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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
Date of Report (Date of Earliest Event Reported): August 25, 1998
SAPIENT CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
0-28074 04-3130648
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(Commission File Number) (I.R.S. Employer Identification No.)
One Memorial Drive
Cambridge, MA 02142
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(Address of Principal Executive Offices) (Zip Code)
(617) 621-0200
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 25, 1998, Sapient Corporation ("Sapient") acquired all of the
capital stock of Studio Archetype, Inc. ("Studio"), a California corporation
engaged in the business of providing consultation and design services in the
areas of internet website design, brand and identity design, user interface
design, content development and 3D modeling and animation. The acquisition was
effected pursuant to (i) a Stock Purchase Agreement, dated as of August 25, 1998
(the "Agreement"), by and among Sapient, Studio, Clement Mok, Mark Crumpacker,
Peter Rack, Eric Wilson and Todd Holcomb (the "Principal Stockholders") and
Clement Mok in his capacity as Exchange Agent and (ii) a series of Minority
Stockholder Stock Purchase Agreements, dated as of August 25, 1998, by and among
Sapient, each of the former stockholders of Studio who was not a Principal
Stockholder and Clement Mok as Exchange Agent. As a result of the acquisition,
Studio will operate as a wholly owned subsidiary of Sapient. The acquisition
will be treated as a taxable purchase and sale of Studio shares for U.S. income
tax purposes and will be accounted for under the purchase method of accounting.
In consideration for the Studio stock, Sapient issued an aggregate of
498,314 shares of Sapient common stock (the "Purchase Price Shares"), which were
valued at approximately $24.4 million based on the last sale price of Sapient
Common Stock on the Nasdaq National Market on August 25, 1998, and paid an
aggregate of $250,000 in cash to the former stockholders of Studio. Sapient has
agreed to use its best efforts to register 351,815 of the Purchase Price Shares
for resale by the former Studio stockholders at various dates during the next
twelve months.
Sapient and the Principal Stockholders also entered into an Escrow
Agreement pursuant to which 49,829 of the Purchase Price Shares will be held in
escrow to secure indemnification obligations of the Principal Stockholders.
In connection with the transaction, Sapient agreed to loan to the former
stockholders of Studio up to approximately $8.5 million to assist them in
satisfying tax liabilities incurred in connection with the acquisition. The
loans are being made pursuant to secured promissory notes which mature no later
than August 25, 2000. The borrowed amounts are subject to earlier payment upon
sale by a stockholder of his or her Purchase Price Shares or if Sapient's Common
Stock trades above $45.00 per share for a prescribed period of time. Interest on
the loans accrues at 6.5% per year.
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In addition, Sapient has agreed to provide additional compensation of
up to $250,000 to each of four of the Principal Stockholders in connection with
their continued employment with Studio.
The terms of the acquisition were determined on the basis of arm's length
negotiations. Prior to the execution of the Agreement, neither Sapient nor any
of its affiliates, officers or directors had any material relationship with
Studio or its stockholders.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements required by this item are not included with this
initial report. The required financial statements will be filed by amendment not
later than November 9, 1998.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information required by this item is not included
with this initial report. The required pro forma financial information will be
filed by amendment not later than November 9, 1998.
(c) EXHIBITS.
See Exhibit Index attached hereto.
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SIGNATURE
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.
Date: August 31, 1998 SAPIENT CORPORATION
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(Registrant)
By: /s/ Susan D. Johnson
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Susan D. Johnson
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION
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<S> <C>
2 Stock Purchase Agreement, dated as of August 25, 1998, by and
among Sapient Corporation, Studio Archetype, Inc., Clement
Mok, Mark Crumpacker, Peter Rack, Eric Wilson and Todd Holcomb
and Clement Mok as Exchange Agent. (In accordance with SEC
rules, certain schedules and exhibits to the Agreement, which
are listed in the table of contents to the Agreement, are
omitted. Such schedules and exhibits will be furnished
supplementally to the SEC upon request.)
</TABLE>
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STOCK PURCHASE AGREEMENT
BY AND AMONG
SAPIENT CORPORATION,
STUDIO ARCHETYPE, INC.,
THE PRINCIPAL STOCKHOLDERS OF STUDIO ARCHETYPE, INC.
and
CLEMENT MOK
(as Exchange Agent)
dated as of
August 25, 1998
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C>
ARTICLE I - PURCHASE AND SALE OF THE COMPANY SHARES.........................................1
1.1 Purchase of the Company Shares from the Principal Stockholders............1
1.2 Purchase Price for Company Shares; Escrow.................................2
1.3 The Closing...............................................................3
1.4 Actions at the Closing....................................................3
1.5 Further Assurance.........................................................4
1.6 Grant of Stock Options....................................................5
ARTICLE IIA - REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY SHARES AND THE PRINCIPAL STOCKHOLDERS......................................5
2A.1 Ownership of Company Shares...............................................5
2A.2 Authority.................................................................5
2A.3 Noncontravention..........................................................6
2A.4 Investment Representations and Appointment of Purchaser
Representative............................................................6
ARTICLE IIB - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE PRINCIPAL STOCKHOLDERS REGARDING THE COMPANY...................................7
2B.1 Organization..............................................................7
2B.2 Capitalization............................................................8
2B.3 Authorization of Transaction and Noncontravention.........................8
2B.4 Financial Statements and Information, Financial Projections...............9
2B.5 Intellectual Property....................................................11
2B.6 Real Property Owned and Leased...........................................13
2B.7 Assets...................................................................14
2B.8 Contracts................................................................15
2B.9 Books and Records; Bank Accounts; Powers of Attorney.....................16
2B.10 Tax Matters..............................................................16
2B.11 Product and Service Warranties...........................................18
2B.12 Customers................................................................18
2B.13 Insurance................................................................18
2B.14 Legal Compliance; Environmental Matters..................................18
2B.15 Permits..................................................................20
2B.16 Litigation...............................................................20
2B.17 Confidential Information.................................................20
2B.18 Employees; Consultants...................................................20
2B.19 Employee Benefits........................................................21
2B.20 Business Relationships With Affiliates...................................23
2B.21 Brokers' Fees............................................................23
2B.22 Disclosure...............................................................23
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER..................................24
3.1 Organization.............................................................24
3.2 Capitalization...........................................................24
3.3 Authorization............................................................24
3.4 Noncontravention.........................................................24
3.5 Buyer Reports and Financial Statements...................................25
3.6 Litigation...............................................................25
3.7 Brokers' Fees............................................................25
3.8 Investment Representations...............................................26
ARTICLE IV - INDEMNIFICATION...............................................................27
4.1 Indemnification by the Principal Stockholders............................27
4.2 Indemnification by the Buyer.............................................28
4.3 Claims for Indemnification...............................................28
4.4 Survival.................................................................31
4.5 Limitations..............................................................32
ARTICLE V - REGISTRATION RIGHTS............................................................33
5.1 Registration of Shares...................................................33
5.2 Piggyback Registration Rights............................................34
5.3 Limitations on Registration Rights.......................................35
5.4 Registration Procedures..................................................35
5.5 Requirements of Stockholders.............................................36
5.6 Indemnification..........................................................37
5.7 Assignment of Rights.....................................................38
5.8 Rule 144 Reports.........................................................38
ARTICLE VI - FURTHER AGREEMENTS............................................................38
6.1 338 Election.............................................................38
6.2 Acknowledgment of Taxable Nature of Transaction..........................38
6.3 Loans to Stockholders....................................................38
6.4 Release of Personal Guarantees...........................................39
6.5 Installment Sale Treatment...............................................39
ARTICLE VII - MISCELLANEOUS................................................................39
7.1 Press Releases and Public Disclosure.....................................39
7.2 No Third Party Beneficiaries.............................................40
7.3 Entire Agreement.........................................................40
7.4 Succession and Assignment................................................40
7.5 Counterparts.............................................................40
7.6 Headings.................................................................40
7.7 Notices..................................................................40
7.8 Governing Law............................................................42
7.9 Dispute Resolution; Litigation...........................................42
</TABLE>
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<TABLE>
<S> <C> <C>
7.10 Amendments and Waivers...................................................43
7.11 Severability.............................................................43
7.12 Specific Performance.....................................................43
7.13 Expenses.................................................................44
7.14 Construction.............................................................44
7.15 Incorporation of Exhibits and Schedules..................................44
7.16 Facsimile Signature......................................................44
Schedules
Schedule A List of Principal Stockholders
Schedule B List of Stockholders
Schedule C List of Option Recipients
Schedule D Loan Information
Schedule 1.5 Company Indebtedness to be Repaid
Exhibits
Exhibit A Form of Minority Stockholder Stock Purchase Agreement
Exhibit B Form of Legal Opinion of Coblentz, Patch, Duffy & Bass, LLP
Exhibit C Form of Employment Letter
Exhibit D Form of Stockholder Non-Competition Agreement
Exhibit E Form of Legal Opinion of Hale and Dorr LLP
Exhibit F Form of Escrow Agreement
Exhibit G Form of Stock Option Agreement
Exhibit H Form of Promissory Note and Pledge Agreement
Exhibit I Form of Press Release
</TABLE>
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of August 25, 1998 by and
among Sapient Corporation, a Delaware corporation (the "BUYER"), Studio
Archetype, Inc., a California corporation (the "COMPANY"), the stockholders of
the Company identified on SCHEDULE A to this Agreement (the "PRINCIPAL
STOCKHOLDERS") and Clement Mok, in his capacity as Exchange Agent. The Buyer,
the Company and the Principal Stockholders are referred to collectively herein
as the "PARTIES."
INTRODUCTION
1. The stockholders of the Company identified on SCHEDULE B to this
Agreement (the "Stockholders") collectively own all of the issued and
outstanding shares of the capital stock of the Company (the "COMPANY SHARES"),
as set forth on SCHEDULE B attached hereto.
2. Subject to the terms and conditions of this Agreement, the Buyer desires
to purchase from the Principal Stockholders, and the Principal Stockholders
desire to sell to the Buyer, all of the Company Shares held by the Principal
Stockholders, for the consideration set forth below.
3. Simultaneously herewith, the Buyer is purchasing from each Stockholder
who is not a Principal Stockholder (the "MINORITY STOCKHOLDERS"), and the
Minority Stockholders are selling to the Buyer, all of the Company Shares held
by the Minority Stockholders pursuant to a series of Minority Stockholder Stock
Purchase Agreements in the form attached hereto as EXHIBIT A (the "MINORITY
STOCKHOLDER AGREEMENTS").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties agree as
follows:
ARTICLE I
PURCHASE AND SALE OF THE COMPANY SHARES
1.1 PURCHASE OF THE COMPANY SHARES FROM THE PRINCIPAL STOCKHOLDERS. Upon
and subject to the terms and conditions of this Agreement, at the closing of the
purchase and sale of the Company Shares contemplated by this Agreement (the
"CLOSING"), each Principal Stockholder shall sell, transfer, convey, assign and
deliver to the Buyer, and the Buyer shall purchase, acquire and accept from each
Principal Stockholder, all of the Company Shares owned by such Principal
Stockholder.
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1.2 PURCHASE PRICE FOR COMPANY SHARES; ESCROW.
(a) The purchase price to be paid by the Buyer for all of the Company
Shares shall be paid in the form of $250,000 of cash and shares of common stock,
par value $0.01 per share, of the Buyer ("BUYER COMMON STOCK"). Subject to
Section 1.2(b), the aggregate number of shares of Buyer Common Stock to be
issued to the Stockholders at the Closing pursuant to this Agreement and the
Minority Stockholder Agreements is 498,314 (the "PURCHASE PRICE SHARES").
