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): July 24, 1998
OAO TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-23173 52-1973990
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
7500 Greenway Center Drive, Greenbelt, Maryland 20770
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (301) 486-0400
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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 July 24, 1998, OAO Technology Solutions, Inc., a Delaware corporation
(the "Company"), announced by a press release that it had consummated the
acquisition of all of the outstanding capital stock (the "Acquisition") of OAO
Services, Inc., a District of Columbia corporation ("OAO Services"), pursuant to
the Stock Purchase Agreement dated as of July 24, 1998 (the "Stock Purchase
Agreement") among the Company, OAO Services, OAO Corporation ("OAOC") and
William R. Hill ("Hill," and together with OAOC, the "Stockholders"), which
Acquisition was effective as of 12:00 a.m. E.D.T. on July 1, 1998 (the
"Effective Time"). Prior to the consummation of the Acquisition (the "Closing"),
OAO Services was a majority-owned subsidiary of OAOC. The press release is
attached hereto as Exhibit 99.1 and incorporated herein by reference.
Pursuant to the terms of the Stock Purchase Agreement, the purchase price
payable by the Company to the Stockholders in connection with the Acquisition
includes (i) cash in the amount of $2,305,000 (the "Cash Payment") subject to
downward adjustment based on a post-closing audit (the "Audit") of and certain
adjustments (the "Purchase Price Adjustments") to be made to OAO Services'
balance sheet as of the Effective Time relating to the repayment of intercompany
receivables by OAOC to OAO Services and a cash contribution by OAOC to OAO
Services with respect to OAO Services' net equity, (ii) the payment by the
Company to Sanwa Business Credit Corporation ("Sanwa") of $4,561,000 to retire
the portion of outstanding debt under a financing agreement among Sanwa, OAOC,
OAO Services and a wholly-owned subsidiary of OAOC (the "OAOC Financing
Agreement") which was secured by the outstanding accounts receivable of OAO
Services and assumed by the Company in the Acquisition, and (iii) earn-out
payments up to a maximum aggregate amount of $5,000,000, as more fully described
below. A portion of OAOC's share of the Cash Payment in the amount of $1,100,000
was paid by the Company at the Closing directly to Sanwa in partial repayment of
outstanding borrowings of OAOC under the OAOC Financing Agreement. The balance
of the Cash Payment has been retained by the Company until the completion of the
Audit and the determination of the Purchase Price Adjustments described above,
at which time the remaining balance of the Cash Payment, if any, will be paid to
the Stockholders or credited against amounts owed by them to the Company. With
respect to the earn-out payments, the Stock Purchase Agreement provides that the
Company will make additional cash payments to the Stockholders in amounts equal
to 10% of the Company's Pre-Tax Profit (as defined in the Stock Purchase
Agreement) in excess, if any, of $2,000,000 (which amount is subject to annual
increases based on increases in the outstanding shares of common stock of the
Company), for the three years ending December 31, 1999, 2000 and 2001. The
aggregate of all earn-out payments under the Stock Purchase Agreement will not
exceed $5,000,000, and each earn-out payment will be payable by the Company on
the 90th business day after the Company's receipt of its audited financial
statements for the year for which such payment is to be made.
The consideration payable by the Company for the Acquisition was negotiated
at arms' length among the parties to the Stock Purchase Agreement. In deriving
the consideration, the Company considered, among other things, the financial
condition of OAO Services and its business, operations and earnings prospects.
The Company used existing cash balances for the payments at Closing aggregating
$5,661,000 and expects to use existing cash for the remaining portion of the
Cash Payment, if any.
Hill is the former Chief Executive Officer of the Company and is a member
of the Company's Board of Directors. Cecile D. Barker ("Barker"), the Chairman
of the Board of Directors and Chief Executive Officer of OAOC and the holder of
95% of OAOC's outstanding shares of capital stock, is the Vice Chairman of the
Board of Directors of the Company, owns approximately 20% of the outstanding
shares of common stock of the Company and is the Company's second largest
stockholder. Lt. Gen. Emmett Paige, Jr., the President and Chief Operating
Officer of OAOC, is a member of the Company's Advisory Council Board.
Pursuant to the terms of an Option Cancellation Agreement dated as of July
11, 1997 among the Company, Safeguard Scientifics (Delaware), Inc.
("Safeguard"), OAOC, OAO Services, Barker and Hill, the Company and Safeguard
were each to receive from OAOC one-half of (i) the greater of $1,000,000 or an
amount equal to the lesser of $3,000,000 or three percent of the total sales
price from the sale of both OAOC and OAO Services which occurred
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prior to April 8, 2000, (ii) the greater of $1,000,000 or an amount equal to the
lesser of $2,000,000 or three percent of the total sales price from any sale of
OAOC which occurred prior to April 8, 2000 and at such time that OAO Services
was not an affiliate of OAOC, (iii) the greater of $1,000,000 or an amount equal
to the lesser of $3,000,000 or three percent of the market capitalization of
OAOC if OAOC consummated an initial public offering of its equity securities
prior to April 8, 2000 (an "OAOC IPO"), or (iv) the greater of $1,000,000 or an
amount equal to the lesser of $2,000,000 or two percent of the market
capitalization of OAOC if OAO Services was no longer affiliated with OAOC at the
time of the OAOC IPO. As a condition to and contemporaneously with the Stock
Purchase Agreement, the parties to the Option Cancellation Agreement entered
into an Amendment to Option Cancellation Agreement terminating the rights of the
Company and Safeguard to such payment upon the events described in the preceding
sentence.
This Form 8-K contains statements that are forward-looking statements
within the meaning of applicable federal securities laws regarding the
consideration paid and payable by the Company for the Acquisition. Such
forward-looking statements are based, in part, upon the Company's current
expectations and assumptions that are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
anticipated.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements for OAO Services will be filed with the Securities
and Exchange Commission (the "Commission") by amendment to this Form 8-K within
the time period required for such filing.
(b) Pro Forma Financial Information (unaudited).
The pro forma financial information for the Company and OAO Services will
be filed with the Commission by amendment to this Form 8-K within the time
period required for such filing.
(c) Exhibits.
2.1* Stock Purchase Agreement, dated July 24, 1998, among the Company,
OAO Services, Inc., OAO Corporation and William R. Hill.
99.1* Press Release dated July 24, 1998.
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* Filed herewith.
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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.
OAO TECHNOLOGY SOLUTIONS, INC.
Date: August 6, 1998 By: /s/ Gregory A. Pratt
------------------------------------
Gregory A. Pratt
Chief Executive Officer
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Exhibit Index
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Exhibit Page
- ------- ----
2.1* Stock Purchase Agreement, dated July 24, 1998, among the
Company, OAO Services, Inc., OAO Corporation and William
R. Hill.
99.1* Press Release dated July 24, 1998.
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* Filed herewith.
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EXHIBIT 2.1
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EXHIBIT 2.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
among
OAO TECHNOLOGY SOLUTIONS, INC.
(a Delaware corporation),
OAO SERVICES, INC.
(a District of Columbia corporation),
OAO CORPORATION
(a Maryland corporation)
and
WILLIAM R. HILL
July 24, 1998
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TABLE OF CONTENTS
Section Page
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1. Definitions..............................................................1
2. Purchase and Sale of Securities and Related Matters......................7
2.1 Purchase of Securities..........................................7
2.2 Purchase Price..................................................7
2.3 Effective Time of Closing of Company Books; Closing Balance
Sheet; Etc....................................................8
2.4 Payment of Cash Purchase Price Balance..........................9
2.5 Hill Liability and Repayment of OAO Deficiency..................9
2.6 Pay-Off of Sanwa Debt..........................................10
2.7 Selling Parties' Representative................................10
2.8 Earn-Out Payments..............................................10
2.9 Post-Closing Repurchase of Certain Receivables.................12
2.10 Required Consents..............................................12
3. Closing.................................................................12
3.1 Location, Date.................................................12
3.2 Deliveries.....................................................12
4. Representations and Warranties of the Selling Parties...................13
4.1 Corporate Status...............................................13
4.2 Authorization..................................................13
4.3 Consents and Approvals.........................................13
4.4 Capitalization and Stock Ownership.............................13
4.5 Financial Statements...........................................14
4.6 Title to Assets and Related Matters............................14
4.7 Real Property..................................................14
4.8 Certain Personal Property......................................15
4.9 Non-Real Estate Leases.........................................15
4.10 Accounts Receivable............................................16
4.11 Inventory......................................................16
4.12 Liabilities....................................................16
4.13 Taxes and Tax Returns..........................................16
4.14 Subsidiaries...................................................17
4.15 Legal Proceedings and Compliance with Law......................17
4.16 Contracts......................................................18
4.17 Insurance......................................................20
4.18 Intellectual Property and Software Products....................20
4.19 Year 2000 Compliance...........................................21
4.20 Employee Relations.............................................23
4.21 Employee Benefits..............................................24
4.22 Corporate Records and Books of Account.........................26
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4.23 Absence of Certain Changes.....................................26
4.24 Previous Sales; Warranties.....................................27
4.25 Customers and Subcontractors...................................27
4.26 Finder's Fees..................................................28
4.27 Additional Information.........................................28
4.28 Transactions with Affiliates...................................28
4.29 No Third Party Options.........................................28
4.30 Title to Shares................................................28
4.31 Completeness and Accuracy of Information.......................29
4.32 Representations................................................29
5. Representations and Warranties of OAOT..................................29
5.1 Corporate Status...............................................29
5.2 Authorization..................................................29
5.3 Consents and Approvals.........................................29
5.4 Finder's Fees..................................................29
5.5 Accuracy of Information........................................29
6. Post-Closing Covenants..................................................30
6.1 Covenant Not to Compete........................................30
6.2 Confidential Information.......................................30
6.3 Affiliates and Hill Limitations................................30
6.4 Injunctive Relief..............................................30
6.5 Expenses.......................................................30
6.6 OAO Affiliates.................................................30
6.7 338(h)(10) Tax Election and Certain Tax Matters................31
6.8 Employee Benefits..............................................32
6.9 Certain Taxes..................................................33
7. Conditions Precedent to Obligations of OAOT.............................33
7.1 Board Approval.................................................33
7.2 Amendment to Option Cancellation Agreement.....................33
7.3 Tax Sharing Agreements.........................................33
7.4 Administrative Services Agreement..............................33
7.5 Certificate....................................................33
7.6 Legal Opinion..................................................33
7.7 Sanwa Consent..................................................33
8. Conditions Precedent to Obligations of the Selling Parties..............33
8.1 Administrative Services Agreement..............................34
8.2 Certificate....................................................34
8.3 Legal Opinion..................................................34
9. Indemnification.........................................................34
9.1 By the Shareholders............................................34
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9.2 By OAOT........................................................34
9.3 Procedure for Claims...........................................34
9.4 Claims Period..................................................35
9.5 Third Party Claims.............................................36
9.6 Investigations.................................................36
10. Public Announcements....................................................36
11. Contents of Agreement...................................................36
12. Amendment, Parties in Interest, Assignment, Etc.........................37
13. Interpretation..........................................................37
14. Remedies................................................................37
15. Dispute Resolution......................................................37
16. Notices.................................................................39
17. Governing Law...........................................................40
18. Counterparts............................................................41
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of July 24, 1998 by and among OAO
Technology Solutions, Inc., a Delaware corporation ("OAOT"), OAO Services, Inc.,
a District of Columbia corporation (the "Company"), OAO Corporation, a Maryland
corporation ("OAO"), and William R. Hill ("Hill," and together with OAO, the
"Shareholders"). The Company and the Shareholders are referred to herein
collectively as the "Selling Parties." Certain other terms are used herein as
defined below in Section 1 or elsewhere in this Agreement.
Background
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This Agreement sets forth the terms and conditions under which OAOT will
purchase from the Shareholders and the Shareholders will sell to OAOT all of the
outstanding shares of capital stock of the Company (the "Securities"). OAO owns
85% and Hill owns 15%, respectively, of the outstanding Securities (the
"Proportionate Interests"). The amount of Securities owned by each Shareholder
is set forth in Exhibit "A" hereto.
Witnesseth
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NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Administrative Services Agreement" means the agreement for certain
services between OAO and OAOT, to be entered into contemporaneously herewith, in
the form of Exhibit "B."
"Affiliates" means, with respect to a particular party, Persons
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party, and any
immediate family members and Affiliates of any of the foregoing. For the
purposes of the foregoing, ownership, directly or indirectly, of 20% or more of
the voting stock or other equity interest shall be deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Schedules hereto.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent Financial Statements,
that are owned or possessed by the Company.
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"Balance Sheet" is defined in Section 4.5.
"Balance Sheet Adjustments" is defined in Section 2.3(b).
"Balance Sheet Date" is defined in Section 4.5.
"Barker" means Cecile deLisle Barker.
"Benefit Plan" means: (i) as to employees employed in the US, any (y)
"employee benefit plan" as defined in Section 3(3) of ERISA, and (z)
supplemental retirement, bonus, deferred compensation, severance, incentive
plan, program or arrangement or other employee fringe benefit plan, program or
arrangement; and (ii) as to employees employed outside the US, all employee
benefit, health, welfare, supplemental unemployment benefit, bonus, pension,
profit sharing, deferred compensation, stock compensation, stock purchase,
retirement, hospitalization insurance, medical, dental, legal, disability and
similar plans or arrangements or practices.
"Books and Records" is defined in Section 4.22.
"Cash Purchase Price" is defined in Section 2.2.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, certificate of formation, operating agreement, joint
venture agreement or similar document governing the entity.
"Claim Notice" is defined in Section 9.3(a).
