register Registrable Securities pursuant to this Agreement may not be assigned
by the Partners.
9. Amendment of Registration Rights. This Agreement may be amended
by the holders of a majority of the Registrable Securities and CKS at any time
by execution of an instrument in writing signed on behalf of the parties.
-7-
<PAGE> 8
10. Termination. The registration rights set forth in this Agreement
shall terminate as to any Partner at such time as all of the Registrable
Securities then held by such Partner can be sold by such Partner in a single
3-month period in accordance with Rule 144 under the 1933 Act.
11. Grant of Additional Registration Rights. The Partners
acknowledge that CKS may acquire other companies and in the course of such
acquisitions may grant the equity owners thereof registration rights with
respect to their shares of CKS on terms which would be negotiated at such time.
12. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, postage prepaid, addressed
(a) if to the Partners, at the Partners' address as set forth in the securities
register of CKS or (b) if to CKS at 10441 Bandley Drive, Cupertino, California
95014.
13. Governing Law; Interpretation. This Registration Rights
Agreement shall be construed in accordance and governed for all purposes by the
laws of the State of California regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
14. Entire Agreement. This Registration Rights Agreement contains
the entire agreement and understanding of the parties and supersedes all prior
discussions, agreement and understandings relating to the subject matter hereof.
15. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counter parts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
16. Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
-8-
<PAGE> 9
IN WITNESS WHEREOF, Parent and the Partners have caused this
Agreement to be signed, all as of the date first written above.
PARTNERS CKS GROUP, INC.
/s/ Larry L. Bennett By: /s/ Mark D. Kvamme
- ---------------------------- -------------------------------------------
Larry L. Bennett
Name: Mark D. Kvamme
/s/ Stephen E. Boase -----------------------------------------
- ----------------------------
Stephen E. Boase Title: President and Chief Executive Officer
----------------------------------------
/s/ Joan C. Brown
- ----------------------------
Joan C. Brown
/s/ Patric H. Burnham
- ----------------------------
Patrick H. Burnham
/s/ J. Stephen Davis, III
- ----------------------------
J. Stephen Davis, III
/s Robert C. Doherty
- ----------------------------
Robert C. Doherty
/s/ Janice C. Hunter
- ----------------------------
Janice C. Hunter
/s/ Louis Lloyd Jacobs
- ----------------------------
Louis Lloyd Jacobs
/s/ David B. Johnston
- ----------------------------
David B. Johnston
/s/ Don S. Maurer
- ----------------------------
Don S. Maurer
/s/ Charles C. McKinney
- ----------------------------
Charles C. McKinney
-9-
<PAGE> 10
/s/ Emry L. McKinney
- ----------------------------
Emry L. McKinney
/s/ Richard N. Myracle
- ----------------------------
Richard N. Myracle
/s/ Mark W. Schofield
- ----------------------------
Mark W. Schofield
-10-