(b) On the Closing Date (as defined below):
(i) the Buyer shall deliver to the Escrow Agent (as defined
below) a certificate (issued in the name of the Escrow Agent or its nominee)
representing 49,829 of the Purchase Price Shares (the "ESCROW SHARES") for the
purpose of securing the indemnification obligations of the Principal
Stockholders set forth in this Agreement. The Escrow Shares shall be held by the
Escrow Agent under the Escrow Agreement pursuant to the terms thereof. The
Escrow Shares shall be held as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any creditor
of any party, and shall be held and disbursed solely for the purpose and in
accordance with the terms of the Escrow Agreement; and
(ii) subject to Section 1.2(c), the Buyer shall deliver to
Clement Mok, in his capacity as Exchange Agent, on behalf of each Principal
Stockholder (x) a certificate representing the remaining number of Purchase
Price Shares issuable to such Principal Stockholder, and (y) a check
representing such Principal Stockholder's pro rata portion of the $250,000 cash
payment, in each case as indicated on SCHEDULE A hereto.
(c) No certificates or script representing fractional Purchase Price
Shares shall be issued to the Principal Stockholders and the Principal
Stockholders shall not be entitled to any voting rights, rights to receive any
dividends or distributions or other rights as a stockholder of the Buyer with
respect to any fractional Purchase Price Shares that would otherwise be issued
to such Principal Stockholders. In lieu of fractional Purchase Price Shares that
would otherwise be issued, each Principal Stockholder that would have been
entitled to receive a fractional Purchase Price Share shall receive a cash
payment equal to the fair market value of such fractional Purchase Price Shares,
which fair market value shall be deemed to be $45.7542 per share.
(d) Each Principal Stockholder hereby appoints Clement Mok to act as
Exchange Agent in connection with the transactions contemplated by this
Agreement. At the Closing, the Exchange Agent will accept delivery from the
Buyer of all of the Purchase Price Shares issuable to the Principal Stockholders
pursuant to
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Section 1.2(b)(ii). Such delivery shall be in the form of one or more stock
certificates issued in the name of Clement Mok, as Exchange Agent. Promptly
after the Closing, the Exchange Agent will instruct the Buyer's transfer agent
to cancel the certificate(s) issued to the Exchange Agent in accordance with
this Section and to issue, in replacement thereof, certificates in the names of
the Principal Stockholders representing the Purchase Price Shares which the
Principal Stockholders are entitled to receive in accordance with the terms of
this Agreement, as set forth in SCHEDULE A hereto. Upon delivery at the Closing
to the Exchange Agent of the Purchase Price Shares issuable to the Principal
Stockholders, neither the Buyer nor the Company shall have any further liability
to any Stockholder or the Exchange Agent with respect to the delivery of such
Purchase Price Shares.
1.3 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Hale and Dorr LLP
in Boston, Massachusetts, commencing at 7:00 a.m., local time on August 25, 1998
(the "CLOSING DATE"). The Closing of the purchase of the Company Shares by the
Buyer from each of the Principal Stockholders shall take place simultaneously
and it shall be a condition to the Buyer's obligation to consummate the
transactions contemplated by this Agreement that each Principal Stockholder
deliver its Company Shares to the Buyer at the Closing and that each Minority
Stockholder deliver its Company Shares to the Buyer in accordance with the
Minority Stockholder Agreements.
1.4 ACTIONS AT THE CLOSING. At the Closing:
(i) COMPANY'S CLOSING CERTIFICATES. The Company and the Principal
Stockholders shall deliver to the Buyer such officers' and other closing
certificates (the "COMPANY CERTIFICATES") as are customary in a transaction of
the nature contemplated hereby;
(ii) COMPANY'S LEGAL OPINION. Coblentz, Patch, Duffy & Bass, LLP,
counsel to the Company and the Stockholders, shall deliver to the Buyer an
opinion in the form of EXHIBIT B attached hereto, addressed to the Buyer and
dated the date hereof;
(iii) EMPLOYMENT LETTER. Each of Clement Mok, Mark Crumpacker,
Peter Rack, Eric Wilson and Todd Holcomb shall execute and deliver to the Buyer
an employment letter in substantially the form attached hereto as EXHIBIT C;
(iv) STOCKHOLDER NON-COMPETITION AGREEMENTS. Clement Mok shall
execute and deliver to the Buyer a Stockholder Non-Competition Agreement in
substantially the form attached hereto as EXHIBIT D-1. Each of Mark Crumpacker,
Peter Rack, Eric Wilson and Todd Holcomb shall execute and deliver to the Buyer
a
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Stockholder Non-Competition Agreement in substantially the form attached hereto
as EXHIBIT D-2;
(v) BUYER'S CLOSING CERTIFICATES. The Buyer shall deliver to the
Company such officers' and other closing certificates (the "BUYER CERTIFICATES")
as are customary in a transaction of the nature contemplated hereby;
(vi) BUYER'S LEGAL OPINION. Hale and Dorr LLP, counsel to the
Buyer, shall deliver to the Company an opinion in the form of EXHIBIT E attached
hereto, addressed to the Company and the Stockholders and dated the date hereof;
(vii) CERTIFICATES REPRESENTING COMPANY SHARES. Each Principal
Stockholder shall deliver to the Buyer the certificate(s) evidencing all of the
Company Shares owned by such Principal Stockholder, duly endorsed in blank or
with stock powers duly executed by the Principal Stockholder, with signature
guaranteed, and, to the extent applicable for any Principal Stockholder residing
in a community property state, a duly executed spousal consent;
(viii) CERTIFICATES REPRESENTING PURCHASE PRICE SHARES AND CASH
PAYMENT. The Buyer shall deliver checks and certificates for the Purchase Price
Shares to the Exchange Agent in accordance with Section 1.2(b)(ii);
(ix) RECORD BOOKS. The Company shall deliver to the Buyer the
minute books, stock books, ledgers and registers, corporate books and other
corporate records relating to the organization, ownership and maintenance of the
Company;
(x) ESCROW AGREEMENT. The Buyer, the Principal Stockholders,
Clement Mok (the "STOCKHOLDER REPRESENTATIVE") and American Stock Transfer and
Trust Company (the "ESCROW AGENT") shall execute and deliver the Escrow
Agreement attached hereto as EXHIBIT F (the "ESCROW AGREEMENT") and the Buyer
shall deliver to the Escrow Agent a certificate for the Escrow Shares being
placed in escrow pursuant to Section 1.2(b)(i);
(xi) REPAYMENT OF INDEBTEDNESS. The Buyer shall cause to be paid
on behalf of the Company the amounts indicated on Schedule 1.5;
(xii) MINORITY STOCKHOLDER AGREEMENTS. The actions at closing
specified in Section 1.4 of the Minority Stockholder Agreements shall occur; and
(xiii) CROSS-RECEIPT. The Buyer and each Principal Stockholder
shall execute and deliver a cross-receipt evidencing the transactions referred
to above.
1.5 FURTHER ASSURANCE. At any time and from time to time after the Closing
at the reasonable request of the Buyer and without further consideration, the
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Principal Stockholders shall promptly execute and deliver such instruments of
sale, transfer, conveyance, assignment and confirmation, and take all such other
action as the Buyer may reasonably request, more effectively to transfer, convey
and assign to the Buyer, and to confirm the Buyer's title to, all of the Company
Shares, to put the Buyer through its ownership of the Company Shares in actual
possession and operating control of the assets, properties and business of the
Company, and to carry out the purpose and intent of this Agreement.
1.6 GRANT OF STOCK OPTIONS. The Buyer shall grant, as of the Closing Date,
to the persons listed on SCHEDULE C hereto, options under the Buyer's 1996
Equity Stock Incentive Plan for an aggregate of 317,000 shares of Buyer Common
Stock. Such options will be granted at an exercise price indicated on SCHEDULE C
and will be subject to the other terms and conditions of such plan and the form
of stock option agreement attached hereto as EXHIBIT G.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY SHARES AND THE PRINCIPAL STOCKHOLDERS
Each Principal Stockholder severally represents and warrants to the Buyer
as follows:
2A.1 OWNERSHIP OF COMPANY SHARES. Such Principal Stockholder has good and
marketable title, free and clear of any and all Security Interests (as defined
below), conditions, restrictions and voting trust arrangements, to all of the
Company Shares listed on SCHEDULE A as being owned by such Principal
Stockholder. Such Principal Stockholder has the full right, power and authority
to sell, transfer, convey, assign and deliver to the Buyer at the Closing the
Company Shares owned by such Principal Stockholder and, upon consummation of the
purchase and sale contemplated hereby, the Buyer will acquire from such
Principal Stockholder good and marketable title to such Company Shares, free and
clear of all voting trust arrangements, Security Interests, conditions and
restrictions (other than any voting trust arrangements, Security Interests,
conditions or restrictions to which the Buyer is a party). "SECURITY INTEREST"
means any mortgage, pledge, security interest, encumbrance, charge, lien,
contractual restriction or covenant, option or other adverse claim (whether
arising by contract or by operation of law).
2A.2 AUTHORITY. Such Principal Stockholder has all requisite power and
authority to execute and deliver this Agreement and the Escrow Agreement and to
perform such Principal Stockholder's obligations hereunder and thereunder. This
Agreement and the Escrow Agreement have been duly and validly executed and
delivered by such Principal Stockholder, and constitute valid and binding
obligations
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of such Principal Stockholder, enforceable against such Principal Stockholder in
accordance with their respective terms.
2A.3 NONCONTRAVENTION. Neither the execution and delivery of this Agreement
or the Escrow Agreement by such Principal Stockholder nor the consummation by
such Principal Stockholder of the transactions contemplated by this Agreement or
the Escrow Agreement will: (i) conflict with or violate any provision of the
Articles of Incorporation or By-laws of the Company; (ii) require on the part of
such Principal Stockholder any filing with, or any permit, authorization,
consent or approval of, any court, arbitration tribunal, administrative agency
or commission or other governmental or regulatory authority or agency (a
"GOVERNMENTAL ENTITY"); (iii) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any agreement,
instrument, contract or arrangement to which such Principal Stockholder is a
party or by which such Principal Stockholder or any of his or her properties is
bound; (iv) result in the imposition of any Security Interest upon the Company
Shares owned by such Principal Stockholder or any assets or properties of such
Principal Stockholder; or (v) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to such Principal Stockholder or to the
Company Shares owned by such Principal Stockholder.
2A.4 INVESTMENT REPRESENTATIONS AND APPOINTMENT OF PURCHASER
REPRESENTATIVE.
(a) In accordance with Regulation D promulgated under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), such Principal Stockholder
hereby appoints Clement Mok and Peter Rack to act as such Principal
Stockholder's Purchaser Representatives (the "PURCHASER REPRESENTATIVES") in
connection with evaluating the merits and risks of such Principal Stockholder's
investment in the Purchase Price Shares. Such Principal Stockholder acknowledges
receipt of a Confidential Offering Memorandum dated August 1998 and, in
particular, the disclosures regarding the Purchase Representatives included in
the section of such memorandum which is captioned "INFORMATION CONCERNING THE
PURCHASER REPRESENTATIVES."
(b) Such Principal Stockholder is acquiring the Purchase Price Shares
to be issued to such Principal Stockholder for such Principal Stockholder's own
account for investment only, and not with a view to, or for sale in connection
with, any distribution of such Purchase Price Shares in violation of the
Securities Act or any rule or regulation under the Securities Act or any
applicable state law.
