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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): March 29, 1999
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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 March 29, 1999, Sapient Corporation ("Sapient") acquired all of the
capital stock of Adjacency, Inc. ("Adjacency"), a San Francisco-based consulting
firm that provides a broad range of consulting services including Internet
strategy, interactive design, technology development and management of Internet
and e-commerce solutions. The acquisition was effected pursuant to (i) a
Principal Stockholder Stock Purchase Agreement, dated as of March 29, 1999 (the
"Agreement"), by and among Sapient, Adjacency, certain stockholders of Adjacency
(the "Principal Stockholders") and Andrew Sather in his capacity as Exchange
Agent, and (ii) a series of Minority Stockholder Stock Purchase Agreements,
dated as of March 29, 1999, by and among Sapient, each of the stockholders of
Adjacency who was not a Principal Stockholder, and Andrew Sather as Exchange
Agent. The acquisition will be accounted for under the pooling of interests
method and is expected to be non-dilutive, excluding a one-time acquisition
charge and compensation charges related to historical stock option grants.
Adjacency will operate as a division of Sapient.
Pursuant to the Agreement, Sapient issued a total of 790,674 shares of its
Common Stock (the "Purchase Price Shares") to the Adjacency shareholders in
exchange for the entire equity interest in Adjacency. Sapient also assumed all
of Adjacency's outstanding stock options, which are exercisable for
approximately 63,272 shares of Sapient Common Stock. Sapient has agreed to use
its best efforts to register 355,804 of the Purchase Price Shares for resale by
the former Adjacency stockholders at various dates during the next twelve
months.
In connection with the acquisition, Sapient, the Principal Stockholders,
Andrew Sather, as Stockholder Representative, and American Stock Transfer &
Trust Company entered into an Escrow Agreement pursuant to which 79,067 of the
Purchase Price Shares will be held in escrow to secure indemnification
obligations of the Principal Stockholders.
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 relationship with Adjacency.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
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Not applicable.
(b) Pro Forma Financial Information
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Not applicable.
(c) Exhibits.
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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: April 7, 1999 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
Exhibit
Number Description
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99.2 Principal Stockholder Stock Purchase Agreement, dated as of
March 29, 1999, by and among Sapient Corporation, Adjacency,
Inc., the stockholders identified on Schedule A thereto and
Andrew Sather 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.)
1
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Exhibit 99.2
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PRINCIPAL STOCKHOLDER STOCK PURCHASE AGREEMENT
BY AND AMONG
SAPIENT CORPORATION,
ADJACENCY, INC.,
THE PRINCIPAL STOCKHOLDERS OF THE COMPANY
IDENTIFIED ON SCHEDULE A
ATTACHED HERETO
AND
ANDREW SATHER,
AS EXCHANGE AGENT
DATED AS OF
MARCH 29, 1999
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
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ARTICLE I - PURCHASE AND SALE OF THE COMPANY SHARES........................................2
1.1 Purchase of the Company Shares from the Principal Stockholders.................2
1.2 Purchase Price for Company Shares; Escrow......................................2
1.3 The Closing....................................................................3
1.4 Actions at the Closing.........................................................3
1.5 Further Assurances.............................................................4
1.6 Treatment of Outstanding Options...............................................5
ARTICLE IIA - REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY SHARES AND THE
PRINCIPAL STOCKHOLDERS.......................................................6
2A.1 Ownership of Company Shares....................................................6
2A.2 Authority......................................................................6
2A.3 Noncontravention...............................................................6
2A.4 Investment Representations.....................................................7
ARTICLE IIB - REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.........................8
2B.1 Organization...................................................................8
2B.2 Capitalization.................................................................8
2B.3 Authorization of Transaction and Noncontravention..............................9
2B.4 Financial Statements and Information...........................................9
2B.5 Intellectual Property.........................................................12
2B.6 Real Property Owned and Leased................................................14
2B.7 Assets........................................................................15
2B.8 Contracts.....................................................................16
2B.9 Books and Records; Bank Accounts; Powers of Attorney..........................16
2B.10 Tax Matters...................................................................17
2B.11 Product and Service Warranties................................................18
2B.12 Customers.....................................................................19
2B.13 Insurance.....................................................................19
2B.14 Legal Compliance; Environmental Matters.......................................19
2B.15 Permits.......................................................................20
2B.16 Litigation....................................................................20
2B.17 Confidential Information......................................................20
2B.18 Employees and Consultants.....................................................21
2B.19 Employee Benefits.............................................................21
2B.20 Business Relationships With Affiliates........................................24
2B.21 Advisory Fees.................................................................24
2B.22 Pooling.......................................................................24
2B.23 Disclosure....................................................................24
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER.................................24
</TABLE>
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<TABLE>
<CAPTION>
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3.1 Organization..................................................................24
3.2 Capitalization................................................................25
3.3 Authorization.................................................................25
3.4 Noncontravention..............................................................25
3.5 Buyer Reports and Financial Statements........................................26
3.6 Litigation....................................................................26
3.7 Brokers' Fees.................................................................26
3.8 Investment Representations....................................................26
3.9 Absence of Certain Changes....................................................27
3.10 Tax Matters...................................................................27
3.11 Disclosure....................................................................28
ARTICLE IV - INDEMNIFICATION..............................................................28
4.1 Indemnification by the Principal Stockholders.................................28
4.2 Indemnification by the Buyer..................................................29
4.3 Claims for Indemnification....................................................29
4.4 Payment of Amounts............................................................32
4.5 Survival......................................................................32
4.6 Limitations...................................................................32
ARTICLE V - REGISTRATION RIGHTS...........................................................33
5.1 Registration of Shares........................................................33
5.2 Limitations on Registration Rights............................................34
5.3 Registration Procedures.......................................................35
5.4 Requirements of Stockholders..................................................36
5.5 Indemnification...............................................................37
5.6 Assignment of Rights..........................................................37
5.7 Rule 144 Reports..............................................................37
ARTICLE VI - OTHER AGREEMENTS.............................................................38
6.1 Filing of Tax Returns.........................................................38
6.2 Tax Indemnification by the Principal Stockholders.............................38
6.3 Allocation of Certain Taxes...................................................39
6.4 Certain Agreements Regarding Pooling Accounting...............................39
6.5 Grant of Stock Options........................................................40
6.6 Employee Benefits.............................................................40
ARTICLE VII - MISCELLANEOUS...............................................................41
7.1 Press Releases and Public Disclosure..........................................41
7.2 No Third Party Beneficiaries..................................................41
7.3 Entire Agreement..............................................................41
7.4 Succession and Assignment.....................................................41
7.5 Counterparts..................................................................41
7.6 Headings......................................................................41
</TABLE>
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<TABLE>
<CAPTION>
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7.7 Notices.......................................................................42
7.8 Governing Law.................................................................43
7.9 Dispute Resolution; Litigation................................................43
7.10 Amendments and Waivers........................................................44
7.11 Severability..................................................................44
7.12 Expenses......................................................................44
7.13 Construction..................................................................44
7.14 Incorporation of Exhibits and Schedules.......................................44
7.15 Facsimile Signature...........................................................45
</TABLE>
Schedules and Exhibits
Schedule A - List of Principal Stockholders
Schedule B - List of Minority Stockholders
Schedule C - Agreements to be Terminated
Schedule D - Certain Pooling Related Matters
Disclosure Schedule
Exhibit A - Form of Minority Stockholder Stock Purchase Agreement
Exhibit B - Form of Gray Cary Ware & Freidenrich LLP Opinion
Exhibit C - Form of Stockholder Non-Competition Agreement
Exhibit D - Form of Hale and Dorr LLP Opinion
Exhibit E - Form of Escrow Agreement
Exhibit F - Form of Press Release
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PRINCIPAL STOCKHOLDER STOCK PURCHASE AGREEMENT
This Agreement is entered into as of March 29, 1999 by and among Sapient
Corporation, a Delaware corporation (the "BUYER"), Adjacency, Inc., a Wisconsin
corporation (the "COMPANY"), the stockholders of the Company identified on
SCHEDULE A to this Agreement (the "PRINCIPAL STOCKHOLDERS") and Andrew Sather,
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 Principal Stockholders, together with the other stockholders of
the Company listed on SCHEDULE B to this Agreement (the "MINORITY
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 A
and SCHEDULE B attached hereto. The Principal Stockholders and the Minority
Stockholders are referred to collectively herein as the "Stockholders".