"Closing" is defined in Section 3.1.
"Closing Balance Sheet" is defined in Section 2.3(b).
"Closing Date" is defined in Section 3.1.
"Closing Time" is defined in Section 2.3(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Company" is defined above in the preamble.
"Confidential Information" means any confidential information or trade
secrets of the Company, including personnel information, know-how and other
technical information, customer lists, customer information, supplier
information, marketing plans and proposals and financial information.
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"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment that is binding on any Person or its property under
applicable Law.
"Copyrights" means any registered copyrights, copyright applications and
unregistered copyrights.
"Corporate Selling Party" is defined in Section 4.1.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable Law.
"Damages" is defined in Section 9.1.
"Default" means (i) a breach, default or violation, (ii) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Earn-Out Payments" is defined in Section 2.8(a).
"Employee" means any individual who is employed by the Company.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.15(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" is defined in Section 9.4.
"Financial Statements" is defined in Section 4.5.
"GAAP" means generally accepted accounting principles of the US.
"Governmental Permits" means any governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous, liquid or
solid material or waste that may or could pose a hazard to the environment or
human health or safety including (i) any
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"hazardous substances," as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq., (ii) any
"extremely hazardous substance," "hazardous chemical," or "toxic chemical," as
those terms are defined by the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. ss.ss. 11001 et seq., (iii) any "hazardous waste," as defined
under the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., (iv) any "pollutant," as defined
under the Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., as any of
such Laws in clauses (i) through (iv) may be amended from time to time, and (v)
any regulated substance or waste under any Laws or Court Orders that currently
exist or that may be enacted, promulgated or issued in the future by any
federal, state, local or foreign governmental authorities concerning protection
of the environment.
"Hill" is defined above in the preamble.
"Hill Deficiency" is defined in Section 2.4(b).
"Hill Liability" is defined in Section 2.5(a).
"Hill Price Reduction" is defined in Section 2.3(d).
"IBM Consents" means the consent of IBM pursuant to the IBM Contracts to
the change of control of the Company as contemplated by the Transactions.
"IBM Contracts" means, collectively, (i) the National Technical
Subcontracting Agreement NTS-6001 between International Business Machines
Corporation ("IBM") and the Company entered into in December 1997, (ii) the IBM
Global Services Service Agreement (Number STL010) and Statement of Work for
Client Service Support at ComEd between IBM and the Company dated April 21,
1997, (iii) the Customer Service Center Subcontracting Agreement 100 between IBM
and the Company dated August 1, 1997, and (iv) the Agreement for Consulting
Services (Year 2000) between IBM and the Company.
"Indemnified Buyer Party" is defined in Section 9.1.
"Indemnified Party" is defined in Section 9.3(a).
"Indemnified Seller Party" is defined in Section 9.2.
"Indemnitor" is defined in Section 9.3(a).
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, logos, trade names, Software Products (including
any related source or object codes therefor or documentation relating thereto),
trade secrets, franchises, know-how, inventions, methods, techniques and other
intellectual property.
"Inventory" means any inventory, including raw materials, supplies, work in
process and finished goods.
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"Knowledge of any Selling Party" or "Selling Parties' knowledge" means the
knowledge of any Selling Party or of Barker or any other director, officer or
other employee of any Selling Party.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidated Claim Notice" is defined in Section 9.3(a).
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Company,
including the Assets, financial condition, results of operations, liquidity,
products, competitive position, customers and customer relations thereof.
"Non-Real Estate Leases" is defined in Section 4.9.
"OAO" is defined above in the preamble.
"OAO Certificate" is defined in Section 2.3(c).
"OAO Deficiency" is defined in Section 2.4(a).
"OAO Loan Repayment Amount" is defined in Section 2.2.
"OAO Price Reduction" is defined in Section 2.3(d).
"OAOT" is defined above in the preamble.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Patents" means any patents, patent applications, reissue patents, patents
of addition, divisions, renewals, continuations, continuations-in-part,
substitutions, additions and extensions of any of the foregoing.
"Permitted Encumbrances" is defined in Section 4.6.
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"Person" means any natural person, corporation, partnership,
proprietorship, association, joint venture, trust or estate, or other legal
entity.
"Prime Rate" means the prime lending rate as published in The Wall Street
Journal from time to time as the base rate on corporate loans by at least a
certain portion of the largest banks in the US.
"Proportionate Interests" is defined above in the Background section.
"Purchase Price" is defined in Section 2.2.
"Purchase Price Adjustment" is defined in Section 2.3(d).
"Real Estate Leases" is defined in Section 4.7.
"Real Property" is defined in Section 4.7.
"Required Consents" is defined in Section 4.3.
"Sanwa Consent" means, collectively, (i) the consent of Sanwa Business
Credit Corporation ("Sanwa") under that certain Consent and Amendment No. 1 to
the Amended and Restated Financing Agreement dated as of the date hereof among
Sanwa, OAO, the Company, Secon, Inc. and OAOT (the "Consent and Amendment to
Sanwa Loan Agreement") to this Agreement and the Transactions, (ii) the
amendment of the Amended and Restated Financing Agreement dated June 22, 1998
among Sanwa, OAO, the Company and Secon, Inc. (the "Sanwa Loan Agreement") to
terminate all obligations of the Company thereunder, remove the Company as a
party thereto and delete all references to the Company therein, and (iii) the
release by Sanwa of any and all security interests, liens and encumbrances
against the Securities and any and all Assets of the Company (including without
limitation, accounts receivable), including the execution of any and all UCC-3
instruments in connection therewith (and any other release instruments that OAOT
may reasonably request).
"Sanwa Debt" means the amount required to be paid to Sanwa pursuant to
Section 3.b of the Consent and Amendment to Sanwa Loan Agreement.
"Securities" is defined above in the Background section.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Parties" is defined above in the preamble.
"Shareholders" is defined above in the preamble.
"Software Products" is defined in Section 4.18(b).
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"Taxes" means any taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment).
"Trademarks" means any registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Administrative Services
Agreement and the Consent and Amendment to Sanwa Loan Agreement.
"Transactions" means the purchase and sale of the Securities and the other
transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 9.3(a).
"US" means the United States of America.
2. Purchase and Sale of Securities and Related Matters.
2.1 Purchase of Securities. Subject to the terms and conditions of this
Agreement, at the Closing, OAOT shall buy from each Shareholder, and each
Shareholder shall sell, transfer, convey, assign and deliver to OAOT, free and
clear of all Encumbrances, such Shareholder's Securities. At the Closing, the
Shareholders shall deliver to OAOT certificates and agreements evidencing the
Securities owned by the Shareholders duly endorsed for transfer.
2.2 Purchase Price. The total purchase price (the "Purchase Price") for the
Securities equals the sum of (a) the amount of the Sanwa Debt paid by OAOT to
Sanwa contemporaneously herewith in accordance with Section 2.6, (b) $2,305,000
in cash, as reduced by the Purchase Price Adjustment pursuant to Section 2.3(d)
(the "Cash Purchase Price"), subject, in the case of Hill, to any reduction in
accordance with Section 2.5(a) for the Hill Liability, and (c) the Earn-Out
Payments determined in accordance with Section 2.8(a), if any, subject, in the
case of Hill, to any reduction in accordance with Section 2.5(a) for the Hill
Liability. At the Closing, OAOT shall (I) pay to Sanwa from OAO's Proportionate
Interest of the Cash Purchase Price the amount of $1,100,000 by wire transfer of
immediately available funds in partial repayment of outstanding borrowings of
OAO under the Sanwa Loan Agreement (which amount is referred to herein as the
"OAO Loan Repayment Amount") and (II) retain the balance of the Cash Purchase
Price of $1,205,000 (the "Cash Purchase Price Balance") until the delivery of
the OAO Certificate and the allocation of the Cash Purchase Price Balance and
disbursement, if any, described in Section 2.4.
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2.3 Effective Time of Closing of Company Books; Closing Balance Sheet; Etc.
(a) Closing Time. The effective time of the purchase and sale of the
Securities and the transfer of the business of the Company to OAOT hereunder,
including the closing of the Books and Records, shall be deemed to have occurred
at 12:00 a.m., July 1, 1998 (the "Closing Time"), and, subject to the proviso
hereto, for all purposes hereunder and for any other purpose, OAOT shall be
deemed to have acquired the Securities as of 12:00 a.m., July 1, 1998; provided,
that, for purposes of the representations and warranties of the Selling Parties
under Section 4, such representations and warranties shall be deemed to speak
through and as of the date of this Agreement (or as of such other date specified
therein).
(b) Closing Balance Sheet. Immediately following the Closing and in no
event later than 30 days thereafter, OAO shall have prepared a closing balance
sheet of the Company (the "Closing Balance Sheet") as of the Closing Time which
shall provide for, include and effect the following adjustments (collectively,
the "Balance Sheet Adjustments"):
(i) the repayment of all intercompany receivables due from OAO to the
Company as of the Closing Time (approximately $2,000,000 as of June 30,
1998);
(ii) the contribution by OAO of an amount of cash to the Company
necessary to bring the Net Equity of the Company, after the completion of
the Balance Sheet Adjustments required by clauses (i) and (iii) of this
Section 2.3(b), to zero as of the Closing Time (approximately $100,000 as
of June 30, 1998). As used herein, "Net Equity" means the excess of total
Assets acquired over the total Liabilities assumed by OAOT through the
consummation of the Transactions as determined in accordance with GAAP; and
(iii) the recording on the Closing Balance Sheet of adequate reserves
to cover the Liabilities of the Company for Taxes as of the Closing Time,
including deferred Taxes.
(c) Audit and Certification. Deloitte & Touche LLP ("Deloitte"),
independent public accountants for OAOT, shall audit the Closing Balance Sheet,
including, in the course of the audit, the verification by Deloitte of the
Balance Sheet Adjustments, and shall deliver the audited Closing Balance Sheet
to the parties within 45 days of the Closing. OAOT shall be responsible for the
costs of such audit. The audited Closing Balance Sheet shall be accompanied by a
certificate of the chief executive officer and chief financial officer of OAO
(the "OAO Certificate") certifying the accuracy of the Closing Balance Sheet and
that the Balance Sheet Adjustments have been completed. Such certifications set
forth in the OAO Certificate shall constitute additional representations and
warranties of the Shareholders under Section 4.5 of this Agreement.
(d) Purchase Price Adjustment. The Cash Purchase Price (and the Purchase
Price) shall be adjusted and reduced by the aggregate amount of the Balance
Sheet Adjustments set forth in clauses (i) and (ii) of Section 2.3(b) (the
"Purchase Price Adjustment") and specified in the OAO Certificate. OAO's
Proportionate Interest of the Purchase Price Adjustment is referred to herein as
the "OAO Price Reduction" and Hill's Proportionate Interest of the Purchase
Price Adjustment is referred to herein as the "Hill Price Reduction."
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2.4 Payment of Cash Purchase Price Balance. Upon the delivery of the
audited Closing Balance Sheet and the OAO Certificate, OAOT shall allocate and
disburse, if applicable, the Cash Purchase Price Balance as follows:
(a) to OAO, the amount equal to $859,250 (which is the amount of OAO's
Proportionate Interest of the Cash Purchase Price before the OAO Price
Reduction less the OAO Loan Repayment Amount) less the OAO Price Reduction
(as used herein, the "OAO Balance" shall be the amount determined in
accordance with the foregoing provision or zero, whichever is greater);
provided, that if $859,250 less the OAO Price Reduction is less than zero,
the amount less than zero (the "OAO Deficiency") shall be repaid by OAO to
OAOT as provided in Section 2.5(b);
(b) to Hill, the amount equal to $345,750 (which is the amount of
Hill's Proportionate Interest of the Cash Purchase Price before the Hill
Price Reduction) less the Hill Price Reduction, which amount shall be
further reduced by the amount of the then outstanding Hill Liability (the
"Hill Liability Reduction") (as used herein, the "Hill Balance" shall be
the amount determined in accordance with the foregoing provision or zero,
whichever is greater); provided, that if $345,750 less the Hill Price
Reduction is less than zero, the amount less than zero (the "Hill
Deficiency") shall be added to the amount of the remaining Hill Liability
as provided in Section 2.5(a); and provided, further, that the amount of
the Hill Liability Reduction, if any, shall be applied by OAOT to decrease
the Hill Liability; and
(c) to OAOT, the amount equal to the Cash Purchase Price Balance less
the OAO Balance and the Hill Balance.
2.5 Hill Liability and Repayment of OAO Deficiency.
(a) Hill Liability. As used in this Agreement, the "Hill Liability" means
the aggregate amount of (a) any and all amounts due and payable (including
accrued interest) under that certain promissory note dated May 12, 1998 issued
by Hill to OAOT plus (b) any and all amounts advanced by OAOT to Hill for travel
expenses and not repaid by Hill. Until such time as the Hill Liability has been
reduced to zero, including with respect to any increase in the amount of the
Hill Liability for the Hill Deficiency described in Section 2.4(b), any and all
amounts payable to Hill under Section 2.2, including any and all amounts payable
by OAOT to Hill under Section 2.8 with respect to Earn-Out Payments, shall first
be applied by OAOT to reduce the Hill Liability (and no amount shall be payable
to Hill under Section 2.2 with respect to such applied funds), and at such time
that the balance of the Hill Liability shall have been reduced to zero, OAOT
shall pay to Hill, subject to the terms and conditions of this Agreement, any
additional amounts payable to Hill under Section 2.2.
(b) Repayment of OAO Deficiency. OAO shall repay the OAO Deficiency to OAOT
within 5 days of receipt by OAOT of the OAO Certificate.