(c) Such Principal Stockholder, together with such Principal
Stockholder's Purchaser Representatives, has had adequate opportunity to obtain
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from representatives of the Buyer such information, in addition to the
representations set forth in this Agreement, as is necessary to evaluate the
merits and risks of such Principal Stockholder's investment in the Buyer.
(d) Such Principal Stockholder, together with such Principal
Stockholder's Purchaser Representatives, has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved in
the acquisition of the Purchase Price Shares to be issued to such Principal
Stockholder and to make an informed investment decision with respect to such
investment. Such Principal Stockholder is capable of bearing the economic risk
of such Principal Stockholder's investment in the Purchase Price Shares
indefinitely.
(e) Such Principal Stockholder understands that the Purchase Price
Shares have not been registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the Securities Act; and that
the Purchase Price Shares cannot be sold, transferred or otherwise disposed of
unless they are subsequently registered under the Securities Act or an exemption
from registration is then available.
(f) Such Principal Stockholder agrees and understands that a legend
substantially in the following form will be placed on the certificate
representing the Purchase Price Shares to be issued to such Principal
Stockholder:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
ARTICLE IIB
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL STOCKHOLDERS REGARDING THE COMPANY
The Company and each of the Principal Stockholders jointly and severally
represent and warrant to the Buyer that the statements contained in this Article
IIB are true and correct except as set forth in the disclosure schedule attached
hereto (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article IIB, and the disclosures in any paragraph of the Disclosure
Schedule shall qualify only the corresponding paragraph in this Article IIB.
2B.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing (corporate and
tax)
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under the laws of the State of California, and has all requisite power and
authority to own and use its properties and to carry on its business as now
being conducted. The Company is qualified to transact business as a foreign
corporation and is in good standing (corporate and tax) under the laws of each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties requires such qualification, each of which such jurisdictions is
listed in the Disclosure Schedule, except where the failure to so qualify would
not have a material adverse effect on the Company or its business, properties,
operations, condition (financial or otherwise), prospects, assets or
liabilities. The Company has furnished to the Buyer true and complete copies of
its Articles of Incorporation and By-laws, each as amended and as in effect on
the date hereof. The Company is not in default under or in violation of any
provision of its Articles of Incorporation or By-laws. The Company does not
control, directly or indirectly, or have any direct or indirect equity
participation in, any corporation, limited liability company, partnership, trust
or other business association or entity.
2B.2 CAPITALIZATION. The authorized capital stock of the Company consists
of 100,000 shares of common stock, without par value per share, of which 30,000
shares are issued and outstanding as of the date of this Agreement (all of which
are owned of record and beneficially by the Stockholders as set forth on
SCHEDULE B attached hereto). All of the issued and outstanding Company Shares
are duly authorized, validly issued, fully paid, nonassessable and issued
without violation of any preemptive rights. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition, contingent or otherwise, of any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company. There are no
agreements, voting trusts, proxies or understandings with respect to the voting,
or registration under the Securities Act of any capital stock of the Company.
All of the issued and outstanding Company Shares were issued in compliance with
applicable federal and state securities laws.
2B.3 AUTHORIZATION OF TRANSACTION AND NONCONTRAVENTION. The Company has all
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. Subject to compliance with the applicable requirements of the
Securities Act and any applicable state securities laws, neither the purchase
and sale of the Company Shares, nor the consummation of the other transactions
contemplated by this Agreement will: (i) conflict with or violate any provision
of the Articles of
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Incorporation or By-laws of the Company; (ii) require on the part of the Company
any filing with, or any permit, authorization, consent or approval of, any
Governmental Entity; (iii) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party the right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
agreement, instrument, contract or arrangement to which the Company is a party
or by which the Company or any of its assets or properties is bound; (iv) result
in the imposition of any Security Interest upon any assets or properties of the
Company; or (v) violate any order, writ, injunction, decree, law, statute, rule
or regulation applicable to the Company or any of its properties or assets.
Section 2B.3 of the Disclosure Schedule sets forth a list of any notice, consent
or waiver required, as a result of or in connection with purchase and sale of
the Company Shares contemplated by this Agreement, under any agreements,
instruments, contracts or arrangements of the Company or by which the Company or
any of its properties or assets is bound, all of which have been made or
obtained.
2B.4 FINANCIAL STATEMENTS AND INFORMATION, FINANCIAL PROJECTIONS.
(a) FINANCIAL STATEMENTS. The Company has previously delivered to the
Buyer copies of its unaudited financial statements as of and for the fiscal year
ended December 31, 1996, audited financial statements as of and for the fiscal
year ended December 31, 1997 and unaudited financial statements as of and for
the six-month period ended June 30, 1998. Such financial statements (i) have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods covered
thereby (except that the interim financial statements do not include footnotes
and are subject to normal recurring year-end adjustments which will not be
material in amount), (ii) fairly present, as of the dates and for the periods
indicated, the financial condition, results of operations and cash flows of the
Company and (iii) are consistent with the books and records of the Company.
(b) ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liability
or commitment (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), other than (i) the
liabilities shown on the Company's balance sheet as of June 30, 1998, and (ii)
liabilities, similar in nature to those shown on such balance sheet, which have
arisen since June 30, 1998 in the ordinary course of business consistent with
past practice (including with respect to frequency and amount).
(c) ABSENCE OF CERTAIN CHANGES. Since June 30, 1998, (i) there has
been no material adverse change in the Company or its business, properties,
operations, condition (financial or otherwise), prospects, assets or
liabilities, and there has occurred no event or development which may reasonably
be foreseen to have in
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the future a material adverse effect on the Company or its business, properties,
operations, condition (financial or otherwise), prospects, assets or
liabilities, and (ii) the Company has not taken any of the following actions:
(i) issued, granted or sold any shares of capital stock of the
Company or any rights, warrants or options to acquire any such shares;
(ii) declared, set aside or paid any dividend or other
distribution in cash or property in respect of capital stock or redeemed or
repurchased any shares of capital stock;
(iii) created, incurred or assumed any debt not currently
outstanding (including capital leases obligations, but excluding accounts
payable incurred in the ordinary course of business); assumed, guaranteed,
endorsed or otherwise become liable for the obligations of any other person; or
made any loans, advances or capital contributions to, or investments in, any
other person;
(iv) entered into, adopted or amended any Employee Benefit Plan
(as defined in Section 2B.19) or any employment or severance agreement or
arrangement; or increased in any manner the compensation or fringe benefits of,
or materially modified the employment terms of, or paid any bonuses to, its
employees; or hired or terminated any employee with an annual salary in excess
of $40,000;
(v) acquired any assets or made any capital expenditures for an
amount of over $10,000 in any one instance or $50,000 in the aggregate;
(vi) mortgaged or pledged any of its property or assets or
subjected any such assets to any Security Interest;
(vii) discharged or satisfied any Security Interest or paid any
obligation or liability other than in the ordinary course of business;
(viii) sold, leased, encumbered, disposed of, assigned,
transferred or licensed any assets or the Company Intellectual Property (as
defined in Section 2B.5), other than in the ordinary course of business;
(ix) (x) other than client contracts in the ordinary course of
business, entered into, amended or terminated any material contract or (y) taken
or omitted to take any action that would constitute a violation of or default
under, or waived any rights under, any material contract;
(x) amended its Articles of Incorporation or By-laws;
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(xi) changed in any material respect its accounting methods,
principles or practices, except as required by a generally applicable change in
GAAP;
(xii) instituted or settled any legal proceeding;
(xiii) taken any action or failed to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in any of the representations and warranties set forth in Article
IIB becoming untrue;
(xiv) agreed in writing or otherwise to take any of the foregoing
actions.
(d) ACCOUNTS RECEIVABLES. The Company has delivered to the Buyer a
true and correct list of all accounts receivable as of June 30, 1998, including
an aging thereof. All accounts receivable of the Company arose out of the sales
of services in the ordinary course of business and are reasonably expected to be
collectible in the face value thereof within 90 days of the date of invoice,
using normal collection procedures, net of the reserve for doubtful accounts,
which reserve is adequate and was calculated in accordance with GAAP.
(e) PROJECTIONS. The projections dated August 20, 1998 provided by the
Company to the Buyer were prepared in good faith using the best information
available to management of the Company and represent the Company's management's
good faith estimates of the future performance of the Company for the periods
referred to therein.
(f) TOTAL ASSETS. The total assets of the Company as of the month
ended immediately preceding the Closing Date was less than $10 million.
2B.5 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use all Intellectual Property
(as defined below) necessary for, or used in the operation of its business as
presently conducted or presently proposed to be conducted (the "COMPANY
INTELLECTUAL PROPERTY"). For avoidance of doubt, it is agreed that Company
Intellectual Property does not include specific deliverables created by the
Company for clients and assigned to clients or created as "works made for hire",
but does include processes, methodologies and know-how used by the Company to
create such deliverables. Each item of Company Intellectual Property will be
owned or available for use by the Company on identical terms and conditions
immediately following the Closing as it was prior to the Closing. The Company
has taken all reasonable measures to protect the proprietary nature of each item
of Company Intellectual Property, and to maintain in confidence all trade
secrets and confidential information,
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that it owns or uses. No other person or entity owns or has any rights to any of
the Company Intellectual Property (except pursuant to agreements or licenses
specified in Section 2B.5(c) or 2B.5(d) of the Disclosure Schedule), and, to the
knowledge of the Company and any Principal Stockholder, no other person or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property. The Company has made available to the Buyer correct and
complete copies of all written documentation evidencing ownership of each item
of Company Intellectual Property. The Company has delivered to the Buyer correct
and complete copies of any written claims or disputes relating to any item of
Company Intellectual Property and a summary of any such claim or dispute which
has not been reduced to writing. "INTELLECTUAL PROPERTY" means all (i) patents,
patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility, model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (ii) trademarks, service marks, trade
drafts, logos, trade names and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, (iv) computer software, data and
documentation, (v) trade secrets and confidential business information, whether
patentable or unpatentable and whether or not reduced to practice, know-how,
manufacturing and production processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and supplier lists
and information, (vi) other proprietary rights relating to any of the foregoing
and (vii) copies and tangible embodiments thereof.
(b) None of the activities or business presently conducted by the
Company, or conducted by the Company at any time within the three years prior to
the date of this Agreement, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any other person or
entity. Since January 1, 1992, the Company has not received any complaint, claim
or notice alleging any such infringement, violation or misappropriation.
(c) Section 2B.5(c) of the Disclosure Schedule identifies each
license, distribution, reseller or other agreement pursuant to which the Company
has granted (i) exclusive rights to any third party with respect to any item of
Company Intellectual Property, (ii) any rights to any third party with respect
to any item of Company Intellectual Property which is material to the business
or operations of the Company as presently conducted or (iii) other than pursuant
to customer contracts in the ordinary course of business, copies of which have
been furnished to the Buyer, any rights to any third party with respect to any
item of Company Intellectual Property.
(d) Section 2B.5(d) of the Disclosure Schedule identifies each item of
the Company Intellectual Property that is owned by a party other than the
Company,
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and the license or agreement pursuant to which the Company uses it. With respect
to each such item of Intellectual Property:
(i) the license, sublicense or other agreement, covering such
item is legal, valid, binding, enforceable and in full force and effect;
(ii) such license, sublicense or other agreement will continue to
be legal, valid, binding, enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing; and
(iii) to the knowledge of the Company and any of the Principal
Stockholders, no party to such license, sublicense or other agreement is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination, modification or
acceleration thereunder.
(e) The Company has not disclosed to any person or entity the source
code for any of the software owned by the Company and incorporated in its
products or necessary for the operation of its business as presently conducted
(the "Software") or other confidential or proprietary information constituting,
embodied in or pertaining to the Software and the Company has taken reasonable
measure to prevent such disclosure.