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 Minority
Stockholder, and the Minority Stockholders are each 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").
4. The Parties intend that the transactions contemplated by this
Agreement and the Minority Stockholder Agreements shall be treated as a
"tax-free reorganization" for U.S. federal income tax purposes and as a "pooling
of interests" for accounting purposes.
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:
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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.
1.2 Purchase Price for Company Shares; Escrow.
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(a) The purchase price to be paid by the Buyer to the Stockholders
for all of the Company Shares shall be paid in the form of shares of common
stock, par value $0.01 per share, of the Buyer (the "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 in exchange for the 3,739,932 Company Shares
issued and outstanding as of the Closing is 790,674 (the "PURCHASE PRICE
SHARES"), which corresponds to an exchange ratio of 0.211414 share of Buyer
Common Stock for each Company Share (the "EXCHANGE RATIO").
(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 10% of the Purchase Price Shares issuable to the Stockholders (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 (as defined below)
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 to any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreement; and
(ii) subject to Section 1.2(c), the Buyer shall deliver to
Andrew Sather, in his capacity as Exchange Agent, on behalf of each Principal
Stockholder a certificate representing the remaining number of Purchase Price
Shares issuable to the Principal Stockholders, as indicated on Schedule A.
(c) No certificates or scrip representing fractional Purchase Price
Shares shall be issued to the Stockholders and the Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as
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a stockholder of the Buyer with respect to any fractional Purchase Price Shares
that would otherwise be issued to such Stockholders. In lieu of fractional
Purchase Price Shares that would otherwise be issued, each such Stockholder that
would have been entitled to receive a fractional Purchase Price Share shall
receive such whole number of Purchase Price Shares to which such Stockholder
would be entitled, rounded up or down to the nearest whole number (with a
fractional interest of 0.5 rounded to the nearest odd whole number).
(d) Each Principal Stockholder hereby appoints Andrew Sather to act
as Exchange Agent in connection with the transactions contemplated by this
Agreement. At the Closing, (i) the Exchange Agent will accept delivery from the
Buyer of all of the Purchase Price Shares issuable to the Principal Stockholders
pursuant to Section 1.2(b)(ii) (such delivery to be in the form of one or more
stock certificates issued in the name of Andrew Sather, as Exchange Agent) and
(ii) the Exchange Agent and the Buyer will irrevocably 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 and to send such certificates to the Principal
Stockholders by reputable overnight courier within two business days of the
Closing Date.
1.3 THE CLOSING. The Closing shall take place at the offices of Gray Cary
Ware & Freidenrich LLP, Palo Alto, California, commencing at 10:00 a.m., local
time, on March 29, 1999 (the "CLOSING DATE"). The closing of the purchase of the
Company Shares by the Buyer from each of the 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:
----------------------
(a) COMPANY'S LEGAL OPINION. Gray Cary Ware & Freidenrich 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;
(b) RESIGNATIONS. Each of the directors and officers of the Company
shall deliver to the Buyer his or her written resignation from such office;
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(c) NON-COMPETITION AGREEMENTS. Each of the Principal Stockholders
shall execute and deliver to the Buyer a Stockholder Non-Competition Agreement
in substantially the form attached hereto as EXHIBIT C;
(d) BUYER'S LEGAL OPINION. Hale and Dorr LLP, counsel to the Buyer,
shall deliver to the Company an opinion in the form of EXHIBIT D attached
hereto, addressed to the Company and the Stockholders and dated the date hereof;
(e) TERMINATION OF CERTAIN AGREEMENTS. Each of the agreements listed
on SCHEDULE C have been terminated and be of no further force or effect;
(f) POOLING LETTER. The Buyer shall have received a letter from KPMG
Peat Marwick, auditors for the Buyer, in a form reasonably satisfactory to the
Buyer, to the effect that, and the Buyer shall otherwise be reasonably satisfied
that, the transaction contemplated by this Agreement and the Minority
Stockholder Agreements qualifies as a "pooling of interests" for accounting
purposes;
(g) 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;
(h) CERTIFICATES REPRESENTING PURCHASE PRICE SHARES. The Buyer shall
deliver certificates for the Purchase Price Shares to the Exchange Agent in
accordance with Section 1.2(b)(ii);
(i) RECORD BOOKS. The Company shall deliver to the Buyer the minute
books, stock books, ledgers and registers, corporate books and corporate seals
of the Company;
(j) ESCROW AGREEMENT. The Buyer, the Principal Stockholders, Andrew
Sather, in his capacity as Stockholder Representative (the "STOCKHOLDER
REPRESENTATIVE") and American Stock Transfer and Trust Company (the "ESCROW
AGENT") shall execute and deliver the Escrow Agreement attached hereto as
EXHIBIT E (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);
(k) THIRD-PARTY CONSENTS. The Company and each Principal Stockholder
shall deliver to the Buyer copies of all consents, approvals, waivers, notices,
permits or other authorizations required as a result of or in connection with
the purchase and sale of the Company Shares; and
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(l) MINORITY STOCKHOLDER AGREEMENTS. The actions at Closing specified
in Section 1.4 of the Minority Stockholder Agreements shall occur.
1.5 FURTHER ASSURANCES. At any time and from time to time after the
Closing, at the reasonable request of the Buyer and without further
consideration, the 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 Treatment of Outstanding Options.
--------------------------------
(a) As of the Closing, each outstanding option (a "COMPANY OPTION")
under the Adjacency, Inc. 1998 Stock Option Plan (the "COMPANY OPTION PLAN"),
whether vested or unvested, shall be assumed by the Buyer and deemed to
constitute an option (a "BUYER OPTION") to acquire, on the same terms and
conditions as were applicable under such Company Option immediately prior to the
Closing, such number of shares of Buyer Common Stock as is equal to the number
of shares of Class B Common (as defined below) subject to such Company Option
immediately prior to the Closing multiplied by the Exchange Ratio (with any
fraction resulting from such multiplication to be rounded down to the nearest
whole number), at an exercise price per share equal to the per share exercise
price of such Company Option immediately prior to the Closing divided by the
Exchange Ratio (with any fraction resulting from such multiplication to be
rounded up to the nearest whole cent); PROVIDED, HOWEVER, that in the case of
any Company Option to which Section 422 of the Internal Revenue Code of 1986, as
amended (the "CODE") is intended to apply, the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in a manner consistent with Section
424(a) of the Code. Except as otherwise provided in this Section 1.6, the term,
exercisability, vesting schedule, acceleration events, status as an "incentive
stock option" under Section 422 of the Code, if applicable, and all of the other
terms of the Company Options shall otherwise remain unchanged.
(b) As soon as practicable after the Closing, the Buyer shall deliver
to each recipient of a Buyer Option an appropriate notice setting forth such
holder's rights pursuant to such Buyer Option and the agreement formerly
evidencing such holder's Company Options shall continue in effect on the same
terms and conditions (subject to the adjustments) required by this Section 1.6.