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2.6 Pay-Off of Sanwa Debt. At the Closing, contemporaneously with the
receipt by the Company and OAO of the Sanwa Consent, OAOT shall pay to Sanwa the
Sanwa Debt by wire transfer of immediately available funds.
2.7 Selling Parties' Representative.
(a) Each Selling Party, by signing this Agreement, designates OAO to be its
or his representative for certain purposes under this Agreement where
specifically indicated herein (the "Sellers' Representative"). For such
specified purposes, the Selling Parties shall be bound by any and all actions
taken by the Sellers' Representative on their behalf, except where the actions
require the payment of monies by or to a Selling Party.
(b) OAOT shall be entitled to rely upon any communication, notice or
writing given or executed by the Sellers' Representative with respect to any
matters not involving payments to the Shareholders in accordance with Section
2.8 or the payments by the Shareholders of monies, including without limitation,
Damages in accordance with Section 9. All communications or writings to be sent
to the Selling Parties pursuant to this Agreement may be addressed to the
Sellers' Representative and any communication or writing so sent shall be deemed
notice to all of the Selling Parties hereunder.
2.8 Earn-Out Payments.
(a) Subject to the terms and conditions of this Agreement, OAOT shall make
additional cash payments to the Shareholders (the "Earn-Out Payments") in
amounts equal to ten percent (10%) of OAOT's Pre-Tax Profit (defined below) in
excess, if any, of $2,000,000 (the "Threshold," as adjusted as provided in the
following sentence), for the three years ended December 31, 1999, 2000 and 2001
(collectively, the "Earn-Out Period"); provided, however, that the total of all
Earn-Out Payments payable for the Earn-Out Period shall not exceed an aggregate
of $5,000,000; and provided, further, that no Earn-Out Payment shall be payable
if (i) any Shareholder is then in breach in any material respect of any
representation, warranty, covenant or agreement contained herein or (ii) any
write-down of OAOT's investment in the Company is required in accordance with
Statement of Financial Accounting Standards No. 121. The Threshold shall be
increased in each year of the Earn-Out Period to which the Earn-Out Payment
relates by the ratio obtained by dividing (A) the total shares of common stock
of OAOT ("OAOT Common Stock") issued and outstanding at the end of the year to
which such Earn-Out Payment relates by (B) the total shares of OAOT Common Stock
issued and outstanding as of June 30, 1998; provided that such amount
outstanding as of June 30, 1998 shall be deemed to include (y) all shares, if
any, issued or to be issued in connection with OAOT's proposed acquisition of
Enterprise Technology Group and (z) all shares of OAOT Common Stock issuable
upon the exercise of vested and unexercised stock options outstanding as of June
30, 1998.
(b) As used in this Section 2.8, "Pre-Tax Profit" means income determined
in accordance with GAAP applied on a consistent basis without taking into
account any of the following items: (i) any adjustments for Earn-Out Payments;
(ii) deductions or accruals for any federal, state, local or foreign income
Taxes; (iii) net operating loss carryforwards or carrybacks; (iv) any change in
GAAP
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in comparison to those in effect at the Closing Time; and (v) any items that
would be considered extraordinary items under GAAP; provided, however, that if
the business of OAOT as presently conducted is operated during any portion of
the Earn-Out Period as a division of a corporation or other business entity
other than OAOT, the determination of the Pre-Tax Profit shall include such
adjustments as are deemed appropriate so that the Pre-Tax Profit would be as
close as possible to the Pre-Tax Profit that would have existed if OAOT were
operated as a separate corporation during that portion of the Earn-Out Period at
issue.
(c) Subject to the limitations set forth in paragraph (a) above, on the
90th business day after receipt by OAOT of its audited financial statements for
the year for which the Earn-Out Payment is being made, OAOT shall pay each
Shareholder, subject, in the case of Hill, to any reduction in accordance with
Section 2.5(a) for the Hill Liability, a cash amount equal to such Shareholder's
Proportionate Interest multiplied by such Earn-Out Payment. OAOT shall make any
such payments to the Shareholders in "same day" funds by wire transfer.
(d) In the event that a Shareholder disputes the calculation of any
Earn-Out Payment under paragraph (a) above (each, an "Earn-Out Determination"),
such Shareholder may dispute such Earn-Out Determination in the following
manner. Within 30 days after OAOT pays the Earn-Out Payment in accordance with
paragraph (c) above, the Shareholders jointly shall give OAOT notice of the
disagreement with the Earn-Out Determination (the "Dispute Notice"), and such
notice shall specify in detail the nature of the disagreement. During the 20
days after the day on which the Dispute Notice is given, the Shareholders and
OAOT shall attempt to resolve such dispute. If they fail to reach a written
agreement regarding the dispute, the Shareholders jointly shall refer the matter
to a firm of certified independent accountants (the "Second Firm") that is
different from the firm that audited OAOT's financial statements from which the
Earn-Out Payment at issued was determined (the "First Firm"), and request the
Second Firm to also determine the Pre-Tax Profit and Threshold of OAOT for the
year of the Earn-Out Period at issue (the "Second Earn-Out Determination")
within the 30 days after such 20-day period. OAO shall give OAOT prompt notice
of the results of the Second Earn-Out Determination. During the 20 days after
the day on which OAO gives OAOT notice of the Second Income Determination, the
Shareholders and OAOT shall again attempt to resolve such dispute. If they fail
to reach a written agreement regarding the dispute, the Shareholders and OAOT
shall request the First Firm and the Second Firm together to choose a third firm
of certified independent accountants (the "Third Firm") and request the Third
Firm to also determine the Pre-Tax Profit and Threshold of OAOT for the year of
the Earn-Out Period at issue (the "Third Earn-Out Determination") within the 30
days after the request to do so. OAOT and the Shareholders shall request the
First Firm and the Second Firm each to confer with the Third Firm and to make
available to the Third Firm their respective work papers regarding the Earn-Out
Determination and the Second Earn-Out Determination. The Third Earn-Out
Determination shall be the final and binding Earn-Out Determination for the
purposes of determining whether OAOT shall be obligated to pay the Shareholders
any amount in excess of the Earn-Out Payment made in accordance with paragraph
(c) above. The Shareholders shall pay the fees and expenses of the Second Firm
with respect to the Second Earn-Out Determination in accordance with their
Proportionate Interests. The Shareholders and OAOT shall pay any expenses
relating to the engagement of the Third Firm, allocated between the Shareholders
(in accordance with their Proportionate Interests as a group) and OAOT so that
the Shareholders' share of such costs shall be in the same proportion that the
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aggregate amount of the disputed amounts submitted to such accounting firm that
are unsuccessfully disputed by the Shareholders (as finally determined by such
accounting firm) bears to the total amount of such disputed amounts so submitted
to such accounting firm.
2.9 Post-Closing Repurchase of Certain Receivables. OAO represents that the
Closing Balance Sheet will reflect a reserve for uncollectible accounts
receivable of at least $175,000 (the "A/R Reserve Amount"). OAO shall repurchase
from the Company at their aggregate respective face amounts, less the A/R
Reserve Amount, any accounts receivable on the balance sheet of the Company as
of March 31, 1998 that remain uncollected as of November 1, 1998 (the
"Uncollected Receivables"), it being understood by the parties that any accounts
receivable of the Company arising after March 31, 1998 and prior to the Closing
Time shall be the responsibility of OAOT after the Closing. OAOT shall provide
written notice to OAO of the aggregate amount of the Uncollected Receivables
(which shall include the reduction for the A/R Reserve Amount), if any, by
November 15, 1998 or as promptly thereafter as practicable, and upon receipt of
such notice, OAO shall pay OAOT the amount specified in such notice within 15
days.
2.10 Required Consents. Within 30 days of the Closing Date, the
Shareholders shall have obtained all Required Consents without any modification
that OAOT deems unacceptable, including, without limitation, the assignment of
all Contracts required by the terms thereof (other than the IBM Consents and the
Sanwa Consent, which shall be obtained prior to or contemporaneously with the
entering into of this Agreement).
3. Closing.
3.1 Location, Date. The closing for the Transactions (the "Closing") shall
be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia on the
date hereof (the "Closing Date").
3.2 Deliveries. At the Closing,
(a) the Shareholders shall deliver to OAOT certificates and agreements
evidencing the Securities owned by the Shareholders duly endorsed for
transfer;
(b) OAO and OAOT shall execute and deliver the Administrative Services
Agreement;
(c) OAO, OAOT and the Company shall execute and deliver the Consent
and Amendment to Sanwa Loan Agreement;
(d) OAO shall deliver the IBM Consents;
(e) OAOT shall pay to Sanwa the aggregate amount of the Sanwa Debt and
the OAO Loan Repayment Amount by wire transfer of immediately available
funds; and
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(f) the parties shall also deliver to each other the agreements, legal
opinions and other documents and instruments specified in Sections 7 and 8
and such other items as may be reasonably requested.
4. Representations and Warranties of the Selling Parties.
The Selling Parties hereby jointly and severally represent and warrant to
OAOT as follows:
4.1 Corporate Status. Each Selling Party that is a corporation (each, a
"Corporate Selling Party") is a corporation duly organized, validly existing and
in good standing under the Laws under which it was incorporated and is qualified
to do business as a foreign corporation in any jurisdiction where it is required
to be so qualified, except where the failure so to qualify would not,
individually or in the aggregate, have a Material Adverse Effect. The Charter
Documents and bylaws of the Corporate Selling Parties that have been delivered
to OAOT as of the date hereof are effective under applicable Laws and are
current, correct and complete.
4.2 Authorization. The Company has the requisite power and authority to own
its Assets and carry on its business as presently conducted. Each Corporate
Selling Party has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions
performed or to be performed by it. Such execution, delivery and performance by
each Corporate Selling Party have been duly authorized by all necessary
corporate action. Each Transaction Document executed and delivered by any
Selling Party as of the date hereof has been duly executed and delivered by such
Selling Party and constitutes a valid and binding obligation of such Selling
Party, enforceable against such Selling Party in accordance with its terms.
4.3 Consents and Approvals. Except for any consents specified in Schedule
4.3 (the "Required Consents"), neither the execution and delivery by any Selling
Party of the Transaction Documents to which it is a party, nor the performance
of the Transactions performed or to be performed by any Selling Party, will (a)
require any filing, consent, renegotiation or approval, conflict with,
constitute a Default or cause any payment obligation to arise under (i) any Law
or Court Order to which any Selling Party or its properties or other assets may
be subject, (ii) with respect to any Corporate Selling Party, the Charter
Documents or bylaws of such Corporate Selling Party or (iii) any Contract,
Governmental Permit or other document to which any Selling Party is a party or
by which the properties or other assets of any Selling Party may be subject, or
(b) result in the creation or imposition of any Encumbrance upon the Company or
any of the Assets. The Selling Parties have obtained the IBM Consents.
Contemporaneously with entering into this Agreement, the Selling Parties will
have obtained the Sanwa Consent.
4.4 Capitalization and Stock Ownership. The total authorized capital stock
of the Company consists of 1,000 shares of Common Stock, 500 shares of which are
issued and outstanding on the date hereof immediately prior to the Closing (the
"Existing Shares"). There are no existing options, warrants, calls, commitments
or other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Company. All of the Existing Shares are duly and validly
authorized and
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issued, fully paid and non-assessable. The Shareholders are the sole record and
beneficial owners of all of the issued and outstanding Existing Shares. Each
Shareholder owns of record the number of Existing Shares set forth opposite such
Shareholder's name in Exhibit "A" hereto. The Company complied with all
applicable Laws in connection with the issuance of the Existing Shares, and none
of the Existing Shares was issued in violation of any Contract binding upon the
Company. All of the Securities are freely transferable except as may be limited
by any applicable securities Laws. Upon completion of the Transactions at the
Closing, OAOT shall receive valid title to all of the Securities, free and clear
of all Encumbrances.
4.5 Financial Statements. The Company has delivered to OAOT correct and
complete copies of (a) financial statements of the Company, consisting of
balance sheets as of September 30, 1995, 1996 and 1997 and the related
statements of income, retained earnings and cash flows for the years then ended,
all of which were reviewed by Deloitte & Touche LLP, independent public
accountants ("Deloitte"), and were included in the consolidated financial
statements of OAO for such periods which were audited by Deloitte, and (b)
interim financial statements of the Company, consisting of a balance sheet as of
May 31, 1998 and the related statements of income, retained earnings and cash
flows for the eight-month period then ended. All such financial statements of
the Company are referred to herein collectively as the "Financial Statements."
The Financial Statements are accurate and complete and are consistent in all
material respects with the Books and Records of the Company, and there have not
been any material transactions that have not been recorded in the accounting
records underlying such Financial Statements. The Financial Statements have been
prepared on a consistent basis with, and form in part, the basis on which the
consolidated financial statements of OAO were prepared. The Financial Statements
have been prepared in accordance with GAAP consistently applied, and present
fairly the financial position and Assets and Liabilities of the Company as of
the dates thereof, and the results of its operations and cash flows for the
periods then ended, subject, in the case of unaudited Financial Statements, to
normal recurring year-end adjustments and the absence of notes. The balance
sheet of the Company as of September 30, 1997 that is included in the Financial
Statements is referred to herein as the "Balance Sheet," and the date thereof is
referred to as the "Balance Sheet Date."