(f) All of the Software has been created by employees of the Company
within the scope of their employment by the Company or by independent
contractors of the Company who have executed agreements expressly assigning all
right, title and interest in the Software to the Company. No portion of the
Software was jointly developed with any third party.
(g) The Disclosure Schedule sets forth the results of each "year 2000"
audit, report or investigation which has been performed by or on behalf of the
Company with respect to the Company's business and operations. Neither the
Company nor any of the Principal Stockholders is aware of any "year 2000"
problems affecting any of the Company's hardware or software systems, embedded
systems or third party vendors.
2B.6 REAL PROPERTY OWNED AND LEASED.
(a) The Company does not own any real property.
(b) Section 2B.6 of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to or by the Company and lists the
term of such lease or sublease, any extension and expansion options, and the
rent payable thereunder. The Company has delivered to the Buyer correct and
complete copies of
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the leases and subleases (as amended to date) listed in Section 2B.6 of the
Disclosure Schedule. With respect to each lease and sublease listed in Section
2B.6 of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(iii) neither the Company nor, to the knowledge of the Company,
any other party to the lease or sublease is in breach or violation of, or
default under, any such lease or sublease, and no event has occurred, is pending
or, to the knowledge of the Company and the Principal Stockholders, is
threatened which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(iv) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(v) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(vi) all facilities leased or subleased thereunder are supplied
(for a fee) with utilities and other services necessary for the operation of
said facilities;
2B.7 ASSETS.
(a) The Company owns or leases all tangible assets necessary for the
conduct of its business as presently conducted by the Company and as presently
proposed to be conducted. Each such tangible asset is free from material
defects, has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear) and is
suitable for the purposes for which it presently is used. All such tangible
assets are located at the Company's offices at 600 Townsend Street, Penthouse,
San Francisco, California 94103.
(b) No asset of the Company (tangible or intangible) is subject to any
Security Interest.
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(c) Section 2B.7(c) of the Disclosure Schedule sets forth (i) a true,
correct and complete list of all items of tangible personal property owned by
the Company as of the date hereof, or not owned by the Company but in the
possession of or used in the business of the Company (the "PERSONAL PROPERTY"),
other than individual assets with a book value of less than $1,000; and (ii) a
description of the owner of, and any agreement relating to the use of, each item
of Personal Property not owned by the Company and the circumstances under which
such Personal Property is used. The Company has good and marketable title to
each item of Personal Property owned by the Company. Each item of Personal
Property not owned by the Company is in such condition that upon the return of
such property to its owner in its present condition at the end of the relevant
lease term or as otherwise contemplated by the applicable agreement between the
respective entity and the owner or lessor thereof, the obligations of the
respective entity to such owner or lessor will be discharged.
2B.8 CONTRACTS.
(a) Section 2B.8 of the Disclosure Schedule lists each contract,
agreement or commitment (written or oral) to which the Company is a party that
is material to the business or operations of the Company as presently conducted
and under which the Company currently has, or may in the future have, any rights
or obligations, including without limitation (i) any contract, agreement or
commitment providing for the payment by the Company of an amount in excess of
$25,000; (ii) any contract, agreement or commitment concerning confidentiality,
ownership of ideas or inventions, work-for-hire, non-disclosure or
non-competition (provided that the Company is not required to list any agreement
referred to in the second sentences of Sections 2B.18(a) or 2B.18(b)); (iii) any
contract, agreement or commitment with any current or former stockholders,
directors, founders or employees of or consultants to the Company; (iv) any
contract, agreement or commitment with any suppliers, distributors or resellers
of the products or services of the Company; and (v) any contract, agreement or
purchase order by a customer which (x) is not in the ordinary course of
business, (y) is for an amount in excess of $25,000 or (z) requires the Company
to perform over a period of more than three months (collectively, together with
the agreements and licenses listed in Sections 2B.5 and 2B.18 of the Disclosure
Schedule, the "CONTRACTS").
(b) The Company has previously delivered to the Buyer a complete and
accurate copy of each Contract or a written summary of any oral Contract. Each
Contract is a valid and binding agreement between the Company and the other
party or parties thereto, and will continue to be so immediately following the
Closing; no defaults or breaches on the part of the Company exist under any of
the Contracts and none will arise solely as a result of the purchase and sale of
the Company Shares contemplated by this Agreement and the Minority Stockholder
Agreements; and, to the knowledge of the Company and any of the Principal
Stockholders, no defaults or
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breaches on the part of any other party or parties to the Contracts exist under
any of the Contracts and none will arise solely as a result of the purchase and
sale of the Company Shares contemplated by this Agreement and the Minority
Stockholder Agreements.
2B.9 BOOKS AND RECORDS; BANK ACCOUNTS; POWERS OF ATTORNEY.
(a) The corporate minute books, financial and accounting records and
other business records of the Company, as furnished to the Buyer, are accurate
and complete in all material respects. The books and records of the Company have
been maintained in accordance with good business and bookkeeping practices and
do not reflect any transactions which are not bona fide transactions and do not
omit any actual transactions.
(b) Section 2B.9 of the Disclosure Schedule sets forth a correct and
complete list of all bank accounts and safe deposits of the Company as of the
date hereof, and all authorized signatories with respect thereto.
(c) There are no outstanding powers of attorney executed on behalf of
the Company.
2B.10 TAX MATTERS.
(a) The Company has filed on a timely basis all Tax Returns (as
defined below) that it was required to file and all such Tax Returns were
correct and complete in all material respects. The Company has paid on a timely
basis all Taxes (as defined below) that are shown to be due on any such Tax
Returns. The unpaid Taxes of the Company for tax periods through June 30, 1998
do not exceed the accruals and reserves for Taxes set forth on the June 30, 1998
balance sheet. The Company has no actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group of
corporations or other entities that included the Company during a prior period)
other than the Company. All Taxes that the Company is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity. For purposes of this
Agreement, "TAXES" means all taxes, charges, fees, levies or other similar
assessments or liabilities, including without limitation income, gross receipts,
ad valorem, premium, value-added, excise, real property, personal property,
sales, use, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof. For purposes of this Agreement,
"TAX RETURNS"
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means all reports, returns, declarations, statements or other information
required to be supplied to a taxing authority in connection with Taxes.
(b) The Company has delivered to the Buyer correct and complete copies
of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since January 1, 1992.
The federal income Tax Returns of the Company have been audited by the Internal
Revenue Service or are closed by the applicable statute of limitations for all
taxable years through December 31, 1997. No examination or audit of any Tax
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company or any of the Principal Stockholders, threatened
or contemplated. The Company has not been informed by any jurisdiction that the
jurisdiction believes that the Company was required to file any Tax Return that
was not filed. The Company has not waived any statute of limitations with
respect to taxes or agreed to an extension of time with respect to a tax
assessment or deficiency.
(c) The Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Internal Revenue Code of 1986, as amended (the "CODE")
and none of the assets of the Company are subject to an election under Section
341(f) of the Code. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code. The
Company is not a party to any Tax allocation or sharing agreement.
(d) The Company is not or has not ever been a member of an "affiliated
group" of corporations (within the meaning of Section 1504 of the Code). The
Company has not made an election under Treasury Reg. Section 1.1502-20(g). The
Company is not or has not been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
(e) The Company has not undergone a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481(a) of
the Code. There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Company.
(f) At all times since March 7, 1990, for federal income Tax purposes,
the Company has been validly treated as an "S corporation" within the meaning of
Section 1361(a) of the Code and has been validly treated in a similar manner for
purposes of the income Tax laws of all states in which it has been subject to
taxation. The Company has not had at any time any "net unrealized built-in gain"
within the meaning of Section 1374(d) of the Code that would give rise to
taxation pursuant to Section 1374 of the Code (or comparable provisions of state
law) if all of the assets of the Company were disposed of as of the end of the
day immediately preceding the Closing Date at their respective fair market
values.
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2B.11 PRODUCT AND SERVICE WARRANTIES.
(a) No product sold or licensed by the Company, and no service
provided by the Company, is subject to any guaranty, warranty, right of return
or other indemnity which does not limit the amount of damages recoverable from
the Company to an amount equal to or less than the revenues actually received by
the Company in connection with such product or services.
(b) The Company has not provided any guarantee or warranty for any
product sold or licensed, or service provided, by the Company to the effect that
such product or service complies with and accounts for the fact of the arrival
of the "year 2000" and that such product or service will not be materially
adversely affected with respect to value, utility, marketability, operability or
any other aspect by virtue of the arrival of the "year 2000."
2B.12 CUSTOMERS. The Company has good relations with its customers. No
significant customer or prospective customer has indicated to the Company in
writing, or to the knowledge of any of the Principal Stockholders, other than in
writing, that it will not purchase any products or services from the Company in
the future because it was dissatisfied with the Company's performance or fees or
that it wishes to return or receive a refund for any products or services
previously purchased from the Company. No unfilled customer order or commitment
obligating the Company to process, manufacture or deliver products or perform
services will result in a loss to the Company upon completion of performance.
2B.13 INSURANCE.
(a) The Company maintains and has maintained for the past three years,
insurance with respect to its assets and business. The present scope and
coverage amounts of such insurance is described in Section 2B.13 of the
Disclosure Schedule.
(b) No professional liability or similar claim relating to the
Company's products or services over the past three years has ever been made
against the Company.
2B.14 LEGAL COMPLIANCE; ENVIRONMENTAL MATTERS.
(a) The Company, and the conduct and operations of the Company's
business, are in compliance with each applicable law (including rules,
regulations, ordinances and codes thereunder) of any federal, state, local or
foreign government or Governmental Entity (including without limitation any
relating to public and employee health and safety, environmental protection,
hazardous waste or applicable building, zoning and other laws).
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(b) The Company has complied with all applicable Environmental Laws
(as defined below). There is no pending, or, to the knowledge of the Company or
any of the Principal Stockholders, threatened, civil or criminal litigation,
written notice of violation, formal administrative proceeding, or investigation,
inquiry or information request by any Governmental Entity, relating to any
Environmental Law involving the Company. "ENVIRONMENTAL LAW" means any federal,
state or local law, statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including without limitation
any statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Compensation, Liability and Response Act of
1980 ("CERCLA").
(c) To the knowledge of the Company and any of the Principal
Stockholders, there have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, operated or controlled by the
Company. Neither the Company nor any of the Principal Stockholders is aware of
any releases of Materials of Environmental Concern at parcels of real property
or facilities other than those owned, operated or controlled by the Company that
could reasonably be expected to have an impact on the real property or
facilities owned, operated or controlled by the Company. "MATERIALS OF
ENVIRONMENTAL CONCERN" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the federal Resources
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products.
(d) To the knowledge of the Company and any of the Principal
Stockholders, there are no environmental reports, investigations or audits
relating to premises currently or previously owned or operated by the Company.
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2B.15 PERMITS. The Company possesses all material permits, licenses,
registrations, certificates, orders, approvals, franchises, variances and
similar rights issued by or obtained from any Governmental Entity or any other
third party, that are required to conduct the business of the Company as
presently conducted or as proposed to be conducted, each of which is listed in
Section 2B.15 of the Disclosure Schedule (collectively, the "PERMITS"). Each
Permit is in full force and effect and will be in full force and effect
immediately following the Closing and will not expire or terminate solely as a
result of the transactions contemplated by this Agreement.