(c) The Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon
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exercise of the Company Options assumed in accordance with this Section 1.6. As
soon as practicable after the Closing and in any event no later than 20 business
days after the Closing, the Buyer shall, with respect to all shares of Buyer
Common Stock subject to the Buyer Options, file a Registration Statement on Form
S-8 under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and,
shall use best efforts to maintain the effectiveness of such registration
statement for so long as such Buyer Options remain outstanding.
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 Share Encumbrances (as defined
below), 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 Share Encumbrances. "SHARE ENCUMBRANCES"
means any liens, charges, claims, options (other than the terms and conditions
of the option agreements under the Company Option Plan pursuant to which shares
of Class B Common were originally issued), pledges, voting trusts, proxies,
securityholder or similar agreements, encumbrances or restrictions other than
applicable securities law restrictions.
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 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
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of the Articles of Incorporation or bylaws 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, arbitrational 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 obligations under, 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 Share Encumbrance upon the Company Shares owned by such
Principal Stockholder or any Security Interest (as defined below) upon 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. "SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by operation
of law), other than (i) mechanic's, materialmen's, and similar liens, (ii) liens
arising under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, (iii) liens on goods in transit incurred
pursuant to documentary letters of credit, and (iv) statutory liens with respect
to current taxes not yet due and payable.
2A.4 Investment Representations.
--------------------------
(a) Such Principal Stockholder is an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(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 has had adequate opportunity to obtain
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 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. The Principal Stockholder is capable of bearing the economic risk of
such Principal Stockholder's investment in the Purchase Price Shares
indefinitely.
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(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 the Exchange Agent and
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 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 other paragraphs in this Article IIB only to the extent
it is clear from a reading of the disclosure that such disclosure is applicable
to such other paragraphs.
2B.1 ORGANIZATION. The Company is a corporation duly organized and validly
existing under the laws of the State of Wisconsin, has not filed articles of
dissolution with the State of Wisconsin, has filed during its most recently
completed report year an annual report with the State of Wisconsin, 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. 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
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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 10,000,000 shares of common stock, consisting of (i) 5,000,000 shares of
Class A Common Stock, par value $0.01 per share ("CLASS A COMMON") and (ii)
5,000,000 shares of Class B Common Stock, par value $0.01 per share ("CLASS B
COMMON" and, together with the Class A Common, the "COMPANY SHARES"), of which
2,000,000 shares of Class A Common and 1,739,932 shares of Class B Common 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 A or
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. Other than the 299,278 shares of
Class B Common subject to outstanding Company Options issued pursuant to the
Company Option Plan, which are listed in Section 2B.2 of the Disclosure Schedule
together with the exercise price thereof, there are no options, warrants,
rights, agreements or commitments, contingent or otherwise, to which the Company
is a party or which are binding upon the Company to issue, dispose of or acquire
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 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 accelerate, terminate, modify or
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<PAGE> 14
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, the 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.
(a) FINANCIAL STATEMENTS. The Company has previously delivered to the
Buyer copies of its financial statements as of and for the fiscal years ended
December 31, 1997 and December 31, 1998 and as of and for the two-month period
ended February 28, 1999. 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 financial statements do not include footnotes and the interim financial
statements 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 February 28, 1999
referred to in Section 2B.4(a) (the "MOST RECENT BALANCE SHEET"), (ii)
liabilities, similar in nature to those shown on such balance sheet, which have
arisen since February 28, 1999 in the ordinary course of business consistent
with past practice (the "ORDINARY COURSE OF BUSINESS"), including with respect
to frequency and amount, and (iii) contractual and other liabilities incurred in
the Ordinary Course of Business, including with respect to frequency and amount,
which are not required by GAAP to be reflected on a balance sheet.
(c) ABSENCE OF CERTAIN CHANGES. Since February 28, 1999 (i) there has
been no material adverse change in the Company's business, properties,
operations, financial condition, assets or liabilities, and, to the knowledge of
the Company or any Principal Stockholder, there has occurred no event or
development which may reasonably be foreseen to have in the future a material
adverse effect on
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<PAGE> 15
the Company's business, properties, operations, financial condition, 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 lease obligations, but excluding accounts payable
incurred in the Ordinary Course of Business, including with respect to frequency
and amount); 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 $75,000;
(v) acquired any assets or made any capital expenditures
for an amount of over $10,000 in any one instance or $100,000 in the aggregate;
(vi) paid any obligation or liability other than in the
Ordinary Course of Business, including with respect to frequency and amount;
(vii) mortgaged or pledged any of its property or assets or
subjected any such assets to any Security Interest;
(viii) discharged or satisfied any Security Interest;
(ix) sold, leased, encumbered, disposed of, assigned,
transferred or licensed any assets or Company Intellectual Property (as defined
in Section 2B.5), other than in the Ordinary Course of Business, including, in
the case of any assets other than Company Intellectual Property, with respect to
frequency and amount;
(x) entered into, amended, or terminated any material
contract or taken or omitted to take any action that would constitute a
violation of or default under, or waived any rights under, any material
contract;
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<PAGE> 16
(xi) amended its Articles of Incorporation or By-laws;
(xii) changed in any material respect its accounting methods,
principles or practices, except as required by a generally applicable change in
GAAP;
(xiii) instituted or settled any legal proceeding; or
(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 February 28, 1999,
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 provided by the Company to the Buyer
and included in the Disclosure Schedule were prepared in good faith by
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 end
immediately preceding or concurrent with the Closing Date were less than $10
million.
2B.5 Intellectual Property.
---------------------
(a) The Company owns or has the right to use all Intellectual
Property (as defined below) incorporated in its products or services or
necessary for, or used in the operation of its business as presently 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 in the Ordinary Course of
Business; 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 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 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
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<PAGE> 17
Section 2B.5(c) or 2B.5(d) of the Disclosure Schedule), and, to the knowledge of
the Company or any Principal Stockholder, no other person or entity is
infringing, violating or misappropriating any of the Company Intellectual
Property. The Company has delivered 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 correct summary of any claims or disputes
relating to any item of Company Intellectual Property which have 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 dress,
logos, trade names, domain 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 customer and
supplier lists and information, (vi) other proprietary rights relating to any of
the foregoing and (vii) copies and tangible embodiments thereof. Section 2B.5(a)
of the Disclosure Schedule lists each patent, patent application, copyright
registration or application therefor, and trademark, service mark and domain
name registration or application therefor of the Company.
(b) None of the activities or business presently conducted by the
Company, or conducted by the Company at any time since inception, infringes or
violates, or constitutes a misappropriation of, any Intellectual Property rights
of any other person or entity. Since inception, 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 Company Intellectual Property that is owned by a party other than the
Company,
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<PAGE> 18
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;
(iii) neither the Company nor, to the knowledge of the
Company or any Principal Stockholder, any other party to such license,
sublicense or other agreement is in breach or default, and no event has occurred
or, to the knowledge of the Company or any Principal Stockholder, is threatened
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 services 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 has taken reasonable
measures 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) Section 2B.5(g) of the Disclosure Schedule sets forth a list 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 Principal Stockholder is aware of any failure to be
Year 2000 Compliant (as defined below) of any of the Company's hardware or
software systems, embedded systems, third party vendors or products or services
provided by the Company to third parties. "YEAR 2000 COMPLIANT" means that the
applicable system or item:
(i) will accurately receive, record, store, provide,
recognize and process all date and time data from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years;
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<PAGE> 19
(ii) will accurately perform all date-dependent calculations
and operations (including, without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the twentieth and
twenty- first centuries, the years 1999 and 2000 and all leap years; and
(iii) will not malfunction, cease to function or provide
invalid or incorrect results as a result of (x) the change of years from 1999 to
2000, (y) date data, including date data which represents or references
different centuries, different dates during 1999 and 2000, or more than one
century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry.