4.6 Title to Assets and Related Matters. The Company has good and
marketable title to, valid leasehold interests in or valid licenses to use, all
of its Assets, free from any Encumbrances except those specified in Schedule 4.6
(the "Permitted Encumbrances"). The use of the Assets is not subject to any
Encumbrances (other than Permitted Encumbrances), and such use does not
materially encroach on the property or rights of any Person. All Real Property
and tangible personal property (other than Inventory) of the Company are
suitable for the purposes for which they are used, in good working condition and
repair, reasonable wear and tear excepted, and free from any known defects,
except such minor defects that would not, individually or in the aggregate, have
a Material Adverse Effect. Any Software Product included in the Assets, together
with all know-how and processes used in connection therewith, functions as
intended and is in machine-readable form. The Assets constitute all of the
assets required for the continued operation of the Company as conducted as of
the Balance Sheet Date.
4.7 Real Property. Schedule 4.7 describes all real estate used in the
operation of the Company as well as any other real estate that is in the
possession of or leased by the Company and
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the improvements (including buildings and other structures) located on such real
estate (collectively, the "Real Property"), and lists any leases under which any
such Real Property is possessed (the "Real Estate Leases"). The Company has no
ownership interest in any Real Property. The Company has not previously owned,
leased or otherwise operated any other real estate other than as set forth in
Schedule 4.7. The Company has made available to OAOT correct and complete copies
of the Real Estate Leases, as amended and as currently in effect. Each Real
Estate Lease is valid and in full force and effect and, to the Selling Parties'
knowledge, constitutes the legal, valid and binding obligation of the landlord
thereunder, enforceable in accordance with its terms. Neither OAO nor the
Company is in Default under any Real Estate Lease, all rent and other sums
payable by or to OAO or the Company thereunder are current within applicable
notice and grace periods and no landlord under any Real Property Lease has
asserted a Default on the part of OAO or the Company that would give it the
right to terminate such Real Estate Lease or set off against rent and other sums
payable by OAO or the Company thereunder and, to the Selling Parties' knowledge,
there is no Default under any Real Estate Lease by any other party. Neither OAO
nor the Company has received notice that any landlord intends to cancel,
terminate or refuse to renew any Real Estate Lease or to exercise or decline to
exercise any option or other right thereunder. All improvements to be
constructed by any landlord under any Real Estate Lease have been completed and
the use of the Real Property in the conduct of the business of the Company is a
permitted use under the terms of each Real Estate Lease. All of the Real
Property is usable in the ordinary course of business and conforms in all
material respects with any applicable Laws relating to its construction, use and
operation. The Real Property complies with applicable zoning Laws. OAO, the
Company or the landlord of any Real Property leased or occupied by the Company
has obtained all licenses and rights-of-way from governmental entities or
private parties that are necessary to ensure vehicular and pedestrian ingress
and egress to and from the Real Property.
4.8 Certain Personal Property. Attached as Schedule 4.8 hereto is a
complete fixed asset schedule, describing all items of tangible personal
property that were included in the Balance Sheet. Except as specified in
Schedule 4.8, since the Balance Sheet Date, the Company has not acquired any
items of tangible personal property that have, in each case, a carrying value in
excess of $20,000, or an aggregate carrying value of $100,000. All of such
personal property included in such fixed asset schedule is usable in the
ordinary course of business and conforms in all material respects with any
applicable Laws relating to its construction, use and operation. Except for
those items subject to the Non-Real Estate Leases and as set forth in Schedule
4.8, no Person other than the Company owns any vehicles, equipment or other
tangible assets used by the Company or that are necessary for the operation of
the Company.
4.9 Non-Real Estate Leases. Schedule 4.9 lists all assets and property
(other than Real Property) that have been used in the conduct of the business of
the Company and that are possessed by the Company under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $10,000 (each, an "Immaterial Lease"). Schedule 4.9 also lists the
leases under which such assets and property listed in Schedule 4.9 are
possessed. All of such leases (excluding Immaterial Leases) are referred to
herein as the "Non-Real Estate Leases." Each Non-Real Estate Lease is valid and
in full force and effect and, to the Selling Parties' knowledge, constitutes the
legal, valid and binding obligation of the lessor thereunder, enforceable in
accordance
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with its terms. The Company is not in Default under any Non-Real Estate Lease,
all lease payments and other sums payable by or to the Company thereunder are
current within applicable notice and grace periods and no lessor under any
Non-Real Estate Lease has asserted a Default on the part of the Company that
would give it the right to terminate such Non-Real Estate Lease or set off
against lease payments and other sums payable by the Company thereunder and, to
the Selling Parties' knowledge, there is no Default under any Non-Real Estate
Lease by any other party. The Company has not received notice that any lessor
intends to cancel or terminate any Non-Real Estate Lease or to exercise or
decline to exercise any option or other right thereunder.
4.10 Accounts Receivable. The accounts receivable set forth on the Balance
Sheet or arising since the Balance Sheet Date (a) are valid and genuine, (b)
have arisen only in the ordinary course of business out of bona fide sales and
deliveries of goods or performance of services, (c) are not subject to valid
defenses, set-offs or counterclaims and (d) are collectible in full at the
recorded amounts thereof (without resort to litigation or assignment to a
collection agency) within 90 days after billing, net of any allowance for
doubtful accounts reflected on the Balance Sheet. The allowance for doubtful
accounts reflected on the Balance Sheet has been determined in accordance with
GAAP consistently applied. The Company knows of no facts or circumstances (other
than general economic conditions) that are likely to result in any material
increase in the uncollectibility of such accounts receivable in excess of any
allowance therefor set forth on the Balance Sheet.
4.11 Inventory. The Inventory set forth on the Balance Sheet or acquired
since the Balance Sheet Date consists of items of good, usable and merchantable
quality in all material respects and does not include obsolete or discontinued
items. Such Inventory is of such quality as may be required to satisfy
applicable quality control standards of any governmental authority. All finished
goods included in such Inventory are saleable as current inventories at the
current price thereof in the ordinary course of business. Such Inventory is
recorded in the Financial Statements at the lower of cost or market value
determined in accordance with GAAP, and no write-down of such Inventory has been
made or should have been made pursuant to GAAP during the past two years.
4.12 Liabilities. The Company does not have any Liabilities, and none of
the Assets is subject to any Liabilities, except (a) as specifically disclosed
on the Balance Sheet and not heretofore paid or discharged, (b) Liabilities
incurred in the ordinary course since the Balance Sheet Date that, individually
or in the aggregate, are not material and (c) Liabilities under any Contracts
that are specifically disclosed in the Schedules hereto (or not required to be
disclosed because of the term or amount involved) that were not required under
GAAP to have been specifically disclosed or reserved for on the Balance Sheet.
4.13 Taxes and Tax Returns. All federal, state, local and foreign tax
returns, reports, statements and other similar filings required to be filed with
respect to any federal, state, local or foreign Taxes of the Company (the "Tax
Returns") have been timely filed with the appropriate governmental authorities
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns properly reflect the Liabilities of the Company for Taxes for
the periods, property or events covered thereby. All Taxes, including, without
limitation, those which are called for by the Tax Returns, or heretofore or
hereafter claimed to be due by any taxing authority from the Company, have been
properly accrued or paid. The accruals for Taxes contained in the Balance
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Sheet are adequate to cover the Liabilities of the Company for Taxes as of the
Balance Sheet Date and include adequate provision for all deferred Taxes and
nothing has occurred subsequent to the Balance Sheet Date to make any of such
accruals inadequate, and the accruals for Taxes to be contained in the Closing
Balance Sheet will be adequate to cover the Liabilities of the Company for Taxes
as of the Closing Time and will include adequate provision for all deferred
Taxes. The Company has not received any notice of assessment or proposed
assessment in connection with any Tax Returns and there are no pending tax
examinations of or tax claims asserted against the Company or any of the Assets.
The Company has not extended, or waived the application of, any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Taxes. There are no tax liens on any of the Assets. The Company has no knowledge
of any basis for any additional assessment of any Taxes. The Company has made
all deposits required by Law to be made with respect to employees' withholding
and other employment Taxes, including, without limitation, the portion of such
deposits relating to Taxes imposed upon the Company. The Company has not taken
any action that would have the effect of deferring any Liabilities of the
Company for Taxes from a pre-Closing period to any period commencing on or after
the Closing Time.
4.14 Subsidiaries. The Company does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, business, trust, joint venture or other legal entity.
4.15 Legal Proceedings and Compliance with Law.
(a) Except as set forth in Schedule 4.15(a), there is no Litigation in any
court or before any governmental entity or arbitrator that is pending or, to any
Selling Party's knowledge, threatened against or related to the Company or any
of the Assets or which seeks to enjoin or obtain damages in respect of the
consummation of the Transactions. There has been no Default under any Laws
applicable to the Company, including Environmental Laws (defined below), except
for any Defaults that would not, individually or in the aggregate, have a
Material Adverse Effect, and the Company has not received any notices from any
governmental entity regarding any alleged Defaults under any Laws. The Company
is not a party to, and none of the Assets is subject to, the provisions of any
judgment, order, writ, injunction, decree or award of any governmental authority
or any arbitrator, nor is there any Court Order that might affect the
Transactions. There has been no Default with respect to any Court Order
applicable the Company or the Assets. Neither the Company nor any director,
officer, employee or agent of, or any consultant to, the Company has unlawfully
offered, paid or agreed to pay, directly or indirectly, any money or anything of
value to or for the benefit of any individual who is or was an official or
employee or candidate for office of the government of any country or any
political subdivision, agency or instrumentality thereof or any employee or
agent of any customers or suppliers of the Company.
(b) Without limiting the generality of Section 4.15(a), there has not been
and there does not exist any Environmental Condition (defined below) at or
relating to (i) any premises at which the operations of the Company have been
conducted, (ii) any property owned, leased, occupied or operated at any time by
the Company, by any Person controlled by any Affiliate of the Company or by any
predecessor of any of the foregoing or (iii) any property at which wastes or
Hazardous Substances have been deposited or disposed of by, from or at the
behest or direction of any of the
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foregoing, nor has any Selling Party received written notice of any such
Environmental Condition. "Environmental Condition" means any condition or
circumstance, including the presence of Hazardous Substances, whether created by
the Company or any third party, at or relating to any such property or premises
that (A) requires or could require assessment, investigation, abatement,
correction, removal or remediation under any Environmental Law, (B) gives or
could give rise to any civil or criminal Liability under any Environmental Law
or (C) constitutes or could create a public or private nuisance. "Environmental
Law" means all Laws and Court Orders relating to pollution or protection of the
environment as well as any principles of common law under which a party may be
held liable for the release or discharge of any materials into the environment.
(c) The Company has delivered to OAOT correct and complete copies of any
written environmental reports, studies or assessments in the possession or
control of any Selling Party that relate to the Company, the Assets or any
Environmental Condition.
(d) Except in those cases where the failure would not, individually or in
the aggregate, have a Material Adverse Effect, (i) the Company has obtained and
is in full compliance with all Governmental Permits, all of which are listed in
Schedule 4.15(d) along with their respective expiration dates, that are required
for the operation of the Company as currently operated, (ii) all of the
Governmental Permits are currently valid and in full force and (iii) the Company
has filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. To the Selling Parties' knowledge, no
revocation, cancellation or withdrawal thereof has been threatened. Any
Governmental Permits that cannot be transferred in connection with the
consummation of the Transactions are identified in Schedule 4.15(d).
4.16 Contracts.
(a) Schedule 4.16 lists all Contracts of the following types to which the
Company is a party, or by which it or any of its Assets is bound, as of the date
hereof, except for any Contract that is terminable by the Company on not more
than 30 days' notice without any Liability and any Contract under which the
executory obligation of the Company involves an amount of less than $10,000
(such excepted Contracts are referred to collectively as "Minor Contracts"):
(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of the Company or any Affiliate
thereof;
(ii) Contracts for the future purchase of, or payment for, supplies or
products, or for the lease of any property from or the performance of
services by a third party, in excess of $25,000 in any individual case or
of a duration of more than 12 months, or any Contracts for the sale of
products that involve an amount in excess of $25,000 with respect to any
one supplier or other party;
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(iii) Contracts to sell or supply products or to perform services that
involve an amount in excess of $25,000 in any individual case or of a
duration or more than 12 months;
(iv) Contracts to lease to or to operate for any other party any asset
that involve an amount in excess of $25,000 in any individual case;
(v) Contracts limiting or restraining the Company or any successor or
assign from engaging or competing in any lines of business with any Person;
(vi) Contracts with any customers providing for volume refunds,
retrospective price adjustments, price guarantees or rebate programs;
(vii) any notes, mortgages, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit agreements, surety
agreements, reimbursement agreements, loan agreements or other Contracts
for the borrowing or lending of money (including loans to or from present
or former officers, directors, partners, shareholders or Affiliates of the
Company or any members of their immediate families), agreements or
arrangements for a line of credit or for a guarantee of, or other
undertaking in connection with, the indebtedness of any other Person;
(viii) Contracts under which any Encumbrances exist with respect to
any Assets;
(ix) license, franchise, distributorship, sales agency or other
agreements, including those which relate in whole or in part to any
Intellectual Property, Software Products or technical assistance;
(x) Contracts for any capital expenditures or leasehold improvements
that involve an amount in excess of $10,000 in any individual case; and
(xi) any other Contracts (other than Minor Contracts and those
described in any of (i) through (x) above) not made in the ordinary course
of business.
(b) Correct and complete copies of the Contracts listed in Schedule 4.16
have been delivered to OAOT prior to the date hereof and each such Contract is a
valid and binding obligation and is in full force and effect. The Contracts
listed in Schedule 4.16 and the Contracts of the Company excluded from Schedule
4.16 based on the term or amount thereof are referred to herein as the "Company
Contracts." The Company is not in Default under any Company Contract (including
any Real Estate Leases and Non-Real Estate Leases), which Default could result
in a Liability on the part of the Company in excess of $25,000 in any individual
case, and the aggregate
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Liabilities that could result from all such Defaults do not exceed $50,000. No
Selling Party has received any communication from, or given any communication
to, any other party indicating that the Company is in Default under any Company
Contract where such Default could have, individually or in the aggregate, a
Material Adverse Effect. To the knowledge of any Selling Party, none of the
other parties to any such Company Contract is in Default thereunder.