2B.16 LITIGATION. The Company (a) is not subject to any unsatisfied
judgment, order, decree, stipulation or injunction, (b) is not a party to any
litigation, suit, action, investigation, proceeding or controversy before any
Governmental Entity; and (c) to the knowledge of the Company and any of the
Principal Stockholders, is not threatened with, any litigation, suit, action,
investigation, proceeding or controversy before any Governmental Entity.
2B.17 CONFIDENTIAL INFORMATION. Since January 1, 1996, the Company has not
disclosed any information of a proprietary or confidential nature relating to
its business, products, technology or financial condition to any person or
entity, except, (a) in the ordinary course of business, to customers and
employees of the Company who have signed confidentiality agreements, (b) to the
legal and financial advisors of the Company, and (c) to the Buyer and its legal
and financial advisors.
2B.18 EMPLOYEES; CONSULTANTS.
(a) All present employees of the Company are listed in Section
2B.18(a) of the Disclosure Schedule, together with their job titles and
salaries. Each present and past employee of the Company is bound by the
Company's standard confidentiality and assignment of inventions agreement, a
copy of which is attached as Section 2B.18(a) of the Disclosure Schedule. To the
knowledge of the Company and the Stockholders, no key employee or group of
employees has any plans to terminate employment with the Company. No employees
of the Company are represented by any labor union or subject to any collective
bargaining agreement, and the employee relations of the Company are good.
(b) Schedule 2B.18(b) of the Disclosure Schedule lists all independent
contractors who have provided services to the Company since January 1, 1997.
Each such independent contractor and each past independent contractor is bound
by the Company's standard confidentiality agreement for independent contractors,
a copy of which is attached to Schedule 2B.18(b) of the Disclosure Schedule.
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2B.19 EMPLOYEE BENEFITS.
(a) Section 2B.19 of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Company or any ERISA Affiliate (as defined below).
"EMPLOYEE BENEFIT PLAN" means any "employee pension benefit plan" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation. "ERISA
AFFILIATE" means any entity which is or at any applicable time was a member of
(i) a controlled group of corporations (as defined in Section 414(b) of the
Code), (ii) a group of trades or businesses under common control (as defined in
Section 414(c) of the Code), or (iii) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes the Company. Complete and accurate copies of (i)
all Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for each Employee Benefit
Plan since inception of the Plan, have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and the Company and each ERISA Affiliate have in all
material respects met their obligations with respect to such Employee Benefit
Plan and have made all required contributions thereto. The Company and all
Employee Benefit Plans are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder.
(b) There are no known investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent
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determination letter or application therefor in any respect, and no act or
omission has occurred that would adversely affect its qualification or
materially increase its cost.
(d) Neither the Company nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company or any ERISA Affiliate been obligated
to contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination or employment to any employee of the
Company (or to any beneficiary of any such employee), including but not limited
to retiree health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company or any ERISA
Affiliate that would subject the Company or any ERISA Affiliate to (i) any
material fine, penalty, tax or liability of any kind imposed under ERISA or the
Code or (ii) any contractual indemnification or contribution obligation
protecting any fiduciary, insurer or service provider with respect to any
Employee Benefit Plan.
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time and no Employee Benefit Plan, plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Employee Benefit Plan.
(j) Section 2B.19(j) of the Disclosure Schedule discloses each: (i)
agreement with any stockholder, director, executive officer or other key
employee of the Company (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii) agreement,
plan or arrangement under which any person may receive payments from the Company
that may be subject to the tax imposed by
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Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding the Company, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Employee Benefit Plan, any of the benefits of which will be
increased, or the vesting of the 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.
(k) Section 2B.19(k) of the Disclosure Schedule sets forth the
Company's policy with respect to accrued vacation liability, accrued sick time
and earned time-off liability and the amount of such liabilities as of June 30,
1998.
2B.20 BUSINESS RELATIONSHIPS WITH AFFILIATES. Section 2B.20 of the
Disclosure Schedule lists any agreements, arrangements or relationships whereby
any current or former officer, director or stockholder of the Company (or any
member of any such person's "immediate family" defined in Rule 16a-1 under the
Securities Exchange Act of 1934)) (a) owns any property or right, tangible or
intangible, which is used in the business of the Company, (b) has any claim or
cause of action against the Company, (c) owes any money to the Company or is
owed any money by the Company or (d) has any other business relationship with
the Company other than in the capacity as an officer, director or stockholder
(any relationships shall be referred to herein as "AFFILIATE RELATIONSHIPS").
2B.21 BROKERS' FEES. No financial advisor, broker, agent or finder was
utilized by the Company or any Stockholder in connection with the transactions
contemplated by this Agreement and no fees are due or owing to any financial
advisor, broker, finder or agent other than to Hambrecht & Quist LLC. The
Principal Stockholders agree to pay all fees, commissions, expenses or other
compensation due or owing to any financial advisor, broker, finder or agent
utilized or engaged by the Company or any Stockholder in connection with the
transactions contemplated hereby, including without limitation fees payable to
Hambrecht & Quist LLC, except to the extent that such amounts constitute Covered
Expenses (as defined in Section 7.13).
2B.22 DISCLOSURE. No representation or warranty by the Company or any
Principal Stockholder contained in this Agreement, and no statement contained in
the Disclosure Schedule or any other document, certificate or other instrument
delivered to or to be delivered by or on behalf of the Company or any Principal
Stockholder pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading. The Company has
disclosed to the Buyer all
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material information relating to the business of the Company or the transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company and the Principal
Stockholders as follows:
3.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The Buyer
is duly qualified to conduct business and is in good standing under the laws of
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties requires such qualification. The Buyer has all
requisite power and authority to own its properties and to carry on its business
as now being conducted, to execute and deliver this Agreement and the Escrow
Agreement and to perform its obligations hereunder and thereunder.
3.2 CAPITALIZATION. The authorized capital stock of the Buyer consists of
(a) 100,000,000 shares of Buyer Common Stock, of which 25,351,420 shares were
issued and outstanding as of August 3, 1998 and (b) 5,000,000 shares of
Preferred Stock, $.01 par value per share, none of which are issued or
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
duly authorized, validly issued, fully paid, nonassessable, and free of all
preemptive rights. All of the Purchase Price Shares will be, when issued in
accordance with this Agreement or the Minority Stockholder Agreements, as the
case may be, duly authorized, validly issued, fully paid, nonassessable, and
free of all preemptive rights.
3.3 AUTHORIZATION. The execution and delivery of this Agreement and the
Escrow Agreement by the Buyer and the consummation by the Buyer of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement and the Escrow Agreement have been duly and validly executed and
delivered by the Buyer and constitute valid and binding obligations of the Buyer
enforceable against the Buyer in accordance with their respective terms.
3.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws,
neither the execution and delivery of this Agreement or the Escrow Agreement by
the Buyer, nor the consummation by the Buyer of the transactions contemplated
hereby or thereby will: (i) conflict with or violate any provision of the
Certificate of Incorporation or By-laws of the Buyer; (ii) require on the part
of the Buyer any filing with, or any permit, authorization, consent or approval
of, any Governmental Entity; (iii) conflict
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with, result in the breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration of obligations
under, create in any party the right to terminate, modify or cancel, or require
any notice, consent or waiver under, any agreement, instrument, contract or
arrangement to which the Buyer is a party or by which the Buyer or any of its
assets or properties is bound and which would adversely affect the Buyer's
performance under this Agreement; or (iv) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Buyer or any of its
properties or assets.
3.5 BUYER REPORTS AND FINANCIAL STATEMENTS. The Buyer has previously
furnished to the Stockholders (i) its Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, as filed with the Securities and Exchange
Commission (the "SEC"), (ii) its Proxy Statement relating to the 1998 Annual
Meeting of Stockholders, (iii) its 1998 Annual Report to Stockholders, (iv) its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998, (v) its Certificate of Incorporation and By-laws, as amended to date
and (vi) a description of the rights and preferences of the Buyer's Common Stock
(items (i) through (vi) collectively, the "BUYER REPORTS"). As of their
respective dates, the Buyer Reports did not contain any 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, in light of the circumstances under
which they were made, not misleading. The financial statements of the Buyer
included in the Buyer Reports (i) comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto and (ii) fairly present the consolidated
financial condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein in accordance
with GAAP.
3.6 LITIGATION. There are no actions, suits, or claims or legal,
administrative or arbitratorial proceeding pending against, or, to the Buyer's
knowledge, threatened against, the Buyer which if determined adversely to the
Buyer would adversely affect the Buyer's performance under this Agreement or the
consummation of the transactions contemplated by this Agreement.
3.7 BROKERS' FEES. No broker, agent or finder was utilized by the Buyer in
connection with the transactions contemplated by this Agreement and no fees are
due or owing to any broker, finder or agent other than to Hamilton Partners. The
Buyer agrees to pay all fees, commissions, expenses or other compensation to
Hamilton Partners and to any other broker, finder or agent utilized or engaged
by the Buyer with respect to the transactions contemplated hereby.
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3.8 INVESTMENT REPRESENTATIONS.
(a) The Buyer is acquiring the Company Shares for its own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of such Company Shares in violation of the Securities Act or any
rule or regulation under the Securities Act.
(b) The Stockholders have informed the Buyer that the Company Shares
have not been registered under the Securities Act and are "restricted securities
within the meaning of the Securities Act, and cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available.
(c) The Buyer agrees to place a legend substantially in the following
form on each certificate representing the Company Shares:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
3.9 ABSENCE OF CERTAIN CHANGES. Since June 30, 1998, there has been no
material adverse change in the Buyer or its business, properties, operations,
condition (financial or otherwise), assets or liabilities, and there has
occurred no event or development which may reasonably be foreseen to have in the
future a material adverse effect on the Buyer or its business, properties,
operations, condition (financial or otherwise), assets or liabilities.
3.10 DISCLOSURE. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in any other document, certificate or
other instrument delivered to or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading. The Buyer has disclosed to the
Company all material information relating to the business of the Buyer or the
transactions contemplated by this Agreement.
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ARTICLE IV
INDEMNIFICATION
4.1 INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS. The Principal
Stockholders shall, jointly and severally, indemnify the Buyer and the Company
in respect of, and hold the Buyer and the Company harmless against, any and all
debts, obligations and other liabilities (whether absolute, accrued, contingent,
fixed or otherwise, or whether known or unknown, due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses, costs and expenses (including without limitation amounts
paid in settlement, interest, court costs, costs of investigators, fees and
expenses of attorneys, accountants, financial advisors and other experts, and
other expenses of litigation) (collectively, "DAMAGES") incurred or suffered by
the Buyer or the Company resulting from, relating to or constituting:
(i) any (a) misrepresentation or breach of warranty of the
Company or any Stockholder contained in this Agreement, the Minority Stockholder
Agreements or in any Company Certificate or (b) any failure to perform any
covenant or agreement of the Company or any Stockholder contained in this
Agreement, the Minority Stockholder Agreements or in any Company Certificate;
(ii) the termination prior to the Closing of employment of
employees of the Company that arose under any federal or state law or under any
employee benefit plan established or maintained by the Company, or any workplace
conditions of the Company existing prior to the Closing;
(iii) any claim by an employee or former employee of the Company
either (a) for any payments under any profit sharing program existing prior to
the Closing or (b) relating to any alleged or actual employment practices prior
to the Closing, including discrimination;
(iv) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (a)
ownership or rights to ownership of any shares of stock of the Company or
options therefor; (b) any rights of a stockholder (other than the right to
receive the consideration set forth in Section 1.2 of this Agreement or Section
1.2 of the Minority Stockholder Agreements), including any option or preemptive
rights or rights to notice or to vote; (c) any rights under the Articles of
Incorporation, By-laws or other organizational document of the Company; or (d)
any claim that his, her or its shares were wrongfully repurchased by the
Company; and
(v) any claim by any financial advisor, broker, agent, finder,
attorney, accountant or other professional utilized or engaged by the Company or
any
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Stockholder in connection with the transactions contemplated hereby, other than
any such claim which is for Covered Expenses (as defined in Section 7.13).