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 all real property
leased or subleased to or by the Company. The Company has delivered to the Buyer
correct and complete copies of 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 or any Principal Stockholder, 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, or, to the knowledge of the Company or any Principal
Stockholder, is threatened which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification or acceleration
thereunder; and
(iv) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold, except for encumbrances excluded from the definition of Security
Interest.
2B.7 Assets.
------
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<PAGE> 20
(a) The Company owns or leases all tangible assets necessary for the
conduct of its business as presently conducted by the Company, including without
limitation all of the assets reflected in the Most Recent Balance Sheet (other
than assets sold or otherwise disposed of since February 28, 1999 in the
Ordinary Course of Business, including with respect to frequency and amount).
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 1177 Harrison Street, San Francisco, California.
(b) No asset of the Company (tangible or intangible) is subject to
any Security Interest, other than Security Interests which do not, individually
or in the aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(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 $3,000; and (ii) a
list of any agreement relating to each item of Personal Property not owned by
the Company. 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 Company and the owner or
lessor thereof, the obligations of the Company 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 Company or its business, including without limitation (i) any
contract, agreement or commitment providing for the payment by the Company of an
amount in excess of $50,000; (ii) any contract, agreement or commitment
concerning confidentiality, ownership of ideas or inventions, work-for-hire,
non-disclosure or non-competition; (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
distributors of the products or services of the Company; and (v) any contract,
agreement or purchase
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<PAGE> 21
order by a customer which (w) is not in the Ordinary Course of Business, (x)
together with all other contracts, agreements or purchase orders for such
customer, is for an amount in excess of $100,000, (y) requires the Company to
perform over a period of more than six months or (z) contains "most favored
nation" pricing provisions (collectively, together with the agreements and
licenses listed in Section 2B.5 of the Disclosure Schedule, the "CONTRACTS").
(b) The Company has previously delivered to the Buyer a complete and
accurate copy of each Contract. The Company is not a party to any oral Contract.
With respect to each Contract:
(i) such Contract is legal, valid, binding, enforceable and
in full force and effect;
(ii) such Contract 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) neither the Company nor, to the knowledge of the
Company or any Principal Stockholder, any other party to the Contract is in
breach or violation of, or default under, such Contract, and no event has
occurred or, to the knowledge of the Company or any Principal Stockholder, is
threatened which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification or acceleration thereunder.
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 financial and accounting records of
the Company have been maintained in accordance with the requirements of Section
13(b)(2) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
(as if the Company were subject thereto) 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, and all
authorized signatories with respect thereto.
(c) There are no outstanding powers of attorney executed on behalf of
the Company.
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<PAGE> 22
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 February 28,
1999 do not exceed the accruals and reserves for Taxes (excluding accruals and
reserves for deferred Taxes established to reflect timing difference between
book and Tax income) set forth on the Most Recent 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. "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,
unemployment insurance, social security, business license, business
organization, environmental, workers compensation, payroll, profits, license,
leave, service, service use, severance, stamp, occupation, windfall profits,
customs, duties, franchise and other 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. "TAX RETURNS" 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 inception. 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
Principal Stockholder, 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 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
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<PAGE> 23
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 inception 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 date of this Agreement at their respective fair
market values.
(g) The Company has not made any payments, is not obligated to make
any payments, and is not a party to any agreement that could obligate it to make
any payments that may be treated as an "excess parachute payment" under Section
280G of the Code.
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 other than (i) the applicable warranty terms which are set
forth in Section 2B.11 of the Disclosure Statement and (ii) any nondisclaimable
warranties implied as a matter of state law.
(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 is Year 2000 Compliant or that such product or service
will not be adversely affected with respect to value, utility, marketability,
operability or any other aspect by virtue of the arrival of the Year 2000.
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<PAGE> 24
2B.12 CUSTOMERS. To the knowledge of the Company or any Principal
Stockholder, the Company has good relations with its customers. No significant
customer has indicated to the Company that it will not purchase any products or
services from the Company in the future or, except as fully provided for in the
Most Recent Balance Sheet, that it wishes to return or receive a refund or
credit 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 is being performed at a loss
to the Company or is reasonably expected to result in a loss to the Company upon
completion of performance.
2B.13 Insurance.
---------
(a) The Company maintains insurance with respect to its assets and
business. The present scope, initiation dates and coverage amounts of such
insurance is described in Section 2B.13 of the Disclosure Schedule.
(b) No professional liability or similar claim 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, and the Company has not received any notices
of violation with respect to, 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).
(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 Principal Stockholder, 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
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<PAGE> 25
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 Response, Compensation and
Liability Act of 1980 ("CERCLA").
(c) 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 Principal Stockholder 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 or any Principal Stockholder,
there are no environmental reports, investigations or audits relating to
premises currently or previously owned or operated by the Company.
2B.15 PERMITS. The Company possesses all 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 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 and (b) is not a party to,
nor, to the knowledge of the Company or any Principal Stockholder, threatened
with, any litigation, suit, action, investigation, proceeding or controversy
before any Governmental Entity.
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2B.17 CONFIDENTIAL INFORMATION. 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 Employers and 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 or any Principal Stockholder, 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) The health of each Principal Stockholder does not restrict or
otherwise interfere with, and to the knowledge of the Company or any Principal
Stockholder, is not reasonably likely in the future to restrict or otherwise
interfere with, such person's ability to perform his or her duties to the
Company.
(c) Schedule 2B.18(c) of the Disclosure Schedule lists all
independent contractors who have provided services to the Company since January
1, 1997; PROVIDED, HOWEVER, that such list does not need to include the names of
any persons engaged through a temporary agency which is named on Section
2B.18(c). Each independent contractor and each past independent contractor who
has provided services to the Company since January 1, 1997 is bound by the
Company's standard confidentiality agreement for independent contractors, a copy
of which is attached to Schedule 2B.18(c) of the Disclosure Schedule.
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
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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) the three most recent annual reports
filed on IRS Form 5500, 5500C or 5500R for each Employee Benefit 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, each ERISA Affiliate 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. All filings and reports as to each
Employee Benefit Plan required to have been submitted to the Internal Revenue
Service or the United States Department of Labor have been duly submitted.
(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) Each of the Employee Benefit Plans that is intended to be
qualified under Section 401(a) of the Code has received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plan
is 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 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. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
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(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 without liability to the Company as a
result thereof (other than ordinary administrative expenses normally incurred in
connection with such a termination) 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 Section 4999 of the Code or included
in the determination of such person's "parachute
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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 February
28, 1999.
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 ADVISORY FEES. Except as set forth in Section 2B.21 of the Disclosure
Schedule, no financial advisor, broker, agent, finder, or other professional
advisor (including legal counsel, tax advisor, accountant or appraiser) was
utilized by the Company or any Stockholder in connection with the transactions
contemplated by this Agreement and no fees and expenses are due or owing to any
financial advisor, broker, agent, finder, or other professional advisor
(including legal counsel, tax advisor, accountant or appraiser) other than the
fees and expenses set forth in Section 2B.21 of the Disclosure Schedule.
2B.22 POOLING. Neither the Company nor any of the Principal Stockholders
has taken or agreed to take any of the actions set forth on SCHEDULE D hereto
and none of the statements made on Schedule D is untrue.
2B.23 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
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circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to each Stockholder 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 qualified to transact business as a foreign corporation 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,
except where the failure to so qualify has not and would not reasonably be
expected to have a material adverse effect on the Buyer's business, properties,
operations, financial condition, assets or liabilities. 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 26,843,782 shares were
issued and outstanding as of March 5, 1999 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, duly authorized, validly issued, fully paid, nonassessable, and free
of all preemptive rights. Except as disclosed in the Buyer Report (as defined
below) or pursuant to options subsequently granted pursuant to plans described
in the Buyer Report, (i) there are no options, warrants, rights, agreements or
commitments, contingent or otherwise, to which the Buyer is a party or which are
binding upon the Buyer to issue, dispose of or acquire any of its capital stock.