4.17 Insurance. Schedule 4.17 lists all policies or binders of insurance
held by or on behalf of the Company or relating to any of the Assets, specifying
with respect to each policy the insurer, the amount of the coverage, the type of
insurance, the risks insured, the expiration date, the policy number and any
pending claims thereunder. There is no Default with respect to any such policy
or binder, nor has there been any failure to give any notice or present any
claim under any such policy or binder in a timely fashion or in the manner or
detail required by the policy or binder, except for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect.
There is no notice of nonrenewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by the Company, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
4.18 Intellectual Property and Software Products.
(a) The Company does not currently use nor has it previously used in the
operation of its business (including in the development, production or marketing
of its products and services) any Copyrights, Patents or Trademarks except for
those listed in Schedule 4.18. The Company owns or has the lawful right to use
all Intellectual Property that has been used in the operation of its business in
the ordinary course or otherwise. All of the Intellectual Property listed in
Schedule 4.18 is owned by the Company, free and clear of all Encumbrances, or
used pursuant to an agreement that is described in Schedule 4.18. The Company
does not infringe upon or unlawfully or wrongfully used any Intellectual
Property rights owned or claimed by any other Person. The Company is not in
Default and has not received any notice of any claim of infringement or any
other claim or proceeding with respect to any such Intellectual Property. Except
for any rights under written licenses or other written Contracts, no current or
former employee of the Company and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the
Intellectual Property.
(b) Schedule 4.18 contains a complete list of all of the computer software
products sold, licensed, distributed, marketed, used or under development by, or
licensed to or under development for, the Company (the "Software Products").
Each of the Software Products performs substantially in accordance with the
specifications, documentation and other written material used in connection with
the sale, license, distribution, marketing or use thereof and is free of errors
and defects in programming and operation except such defects as would not
materially and adversely affect the use of the respective Software Products for
their intended purposes.
(c) Except as specified in Schedule 4.18, all right, title and interest in
and to the Software Products is owned by the Company, free and clear of all
Encumbrances, and any of such Software Products that is not owned is available
for use pursuant to an agreement that is described in Schedule 4.18. No
government funding was utilized in the development of any of the Software
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Products. The sale, license, distribution, marketing or use of the Software
Products by the Company does not violate any rights of any other Person, and the
Company has not received any communication alleging such a violation. Except as
specified in Schedule 4.18, the Company does not have any obligation to
compensate any Person for the sale, license, distribution, marketing or use of
the Software Products. Other than as set forth in Schedule 4.18, the Company has
not granted to any other Person any license, option or other right in or to any
of the Software Products, except for non-exclusive, royalty-bearing, end-user
licenses granted by the Company pursuant to license agreements, copies of any of
which have been provided to OAOT (the "End-User Licenses").
(d) The Company does not have any obligation owing to any Person to
maintain, modify, improve or upgrade any of the Software Products, except for
any such obligation set forth in an End-User License or under a
customer-specific services agreement and such other obligations as would not,
individually or in the aggregate, have a Material Adverse Effect.
(e) All officers of the Company and all employees and consultants of the
Company who are involved in the design, review, evaluation or development of
Intellectual Property have executed a nondisclosure and assignment of inventions
agreement (a "Confidentiality Agreement") sufficient to protect the
confidentiality and value of such items and to vest in the Company exclusive
ownership thereof. To any Selling Party's knowledge, (i) none of the
Confidential Information has been used, divulged or appropriated for the benefit
of any Person other than the Company or otherwise to the detriment of the
Company, (ii) except as specified in Schedule 4.18, no employee or consultant of
the Company is subject to any contractual or legal restrictions that might
interfere with the use of his or her best efforts to promote the interests of
the Company, (iii) no employee or consultant of the Company has used any other
Person's trade secrets or other information that is confidential in the course
of his or her work for the Company and (iv) no employee or consultant of the
Company is, or is currently expected to be, in Default under any term of any
employment contract, agreement or arrangement relating to the Intellectual
Property, or any Confidentiality Agreement or any other Contract or any
restrictive covenant relating to the Intellectual Property, or the development
or exploitation thereof.
4.19 Year 2000 Compliance.
(a) Definitions. The following terms, as used in this Section 4.19, have
the following meanings:
"Facilities" means any facilities or equipment used by the Company in any
location, including heating, ventilating and air conditioning systems,
mechanical systems, elevators, security systems, fire suppression systems,
telecommunications systems, fax machines, copy machines and equipment, whether
or not owned by the Company.
"Internal MIS Systems" means any Software and computer systems (including
hardware, firmware, operating system software, utilities and applications
software) used in the ordinary course of the business by or on behalf of the
Company, including the Company's payroll, accounting, billing/receivables,
inventory, asset tracking, customer service, human resources and e-mail systems.
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"Products" means any products offered or furnished by the Company, or any
predecessor in interest of the Company, currently or at any time in the past,
including, without limitation, the Software Products; each item of hardware,
Software or firmware; any system, equipment or products consisting of or
containing one or more thereof; and any and all enhancements, upgrades,
customizations, modifications and maintenance thereto.
"Services" means any services offered or furnished by the Company in the
conduct of its business, or by any predecessor in interest of the Company,
currently or at any time in the past.
"Software" means any computer software of any nature whatsoever, including
all systems software, all applications software, whether for general business
usage (e.g., accounting, finance, word processing, graphics, spreadsheet
analysis, etc.) or specific, unique-to-the-business usage (e.g., purchase or
service order processing, etc.) and all computer operating, security or
programming software, that is owned by or licensed to the Company or used, or
has been developed or designed for or is in the process of being developed or
designed for use, directly or indirectly, in the conduct of the business of the
Company, and any and all documentation and object and source codes related
thereto.
"Year 2000 Compliant" means that (i) the Products, Services or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (ii) neither the performance nor the functionality of the
Company's Products, Services and other item(s) at issue will be affected by any
dates/times prior to, on, after or spanning January 1, 2000. The design of the
Products, Services and other item(s) at issue to ensure compliance with the
representations and warranties contained in this Section 4.19 includes proper
date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after and spanning January 1, 2000, and date/time
data interface values that reflect the century, 1999 and 2000. In particular,
but without limitation, (A) no value for current date/time will cause any error,
interruption or decreased performance in or for such Products, Services and
other item(s), (B) all manipulations of date and time related data (including
calculating, comparing, sequencing, processing and outputting) will produce
correct results for all valid dates and times when used independently or in
combination with other Products, Services and/or items, (C) date/time elements
in interfaces and data storage will specify the century to eliminate date
ambiguity without human intervention, including leap year calculations, (D)
where any date/time element is represented without a century, the correct
century will be unambiguous for all manipulations involving that element, (E)
authorization codes, passwords and zaps (purge functions) will function normally
and in the same manner during, prior to, on and after January 1, 2000, including
the manner in which they function with respect to expiration dates and CPU
serial numbers, and (F) the Company's provision of Products, Services and other
item(s) will not be interrupted, delayed, decreased or otherwise affected by the
advent of the year 2000.
(b) Products and Services. Without limiting the generality of Section
4.18(b), all of the Company's Products and Services are Year 2000 Compliant. If
the Company is obligated to repair
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or replace Products or Services previously provided by the Company that are not
Year 2000 Compliant in order to meet the Company's contractual obligations,
avoid personal injury or other liability, avoid misrepresentation claims or
satisfy any other obligations or requirements, the Company has repaired or
replaced those Products and Services to make them Year 2000 Compliant. The
Company has furnished OAOT with true, correct and complete copies of any
customer agreements and other materials and correspondence in which the Company
has furnished (or could be deemed to have furnished) assurances as to the
performance and/or functionality of the Company's Products or Services on or
after January 1, 2000.
(c) Internal MIS Systems and Facilities. All of the Company's Internal MIS
Systems and Facilities are Year 2000 Compliant.
(d) Suppliers. To the Selling Parties' knowledge, all vendors of products
and services to the Company, and their respective products, services and
operations, are Year 2000 Compliant. To the Selling Parties' knowledge, each
such vendor will continue to furnish its products or services to the Company,
without interruption or material delay, on and after January 1, 2000. The
Company has entered into appropriate agreements with each of its vendors
certifying that all hardware, software or firmware, and any other products and
services furnished by such vendor, including any and all enhancements, upgrades,
customizations, modifications, maintenance and the like, are Year 2000
Compliant. All such vendor agreements include appropriate indemnification by the
vendor in favor of the Company and the Company's successors if that vendor or
its products, services or operations fail to be Year 2000 Compliant or if the
products, services or operations fail to conform to or meet the terms of the
vendor warranties, representations or other contractual terms.
(e) Year 2000 Compliance Investigations and Reports. The Company has
furnished OAOT with a true, correct and complete copy of any internal
investigations, memoranda, budget plans, forecasts or reports concerning the
Year 2000 Compliance of the products, services, operations, systems, supplies
and facilities of the Company and the Company's vendors.
4.20 Employee Relations. The Company is not a party to or currently
negotiating any collective bargaining agreement. The Company has not experienced
any labor strike, work slowdown or work stoppage during the last three years
nor, to the Selling Parties' knowledge, is any strike, slowdown or stoppage
threatened. Except as set forth in Schedule 4.20, there are no discrimination
complaints nor any other kind of employment or labor related disputes or unfair
labor practice charges or complaints against the Company pending before or, to
the Selling Parties' knowledge, threatened before any federal, state, local or
foreign court or agency, and no dispute respecting minimum wage or overtime
claims or other conditions or terms of employment exists. The Company has no
Liabilities with respect to any independent contractors who perform or have
performed services for the Company under any Benefit Plans or other benefit
arrangement of any kind whatsoever or under any Laws applicable to the Company,
including any Liabilities under any labor, employment or tax Laws or imposed by
common law. The Company has delivered to OAOT a correct and complete list of the
names, dates of hire, present positions and salaries, bonus and other cash
compensation of all employees (including officers) of the Company whose total
cash compensation for the year ended September 30, 1997 exceeded, or whose total
compensation for the year ending September 30, 1998 is expected to exceed,
$50,000.
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4.21 Employee Benefits.
(a) Schedule 4.21 contains a current, correct and complete list of all
Benefit Plans sponsored or maintained by the Company or any Affiliate of the
Company or under which the Company may be obligated with respect to any
Employees or former employees of the Company or beneficiaries of any of the
foregoing. The Company has delivered to OAOT correct and complete (i) copies of
all such Benefit Plan documents and all other material documents relating
thereto, including (if applicable) all summary plan descriptions, summary annual
reports and insurance contracts, (ii) detailed summaries of all such unwritten
Benefit Plans, (iii) copies of the most recent financial statements and
actuarial reports with respect to all such Benefit Plans for which financial
statements or actuarial reports are required or have been prepared and (iv)
copies of all annual reports for all such Benefit Plans (for which annual
reports are required) prepared within the last three years. Each such Benefit
Plan providing benefits that are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of the Benefit Plan in
Schedule 4.21. The Company does not have any Liability with respect to any
employee benefit plan or arrangement other than with respect to the Benefit
Plans listed in Schedule 4.21.
(b) All such Benefit Plans conform (and at all times have conformed) in all
material respects to, and are being administered and operated (and have at all
time been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all such Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any such Benefit
Plans, that could subject the Company to any material penalty or Tax imposed
under the Code or ERISA.
(c) Any such Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified or an application
for such determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any application
that is pending, the Company has no reason to suspect that such application for
determination will be denied. Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely such qualification
or exemption, or result in the imposition of excise Taxes or income Taxes on
unrelated business income under the Code or ERISA with respect to any such
Benefit Plan.
(d) The Company does not sponsor or contribute to, and has not in the past
sponsored, contributed to or had an obligation to contribute to, and has no
Liability with respect to, any defined benefit plan subject to Title IV of ERISA
or any multiemployer plan (as defined in Section 3(37) of ERISA), nor does it
have a current or contingent obligation to contribute to any multiemployer plan
(as defined in Section 3(37) of ERISA). For purposes of this Section 4.21(d),
the term "Company" shall include any corporation that is a member of any
controlled group of corporations (as defined in Section 414(b) of the Code) that
includes the Company, any trade or business (whether or not incorporated) that
is under common control (as defined in Section 414(c) of the Code) with the
Company, any organization (whether or not incorporated) that is a member of an
affiliated service
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group (as defined in Section 414(m) of the Code) that includes the Company and
any other entity required to be aggregated with the Company pursuant to the
regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of any Selling Party,
threatened claims by or on behalf of any such Benefit Plans, or by or on behalf
of any individual participants or beneficiaries of any such Benefit Plans,
alleging any breach of fiduciary duty on the part of the Company or any of its
officers, directors or employees under ERISA or any other applicable Law, or
claiming benefit payments other than those made in the ordinary operation of
such plans, nor is there, to the knowledge of any Selling Party, any basis for
such claim. Such Benefit Plans are not the subject of any pending or, to the
knowledge of any Selling Party, threatened investigation, audit or action by the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC").