4.2 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify each Principal
Stockholder in respect of, and hold each Principal Stockholder harmless against,
any and all Damages incurred or suffered by such Principal Stockholder resulting
from, relating to or constituting:
(i) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Buyer contained in this Agreement or in
any Buyer Certificate; and
(ii) resulting from the conduct of the business or operations of
the Buyer or the Company following the Closing; PROVIDED, HOWEVER, that no
Principal Stockholder shall be entitled to indemnification under this clause
(ii) with respect to actions taken or omitted by a Stockholder in his capacity
as an employee of the Buyer or the Company.
4.3 CLAIMS FOR INDEMNIFICATION
(a) THIRD-PARTY CLAIMS. A Party entitled, or seeking to assert rights,
to indemnification under this Article IV (an "INDEMNIFIED PARTY") shall give
written notification to the Party from whom indemnification is sought (the
"INDEMNIFYING PARTY") of the commencement of any action, suit or proceeding
relating to a third-party claim for which indemnification pursuant to this
Article IV may be sought. Within 15 days after delivery of such notification,
the Indemnifying Party may, upon written notice thereof to the Indemnified
Party, assume control of the defense of such action, suit or proceeding with
counsel reasonably satisfactory to the Indemnified Party, provided that (i) the
Indemnifying Party may only assume control of such defense if it acknowledges in
writing to the Indemnified Party that any damages, fines, costs or other
liabilities that may be assessed against the Indemnified Party in connection
with such action, suit or proceeding constitute Damages for which the
Indemnified Party shall be entitled to indemnification pursuant to this Article
IV; and (ii) the Indemnifying Party may not assume control of the defense of a
suit or proceeding in which equitable relief is sought against the Indemnified
Party. If the Indemnifying Party does not assume control of such defense, the
Indemnified Party shall control such defense. The Party or Parties not
controlling such defense may participate therein at its or their own expense;
provided that if the Indemnifying Party assumes control of such defense and the
Indemnified Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests with respect to such action, suit
or proceeding, the reasonable fees and expenses of counsel to the Indemnified
Party shall be considered "Damages" for purposes of this Agreement. The Party or
Parties controlling such defense shall keep the other Party or Parties advised
of the status of such action, suit or proceeding and
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the defense thereof and of significant decisions to be made in connection
therewith and shall consider in good faith all recommendations made by the other
Party or Parties with respect thereto. Each Party, at its own cost and expense,
shall furnish the Party controlling the defense of any action, suit or
proceeding pursuant to this Section 4.3(a) such information as such Party may
have with respect to such action, suit or proceeding (including copies of any
summons, complaint or other pleading which may have been served on such party
and any written claim, demand, invoice, billing or other document evidencing or
asserting the same) and shall otherwise cooperate with and assist the Party
controlling the defense of such action, suit or proceeding pursuant to this
Section 4.3(a) in the defense of such action, suit or proceeding. The
Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such action, suit or proceeding without the prior
written consent of the Indemnified Party, which shall not be unreasonably
withheld or delayed; provided that the consent of the Indemnified Party shall
not be required if the Indemnifying Party agrees in writing to pay any amounts
payable pursuant to such settlement or judgment and such settlement or judgment
has no other adverse effect on the Indemnified Party. The Indemnified Party
shall not agree to any settlement of, or the entry of any judgment arising from,
any such action, suit or proceeding without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld or delayed;
provided that if the Indemnifying Party does not assume the defense of such
action, suit or proceeding pursuant to this Section 4.3(a), the Indemnified
Party shall be entitled to agree to a settlement of, or the entry of any
judgment arising from, such action, suit or proceeding, after giving notice of
the same to the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate.
(b) PROCEDURE FOR CLAIMS. An Indemnified Party wishing to assert a
claim for indemnification under this Article IV shall deliver to the
Indemnifying Party a written notice (a "CLAIM NOTICE") which contains (i) a
description and the amount (the "CLAIMED AMOUNT") of any Damages incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article IV for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment in the amount
of such Damages. If the Indemnified Party is seeking to enforce such claim
pursuant to the Escrow Agreement, the Indemnifying Party shall deliver a copy of
the Claim Notice to the Escrow Agent. Within twenty business days after delivery
of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party
a written response (the "RESPONSE") in which the Indemnifying Party shall: (i)
agree that the Indemnified Party is entitled to receive all of the Claimed
Amount (in which case the Response shall be accompanied by a payment by the
Indemnifying Party to the Indemnified Party of the Claimed Amount, by check or
by wire transfer; PROVIDED THAT if the Indemnified Party is the Buyer or the
Company and the Indemnified Party is seeking to enforce such claim pursuant to
the Escrow Agreement the Indemnifying Party and the Indemnified Party shall
deliver to the Escrow Agent within three days following the delivery of the
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Response, a written notice executed by both parties instructing the Escrow Agent
to disburse to the Indemnified Party a number of Escrow Shares having a Fair
Market Value (as defined in the Escrow Agreement) equal to the Claimed Amount),
(ii) agree that the Indemnified Party is entitled to receive part, but not all,
of the Claimed Amount (the "AGREED AMOUNT") (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Agreed Amount by check or by wire transfer; PROVIDED THAT if the Indemnified
Party is the Buyer or the Company and the Indemnified Party is seeking to
enforce such claim pursuant to the Escrow Agreement the Indemnifying Party and
the Indemnified Party shall deliver to the Escrow Agent within three days
following the delivery of the Response, a written notice executed by both
Parties instructing the Escrow Agent to disburse to the Indemnified Party a
number of Escrow Shares having a Fair Market Value (as defined in the Escrow
Agreement) equal to the Agreed Amount) or (iii) dispute that the Indemnified
Party is entitled to receive any of the Claimed Amount. If the Indemnifying
Party in the Response disputes the payment of all or part of the Claimed Amount,
the Indemnifying Party and the Indemnified Party shall use good faith efforts to
resolve such dispute. If such dispute is not resolved within 30 days following
the delivery by the Indemnifying Party of such response, the Indemnifying Party
and the Indemnified Party shall each have the right, after first complying with
the requirements of Section 7.9, to commence litigation for purposes of
resolving such dispute.
For purposes of this Section 4.3, any references to the Indemnified Party
or the Indemnifying Party shall, if one or more of the Stockholders comprise the
Indemnified Party or the Indemnifying Party, be deemed to refer to the
Stockholder Representative. The Stockholder Representative shall have full power
and authority on behalf of each Stockholder to take any and all actions on
behalf of, execute any and all instruments on behalf of, and execute or waive
any and all rights of, the Stockholders under this Article IV. The Stockholder
Representative shall have no liability to any Stockholder for any action taken
or omitted on behalf of the Stockholders pursuant to this Article IV.
(c) CERTAIN CLAIMS. Notwithstanding the provisions of Section 4.3(a)
or (b), if a third party asserts (other than by means of a lawsuit) that the
Buyer or the Company is liable to it for a monetary or other obligation which
may constitute or result in Damages for which the Buyer or the Company may be
entitled to indemnification pursuant to this Article IV, and the Buyer or the
Company reasonably determines that a timely settlement of such obligation will
minimize the amount of the associated Damages or it has a valid business reason
to fulfill such obligation, then (i) the Buyer or the Company shall be entitled
to satisfy such obligation, without prior notice to or consent from the
Principal Stockholders, (ii) the Buyer or the Company may subsequently make a
claim for indemnification pursuant to this Article IV in accordance with the
provisions of this Section 4.3, and (iii) the Buyer or the Company shall be
reimbursed, in accordance with the provisions of this
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Section 4.3, for any such Damages for which it is entitled to indemnification
pursuant to this Article IV (subject to the right of the Principal Stockholders
to dispute, in the manner set forth in this Section 4.3, the Buyer's or the
Company's entitlement to indemnification or the amount for which it is entitled
to indemnification). For purposes of clarity, it is agreed that the amount paid
by the Buyer or the Company pursuant to this Section without the consent of the
Principal Stockholders shall not be admissible as evidence of the appropriate
amount, if any, of the Principal Stockholders' indemnification obligation.
4.4 SURVIVAL. All representations and warranties contained in this
Agreement, the Minority Stockholder Agreements, the Company Certificates or the
Buyer Certificates shall survive the execution and delivery hereof and the
Closing and continue until the second anniversary of the Closing Date and shall
not be affected by any examination made for or on behalf of an Indemnified
Party, except that (i) the representations and warranties contained in Article
IIA of this Agreement, Article II of the Minority Stockholder Agreements and in
Sections 2B.1, 2B.2 and 2B.3 and in any Company Certificate (insofar as such
certificate relates to the representations and warranties contained in Article
IIA of this Agreement, Article II of the Minority Stockholder Agreements and in
Sections 2B.1, 2B.2 or 2B.3) shall survive the Closing and continue without
limitation, (ii) the representations and warranties contained in Sections 2B.10,
2B.14 and 2B.19 and in any Company Certificate (insofar as such certificate
relates to the representations and warranties contained in Section 2B.10, 2B.14
and 2B.19)), shall survive the Closing and continue until 30 days following the
expiration of all applicable statute of limitations. If an Indemnified Party
delivers to an Indemnifying Party, before expiration of a representation or
warranty, either a Claim Notice based upon a breach of such representation or
warranty, or a notice that, as a result a legal proceeding instituted by or
written claim made by a third party, the Indemnified Party reasonably expects to
incur Damages as a result of a breach of such representation or warranty (an
"Expected Claim Notice"), then such representation or warranty shall survive
until, but only for purposes of, the resolution of the matter covered by such
notice. If the legal proceeding or written claim with respect to which an
Expected Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party; and if the Indemnified Party has delivered a copy of the
Expected Claim Notice to the Escrow Agent and funds have been retained in escrow
after the Termination Date (as defined in the Escrow Agreement) with respect to
such Expected Claim Notice, the Indemnifying Party and the Indemnified Party
shall promptly deliver to the Escrow Agent a written notice executed by both
parties instructing the Escrow Agent to disburse such retained funds to the
Principal Stockholders in accordance with the terms of Section 4 of the Escrow
Agreement.
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4.5 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, the Principal
Stockholders shall not be liable under this Article IV unless and until the
aggregate Damages exceed $480,000 (at which point the Principal Stockholders
shall become liable for the aggregate Damages, and not just amounts in excess of
$480,000); PROVIDED THAT such limitation shall not apply to a claim pursuant to
Section 4.1(i) relating to a breach of the representations and warranties set
forth in Article IIA of this Agreement and Article II of the Minority
Stockholder Agreements or in Sections 2B.1, 2B.2, 2B.3 or 2B.21 (or the portion
of any Company Certificate relating thereto) or to a claim pursuant to 4.1(v).