3.3 AUTHORIZATION. The execution and delivery by the Buyer of this
Agreement and the Escrow Agreement, and the consummation by the Buyer of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Buyer. This Agreement and the
Escrow Agreement constitute valid and binding obligations of the Buyer,
enforceable against the Buyer in accordance with their respective terms.
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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 bylaws 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 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 accelerate, 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; 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, 1998 (the "BUYER REPORT"), as filed with the Securities
and Exchange Commission (the "SEC") and (ii) its Certificate of Incorporation
and bylaws, as amended to date. As of its date, the Buyer Report 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 Report (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.
3.6 LITIGATION. Except as disclosed in the Buyer Report, there are no
actions, suits, claims or legal, administrative or arbitral proceedings pending
against, or, to the Buyer's knowledge, threatened against, the Buyer which would
reasonably be expected to have a material adverse effect on the Buyer's
business, properties, operations, financial condition, assets or liabilities or
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 any
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 December 31, 1998, there has been no
material adverse change in the Buyer's business, properties, operations,
financial condition, 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's business, properties, operations, financial
condition, assets or liabilities.
3.10 Tax Matters.
-----------
(a) Except as otherwise contemplated by Article IV and the Escrow
Agreement, the Buyer will not, in connection with the purchase of the Company
Shares provided for in this Agreement and the Minority Stockholder Agreements
(the "PURCHASE"), redeem and no person related to the Buyer (within the meaning
of Treasury Reg. Section 1.368-1(e)(3)) will, in connection with the Purchase,
directly or indirectly, acquire any of the Purchase Price Shares. For purposes
of this representation, repurchases in the ordinary course of business of
unvested shares, if any, acquired from terminating employees of the Buyer or the
Company, will be disregarded.
(b) The Buyer has no plan or intention to cause the Company to issue
additional shares of stock after the Purchase, or take any other action, that
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would result in the Buyer losing control of the Company within the meaning of
Section 368(c) of the Code.
(c) Except for transfers of stock and assets described in
Treasury Reg. Section 1.368-2(k)(1), the Buyer has no plan or intention to
liquidate the Company, to merge the Company with or into another corporation, to
sell or otherwise dispose of the stock of the Company, or, except for
dispositions made in the ordinary course of business, to cause the Company to
sell or otherwise dispose of any of its assets.
(d) The Buyer will cause the Company to either continue the historic
business of the Company or use a significant portion of its historic business
assets in a business. For purposes of this representation, the Buyer will be
deemed to satisfy this requirement if (i) the members of the Buyer's qualified
group (as defined in Treasury Reg. Section 1.368-1(d)(4)(ii)), in the aggregate,
continue the historic business of the Company or use a significant portion of
the Company's historic business assets in a business, or (ii) the foregoing
activities are undertaken by a partnership as contemplated by Treasury Reg.
Section 1.368-1(d)(4).
(e) Except as set forth in Section 7.12, the Buyer, the Company and
the Stockholders will each pay their respective expenses, if any, incurred in
connection with the Purchase.
(f) All of the Company Shares to be acquired by the Buyer will be
acquired solely in exchange for Buyer Common Stock. Thus, the Buyer intends that
no consideration be paid or received for Company Shares other than Buyer Common
Stock. After the Purchase, the Buyer will be in control of the Company within
the meaning of Section 368(c) of the Code.
(g) The Buyer does not own, nor has it owned during the past five
years, directly or indirectly, any shares of the stock of the Company, or rights
to acquire such stock.
(h) None of the compensation received by any shareholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of Company capital stock; none of the shares of the Buyer Common Stock
received by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement or covenant not to compete; and the
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
(i) Following the Purchase, the Buyer (i) will use its best efforts
to cause the Purchase to be treated as a reorganization within the meaning of
Section 368(a) of the Code, (ii) will treat the Purchase for all relevant Tax
purposes as such a
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reorganization and (iii) will comply, and will cause the Company to comply, with
the record-keeping and information filing requirements of Treasury Reg. Section
1.368-3.
3.11 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.
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, or 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 or any Affiliate thereof resulting from, relating to or
constituting:
(a) any misrepresentation, breach of warranty or failure to perform
any covenant or agreement of the Company or any Stockholder contained in this
Agreement or the Minority Stockholder Agreements;
(b) the termination of employment prior to the Closing 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; and
(c) any claim by a stockholder or former stockholder of the Company,
or any other person or entity, seeking to assert, or based upon: (i) ownership
or rights to ownership of any shares of stock of the Company or options
therefor; (ii) any rights of a stockholder, including any option or preemptive
rights or rights to notice or to vote; (iii) any rights under the Articles of
Incorporation, bylaws or other organizational document of the Company; or (iv)
any claim that his, her or its shares were wrongfully repurchased by the
Company.
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4.2 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify each
Stockholder in respect of, and hold it harmless against, any and all Damages
incurred or suffered by such Stockholder resulting from, relating to or
constituting any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Buyer contained in this Agreement or the Minority
Stockholder Agreements.
4.3 Claims for Indemnification
--------------------------
(a) A Party entitled, or seeking to assert rights, to indemnification
under this Article IV (which, in the case of a claim by the Principal
Stockholders, shall be deemed, solely for the purposes of this Section 4.3, to
be the Stockholder Representative) (an "INDEMNIFIED PARTY") shall give prompt
written notification to the Party from whom indemnification is sought (which, in
the case of a claim by the Buyer, shall be deemed, solely for the purposes of
this Section 4.3, to be the Stockholder Representative) (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, (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 and (iii) the
Indemnifying Party may not assume control of the defense of a suit or proceeding
in which the amount of Damages sought exceeds the maximum amount recoverable by
the Indemnified Party from the Indemnifying Party pursuant to the limitations
contained in Section 4.6(a) or 4.6(d) by more than 125%. 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 or different defenses available with respect to such
action, suit or proceeding, the reasonable fees and expenses of one counsel to
the Indemnified Party in each jurisdiction 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 the defense thereof and shall consider in good faith
recommendations made by the other Party or Parties with respect thereto. The
non-controlling party shall furnish the controlling party with such information
as it may have with respect to such action,
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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 controlling party in the defense of such action,
suit or proceeding. The Indemnified Party shall not agree to any settlement of,
or the entry of any judgment arising from, such action, suit or proceeding
without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld or delayed. The Indemnifying Party shall not agree to any
settlement of, or the entry of any judgment arising from, such action, suit or
proceeding without the prior written consent of the Indemnified Party, which
shall not be unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article IV or Section
6.2, an Indemnified Party shall give written notification (a "CLAIM NOTICE") to
the Indemnifying Party which contains (i) a description and the amount (the
"CLAIMED AMOUNT") of any Damages incurred or reasonably expected to be incurred
by the Indemnified Party, (ii) a statement that the Indemnified Party is
entitled to indemnification under this Article IV or Section 6.2 for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment in the amount of such Damages. Within twenty days after delivery of
a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a
written 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, (i) if the Indemnifying Party is the Buyer and the Indemnified Party is
one or more Stockholders, such response shall be accompanied by a copy of
irrevocable instructions issued by the Buyer to its transfer agent to promptly
issue to the Stockholders who are Indemnified Parties shares of Buyer Common
Stock having an aggregate Value (as defined in Section 4.4) equal to the Claimed
Amount or (2) if the Indemnifying Party is a Principal Stockholder and the
Indemnified Party is the Buyer, such response shall be accompanied by a copy of
irrevocable instructions issued by the Stockholder Representative to the Escrow
Agent, instructing the Escrow Agent to distribute to the Buyer such number of
Escrow Shares as have an aggregate Value 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, (i) if the Indemnifying
Party is the Buyer and the Indemnified Party is one more Stockholders, such
response shall be accompanied by a copy of irrevocable instructions issued by
the Buyer to its transfer agent to promptly issue to the Stockholders who are
Indemnified Parties shares of Buyer Common Stock having an aggregate Value equal
to the Agreed Amount or (2) if the Indemnifying Party is a Principal Stockholder
and if the Indemnified Party is the Buyer, such response shall be accompanied by
a copy of irrevocable instructions issued by the Stockholder Representative to
the Escrow Agent instructing the Escrow Agent to distribute to the Buyer such
number of Escrow Shares as have an aggregate Value 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
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such response disputes its liability for 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 60 days following
the delivery by the Indemnifying Party of such response, the Indemnifying Party
and the Indemnified Party shall have the right, after first complying with the
requirements of Section 7.9, to commence litigation for purposes of resolving
such dispute.