(f) The Company or OAO, if applicable, has timely made all required
contributions under such Benefit Plans including any matching contributions
under a 401(k) plan for the benefit of the Employees and the payment of any
premiums payable to the PBGC and other insurance premiums. There have been no
accumulated funding deficiencies (as defined in Section 412 of the Code or
Section 302 of ERISA) with respect to any such Benefit Plan and no request for a
waiver from the Internal Revenue Service with respect to any minimum funding
requirement under Section 412 of the Code. The Company has not incurred any
Liability for any Tax, excise Tax, penalty or fee with respect to any such
Benefit Plan, and no event has occurred and no circumstance exists or has
existed that could give rise to any such Liability. The execution of and
performance of the Transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) result in
any payment, acceleration, vesting or increase in benefits with respect to any
current or former employee of the Company that would be an "excess parachute
payment" under Section 280G of the Code.
(g) With respect to any such Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed by the Company as
deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
a Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a Tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied and been administered in accordance with all of the applicable
material requirements of Section 4980B of the Code, ERISA, Title XXII of the
Public Health Service Act, the Social Security Act and other applicable Laws and
(iv) all Welfare Plans may be amended or terminated at any time on or after the
Closing Date. No Benefit Plan provides any health, life or other welfare
coverage to Employees of the Company or former employees of the Company beyond
termination of their employment with the Company, by reason of retirement or
otherwise, other than coverage as may be required under Section 4980B of the
Code or Part 6 of ERISA, or under the continuation of coverage provisions of the
Laws of any state or locality.
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4.22 Corporate Records and Books of Account. The minute books of the
Company contain complete, correct and current copies of its Charter Documents
and bylaws and of all minutes of meetings, resolutions and other proceedings of
its Board of Directors and shareholders. The stock record book of the Company is
complete, correct and current. All books of account and other financial records
of the Company (the "Books and Records") are complete and correct and accurately
and fairly reflect, in reasonable detail, the transactions and the Assets and
Liabilities of the Company. All of the Books and Records have been prepared and
maintained in accordance with good business practices and, where applicable, in
conformity with GAAP (except as otherwise stated therein) and in compliance in
all material respects with applicable Laws.
4.23 Absence of Certain Changes. Since the Balance Sheet Date, the Company
has conducted its business in the ordinary course and there has not been:
(a) any Material Adverse Effect;
(b) any damage, destruction or loss, whether covered by insurance or
not, materially or adversely affecting the Assets or the operations,
prospects or condition (financial or otherwise) of the Company;
(c) any actual or threatened trouble or disruption of the Company's
relations with its agents, customers or suppliers;
(d) any Liability or Encumbrance incurred, other than Liabilities or
Encumbrances incurred in the ordinary course of business, or any
Encumbrance discharged or satisfied, or any failure to pay or discharge
when due any Liability of which the failure to pay or discharge has caused
or will cause any material damage or risk of material loss to the Company;
(e) any change or amendment to the Company's Charter Documents or
bylaws;
(f) any amendment or termination of any material Contract to which the
Company is or has been a party or by or to which it is or was bound or
entitled other than in the ordinary course of business;
(g) any transfer or grant of any rights to any Intellectual Property
or Software Products owned by or licensed to the Company other than in the
ordinary course of business;
(h) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(i) any sale, issuance or acquisition of equity or other securities of
the Company or any grant of options, warrants, calls or commitments of any
kind with respect thereto;
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(j) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for
non-officer employees made in the ordinary course of business, nor any
other change in any employment or consulting arrangement;
(k) any sale, assignment or transfer of Assets or any agreements
entered into with respect to the foregoing, or any additions to or
transactions involving any Assets, other than those made in the ordinary
course of business;
(l) any waiver or release of any claim or right or cancellation of any
substantial debt or claim other than in the ordinary course of business, or
any waiver of any rights of substantial value whether or not in the
ordinary course of business;
(m) any payments to any Affiliate of the Company other than as set
forth in Schedule 4.28;
(n) any commitment or agreement for capital expenditures or capital
additions or betterments exceeding $25,000 in the aggregate; or
(o) any change in the accounting principles followed by the Company or
the methods of applying such principles.
4.24 Previous Sales; Warranties. All goods sold or distributed and all
services performed by the Company were of merchantable quality, and the Company
has not breached any express or implied warranties in connection with the sale
or distribution of such goods or the performance of services, except for
breaches that would not, individually and in the aggregate, have a Material
Adverse Effect. The Company has provided to OAOT correct and complete copies of
all warranties (a) made by all Persons from whom the Company has obtained any
goods that have been resold or distributed by the Company, including any goods
that constituted parts included in goods sold or distributed by the Company, and
(b) made by the Company with respect to any goods that have been sold or
distributed by the Company or services performed by the Company.
4.25 Customers and Subcontractors. The Company has used commercially
reasonable efforts to maintain and currently maintains, good working
relationships with all of its customers and subcontractors. Schedule 4.25
contains a list of the names of each of the ten customers that, in the
aggregate, for the three years ended September 30, 1995, 1996 and 1997, were the
largest dollar volume customers of products or services, or both, sold by the
Company. Except as specified in Schedule 4.25, none of such customers has given
the Company notice terminating, canceling or threatening to terminate or cancel
any Contract or relationship with the Company. Schedule 4.25 also contains a
list of the ten subcontractors of the Company that, in the aggregate, for the
years ended September 30, 1995, 1996 and 1997, were the largest dollar volume
subcontractors used by the Company. None of such subcontractors has given the
Company notice terminating, canceling or threatening to terminate or cancel any
Contract or relationship with the Company. The Company is not aware that any
major customer or subcontractor intends to cease doing business with the
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Company or to alter materially the amount of business done with the Company due
to the consummation of the Transactions or for any other reason.
4.26 Finder's Fees. No Person retained by any Selling Party is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
4.27 Additional Information. Schedule 4.27 contains correct and complete
lists of the following:
(a) the names of all officers and directors of the Company as of
immediately prior to the Closing;
(b) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking,
savings or otherwise), lock box or safe deposit box, and the account
numbers and names of Persons having signing authority or other access
thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of the Company;
(d) the names of all Persons holding powers of attorney from the
Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any business or
which it has otherwise used at any time during the past five years.
4.28 Transactions with Affiliates. Except as set forth in Schedule 4.28,
neither the Company nor any Affiliate of the Company owns or has a controlling
ownership interest in any Person that is a party to any Contract or material
business arrangement or relationship with the Company and no Affiliate of the
Company purchases or provides services or products from or to the Company.
Schedule 4.28 sets forth a summary of all purchases or sales of goods or
services from or to the Company by any Affiliate of the Company for the three
years ended September 30, 1995, 1996 and 1997 and by any such Affiliate since
the Balance Sheet Date. All transactions between the Company and any Affiliate
of the Company described in Schedule 4.28 have been on substantially the same
terms and conditions as similar transactions between non-affiliated parties and
are properly recorded in the Books and Records of the Company.
4.29 No Third Party Options. There are no existing agreements, options,
commitments or rights with, of or to any Person to acquire any of the Assets or
any interest in the Company except for those Contracts entered into in the
ordinary course of business for the sale of Inventory.
4.30 Title to Shares. Except as set forth in Schedule 4.30, each
Shareholder has good and marketable legal and beneficial title to the
Securities, free and clear of all Encumbrances, and there are no restrictions on
such Shareholder's right to transfer the Securities to OAOT pursuant to this
Agreement.
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4.31 Completeness and Accuracy of Information. All information set forth in
any Schedule hereto is correct and complete. No representation or warranty by
any Selling Party in any Transaction Document, and no information contained
therein or otherwise delivered by or on behalf of any Selling Party to OAOT in
connection with the Transactions, including the Financial Statements, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
4.32 Representations. The representations and warranties of the Selling
Parties contained in this Agreement, disregarding all qualifications and
exceptions herein relating to materiality or Material Adverse Effect, are true
and correct with only such exceptions as would not in the aggregate have a
Material Adverse Effect.
5. Representations and Warranties of OAOT.
OAOT hereby represents and warrants to the Selling Parties as follows:
5.1 Corporate Status. OAOT is a corporation duly organized, validly
existing and in good standing under the Laws under which it was incorporated.
5.2 Authorization. OAOT has the requisite power and authority to execute
and deliver the Transaction Documents to which it is a party and to perform the
Transactions performed or to be performed by it, and such execution, delivery
and performance by OAOT have been duly authorized by all necessary corporate
action. Each Transaction Document executed and delivered by OAOT as of the date
hereof has been duly executed and delivered by OAOT and constitutes a valid and
binding obligation of OAOT, enforceable against OAOT in accordance with its
terms.
5.3 Consents and Approvals. Except as set forth in Schedule 5.3, neither
the execution and delivery by OAOT of the Transaction Documents to which it is a
party, nor the performance of the Transactions performed or to be performed by
OAOT, require any filing, consent or approval or constitute a Default under (a)
any Law or Court Order to which OAOT is subject, (b) the Charter Documents or
bylaws of OAOT or (c) any Contract, Governmental Permit or other document to
which OAOT is a party or by which the properties or other assets of OAOT may be
subject.
5.4 Finder's Fees. No Person retained by OAOT is or will be entitled to any
commission or finder's or similar fee in connection with the Transactions.
5.5 Accuracy of Information. No representation or warranty by OAOT in any
Transaction Document, and no information contained therein or otherwise
delivered by or on behalf of OAOT to any Selling Party in connection with the
Transactions, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein or
therein not misleading.
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6. Post-Closing Covenants.
6.1 Covenant Not to Compete. Except with the prior written consent of OAOT,
OAO and, subject to Section 6.3, its Affiliates other than Hill (each a
"Restricted Party") shall not, at any time within the Restricted Period (defined
below), directly or indirectly, engage in, or have any interest on behalf of
itself or others in any Person or business (whether as an employee, officer,
director, agent, security holder, creditor, partner, joint venturer, beneficiary
under a trust, investor, consultant or otherwise) that engages within the
Restricted Territory (defined below) in the provision of time and
materials-based contract staffing augmentation services for the commercial
information technology business segment. In furtherance of the foregoing, no
Restricted Party during the Restricted Period shall contact any of the Employees
for the purpose of hiring or retaining any of such Employees for employment,
consulting or similar purposes. The term "Restricted Period" means the period
beginning on the date hereof and ending on the third anniversary of the Closing
Date. The "Restricted Territory" means the area comprising the entire world. In
the event of Litigation involving this Agreement, if a court of competent
jurisdiction determines that the scope of this Section 6.1 or of Section 6.2 is
too broad in any respect, then the scope shall be deemed to be reduced or
narrowed to such scope as is found lawful and reasonable by such court. OAO
acknowledges, however, that this Section 6.1 has been negotiated by the parties
and that the geographical and time limitations, as well as the limitation on
activities, are reasonable in light of the circumstances pertaining to the
business of the Company.
6.2 Confidential Information. For an indefinite period after the Closing,
no Restricted Party shall divulge, communicate or use in any way, any
Confidential Information of the Company.
6.3 Affiliates and Hill Limitations. The terms of Section 6.1 and 6.2 shall
apply to OAO and any of its Affiliates (except Hill) to the same extent as if
they were parties hereto, and OAO shall take whatever actions may be necessary
to cause any such Affiliate to adhere to the terms of Section 6.1 and 6.2. Hill
shall continue to be subject to the limitations on competition, solicitation and
use of confidential information contained in the Employment Agreement entered
into in April 1996 between Hill and OAOT.
6.4 Injunctive Relief. In the event of any breach or threatened breach by
any Restricted Party of any provision of Section 6.1 or 6.2, OAOT shall be
entitled to injunctive or other equitable relief, restraining such party from
using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of a
Restricted Party under Section 6.1 or 6.2. Such relief shall be in addition to
and not in lieu of any other remedies that may be available, including an action
for the recovery of damages.
6.5 Expenses. Each of the parties hereto shall pay its or his own expenses
for lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions.
6.6 OAO Affiliates. Each Selling Party shall cause any Affiliate of such
Selling Party to comply with the terms and conditions of this Agreement and the
other Transaction Documents to the same extent as if they were parties to this
Agreement and the other Transaction Documents
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to the extent necessary to consummate the Transactions in accordance with the
Transaction Documents.
6.7 338(h)(10) Tax Election and Certain Tax Matters.
(a) OAO agrees, if so requested by OAOT, to join with OAOT in making an
election under Section 338(h)(10) of the Code (and any corresponding elections
under state, local or foreign Tax Law) (collectively, a "Section 338(h)(10)
Election") with respect to the purchase and sale of its Securities hereunder.
OAO shall be responsible for and will pay any Tax, including any Liability of
the Company for Tax resulting from the application to it of Treasury Regulation
ss.1.338(h)(10)- 1(f)(5), attributable to the making of the Section 338(h)(10)
Election and will indemnify and hold harmless each Indemnified Buyer Party from
and against any Damages arising out of any failure to pay such Tax. OAO also
shall be responsible for and will pay any state, local or foreign Tax (and
indemnify and hold harmless each Indemnified Buyer Party from and against any
Damages arising out of any failure to pay such Tax) attributable to an election
under state, local or foreign Tax Law similar to the election available under
Section 338(g) of the Code (or which results from the making of an election
under Section 338(g) of the Code) with respect to the purchase and sale of the
Securities hereunder.
(b) OAOT 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 Time which are filed after the Closing Time other than income tax
returns with respect to periods for which a consolidated, unitary or combined
income tax return of OAO will include the operations of the Company. OAOT will
permit OAO to review and comment on each such tax return described in the
preceding sentence prior to filing. OAO shall be responsible for and shall
reimburse OAOT for Taxes of the Company with respect to such periods within
fifteen 15 days after payment by OAOT of such Taxes to the extent such Taxes are
not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the audited Closing Balance Sheet.