(b) Notwithstanding anything to the contrary herein, no Principal
Stockholder shall be liable for aggregate Damages under clause (i)(a) of Section
4.1 in an amount which exceeds such Principal Stockholder's Pro Rata Portion (as
defined below) of $12,000,000; PROVIDED THAT such limitation shall not apply to
claims relating to a breach of the representations and warranties set forth in
Article IIA of the Agreement and Article II of the Minority Stockholder
Agreements or in Sections 2B.1, 2B.2, 2B.3 or 2B.21 (or the portion of any
Company Certificates relating thereto). The "PRO RATA PORTION" of each Principal
Stockholder is as follows:
Clement Mok 53.45%
Mark Crumpacker 34.00%
Peter Rack 6.80%
Todd Holcomb 1.03%
Eric Wilson 4.72%
Total 100.00%
======
(c) Notwithstanding anything to the contrary herein, no Principal
Stockholder shall be liable under this Article IV for aggregate Damages in an
amount which exceeds such Principal Stockholder's Pro Rata Portion of
$24,000,000.
(d) The Escrow Agreement is intended to secure the indemnification
obligations of the Principal Stockholders under this Agreement. However, the
rights of the Buyer under this Article IV shall not be limited to the Escrow
Amount nor shall the Escrow Agreement be the exclusive means for the Buyer to
enforce such rights.
(e) Except with respect to claims based on fraud, after the Closing,
the rights of the Indemnified Parties under this Article IV and the Escrow
Agreement shall be the exclusive remedy of the Indemnified Parties with respect
to claims resulting from or relating to any misrepresentation, breach of
warranty or failure to perform any covenant or agreement continued in this
Agreement.
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(f) No Stockholder shall have any right of contribution against the
Company with respect to any breach by the Company of any of its representations,
warranties, covenants or agreements.
(g) The amount of any Damages for which indemnification is provided
under this Article IV shall be reduced by any related recoveries actually
received by the Indemnified Party under any insurance policies.
ARTICLE V
REGISTRATION RIGHTS
5.1 REGISTRATION OF SHARES.
(a) Within five business days after the Closing Date, the Buyer shall
file with the SEC a registration statement covering the resale to the public by
the Principal Stockholders of 167,616 Purchase Price Shares issued to the
Principal Stockholders (the "FIRST REGISTRATION STATEMENT"). The Buyer shall
file with the SEC, within 180 days after the Closing Date, a second registration
statement covering the resale to the public by the Principal Stockholders of an
additional 73,250 Purchase Price Shares issued to the Principal Stockholders
(the "SECOND REGISTRATION STATEMENT"). The Buyer shall file with the SEC, within
270 days after the Closing Date, a third registration statement covering the
resale to the public by the Principal Stockholders of an additional 73,250
Purchase Price Shares issued to the Principal Stockholders (the "THIRD
REGISTRATION STATEMENT"). The First Registration Statement, the Second
Registration Statement and the Third Registration Statement are referred to
herein collectively as the "STOCKHOLDER REGISTRATION STATEMENTS". The Buyer
shall use its best efforts to cause each Stockholder Registration Statement to
be declared effective by the SEC as soon as practicable after the filing
thereof. The Buyer shall use its best efforts to cause each Stockholder
Registration Statement to remain effective until, in each case, the earlier of
(i) the first anniversary of the Closing Date and (ii) such time as all of the
Purchase Price Shares covered by such Stockholder Registration Statement have
been sold.
(b) If, following the first anniversary of the Closing Date, the Buyer
fails to timely file all reports required to be filed by it and referred to in
paragraph (c)1 of Rule 144 under the Securities Act or any similar successor
provisions and such failure results in a loss to the Stockholders of the
availability of Rule 144 for a period in excess of 15 days, then the Buyer shall
file with the SEC, within 10 business days of the expiration of such 15 day
period, a registration statement covering the resale to the public by the
Stockholders of all of the Purchase Price Shares not previously sold. The Buyer
shall use its best efforts to cause such registration statement to be declared
effective by the SEC as soon as practicable after the filing thereof and to
cause such registration statement to remain effective until the earlier of (i)
the second
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anniversary of the Closing Date and (ii) such time as all of the Purchase Price
Shares covered by such registration statement have been sold.
5.2 PIGGYBACK REGISTRATION RIGHTS.
(a) During the period commencing on the first anniversary of the
Closing Date and ending on the second anniversary of the Closing Date, unless
the Purchase Price Shares are then saleable without limitation as to volume
under Rule 144 or otherwise covered by an effective registration statement, if
the Buyer proposes to file for its own account a registration statement under
the Securities Act on any form (other than a Registration Statement on Form S-4
or S-8 or any successor form for securities to be offered in a transaction of
the type referred to in Rule 145 under the Securities Act or to employees of the
Buyer pursuant to any employee benefit plan, respectively) for the issuance and
sale by the Buyer of shares of Buyer Common Stock (excluding the issuance and
sale of debt securities that are convertible into Buyer Common Stock), the Buyer
will give written notice to all holders of Purchase Price Shares at least 10
days before the initial filing with the SEC of such registration statement,
which notice shall set forth the intended method of disposition of the
securities proposed to be registered by the Buyer; PROVIDED, that no notice need
be given if the Buyer is not, under Section 5.2(b), required to include Purchase
Price Shares in the registration statement that the Buyer intends to file. The
notice shall offer to include in such filing the aggregate number of Purchase
Price Shares as the Stockholders receiving such notice may request.
(b) Each Stockholder whose shares are not then saleable without
limitation as to volume under Rule 144 or otherwise covered by an effective
registration statement and who desires to have Purchase Price Shares registered
under this Section 5.2 shall advise the Buyer in writing within 10 days after
the date of receipt of such offer from the Buyer, setting forth the amount of
such Purchase Price Shares for which registration is requested. The Buyer shall
thereupon include in such filing the number of Purchase Price Shares for which
registration is so requested, subject to the next sentence, and shall use its
best efforts to effect registration under the Securities Act of such shares. If
the managing underwriter of a proposed public offering shall advise the Buyer
that, in its opinion, the distribution of all or any of the Purchase Price
Shares requested to be included in the registration concurrently with the
securities being registered by the Buyer would adversely affect the distribution
of such securities by the Buyer, then the number of Purchase Price Shares
included therein shall be reduced to such amount, if any, that the managing
underwriter believes may be sold without causing such adverse effect (provided
that any such reduction shall be effected on a pro rata basis with any other
shares requested to be included therein by any other stockholders entitled to
include shares therein).
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5.3 LIMITATIONS ON REGISTRATION RIGHTS.
(a) The Buyer may, by written notice to the Stockholders, (i) delay
the filing or effectiveness of any registration statement filed pursuant to this
Article V or (ii) suspend any registration statement filed pursuant to this
Article V after effectiveness and require that the Stockholders immediately
cease sales of shares pursuant to such registration statement, in the event
that:
(A) the Buyer is engaged in any activity or transaction or preparations or
negotiations for any activity or transaction ("BUYER ACTIVITY") which the Buyer
desires to keep confidential and the Board of Directors of the Buyer determines
in good faith that it would be detrimental to the Buyer for such registration to
be effected at such time; provided that the Buyer shall have the right to defer
a filing for a period of not more than 90 days; or
(B) the Buyer files a registration statement (other than a registration
statement on Form S-4 or S-8 or any successor form) with the SEC for the purpose
of registering under the Securities Act any securities to be publicly offered
and sold by the Buyer and the Buyer pursues the preparation, filing and
effectiveness of such registration statement with diligence.
(b) If the Buyer delays or suspends a registration statement filed
pursuant to this Article V or requires the Stockholders to cease sales of shares
pursuant to paragraph (a) above, the Buyer shall, as promptly as practicable
following the termination of the circumstance which entitled the Buyer to do so,
take such actions as may be necessary to file or reinstate the effectiveness of
such registration statement and/or give written notice to all Stockholders
authorizing them to resume sales pursuant to such Stockholder Registration
Statement. If as a result thereof the prospectus included in the Stockholder
Registration Statement has been amended to comply with the requirements of the
Securities Act, the Buyer shall enclose such revised prospectus with the notice
to the Stockholders given pursuant to this paragraph (b), and the stockholders
shall make no offers or sales of shares pursuant to any registration statement
other than by means of such revised prospectus.
5.4 REGISTRATION PROCEDURES.
(a) In connection with the filing by the Buyer of each registration
statement filed pursuant to this Article V, the Buyer shall furnish to each
Stockholder a copy of the prospectus in conformity with the requirements of the
Securities Act.
(b) The Buyer shall use its best efforts to register or qualify the
Purchase Price Shares covered by each registration statement filed pursuant to
this Article V under the securities laws of such states as the Stockholders
shall reasonably
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request; PROVIDED, HOWEVER, that the Buyer shall not be required in connection
with this paragraph (b) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction.
(c) If the Buyer has delivered preliminary or final prospectuses to
the Stockholders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Buyer shall promptly notify the
Stockholders and, if requested by the Buyer, the Stockholders shall immediately
cease making offers or sales of shares under the registration statement and
return all prospectuses to the Buyer. The Buyer shall promptly provide the
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the Stockholders shall be free to resume making offers and sales
under the registration statement.
(d) The Buyer shall pay the costs and expenses incurred by it in
complying with its obligations under this Article V, including all registration
and filing fees, Nasdaq listing fees, fees and expenses of counsel for the
Buyer, and fees and expenses of accountants for the Buyer, but excluding (i) any
brokerage fees, selling commissions or underwriting discounts incurred by the
Stockholders in connection with sales under registration statements and (ii) the
fees and expenses of any counsel retained by the Stockholders.
(e) The Buyer shall have the right to select one or more nationally
recognized underwriters to manage any offering under a registration statement
filed pursuant to Section 5.1 subject to the approval of the Stockholders
holding a majority of the Purchase Price Shares requested to be included in such
registration statement, which approval shall not be unreasonably withheld;
PROVIDED, that no approval of the Stockholders will be required if the managing
underwriter selected by the Buyer is Goldman, Sachs & Co., Morgan Stanley or
Deutsche Morgan Grenfell.
5.5 REQUIREMENTS OF STOCKHOLDERS. The Buyer shall not be required to
include any Purchase Price Shares in a registration statement filed pursuant to
this Article V unless:
(a) the Stockholder owning such shares furnishes to the Buyer in
writing such information regarding such Stockholder and the proposed sale of
Purchase Price Shares by such Stockholder as the Buyer may reasonably request in
writing or as shall be required in connection therewith by the SEC or any state
securities law authorities;
(b) such Stockholder shall have provided to the Buyer its written
agreement:
(i) to indemnify the Buyer and each of its directors and officers
against, and hold the Buyer and each of its directors and officers harmless
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from, any losses, claims, damages, expenses or liabilities (including reasonable
attorneys fees) to which the Buyer or such directors and officers may become
subject by reason of any statement or omission in the Stockholder Registration
Statement made in reliance upon, or in conformity with, a written statement by
such Stockholder furnished pursuant to this Section 5.5; and
(ii) to report to the Buyer sales made pursuant to the
registration statement;
(c) in the event of an underwritten offering pursuant to a
registration statement filed pursuant to Section 5.1, such Stockholder agrees to
execute and deliver an underwriting agreement approved by the Buyer and the
holders of at least a majority of the outstanding shares requested to be
registered therein;
(d) in the event of an underwritten offering pursuant to a
registration statement filed pursuant to Section 5.2, such Stockholder agrees to
execute and deliver a customary underwriting agreement approved by the Buyer and
the managing underwriter for such offering; and
(e) As a condition to including Purchase Price Shares in any
registration statement filed pursuant to this Article V, the Buyer may require
each Stockholder to agree in writing to engage Goldman, Sachs & Co., to act as
such Stockholder's broker, dealer or other intermediary in connection with sales
to be made pursuant to the registration statement. Notwithstanding the
foregoing, the Principal Stockholders shall be entitled to sell up to the
following number of shares per calendar month through any broker of its choice:
Clement Mok 5,000
Mark Crumpacker 4,000
Peter Rack 1,500
Eric Wilson 1,000
Todd Holcomb 1,000
5.6 INDEMNIFICATION. The Buyer agrees to indemnify and hold harmless each
Stockholder whose shares are included in a registration statement filed pursuant
to this Article V against any losses, claims, damages, expenses or liabilities
to which such Stockholder may become subject by reason of any alleged or actual
untrue statement of a material fact contained in such registration statement or
any alleged or actual omission to state therein a fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, expenses or liabilities arise out of or
are based upon information furnished to the Buyer by or on behalf of a
Stockholder for use in such registration statement. The Buyer shall have the
right to assume the defense and settlement of any claim or
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suit for which the Buyer may be responsible for indemnification under this
Section 5.6.