(c) Notwithstanding the other provisions of Section 4.3, 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 reasonably determines
that it has a valid business reason to fulfill such obligation, then (i) the
Buyer shall be entitled to satisfy such obligation, without prior notice to or
consent from the Principal Stockholders, (ii) the Buyer 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 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 entitlement to indemnification or the
amount for which it is entitled to indemnification).
(d) Each Principal Stockholder hereby irrevocably appoints Andrew
Sather as his or her Stockholder Representative to serve as such Principal
Stockholder's representative and attorney-in-fact with respect to any actions
and decisions required or permitted to be made under this Article IV or Section
6.2 and agrees to be bound by any actions or decisions taken by the Stockholder
Representative with respect thereto. The Stockholder Representative shall have
full power and authority on behalf of each Principal Stockholder to take any and
all actions on behalf of, execute any and all instructions on behalf of, and
execute or waive any and all rights of, the Principal Stockholders under this
Article IV or Section 6.2. The Stockholder Representative shall have no
liability to any Principal Stockholder for any action taken or omitted on behalf
of the Principal Stockholders pursuant to this Article IV or Section 6.2.
4.4 PAYMENT OF AMOUNTS. Any amounts required to be paid by the Buyer or
the Principal Stockholder pursuant to the indemnification obligations in this
Article IV or Section 6.2 shall be settled by (i) if the Indemnifying Party is
one or more Principal Stockholder, the surrender to the Buyer of Escrow Shares,
which shares will be valued at the Value and (ii) if the Indemnifying Party is
the Buyer, the issuance to the Stockholders who are Indemnified Parties of
shares of Buyer Common Stock, which shares will be valued at the Value. "Value"
means $63.7042 per share (subject to equitable adjustment in the event of any
stock split, stock dividend,
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reverse stock split or similar event affecting the Buyer Common Stock after the
date of this Agreement).
4.5 Survival.
--------
(a) The representations and warranties of the Principal Stockholders
and the Buyer set forth in this Agreement shall survive the execution and
delivery hereof and the Closing and continue until the first anniversary of the
Closing Date and shall not be affected by any examination made for or on behalf
of the Buyer or the knowledge of any of the Buyer's officers, directors,
stockholders, employees or agents; PROVIDED, HOWEVER, that those representations
and warranties of the Principal Stockholders and the Buyer that relate to
contingencies that are subject to resolution through the audit process shall
only survive the execution and delivery hereof and the Closing until the earlier
of (i) the public issuance of the first independent audit report on the Buyer
following the Closing which covers a period of time subsequent to the Closing
and (ii) the first anniversary of the Closing Date.
(b) Any claim asserted in writing prior to the expiration as provided
in Section 4.5(a) of the representation or warranty that is the basis for such
claim shall survive until such claim is finally resolved and satisfied.
4.6 Limitations.
-----------
(a) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Principal Stockholders under this Article IV or
Section 6.2 shall not exceed the Escrow Shares; (ii) the aggregate liability of
the Buyer under this Article IV, Section 6.2 and Article IV of the Minority
Stockholder Agreements shall not exceed a number of shares of Buyer Common Stock
equal to the number of Escrow Shares and (iii) neither the Principal
Stockholders, on the one hand, nor the Buyer, on the other hand, shall be liable
under this Article IV (and, in the case of the Buyer, under Article IV of the
Minority Stockholder Agreements) unless and until the aggregate Damages for
which they or it would otherwise be liable exceed $500,000 (at which point the
Principal Stockholders or the Buyer, as the case may be, shall become liable for
the aggregate Damages in excess of $200,000).
(b) No Principal Stockholder shall have any right of contribution
against the Company with respect to any breach of any of the representations,
warranties, covenants or agreements under this Agreement relating to the
Company.
(c) 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.
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(d) The Escrow Agreement shall be the exclusive means for the Buyer
to collect any Damages for which it is entitled to indemnification under this
Article IV or Section 6.2. Claims for indemnification settled out of the Escrow
Account shall be withheld from the Principal Stockholders pro-rata based on
their individual ownership percentage.
(e) Except with respect to claims based on fraud, after the Closing,
the rights of the Indemnified Parties under this Article IV, Section 6.2,
Article IV of the Minority Stockholder Agreements 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 contained in this Agreement and the
Minority Stockholder Agreements.
ARTICLE V
REGISTRATION RIGHTS
5.1 Registration of Shares.
----------------------
(a) The Buyer shall file with the SEC, within 20 business days after
the Closing Date, a registration statement covering the resale to the public by
the Stockholders of 15% of the Purchase Price Shares (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 Stockholders of an additional 15% of the Purchase Price Shares (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 Stockholders of an additional 15% of the Purchase Price
Shares (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, PROVIDED that the Buyer shall not be required to request
acceleration of effectiveness of the First Stockholder Registration Statement to
a date which is prior to the 31st day after the Closing. 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
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(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 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 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 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 or to be 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:
(1) 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 or suspend a filing or registration statement for a
period of not more than 60 days; PROVIDED, FURTHER, HOWEVER, that the Buyer may
not exercise its right under this subparagraph (x) unless all directors and
executive officers of the Buyer are also prevented from trading in the
securities of the Buyer during such period that the Stockholders are prevented
from trading in the securities of the Buyer hereunder and (y) unless the Buyer
has also delayed or suspended any other registration statements of the Buyer
(other than any registration statements on Form S-8); or
(2) 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 (x) the Buyer pursues the
preparation, filing and effectiveness of such registration statement with
diligence and (y) the Stockholders are invited to include in such registration
statement all of the Stockholders' securities included or includable in the
registration statement being delayed or suspended (provided that 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 secondary shares requested to be
included in the registration concurrently with the securities being registered
by the Buyer (including any Purchase Price Shares) would adversely affect the
distribution of such securities by the Buyer, then the number of Purchase Price
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Shares included therein shall be reduced to such amount, if any, that the
managing underwriter believes may be sold without causing such adverse effect,
with any such reduction to be effected on a pro rata basis with any other
secondary shares requested to be included therein by any other stockholders).
(b) Notwithstanding anything to the contrary in Section 5.2(a), the
Buyer may not exercise its rights under Sections 5.2(a)(1) or 5.2(a)(2) more
than twice in any 365-day period.
(c) 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 registration statement. If as
a result thereof the prospectus included in the 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 Stockholders given pursuant
to this paragraph (c), and the Stockholders shall make no offers or sales of
shares pursuant to any registration statement other than by means of such
revised prospectus.
5.3 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 such number of copies of the prospectus in conformity with the
requirements of the Securities Act as reasonably requested by such Stockholder.
(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 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 or
supplemented 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
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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, without
limitation, 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 Stockholders.
(e) The Stockholders holding a majority of the Purchase Price Shares
requested to be included in a Stockholder Registration Statement shall have the
right to select one or more nationally recognized underwriters to manage any
offering under such Stockholder Registration Statement subject to the approval
of the Buyer, which approval shall not be unreasonably withheld.