(c) OAOT shall prepare or cause to be prepared and file or cause to be
filed all tax returns of the Company for all periods which begin before the
Closing Time and end after the Closing Time. OAO shall be responsible for and
shall pay to OAOT within 15 days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such taxable period ending on the Closing Time to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the audited Closing Balance
Sheet. For purposes of this Section 6.7, in the case of any Taxes that are
imposed on a periodic basis and are payable for a taxable period that includes
(but does not end on) the Closing Time, the portion of such Tax which relates to
the portion of such taxable period ending on the Closing Time shall (i) in the
case of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period
ending on the Closing Time and the denominator of which is the number of days in
the entire taxable period, and (ii) in the case of any Tax based upon or related
to income or receipts, be deemed equal to the amount which
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would be payable if the relevant taxable period ended on the Closing Time. Any
credits relating to a taxable period that begins before and ends after the
Closing Time shall be taken into account as though the relevant taxable period
ended on the Closing Time. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(d) OAOT and OAO shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of tax returns
pursuant to this Section 6.7 and with any audit, Litigation or other proceeding
with respect to such Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and information which
are reasonably relevant to any such audit, Litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. OAOT and OAO
agree (i) to retain all books and records with respect to Tax matters pertinent
to the Company relating to any taxable period beginning before the Closing Time
until the expiration of the statute of limitations (and, to the extent notified
by the other party, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, OAOT or OAO, as the case may be, shall allow the other
party to take possession of such books and records.
(e) OAOT and OAO further agree, upon request, to use their best efforts to
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed, including, without limitation, with respect to the
Transactions contemplated hereby.
(f) OAOT and OAO further agree, upon request, to provide the other party
with all information that a party may be required to report pursuant to Section
6043 of the Code and all Treasury Regulations promulgated thereunder.
6.8 Employee Benefits. OAO agrees to maintain (and make contributions
thereunder, if applicable) all Benefits Plans under which it is currently
obligated with respect to any Employees or former employees of the Company and
beneficiaries thereof (the "Company Participants"), for the benefit of such
Company Participants, subject to the terms relating thereto contained in the
Administrative Services Agreement, until the earlier of (a) December 31, 1998 or
(b) the date or dates specified in a written notice or notices to OAO from OAOT
with respect to the discontinuance by OAO of the maintenance of any or all of
such Benefits Plans for the benefit of the Company Participants, none of which
dates shall be later than December 31, 1998. In the event that OAOT shall not
have provided the notice described in the preceding sentence on or before
October 1, 1998 with respect to each such Benefit Plan, by no later than October
1, 1998, OAOT shall provide written notice to OAO of the anticipated
discontinuance date of each Benefit Plan maintained by OAO for the Company
Participants, none of which dates shall be later than December 31, 1998, and, if
applicable, the proposed method of transferring participation by the Company
Participants in the Benefits Plans to employee benefit plans maintained or
established by OAOT or the Company.
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6.9 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with the Transactions shall be paid by the
Shareholders when due, and the Shareholders will, at their own expense, file all
necessary tax returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees.
7. Conditions Precedent to Obligations of OAOT.
All obligations of OAOT to consummate the Transactions are subject to the
satisfaction (or waiver in writing by OAOT) prior thereto of each of the
following conditions:
7.1 Board Approval. The Board of Directors of OAOT shall have approved this
Agreement, the other Transaction Documents and the Transactions contemplated
hereby and thereby.
7.2 Amendment to Option Cancellation Agreement. Prior to or concurrently
herewith, the Option Cancellation Agreement (the "Option Cancellation
Agreement") dated as of July 11, 1997 among Safeguard Scientifics (Delaware),
Inc. ("Safeguard"), OAOT, the Company, OAO, Hill and Barker shall have been
amended by the parties thereto to provide that Safeguard and OAOT waive their
right to payments from OAO as provided in Section 3 of the Option Cancellation
Agreement.
7.3 Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing and, after the Closing, the Company shall not be bound thereby or
have any Liability thereunder.
7.4 Administrative Services Agreement. OAO shall have tendered an executed
copy of the Administrative Services Agreement.
7.5 Certificate. A duly authorized officer of each Corporate Selling Party
and Hill shall have tendered a certificate by which such Selling Parties certify
to OAOT that the conditions set forth in this Section 7 have been satisfied, and
such certificate shall be deemed to be a representation of the Selling Parties
hereunder.
7.6 Legal Opinion. OAO shall have tendered a legal opinion of Williams &
Connolly, counsel to OAO, in the form of that agreed to as of the date hereof.
7.7 Sanwa Consent. Sanwa shall have tendered an executed copy of the
Consent and Amendment to Sanwa Loan Agreement.
8. Conditions Precedent to Obligations of the Selling Parties.
All obligations of the Selling Parties to consummate the Transactions are
subject to the satisfaction (or waiver by each Selling Party to which the
condition relates) prior thereto of each of the following conditions, but any
particular condition that requires action by any Selling Party shall not
constitute a condition to the obligations of such Selling Party:
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8.1 Administrative Services Agreement. OAOT shall have tendered an executed
copy of the Administrative Services Agreement.
8.2 Certificate. OAOT shall have tendered a certificate by which it
certifies to the Selling Parties that the conditions set forth in this Section 8
have been satisfied, and such certificate shall be deemed to be a representation
of OAOT hereunder.
8.3 Legal Opinion. OAOT shall have tendered a legal opinion of its general
counsel, in the form of that agreed to as of the date hereof.
9. Indemnification.
9.1 By the Shareholders. From and after the Closing Date, to the extent
provided in this Section 9, the Shareholders, jointly and severally subject to
the limitations set forth below, shall indemnify and hold harmless OAOT, its
successors and assigns, and its officers, directors, employees, shareholders,
agents, Affiliates and any Person who controls OAOT within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Buyer Party") from and
against any liabilities, claims, demands, judgments, losses, costs, damages or
expenses whatsoever (including reasonable attorneys', consultants' and other
professional fees and disbursements of every kind, nature and description
incurred by such Indemnified Buyer Party in connection therewith) (collectively,
"Damages") that such Indemnified Buyer Party may sustain, suffer or incur and
that result from, arise out of or relate to (a) any breach of any representation
or warranty of any Selling Party contained in this Agreement, or (b) any breach
of any covenant or agreement (including certain covenants and agreements set
forth as conditions in Section 7 hereof) of any Selling Party contained in this
Agreement; provided, however, that in no event shall Hill be liable for more
than his Proportionate Interest in any Damages paid to an Indemnified Buyer
Party pursuant to this Section 9.1.
9.2 By OAOT. From and after the Closing Date, to the extent provided in
this Section 9, OAOT shall indemnify and hold harmless any Selling Party, its
successors and assigns, and, if applicable, its officers, directors, employees,
shareholders, agents, Affiliates and any Person who controls any Selling Party
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Seller Party") from and against any Damages that such Indemnified
Seller Party may sustain, suffer or incur and that result from, arise out of or
relate to (a) any breach of any representation or warranty of OAOT contained in
this Agreement, or (b) any breach of any covenant or agreement of OAOT contained
in this Agreement.
9.3 Procedure for Claims.
(a) An Indemnified Buyer Party or an Indemnified Seller Party that desires
to seek indemnification under any part of this Section 9 (each, an "Indemnified
Party") shall give notice (a "Claim Notice") to each party responsible or
alleged to be responsible for indemnification hereunder (an "Indemnitor") prior
to any applicable Expiration Date specified below. Such notice shall briefly
explain the nature of the claim and the parties known to be involved, and shall
specify the amount thereof. If the matter to which a claim relates shall not
have been resolved as of the date of the
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Claim Notice, the Indemnified Party shall estimate the amount of the claim in
the Claim Notice, but also specify therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim
Notice for an Unliquidated Claim, the Indemnified Party shall also give a second
Claim Notice (the "Liquidated Claim Notice") within 60 days after the matter
giving rise to the claim becomes finally resolved, and the Liquidated Claim
Notice shall specify the amount of the claim. Each Indemnitor to which a Claim
Notice is given shall respond to any Indemnified Party that has given a Claim
Notice (a "Claim Response") within 20 days (the "Response Period") after the
later of (i) the date that the Claim Notice is given or (ii) if a Claim Notice
is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be
given in accordance with the notice requirements hereunder, and any Claim
Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified Party
hereunder, such Indemnitor shall pay to such Indemnified Party within 30 days
after the last day of the Claim Response Period the amount to which such
Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 9, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor, but any dispute shall be resolved in accordance
with Section 15 to the extent that it may be applicable. If any Indemnitor fails
to pay all or part of any indemnification obligation when due, then such
Indemnitor Party shall also be obligated to pay to the applicable Indemnified
Party interest on the unpaid amount for each day during which the obligation
remains unpaid at an annual rate equal to the Prime Rate, and the Prime Rate in
effect on the first business day of each calendar quarter shall apply to the
amount of the unpaid obligation during such calendar quarter.
(c) Notwithstanding any other provision of this Section 9, the aggregate of
all Damages payable by the Shareholders under this Section 9 shall not exceed
the Purchase Price (as defined in Section 2.2), and an Indemnified Party shall
be entitled to indemnification hereunder only when the aggregate of all Damages
to such Indemnified Party exceeds $50,000 (the "Deductible Amount") and then
such Indemnified Party shall be entitled to indemnification for its Damages in
excess of the Deductible Amount. The limitations of this paragraph (c), however,
shall not apply to any covenants or agreements to be performed by an Indemnitor
prior to or after the Closing. In addition, the calculation of the Deductible
Amount shall include any Damages incurred by an Indemnified Party for which the
Indemnified Party would have been entitled to claim indemnification under this
Section 9 with respect to a breach of representation or warranty but for such
representation or warranty being qualified by materiality, the knowledge of a
particular party or related exceptions.
9.4 Claims Period. Any claim for indemnification under this Section 9 shall
be made by giving a Claim Notice under Section 9.3 on or before the applicable
"Expiration Date" specified below in this Section 9.4, or the claim under this
Section 9 shall be invalid. The following claims shall have the following
respective "Expiration Dates": (a) the second anniversary of the Closing
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Date--any claims that are not specified in any of the succeeding clauses; (b)
the date on which the applicable statute of limitations expires--any claim for
Damages related to (i) a breach of any covenant or agreement to be performed at
least in part after the Closing Date, or (ii) a breach of any representations or
warranties of a party to this Agreement that relate to Taxes or that were untrue
when made with an actual intent to mislead or defraud; and (c) the third
anniversary of the Closing Date--any claim for Damages related to a breach of a
representation or warranty with respect to an Environmental Condition. If more
than one of such Expiration Dates applies to a particular claim, the latest of
such Expiration Dates shall be the controlling Expiration Date for such claim.
So long as an Indemnified Party gives a Claim Notice for an Unliquidated Claim
on or before the applicable Expiration Date, such Indemnified Party shall be
entitled to pursue its rights to indemnification regardless of the date on which
such Indemnified Party gives the related Liquidated Claim Notice.
9.5 Third Party Claims. An Indemnified Party that desires to seek
indemnification under any part of this Section 9 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor may,
or if so requested by such Indemnified Party, any Indemnitor shall, participate
in such Action or assume the defense thereof, with counsel satisfactory to such
Indemnified Party; provided, however, that such Indemnified Party shall have the
right to participate at its own expense in the defense of such Action; and
provided, further, that the Indemnitor shall not consent to the entry of any
judgment or enter into any settlement, except with the written consent of such
Indemnified Party (which consent shall not be unreasonably withheld). Any
failure to give prompt notice under this Section 9.5 shall not bar an
Indemnified Party's right to claim indemnification under this Section 9, except
to the extent that an Indemnitor shall have been harmed by such failure.
9.6 Investigations. All covenants, agreements, representations and
warranties made herein or in any agreement, instrument or certificate delivered
pursuant to this Agreement shall not be deemed to be waived or otherwise
affected by any investigation at any time made by or on behalf of any party
hereto.
10. Public Announcements.
The Selling Parties and OAOT will consult with each other before issuing
any press release or making any public statement with respect to this Agreement
and the Transactions and, except as may be required by applicable Law or any
stock exchange regulations, the Selling Parties and OAOT will not issue any such
press release or make any such public statement without the consent of the other
parties hereto.
11. Contents of Agreement.
This Agreement, together with the other Transaction Documents, sets forth
the entire understanding of the parties hereto with respect to the Transactions
and supersedes all prior agreements or understandings among the parties
regarding those matters.
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12. Amendment, Parties in Interest, Assignment, Etc.
This Agreement may be amended, modified or supplemented only by a written
instrument duly executed by each of the parties hereto. If any provision of this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder without the prior
written consent of the other parties hereto. Any term or provision of this
Agreement may be waived at any time by the party entitled to the benefit thereof
by a written instrument duly executed by such party. The parties hereto shall
execute and deliver any and all documents and take any and all other actions
that may be deemed reasonably necessary by their respective counsel to complete
the Transactions.
13. Interpretation.
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to any gender include all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder" or "herein" relate to this
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
14. Remedies.
The indemnification rights under Section 9 are independent of and in
addition to such rights and remedies as the parties may have at law or in equity
or otherwise for any misrepresentation, breach of warranty or failure to fulfill
any agreement or covenant hereunder on the part of any party hereto, including
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished by Section 9. The parties
shall seek relief, however, under Section 15 for any dispute that is a claim for
Damages, to the extent that Section 15 may apply to such dispute.
15. Dispute Resolution.
(a) Good-Faith Negotiations. If after the Closing any dispute arises under
this Agreement with respect to a claim for Damages that is not settled promptly
in the ordinary course of business, the parties shall seek to resolve any such
dispute between them, first, by negotiating promptly with each other in good
faith in face-to-face negotiations. These face-to-face negotiations shall be
conducted by the respective designated senior management representative of each
party.