5.7 ASSIGNMENT OF RIGHTS. A Stockholder may not assign any of its rights
under this Article V except in connection with the transfer of some or all of
his or her Purchase Price Shares to a child or spouse, or trust for their
benefit, PROVIDED each such transferee agrees in a written instrument delivered
to the Buyer to be bound by the provisions of this Article V.
5.8 RULE 144 REPORTS. During the period from the Closing until the second
anniversary of the Closing Date, the Buyer will file on a timely basis all
reports required to be filed by it and referred to in paragraph (c)1 of Rule 144
under the Securities Act or any similar successor provisions.
ARTICLE VI
FURTHER AGREEMENTS
6.1 338 ELECTION. The Stockholders will join with Buyer in making an
election under ss.338(h)(10) of the Code (and any corresponding elections under
state, local or foreign tax law) with respect to the purchase and sale of the
stock of the Company (a "SS.338(H)(10) ELECTION"). Buyer shall be responsible
for preparing the form of election. Buyer shall be responsible for preparing the
form of election. Buyer and the Stockholders shall cooperate fully in the making
of such ss.338(h)(10) Election. In particular, and not by way of limitation, in
order to effect such ss.338(h)(10) Election, Buyer and the Stockholders shall
jointly execute on or prior to the Closing Date, Internal Revenue Service Form
8023 and all attachments required to be filed therewith pursuant to applicable
Treasury Regulations. Such Form 8023 and attachments shall be held by Buyer and
shall be filed by Buyer on behalf of itself and the Stockholders in accordance
with, and within the time prescribed by, Section 338 of the Code and the
regulations thereunder. Buyer and the Stockholders agree to report the
transaction for tax purposes in a manner consistent with the making of such
ss.338(h)(10) Election.
6.2 ACKNOWLEDGMENT OF TAXABLE NATURE OF TRANSACTION. Each Stockholder
understands and acknowledges that the transactions contemplated by this
Agreement will not qualify as a "tax-free reorganization" for U.S. income tax
purpose and, accordingly, will be treated as a taxable purchase and sale of the
Company Shares.
6.3 LOANS TO STOCKHOLDERS. The Buyer will loan to each Principal
Stockholder, pursuant to a full-recourse promissory note in the form attached
hereto as EXHIBIT H, (i) at the Closing, an initial amount equal to the Initial
Loan Amount indicated on SCHEDULE D and (ii) from time to time after the Closing
(but in no event after the maturity date specified in the attached form of
note), at the written request
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of the Principal Stockholder given at least five business days in advance, an
amount up to the Supplemental Loan Amount indicated on SCHEDULE D. Each
Principal Stockholder agrees that the proceeds of the initial loan will be paid
by the Buyer to the Company to reimburse the Company for tax withholding
payments being made by the Company for the account of the Principal Stockholder.
Each Principal Stockholder further agrees that he will only make a request to
borrow additional amounts pursuant to this Section in connection with the
payment of taxes incurred in connection with the transactions contemplated by
this Agreement.
6.4 RELEASE OF PERSONAL GUARANTEES. The Buyer shall use reasonable efforts
after the Closing to cause Clement Mok to be released from the personal
guarantees listed in Section 6.4 of the Disclosure Schedule. The Buyer shall
indemnify Clement Mok for any damages incurred by him after the Closing with
respect to claims solely relating to the period after the Closing under the
guarantees listed in Section 6.4 of the Disclosure Schedule.
6.5 INSTALLMENT SALE TREATMENT. Notwithstanding anything herein contained
to the contrary other than the provisions of Section 6.1 (it being agreed that
Section 6.1 shall prevail over this Section 6.5 in the event of a conflict), the
Parties acknowledge and agree that this transaction will be treated for tax
purposes by all the Parties as an installment sale with respect to the Purchase
Price Shares delivered to the Escrow Agent pursuant to Section 1.2(b)(i) which,
under the Escrow Agreement, will be disbursed to the Stockholders within five
business days of August 25, 1999 and within five business days of August 25,
2000, all subject to the terms and conditions of the Escrow Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 PRESS RELEASES AND PUBLIC DISCLOSURE. No Party shall (and the Principal
Stockholders shall cause the Company not to) issue any press release or other
public disclosure relating to the subject matter of this Agreement without the
prior written approval of the other Parties; PROVIDED, HOWEVER, that the Buyer
may make any public disclosure it believes in good faith is required by law,
regulation or stock market rules. The Parties agree that the Buyer shall be
entitled to issue a Press Release regarding the Closing, substantially in the
form attached hereto as EXHIBIT I.
7.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that the provisions of
Article V are intended for the benefit of the persons specified therein and the
respective legal representatives, successors and assigns.
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7.3 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations among the Parties, written
or oral, that may have been related in any way to the subject matter hereof.
7.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties; provided that no such consent shall be required for such
an assignment by the Buyer to an affiliated entity of the Buyer.
7.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.6 HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered one
business day after it is sent via a reputable nationwide overnight courier
service, in each case to the intended recipient as set forth below:
IF TO THE COMPANY:
Studio Archetype, Inc.
600 Townsend Street, Penthouse
San Francisco, California 94103
Telecopy: (415) 659-4615
Attention: Clement Mok
WITH A COPY TO:
Coblentz, Patch, Duffy & Bass, LLP
222 Kearny Street, 7th Floor
San Francisco, California 94108-4510
Telecopy: (415) 989-1663
Attention: Barry Reder, Esq.
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IF TO A PRINCIPAL STOCKHOLDER:
to such Principal Stockholder at his or
her address set forth on SCHEDULE A.
WITH A COPY TO:
Coblentz, Patch, Duffy & Bass, LLP
222 Kearny Street, 7th Floor
San Francisco, California 94108-4510
Telecopy: (415) 989-1663
Attention: Barry Reder, Esq.
IF TO THE BUYER:
Sapient Corporation
One Memorial Drive
Cambridge, Massachusetts 02142
Telecopy: (617) 679-0499
Attn: Deborah England Gray
General Counsel
WITH A COPY TO:
Jonathan Wolfman, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopy: (617) 526-5000
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
7.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdiction other than those of the State of Delaware.
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7.9 DISPUTE RESOLUTION; LITIGATION.
(a) Prior to commencing any litigation relating to the subject matter
of or under this Agreement, the Party desiring to commence litigation will
provide written notice to the other side demanding that the Parties engage, for
a period of 30 days from the date of such demand notice, in non-binding
mediation for purposes of seeking to resolve such dispute. Such mediation shall
be coordinated through J.A.M.S./Endispute. The cost of any mediation shall be
borne one-half by the Buyer and one-half by the Stockholder or Stockholders who
are party to the mediation. Following the expiration of such 30-day period, any
Party may commence litigation with respect to the subject matter of the dispute
and any related matters. Notwithstanding the foregoing, nothing in this Section
7.9 shall be construed as limiting in any way (i) the right of a Party to seek
injunctive relief from any court of competent jurisdiction or (ii) the right of
a Party to commence litigation without complying with the requirements of this
Section if doing so is necessary to avoid the expiration of an applicable
statute of limitations.
(b) If the Buyer wishes to commence litigation relating to the subject
matter of or under this Agreement, the Buyer will commence such litigation
exclusively in the state or federal courts sitting in the Northern District of
the State of California. Each of the Parties (i) submits to the jurisdiction of
any state or federal court sitting in the Northern District of the State of
California in any action or proceeding arising out of or relating to this
Agreement brought by the Buyer pursuant to this Section 7.9(b) and (ii) agrees
that all claims in respect of such action or proceeding may be heard and
determined in any such court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety or other security that might be required of any other
Party with respect thereto.
(c) If any Party wishes to commence litigation against the Buyer
relating to the subject matter of or under this Agreement, such Party will
commence such litigation exclusively in the state or federal courts sitting in
the Eastern District of the Commonwealth of Massachusetts. Each of the Parties
(i) submits to the jurisdiction of any state or federal court sitting in the
Eastern District of the Commonwealth of Massachusetts in any action or
proceeding arising out of or relating to this Agreement brought against the
Buyer pursuant to this Section 7.9(c) and (ii) agrees that all claims in respect
of such action or proceeding may be heard and determined in any such court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto.
(d) Any Party may make service on another Party by sending or
delivering a copy of the process to the Party to be served at the address and in
the manner
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provided for the giving of notices in Section 7.7. Nothing in this Section,
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law.
7.10 AMENDMENTS AND WAIVERS. The Parties may mutually amend or waive any
provision of this Agreement at any time. No amendment or waiver of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by each of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty, covenant or agreement hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty, covenant or agreement
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
7.11 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforce ability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the body making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
7.12 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof.
7.13 EXPENSES. Each Party shall bear its own costs and expenses (including
legal and other professional fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that the
first $750,000 of any such costs and expenses incurred by the Company shall be
paid by the Buyer (the "Covered Expenses") and that any such costs and expenses
incurred by the Company in excess of $750,000 shall be paid by the Principal
Stockholders.
7.14 CONSTRUCTION. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent, and
no
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rule of strict construction shall be applied against either Party. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise.
7.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.16 FACSIMILE SIGNATURE. This Agreement may be executed by facsimile
signature.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SAPIENT CORPORATION
By: /s/ Susan D. Johnson
----------------------------
Name: Susan D. Johnson
--------------------------
Title: Chief Financial Officer
-------------------------
STUDIO ARCHETYPE, INC.
By: /s/ Peter Rack
----------------------------
Name: Peter Rack
--------------------------
Title: Chief Financial Officer
-------------------------
/s/ Clement Mok
-------------------------------
Clement Mok, Exchange Agent
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PRINCIPAL STOCKHOLDER SIGNATURE PAGE TO
STOCK PURCHASE AGREEMENT
THE UNDERSIGNED STOCKHOLDER OF THE COMPANY HEREBY ACKNOWLEDGES THAT HE OR
SHE HAS REVIEWED THIS AGREEMENT CAREFULLY, INCLUDING, WITHOUT LIMITATION, THE
INVESTMENT REPRESENTATIONS CONTAINED IN SECTION IIA.4 AND THE PROVISION
CONTAINED IN SECTION IIA.4(a) APPOINTING CLEMENT MOK AND PETER RACK AS THE
UNDERSIGNED'S PURCHASER REPRESENTATIVES AS THAT TERM IS DEFINED BY REGULATION D
PROMULGATED UNDER THE SECURITIES ACT.
Executed as of the date first written above.
STOCKHOLDER:
--------------------------------------
SPOUSAL CONSENT
The undersigned spouse of the above-named Stockholder hereby consents
to the terms of this Agreement and agrees that any and all right or interest
that he or she has, including any community property interest, in the shares of
Studio Archetype, Inc. conveyed by the Stockholder under the terms of the
Agreement, are and have been the independent property of the Stockholder, and
shall be conveyed by and pursuant to the terms of the Agreement.
Executed as of the first date written above.
--------------------------------------
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