5.4 Requirements of Stockholders.
----------------------------
(a) The Buyer shall not be required to include any Purchase Price
Shares in a registration statement filed pursuant to this Article V unless:
(i) 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; and
(ii) such Stockholder shall have provided to the Buyer its
written agreement:
(1) to indemnify the Buyer and each of its directors
and officers against, and hold the Buyer and each of its directors and officers
harmless 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, and in conformity with, a written
statement by such Stockholder previously furnished to the Buyer by the
Stockholder pursuant to this Section 5.4; PROVIDED that in no event shall any
indemnity under this Section 5.4 exceed the gross proceeds from the offering
received by the selling Stockholder; and
(2) to report to the Buyer sales made pursuant to the
registration statement.
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(b) In the event of an underwritten offering pursuant to a
registration statement filed pursuant to Section 5.1, each Stockholder who
wishes to include Shares therein agrees to execute and deliver an underwriting
agreement approved by the Buyer, the holders of at least a majority of the
Purchase Price Shares requested to be registered therein and the holders of at
least a majority of any other shares of Buyer Common Stock being registered
therein.
(c) 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, each Stockholder shall be entitled to sell up to 10,000 shares per
calendar month through any broker of its choice.
5.5 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 untrue statement
of a material fact contained in such registration statement or any 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 written
information furnished to the Buyer by a Stockholder specifically for use in such
registration statement. The Buyer shall have the right to assume the defense and
settlement of any claim or suit for which the Buyer may be responsible for
indemnification under this Section 5.5.
5.6 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.
5.7 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. The Buyer agrees
to promptly file thereafter any such report not so filed.
ARTICLE VI
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OTHER AGREEMENTS
6.1 FILING OF TAX RETURNS. The following provisions shall govern the
allocation of responsibility as between Buyer and the Stockholders for certain
Tax matters following the Closing Date.
(a) The Buyer shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are required to be filed after the Closing Date. Such
returns shall include income Tax Returns for the portion of the Company's S
termination year within the meaning of Section 1362(e)(4) of the Code for which
the Company was an S corporation (the "S Short Year Returns"). The Buyer shall
file the S Short Year Returns and deliver or have delivered to the Stockholder
Representative the Stockholders' Form K-1 for the S Short Year Returns with
reasonable expedition after the Closing Date and in any event by February 29,
2000. The Parties hereto intend that the S Short Year Returns shall be prepared
consistent with the Company's past practices. The Buyer shall permit the
Stockholder Representative or his designees to review and comment on each such
Tax Return described in the first sentence of this Section 6.1(a) prior to
filing and shall make such revisions to such Tax Returns as are reasonably
requested by the Stockholder Representative.
(b) The Buyer, the Company and the Stockholders shall cooperate
fully, as and to the extent reasonably requested by any other party, in
connection with the filing of Company Tax Returns.
(c) For any purpose reasonably related to the provisions of this
Section 6.1, the Stockholder Representative shall have the right upon not less
than ten days' prior notice to the Company to cause an independent certified
public accountant or firm of such accountants to examine the Company's books and
records at the cost of the Stockholders.
6.2 Tax Indemnification by the Principle Stockholders.
-------------------------------------------------
(a) The Principal Stockholders shall indemnify the Buyer in respect
of, and hold the Buyer harmless, on an after-Tax basis, against (x) Damages
resulting from, relating to, or constituting a breach of any representation
contained in Section 2.9 hereof and (y), without duplication, the following
Taxes with respect to the Company:
(i) Any and all Taxes due and payable by the Company for
any taxable period that ends (or is deemed pursuant to Section 6.3(b) to end) on
or before the Closing Date;
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(ii) Any liability of such entities for Taxes of other
entities whether pursuant to Treasury Regulation Section 1.1502-6 (or comparable
or similar provision under state, local or foreign law), as transferee or
successor or pursuant to any contractual obligation for any period that ends (or
is deemed pursuant to Section 6.3(b) to end) on or before the Closing Date; and
(iii) Any sales, use, transfer, stamp, conveyance, value
added, recording, registration, documentary, filing or other similar Taxes and
fees, whether levied on the Buyer, the Company Stockholders, the Company, or any
of their respective Affiliates, resulting from the transactions contemplated by
this Agreement or otherwise on account of this Agreement.
(b) Amounts payable pursuant to this Section 6.2 shall be computed
after taking into account all Tax consequences to the Buyer (or its Affiliates)
of (i) the receipt of (or the right to receive) the indemnification payment and
(ii) the incurrence of the liability that gave rise to the right to receive the
indemnification payment. Thus, it is the intention of the Parties that the Buyer
be held harmless with respect to the liability that gave rise to the right to
the indemnification payment on an after-Tax basis.
(c) All claims for indemnification pursuant to this Section 6.2 shall
be made in accordance with Section 4.3 hereof and shall be subject to the
provisions of Sections 4.4 through 4.6 hereof.
6.3 Allocation of Certain Taxes.
---------------------------
(a) The Buyer and the Principal Stockholders agree that if the
Company is permitted but not required under applicable foreign, state or local
Tax laws to treat the Closing Date as the last day of a taxable period, the
Buyer and the Principal Stockholders shall treat such day as the last day of a
taxable period.
(b) Any Taxes for a taxable period beginning before the Closing Date
and ending after the Closing Date with respect to the Company shall be
apportioned for purposes of Section 6.2 between the portion of the period ending
on the Closing Date and the portion of the period commencing on the day
immediately following the Closing Date based on the actual operations of the
Company, as the case may be, during such portions of the periods, and each such
portion of such period shall be deemed to be a taxable period (whether or not it
is in fact a taxable period).
6.4 CERTAIN AGREEMENTS REGARDING POOLING ACCOUNTING. Each Principal
Stockholder (other than Pascal Bathrop and Matt Kirchstein, who are not
"affiliates" of the Company, as defined in Rule 12b-2 under the Exchange Act)
agrees that he or she will not sell, transfer, pledge, hypothecate or otherwise
dispose of, or reduce his or her interest in or risk relating to, any shares of
Buyer Common Stock until after
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such time as the Buyer has published (within the meaning of Accounting Series
Release No. 135, as amended, of the SEC) financial results covering at least 30
days of combined operations of the Company and the Buyer; PROVIDED, HOWEVER,
that each Principal Stockholder subject to the foregoing provision will be
permitted, during the period of such restriction, to sell, transfer, pledge,
hypothecate or otherwise dispose of, or reduce his or her interest in or risk
relating to, an amount of Buyer Common Stock not more than such Principal
Stockholder's pro rata share of the de minimis amount permitted by the SEC under
its rules and releases relating to the "pooling-of-interests" accounting
treatment. Each such Principal Stockholder agrees to pre-clear any proposed de
minimis transactions with the Company, which clearance will not be unreasonably
withheld.
6.5 GRANT OF STOCK OPTIONS. After the Closing Date, the Buyer shall grant
to persons (x) who are employees of the Company as of the Closing and who remain
employed by the Company or (y) who, prior to the Closing, had outstanding offers
of employment from the Company options under the Buyer's 1996 Equity Stock
Incentive Plan or 1998 Stock Incentive Plan (collectively, the "BUYER PLANS")
for an aggregate of 210,000 shares of Buyer Common Stock. Such options will be
granted at an exercise price equal to fair market value on the date of grant and
will be subject to the other terms and conditions of the applicable plan and
form of stock option agreement which has previously been provided to the
Company. The Buyer shall use its best efforts to maintain the effectiveness of
the registration statements on Form S-8 relating to the Buyer Plans for so long
as such options remain outstanding.