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If the parties are unable to resolve such dispute between them within 20
business days (or such period as the parties shall otherwise agree) through
these face-to-face negotiations, then any such dispute shall be resolved in the
manner set forth in this Section 15.
(b) Resolution of Disputes.
(i) Any action, suit or proceeding based on a claim for Damages where
the amount in controversy as to at least one party, exclusive of interest
and costs, exceeds $1,000,000 ("Summary Proceeding"), arising out of or
relating to any Transaction Document or the breach, termination or validity
thereof, shall be litigated exclusively in the Superior Court of the State
of Delaware (the "Delaware Superior Court") as a summary proceeding
pursuant to Rules 124-131 of the Delaware Superior Court, or any successor
rules (the "Summary Proceeding Rules"). Each of the parties hereto hereby
irrevocably and unconditionally (A) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (B) agrees not to
commence any Summary Proceeding except in the Delaware Superior Court, (C)
waives, and agrees not to plead or to make, any objection to the venue of
any Summary Proceeding in the Delaware Superior Court, (D) waives, and
agrees not to plead or to make, any claim that any Summary Proceeding
brought in the Delaware Superior Court has been brought in an improper or
otherwise inconvenient forum, (E) waives, and agrees not to plead or to
make, any claim that the Delaware Superior Court lacks personal
jurisdiction over it, (F) waives its right to remove any Summary Proceeding
to the Federal courts except where such courts are vested with sole and
exclusive jurisdiction by statute and (G) understands and agrees that it
shall not seek a jury trial or punitive damages in any Summary Proceeding
based upon or arising out of or otherwise related to any Transaction
Document or the breach, termination or validity thereof, and waives any and
all rights to any such jury trial or to seek punitive damages.
(ii) If any action, suit or proceeding based on a claim for Damages
where the amount in controversy as to at least one party, exclusive of
interest and costs, does not exceed $1,000,000 ("Proceeding"), arising out
of or relating to any Transaction Document or the breach, termination or
validity thereof is brought, the parties to such Proceeding agree to make
application to the Delaware Superior Court to proceed under the Summary
Proceeding Rules. Until such time as such application is rejected, such
Proceeding shall be treated as a Summary Proceeding and all of the
foregoing provisions of this Section 15 relating to Summary Proceedings
shall apply to such Proceeding.
(iii) If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration
conducted on a confidential basis, under the US Arbitration Act, if
applicable, and the then current Commercial Arbitration Rules of the
American Arbitration Association (the "Association") strictly in accordance
with the terms of this Agreement and the substantive law of the State of
Delaware. The arbitration shall be conducted at the Association's regional
office located in the Washington, D.C. area by three arbitrators, at least
one of whom shall be knowledgeable in the computer and outsourcing services
industry, one of whom shall be an attorney and one of whom shall be a
member of a "Big Six" accounting firm familiar with businesses engaged in
software design, programming and implementation. Judgment upon the
arbitrators' award may be entered and enforced in any court of competent
jurisdiction.
38
<PAGE>
Neither party shall institute a proceeding hereunder unless at least 60
days prior thereto such party shall have given written notice to the other
party of its intent to do so.
(c) No party shall be precluded hereby from securing equitable remedies in
courts of any jurisdiction, including temporary restraining orders and
preliminary injunctions to protect its or his rights and interests, but no party
shall seek any such equitable remedies as a means to avoid or stay arbitration
or any Summary Proceeding.
16. Notices.
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other party
hereto:
If to OAOT:
OAO Technology Solutions, Inc.
7500 Greenway Center Drive
Greenbelt, MD 20770-3502
FAX: 301-486-0415
Attention: Chief Executive Officer
with required copies to:
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-293-0601
Attention: General Counsel
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Thomas J. Sharbaugh
39
<PAGE>
If to any Selling Party:
OAO Corporation
7500 Greenway Center Drive
Greenbelt, MD 20770-3502
FAX: 301-345-0952
Attention: Cecile Barker
with a required copy to:
Williams & Connolly
725 Twelfth Street, N.W.
Washington, DC 20005
Attention: Lewis H. Ferguson III
FAX: 202-434-5029
If to Hill:
Zuckerman, Spaeder, Goldstein, Taylor & Kolker, L.L.P.
1201 Connecticut Avenue, N.W.
12th Floor
Washington, DC 20036-2638
Attention: Mark Foster
FAX: 202-822-8106
17. Governing Law.
This Agreement shall be construed and interpreted in accordance with the
Laws of the State of Delaware without regard to its provisions concerning
conflict of laws.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
40
<PAGE>
18. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be binding as of the date first written above, and all of which shall
constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
OAO TECHNOLOGY SOLUTIONS, INC.
By: /s/ Gregory A. Pratt
------------------------------------
Name: Gregory A. Pratt
Title: Chief Executive Officer
OAO SERVICES, INC.
By: /s/ Hubert M. Reid
------------------------------------
Name: Hubert M. Reid
Title: Secretary and Treasurer
OAO CORPORATION
By: /s/ Hubert M. Reid
------------------------------------
Name: Hubert M. Reid
Title: Senior Vice President
By: /s/ William R. Hill
------------------------------------
William R. Hill
41
<PAGE>
EXHIBIT A
---------
OUTSTANDING SECURITIES OF OAO SERVICES, INC.
RECORD OWNER COMMON STOCK (SHARES)
- ------------ ---------------------
OAO Corporation 425
William R. Hill 75
---
Total 500
<PAGE>
EXHIBIT B
---------
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT is made as of July 24, 1998 by and
between OAO Corporation, a Maryland corporation ("OAO"), and OAO Technology
Solutions, Inc., a Delaware corporation ("OAOT").
W I T N E S S E T H:
WHEREAS, OAOT, OAO, William R. Hill (together with OAO, the "Shareholders")
and OAO Services, Inc. (the "Company") have entered into a Stock Purchase
Agreement dated as of the date hereof (the "Stock Purchase Agreement") pursuant
to which OAOT is purchasing all of the outstanding capital stock of the Company
from the Shareholders (the "Stock Purchase");
WHEREAS, prior to the Stock Purchase, OAO, as the Company's parent company,
performed certain administrative support services for the Company and provided
Benefit Plans (as defined in the Stock Purchase Agreement) for the participation
by certain employees and former employees of the Company and beneficiaries
thereof (the "Company Participants");
WHEREAS, OAOT desires to retain OAO to provide certain administrative
support services with respect to the transition of the business of the Company
to OAOT from OAO;
WHEREAS, OAOT desires OAO to continue to maintain for such transition
period the Benefits Plans for the participation of the Company Participants; and
WHEREAS, OAOT and OAO have agreed to enter into this Agreement to reflect
the parties' respective rights and obligations.
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Services. OAO agrees to continue to provide to the Company during the
Term (as defined in Section 4) the administrative support services specified in
Schedule A hereto (the "Services").
2. Benefits Continuation. OAO agrees to continue to maintain and make all
applicable contributions under all Benefit Plans for the participation of the
Company Participants during the Term (the "Benefits Continuation").
3. Fees and Costs. In consideration of the Services to be rendered by OAO
under this Agreement, OAOT shall pay to OAO a monthly fee of $100,000 (the
"Services Fee"); provided, that for any monthly period that is less than a full
month, such Services Fee shall be prorated for that portion of the month for
which the Services are provided. In consideration of the Benefits
<PAGE>
Continuation to be provided by OAO under this Agreement and subject to the
proviso hereto, OAOT shall pay to OAO the costs during the Term (the "Benefits
Costs") of such Employee Benefits, including without limitation, applicable
contributions; provided, however, that OAOT will pay directly for the provision
of any Benefits Continuation that is verifiable and billed directly from a
benefits provider or third party other than OAO (the "Separately Billed
Benefits"). OAO shall provide any invoices for Separately Billed Benefits to
OAOT for payment and shall submit an invoice to OAOT for Services Fees and
Benefits Costs (other than the Separately Billed Benefits) on a monthly basis,
the full amount of which shall be due and payable within ten days of the date of
receipt.
4. Term. This Agreement shall be effective as of the date hereof and shall
extend through and include (the "Term") the earlier to occur of (a) the date
upon which OAOT determines in its sole discretion that it no longer requires
such Services and/or Benefits Continuation from OAO and so notifies OAO in
writing, or (b) December 31, 1998.
5. Services Level. OAO shall provide the same level of Services as is
consistent in scope and quality with OAO's past practices regarding such
services for the Company, which level is intended by the parties to include, at
a minimum, the assistance of Pamela Conley, the Assistant Controller of OAO, and
the closing of the books of the Company within the same monthly and quarterly
time frames as those used for the closing of the books of OAOT.
6. Administrative Liaisons. The person who shall act as the administrative
liaison for OAO shall be Edward Worrell, Senior Vice President. The persons who
shall act as the administrative liaisons for OAOT shall be Dawn Byrne,
Controller, with respect to the Services and Christine Hazel, Vice President of
Human Resources/Administration, with respect to the Benefits Continuation. The
parties shall communicate through such representatives with respect to
applicable administrative matters arising under this Agreement. In the event
that an administrative liaison for a party changes, such party shall notify the
other party in accordance with the notice provisions set forth in Section 8(d).
7. Relationship of Parties. For purposes of this Agreement and all Services
to be provided hereunder, OAO shall not be considered a partner, co-venturer,
agent or representative of the Company or OAOT, but rather shall remain in all
respects an independent contractor providing services to the Company and OAOT.
OAO shall not have any right or authority to make or undertake any promise,
warranty, or representation, to execute any contract, or otherwise to assume any
obligation or responsibility in the name of or on behalf of the Company or OAOT,
except to the extent specifically authorized herein or in writing by OAOT.
8. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be amended or
modified except by the written agreement of the parties hereto.
-2-
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer on any other person other than the
parties hereto, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(c) This Agreement and any rights or obligations pursuant hereto shall not
be assignable by either party without the prior written consent of the other
party.
(d) All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to OAOT:
OAO Technology Solutions, Inc.
7500 Greenway Center Drive
Greenbelt, MD 20770-3502
FAX: 301-345-0750
Attention: Chief Executive Officer
with a required copy to:
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-293-0601
Attention: General Counsel
If to OAO:
OAO Corporation
7500 Greenway Center Drive
First Floor
Greenbelt, MD 20770-3585
FAX: 301-345-0750
Attention: Cecile Barker
(e) This Agreement shall be governed by the laws of the State of Delaware
without regard to its provisions concerning conflict of laws.
-3-
<PAGE>
(f) This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
OAO CORPORATION
By:
------------------------------------
Name:
Title:
OAO TECHNOLOGY SOLUTIONS, INC.
By:
------------------------------------
Name:
Title:
-4-
<PAGE>
SCHEDULE A
ADMINISTRATIVE SUPPORT SERVICES
Administrative support functions of accounting, human resources, purchasing and
contract administration, including without limitation, the following:
o Accounting services
o Payment of bills and invoices
o Benefits processing
o Payroll processing
o Other administrative services presently performed by
OAO Corporation for OAO Services, Inc.
EXHIBIT 99.1
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Samuel D. Horgan, CFO
Michael H. Savage
Investor Relations Director
(301) 486-2323/[email protected]
OAO TECHNOLOGY SOLUTIONS , INC.
COMPLETES ACQUISITION OF OAO SERVICES, INC.
Greenbelt, MD, July 24, 1998 -- OAO Technology Solutions, Inc. (NASDAQ - OAOT)
(the "Company"), a leading Information Technology (IT) solutions and
professional services company, today announced it has completed its acquisition
of OAO Services, Inc.("Services"). The purchase, a cash transaction, is expected
to be accretive to earnings. Furthermore, a significant portion of the potential
purchase price is contingent on future earnings of the Company. With this
acquisition, proforma 1997 annual sales would have been approximately $140
million, compared with $84 million for the Company alone.
OAO Services, Inc. is a nationwide provider of IT staffing augmentation services
with annual revenues of approximately $60 million, and is dedicated to providing
technically skilled personnel on a contract basis to major technology providers
nationwide. In addition to serving as a National Technical Services (NTS)
supplier to IBM and IBM Global Services, OAO Services also provides national
Customer Support Center (Help Desk) services for IBM Global Services, as well as
serving as a national supplier of Year 2000 (Y2K) personnel sources to IBM.
"With the addition of more than 800 OAO Services IT professionals to our
services offerings, we now have a staff of almost 2,000 highly skilled IT
professionals serving our clients' needs," stated Greg Pratt, OAO Technology
Solutions' CEO. "Additionally," he continued, "This acquisition gives us a
national presence in the rapidly growing IT staffing augmentation environment.
This area is closely aligned with our core outsourcing business, and is expected
to provide us with the opportunity for improved margins and higher sales.
Furthermore, this complementary acquisition will help support our penetration
into existing market segments; will provide expanded in-house capabilities in
executing certain projects; and will strategically benefit the Company in its
on-going diversification strategy."
OAO Technology Solutions provides clients with a wide range of IT solutions and
professional services, including systems and software engineering; the operation
of large-scale megaplexes and networks; distributed systems management;
applications development and maintenance; staffing augmentation services;
enterprise resource planning, integration, implementation and training services;
as well as state-of-the-art software systems for the managed care marketplace.
OAO Technology Solutions is a Safeguard Scientifics, Inc. (NYSE - SFE)
partnership company. Visit us at our Web site, www.oaot.com, for more Company
information and news.
** END **
SAFE HARBOR STATEMENT: This news release contains statements that are
forward-looking statements within the meaning of applicable federal securities
laws and are based upon the Company's current expectations and assumptions that
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated.