6.6 EMPLOYEE BENEFITS. As soon as is reasonably practicable following the
Closing, the Buyer shall provide for individuals who are employees of the
Company as of the Closing and who remain employed by the Company (each such
employee, an "AFFECTED EMPLOYEE") to be entitled to participate in the Buyer's
employee benefit plans and arrangements in which and to the same extent that
similarly situated employees of the Buyer or its Affiliates participate (in each
case to the extent that each such Affected Employee's position, tenure, salary,
age, health and other qualifications make him or her eligible to participate).
Until such time, the Buyer agrees to provide, or cause the Company to provide,
the Affected Employees, as a group, with employee benefit plans or arrangements
that are, in the aggregate, substantially equivalent to those provided to the
Affected Employees, as a group, immediately prior to the Closing. To the extent
permitted under the applicable plans, the Buyer will, or will cause the Company
to, give Affected Employees full credit for purposes of eligibility, vesting and
determination of the level of benefits under any employee benefit plans or
arrangements maintained by the Buyer or the Company for such Affected Employees'
service with the Company to the same extent recognized immediately prior to the
Closing. To the extent permitted under the applicable plans, the Buyer will, or
will cause the Company to, provide each Affected Employee with credit for any
deductibles paid prior to the Closing in satisfying any applicable
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deductible requirements under any welfare plans that such employees are eligible
to participate in after the Closing.
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 (in which case the Buyer shall use
reasonable efforts to advise the Stockholder Representative of the proposed
disclosure prior to making the disclosure and the Stockholder Representative
shall cooperate with the Buyer with respect to such disclosure). 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 F.
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 IV are intended for the benefit of the persons specified therein and the
respective legal representatives, successors and assigns.
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 related in any way to the subject matter hereof,
excluding the Mutual Nondisclosure and Confidentiality Agreement between the
Buyer and the Company dated December 18, 1998 (which shall remain in effect).
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.
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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 two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or 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 a Principal Stockholder:
-----------------------------
At such Principal Stockholders address as set forth on Schedule A.
----------
With a copy to:
--------------
Thomas W. Furlong
Gray, Cary, Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Telecopy: (650) 327-3699
If to the Buyer or the Company:
------------------------------
Deborah England Gray, Esq.
Sapient Corporation
One Memorial Drive
Cambridge, MA 02139
Telecopy: (617) 679-0499
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
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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.
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 matters 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 Santa Clara County,
California. Each of the Parties (i) submits to the jurisdiction of any state or
federal court sitting in Santa Clara County, 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
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Massachusetts in any action or proceeding arising out of or relating to this
Agreement brought by 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
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 enforceability 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 court 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 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.
7.13 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 rule of strict construction shall be applied against either Party. Any
reference to any
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<PAGE> 51
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.
7.14 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.15 FACSIMILE SIGNATURE. This Agreement may be executed by facsimile
signature.
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<PAGE> 52
SIGNATURE PAGE TO PRINCIPAL STOCKHOLDER
STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SAPIENT CORPORATION
By: /s/ Susan D. Johnson
-------------------------------------
Title: Chief Financial Officer
----------------------------------
ADJACENCY, INC.
By: /s/ Andrew Sather
-------------------------------------
Title: President
----------------------------------
/s/ Andrew Sather
----------------------------------------
Andrew Sather, as Exchange Agent
PRINCIPAL STOCKHOLDERS:
/s/ Pascal Bathrop
----------------------------------------
Pascal Bathrop
/s/ Carlo Calica
----------------------------------------
Carlo Calica
/s/ Bernie DeChant
----------------------------------------
Bernie DeChant
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<PAGE> 53
/s/ Chris DeVore
----------------------------------------
Chris DeVore
/s/ Matt Kirchstein
----------------------------------------
Matt Kirchstein
/s/ Andy Patrick
----------------------------------------
Andy Patrick
/s/ Anton Prastowo
----------------------------------------
Anton Prastowo
/s/ Ken Raley
----------------------------------------
Ken Raley
/s/ Andrew Sather
----------------------------------------
Andrew Sather
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<PAGE> 54
<TABLE>
<CAPTION>
Schedule A
Principal Stockholders
----------------------
Purchase
Price
Class A Class B Total Total Shares to
------- ------- Company Purchase Escrow be Issued
Name and Address Common Common Shares Price Shares Shares at Closing
- ---------------- ------ ------ ------ ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Pascal Bathrop 0 120,000 120,000 25,370 2,546 22,824
Carlo Calica 300,000 79,100 379,100 80,147 8,065 72,082
Bernie DeChant 80,000 299,100 379,100 80,147 8,065 72,082
Chris DeVore 0 160,000 160,000 33,826 3,408 30,418
Matt Kirchstein 0 160,000 160,000 33,826 3,408 30,418
Andy Patrick 0 400,000 400,000 84,566 8,507 76,059
Anton Prastowo 540,000 169,100 709,100 149,914 15,086 134,828
Ken Raley 0 160,000 160,000 33,826 3,408 30,418
Andrew Sather 1,080,000 169,100 1,249,100 264,077 26,574 237,503
Minority
Stockholders
(as listed on
Schedule B) 0 23,532 23,532 4,975 0 4,975
--------- --------- --------- ------- ------ -------
TOTAL 2,000,000 1,739,932 3,739,932 790,674 79,067 711,607
========= ========= ========= ======= ====== =======
</TABLE>
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<PAGE> 55
Schedule B
Minority Stockholders
---------------------
<TABLE>
<CAPTION>
Class B Purchase Price
------- Shares to be
Name and Address Common Issued at Closing
- ---------------- ------ -----------------
<S> <C> <C>
Allison Jones 20,000 4,228
Jennifer Shonholtz 199 42
David Wisnom III 3,333 705
------ -----
TOTAL 23,532 4,975
====== =====
</TABLE>
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<PAGE> 56
Schedule C
Agreements to be Terminated
---------------------------
Second Amended and Restated Founder Stock Purchase Agreement dated as of
November 25, 1998 by and between the Company and Andrew Sather.
Second Amended and Restated Founder Stock Purchase Agreement dated as of
November 25, 1998 by and between the Company and Anton Prastowo.
Second Amended and Restated Founder Stock Purchase Agreement dated as of
November 25, 1998 by and between the Company and Carlo Calica.
Amended and Restated Shareholder Agreement dated as of January 31, 1996 by and
between the Company and Bernard DeChant.
Employment Offer Letter dated June 12, 1998 by and between the Company and Chris
DeVore.
Employment and Confidentiality Agreement dated July 1, 1996 by and between the
Company and Phillip Andrew Patrick, as amended.
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<PAGE> 57
Schedule D
Certain Pooling Related Matters
-------------------------------
1. No Principal Stockholder has entered into or intends to enter into any
agreement or arrangement relating to the Buyer Common Stock to be issued in
connection with the Agreement other than (1) the Agreement and the
agreements referenced therein, (2) options to be assumed by the Buyer
pursuant to Section 1.6 of the Agreement and (3) the full-recourse
promissory notes issued to the Company in connection with the original
acquisition of Company shares and the payment of any related withholding
taxes.
2. No Principal Stockholder has entered into or intends to enter into any
agreement or arrangement pursuant to which the Company or the Buyer has
agreed or will agree directly or indirectly to retire or reacquire all or
any part of the Buyer Common Stock issued to effect the transaction.
3. Other than (1) the promissory notes referred to in Clause (3) of Item 1
above, (2) as expressly contemplated by the Agreement, (3) pre-existing
employment arrangements and (4) any options which may be granted pursuant
to Section 6.5 of the Agreement, no Principal Stockholder has entered into
or intends to enter into any agreement or arrangement pursuant to which the
Company or the Buyer has agreed or will agree to provide any financial
arrangements for the benefit of any Stockholder.
4. Prior to the date of the Agreement, no Principal Stockholder has reduced
his risk relative to any shares of Buyer Common Stock to be received in the
combination.
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